Good morning, and welcome to Standex International Fiscal First Quarter 2022 Conference Call. All participants will be in listen-only mode. . After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I’d like to turn the conference over to Gary Farber, Affinity Growth Advisors. Please go ahead, sir.

Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the Company's website at www.standex.com. Please refer to Standex's Safe Harbor statement on Slide 2. Matters that Standex management will discuss on today's call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent Annual Report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non- GAAP measures of EBIT, which is earnings before interest and taxes; adjusted EBIT, which is EBIT excluding restructuring, purchase accounting, acquisition-related expenses and onetime items; 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; EBITDA margin; and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. 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.

Thank you, Gary. Good morning, and welcome to our fiscal year first quarter 2022 conference call. I'm very pleased with our first quarter results, which reflected solid financial performance and an expanding pipeline of growth opportunities. Standex is a stronger company today as a result of well executed portfolio move in the higher level of performance of our businesses. We continue to have a favorable outlook for fiscal 2022 and look forward to further successfully executing on our growth strategy. I want to thank our employees, executive teams and the Board of Directors for their dedication and support as we further grow our portfolio of high quality businesses. Now, if everyone can turn to Slide 3, key messages. Revenue and consolidated adjusted operating margin increased significantly year-on-year in fiscal first quarter 2022, as we leveraged positive demand trends and converted new business opportunities from our pipeline. Consolidated organic revenue growth of approximately 17% year-on-year reflected strength in our Electronics and Scientific segments. Electronics revenue increased approximately 37% year-on-year, primarily due to a broad based geographical recovery with continued solid demand for relays in renewable energy and electric vehicle applications, along with positive trends in transportation, appliance, test and measurement and distribution end markets. Scientific segment revenue increased approximately 29% year-on-year driven by retail pharmacies, clinical laboratory and academic institution end markets. Consolidated adjusted operating margin of 13.4% was a 250 basis point year-on-year increase and represented our second consecutive quarter of delivering our highest consolidated margin in Standex history. Our results also reinforce the benefit of our continued investment in end markets that have healthy growth prospects and where we can incorporate our innovative solutions and strong customer value proposition. Sequentially, total company backlog realizable in under one year increased approximately 12% with strength particularly at the Electronics, Specialty Solutions,…

Well, thank you, David, and good morning, everyone. First, I will provide a few key takeaways from our fiscal first quarter 2022 results, which exhibited strength across several important metrics. Organic revenue growth of approximately 17% year-on-year reflected solid demand trends at our Electronics and Scientific segments. In addition, we continue to see overall healthy order trends across the company as we enter our fiscal second quarter. From a margin standpoint, adjusted consolidated operating margin of 13.4% increased both sequentially and year-on-year and represented our second consecutive quarter of highest margin in Standex’s history. This strong operating performance reflects several factors including effectively leveraging volume growth, realizing the benefits of price and productivity actions, and the positive impact of our prior strategic portfolio moves. Also, our financial strength is afforded by consistent free cash flow generation, which increased year-on-year. In summary, we are entering our fiscal second quarter with positive order trend, active funnel of productivity initiatives and an expectation for continued solid cash generation in fiscal 2022, all further adding to our strong financial position. Now let's turn to Slide 9, first quarter 2022 income statement summary. On a consolidated basis, total revenue increased 16.1% year-on-year from $151.3 million in fiscal first quarter 2021 to $175.6 million this quarter. This revenue increase primarily reflects a strong organic growth at the Electronics and Scientific segments and a positive contribution from foreign exchange. Revenue growth was partially offset by the divestiture of the Enginetics business which occurred in the third quarter of fiscal 2021 and strength at the Engraving segment which reflect the timing of projects. Enginetics contributed approximately $3 million in revenue in the fiscal first quarter of 2021. On a year-on-year basis, our adjusted operating margin increased 250 basis points to 13.4% reflecting operating leverage associated with revenue growth,…

Thank you, Ademir. If everyone can please turn to Slide 12 for key takeaways. In fiscal '22, we expect stronger financial performance year-on-year as we execute on the positive end market trends we are seeing and further drive ongoing productivity initiatives across our significantly strengthened portfolio. Underpinning this outlook is a very active pipeline of growth opportunities with a positive trajectory in our new business opportunity funnel, and new product introductions. We are leveraging a significant number of growth opportunities in front of us through ongoing manufacturing and supply chain productivity actions, including initiatives such as new lean programs, and mitigating inflationary trends through price realization and cost consolidation efforts. Our strong balance sheet and liquidity position and consistent free cash flow generation position us very well to pursue both organic and inorganic growth opportunities, and we remain opportunistic and disciplined in allocating capital. As highlighted by some of the order trends discussed today, our approach is resonating with customers reflecting the strength of our deep technical and applications expertise in innovative solutions and reinforcing the value of our high quality businesses. Operator, I will now open the line for questions.

. First question comes from Chris Moore with CJS Securities.

Another excellent quarter. It seems like most of the conversation on earnings calls this quarter are focused on supply chain, inflation and labor. Any thoughts how Standex is able to kind of avoid that as a focus?

Yes, there's a couple of important perspectives there, Chris. You know, a year ago, two years ago how much we were struggling with rhodium in Electronics business. And as the team got their arms around that, they’ve completely changed their cost management of the rhodium and more importantly, your pricing process. So they used to have a lot of 12 month pricing agreements, they went to monthly pricing. All, of course, were reviewed by management. So that really started last -- by last November, the last 12 months agreement had sunsetted. And you've seen the results have been very effective managing in place. Well, we have been communicating out across all the businesses of Standex. And it's really evolved into all of our businesses to be a little more bold I guess, our passing price through whether it's from freight or material. So we're seeing that margin play. It is never easy to have those discussions with customers, I don't want to say that it's easy, but we've really improved our practice over the last year. The second thing on supply chain, most of our businesses, their supply chain, it comes -- we source in a region, for plants in a region, for customers in a region. We have a couple of businesses, though, that are dependent on the global supply chain, Scientific and hydraulics. And you saw the Scientific results, they're doing a very nice job managing through those challenges, managing international freight. So I think it's limited to those two businesses. So that’s why at a corporate level, you haven't seen a hit as much by those issues.

Very helpful. If we could switch to, Electronics, obviously, such an important component of revenue and profitability. And maybe can you talk a little bit more about visibility in this specific segment, any feel for kind of distributor inventory levels, just kind of any additional thoughts in terms of what you're seeing there?

Well, we have -- we serve a wide variety of end markets here. And our sales to distributors, it’s about 20% of the sales of the entire business. And distributor levels have been kind of growing consistent with the rest of the business. So we haven't seen any dramatic swing in the mix of our sales by channel. Some people have asked us, are you seeing any excessive buying as customers are trying to get ahead of potential supply issues? There may be some of that in there. However, we see growth in our . Our new applications are ramping up quickly, growth in relay products. So the overall mix of the business still remains good. And in fact, in October, we just -- sales remained strong and our book-to-bill ratio in October was 1.2. So whatever is going on in distribution, it's not enough to sort of dampen the overall demand we're seeing in that market, in that business.

Last one for me. Just trying to better understand the end markets where you might still be in a little bit of catch up mode from COVID and could provide a tailwind at some point in time. Any more thoughts there?

Yes, let’s see. So we had thought all along that the slowest and the latest catch up would be in the foodservice, equipment markets. We had thought that by next quarter, starting calendar '22, those markets to be caught up. But I think from a Federal, we could come back to pre-COVID levels. I think this quarter, the aviation market, our shipments into aviation will be back to pre-COVID levels this quarter. Everything else I think is at or above pre-COVID levels.

Yes, Chris, I agree. I think for the most part we’re already there. And to David's point, we are seeing really good order rates across our businesses, across the market, which is a positive time for sure.

Next question comes from Chris Howe, Barrington Research.

I guess starting with the Scientific segment, you continue to do well in that segment coming ahead of expectations here. We know we have the tougher comparisons going against last year. But you mentioned continuing demand for vaccine storage, as well as some other initiatives there. Can you just talked about the puts and takes that led to the quarter and your outlook?

Yes. A couple of positive things in the quarter. I have to say the sales -- if you were to look at our internal discussions a quarter or so ago, the business exceeded our internal estimates. A couple of things happened in the quarter. We are seeing continued order for COVID vaccine storage. It's not as great as last winter. But we're seeing the orders come through the distributors that serve small clinics, physicians’ offices and with the approval of vaccinations for children aged 5 to 11, most of those vaccines will be given in doctors’ offices, and most doctors’ offices don't have a storage unit. So we do think there's kind of a steady runway of sales to that. Second thing that really is important for us is, we received quite a large order for about a six to eight month period to deliver cabinets to replace units that were installed four or five years ago. And as our installed base increases, and there are more cabinets around the country, these cabinets have four to seven year service life and we expect to see more sustained kind of replacement business and that was a factor too.

Seems very interesting. Certainly some positive dynamics there. You finished the quarter at about a 20.9% operating margin. You've kind of hinted that it's around 20%, continuing to make investments along that segment. How should we think about margin or am I too….?

I would say we continue to kind of peg people's expectations to get to low 20% margins in this business. Quarter by quarter, of course, there's some variation. This last quarter, this is a business that is facing headwinds in their supply chain, the cost of freight from Asia and the companies. Year and a half ago, it was $4,000 container. It’s $15,000 to $20,000 at a spot price. So they're dealing with have to passing price through. We’re also making investments. We had -- about three, four years ago, we had one or two engineers in this business. We got a team of 15 now that are working on an active pipeline of new products. And on this page, you see our new products, the blood bank and plasma freezers. This is a brand new market segment for us. This is very attractive segment. This is a more than two year development. And I'm very proud of the team. We're very excited about this. And in quarters passed, we've referenced the fact that we're developing new products, and the release of these new products could get us into new segments to provide the next leg of growth for this business. So this is just the beginning and the blood bank and plasma freezer, it’s another gear that this business can shift into.

Okay. And my last question, just following up on the previous questions about the supply chain. Certainly this is a fantastic quarter in my view, given the challenges that we all face with freights and supply chain delays. How would you assess how you balance optimism over caution in this environment? Certainly we'd like this trend to continue from Q1 versus expectations. And I guess more specifically, is there a way to put a number on the challenges that you had to offset in the quarter?

Yes, let me take a stab at that and Ademir can correct everything I get wrong. The -- how we balance optimism with caution? Our internal targets are always hires than what we communicate. I think as we get better at forecasting and -- we just implemented -- I look at system across our businesses, we have much better visibility to the cost structure month by month in all of our businesses. So we think we're tightening up our ability forecasting over time, maybe that buffer between our internal estimates and what we communicate externally will get narrower. On the headwinds we face, in the quarter, our estimate that we’ll overcome in our business is supply chain issues. So there’s maybe $4 million across the corporation of shipment set that we couldn't get because we're missing a component or we’ve some supply chain issues. So that maybe gives you an idea of the order of magnitude across our business. And Ademir you can fill in anything….

Actually I got nothing to correct in there. This is the good way to summarize the freight thing. We expect we're going to continue to see supply chain issues like a lot of companies and -- but I think one point that we want to make sure doesn't get lost, we are really turning the corner becoming an operating company where we can manage our costs really, really well. And we have productivity initiatives in place. And to David's point we have a forecast A, B and C and we know how to manage or try to manage against different throw balls that the market can throw at us, so we are trying to manage as we can.

Next question comes from Chris McGinnis, Sidoti & Company.

David, would you mind just maybe talking a little bit about -- you made some management changes last quarter with Flavio. And can you just talk a little bit about maybe how they're progressing in the new roles? If you don't mind spending a couple minutes on that.

Yes. So the changes we highlighted last quarter, we're moving Flavio into this innovation and technology world, which I actually wanted to do a couple years ago, but we had so much portfolio management we had to do, they're just looking at the right time. So Flavio's primary focus is hitting some key deadlines on our solar energy project we referred to last quarter, which in the next couple months are some important milestones there. He has started a process with all the businesses to develop a pipeline of technology ideas that will now start moving through the pipeline for evaluation and maybe eventually to new product development. Most of our new product development has come from our current products, our current customers, and sort of the next step for those things. So very customer input focused. Flavio is bringing a technology view of how new technology is maybe threats or opportunities for us. So I think, he’s off to a good start. And just as we're now beginning to communicate, we have new products coming out of our pipeline in the coming quarters, I'd expect that we will be coming and communicating output of that technology role. And as Flavio moves in this role, we move Jim Hooven moving from the corporate ops role to lead the Engraving business. And it's always, I guess, interesting and fun and rewarding to see what happens when there's a management change in an organization, because everybody brings a different set of skills and different perspective. I'd say the transition has gone very smoothly. Jim and the Engraving team are working together very well. And Jim brings a deep toolkit of operational discipline, operational practices that are being applied across the business to improve forecasting, improve labor management. So we're very pleased with the early returns on both of those moves.

Just given the strength of the balance sheet, would you mind commenting on the M&A environment as well?

Yes. We have an active pipeline. We're working it pretty hard. And there's no saying on recording. It's maybe kind of push here, but you have to kiss a lot of frogs to find the handsome prince. And we are, I guess I'm the chief frog kisser, chief frog kissing officer. We are working on a lot of opportunities. And we -- I think we made a lot of acquisitions since I've been here. Many more good ones and bad ones and on the whole I’m very pleased with the discipline we’ve created in identifying businesses that meet our strategic criteria, valuing them fairly, paying a fair price and then getting value out of them. So we apply all those same principles as we evaluate these opportunities. And I have, I got the final point to make Chris is in recent years -- I have mentioned this, I should maybe restate it. We are working to get larger businesses into our pipeline. As we have more track record, especially in Electronics of integrating businesses, we think we can start to bring in more sales in larger businesses at a time, where our typical acquisition was family owned businesses that were $10 million, $15 million, $20 million, $30 million in sales, where we're widening the aperture of our funnel.

And then just one last question. Obviously, you've really handled the external environment pretty well in terms of the inflationary environment, supply chain. What most concerns you when you look out of the kind the global economy versus your business? I guess what are your concerns, David? Thanks.

Well, I guess my concern -- let me answer a slightly different question than you asked. My main concern is, our businesses are in a great situation now. We have good positions in the market. We have a great portfolio. When you see the performance of this portfolio, it’s weeding through now. We have a collection of really good businesses. We are pivoting a lot of our attention to identifying new opportunities, developing new products, bringing new technology to market. And I want to use this opportunity we have now to invest those funds wisely to provide the next leg of growth for the company in the coming years. So I guess what keeps me awake at night is, are we going hard at that, are we fast enough? Are we putting a place to discipline? And really being smart about investing for growth.

. At this time, we have no further questions. Now I'd like to turn the conference back over to Mr. David Dunbar for closing remarks. Please go ahead.

Thank you. Thank you to all for your interest in Standex. I just want to send again a thank you, a great appreciation to the employees of Standex who are managing very well through a difficult environment. And we look forward to reporting back to you in three months from now on our second quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.