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Standex(SXI) - 2025 Q1 - Earnings Call Transcript
SXIStandex(SXI)2024-10-30 19:25
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Financial Data and Key Metrics Changes - Total revenue decreased approximately 7.7% year-on-year to 170.5million,reflectinganorganicrevenuedeclineof11.4170.5 million, reflecting an organic revenue decline of 11.4% and a 0.1% impact from foreign exchange, partially offset by a 3.8% benefit from recent acquisitions [33][34] - Adjusted operating margin was flat year-on-year at 15.9%, while adjusted operating income decreased 8% due to the revenue decline [34] - Adjusted earnings per share decreased 1.7% year-on-year to 1.71 [34] - Record adjusted gross margin of 41.1%, up 240 basis points sequentially [13] Business Line Data and Key Metrics Changes - Electronics Segment: Revenue decreased 4.8% year-on-year to 77.7million,withanorganicdeclineof13.7,butadjustedoperatingmarginincreased150basispointsto21.977.7 million, with an organic decline of 13.7, but adjusted operating margin increased 150 basis points to 21.9% [36] - **Engraving Segment**: Revenue decreased 18.2% to 33.4 million, driven by an organic decline of 17.5% [39] - Scientific Segment: Revenue decreased 2.7% to 17.7millionduetolowerdemandfromretailpharmacies[40]−∗∗EngineeringTechnologiesSegment∗∗:Revenueincreased12.717.7 million due to lower demand from retail pharmacies [40] - **Engineering Technologies Segment**: Revenue increased 12.7% to 20.5 million, driven by organic growth of 13.3% [42] - Specialty Solutions Segment: Revenue decreased 18.3% year-on-year to 21.1million[44]MarketDataandKeyMetricsChanges−Salesintofast−growthendmarketswereflatyear−on−yearat21.1 million [44] Market Data and Key Metrics Changes - Sales into fast-growth end markets were flat year-on-year at 20 million, with growth in electric vehicles and defense applications offset by demand conditions in the Engraving segment [12] - The acquisition of Amran/Narayan Group is expected to enhance exposure to fast-growth markets, increasing from 13% to approximately 25% of total sales on a pro forma basis for fiscal 2024 [15][30] Company Strategy and Development Direction - The acquisition of Amran/Narayan Group for approximately 462millionisaimedatexpandingpresenceinthehigh−marginelectricalgridmarket[8][9]−Thecompanyplanstomaintainastronginvestment−gradebalancesheetandfocusondebtrepaymentinthenexttwoyears[28]−Newproductdevelopmentremainsapriority,withexpectationsforoveradozennewproductstobereleasedinfiscalyear2025[16][49]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpectsendmarketstostabilizeinthesecondquarterandstrengtheninthesecondhalfoffiscal2025[7]−ThecompanyanticipatesmoderatelytosignificantlyhigherrevenueinthefiscalsecondquarterdrivenbytheAmran/Narayanacquisitionandimprovingdemand[14]−Managementremainscautiouslyoptimisticabouttherecoveryintheelectronicsmarket,withexpectationsformidtohighsingle−digitorganicgrowthinthelatterhalfofthefiscalyear[52]OtherImportantInformation−Thecompanydeclaredaquarterlycashdividendof462 million is aimed at expanding presence in the high-margin electrical grid market [8][9] - The company plans to maintain a strong investment-grade balance sheet and focus on debt repayment in the next two years [28] - New product development remains a priority, with expectations for over a dozen new products to be released in fiscal year 2025 [16][49] Management's Comments on Operating Environment and Future Outlook - Management expects end markets to stabilize in the second quarter and strengthen in the second half of fiscal 2025 [7] - The company anticipates moderately to significantly higher revenue in the fiscal second quarter driven by the Amran/Narayan acquisition and improving demand [14] - Management remains cautiously optimistic about the recovery in the electronics market, with expectations for mid to high single-digit organic growth in the latter half of the fiscal year [52] Other Important Information - The company declared a quarterly cash dividend of 0.32 per share, reflecting a 6.7% increase year-on-year [45] - The acquisition is expected to be immediately accretive to revenue growth, EBITDA margin, operating margin, earnings per share, and free cash flow [9][15] Q&A Session Summary Question: Expectations for organic growth in fiscal 2025 - Management expects mid to high single-digit organic growth in the electronics segment for Q3 and Q4, with challenges in the Engraving segment [52][53] Question: Details on the acquisition and overlap between companies - The acquisition involves two legal entities but operates as a single global business, leveraging shared expertise and resources [55][56] Question: Growth targets for the acquired business - Management suggests planning for mid-teens growth for the acquired business, with potential for higher growth as integration progresses [61] Question: Customer concentration and major clients - The acquired company serves major OEMs in Europe, the U.S., and India, with no significant customer concentration issues [62] Question: Potential for EBITDA margin improvement - Management believes growth and leverage on the top line will drive EBITDA margin expansion rather than cost synergies [63] Question: Insights on order trends in the electronics segment - The company has seen a significant increase in orders, indicating market stabilization and recovery [65] Question: Geographic breakdown of the acquired revenue - Approximately 30-40% of the acquired revenue comes from the U.S., with the remainder primarily from Asia [74] Question: Currency and billing practices in India - The acquired entity bills Indian customers in rupees, while U.S. customers are billed in dollars [77] Question: Market opportunity and competitive landscape - The acquisition opens up a $2 billion addressable market, with a focus on customer intimacy and rapid prototype development as competitive advantages [88][89]