Standex International Corporation (SXI) Q1 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing-by and welcome to Standex International's First Quarter 2018 Earnings Conference Call. At this time, all participations have been placed in a listen-only mode and the floor will be open your question, following the presentation. [Operator Instructions] It is now my pleasure the turn the floor over to Ryan Flaim from Sharon Merrill Associates to begin.

Thank you, Leta, and good morning, everyone. Please note that the presentation accompanying management's remarks can be found on Standex's Investor Relations website, at standex.com. Please see 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 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, purchase accounting, acquisition related expenses and one-time items. We will also refer to 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 first quarter news release. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar and Chief Financial Officer, Tom DeByle. Please turn to slide three, as I turn the call over to David. David?

Thank you, Ryan and good morning. We began fiscal 2018 with a strong first quarter, highlighted by broad based organic growth across our five business segments. Overall revenues increased 19.4% to $214.4 million with organic sales up 5.8%. Operating income was up 1.9% and adjusted operating income increased 20.8%. GAAP EPS of $1.10 per diluted share was down 1.8% primarily due to acquisition related cost and restructuring activities, which are essential to position Standex for higher incremental margins in the future. Adjusted EPS grew 18.4% to $1.35 a share. We had a net debt position of $130.6 million at the end of Q1, which was $27 million higher than the prior quarter primarily due to the acquisition of Piazza Rosa in July. Among the key quarterly business highlights is in fact that organic sales growth was broad with all businesses showing growth. In addition, our organic backlog shippable under our new grew across all size of business segments up with almost 13.5%. All three of recent acquisitions Horizon Scientific improve service, Standex Electronics Japan and Piazza Rosa integrating contributed sales growth and margin expansion in the quarter. A meaningful demonstration of our ability to identify, acquire and effectively integrate strong businesses that drive value for shareholders. Another top strategic priority for Standex is advancing the restructuring of our Food Service equipment standard products and we make progress with these efforts during the quarter. We continue to expect to benefit from the restructuring of this business beginning in the second half of the fiscal year. During the quarter, we brought together the leadership from the five business segments and the corporate leadership team to strategies and how we can most effectively implement our value creation system and collaborate across the organization to fulfill our mission of becoming a best in class operating company. This moving is predicted in reaffirmed and we have a very special account to Standex and the bench of dedicated and challenged leaders. I'm very proud of the progress that our team was made enterprise live this quarter and I am excited for the year ahead. With that, Tom will review our first quarter results. Tom?

Thank you, David and good morning, everyone. Slide four shows our historical trend of adjusted earnings per share and sales on a GAAP basis as well as on an adjusted basis. On a trailing 12 months basis, adjusted earnings per share were $4.74 through September 30, 2017 versus $4.39 through September 2016, which is up 8%. Sales on a comparable basis were $790 million as of September 30, 2017 versus $719.6 million in the prior year period, up 9.8%. The chart on the bottom of the slide shows our revenue and earnings performance on a quarterly basis. The arrows in the chart reflect our seasonal trends. Generally, our sales and earnings are the highest in our Q4 and Q1 during the heavier construction season. We experienced lower sales and earnings in Q2 and bottom in Q3 as cold weather slows activities during those quarters. Please turn to slide five, which details our revenue changes by segment. Overall organic growth was up 5.8% with our engraving and electronic businesses having double-digit organic growth. The acquisitions of Horizon Scientific, Standex Electronics Japan and Piazza Rosa contributed 12.7% to our sales growth and foreign exchange had a positive impact of 0.9%. We anticipate continued growth in this second quarter as order rates have increased and backlogs are up. Please turn to slide six, which summarizes our first quarter results on a GAAP and adjusted basis. Sales growth was 19.4%; operating margin was down 160 basis points on a GAAP basis and up 10 basis points on a non-GAAP basis. Earnings per share was down 1.8% on a GAAP basis and up 18.4% on a non-GAAP basis. Please turn to slide seven, which is bridge that illustrates the impact of special items our net income from continuing operations. Tax-affected special items include restructuring charges of $2.3 million, purchase accounting expenses of $0.2 million and acquisition related costs of $0.8 million. GAAP net income was down 2.4% and adjusted net income was up 17.4%. Please turn to slide eight. There were three key restructuring activities underway in Q1. In our food service business, we initiated our margin improvement program focused on organizational structure and optimizing cost for our standard products. In our Brazil Engraving business, we closed our Engraved and mirror old business and downsize that organizational structure. And finally, in our Engineering Technologies business we completed the consolidation of our Ohio facilities. We invested a total of $3 million in these programs in the first quarter and we anticipate spending another $5 million to $6 million in the balance of the fiscal year, with the majority of the benefit occurring in fiscal 2019 and beyond. We are targeting payback on these programs to be less than two years - two years or less. Implementing these programs and making these investments are important steps to drive higher incremental margin performance over the long-term. Turning to slide nine, working capital at the end of the first quarter of fiscal 2018, was $178.8 million compared to $146.6 million in the prior year. The year-over-year increase in working capital was primarily driven by sales volume and $16.2 million from the acquisition of Horizon Scientific, Standex Electronics Japan and Piazza Rosa. Working capital turns decreased slightly to 4.8 compared with 4.9 in the year ago period. Slide 10, illustrates our debt management. We ended Q1 in a net debt position of approximately $131 million, and the increase of $27 million since the fourth quarter reflecting higher working capital needs and the Piazza Rosa acquisition. We define net debt as funded debt less cash. Our balance sheet leverage ratio of net debt to capital was 23.4% compared with net debt to capital of 20.2% last quarter. Slide 11, summarizes our capital spending, depreciation and amortization trends. Our capital spending was 4.1% during the quarter and was a heaviest in the Engraving and Electronics which is in line with our strategy to focus our spending on the fastest growing, highest margin businesses. This includes continued investments in laser technology, and the move of our Suzhou, China facility in Engraving. In our electronics business, we invested in field machines to increase our read switch capacity. In 2018, we now expect that our capital spending will be in the range of $31 million to $32 million above prior expectations. This is due to the capital requirements to support Engraving growth as we roll out the new technologies acquired as a result of the Piazza Rosa acquisition. We expect depreciation in the range of $19 million to $20 million, and amortization in the range of $8 million to $9 million. Slide 12, details a reconciliation of operating cash to free cash flow. Conversion of operating cash flow was negative for the quarter. The lower free cash flow conversion was primarily impacted by higher working capital needs, restructuring investments and higher capital spending. Historically, we have shown free operating cash flow in the negative free operating cash flow in the first quarter. In fact, four of the last five years show a negative free operating cash flow driven by a lower account payable in the first quarter. We anticipate improvements to our free operating cash flow in the coming quarters and target 100% of net income. With that, I'll turn the call back to David.

Thank you, Tom. Please turn to slide 14, and I'll begin our segment overview with the Food Service Equipment Group. Sales for this segment increased 11.3%, led by Scientific sales growth, with strengths in the legacy business as well as our Horizon Scientific acquisition. The Horizon Scientific team has successfully leveraged sales channel synergies with our legacy Nor-Lake business to drive sales growth and build momentum, but it is expected to continue as we move through fiscal 2018. The team is conducting market test to explore a track of adjacencies and identify new innovative products to bring to the marketplace. In refrigeration, revenue increased 3.2% and backlog remained at all-time high as spending from national accounts including large chains continued to ramp. Refrigeration margins for the quarter declined, and margins for sales on the standard products on our backlog remained lower due to the fundamental changes in market dynamics that we've spoken about previously. In cooking solutions, sales were down 8.7% mainly due to shipment delays from an ERP system implementation within this business standard product plant. We are encouraged that daily shipments are already returning to normal levels. And we expect this dynamic to right itself in the second quarter. From a longer-term perspective, the ERP system is a critical building block for the transformation and health of this business, and once fully implemented is expected to lead to improve sustainable performance. Our specialty solutions continue to perform well, as sales up 9.9% driven by strong growth in the beverage business. In addition, display and merchandising was strong as we begin capitalizing on healthy pipeline of new business opportunities. Looking ahead in Food Service, we remain focused on converting our strong backlog. Backlog shippable within one year is up 23.6% and excluding acquisitions, shippable backlog is up 17.5%. Top priorities also include growing differentiated product sales through expanded market tests and growth laneways. At the same time, we are executing on our restructuring efforts to optimize our standard products businesses in refrigeration and table top cooking solutions while reducing costs. Turning to slide 15 in Engraving, sales increased 22.8%. The Asia-Pacific region was up 11.4% and Europe grew 25.1% as new program launched fueled growth. Operating income, which included a $200,000 negative impact to Piazza Rosa purchase accounting was up 0.3% compared with last year, with an adjusted operating income margin of 23.2%. Most Texturizing sales were up in all regions as automotive OEMs ramped up but is expected to be a record year of new model introductions. During the quarter we closed our Piazza Rosa acquisition, which performs slightly ahead of our top-line expectations contributing $2.5 million of sales. This was partially offset by a decrease of $1 million in sales from our Innovent business, which had a significant customer projects last year. As I noted earlier our efforts and investments to develop growth laneways and Engraving have been successful with increased top-line contributions from several programs this quarter in fact the new technology sales grew $3.5 million of the core. Looking forward our 2018 priorities remains focused on driving sales and operating growth. We will be rolling out tool finishing services, leveraging the expertise of the newly acquired Piazza Rosa business across our 43 global sites. All sites will focus on supporting the record level of automotive model introductions worldwide that led to a 29% bookings growth. In addition, we have committed to executing on growth laneways programs and new technologies and conducting market test to identify additional potential growth opportunities. Please turn to slide 16. Our Engineering Technologies Group where overall sales grew 8.3% in aviation sales were up 20.5% or $1.7 million, our lipskin sales and the newly awarded development job, space sales increased 20.2% from the prior year quarter driven by dome sales and continued work on developmental jobs. Margins in the segment were negatively impacted by plant consolidation inefficient fees, price pressure on legacy engine parts and a slower ramp up of new programs. We remain focused on completing key space development programs for repeatable production in addition we'll continue to ramp up to deliver on long term aviation programs for next generation aircraft and completing cost actions on legacy platform parts. Please turn to slide 17 Electronics. Sales increased by 52.8% powered by organic growth in all regions and by our Standex Electronics Japan acquisition which continues to perform very well. European sales continue to show strength and increase by double-digits driven by the meter industry. Organic growth was particularly strong in the sensor and reed switch product lines. Sensor sales increased by 20.2% including the acquisition of Standex Electronics Japan and grew 13.7% organically across all regions. In reed switches we benefited from the increased capacity of our Japanese acquisition to serve a tight global supply of reed switches. We continue to see great momentum and the integration of our new Standex Electronics Japan acquisition. The potential for Standex Electronics Japan cost synergies are already bearing fruit as we've identified operational improvements for all three reed switch plants through the sharing of best practices across our management teams. In addition, we have begun to implement a new sales structure to leverage synergies between Standex Electronics Japan and our legacy business to sell up to value chain and secure Asia Pacific sensor opportunities. Looking ahead, we're focused on leveraging this new sales structure to grow our sensor business identifying further synergies, reduced costs and capitalizing our active pipeline of new business opportunities in magnetics including LED sensors, reed relays and fluid level sensors to deliver growth. Please turn to slide 18 Hydraulics. The 5.1% sales increase in hydraulics is primarily the result of the down truck and trailer markets beginning to recover as we expected in the latter half of 2017. We continue to believe our markets are fundamentally sound and we're optimistic for a good fiscal 2018 in hydraulics as we focus on converting our strong project pipeline and solid backlog which increased 52.4% over the prior year period. Further we expect demand to grow as the improved macro environment continues. Before we go to questions let me leave with you a few key thoughts. Our strong performance this quarter was bolstered by organic growth across all Standex businesses. Scientific Electronics, Engraving, Engineering Technologies and Hydraulics in particular are expected to remain in this growth path in FY2018. In Food Service, we are focused on executing on the lease structuring initiatives to improve the profitability of our standard products. The progress made to-date gives us confidence that we will see the benefit of these actions begin to take hold in the second half of the fiscal year. Our recent acquisitions are performing very well with all three contributing to sales and margin growth this quarter. Capitalizing on both on M&A opportunities like these is a key component to future growth and profitability. As we continue to transform Standex to be an operating company of profitable niche businesses serving attractive differentiated markets and solid growth prospects, we're committed to constantly improving upon the Standex value creation system. It is to streamline processes operational excellence and talent management across all five business segments and we're setting Standex up to deliver predictable sales, profitable growth and sustainable value for shareholders. And finally, as we look ahead our balance sheet is well positioned to form the CapEx organic growth and acquisition initiatives that will support our growth aspirations. With that, we'll be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Chris Moore of CJS Securities.

Hi, good morning guys. Great quarter.

Good morning, Chris.

Good morning. Yes, maybe you can just start on just want to make sure understands the specifics on the food services so, this 3 million in restructuring, five to six and the balance in that's also engraving and engineering so, how much of that eight to nine you think is gone to be on the food service side?

So, on our food service side basically, it's about 6 million this year.

Okay, got it. When you look at the margins in food service kind of between the specialty and the standard, are you looking at that on a blended basis or kind of discreetly when you're going for the kind of 15% target EBIT margin, or do you think you can get that 15%, on the standard as well or just on a more on blended basis?

Well, 15% is the blended targets so the differentiated products will be above that in the standard products below.

Got it, okay. That makes sense. Anything else, I know it's kind of organizational structure is one piece of it, given that there is some kind of challenge from fundamentally on distribution sector or their product lines, or product areas that potentially makes sense to sell or kind of how do you look at that?

Well, we've been actively rationalizing the product line in the last few years and in recent quarters we have got in cooking as much as $2 million a quarter impact with some of the rationalization at the lower margin product lines, that's pretty much coming to an end on the cooking side. And refrigeration, standards products in refrigeration, the key challenge there is the move of our traditional products through lower margin channels where we have more and more of a business that is a rebate eligible and more highly discounted. So, there were - our actions are more on optimizing our plans and doing the best job we can negotiate the deals we have with the dealers and buying groups to move the focus to those products where we really have value in a more differentiated. On the operations side, we have done something relatively new, we mentioned this in the last quarter, we brought in some outside firms that are really experts in operational improvement, and even the best firms that are that will lead the industry in application of lean principals. We regularly bringing outside firms that do it all the time to bring in some new ideas, and help brace the level of the organization. So, we've got a group working with our cooking standards plans and with our refrigeration standard plans to drive layout changes, they are going through sell-by-sell with Kaizen to improve the operations and through the first quarter we are happy with our progress we are seeing there.

Got it, terrific. Just on the electronics obviously terrific quarter, operating EBIT margins 21.9%, it seems like given what's going on with the OKI acquisition that there are still a lot of upside there is, is there still a lot of room on the margin sides for the electronics?

Yes, I wouldn't build any margin - any into a model. Overtime, if you think overtime and this is probably multiple years - as the balance of our sales move to centers and more high value add, they're probably is some margin expansion along with some volume. In the near-term, I think you're low 20% operating income is a good margin range for this business, if you look historically it's in the high end where it's been. If we capture in part because of volume but also because of the higher value of reselling and you can see now with this quarter, we've got a full quarter of OKI running through the results, this is a good representation of how the business will perform.

Got you. And last question on the engraving side, obviously you have talked about new models increasing 30%, I am just trying to understand the visibility with engraving, I mean you have a good sense of where you'll be, is it six months out, a year from now what's the visibility look like on the engraving end?

You follow the business for a while, so you know that from quarter-to-quarter can be kind of lumpy as model rollout gets pushed in or out. We think - our visibility over 12 months period is pretty good, because when the OEMs commit to rollout a model it can move a quarter maybe two, but it's going to come out. So, if you kind of maybe take a 12 month on an average where we kind of in our visibility over that 12 months period.

Got it. I appreciated guys.

Thank you.

Your next question comes from the line of Liam Burke, of B Riley FBR.

Thank you. Good morning, David. Good morning, Tom.

Liam, good morning.

Good morning.

David on the Engineering side, you mentioned the legacy engine parts are creating a margin drag, is there anything we can be done about that in terms of pricing or anything related to that?

Yeah, we - well we knew this pressure coming early, and here we started working with our suppliers to reduce our cost position, we have identified the actions that we'll get that done, those actions will be in place starting in Q3. So, we will expect to see that, so that gap will be closed in Q3.

And stand on Engineering, do you have a sense of timing is to when some of these contract ramps will begin to absorb these upfront costs you have incurred?

Yeah, this is something was really critical that the long-term forecast of this business, as we start to get into aviation, when we won the lipskin awards first with the geared turbofan, then the leap, the expectations those are both ramp to full volume which is about 60 aircraft a month by the end of 2018 in the 2017 early 2018, with the well understood challenges of geared turbofan ramp up. Those ramps are being pushed out at least a year in the late 2019 and 2020. In fact, just - a month or so we've learned of this push out and that has more to do with supply chains with the supply base and the availability of that of engines for Airbus. So, these orders in the business aren't going way, they just getting pushed out, I mean Airbus still has a record order book, they are on hope to deliver these aircraft and when the engines are built our parts will go into them.

So, if I am looking at your current margin rate on the engineering side, that's pretty much how it's going to look until the ramp hits, or we see any sort of sequential improvement?

You will see sequential improvement, I mean this quarter, in the last couple of quarters, we talked about consolidating the two plans that came with that Anagenetic [ph] acquisition that was completed in Q4, but there were some operational inefficiencies that were kept from the balance sheet and those floats through in Q1, that's a one-time deal. The cost pressure from the legacy parts, I tell you that will be - that gap will be closed in our Q1. The slower ramp of the legacy products that pushes things out by a year or so, but you will see margin improvement Q3, Q4 as those one-time issues will come behind us.

Okay. And then lastly you had the cooking revenues were down year-over-year. How much of that was just the elimination of unprofitable product?

Didn't see that breakup, just $0.5 million or $1 million probably in that, but there is about a $2 million impact from this ERP system implementation. So, sales would not have been down but for the hiccup in the quarter from the ERP.

Great. Thank you, David.

Thank you, Liam.

[Operator instructions]. Your next question comes from the line of Chris McGinnis with Sidoti & Company.

Good morning, Dave and Tom. Thanks for taking my question.

Good morning, Chris.

Good morning, Chris.

Nice quarter. Just I wanted to follow-up on that ERP you just mentioned that. Maybe just updated - is that a new initiative, I apologize if it isn't. And then just maybe anything about five segments, did you wanted to another ERP issue when you look across the - with businesses?

Okay Chris, I'll take the ERP question. Basically, when we bought a back in January of 2007, we had - let's say Simex [ph] system which was really a developmental system that we just carried on and we have always been planning on, putting in Epicure, which is our standard across food service. We were well aware that we were going to do this, and we have been planning this for I'll say even a couple of years. And we just had a couple of glitches is when you do turn on ERP system, so that we print serial numbers on our shipping labels and stuff like that. So, that's behind us, we're confident that we're going to catch up on that.

Okay, so just really a one-off kind of implementation, respective for a catch-up here.

Yes, exactly.

Okay, okay. Cool. Thanks for that. Thinking about Rosa across the supply chain, I guess on your global platform, how hard is it to bring there, their offering across that platform and how long will that take - you're mentioning you are working on it right now?

I missed the first part of the question, of course you're breaking up.

Oh! Sorry. Just on the Rosa acquisition is used.

Oh yes, Rosa right. Yeah. When we lead out our plans this at the first three or four months, we're just going to focus on integration, getting people paid and integrating our financial flows, and yeah, despite that, we had several hundred thousand dollars of synergy business, that came about, business will come into our mostly in Italy, would come into our Italy site, and then our Italy manager, would be like, hey Rosa can complement this order, so, we'd expand the billable content for each order. And on Piazza Rosa side, they with the same thing. I would tell you, on a global organization, it's very excited about this in China alone, our China managers has hired 15 people to be polishers, and are being sent to Piazza Rosa to be trained in the coming quarters. So, we will start to see a ramp, probably in Q3. And we'll report as advances quarter-to-quarter.

Great, thanks for that. And then just lastly, just on the, what's - integration with the acquisition. To move up that value chain can you just talk a little bit about, how you go about that, it's simply the big part I think of that, of that acquisition. Additionally, who compete to that end of that market, in that region, how could they limit you at all, if it all possible to moving up that value chain?

Great question, this is the major consideration, as we look at this, would we alienate any customers, as we did this. What we've discovered is, just as we mentioned in previous quarters, that this is something of OKI Electronic had wanted to explore, but was unable for variety of reasons, would - that other corporate priorities and things. Now, another part is for the Standex, we had planned that the opportunities for sensors would start to ramp up next year. We didn't plan anything in the first year. Because we wanted to get to know the channels in the markets, but we know it was out there somehow. In fact, we have a healthy list of sensors, we're already quoting. And the reason this work, it's happening so quickly Chris is, the Standex Electronics Japan, the company we acquired, nearly all of their sales go through distributors. And distributors in the countries, imagine a distributor selling a reed switch, that goes into a level sensor. They're selling a $0.07 switch to a small sensor company that designs this sensor. And that sensor business then is selling for a $2 sensor to the OEM. Our distributors now, as they hear about our opportunities out there, if they ask us to quote this sensor, so, they've an opportunity to sell a $2 sensor, instead of a $0.07 switch. So, we're finding our distributors are bringing us a lot of sensor opportunities, because their incentives are aligned with our priority, so, I was out there, just a last month and was pleasantly surprised to see how rapidly this list of sensor opportunities is growing.

Great, thanks for that. I appreciate that Tom. Lastly, I know, you guys pretty talk on this, but, just thinking about the organic growth, what you saw in the quarter. Any reason that should kind of slowdown, as we go to the rest of the year, just thinking about the trends obviously, surprisingly strong. So, I just wanted maybe a little more color about how you feel about that? Thanks.

We feel, as I mentioned in this script, we think that continues, so, we're restraining our growth expectations on Standex business in cooking and refrigeration, because they are in the focus on operations and restructuring. As I mentioned, we expect organic growth trends to continue in all the other businesses.

Great. Good luck in Q2 thanks for taking my - time today.

Thank you, Chris.

Your next question comes from the line of John Cummings with Copeland Capital [ph].

Hi, good morning. Thanks for taking the question. Curious on the Engraving side to hear your thoughts on what's driving the big increase in the number of new car models? And is this a strategy change from the car OEMs? And I'm just trying to understand how sustainable the growth is there?

So, we get our data from various organizations that monitor the industry. So, the IHS data in particular for years, for several years has identified FY2018 is being the historic high watermark for new model introductions. So, this has been known and planned for an industry for some time. So, when you say it represents a change in strategy at all.

So, I guess this is more of a cyclical is FY2018 more of a cyclical peak or is it a secular trend to have more car models out there. That's what I'm trying to understand?

Well, that's the great question. The current view is that FY2019 will modulate to be flat to slightly down. FY2020, it's a little hazy what happens out there. As you know, our business is driven by new model introductions not by SAR. So, the question is, what will happen if SAR starts to decline. With auto OEMs compete more fiercely with new model introductions to gain share which would be a good market for us or will new model introductions follow the SAR and we don't have clarity on that just yet. But I would say one of the things we're doing to prepare for that is this investment and tool finishing, the investment in the other services that contributed $3.5 million in sales in the quarter. So, we're building other revenues so that we can compensate for any future decline in the models.

Okay, thanks. And then I guess this big jump up in FY2018 in the number of new models that seems like it's planned. What is driving that? Why is FY2018 so strong?

You have to ask I suppose, we go to this to all the auto shows around the world. And there are small specialized shows where the designers of the auto OEMs get together. And they talk about design trends and fashion trends and how customers' lifestyles are changing. And they're all listening to the same information. And going back three, four, five years is their strategic plans all laid out the need to refresh their models at a range that they combine and an overlap this year you'd have to go I guess to each of the OEMs to get their specific reasons. Tom just made a note to this. There is also a new phenomenon in China, there are almost 50 companies that are designing electric vehicles right now. So, there are players around the world that see this move to electric vehicles as an opportunity to enter the auto industry. So that's driving new models as well.

Okay, thanks. And then one question on the critical insight. I think you mentioned maybe quarter or two ago that there are some execution issues in refrigeration in terms of I think you mentioned foam. Are we through that now or is there any other execution issues that you as have to planned to there?

No. We're through that, and now the restructuring and operational performance improvements there are focused on just resetting our business model to the current market dynamics which has more business flowing through this lower margin channels.

Okay, all right. Thanks.

Yeah, thank you.

Thank you. I'll now turn the call to David Dunbar for any additional or closing remarks.

We're very happy with the quarter we just delivered. We're excited about this year. And I look forward to coming back to in the quarter to report on our next fiscal quarter. Thank you.

Thank you for participating in Standex International's first quarter 2018 earnings conference call. You may now disconnect.