Standex International Corporation (SXI) Q4 2015 Earnings Report, Transcript and Summary

Welcome to Standex International’s Fourth Quarter 2015 Earnings Conference Call. At this time, all participant lines have been placed in a listen-only mode. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to turn the call over to David Reichman from Sharon Merrill to begin. Please go ahead, sir.

Thank you, Maria. Please note that the presentation accompanying management’s remarks can be found on Standex’s Investor Relations website, www.standex.com. Please see Standex’s Safe Harbor passage on Slide 2. Matters that Standex management will discuss on today’s conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex’s recent SEC filings and public announcements for a detailed list of risk factors. In addition, I would like to remind you that today’s discussion will include references to EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, which is EBITDA excluding restructuring expenses and one-time items; non-GAAP net income; non-GAAP income from operations; non-GAAP net income from continuing operations and free operating cash flow. 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 performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Standex’s fourth quarter news release. On the call today is Standex President and Chief Executive Officer, David Dunbar and Chief Financial Officer, Tom DeByle. Please turn to Slide 3 as I turn the call over to David.

Thank you, David and good morning. We reported solid results this quarter, especially given the continued headwinds from foreign exchange and the downturn in the oil and gas markets. For Q4, overall revenues grew 1.2% to $199.8 million with foreign exchange having a negative effect of 3.7%. On the bottom line, non-GAAP operating income was up 8.8% and fourth quarter EPS was $1.31 per share, or up 5.6% from the fourth quarter of 2014. We had a net debt position of $6.9 million at the end of Q4. Food Service was slightly down on the top line in Q4 and our focus on margin rate is paying off as it generated an 11.8% EBIT margin. So, we are seeing a leaner, more profitable Food Service business. All businesses delivered organic margin improvement in the quarter. Engraving, Electronics and Hydraulics saw strong demands during the quarter, while Engineering Technologies continued to be affected by the decline in oil and gas. Slide 4 gives a brief overview of our financial progress and key milestones in the fiscal year 2015. Total sales grew 7.8% from prior year. Organic sales were up 4.8%. Acquisitions contributed 5.3% and foreign exchange had a negative impact of 2.3%. Fiscal 2015 marked the second consecutive record year for non-GAAP EPS, which was $4.56 or up 8.1% year-over-year. And we ended the year with free cash flow per share from continuing operations of $3.41. Fiscal 2015 was a year of important milestones for Standex. We began the transformation of the Food Service equipment business to make it more focused and profitable and we exited the year with a fourth quarter EBIT margin of approximately 12%, in line with our commitment. We also streamlined the refrigeration and cooking solutions groups into single P&Ls, eliminating redundancies and inefficiencies. With the new leadership team, the business is poised to focus on performance. Within the Engineering Technologies, we are in the midst of repositioning the business to have greater exposure in the attractive commercial aviation market. We had several major aviation wins, including the Airbus award that is set to begin production by the end of this calendar year. In fiscal 2016, we will continue to build on the strong foundation we set for the company last year and at its pace is the Standex Value Creation System, a set of standard tools and processes to drive performance in the business into strategically combined operational plans with strategic priorities. As you recall, on last quarter’s conference call, I provided a high level overview of each of the four pillars of the Standex Value Creation System. They are the balanced performance plan process, the growth disciplines, operational excellence and talent management. We are using the elements of the value creation system to drive performance and create value for our shareholders. This is a long-term journey, but we are beginning to reap the rewards from these initiatives and we are excited to execute them this coming year. Finally, I am delighted with the caliber of leaders we have at Standex and changes this year have only strengthened the bench. We recently announced two key additions to our management team, Paul Burns, the Vice President of Strategy and Business Development who will take responsibility for the Standex Growth Disciplines and Ross McGovern, the Vice President of HR with responsibility for talent development. Both of these gentlemen bring great experience and have proven track records of delivering results. We are excited to have them join the Standex team. And with that, I will turn the call over to Tom to discuss our results for the fourth quarter. Tom?

Thank you, David and good morning everyone. Slide 5 shows our historical trend of adjusted earnings per share in sales. For the fiscal year ended June 30, 2015, adjusted earnings per share were $4.56 versus $4.22 in the prior year, an 8.1% increase. Our goal is to increase earnings per share on a compounded annual growth rate between 8% and 12% through the cycle. Sales were $772 million in fiscal ‘15 versus $716 million in the prior year or a 7.8% increase. On the next slide, we show a further breakdown of the components of sales by segment. Please turn to Slide 6. Three of the five segments reported organic growth for the quarter. On the chart, you can see the contributions from acquisition and the currency effect for each segment. Overall, organic growth was slightly down with acquisitions contributing 5.4% versus Q4 last year due to the Enginetics acquisition in Engineering Technologies and the Ultrafryer in Food Service. Currency had a negative effect of 3.7%, which results in an overall growth of 1.2% for the quarter. Our sales targets over the cycle are 2% to 3% organic growth and 3% to 4% acquisition growth. For the fiscal year 2015, organic growth was 4.8%, acquisitions contributed 5.3%, and currency had a negative effect of 2.3% for a total growth for the 12-month period of 7.8%. Please turn to Slide 7 which summarizes our fourth quarter results. Net sales increased 1.2% to $199.8 million from $197.3 million in the fourth quarter of fiscal 2014. Excluding special items, operating income grew 8.8% to $24.3 million from $22.4 million a year ago. Adjusted EBITDA grew 9% to $28.5 million or 14.3% of sales compared with $26.1 million or 13.2% of sales in Q4 last year. Please turn to Slide 8 which is a quarterly bridge that illustrates the impact of special items on net income from continuing operations. For the fourth quarter of fiscal 2015, these items included tax-affected $791,000 of restructuring charges and $361,000 of insurance proceeds. In the comparable period of fiscal 2014, there were $3 million of tax-affected restructuring charges, $234,000 in non-recurring management transition expenses, $43,000 of acquisition-related costs, $1.1 million of insurance proceeds and $139,000 tax benefits. Please turn to Slide 9. A few key points we would like to make on this slide. We have targets that we believe we can achieve over a cycle. Two of them, sales and EPS growth were mentioned on the earlier slides. We also have a target for EBITDA over the next 3 years to 5 years of 15%. For fiscal year ‘15, EBITDA without special items ended at 13%. By utilizing the Standex value creation system, we believe this target is achievable over time. Slide 10 is a full year fiscal 2015 bridge that illustrates the impact of special items on net income from continuing operations. For the fiscal year 2015, these items included $2.5 million of structuring charges, $1.2 million of acquisition related costs, insurance proceeds of $361,000 and $239,000 tax benefit. Turning to Slide 11, net working capital at the end of the fourth quarter of fiscal 2015 was $138 million compared with $119.5 million a year earlier. The increase in working capital is primarily related to the acquisitions of Ultrafryer and Enginetics. Working capital turns were 5.8 compared with 6.6 a year earlier. Slide 12 illustrates our debt management. We ended Q4 in a net debt position of approximately $6.9 million. This compares with the net cash position of $29.2 million a year earlier. We define net debt as funded debt less cash. The year-over-year increase in debt is primarily related to the acquisitions of Ultrafryer and Enginetics. Our balance sheet and leverage ratio of net debt to capital is 1.9%, compares with the net cash to capital of 9.4% a year ago. Slide 13 summarizes our capital spending, depreciation and amortization trends. Capital spending for the year was $22 million or 2.9% of sales. In 2016, we expect our capital spending will be in the range of $26 million to $28 million. Approximately $6 million of the increase relates to our new aviation facility. The remainder of the capital spending will continue to support our growth initiatives, factory automation and normal ongoing maintenance. Slide 14 details our free cash flow performance for the fourth quarter and full year. Our free operating cash flow for the quarter was $39.4 million, an 18.4% increase as compared to Q4 of fiscal 2014. We generated $3.08 of free cash flow per share during the quarter as compared to $2.60 during the same quarter last year. For fiscal 2015, free cash flow was $3.41 versus prior year of $4.16. In fiscal 2015, free cash flow was perfected by increases in working capital associated with higher organic sales volume, inventory build to support increased backlog, facility consolidation as well as working capital spending to support sales growth programs and factory automation. With that, I will turn the call back to David.

Please turn to Slide 16 and I will begin our segment overview with the Food Service Equipment Group. The headline here is the business delivered operating income margin of 11.8%, in line with our commitment. Sales in Food Service decreased 1% from Q4 last year. We saw strength in Cooking Solutions and our display merchandising business, while refrigerated solutions and our specialty pumps business declined. In refrigeration, sales to large national chains declined during the quarter as well sales through dealers. Strength in drug retail and dollar stores slowed a bit, while C-stores and others small retail continued to perform well. Scientific and industrial refrigeration products also performed well in the fourth quarter. Cross-selling between our Food Service businesses continues to be a focus for us and we are seeing the results of those efforts. For example, our Cooking Solutions business pulled through sales into our walk-in refrigeration business. Cooking Solutions sales increased by approximately 19% year-over-year, including the Ultrafryer acquisition. Our Ultrafryer acquisition – integration is on track and its sales performance is exceeding expectations. Excluding the acquisition, Cooking Solutions sales increased and it generated a higher EBIT margin. As we reported in earlier quarters, the transition costs from our Cheyenne closure 1 year ago continued to decline, pricing continues to improve, freight costs and warranty costs are coming down and plant productivity continues to improve. Performance improvement efforts at our Cooking Solutions are now focusing on implementing our Standex OpEx program in our plants and to distribution center performance. We are continuing to hold Kaizen as part of our operational excellence initiative to enhance performance. In fact, I recently participated in a three-day event at our New Albany, Mississippi refrigeration plant. During the quarter, we began the divestiture of the Bevles brand, which is another step in rationalizing our product line. In specialty solutions, strength in display merchandising equipment was offset by slower sales in the pump business. Our priority in Food Service continues to be expanding margins with our structured and leadership team in place they will focus on deploying our operational excellence tool kit to improve performance. In addition, we continue to pursue new business opportunities with our stronger brands. We are transforming this business and achieving our margin target in Q4 2015 was an important milestone in that journey. Turning to Slide 17, Engraving Group sales grew 2.1% from the prior year as auto rollouts remained strong in Europe and China. Organic sales were 13.1% and currency had 11% negative impact. Operating margin was 19.2%. Our Mold-Tech business was outstanding in China as we saw demand from both automotive and non-automotive customers. Sales volume also increased in Europe, which was masked by the negative currency effect. We expect sales in North America to improve during the first half of 2016 as some automotive projects were pushed out from the fourth quarter and other scheduled rollouts occur. Sales generated by architecture, our design hubs in Manchester, England and Detroit were solid. As you recall, these hubs provide auto OEM design teams with rapid prototyping of their future automotive interior textures. They are proving to be differentiating concepts in our business and we are continuing with the global rollout. We continue to expand our Mold-Tech presence worldwide and during Q4, we set up new operations in Sweden and expanded in Spain. In our roll, plate and machinery business, sales increased year-over-year due to a large project win from a major tissue and towel maker. Market conditions continued to be weak in Brazil. North American backlog grew during the quarter as a result of improvements in the construction and consumer markets. And looking forward, we will continue to capitalize on the momentum we have built in the Mold-Tech roll, plate and machinery and the Innovent businesses. And our expectation is that this will continue in the new fiscal year. Currency headwinds will continue to be a factor, especially in the first half of FY ‘16. Also we will continue to implement operational excellence initiatives in roll, plate and machinery and actively marketing design hubs in North America and Asia. Please turn to Slide 18, our Engineering Technologies Group, sales for the quarter were up 13.2% year-over-year or down 13.8% when you exclude the acquisition of Enginetics. Profitability in Engineering Technologies was up 4.2%. The organic sales decline was due to continued weakened sales to the oil and gas market, which also carry high margins. Our legacy business increased margins through cost reduction and operational excellence initiatives. The bar chart shows the dramatic repositioning of this business in progress. The legacy markets of oil and gas and medical have declined significantly in the past year and we forecast continued decline in 2016. At the same time, our increased exposure to commercial aviation is ramping up, moving its mix from 6% to 45% of the segment sales in 2 years. Space remains steady and we continue to pursue new opportunities in that part of the business. We have contracted to begin production on our Airbus award by the end of calendar 2015. To meet the demands of our current contracts and future opportunities, we are expanding capacity with the new Greenfield site in Wisconsin. We are breaking ground in the current first fiscal quarter and we will begin production in Q4. As Tom showed earlier, we will invest $6 million in this capacity in 2016. Moving forward, our focus will be on pursuing and winning new awards in aviation, which we see as a major growth opportunity. We continue to be excited by our Enginetics acquisition, which remains on track in terms of integration and its performance expectations. The Enginetics business is a key focus area of our operational excellence program that I spoke about at the outset of the call. There are significant opportunities to drive further value out of this business. Looking forward, we naturally remain concerned about the slowdown in oil and gas. We expect that this market will be soft for the foreseeable future and we will continue to proactively adjust our cost structure to align with market conditions. At the same time, we are excited about our Enginetics acquisition and aviation business as we continue to invest capital and installed capacity for the ramp-up of long-term aviation awards. Please turn to Slide 19, Electronics. Electronic sales increased organically 5.8%, but including FX, declined 2.4% year-over-year. Sales in Q4 were driven by automotive demand in North America as well as strength in Europe. European volume grew due to shipments of new sensor programs with key customers. We are also seeing an increase in reed switch demand in Asia. Electronics like, Engraving, had a strong quarter in local currency. However, foreign exchange had a significant impact on the results. Operating income was up 7.8% as a result of successful operational improvement and cost reduction programs. We have a mature operational excellence program within electronics that we will continue to leverage. We remain optimistic about Electronics long-term and have a strong backlog going into Q4. As a niche player in the large electronics market, we plan to continue to pursue new applications and adjacencies to drive sales growth and profitability. Our hydraulics group, as you can see on Slide 20, had another terrific quarter. Sales were up 6.1% year-over-year and operating margins increased to 19.7%. We experienced strong demand across our dump truck and dump trailer and refuse markets. Our share of the refuse market continues to grow. Our facility in China is helping to strengthen our global competitive position by enabling us to bundle telescopic cylinders from North America with rod cylinders from China. We are shipping and booking orders at record levels at the China plant leading to continued strength across the business and we are expanding its capacity. Looking ahead, we are focused on capitalizing on strong customer demand in our end markets and leveraging operational excellence and Kaizen events to increase throughput. We are also turning customer program designs around rapidly in our core markets and exploring opportunities for expansion into new markets. Please turn to Slide 21. In summary, we had a very solid finish to the quarter and to the year and we are well-positioned in our markets as we enter fiscal 2016. Margin expanded in all of our businesses. Adjusted EPS grew 5.6% in the fourth quarter and our strong balance sheet positions us well. Looking forward, we will continue to use the elements of our Standex Value Creation System, which is now in place across all segments to grow sales and to improve operating efficiencies. We will continue the transformation of the Food Service equipment business as well as the repositioning of Engineering Technologies. We are executing on our planned investments to support the increased demand across a number of business and markets. The financial performance of our recent acquisitions, Planar, Ultrafryer and Enginetics, shows the success of our acquisition strategy and we have a healthy active pipeline of additional prospects. We are also keeping a close eye on market conditions in Europe and China on commodity prices and currency markets for potential impact on our business. Finally, we would like to invite you to our second Investor Day to be held in our Electronics headquarters in Cincinnati on Thursday, September 17. With that, we would be pleased to take your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Schon Williams of BB&T Capital Markets.

Hi, good morning.

Good morning, Schon.

Hi, Schon.

Hi, congrats on the quarter here. I wonder if we could maybe focus on food equipment segment and primarily on the margin progress there. I just wondered how should we be thinking about some of the opportunities as we move into 2016 for further expansion in the margin on that business?

Yes, I take a slightly longer term view of that. So, Schon, we have communicated that this business has margin potential of over 15%. We think we get there in three to five years. And if you have a lot of confidence in us, our management team, I would model three years and if you want to be conservative, I would model five years to get there.

Okay. Can you just maybe talk about as we think about the 12 months, what are the big pieces that need to kind of fall in line to see some progress on that towards that 15%?

Yes, I would tell you that there is still a tail end of some of the transition cost from Cheyenne, particularly warranty costs. Price concessions are largely worked through, I think a bit of freight and inefficiency in freight. We are focusing our OpEx teams in Food Service, we’re conducting Kaizens and we have done values stream maps in all the facilities and really beginning the work of just steady daily, monthly, quarterly, annual operational improvements in the plants to drive that improvement. I would say that now becomes the primary generator of margin expansion.

Okay, that’s helpful. And then as we look at Engineering Tech going into the next fiscal year, you have got some headwinds on the oil and gas side potentially up being offset by some of the ramp in the aviation segment. How should we be thinking about the margin profile of this business going into next year? I mean, can we – should we be thinking about kind of flattish margins? I mean, is there actually some opportunity to expand margins there? Just help me understand kind of all the puts and takes there.

Well, as we said, the oil and gas was the highest margin of the segments we serve. Aviation is attractive segment, that’s obviously coming online. We have Enginetics as part of the mix now. Let me just first start with the long-term. As we look long-term at Engineering Technologies, we said that 17% we think is a good long-term expectation for operating margins. In this transition year, I would say we will be below that. You see just last quarter we were on 15% and that’s probably a reasonable range for the coming year.

Alright, that’s helpful guys. I will get back in queue.

Thank you, Schon.

Our next question comes from the line of Jack O’Brien of CJS Securities. Jack O’Brien: Good morning. Thanks for taking my questions.

Hello, Jack.

Hi, Jack. Jack O’Brien: Just wanted to focus on Enginetics for a second, obviously, aviation is increasing greatly as a percentage of sales there and it’s been performing kind of as well as you guys had internally modeled. You guys had talked about cross-selling opportunities with that business. I was wondering if you had – if the cross-selling opportunities are as large as you thought they initially were or the progress you guys have made there? Any color on that would be great.

Yes, we recently reorganized that business globally to create a global commercial organization with commercial leaders and they are really digging into that looking for cross-selling within the U.S. in Enginetics’ existing relationships and also in Europe, where we can introduce Enginetics into the European suppliers in the aviation industry. And I would say the opportunities are equal to or greater than what we thought they would be. We are getting much more specific. We have proposals out there. We are in discussions with customers about individual components and continue to be optimistic about those opportunities. Jack O’Brien: Okay, great. That’s helpful. And then shifting to Electronics, you guys have been focusing on climbing the value chain there within sensors – [indiscernible] excuse me, if you guys give some kind of color on how the progress is going on that? That would be helpful.

Yes. Actually, you asked that question, it occurs to me that this quarter we didn’t report as a percent of sales in sensors, which in the last few quarters we have – and it – where were we, 45% I think in the quarter. So, it continues to inch upwards. If you come to our Investor Day, you get a very good view of that how we are investing in application engineers and in engineers to be able to incorporate more technologies into our sensors to move up the value chain. The list of our new business opportunities that, that team is pursuing are very heavily weighted to sensors. So, I think we expect to see that move continue. Jack O’Brien: Okay. And then last question very small but I know to the explosion in Tianjin, I don’t know if you guys ship out of the port there, but I know there have been some issues with the port. I was wondering if that was going to affect you guys at all in this quarter?

Well, first, a gold star for attentiveness that we have a plant in Tianjin. So, we heard about that. So, we all got on the phone immediately. It was very far from our operations. So, there was no damage to plant, personnel or anything. We did have a couple of containers of product that were delayed getting out of the port, but there was no damage to the material. Jack O’Brien: Okay, great. Obviously, I hope everyone over there is okay.

It shouldn’t impact our quarter. Jack O’Brien: Okay. Alright, thanks for taking my questions.

Our next question comes from the line of Liam Burke of Wunderlich.

Thank you. Good morning, Dave. Good morning, Tom.

Good morning, Liam.

David, on the Engraving side, you mentioned that new product model introductions in North America are being deferred into the – into fiscal 2016. How has the flow of new products or new model introductions on automotive, are they still steady or are you seeing any moderation there?

North America will grow this year. I mean the scheduled rollouts in North America are very strong. I think will exceed the 2014 number, which was a record year. So we are – especially in North America, the signals we are getting from the industry are that we expect a very good year.

Okay. And on the engineering front how has the project pipeline been in terms of new projects coming online for newer applications?

You mean our Engineering Technologies?

Yes.

Aviation?

Right.

Very good, you have seen that in that bar chart, you see that the growth in the grey band is from 15 to 16 as a percent of sales. There is also a growth in that segment as the long-term awards that Enginetics has had for the last couple of years has ramped up. Those are coming online. We see no delays in the significant awards they have as well as the awards that we have announced in our legacy Spincraft business.

Okay. And then lastly and I know this is small in Food Service, but you mentioned the display merchandising had a good quarter, was there anything in there that was significant?

Let’s see, they had nice sales into drug retail, which was actually pulled through by our refrigeration business, I get convenience store growth, any others that jumped out, Tom?

Those are the two.

Yes.

Great. Thank you, David. Thanks Tom.

Thank you, Liam.

Our next question comes from the line of Chris McGinnis of Sidoti & Company.

Thanks for taking my question.

Hi, Chris.

Hi, Chris.

I guess, just two quick ones. One just on the CapEx, the expansion of the Greenfield facility, is that more of do you see demand coming in or you are building out for current projects?

We are building out for current projects. We need that capacity to satisfy the demand from the Airbus – for the A320 awards we have announced in the last – during the last 18 months. And there are more in pursuit, too. We expect there will be additional awards, but we absolutely need the capacity for that – for those awards.

Great. And then just secondly obviously, you have brought in a lot of new talent, is there any – do you still expect to bring more in or is there any parts we feel like you need any parts of the business where you feel like you need a little bit more support or improvement in the talent that you have currently?

Well, I think it will be kind of a continuing evolving process. What we are doing is focusing more on internal talent development. In the future, I would love to be – as we have key appointments to promote from within and a key element of that is creating standard ways of planning, of doing our goal setting and measuring, our growth planning and our operational excellence and as our leaders around the world become comfortable using those tools, I think we develop our own leaders. But I think at the stands we got a pretty strong leadership team and are focused on everything we talked about today. So no, as you know glaring – no glaring current issues with folks on developing our current team.

Great. Thank you very much.

Thank you.

Our next question comes from the line of Jamie Wilen of Wilen Management.

Great job on the quarter fellows, a question on the Food Service, in the dollar store area, was the consolidation that took a while to happen on divestitures, did that have any impact on your business over the last couple of months and how does that impact you moving forward?

Yes. As a matter of fact, Family Dollar is a big customer in our refrigeration business. We did see some push-outs in their plant schedule in the last quarter. No cancellations. We anticipate that the comeback and was largely attributable to the integration of Family Dollar and Dollar Tree. We think long-term it’s an opportunity for us. We have just over half the business with Family Dollar, we have had no business at Dollar Tree and we think our strong position at Family Dollar probably creates an opportunity for us at Dollar Tree in the future. But if and when we were able to penetrate the Dollar Tree stores, we will communicate that.

Okay. And in the aviation segment, how large could be the Airbus volume be in 2016 for us?

Well, it’s kind of a slow ramp up. We went out – at full volume, the awards that we announced in the last year or so for the A320, both on the geared turbo fan and the leap CFM engine will get you about $13 million, so that’s in 2017. Towards the end of 2017, we will be at that rate, so 2016 $5 million to $6 million.

Okay. And lastly, as far as raw material cost and pricing goes, it seems like there is not much of a shift that’s going to impact margins one way or the other in aggregate – is that a safe way to look at things?

Yes, that’s fair.

Okay, very good. Thanks.

Although – one point that I would make Jamie is in the new organization in Food Service, we have appointed a senior leader who is responsible for the supply chain for materials and for strategic sourcing. And even though there is maybe no significant movement in the marketplace, I think there are some opportunity for us by focusing on that and getting higher level executive going after it. So we are anticipating that we can improve margins through better sourcing strategy.

Outstanding. Thanks fellows.

Thank you, Jamie.

Our next question comes from the line of John Walthausen of Walthausen & Co.

John.

Yes, good morning. I just wanted to follow-up a little bit on the new facility for the aerospace for the Engineering Group, can you talk about how large it is and whether the $6 million that you have earmarked for this year completes equipping of it. And then a little bit more about what type of operations are going to be there?

Yes. So, 60,000 square feet one building, this will provide all the capacity we need for the awards we have received from Airbus. And we have additional capacity. We can do some additional work in there. We have – we will have all the processes required in there. We will have spin forming machines machining and the laser works in the other plant. So, the integrated plant with all the process will have aluminum in and lipskins out the door.

Okay. Congratulations.

Well, come visit the plant some time. It’s a fascinating process to see these large pieces of metal being worked to very precise targets.

[Operator Instructions] Our next question is a follow-up from Schon Williams of BB&T Capital Markets.

Hi, guys. Thanks for the follow-up. I wonder if you would be willing to provide the backlog by segment, you usually do that it’s kind of fiscal year end?

Let’s see, we didn’t report on that. Just a second here is we are grabbing it out of it. We will be releasing the K on Thursday. So for Food Service, the backlog was $46 million. Engraving was $19 million. Engineering Technologies is $93 million. Electronics is $38 million and Hydraulics basically $5 million. And that was realized within 1 year and beyond is about $33 million. So if you wrote down those numbers, you can just check our last 10-K and do the delta.

Okay. Now, that’s helpful guys. And then, I wonder if maybe, Tom could you just talk about the balance sheet a little bit, just talk about kind of priority uses of cash, I mean obviously you highlighted the CapEx needs with the new facility, but beyond that what are the priorities and then what should we be expecting in terms of acquisition opportunities maybe over the next 12 months?

Well, I mean what we know best is our capital and we feel internal capital investment has the lowest risk and the best. We have a benchmark of an IRR of 15% or more on our internal CapEx. So we will focus that, that $26 million to $28 million on the highest priorities. They come in here, we review them and then we either approve them or we have to go back for more work and we allocate it that way. On acquisitions, we have a plenty of dry powder on our balance sheets. We have a $400 million revolver. We have about $120 million drawn on it. And so we have ample room for acquisitions. We won’t go into any new legs as we talk about or take the best opportunities and they are opportunistic. I mean, they don’t come on. We are looking at acquisitions in all five segments. I would say it’s more heavily weighted in electronics at this time.

Alright, that’s helpful guys.

I show that there are no further questions at this time.

Alright. Well, thank you all for joining us for the conference and we will look forward to reporting our next quarter’s results in probably October, right?

In October. And we hope to see you in Cincinnati on September 17. Thank you.

Thank you.

And excuse me sir, we do have a question.

More questions, okay.

I am sorry we do have a question from the line of John Cummings of Copeland Capital.

Hey, guys. Good morning. Sorry for the late question.

Good morning. No problem.

Hey, can you talk a little bit more about what you are seeing from your oil and gas customers? And is this going to continue to be a major headwind next year as we start to lap the decline in oil?

Yes. Well, I wouldn’t – we think that we are just last quarter we kind of hit a level we will bounce along through the year. We see no pickup. There is some after markets from repair and replacement business we believe will come through. There is probably some downside risk to that, but it’s at fairly low level in Q4 and there is not much more decline that we could see.

Alright, thanks. And in terms of the Engineering Technologies segment as a whole, do you see organic growth turning positive next year or I guess as you start to lap the Enginetics acquisition?

Let’s say, take that oil and gas out into liquidity. Tom is looking at the number here. Tom is pulling up the number and I just want to make sure I don’t misspeak with that, because oil and gas was stronger in the first half, so looking at the full year.

Yes, we will be up slightly. We plan to be up slightly.

Alright, thanks.

And I am showing no further questions, sir.

Alright. Thank you all for joining us today.

Thank you, ladies and gentlemen for joining today’s call. You may now disconnect.