Standex International Corporation (SXI) Q1 2027 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Standex International First Quarter 27 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time we disconnect your credit related assistance, please press 0 for the operator. This call is being recorded on Friday, October 30. 2026. I would like to turn the conference over to Christopher H. Howe, director of investor relations, 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. Note 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 on Form 10 k as well as other 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 the non-GAAP measures of EBIT. Which is earnings before interest and taxes, adjusted EBIT, EBITDA, which is earnings before interest, taxes depreciation and amortization, adjusted 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. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition related expenses and onetime items. 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 financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David A. Dunbar and Chief Financial Officer, and Treasurer, Ademir Sarcevic.

Thank you, Christopher. Good morning and welcome to our fiscal first quarter 27 conference call. Our year long strategy to reposition the company to serve attractive end markets and to invest effectively in new product development continues to gain momentum and deliver top line growth. In the fiscal first quarter, we delivered record sales of approximately $233 million driven by double digit organic growth. This represents the fifth consecutive quarter of year-on-year organic growth. Electronics segment led the way with organic growth of nearly 30%, Corporate-wide new product sales continued to ramp and grew 56% while sales into fast growth markets grew 25%. Our overall order book continues to grow in the fiscal first quarter with record order intake at $273 million and the book-to-bill of 1.17. This gives us confidence to raise our sales outlook for fiscal year 27. We now expect total sales to grow high single digits in fiscal 27 up from our prior outlook calling from mid- to high-single-digits growth. We expect organic sales to increase by more than $100 million and adjusted earnings per share to grow in the high teens. As we put this quarter's results and the raised outlook into further context, we continue to expect to be on track to reach greater than $1.1 billion in total sales and 23% adjusted operating margin by the end of fiscal year 28. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our fiscal first quarter results. Prior to transitioning into more details about the quarter, I would like to highlight a couple of organizational announcements. First, I want to take a moment to welcome Colby Slaughter as our new Chief Legal Officer. Look forward to his contributions in the next leg of our journey. Earlier this month, we announced the appointment of Samantha Stoddard as our next Chief Financial Officer beginning on December 1. Samantha's experience as a public company CFO and a hands on operating executive, makes her an excellent fit for our needs as we continue to grow and scale efficiently. I am also excited to share that Colby and Samantha fit well in our culture and we expect them each to make significant contributions to Standex's future growth. I also want to extend a special thanks to Ademir Sarcevic for his contributions as CFO. It has been a great pleasure to work closely with him to shape Standex into the company we are today. And I am pleased to see him diving into his new role as president of electronics with his usual gusto. Ademir will work closely with Samantha over the next month to ensure a seamless transition. Now let's look at the results our strategy is delivering beginning on Slide 3. In the first quarter sales of $232.6 million increased 12.4% organically Electronics grew 29.5% organically. New product sales grew approximately 56% to approximately $17.4 million. Sales into fast growth markets grew approximately 25% to $77.8 million We had a record quarterly order intake of approximately $273 million We are pleased with the momentum in the business reflected in this overall book to bill ratio of 1.17. Adjusted gross margin of 44.4% was up 240 basis points year-on-year, Adjusted operating margin of 20.2% was up 110 basis points year-on-year, with margin expansion across each of our segments. Adjusted earnings per share of $2.41 was up 21.1% year-on-year. In fiscal second quarter 27, we expect moderately higher revenue and adjusted operating margin and slightly higher revenue and similar adjusted operating margin on sequential basis. For fiscal year 27, we are raising our sales outlook. We expect organic sales to increase greater than $100 million total sales to grow high single digits. From mid to high single digits previously. We expect high teens growth in adjusted earnings per share. I continue to be pleased with the momentum that we are building in launching new products. We still expect to launch more than 20 new products in fiscal 27. We now expect new product sales pro forma for the federal divestiture to grow by $27 million $94 million adding more than 300 basis points of organic growth in the year. Our sales into the fast growing markets such as defense, space and grid are now expected to increase more than 20% to greater than $315 million constituting more than 30% of our total sales. In conjunction with results, we announced a new $100 million share repurchase authorization effective October 27. On this next slide, I would like to take a moment to highlight specific areas driving growth this fiscal year. Let's turn to slide 4. The methodical implementation of our strategy is showing itself in the independent drivers of growth, each now contributing meaningfully. it is no surprise that the increasing power demand of data centers is our most significant single growth driver. Is behind about 30% of our expected growth in fiscal year 27. The grid business is also experiencing growth stemming from general increases in grid capacity to support economic growth and increased electrification. Increased investments in defense programs, support growth in our A&D business and electronics edge business. We also highlight here the incremental growth of new products that are not sold into these end markets, reflecting share gain for our core businesses. Finally, a general recovery in industrial markets is lifting sales across electronics and scientific. This is a balanced set of drivers and about 70% of our growth in 2027 will come from sources other than data centers. In summary, we have multiple independent drivers of our growth that have long runways ahead of them. Now, I would like to turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to Slide 5, first quarter 27 summary. On a consolidated basis, total revenue increased approximately 7% year-on-year to $232.6 million. This reflected organic growth of 12.4% partially offset by 4.4% impact from Federal Industries divestiture and 1% impact from foreign currency. First quarter 27 operating margin increased 110 basis points year-on-year to 20.2%. Adjusted earnings per share increased 21.1% year on year to $2.41 Net cash provided by operating activities was 15.7 million in the first quarter of fiscal 27 compared to $16.8 million a year ago. Capital expenditures were $6.6 million compared to $6.4 million a year ago. As a result, we generated fiscal first quarter free cash flow of 9.1 million compared to $10.4 million a year ago. Now, turn to Slide 6 and I will begin to discuss our segment performance and outlook beginning with our Engineered Components segments. Electronics revenue increased 27.1% year-on-year to a record $140.5 million driven by organic growth of 29.5% partially offset by 2.4% impact from foreign currency. Organic growth was driven by sales into fast growth markets, strong general industrial markets, and increased new product sales. Our book-to-bill in the fiscal first quarter was 1.23 with record orders of approximately $173 million Adjusted operating margin of 29.4% in fiscal first quarter 27 increased 60 basis points year-on-year due to higher volume and pricing initiatives partially offset by growth investments and higher variable compensation expenses. Sequentially, in fiscal second quarter 27, we expect slightly higher revenue and similar adjusted operating margin. On a year-on-year basis, we expect significantly higher revenue driven by double digit organic growth and slightly higher adjusted operating margin. Additionally, this marks my first full quarter as the President of Electronics segment. I am very pleased with the results and the strong start to our fiscal year 27. We achieved several records in the quarter. Record organic growth of almost 30% record bookings and record gross margin. At the same time, we continue to invest in R&D new products and key growth initiatives. We remain on track to significantly expand global capacity in our Grid business a key project we highlighted in our last quarterly earnings call. During the past few months, I also had an opportunity to visit sites across the globe and attend various customer meetings. 2 things became even clearer. First, we have strong leaders in our businesses dedicated talent in an accountable group of employees that work very well as a team. And secondly, customers truly value our custom products and solutions and look at us as partners, not just as suppliers. In summary, we have multiple ways to win. From serving the rising global energy demand related to data centers and AI grid modernization, and the overall electrification of the world, to providing mission critical components supporting needs and requirements of The US defense end market all supported by an active new product panel to capture additional market share. I remain very optimistic about the future outlook of this segment. Moving to Aerospace and Defense. Revenue increased 5.1% to $31.4 million, driven by project activity in the space and defense end markets, partially offset by project timing. Adjusted operating margin of 19.9% increased 310 basis points year-on-year primarily due to higher volume and project mix. Sequentially, we expect significantly higher revenue and slightly higher adjusted operating margin. On a year-on-year basis, we expect double digit organic growth. Now turn to Slide 7 for a discussion of the scientific and Engraving and Hydraulics segments. Scientific revenue increased 1.8% to $19.8 million due to pricing initiatives and a slight market recovery. Adjusted operating margin of 29.5% increased 24 basis points year-on-year. Sequentially, we expect similar to slightly higher revenue and similar adjusted operating margin. Engraving and Hydraulics revenue decreased 14.9% to $40.9 million reflecting an organic decline of 15.7% from softness in the North American automotive market partially offset by 0.7% benefit from foreign currency. Adjusted operating margin of 16.4% in fiscal first quarter 27 increased 40 basis points year-on-year. In our next fiscal quarter on a sequential basis., we expect slightly lower revenue and adjusted operating margin. Next, please turn to Slide 8, for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $168.5 million At the end of the first quarter, Standex had net debt of $401.2 million compared to net debt of $446 million at the end of fiscal first quarter 26. Our net leverage ratio currently stands at 2. In fiscal second quarter 27, we expect interest expense of between $7 million to $7.5 million Standex's long-term debt at the end of fiscal first quarter 27 was $518.1 million Cash and cash equivalents totaled 116.8 million We declared our 249th consecutive quarterly cash dividend of $0.36 per share and approximately 5.9% increase year-on-year. In fiscal 27, we still expect capital expenditures between $45 million and $55 million primarily due to grid growth investments. Before I turn the call over to David for concluding remarks, as this is my last quarterly earnings call as the CFO of Standex, I would like to express my deepest gratitude to Standex finance team for all their contributions over the past several years. We are only as good as the team around us, and I am truly grateful for all the hard work and efforts of every individual. The finance team will be in good hands with Samantha and I look forward to working closely with her in the transition as the president of electronics. I will now turn the call over to David for concluding remarks.

Thank you, Ademir. Please turn to Slide 9. To summarize, I am very pleased to see the continued organic growth in the first quarter and the book-to-bill ratio of 1.17. Organic growth was driven by our Electronics segment, which grew 29.5%. We will continue to align our organic and inorganic growth investments around secular end markets new products that expand our presence in engineered components and deepen our customer relationships. Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast growth markets and delivery of custom solutions. In fiscal 27, we now expect organic sales to increase by more than $100 million and total sales to grow high single digits, from mid- to high-single-digits previously. We expect high teens growth in adjusted earnings per share in fiscal 27. We are on track to achieve greater than $1.1 billion in sales and greater than 23% adjusted operating margin by the end of fiscal year 28. We will now open the line for questions.

Thank you, sir. Ladies and gentlemen, we now begin the question-and-answer session. If you would like to ask a question, please press star on your telephone keypad. If your question has been answered, or should you wish to withdraw from the queue, please press star 2. And if you are using a speakerphone, please lift your handset before pressing any keys. 1 moment, please, while we compile the roster, Your first question comes from Christopher Moore with CJS. Please go ahead.

Hey. Good morning, guys. Congrats on a. Another really good quarter. Thanks for taking a couple. So may. Maybe you addressed it on slide 4. Maybe we could dig in a little deeper. Obviously, AI data center build out very beneficial to electronics, grid in particular. It does feel like the stock is, kind of moved maybe a little bit too much in concert with the AI wins. Can you talk a little further about how important data center AI growth is to Grid, that 30% of the growth that you are talking about this year, do you expect it to accelerate as a portion of overall growth moving forward? Or just kind of any thoughts in terms of if AI growth slows a little bit, what that does to electronics overall.

Yeah. Thank you, Christopher. I mean, this is. I obviously, this is an important message. that is why we put the page in here. We have multiple growth levers All of them really are now contributing meaningfully. And a lot of the questions we have had in the last have been data centers because everybody's excited about that growth, as are we. But to put it into context, of the 100 million plus we expect in organic growth this year, it is about 30% of that will come from data centers. And if you zoom in on grid, which was where your question was, our growth in grid will be 40-plus million. About 3 quarters of that will come from the app centers. The other is just the increased demands of electricity from electrification increasing living standards, and the way we get that number is we talk with our customers. And if you just look at the public statements of large electrical equipment OEMs, there are a lot of growth drivers in the equipment business. Right now, data centers is by far #1, but there is still increased demand for electricity around the world. that is driving an increase. So I would not actually expect this mix to change in the future. You know, we continue to see a long term runway for growth in electrical equipment in general. And data centers right now is providing an additional surge Awesome.

Very helpful. You talked about on the electronic side, your customers kind of viewing you guys more as partners and suppliers. Any discussion with any of the big guys in terms of, kind of long-term supply agreements. They, you know, look to kind of lock in availability? Is that part of any discussions at this point in time?

Hey. Good morning, Christopher. it is Ademir here. I will take this 1. Yes. I mean, the answer is clearly yes. You know, customers know, have a have a pretty solid book of business. In the next 3 to 5 years, and they are looking at us truly as a partner, somebody who can grow with them as they grow into their end market. So you know, as we are talking to our customers, we are looking actually to signing 3- to 5-year long term agreements with some web key, you know, key customers At the same time, you know, on the grid side, we are reshuffling or rearranging a little bit the way we are gonna run the commercial organization. You know, we are going to run Grid more as a global Grid business with key account managers, assigned to each 1 of those, you know, global OEMs And we truly believe there is a huge opportunity there for us to partner with them much more closely going forward than you know, get these long-term agreements with many of them. So yes. And they are very, very interested in actually making sure that we have a capacity to support their growth needs.

Got it. Terrific. And maybe just the last 1 for me. You know, I think missiles were on the A and D side, was $9 million in 2026. Talking about teens in fiscal 27, and potentially $40 million to $80 million over the next 4 years. I guess the question is what has to happen to get close to that $80 million number?

Yeah. The situation has not changed. In that it is really a function of the annual procurement cycle, government budgeting cycle, working with through the Department of Defense, with the primes to then cascade orders down to us. We have seen increased activity And recall that $9 million was really just a couple of programs. It was GMLRS ER, Prism, and kind of the tail end of the ATTCAM program. We had anticipated that to be $15 million this year. I think it will be closer $20 million this year. We have had more order activity. And we think that $40 million to $80 million is likely to be you know, $50 million to $90 million in the coming years. And it is the same as we have communicated in the past. To get to that $90 million, we just require the primes to be able to make long term commitments to replenish those stockpiles. But we have had several meetings with them reviewing multiple scenarios to increase our capacity. And we are ready to go. But we would raise that expectation both on the low end and the high end. by $10 million. That sounds great. I will leave it there. Thanks, guys. Thank you, Christopher. Thanks, Christopher.

Thank you. Your next question comes from Ross Sparenblek with William Blair. Please go ahead.

Hey, good morning, gentlemen.

Good morning, Ross.

Good morning, Ross.

Starting off on electronics, can you help us break out the power orders? Separate from the legacy electronics business?

Yeah. I will take that, Ross. I mean, our book-to-bill in the quarter was 1.23 for the total electronics. And, you know, the legacy businesses as well as Grid were about the same. So each 1 of them were over 1.2. So the orders really continue to be strong kind of across the board for us.

Okay. And then, just to back out, kind of grid revenue contribution, electronics. Forgive me if you guys gave that already.

Yeah. I mean, so we grew organically almost 30% in a quarter and every 1 of our business units grew more than 20%. So it was a really, really strong organic growth kind of across the board. And based on the backlog and our book to bill, we would anticipate that we are gonna continue to have a strong organic growth across all of our platforms.

Okay. Well, should we think that power is leading the charge there? And I guess the back half of that question is, just where we are with Croatia and ramping that. I know that you guys cut the red tape. Several months back, and now it is just about filling out the capacity.

Yeah. So on Croatia first, Ross, Yes. I mean, now going through customer audits it is a new site. The site has to be certified and audited by our customers so before we can actually start manufacturing parts there. They are going through some of the audits by our key customers. And a little bit at the mercy of their own schedule, to when their teams can come. that is going really well. We are now anticipating, that we are going to start making, actually manufacturing and shipping products out of Croatia. You know, within this quarter. We had some buy and resale sales coming out of Croatia in the prior month, but it is gonna, you know, we are gonna see a pretty nice ramp up there in Q3 and Q4. And then your question on power, Oh, you mean the at the higher end of the growth range the growth range. You said, like, 20 or 20. So. Yeah. Yeah. No. I got it. I now understand. So we said, you know, if you go back, you know, we gave that outlook of $340 million to $440 million, you know, years out. We are going to. With that range still holds. We feel pretty confident about $3.40, and, obviously, we are gonna work to get close to the higher end of the range. But this fiscal year, Ross, our initial range was about $180 million to $200 million. I we are very confident that we are going to be at least $190 million to $200 million. So, you know, we do think we are gonna be more at the midpoint or a higher end of the range for this fiscal year. Okay. But it is safe to assume that sequentially, the grid business stepped up on the revenue side? Yes. Yeah. No. Yeah. No question. Yeah. I got to see. We are very pleased with the work that the capacity expansion team has done. It was a very strong first quarter. Okay.

Fantastic. I will pass along and head back in the queue, guys. Thank you.

Thank you.

Thanks, Ross.

Thank you. Your next question comes from Matt Koranda with Roth Capitals. Please go ahead.

Hey, guys. Good morning. Appreciate the bridge on slide 4. So wanted to maybe dig into in the new products, component of the organic sales bridge. Is there any data center exposure there? Just curious to think about sort of you know, the overall to data center growth that you have in the, the growth bridge in the Yeah.

Good. Yeah. So we tried to make this easy to read and not over do it with the with explanation. But that new product number, that is only the new product sales that are outside those other markets. There are new products into data centers, but those are included in the data center box to the left. Okay. So that makes total sense. Yeah. Makes sense, David. Yep. Yeah. Totally does. Okay.

And then And then maybe 1 for Ademir? It was kinda touched on a little bit. Tangentially in some of the responses to questions. But just wanted to hear, I guess, sort of your main areas of focus now that you are you are fully in the seat in electronics. It sounded like maybe there was a bit of a reorganization of the way you go to market. with your longer-term OEM partners. But maybe could you touch on some of the bigger changes that are either in motion or already made, since you took the seat?

Yeah. Well, I have been in the seat for now a little over 3 months and kind of still doing double duty. doing-- dog years. So Well, look. I mean, I will start answering the question by telling you. And as I visited some of the sites to spend more time with our with our employees and leaders, we really have a solid group of employees in electronics, you know, who truly value Stantix's culture. And this is really a special place in the way we operate. And you can see that people, are fully committed to their jobs and really serving the customers. We have capable business leaders And, frankly, you know, we have got, Matt, we have got exposure to some really exciting end markets. In terms of our product solution And as I said in my prepared remarks, you know, meeting with customers, there was really a little bit eye opening is they truly look at us as partners. They want to partner with us in the years to come and, you know, 1 of the things we are trying to do is make it easier for them to partner with us. So we are looking a little bit in the way we go to market. So for example, in Grid, historically, you know, we would go to market a little bit separately between North America and India. Or Asia. And, you know, our customers are really looking to have 1 point of contact. So we are setting up a global commercial organization. We are going to have a key account manager really focused on supporting our key customers and their growth initiatives. So there will be 1 example. We are going to continue with the with the strategy we have been on for years in terms of new products. You know, we have an opportunity to, you know, continue to expand our wallet share We have an opportunity, for example, in our grid business to look at the outdoor opportunities, which we have not, and that is a huge market for us. And we have not really had an opportunity or chance to truly explore that much in the past. And then, you know, you know, the strategy is basically gonna continue. So we have got talented people. We are making some changes on the commercial side. The grid expansion, the capacity expansion remains the key priority, and we will keep on. But I would say that Matt teed it up for you.

Ademir has worked with the team to put in place the first steps of this new global commercial organization so we can. So it is not just words. I mean, there is there is pressure coming in behind it. We have also redeployed some talent in North America to drive improvements here. was a-- that was a headwind for us last quarter. that is that is. We. It was not fixed yet, but it is reversing and improving. So I do not know. In 3 months, you have been having an effect.

Well, let's see in 6 months, 9 months before we yeah. Yeah.

We will give you a little bit more time before we ask the question again, Ademir, Thanks. Maybe the last thing I just wanted to ask was just capital allocation priorities. With the stock sort of moving against you a little bit in the last several months, and the up-- I guess the upping of the repurchase authorization Is that a signal that we should look at as hey. We are going to go a little bit harder on deploying the buyback here. I noticed it did sorta tick up sequentially in the first quarter in terms of deployment. But wanted to hear a little bit about that versus how you balance sort of the opportunity set that is in the funnel for acquisition as well.

Yes. there is a few things. 1 is we had a great discussion with the Board recently about our share buyback authorization. And our last authorization, we were we were running low on it. We maybe had about $20 million left on that. And our approach to buybacks has been to be somewhat opportunistic. Because there are times we think the market does not fully appreciate the value of the company. And a few years ago, we bought a lot of shares. When that was the case. We wanted to be ready to move if the same situation presented itself. And we have been trading with more data center stocks. there is been more volatility in the Standex stock recently than our consistently improving results would justify. We just wanted to be ready to respond to market conditions. We are still full speed ahead on the capacity expansion and that $40 million to $50 million CapEx this year. And I would say on the M&A front, we are. Our funnel is becoming more active. We actually are adding a person to focus on corporate development so we can drive more consistently M&A activity. So no slowdown in the investments or the capital we expect to put into growth. Okay. Appreciate all the detail, guys. So I will leave it there.

Your next question comes from Tom with JPMorgan.

Hi, good morning, everyone.

Morning.

Morning.

Thanks for having us. Maybe just on margins, which were pretty strong this quarter, both gross margin and operating margins. As you think about the path from here, how much of the opportunity is mixed versus productivity and then operating leverage?

Yeah. I think it is it is a combination of both. In terms of, you know, obviously, you know, the businesses that are growing at the highest rate are our highest margin businesses. So we are mixing up from that standpoint. And then, Tom, as we said in the prior quarter, we had some operating issues in our you know, electronics edge business in North America. We had an ERP implementation a few quarters ago, and that created a little bit of a bit of a. Of an issues for us, so to speak. And we have been resolving that, so we are. Feel we are kind of on the tail end of, and we are going to see some of the margin lifts coming from those activities. So we are going to continue driving productivity all of our businesses. Obviously, when the volume is up and you have. You know, you are running at a at a higher capacity, that is just gonna help you know, get the margins up as well. But we do believe there is a margin expansion opportunity in all of our segments going forward, and we are gonna continue driving that across the board. Thank you, Ademir.

And 1 follow-up, you remain on track for more than $1.1 billion of revenue and over 23% operating margins by the end of next year. Fiscal year 28. After these quarters, where do you feel most confident and where is there still the most work to do?

Well, yeah, we are very confident about $1.1 billion and 23% operating margin. The margin, you kind of answer the question on the margin yourself. We hit hitting the $1.1 billion because the higher margin businesses are the ones providing the growth. I mean, we will lever into the 23% operating margin. We are quite confident about that. If I look at our results, I am very pleased with the multiple growth engines that are firing right now. And I would say the new products has been kind of an underappreciated growth avenue for us because this is something that is it is very much in our control. This is a flywheel that is gaining momentum every year. Mean, this year we will have $94 million of new products, which think of where we came from 4 or 5 years ago, it was almost close to 0. And every year, we get better at identifying new opportunities. Launching new products, I mean, in the first quarter, the sales year-on-year, 56% growth in new products. So it is a smaller number than the fast growth markets, but it continues to grow every quarter. So personally, I am most excited for long term potential with that new product. number brings for us. Great. Thank you, David, and congrats on the quarter. Yeah. Thank you. Thank you.

Your next question comes from Michael Shlisky with D.A. Davidson. Please go ahead.

Good morning. Thanks for taking my questions here. Can you provide us a little bit more detail on the footprint expansion in electronics Maybe just tell us what is currently open as of today and what is still to come for the fiscal. Like, which exact facility? Yeah.

Yeah. So, Mike, if you remember, we kind of-- there are 4 different pieces of this project. So first 1 is expanding our India capacity, and we are up probably about 30% year-on-year in terms of expanding capacity in our current sites in India. And we are going to continue working on those efforts. Croatia, as we as we mentioned earlier, you know, it is just going through customer audits right now and is going to start manufacturing and shipping out of the site within this quarter. And again, we expect that is going to get started to ramp up more in Q3 and Q4 of this fiscal year for us. Mexico, is up and running, so are the shipping products out of Mexico. there is an existing electronics facility right across the border of Arizona. We allocate the portion of the space to the grid to the grid business, and that is, that is already up and running. And then in Houston, you know, we are already working 27 in terms of the current site as of as of actually 2 weeks ago. We are in the process of, of getting a much larger facility, probably 3. About 3 times, 3.5x the size of the current facility, We expect, it is a new construction. And we expect to get the keys from that site in June, July time frame of next year and then probably gonna take us, you know, couple of months to get the production fully up and running. In the meantime, the other side is gonna be running at full capacity, so we do not you know, we do not lose you know, we do not lose any opportunities. But you know, it is all on track. it is all moving as we would expect it. And that is 1 of the reasons, you know, we are actually raising that $180 million to $200 million in grid sales to $190 million to $200 million is because we feel confident that capacity expansion work is yielding results.

Great. Thanks for that. And then I also wanted to ask about the pipeline you have got in aerospace and defense. As you look ahead, what is in the backlog today of what you signed more recently? Does some of it have a higher margin profile maybe next 12 months than you saw over the last 12 months? It sounds like for a lot of contractors, you are seeing better margins. You. You are a supplier to other contractors, but just curious as to whether you are seeing a better mix or kind of better project work there.

I would say that this is the new programs that we are winning, we are winning because we have a competitive advantage in our process and making those parts with spin forming versus traditional methods. So that tends to be reflected in gross margin where we are able to generate So I-- so they are marginally more. Marginally higher margin than the than the core business. So they. So these new programs will help the aerospace and defense continue to mix up in margin. Great. Thanks for that, David. I will pass it along. Thank you. Bye. Thank you.

Your next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Hey. Good morning, all. Gary. Couple of quick questions just on the numbers. I noticed that the. It looks like the corporate expense when you look at the segments and applied corporate expense, really jumped year over year What happened there? And is that the run rate we should expect going forward?

Hey. Good morning, Gary. So, yeah, yeah, it is it is up about $3 million year on year versus prior Q1. And about 2-thirds of that increase Gary, relate to, you know, higher variable compensation expenses and stock comp. as well as higher medical costs. The medical costs, the medical costs have been, you know, increasing for us for the past, you know, year or 2, and then that continues And there are about 1-third of that increase. it is more like a onetime cost you know, primarily related to some of the executive-- executive recruiting and transfers we had at the company. That obviously is not gonna continue. So we would expect the corporate cost is gonna come somewhat down in Q2, and get a little bit more normalized as we get into the Q3 and Q4.

Okay. That. that is helpful. And then before I just get into general industry questions here, If you are looking at high teens adjusted EPS growth, what kind of growth would that come to on an adjusted EBITDA basis? Will we be looking at a similar level of percentage growth from adjusted EBITDA with an adjusted EPS growth of you know, mid teens or high teens.

Yeah. I think that is probably not that far off. You know, kind of mid teens is probably a good way to look at it.

Okay. And then, David, with the slide that you provided with the growth drivers data centers, grid, etcetera. And, Ademir, maybe you can answer. Help chip in here. I mean, what are your thoughts on all of the noise that is coming out against data centers? And is that is there a similar movement in international markets against data center growth.

We are we are seeing more data centers planned outside America in, you know, in the last 3 to 6 months. In our discussions with our customers, you know, indicate their you know, the they are seeing an increase in activity investments outside The US. I was just in Europe a few weeks ago, depending on the country you are in. There is some of the same debate about the impact of data centers on electricity prices, on water, on the local economy. I think all the. All the all the governments and society are gonna have to work that out. But we see a change in our expected outlook Individual programs may be pushed out. They may be-- they may move geographically. But there is there is there is such a hunger to get this productivity online. All the language we hear from our customers is that they are exploring multiple options where necessary to bring that capacity online.

Okay. Thank you. Oh, no. The other thing I just wanted. Well, never mind. I will I will ask that offline. Thank you. Okay. Thank you.

Ross has a follow-up. Please go ahead.

Thanks, guys. Yeah. Just wanted to get a sense of, you know, the expectation of the capacity unlock on the-- I mean, you noted in the past that everything that you are making is shipping and so if demand is that immense, and we know that there is a massive imbalance between the supply and demand of gigawatts in the channel I mean, should it be a pretty healthy unlock? As you start to get these machines, get these employees, or do you think it will be more measured kind of like the linear path that you presented here recently?

Ross, I think it will probably be a little bit more linear as we kind of unlock a capacity. But what I will tell you, we the orders remain very, very strong, and we have no worries that we unlock the capacity, we will be able to fulfill that capacity. In terms of in terms of, you know, being busy in terms of sales. So we do think it is gonna be a little bit more linear in the in the quarters to come.

Alright. Well, maybe a better way is I just-- what about purchasing patterns. I mean, do these things come in and, you know, measured in thousands, tens of thousands? Are they kinda, you know, batch orders of size, and there is a certain time frame to fill them, or is it just kind of again, back to the book and ship? I mean, there is just demand available in the market, and so everything that you are making here is going out the door. Just what is that, you know, customer sales process look like?

Yeah. I mean, you know, it is it is kind of. You know, we are actually now looking and we talked about these long term agreements in this space, right? Customers are actually kind of looking to give you a bit of a longer term, longer lead time, a longer forecast in terms of what they need. So some of the customers are now looking and giving us a forecast of 6 to 12 months out. So there is there is that visibility we are we are we are starting to get Part of that is also just making sure that, you know, we have capacity to support them. But, again, you know, what I will tell you is as we unlock the capacity, you know, that capacity gets filled pretty quickly.

No. I would just add to that. The customers are managing their entire supply chain. So they have been quite transparent with us about their demand and their requested schedules. So we may receive orders for products to be delivered in a month or 2 months, but we have we have long term planning sessions. So they have an. They give us an idea what is likely to come in a quarter, in 2 quarters, in 3 quarters. And then our input on our capacity affects their affects their own plan too. it is a very interactive process. Very dynamic. Yeah. Yeah. Well, I mean, I imagine that their internal build rates have only been increasing over the last 18 months. Well, then maybe just. And I do want to remind. Ademir, Yeah. Sorry. Yeah. I am sorry. I just wanna make another point. When we have talked about the opportunity for our grid business with instrument transformers, In our investor presentation, there is a breakdown of the total market. Total market is $12 billion. We have been serving about a $1 billion piece of that in North America and India there is a $3.5 billion piece of that, which is aftermarket repair. it is local business that is sold to utilities and that is an opportunity for us to unlock as this capacity comes online. So we are not concerned about a long term imbalance with capacity and demand. We have another larger market to begin serving longer term.

that is why, yeah, I wanted to kinda get into is just, you know, Ademir. Couple of months in the seat. You mentioned, you know, your partnership opportunities. David just talked about kind of a service even aftermarket. I mean, what else are you seeing out there? I mean, how can we start to get a bigger piece of this TAM? And is M&A required?

You know, I think, Ross, quite frankly, I think, organically, we feel we feel pretty good we can capture a significant market opportunities. And to David's point, there is this additional market we have not even explored, and we are gonna start exploring opportunities in those markets as well. And, you know, on an M&A side, we have a pretty busy M&A pipeline, and, obviously, we are gonna continue to be acquisitive at the same time. And our strategy is gonna continue, you know, from, you know, new product development organic focus on capacity expansion, you know, sales and commercial excellence, organic growth at the same time complemented by inorganic opportunities as they come. And then as you know, those you cannot really predict when they are gonna happen, but we remain, we remain out there. Okay. No. that is great, guys. I will leave it there. Thank you.

And Ademir, I guess-- I will miss you? I will miss you. Thank you, Ross.

There are no further questions.

I will turn it back to Mr. Dunbar for some closing remarks. Alright. Thank you. I want to also mention that Joanne Edwards will be retiring from the Board of Directors after 8 years. She has been influential in supporting our strategy to grow in the electrical equipment and the markets, which is obviously paying off. I want to thank her for her many contributions. We wish her and her family all the best in her retirement. We are also happy to welcome Brenna from Brunswick to the board. Brenna brings strong strategic planning skills, and deep talent development experience which will be valuable as we chart the next steps in our journey. I want to thank you all for joining our call today. We truly enjoy reporting on our progress and the outlook at Standex. Thank you again to all of our employees who are solving problems and taking care of customers every day. Making Standex a great place to work. I look forward to speaking with you again in our fiscal second quarter 27 call.

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines. Have a great day.