Standex International Corporation (SXI) Earnings

Management highlights

- Company Transformation Inflection Point * Standex has hit its inflection point as a growing engineered components company; 73% of Q4 sales came from engineered components businesses, with long runway for organic and inorganic growth * New product sales grew from $40 million to $67 million in fiscal 2026, contributing 300 basis points to full-year sales growth; sales to fast-growth markets increased $80 million to $264 million, representing 30% of total sales * Completed acquisition of the remaining 9.9% interest in Narayan, rebranding the Amaran Narayan Group to Standex Grid, focused on meeting growing demand for global power infrastructure for electrification, data center build-out, and grid replacement * CFO Ademir Sarcevic will transition to President of the Electronics segment, leveraging his deep operational experience across the business - Standex Grid Capacity Expansion Plan * Standex Grid grew from $100 million annual revenue at acquisition to $148 million in fiscal 2026, with a target of $340 to $440 million in annual sales by fiscal 2030 * Six targeted capacity expansion workstreams: productivity/automation will add $40 million in annual capacity by 2030; the already opened Croatia greenfield facility will add $75 million in annual capacity (up from the original 60 million estimate); Mexico will add $25 million in annual capacity via freed existing facility space; Texas will add over $60 million in annual capacity with production starting in fiscal 2028; India will add $45 million via additional shifts and $50 million via footprint expansion - Consolidated Q4 and Full Year Fiscal 2026 Results * Consolidated Q4 2026 revenue was $228.3 million, up 2.8% year-on-year, with 7.7% organic growth partially offset by 4.5% headwind from the federal industry divestiture and 0.4% foreign currency headwind * Q4 2026 adjusted EPS was a record $2.45, up 7.4% year-on-year; full year fiscal 2026 adjusted EPS hit a record $8.74, with a 42% adjusted gross margin and 19.4% adjusted operating income margin * Record Q4 free cash flow of $35 million, up from $24.9 million year-on-year; net debt fell to $339.2 million from $448 million year-on-year, bringing the net leverage ratio to 1.8x * Declared a 34 cent per share quarterly dividend, a 6.3% increase year-on-year, marking the 248th consecutive quarterly dividend - Operational Update * No employee injuries and minimal facility damage from the recent Kumamoto, Japan earthquake at the Sanyu relay facility, though some employee homes sustained damage * The company maintains an acquisition strategy focused on margin-accretive targets with exposure to fast-growth markets and custom engineered solutions

Guidance

- Fiscal First Quarter 2027 * Sequentially: Expect slightly higher revenue from fast-growth end markets and new product sales, with similar adjusted operating margin * Year-on-year: Expect moderately higher revenue from high single-digit to low double-digit organic growth driven by growing backlog in fast-growth markets and increased new product sales, partially offset by the revenue impact of the federal industry divestiture; expect slightly to moderately higher adjusted operating margin, as organic growth and productivity gains are partially offset by growth investments - Full Fiscal Year 2027 * Expect mid to high single-digit total sales growth, with high single-digit to low double-digit organic growth and continued adjusted operating margin expansion * Expect to launch more than 20 new products; new product sales (pro forma for the federal divestiture) will grow by $23 million to $90 million, contributing nearly 300 basis points of organic growth * Fast-growth market sales (space, defense, grid) are expected to increase ~20% to over $310 million, representing more than 30% of total sales * Capital expenditures are projected to be between $45 million and $55 million, primarily for Standex Grid capacity expansion * Interest expense is expected to be ~$7 million for Q1 2027 - Long-term * On track to achieve over $1.1 billion in total sales and over 23% adjusted operating margin by the end of fiscal 2028, pro forma for the federal industry divestiture * Standex Grid is expected to reach $180 to $200 million in sales in fiscal 2027, with a long-term target of $340 to $440 million by fiscal 2030

Segment performance

Electronics: Revenue increased 12.1% year-on-year to $129.1 million, representing 56.5% of total Q4 2026 revenue, with 12.9% organic growth offset by 0.8% foreign currency headwind. Adjusted operating margin was 27.2%, down 140 basis points year-on-year due to growth investments and transitory operational issues at the edge business unit. Book-to-bill was 1.27 with $165 million in orders. Aerospace and Defense: Revenue increased 18.3% year-on-year to $37.9 million, representing 16.6% of total Q4 2026 revenue, with 18.4% organic growth driven by higher defense project activity. Adjusted operating margin increased 410 basis points year-on-year to 22.5%, due to higher volume and favorable project mix. Scientific: Revenue increased 5% year-on-year to $18.8 million, representing 8.2% of total Q4 2026 revenue, all from organic growth driven by pricing initiatives and a mild market recovery. Adjusted operating margin increased 440 basis points year-on-year to 28.6%, driven by higher sales and tariff refunds. Engraving and Hydraulics: Revenue decreased 9.7% year-on-year to $42.4 million, representing 18.6% of total Q4 2026 revenue, with a 9.6% organic decline and 0.1% foreign currency headwind. Adjusted operating margin increased 20 basis points year-on-year to 15.9%.

Risks & headwinds

- Transitory operational disruptions from ERP system implementation at the edge magnetics business unit reduced Q4 2026 Electronics segment adjusted operating margin by an estimated couple million dollars, though management expects the issue to be resolved quickly - Large multi-site, multi-year Standex Grid capacity expansion requires dedicated execution and could face timing delays for construction and machinery delivery - Forward growth and margin targets depend on sustained demand growth in secular end markets (electrification, grid infrastructure, defense, data centers) that could differ from current expectations - Actual results could differ materially from forward-looking statements due to general economic and market risks, detailed in the company's SEC filings

Analyst Q&A

• Q: How is Standex managing the multi-site, multi-country Standex Grid capacity expansion, and is leadership spread too thin to execute effectively? /

  A: Standex has a dedicated central "tiger team" focused on the full expansion program, with separate local teams for individual site projects. The expansion is staged sequentially: Croatia and Mexico are already operational, and will contribute $10 to $15 million in incremental sales in fiscal 2027; additional shifts in Houston and India will add another $10 to $15 million in capacity in 2027; the Texas and India footprint expansions are scheduled for 2028 and beyond. Management is confident it can hit the 2027 grid sales target of $180 to $200 million, positioning the company for further growth in subsequent years.

• Q: How sustainable are Standex Grid's EBITDA margins, which have previously been near 40%? What was the reasoning for the early buyout of the remaining Narayan minority shares? /

  A: Grid margins remain strong at historical levels and are holding north of 30%, as previously guided. The early buyout was completed because the partnership with the former Narayan leadership has been even stronger than expected, and management wanted to expedite decision-making for the large capacity expansion plan, while removing accounting complexities from the minority ownership structure. Standex paid a 15x TTM EBITDA multiple for the remaining stake, bringing the blended multiple for the full acquisition to only 7 to 8x based on current fiscal 2026 EBITDA, which is an attractive valuation for the company.

• Q: What caused the Electronics segment's Q4 margin decline, and when will growth investment pressures step down? /

  A: The $2 to $3 million margin impact was split between transitory operational issues from a new ERP implementation at the edge business unit, and planned growth investments for the grid expansion. The ERP issues are already being addressed and are expected to reverse quickly. Most start-up costs for the new Croatia facility will normalize in coming quarters, and Mexico uses existing fixed cost base so it will not create meaningful margin pressure. Management expects overall electronics margin expansion in fiscal 2027, targeting 30% adjusted operating margin as volume growth and productivity gains offset ongoing growth investments.

• Q: What explains the $340 to $440 million wide range for 2030 Standex Grid sales, and how smooth will grid growth be through the period? /

  A: Management has high confidence in the $340 million lower end of the range, based on the currently committed capacity expansion plan and locked-in demand growth. The additional $100 million of upside reflects potential excess demand if market growth continues to outpace expectations and the company executes well on expansion. Growth will be relatively smooth: capacity will come online incrementally through 2027, with only the Texas and India footprint expansions coming online in 2028 and later, making those the longest-lead items in the plan.