Standex International 2026 Q4 Earnings Call

Please go ahead. Thank you, operator, 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 two. 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 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, 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 one-time 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 Dunbar, and Chief Financial Officer and Treasurer, Ademir Sarcevic.

Thank you, Chris. Good morning and welcome to our fourth quarter and fiscal year 2026 conference call. A year ago, we made the claim that we are at an inflection point as a company, and that our results in fiscal year 2026 would show that. I'm happy to look back on the year and see that it has indeed played out. We have demonstrated we are a growing engineered components company. Total sales grew 5.5% organically in the year, propelled by our growth initiatives. In our fourth quarter, 73% of our sales were delivered by our engineered components businesses. These businesses serve large end markets, providing a long runway of organic and inorganic growth opportunities. Our new product development efforts are now contributing meaningfully to sales, growing from $40 million to $67 million in the year.

The $27 million increase contributed 300 basis points to sales growth. Our sales to fast growth markets increased $80 million to $264 million, contributing 30% of sales. On July 2nd, we acquired the remaining 9.9% interest in Narayan, completing the acquisition of the Amran/Narayan Group, now known as Standex Grid. Together with our new colleagues in Standex Grid, we are completely focused on meeting the rapidly growing needs of customers, building out the world's power infrastructure to support increasing living standards, electrification, replacement of an aging western grid, and the current rapid build-out of data centers. 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 record in FY 2026.

I also want to take a moment to thank Alan Glass for his many contributions these past 10 years. Alan has recently decided to retire, and I will soon be announcing his replacement as we bring in a new Chief Legal Officer to help power Standex through the next leg of our journey. Let's look at the results beginning on Slide three. In the fourth quarter, sales of $228.3 million increased 7.7% organically. Electronics grew 12.9% organically. New product sales grew approximately 43% to approximately $23 million. Sales into fast growth markets were approximately $72 million or more than 30% of sales. We had a record quarterly order intake of approximately $270 million.

We are pleased with the momentum in the business, reflected in an overall book-to-bill ratio of 1.18, and within Electronics of 1.27. In FY 2026, sales increased by more than $100 million and 5.5% organically. Electronics grew 7.5% organically. Q4 adjusted earnings per share were a record $2.45 per share, and we generated record free cash flow of $35 million. Following record profitability in FY 2025, we again achieved record milestones with adjusted gross margin of 42%, adjusted operating income margin of 19.4%, and adjusted earnings per share Of $8.74. On a sequential basis, we expect slightly higher revenue driven by higher contributions from fast growth end markets into new product sales and similar adjusted operating margin.

On a year-over-year basis in fiscal first quarter 2027, we expect moderately higher revenue driven by high single-digit to low double-digit organic growth from growing backlog in fast growth markets and increased new product sales, partially offset by the revenue impact from the Federal Industries divestiture. We expect slightly to moderately higher adjusted operating margin as organic growth and realization of productivity actions are partially offset by growth investments. For FY 2027, we expect mid- to high single-digit sales growth with high single-digit to low double-digit organic growth and continued adjusted operating margin expansion. I'm pleased with the momentum that we are building in launching new products. We expect to launch more than 20 new products in FY 2027, on top of more than 15 new products this past fiscal year.

We expect new product sales pro forma for the federal divestiture to grow by $23 million to $90 million, adding nearly 300 basis points of organic growth in the year. Our sales into the fast-growing markets such as space, defense, and grid are expected to increase approximately 20% to greater than $310 million, constituting more than 30% of our total sales. We are looking forward to Ademir transitioning into the electronics business as president of electronics. This is a natural step. To be a CFO at a company like Standex is, in fact, to be a chief operating officer. Our consistent performance these past seven years owes a lot to Ademir having stayed close to the businesses.

When there were early signs of issues to address or opportunities to expand, he would get into the details of the business, address the pricing, sourcing, or operating issues to help get things back on track. I will now turn the call over to Ademir to provide more insight as to how we will approach the single biggest opportunity in our business, the expansion of capacity in our grid business.

Thank you, David. Good morning, everyone. I am very excited to take on the role of electronics president as we enter this new chapter in Standex's transformation to high growth and high performance company. Our electronics business is exposed to several very robust and fast-growing end markets such as grid, defense, and automation. We are well positioned to capture market opportunities through continued targeted investments in R&D and new products, capacity expansion in grid, while serving customers utilizing our customer intimacy approach. Our team is dedicated and accountable. Our products and solutions are robust. Our partnership with customers is strong. I believe we have significant organic growth and margin expansion opportunities in years to come. Let's turn to slide 4, which highlights our focus on capacity expansion within our electronics grid business.

One of my top priorities as electronics president is expanding capacity within our Standex Grid business. Since I joined Standex as CFO, we never have had such an incredible opportunity for organic growth. When we acquired Amran Narayan, their sales were approximately $100 million on an annual basis. We just closed FY 2026 with approximately $148 million in sales, and by fiscal 2030, we expect grid sales to grow to between $340 million and $440 million. To get there, we have identified six capacity expansion objectives and have dedicated teams driving these important work streams. Key pieces of our capacity expansion efforts include productivity and automation, greenfield facility in Croatia, new lines in Mexico, expanding our footprint in Texas, and additional shifts in footprint in India. Starting with productivity and automation, we are expecting capacity within existing facilities, adding up to $40 million in full year capacity by fiscal 2030.

This May, we open our new facility in Croatia, built as a direct response to customer demand for local capacity, giving us visibility into 2030 and a shot at a meaningful share of the $1.2 billion Europe market. By fiscal 2030, we believe Croatia will add approximately $75 million in annual capacity, well above our original three to five-year estimate of $60 million. Croatia isn't just a new facility, it's a platform for our next phase of growth in Europe. In Mexico, we have freed up space in our existing facility to produce low voltage instrument transformers, adding approximately $25 million in annual capacity by fiscal 2030. In Texas, we signed a lease to triple our footprint to over 200,000 sq ft with machinery on order and production on track to start in fiscal 2028. This expansion is expected to add over $60 million in annual capacity by fiscal 2030.