Standex(SXI) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited condensed consolidated financial statements for Q2 FY2023 show increased assets and net income, with a decrease in operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $956.7 million by December 31, 2022, with higher cash and equity, and a slight decrease in liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total current assets | $400,925 | $378,998 | | Total assets | $956,685 | $934,439 | | Total current liabilities | $132,415 | $150,768 | | Long-term debt | $187,500 | $174,830 | | Total liabilities | $427,268 | $435,096 | | Total stockholders' equity | $529,417 | $499,343 | - The company reported $13.96 million in assets held for sale ($10.23 million current, $3.73 million non-current) as of December 31, 2022, which were not present at June 30, 2022[8] Condensed Consolidated Statements of Operations Q2 FY2023 net sales modestly increased to $187.8 million, with net income significantly rising to $20.0 million year-over-year Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $187,789 | $185,709 | $368,389 | $361,319 | | Gross profit | $72,320 | $68,772 | $140,573 | $135,009 | | Income from operations | $27,806 | $21,773 | $54,096 | $44,601 | | Net income | $20,043 | $14,984 | $38,313 | $30,802 | | Diluted EPS | $1.69 | $1.24 | $3.21 | $2.54 | Condensed Consolidated Statements of Cash Flows Net cash from operations for the six months ended December 31, 2022, decreased to $27.0 million, with cash used in investing and financing activities Cash Flow Summary for Six Months Ended Dec 31 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $27,040 | $36,335 | | Net cash used in investing activities | ($10,930) | ($8,075) | | Net cash used in financing activities | ($7,589) | ($15,585) | | Net change in cash and cash equivalents | $8,650 | $10,788 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, the Sensor Solutions acquisition, segment revenue, assets held for sale, and restructuring initiatives - During Q3 of fiscal 2022, the company acquired Sensor Solutions for $9.9 million in cash, reported within the Electronics segment, resulting in $5.8 million of goodwill[25][26][27] - The Procon operating segment met criteria for assets and liabilities held for sale as of December 31, 2022, with sale completion expected within 12 months[52] - Restructuring expenses of $0.5 million and $1.1 million were incurred in the three and six months ended December 31, 2022, primarily for headcount reductions and facility rationalization[80][81][83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 FY2023 net sales growth, improved gross margin and operating income, mixed segment performance, and strong liquidity Results from Continuing Operations Q2 FY2023 net sales rose 1.1% to $187.8 million with organic growth, leading to improved gross margin and 27.7% higher operating income Net Sales Change Components (in thousands) | Component | Q2 2023 vs Q2 2022 | Six Months 2023 vs 2022 | | :--- | :--- | :--- | | Prior Year Net Sales | $185,709 | $361,319 | | Organic sales change | $10,123 | $22,933 | | Effect of acquisitions | $803 | $1,919 | | Effect of exchange rates | ($8,846) | ($17,782) | | Current Period Net Sales | $187,789 | $368,389 | - Gross margin for Q2 fiscal 2023 increased to 38.5% from 37.0% in the prior year quarter, attributed to organic sales growth, productivity, and targeted pricing initiatives[103] - Income from operations for Q2 fiscal 2023 increased by $6.0 million, or 27.7%, year-over-year, driven by organic sales, pricing actions, and cost reductions[111] Segment Analysis Q2 FY2023 segment performance was mixed, with strong growth in Engineering Technologies and Specialty Solutions, while Scientific sales declined Q2 2023 Segment Performance (in thousands) | Segment | Net Sales | % Change YoY | Income from Operations | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Electronics | $72,556 | (5.3%) | $16,972 | (1.1%) | | Engraving | $37,689 | 2.8% | $6,373 | 22.5% | | Scientific | $19,292 | (21.7%) | $4,165 | (24.1%) | | Engineering Technologies | $24,193 | 33.7% | $3,741 | 61.7% | | Specialty Solutions | $34,059 | 14.6% | $5,716 | 52.9% | - Total backlog realizable under one year increased 1.7% to $268.6 million at December 31, 2022, from $264.2 million a year prior[118] Liquidity and Capital Resources The company maintains a strong liquidity position with $113.5 million cash, a 1.0x leverage ratio, and renewed its $500 million credit facility Capitalization (in thousands) | | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Long-term debt | $187,500 | $174,830 | | Less cash and cash equivalents | ($113,494) | ($104,844) | | Net debt | $74,006 | $69,986 | | Stockholders' equity | $529,417 | $499,343 | | Total capitalization | $603,423 | $569,329 | - The company's leverage ratio was 1.0x and interest coverage ratio was 19.0x as of December 31, 2022, well within covenant requirements[154][155] - Subsequent to quarter-end, in February 2023, the company renewed its five-year Amended and Restated Credit Agreement with a $500 million borrowing limit[157] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from foreign currency, interest rates, and commodity prices through hedging, including interest rate swaps on $175.0 million of variable-rate debt - The company mitigates interest rate risk on its variable rate borrowings using interest rate swap agreements, covering $175.0 million of debt at a weighted average fixed rate of 1.18% as of December 31, 2022[174] - Foreign exchange risk is managed through natural hedges and forward currency contracts, with an aggregate fair value liability of $0.6 million for open contracts at quarter-end[172] - The company is exposed to fluctuating prices for commodities like steel, aluminum, rhodium, and copper, attempting to offset impacts through price increases[176][177] Item 4. Controls and Procedures As of December 31, 2022, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2022[178] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[179] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 FY2023, the company repurchased 49,955 shares at an average price of $102.55, with $77.1 million remaining for future buybacks Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid | Amount Remaining in Program | | :--- | :--- | :--- | :--- | | October 2022 | 1,283 | $93.44 | $82,258 | | November 2022 | 48,672 | $102.79 | $77,135 | | December 2022 | 0 | - | $77,135 | | Total | 49,955 | $102.55 | $77,135 | Other Disclosures Subsequent to quarter-end, on February 2, 2023, the company renewed its five-year $500 million credit facility with a $250 million accordion feature - On February 2, 2023, the company entered into a new Third Amended and Restated Credit Agreement, replacing its existing facility[183] - The new credit facility has a borrowing limit of $500 million, an accordion feature to increase it by up to $250 million, and expires on February 2, 2028[184][187] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including the Third Amended and Restated Credit Agreement and officer certifications - Lists the Third Amended and Restated Credit Agreement dated February 2, 2023, as an exhibit[193] - Includes CEO and CFO certifications as required by Sections 302 and 906 of the Sarbanes-Oxley Act[193]