STANDEX INTERNATIONAL CORP/DE/ Q1 FY2025 earnings call

Management Statement and Operational Highlights: - In fiscal first quarter 2025, sales declined 7.7% with acquisitions partially offsetting organic decline. - Achieved record gross margin above 40% and operating margin near 16% despite challenging market conditions. - Recently acquired Amran Instrument Transformers and Narayan Powertech, a combined enterprise value of ~$462 million, which is expected to be immediately accretive to revenue, EBITDA margin, etc. - Amran/Narayan Group has averaged 30% cumulative annual revenue growth over 3 years, expects ~$100 million revenue in 2024 with adjusted EBITDA margin north of 40%. - New product sales increased ~20% year-on-year to $11 million in fiscal first quarter. - Research and development expenses were 2.8% of sales. - Expect demand to improve in second half of fiscal 2025.

Segment Performance: Electronics segment had revenue of $77.7 million, a 4.8% year-on-year decrease. Adjusted operating margin was 21.9%, up 150 basis points year-on-year. Engraving segment revenue was $33.4 million, down 18.2% year-on-year, with an operating margin of 17.5%, down 110 basis points year-on-year. Scientific segment revenue was $17.7 million, down 2.7% year-on-year, and operating margin was 26.8%, down 30 basis points year-on-year. Engineering Technologies segment revenue increased 12.7% to $20.5 million, with an operating margin of 19.5%, up 290 basis points year-on-year. Specialty Solutions segment revenue was $21.1 million, down 18.3% year-on-year, and operating margin was 16.8%, down 490 basis points year-on-year.

Guidance: - Expect end markets to stabilize in Q2 and strengthen in H2 of fiscal 2025. - Acquisition of Amran/Narayan Group is expected to be immediately accretive to revenue growth, EBITDA margin, etc. - In fiscal second quarter 2025, expect moderately to significantly higher revenue driven by acquisition, better project timing in Engraving, and improving demand; slightly moderately higher adjusted operating margin, partially offset by increased investments in S&M and R&D. - Expect Amran/Narayan Group acquisition to be slightly accretive to adjusted earnings per share in fiscal second quarter.

Risks: - Challenging general market conditions that pressured the top line. - Integration risks related to the acquisition of Amran/Narayan Group, such as assimilating the new entity's operations and culture.

Q: Regarding organic growth for fiscal 2025, what's the expectation?

A: I think we obviously -- electronics is now our biggest segment by far. And as we look through our Q2 and we look at our recent order rates, we feel the market is stabilizing and is starting to pick up. So Q2 will not be having an organic growth in fiscal Q2. But as we move to Q3 and Q4, we think it's not unreasonable to expect that the electronics kind of a core business will have mid to high single-digit organic growth. And obviously, when you put the Amran acquisition on top of that and then growing at a pretty significant CAGR, we have pretty high expectations for that business. Engraving business has been challenged with some of the pushouts from the OEMs. So we don't look at Engraving as being significantly contributing to organic growth this fiscal year. And then when you look at the Engineering Technologies, for example, they are growing at a pretty significant rate, double-digit organic growth in the quarter, and we expect that to continue. Scientific is starting to recover. I would probably tell you as we move to the rest of the year, probably kind of a mid-single-digit growth.

Q: Can you comment on customer concentration for Amran/Narayan?

A: No. They serve all the big players in the OEM equipment, both in Europe and in the U.S., and in India. In fact, their European customers have really been pressuring them to create a footprint in Europe. So we can really help accelerate that. They've got plans and made a step or 2, but with our team, we can really accelerate that, better serve those European customers. But they're all listed on Page 4 of the earnings deck and you'll see all the familiar names.

Q: Synergies from the acquisition?

A: The synergies that we described are more to position them better to grow into Europe. We think they help us cross-selling our other products into the Indian market through their relationships. This business is running so well. I think they have things they can teach us. We're not going to rapidly drive cost synergies in terms of their organization. But of course, you will look at sourcing. I think they've got some sourcing relationships with a better position than we do. They have an India supply chain, which is very exciting to us, which we can leverage.