Good day and welcome to the Standex International Fiscal First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Gary Farber with Affinity Growth Advisors. Please go ahead, sir. Gary Farber;Affinity Growth Advisors;Partner: Thank you, Rocco, 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, acquisition-related expenses and onetime items; and 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 margin, free operating cash flow and pro forma net debt-to-EBITDA. 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. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic. I'll now turn the call over to David.

Thank you, Gary. Good morning, and welcome to our fiscal first quarter 2021 conference call. On today's call, I will provide commentary on the quarterly 2021 results and the trends we are seeing in our business. I will then review our segment performance. Ademir will follow with a discussion of our consolidated results and financial position. Finally, I will conclude with comments on our outlook and key takeaways. If everyone can please turn to Slide 3, key messages. Overall, fiscal first quarter results were ahead of our expectations on several fronts reflecting stronger-than-anticipated demand and solid operational execution, particularly at our Electronics, Engraving and Scientific segments. Consolidated revenue increased 8.5% sequentially. This is ahead of the outlook we provided previously of fiscal first quarter 2021 revenue being flat to slightly above the fourth quarter of 2020. At the Electronics segment, revenue increased 23% sequentially and 18.6% year-on-year, reflecting positive trends in magnetics as well as contribution from the recent Renco acquisition. Sequentially, Engraving operating margin increased 800 basis points to 16.1% due to cost efficiency and productivity initiatives on 15.1% revenue growth compared to fiscal fourth quarter 2020. Finally, the Scientific segment reported its highest quarterly sales ever at $16.7 million. Earlier this year, we divested our Refrigerated Solutions business and established Scientific as a stand-alone reporting segment, both actions advancing our strategy to build our higher-margin segments. In particular, the Scientific segment's results reflected increased demand for seasonal flu vaccine storage as well as initial sales related to potential COVID-19 vaccines. In addition, our Electronics new business opportunity pipeline is healthy at $56 million across a wide variety of end markets. We expect the sales contribution from this pipeline to grow sequentially on an annual basis. In Engraving, we see continued opportunity in the tool finishing and soft trim…

Thank you, David, and good morning, everyone. First, I will provide a few key financial takeaways from our fiscal first quarter 2021 results. Overall, results were ahead of our expectations, specifically revenue at Electronics and Scientific segments was higher than anticipated. Strength in the Magnetics product line at our Electronics segment and vaccine-related storage demand at our Scientific segment benefited results in the quarter. In addition, our cost efficiency and operational initiatives, which will continue throughout the fiscal year, are providing a tailwind to our results. As previously communicated, we are well positioned to deliver over $7 million in annual savings related to cost actions. Our financial position remains strong with substantial liquidity and low leverage, complemented by consistent cash flow generation and ongoing cash repatriation efforts. In addition, we have also implemented several initiatives in the area of tax planning and interest expense that will further add to our cash position. Now let's turn to Slide 9, fiscal first quarter of 2021 income statement summary. On a consolidated basis, total revenue declined 3% year-on-year to $151.3 million. This reflects organic revenue decline of 8.2% year-on-year, mostly due to the economic impact of the COVID-19 pandemic. As we expected, this impact was felt primarily at Engineering Technologies segment due to weakness in the Aviation end market, and at the Specialty Solutions segment due to weakness in the food service equipment and hospitality industries. The Renco acquisition, which closed in early July, contributed revenue of $5.9 million or a 3.8% offset to the organic revenue decline. In addition, FX contributed 1.4% offset to the organic revenue decline. Gross margin decreased 70 basis points, primarily due to a decline in volume and increased material costs year-on-year, mostly in Electronics. On a sequential basis, gross margin increased 290 basis points reflecting cost outcome…

Thank you, Ademir. If everyone can please turn to Slide 12 for closing thoughts and key takeaways. In the second quarter of fiscal 2021, we expect consolidated revenue to be flat to slightly above the first quarter of 2021 with a slight-to-moderate increase in operating margin. Several assumptions underpin this outlook. We expect the Electronics and Engraving segments to have a slight sequential revenue increase due to an increased level of customer activity. At Scientific, we expect a moderate sequential revenue increase as end market momentum builds to prepare for vaccine delivery. Engineering Technologies revenue is expected to be similar to fiscal first quarter 2021 as commercial aviation markets stabilize, with a slight increase in operating margin from productivity and cost reduction activities. At Specialty Solutions, we expect revenue and operating margin to decrease slightly, primarily due to seasonality and a lower number of shipping days in the quarter. In general, we expect continued growth and margin improvement as we move through fiscal 2021. In addition, we see attractive growth opportunities across the businesses. In the near term, we anticipate the opportunity for COVID-19 vaccine storage to be between $10 million and $20 million in the fiscal year. The growing funnel of opportunities in Electronics will deliver an incremental $11 million in sales in the fiscal year. Previous cost actions complete and expected to deliver over $7 million in savings in fiscal '21. Operational excellence initiatives are gaining momentum across all businesses. We are also strengthening financial flexibility with strong free cash flow generation, continued cash repatriation and new tax initiatives. In sum, we're very well positioned to further build our higher-margin business segments into more significant platforms with customized, differentiated solutions, supported by deep technical and applications expertise. Operator, please open the line for questions.

[Operator Instructions] Today's first question comes from Chris Moore with CJS Securities.

Yes. Maybe we could start with Engraving. The Engraving margins were certainly -- rebounded more quickly than we were expecting. Can you talk a little bit further in terms of kind of what was behind that?

Well last quarter, we announced that the entire industry kind of took a pause as tools couldn't be released from tool shops into our shops, in part because these collaborative meetings couldn't take place. So that is really opened up. So obviously, we saw volume increase. But at the same time, we put a lot of effort into improving the operating disciplines in Engraving, particularly in North America. I mentioned our VP of Operations, Jim Hooven, is working closely with that business, improving the labor management practices and leveraging the investment we've made in the last few years in a global ERP system. So we can just improve our local operating disciplines in a common way around the world and it's first really showing up in North America.

Got it. Helpful. Maybe on the Electronics side, talk a little bit more about the improvement there, the Renco integration. It sounds like Renco is off to a pretty good start.

Yes. Yes, we are really pleased with the first few months of integration with Renco. First of all, culturally, it's a great fit. They'll be a great member of the Standex family. And they're bringing some things to us. For example, they have some practices they put in place for their COVID response protocols that we've been able to duplicate that we learned from. I mentioned in the script earlier that the cross-selling opportunities are ahead of what we expected. So the sales channels are really coming together well. And their -- and the profitability is running ahead of our model. So we're very happy on that front. More broadly, in Electronics, North America's strong. Asia was stronger than we thought it would be, and Europe really started to come along towards the last part of the quarter. And If you cut it between the Sensor and the Magnetics business, we're seeing a lot of strength in the Magnetics customers here, especially in North America.

Got it. I appreciate that. Just in terms of the $7 million in cost savings in fiscal '21, maybe talk a little bit more about the expected cadence. And I just want to -- I assume that all that will flow through into fiscal '22.

Yes, Chris, it's Ademir. Yes, that's correct. We feel really good about where we are with all of our cost saving actions. You should continue to see the readout as we move through this fiscal year and we fully expect that to continue through fiscal '22.

And then in terms of kind of that cadence during fiscal '21. Is it more back-loaded on the savings? Or is it kind of smooth or...

Most of the savings year-to-year, we will see probably in the first 3 quarters. In the fourth quarter of last fiscal year, we had about $4.2 million worth of savings. And some of those are not going to repeat. So Q1 to Q3 is where you would see most of that $7 million readout.

Got it. And then on the tax rate side, looks like 22% for fiscal '21. Obviously, we don't know what impact the elections will have on tax rates moving forward. But from where you sit today, is there any reason to think that, that rate would not flow into fiscal '22?

Chris, based on where we sit today, we believe that the rate in fiscal '22 might pick up a little bit, maybe to 23%. But still significantly lower than what was our tax rate in the prior fiscal year. Again, kind of where we sit today without knowing if there's going to be change in administration or new tax law.

Hello, Rocco. Anyone else in the question queue?

I apologize. My line was all on mute. Our next call comes from Chris Howe with Barrington Research.

I wanted to highlight here the Scientific segment. David had mentioned the $10 million to $20 million of incremental sales as we look to this fiscal year. If we look below the top line, you had 24.5% operating margin this quarter. We expect some improvement on that going into Q2. Perhaps you can talk a little bit more on the margin line. How we expect maybe the remainder of the year to play out as we look at investments you are making in the segment versus opportunities for margin expansion?

Yes. Well I think the margins in those low 20s still is certainly a reasonable expectation. This business levers well, the products that we'll sell are standard products. So they will deliver the same margins as our core business. The investments we're making in the business are largely in the short-term to support the growth, of course. But we're also investing in engineering capability. We have a very active new product development funnel. And as the quarters roll on, we'll begin announcing some new products. So our plan here is to invest, but invest appropriately. And we're not going to low the cost structure and reduce the EBIT rate. So continue to expect kind of the EBIT rates that you've seen in this business.

Okay. Perfect. That was helpful. If we shift back to Engraving, following up on some of the previous questions. Good margin recovery sequentially in the quarter. Some of that is tools being released into the quarter from Q4. If we strip that out, margins still came in at around the same level?

Yes. Yes. Well yes, it was -- this business levers very nicely. So the volume is important because it's -- with a high fixed cost base as a service business, it's a 60% to 70% levering business. But the example we provided in here, we're delivering work with fewer labor hours in North America. And that is a lasting productivity improvement in the business.

Okay. Very helpful. And that you see as relatively sustainable. I know we don't know what's going to happen with all these different variations of a resurgence. But that improvement you're seeing in Q2, we think that can be relatively sustained as we get into Q3 and Q4, barring any kind of unseen economic disruption?

Yes. On both fronts, the indications we get from our customers is that there's pretty steady outlook for the market. And these practices that are being put in place, they are standard work and improved operating disciplines as we deliver consistently better results. So yes, we're counting on them continuing.

Great. My last question is on corporation level basis. More specifically, perhaps wholly did on a monthly basis in the quarter. If we look at that trend and what you're seeing currently in October, has there been any shift or change in the trend line? Or perhaps you can talk about how the mix was as it played out from month to month?

See, Chris, you cut out -- it was just one word in there, which was -- were you referring to a specific business or the corporation overall in that question?

Corporation overall, if we were to split it out by month in the quarter. And then what you're seeing in October? Any change in behavior?

No. I wouldn't say so. The outlook statements we gave throughout kind of reflect our aggregate view of the business. And I think we're looking for sequential growth through the year. And we're seeing that in our backlog and our customer activity. And as you go through -- segment by segment, we modulate those statements based on what we're hearing from our customers.

And our next question today comes from Chris McGinnis with Sidoti & Company.

A nice quarter. A lot of my questions have somewhat been answered. But I guess, if we could just talk about -- not to stay on the Engraving, but just the benefit you saw from kind of the productivity gains that you put in place. When you look across the 5 segments, what are the other areas that you're really kind of focused on driving productivity gain with Jim now at the helm there?

Well roughly -- Ademir may correct me here. But if I look at the quarter sequentially, Q1 compared to Q4, there's probably $500,000, $800,000 in Engraving from productivity. And we have a great example of productivity in Engineering Technologies, which actually is a little farther down the line in adoption of lean and the driving of productivity improvements, in part because of the markets they serve. Very demanding customers require them to be a little more advanced. So a couple of years ago, we recognized that in the plant where we manufactured dumps for spacecraft, we were headed for capacity constraints in the coming year or 2. So they started a project to reduce setup time and then just flow downstream from there from the critical machines to expand capacity. And as of today, they've expanded their capacity by 20%. And that's a great example. We obviously lever that fixed cost structure across 20% more volume. So that's a great example. In both Electronics and Scientific, Jim and his team are working with those businesses to put in place sales, inventory and operations planning process. So there's a tighter coupling between the demand forecast from sales and the capacity planning and operations. And especially in a couple of those, where we have long supply chains with our suppliers, getting that balance right when you've got a 12, say -- for example, a 12-week lead time on some components, and we quote a 3 or 4-week lead time to customers, the more disciplined sigh out process there will help them optimize their cash management and their on-time delivery over time. So Jim is working across all the businesses to various degrees, depends on what their needs are with a particular emphasis in the near-term on Engraving in North America.

Yes. And Chris, if I can add, Engraving is all about labor management, because there's a very little material contact in the business. So if we can solve labor management, that business levers up pretty nicely when the volume occur.

Great. And what's the success that Jim is having versus maybe the prior -- I know -- I think you had a couple of people in that position before. What's the difference that Jim brings that's making us so successful so early on?

Yes. The first time -- the first couple of cracks at this, we filled the job, the OpEx role. Someone who is a good -- with individuals who are great teachers who could run events, who could help with process improvements. Jim was an operator. He was a plant manager. He was a P&L leader. So as opposed to simply being a teacher and instructor, an event leader, he also knows how to run a business. And so that additional credibility has helped him to sit down with our businesses, really assess the entirety of the problems they have. And with a lot of credibility, outline a plan of attack. So having that hands-on experience in the past was a critical differentiator for Jim.

And then just -- I think some of the comments in the release around -- opportunities around M&A. Can you just expand on what you're kind of seeing? Have you seen more companies since last Q, last quarter approach you? Can you just talk about how your pipeline is setting up for M&A -- potential M&A going forward?

Yes. Yes. So our -- we have quite an active funnel. We continue to work the pipeline all year long, although most people took a step back throughout this year just to see how the market would develop. But we continue to maintain our relationships and our contacts with the owners of these businesses that we think at some point will be good opportunities. And I would say now as we get closer to the end of the year, there are -- a couple of them are starting to simmer and look like they may become actionable in the coming quarters. guess I would have to say, I was surprised a little bit that we didn't get as many unsolicited, unexpected inbound opportunities coming to our attention. We had crossed our fingers that, coming into this year with our strong balance sheet, there'd be some unexpected opportunities that came up. But we did not see too much of that. But we still have -- we have a great funnel. We have a great balance sheet, and I think that the string of successful acquisitions will continue into the next year.

[Operator Instructions] And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

All right. Thank you, Rocco. In closing, we are off to a solid start in fiscal 2021. Very excited at the results we were able to communicate today. And very proud of the employees globally around Standex, who have responded to these unprecedented circumstances we all live in with great agility and adaptability, and a heightened degree of collaboration and teamwork around the world, making us all proud to be part of this company. I also want to thank shareholders through continued support and your interest in Standex, and we look forward to speaking with you again in our second quarter fiscal '21 call. Thank you.

And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Thank you.