Welcome to the Standex International Fiscal Third Quarter 2022, Financial Results Conference Call. All participants will be in listen-only mode. . Please note today's event is being recorded. I'd now like to turn this over to Gary Farber, with ClearView Advisors. 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 Annual Report of 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 one-time items. 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, EBITDA margin, and Adjusted EBITDA margin. We will also refer to other non-GAAP measures included, 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 the 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 from such non-GAAP measures to the most analogous GAAP measures may be found in the company's earnings release issued yesterday. On the call 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 third quarter of 2022, Conference call. Our momentum continued in our fiscal third quarter with solid financial performance, a healthy pipeline and growing end markets, and good execution by our global teams. Our repositioned business portfolio is increasingly aligned with sustainable global trends, and we are expanding our range in penetration of innovative solutions. I want to thank our employees, our executives, and the board of directors for their continued dedication and support. Now, if everyone can turn to Slide 3, key messages. Revenue and consolidated adjusted operating margin continue to increase both year-on-year and sequentially, with order strength, share gains, and productivity initiatives, all significant contributors. Standex revenue growth was broad-based with 4 of our 5 segments increasing year-on-year and sequentially. In particular, the electronics segment delivered record quarterly sales of nearly $80 million. We continue to see strong demand globally across many of our product lines. Electronics backlog, realizable under a year of approximately $151 million at the end of the third quarter, represented a 57% year-on-year and 5% sequential increase. In addition, specialty solutions segment revenue increased approximately 20% year-on-year, with continued positive trends as food service equipment markets returned to pre - Covid’19 levels consolidated adjusted operating margin of 13.8% our fourth consecutive quarter of record margin was 160 basis points increase year-on-year and 20 basis points improvement sequentially. From a growth perspective, Standex is aggressively pursuing new opportunities for applications in sectors with attractive growth profiles where our technology and expertise enjoy significant competitive advantages. And market trends in sectors such as electric vehicles, renewable energy, commercialization of space and defense remains strong while food service and commercial aviation continue to recover. Total company backlog realizable under one year of approximately $267 million at the…

Thank you, David. And good morning, everyone. First, I will provide a brief summary of our fiscal third quarter 2022, results. We delivered another quarter of strong organic growth and operating margin expansion, effectively managing challenging inflationary and supply chain environment. Organic revenue growth of approximately 14.5% year-on-year reflected record sales at the electronics segment, supported by continued healthy end market trends. We ended the quarter with an overall book-to-bill ratio of approximately 1.05. In the quarter where the electronics segment had record sales, book-to-bill for this segment was still above 1, indicating continued end market strength. Adjusted consolidated operating margin of 13.8% in the quarter was another record quarterly result, increasing 160 basis point year-on-year, and 20 basis point sequentially, as we effectively leverage volume growth, price, and ongoing productivity actions. But we're also very active with respect to our capital allocation priorities, acquiring sensor solutions, continuing to repurchase shares, and declaring our 231st consecutive dividend, while generating free cash flow and further strengthening our liquidity position. In summary, we are well-positioned for continued profitable growth, and market trends and our new business opportunity pipeline remains strong, and we have an active funnel of activity and pricing actions to effectively address inflationary challenges and manage our supply chain Our new $100 million share repurchase authorization reinforces our substantial financial strength and significant opportunity for further shareholder value creation. Now, let's turn to Slide 9, third quarter Fiscal 2022 income statement summary. On a consolidated basis, total revenue increased 9.9% year-on-year, from $172.2 million in the third quarter of 2021 to $189 million this quarter. This afflicted organic revenue growth of approximately 14.5% year-on-year, which strengthen the electronics and specialty solutions segments. The recent Sensor Solutions acquisition contributed approximately $0.4 million of sales in the quarter. The sales increase was…

Thank you, Ademir. If everyone can please turn to Slide 12, for a discussion of key takeaways. We're seeing consistent improvement in Standex's financial results, supported by a strong portfolio of high-quality businesses, increasingly aligned with sustainable global trends, and delivering an expanding range of innovative solutions. Our new business opportunity portfolio's robust. We are winning applications and sectors with long-term healthy growth prospects. Our deep technical and applications expertise combined to deliver compelling customer value and attractive financial returns for Standex. In regard to the challenging operating environment, we continue to introduce new processes and tools to effectively manage inflationary trends and further drive strategic sourcing and productivity company-wide. Our disciplined and balanced approach to capital allocation is supported by a strong balance sheet and consistent cash flow generation. Our new $100 million share repurchase authorization, reinforces our significant financial strength and opportunity to further enhance shareholder value. We are approaching fiscal 2023, well-positioned for revenue growth and margin improvement. Operator, I will now open the line for questions.

Thank you. We will now begin the question-and-answer session. . We'll pause momentarily to assemble our roster. Gentlemen, our first question today comes from Chris McGinnis, was Sidoti & Company, please go ahead.

Good morning. Thanks for taking my questions, and congrats on a nice quarter. Could you maybe talk a little bit about how well you are handling the inflation environment? Where are you seeing the most pressure, and can you also comment maybe on labor, as well? Thank you.

Great question. Very pertinent. We feel like we've got a head start on inflation because you remember a couple of years ago we were slammed with a really dramatic increase in rhodium in our electronics business, and they had to completely revise the way they issue quotations, how often we update the price list, the level of approval on the quotations. And so, in the last couple of years, we have communicated that across all of our businesses in a global webcast, and we made that a best practice. So, we actually, had all the global leaders on a phone call, not six weeks ago, to lay out some guidelines for them to think about preparing for a highly inflationary environment, including adopting best-practice from electronics. We actually feel quite confident that we know what to do. We know how to protect our P&L from the effects of inflation. It doesn't mean it's easy. It's always difficult to pass price increases through, but we're confident we can handle it.

Great. Thanks. And I guess just on the $7Million - $9 Million deferral of the sales related to the lockdowns. How confident you are going to see that in future quarters as things start to open up? Is there any risk to that?

I can just tell you what assumptions we have based on the -- your guess is as good as mine about when these lockdowns will ease. But we're now operating in Shanghai at about 20% capacity, with plans to get to 30% the next few weeks. Our assumption is that in June, we'll be back to full force. If we are, we'll be probably at the lower end of that number, maybe better if we can work on the backlog. If the lockdown continues or slows or return, we would be at or above the upper end.

Chris, if I can just add these are not loss sales. We create -- before we believe and expect this will be the sales we're going to make up in fiscal’23. So this is just a deferral from a quarter-to-quarter, but not loss in sales.

Great, and I appreciate that thought. And then just last question, I'll jump back in queue after this. More talk around possible slowdown in the economy and recession concerns. Can you just talk about what you're seeing out of your customer base for demand trends and maybe how things progress throughout the quarter. Thank you.

Yeah. This is crazy situation. We're living in one reality preparing for another. Our bookings are strong, our book-to-bill has been greater than one every quarter this year, in fact, has been momentum from January through to April, our backlog you saw, some of the numbers, some of the businesses backlog is up. So we're not seeing any softening in demand across our different businesses however, we read the news like everybody else and in a same call we had with the businesses six weeks ago, we've had everybody start to prepare contingency plans if and when when we see a sign of a slowdown and where we're just going to rely on the same playbook that we exercised a couple of years ago when the world was shutting down with the pandemic lock down. So were continuing to execute on the growing demand and preparing for the eventuality of a downturn.

Great, thanks for taking my questions. I'll jump back in queue at this point.

Yeah. Thank you

Thanks, guys.

Now, ladies and gentlemen, our next question today comes from Chris Howe of Barrington Research. Please go ahead.

Good morning, David. Good morning, Ademir.

Chris.

Good morning.

I wanted to follow up on some of the last questions. As it relates to the $7 million to $9 million deferral from the fourth quarter to fiscal year’23. As we think about different scenarios, hopeful that June marks the end of the lock downs so you can become 100% operational. But assuming the other side of that, and if there are more deferrals, how can we consider these deferrals versus the bottleneck that might be occurring in supply chain? Do you think that gradually comes back or can you get it in one quarter? Can you explain how you recapture the revenue that is not lost, but deferred?

Let me say a word then Ademir can also help frame it. The first thing to understand relative to supply chain and the impacts on this lock down. The $7 to $9 is just related to the lock down impact. In our China business, two-thirds of the sales of that plant go to Chinese customers. So, they're not going to be caught up in waiting for tank -- freighters going freight. So minimal impact on supply chain when that lock down is raised. Ademir.

And I think that through the much color that Chris, I think they're probably going to take us a couple of quarters to make up work as we brand back company and get the -- get our products to customers. But all indications, everything we're seeing, the orders are still strong. We are not -- there hasn't been any cancellation. I think this is something that we'll make up as soon as the lockdown is over.

And does margin come back in lockstep with the recapture of revenue, or will margin, maybe, take a little bit more time to get all of it back?

I think it'll come back from the lockstep of revenue. Obviously, in this quarter, because we have a factory shutdown, and we still have to pay fixed costs, including the salaries of the people in Shanghai. So that's going to impact us a little bit. But as the volume comes back, we do expect that we'll get the same margin, if not better, to what we have been seeing so far.

Okay. I wanted to switch gears away from that towards the new business opportunity funnel for the electronics segment. Within that new business opportunity funnel is electric vehicles. Can you refresh my memory on electric vehicles and what you see the potential for this as this trend to electric vehicles continues much further out from 2022 and perhaps into 2024 and 2025? How do you see electric vehicles fitting into the portfolio?

Our sales in electric vehicles have -- if you follow the trend of electric vehicle shipments has doubled each year for the last few years and we project them to double again next year, we're adding more capacity for the particular products that we sell into electric vehicles. A primary product there as we've talked about many times is a relay based on a reed switches which is used in the safety management system. We also have relays and some magnetic products that go into battery management systems, in the electrics. So, a third leg where we're somewhat optimistic is that this acquisition we just made of Sensor Solutions, we are identifying additional applications in electric vehicles for Hall effect sensors that can be designed with Sensor Solutions. So, as we close some of those applications, and if we can expand our shipset value, I guess if you want to put it that way, with the electric vehicles. So bottom-line, we're very enthused about electric vehicles, we're seeing great growth there and putting more and more resources to make sure we get every application available to us.

Okay, great. I have many more, but I'll hop back in queue for others.

All right. Thanks, Chris.

Our next question comes from Chris Moore, in CJS Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking a couple of questions.

Chris.

Good morning. The $2 million engraving initiative, should we read anything into that? Is that response to markets being a little softer than originally thought or just something you had been targeting for a while?

Last year, much of our focusing with the cost structure and operations integrating has been in North America. In the last couple of quarters we're seeing North America stabilize, starting to deliver predictable results. This additional action $2 million is just taking a broader view of all our locations around the world, and reassessing based on the tool makers that are still present in different geographies. Making sure that we're adjusting our capacity on our cost structure for that local business. The tool making industry, it slowly evolves, and toolmakers open and close in different geographies around the world. We just wanted to continually make sure that we've got the right resources in the right places. So that $2 million is actually scattered across many sites around the world. Ademir, you want to add anything to that?

No. I think that pretty much covers it. And then Chris, I think, one thing to -- we're advocating on most of them within this quarter and maybe Q1, but we should start seeing the results in the next fiscal year.

Got it. That's helpful. Maybe talk a little bit about the anticipated evolution of segment earnings? And if you look at first 9 months, electronics contributed, I think, roughly 55% of operating income. What's a reasonable expectation for electronics contribution 2, 3 years out? Is it likely to stay in that range? Is it likely to be below 50? I understand that the 3 segments are 20% margin targets, but for overall, talk a little bit about what you think electronics contribution will be?

Maybe I can take that one on. First of all, Chris, we love this business. And if you are very helpful, then your largest business is your most profitable business, which is where we're at. And it's also on our highest growing businesses. So we're going to continue investing in it, both organically, inorganically. And there is no reason for us to believe that the current contributions we have seen from electronics and are not going to continue to be strong in the years to come.

I wouldn't add much, other to say, it will grow as fast or faster than the other businesses, so of percent contribution of profit will -- you can make you own conclusion. It's likely to only increase with success and our growth strategies there.

Got it. It's helpful. You talked about the engineering opportunity in Europe. How do you sell into those markets for engineering capability? Is it -- you already have the infrastructure in place to do that as it, how different is it from North America?

Yeah. We actually have been able to transfer process knowledge from our U.S. sites to our U.K. site. They are very similar equipment there and the same business that we acquired in 2012, before I joined the company and it was primarily focused on supporting deep sea early gas platforms and of course that business is virtually gone now, so we've re-positioned it over the years, they have a healthy position in medical in the MRI scanners, and we've taken our U.S. knowledge of aircraft and space applications and are now developing relationships with those customers in Europe. So that the pictures you saw on the Engineering Technologies page are for a space program in Europe. So it's really more of a sales effort, we've got the technical capability, we have the know how, we have the machinery over there, and we're just directing the business development people to get in front of the right people from the European programs and feel, actually we've had good returns in the last year's we focused on this and we're optimistic we have a growth path in Europe.

Got it. That's helpful, I will leave it there. I appreciate it, guys.

Thanks, Chris.

. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for closing remarks.

Thank you, . We had a very active quarter, further advancing our growth strategy in multiple fronts. We are aggressively pursuing new market opportunities, which offer innovative and compelling customer value propositions. These efforts are complemented by ongoing productivity and efficiency initiatives. We focused on strengthening our market leadership and cost position. As a result, we're very well-positioned to further optimize Standex growth and margin profile. Finally, I want to thank everybody today for your interest in Standex in our discussion of our fiscal third quarter results and outlook. And again, to thank our employees, shareholders, and the board of directors for the continued support. We look forward to speaking with you again in our Fiscal Fourth Quarter 2022 Call.

Ladies and gentleman, 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 weekend.