Good day, ladies and gentlemen, and welcome to the Standex Fiscal First Quarter 2020 Earnings Teleconference. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Gary Farber. Please go ahead.

Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent 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 EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, accounting, acquisition-related expenses and onetime items; EBITDA margin; and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted income from operations, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margins, free operating cash flow and pro forma net debt to EBITDA. These non-GAAP financial measures are 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. On the call today is Standex's Chairman, President and CEO, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic.

I would like to point out that this month, Standex celebrates 50 years on the New York Stock Exchange. The number of companies that have been continuously listed for 50 years are small, and we're proud to achieve this milestone. I'll begin with an overview of our fiscal quarter results and provide an update on our continued progress in executing on our strategic priorities. Ademir will follow with a discussion of our financial performance in the quarter, then I'll provide some additional thoughts on our outlook. Now please turn to Slide 3. The quarter's results were in line with our overall expectations and our commentary on August fourth quarter conference call. Specifically, performance in Engineering Technologies, Hydraulics and Scientific remained strong. The Engraving segment reported a significant sequential margin increase from the fourth quarter of 2019 on a modest sales gain, as we saw improvement in our North American Engraving operations. We did continue to experience macroeconomic headwinds in our Electronics segment, primarily in Asia, which is impacting our second quarter outlook. To manage near-term market conditions, our overall restructuring efforts are proceeding as expected, and we're pursuing additional efficiency opportunities, both at this segment and companywide. Despite the macroeconomic headwinds we're facing, particularly in Electronics, we continue to successfully position our portfolio for higher growth and profitability on several fronts. In particular, growth laneways increased 12% over first quarter 2019 to $16.6 million. Our most recent acquisition, GS Engineering, is now fully integrated and off to a solid start. We also continue to see very positive trends in our new business opportunity funnel, particularly in the high-reliability Magnetics business, as we're successfully converting our funnel to revenue. We are maintaining investments in our sales and technical teams to convert these opportunities into future sales. At Food Services, Scientific business…

Well, thank you, David, and good morning, everyone. And now let me provide an overview of our first quarter results. From both revenue and EPS standpoint, results were in line with our previously communicated expectations. We experienced continued strength in ETG, Hydraulics and Scientific, as well as sequential improvement in Engraving margin. This was balanced with weakness in our Electronics business. Our financial position continues to be very strong, as evidenced by our liquidity and leverage statistics. In addition, our working capital initiatives drove improved cash flow performance year-on-year, with all segments reporting improvement to key metrics. Finally, we are on plan to achieve annualized cost savings run rate of $3.8 million by the end of the second quarter from our prior restructuring announcement in Q3 of last year. Now turning to Slide 9, which provides a financial summary of our results. Total revenue increased 1.7% year-on-year. This reflects organic sales decline of 1.7%, primarily due to Engraving and Electronics segments, which was balanced with strong growth at ETG and Hydraulics. Acquisitions added 4.4% to growth from our recent acquisitions of GS Engineering, Agile and Tenibac. FX remained a headwind, with a negative impact of 1%. Gross margin declined on a GAAP and non-GAAP basis year-on-year, 110 basis points and 130 basis points to 34.8% gross margin in the quarter. The year-on-year decrease was driven by weakness in our Electronics business, particularly in Asia, as well as lower level of new model automotive rollouts at our Engraving segment. GAAP operating margin decreased 230 basis points to 9.4% and non-GAAP basis operating margin decreased 260 basis points to 10%. This decrease primarily reflected the gross margin decline as well as year-on-year increase in corporate expense. The corporate expense increase primarily relates to increased accrued stock-based compensation and benefits expense in fiscal…

Thank you, Ademir. Our formal remarks conclude with Slide 15. We expect second quarter financial performance to be similar to first quarter results, followed by strengthening in the second half. This assumes continued weakness in the Electronics segment, particularly in Asia, improved Engraving segment performance and continued growth in the Engineering Technologies and Scientific businesses. As our previously announced restructuring contributes at its full run rate, we expect to further leverage our cost structure. We will continue to drive efficiency and productivity initiatives throughout our businesses. Our improvements in free cash metrics is a good example of how our initiatives are benefiting results and driving value throughout the company. We expect execution on our higher growth and return opportunities to continue to gain traction as evidenced by the trends and growth rates discussed today. Finally, we're pursuing our strategic priorities from a position of financial strength, given our liquidity and leverage metrics as well as consistent free cash flow generation. With that, we will open up to questions. Operator?

[Operator Instructions]. Our first question is from Chris Moore from CJS.

Yes, maybe we could just focus on Electronics a little bit. David can you talk a little bit kind of a rough breakdown in terms of end markets, both geographically and then how much Auto, et cetera, just to get a, kind of, better understanding of where some of the near-term difficulty is coming from?

Yes. In the last couple of quarters, we shared that shipments in the Auto are about 25% to 30% of the business, some of that goes through distribution. So it's unclear exactly where that goes but 25% to 30% is a good -- it's a good indicator. From a geographic standpoint, it's -- the business has been about 30% in North America, Europe and Asia. I think with this last quarter decline, Asia is going to be -- going to tick down slightly. But balanced global revenues fairly significant exposure to Auto. In the past, we've shown the industry breakdown though is quite wide. I mean, there were military, aero, industrial consumer products, communications, power with Auto being the largest.

Got you. That's helpful. And from -- specifically on the reed switches, it sounds like your -- the cost structure is changing a little bit there, improving. Can you talk about that a little bit?

Yes, there's two things. One is the operation itself is a highly automated cost structure with high fixed costs, and that's one of the reasons that a year ago, I think, one quarter Electronics posted a 26% EBIT. When that -- when the sales go up, it levers beautifully, when it comes down, you get a little more significant decremental, which we've seen. In addition to that, we use rhodium on the majority of our reed switches and the material actions we described are -- there's a series of actions that our team is putting in place to significantly reduce our use of rhodium, so that in the future as that -- and that does a volatile market for rhodium and we'll have a much smaller impact our results.

Got it. And finally, maybe more kind of medium term, you talked about that $50 million pipeline and other things that you're looking at, anything specific you could talk about there?

Well, this is very broad. There's opportunities in the industry, telecommunications, smart grid, there's some auto applications. Just one number that, I guess, we didn't include today is we hadn't expected that, that list of new business opportunities would generate about $9 million of sales for us this year. The first quarter sales were stronger than expected as those new products ramp. So we now think that'll be 11 or more for the year, which provides some upside to counter the downdraft in the core markets we talked about. And these -- a typical cycle for a new business opportunity for us, maybe takes a year or -- year to two in the pre-sales cycle. Once it begins to ramp, it can take a year to two years to ramp to full volume. So we see that $50 million plus funnel as -- that's our growth opportunity for a little bit this year, 2021 and 2022.

The next question is from George Godfrey of CL King.

Two questions. One is, in Engineering Technologies, the organic growth, 18%, how much of that is a temporary buildup or a pent up demand and perhaps an easy compare versus is this a type of organic growth rate, high teens that can be sustainable? And then the second part in Food Service Equipment, margins significantly improved there. Was it more that the restructuring and changes that you made led to the margin mix? Or is it that you offloaded troubled the Cooking businesses and that let to revenue mix that was much more favorable?

Yes. So let's first handle the Engineering Technologies. Had you asked that same question about Engineering Technology last quarter, I would have said Q4 '19 was definitely kind of a one-off. We had some final buys and some last term completion of orders in our Energy business that drove those sales like $32 million in Q4 '19. This quarter, this really represents just the ramp of the new applications we're on and just underlying strength of the business. The -- I wouldn't build into your model an 18% annual growth rate. But I think what we've communicated in the past for this business is that in the coming years, as these new applications ramp like the A320neo and our new -- our lips on A350, we're -- this is a mid- single-digit growth business, 5% to 7% growth long term. And the EBIT, as those things get to full volume, will be over 15%. Those are still fair expectations. On your Food Service question, the cooking business, which we divested in April, is actually -- has been taken out of both year's results. So the year-on-year compare is not muddied by inclusion of Cooking last year. The margin improvement this year was largely due to a mix shift within that business. You know we've got 4 P&Ls in Food Service, Scientific, Merchandising Pumps and Commercial Refrigeration. Scientific continues to grow in double digits. It is a very high-profit business, and our Merchandising business had a very good quarter with very high profits. So the mix effect of those businesses, as we move to more differentiated business mix, drove that EBIT to 11.5%.

[Operator Instructions].

All right. So let me conclude. I know it is a busy day, a lot of companies announcing today. So I thank those of you who listened in today for your participation. We thank you for your interest in Standex, letting us share our results and accomplishments and vision with you. And especially, I want to thank our employees who have fueled us to 50 years on the New York Stock Exchange and our shareholders for their continued support. We look forward to speaking with you again on our next quarter call. Thank you.

Thank you, sir. Ladies and gentlemen, that concludes this conference call. Thank you for attending today's presentation. You may now disconnect your lines.