Standex International Corp (SXI) 2025 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Standex International Fiscal first quarter 25 financial results conference call at this time line, sir in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

(Operator Instructions)

This call is being recorded on Thurs Tuesday, October 29th, 2024. I would now like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead.

Thank you operator and 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 risk 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, which is EBIT excluding restructuring, purchase accounting acquisition related expenses and one-time items.

EBITA which is earnings before interest taxes, depreciation and amortization adjusted EBITA which is EBITA excluding restructuring, purchase accounting acquisition related expenses and one-time items, EBITA margin and adjusted EBITA 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 EBITA.

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. This is an exciting day for us at Standex as we report on our fiscal first quarter, 2025 results and share details of our most recent acquisition announced earlier this morning.

First, a brief summary of our quarterly results following record profit and cash generation fiscal 2024, we achieved record gross margin above 40% in the fiscal first quarter with operating margin near 16% despite challenging general market conditions that pressure the top line.

Behind the scenes, our engineering sales and marketing teams continued to ramp up new product development and we are on track with our new product releases in fiscal year 2025. In fiscal year 2025, based on recent order rates and customer interaction, we continue to expect our end markets to stabilize in the second quarter and strengthen in the second half.

Last night or this morning, we acquired Amran Instrument Transformers & Narayan Powertech Pvt., Ltd., leading manufacturers of low voltage and medium voltage instrument transformers in separate transactions for a combined enterprise value of approximately $462 million.

Going forward on this call, we will refer to these entities collectively as the Amran/Narayan Group.

These transactions are expected to be immediately accretive to index of revenue growth, EBITA margin, operating margin, earnings per share and free cash flow over the last three years.

The Amran/Narayan Group has increased revenue at an average cumulative annual growth rate of 30%. It expects for approximately $100 million of revenue in calendar year 2024 with adjusted EBITA margin north of 40%.

This acquisition enhances our presence in the fast-growing, high margin, electrical grid market driven by infrastructure upgrades, capacity expansion and rising data center demand Standex's exposure to fast growth markets increases to approximately 25% of total sales on a pro forma basis for fiscal 2024.

Furthermore, we are extending our geographic reach into the domestic Indian market and strengthening our technical expertise in low to medium voltage technologies. I will share more details on this acquisition later in the call.

Now, if everyone can turn to slide 3 key messages in the first quarter, sales declined 7.7% with contributions from acquisitions partially offsetting an organic decline.

The sales decreased in electronics due to continued soft demand in general industrial and markets in Europe. Orders continue to strengthen, indicating that markets are improving, and that our commercial strategy is taking hold.

We also continue to experience an impact from a slowdown of new vehicle introductions in North America and delays and general market softness in Europe affecting our engraving segment. We continue to expect demand to improve as we enter the second half of fiscal 2025.

Sales into fast growth and markets were flat year on year at $20 million in the first quarter.

Sales into electric vehicles, defense applications and commercialization of space grew year on year respectively but were offset primarily by demand conditions affecting the soft trend business in our engraving segment.

We expect sales into fast growth and markets as defined here to improve sequentially and year on year in the fiscal second quarter. New product sales increased approximately 20% year on year to $11 million in the fiscal first quarter.

We continue to demonstrate resilient operating performance from the execution of price and productivity initiatives. As a result, we achieved record adjusted gross margin of 41.1% up 240 basis points on a sequential basis and adjusted operating margin near 16%.

Research and development expenses were 2.8% of sales as we continue to invest in new product development. 3 of our 5 segments reported adjusted operating margin of approximately 20% or higher.

Looking ahead on a sequential basis in fiscal second quarter 2025, we expect moderately to significantly higher revenue driven by the impact of the recent Amran/Narayan Group acquisition.

More favorable project timing and engraving and improving overall demand in electronics and specialty. We expect slightly moderately higher adjusted operating margin benefiting from higher sales partially offset by increased investments in selling marketing and R&D.

We also expect the Amran/Narayan Group acquisition to be slightly accretive to adjusted earnings per share in the fiscal second quarter.

As mentioned in my beginning comments, the Amran/Narayan Group acquisition is expected to be immediately accreted to all key financial metrics.

The entirety of its revenue resides in fast growth markets. As a result, our exposure to fast growth markets increases to approximately 25% of sales on a pro forma fiscal year 2024 basis from 13% of sales prior to the acquisition.

In the fiscal first quarter, we launched three new products and remain on track to release over a dozen new products. We anticipate new products released in fiscal year 2025 to contribute over 100 basis points of incremental growth.

Considering our acquisition of the Amran/Narayan Group, we will provide an updated long term financial look on our fiscal second quarter earnings call. Please turn to slide 4. An overview of the Amran/Narayan Group.

Amran/Narayan Group is a market leader in low and medium voltage instrument transformers, providing custom engineered products that serve leading global OEM and utility customers.

It is comprised of Amran Instrument transformers headquartered in Sugarland, Texas and Narayan Powertech Limited, headquartered in Gujarat, India.

It is a classic customer intimacy business. It has developed a business model focused on rapid prototype development, reliability, fast delivery, and customization, creating long term customer relationships.

The Amran/Narayan Group is vertically integrated and has impressive manufacturing and engineering talents.

Notably, its presence in India expands our footprint in one of the world's fastest growing economies. The Amran/Narayan Group has grown revenue at an average growth rate of nearly 30% over the last three years. In calendar year 2024, it expects revenue of approximately $100 million.

Amran/Narayan's mission critical products and proprietary processes help generate sustainable EBITDA margins greater than 40%.

I am delighted to welcome the 750 employees of Amran/Narayan to Standex. We are gaining a very experienced and capable team with a compatible culture and we look forward to forging an exciting future together.

Please turn to slide 5 which highlights the strong combined presence across the power value chain.

Amran/Narayan's broad portfolio of custom engineered products serve as critical components in the power transmission and power distribution markets. Its position in the power value chain is unique and fills in critical areas where Standex does not have a strong presence today.

Amran/Narayan's products are complementary to Standex's existing offering and are a natural extension into high growth applications.

It has a very strong presence in power transmission and power distribution markets where Standex has limited exposure. On the other hand, Standex has a position in the commercial and residential consumption markets. The combined entity deepens coverage across all three stages of the power transmission market.

Please turn to slide 6 which highlights secular tailwinds that are driving transformer market growth.

Amran/Narayan is well positioned to capitalize on several secular market trends.

The growing need to expand electrical grid capacity is at an inflection point. To achieve country's national energy and climate goals, the global grid must expand from 80 million kilometers to 170 million kilometers with 50 million kilometers of the existing grid to be replaced, or a total construction of 175% of the entire existing grid in the next 25 years. The US and other nations around the world have passed sweeping legislation in recent years that is intended to help fund in grid expansion.

We continue to see new project announcements which increased demand across multiple applications including data centers, renewables and large-scale utility upgrades.

The current rapid growth in demand for electricity is driven by increased living standards across the world. The need to upgrade old infrastructure and significantly new sources of demand especially data centers. Finally, the success of the global energy transition depends on rapid expansion of the grid.

These market tailwinds provide exciting long term growth potential.

Now, if everyone can turn to slide 7 which highlights the complementary capabilities of Amran/Narayan.

This acquisition presents a compelling opportunity to unite our unique capabilities and leverage our complementary offerings to create a stronger combined leader in custom manufacturing of power management components.

Our combined product suite and global manufacturing footprint enhances our customer value proposition and strengthens our go to market capabilities.

Amran/Narayan brings extensive electrical grid, market knowledge and new technologies to our product portfolio. As part of Standex, we expect to provide Amran/Narayan with resources that will accelerate the growth of their business, particularly through capacity expansion plans and access to our global distribution network.

Amran/Narayan also adds an important presence in India, one of the fastest growing economies in the world. Additionally, Stan's presence will help accelerate the growth in Europe.

I will now turn the call over to Adam who will discuss the details of this transact transaction and our combined financial profile.

Thank you David and good morning, everyone. Please turn to slide 8, detailed transaction summary.

As David mentioned, Standex has acquired Amran/Narayan Group for combined enterprise value of $462 million on a cash free debt free basis using a mix of cash and stock.

The consideration mix was comprised of 85% cash or $154 million and 15% stock or $27 million for the Amran entity, and 90% cash or $254 million and 10% stock or $28 million for the Narayan entity.

The cash consideration will come from a combination of cash on hand and our credit facilities.

This acquisition fits perfectly within our strategy to accelerate growth in secular fast growth and market. We remain committed to maintaining a strong investment grade balance sheet and intend to focus our capital allocation priorities on debt repayment in the next two years.

We expect to achieve a net leverage ratio of below one within 24 months.

Now, if everyone can turn to slide 9, which highlights the enhanced financial profile and the end market exposure.

The addition of the Amran/Narayan group will immediately enhance Standex's financial profile and significantly expand our end market exposure in fast growth markets while growing our largest business division.

In the first full year, as a combined company, the margin profile will represent over 200 basis points expansion opportunity versus Standex's stand on EBITA margin.

In addition, our electronic segment will now represent over 50% of total Standex's revenue. In fiscal year 2024 on a pro forma basis, the addition of Amran/Narayan Group to our existing definition of fast growth and markets increases our exposure to fast growth markets from 13% of sales to approximately 25%.

Let me turn the call back to David to summarize this highly strategic and transformative acquisition.

Thank you, Ademir. Please turn to slide 10. Amran/Narayan represents a highly strategic opportunity for Standex. The company's technical design capabilities, customer relationships and expertise in the electric grid market fit perfectly in our portfolio and we see ourselves as the right partner to enable the continued growth of the business.

Amran/Narayan opens up a $2 billion addressable market for Standex and aligns with our strategic goals of identifying new high growth markets that will accelerate Standex future growth.

As the largest acquisition in Standex's history, this is a key milestone for our business and builds on our history of successfully creating value in the electronic space. Now, I will turn the call back to Ademir to discuss our first quarter, fiscal 2025 results.

Thank you, David. Let's turn to slide 11, 1st quarter, 2025 summary.

On a consolidated basis, total revenue decreased approximately 7.7% year on year to $170.5 million. This reflected an organic revenue decline of 11.4% and a 0.1% impact from foreign exchange partially offset by 3.8% benefit from recent acquisitions.

First quarter, 2025 adjusted operating margin was flat year on year at 15.9%. And adjusted operating income decreased 8% on a 7.7% consolidated revenue decrease year on year.

Adjusted earnings per share decreased 1.7% year on year to $1.71. Net cash provided by operating activities was $17.5 million in the first quarter of fiscal 2025. Compared to $16.4 million a year ago.

Capital Expenditure was $6.7 million compared to $4.3 million a year ago.

As a result, we generate a fiscal first quarter a free cash flow of $10.8 million compared to $12.1 million a year ago.

Now please turn to slide 12, and I will begin to discuss our segment performance and outlook.

Beginning with electronics segment, revenue of $77.7 million decreased 4.8% year on year and 8.5% benefit from recent acquisitions and 0.3% benefit from foreign exchange were more than offset by an organic decline of 13.7%.

Adjusted operating margin of 21.9% in fiscal first quarter, 2025 increased 150 basis points year on year as the contribution from recent acquisitions, productivity initiatives. And product mix were partially offset by lower volume.

Our new business opportunity funnel increased approximately 38% year on year and is currently at approximately $99 million.

As David highlighted in his comments, when we continue to see encouraging signs that markets are starting to recover which is further supported by positive order trends. Orders in electronics increased 15% sequentially to approximately $75 million. The highest order quarter in over a year sequentially in fiscal quarter, second quarter, 2025, we expect significantly higher revenue driven by the recent Amran/Narayan group acquisition.

And higher sales into fast growth and markets, and slightly to moderately higher adjusted upgrading margin due to the recent acquisition, and pricing and productivity initiatives, partially offset by higher investments in selling marketing and R&D.

Please turn to slide 13 for a discussion of the engraving and scientific segments.

Engraving revenue decreased 18.2%; $33.4 million driven by organic decline of 17.5% and a 0.7% impact from foreign exchange.

Operating margin of 17.5% in fiscal first quarter, 2025 decreased 110 basis points year on year due to slower demand in North America and Europe partially offset by productivity initiatives.

In our next fiscal quarter, on a sequential basis, we expect moderately higher revenue and slightly higher operating margin due to more favorable project timing in Asia and Europe and productivity initiatives.

Scientific revenue decreased 2.7% to $17.7 million due to lower demand from retail pharmacies, partially offset by higher volume from new product sales. Operating margin of 26.8% decreased 30 basis points year on year as the impact of lower volume and higher freight costs more than offset productivity options.

Sequentially, we expect similar revenue and slightly lower operating margin due to continued investments in R&D and higher freight costs.

Now turn to slide 14, for a discussion of the engineering technologies and specialty solutions segments.

Engineering technologies revenue increased 12.7% to $20.5 million driven by organic growth of 13.3% slightly offset by 0.6% impact from foreign exchange.

The strong organic growth was due to more favorable project timing in the space and markets that drove growth in new product development and new applications.

Operating margin of 19.5% increased 290 basis points year on year, reflecting leverage on higher sales and pricing and productivity initiatives.

Sequentially, we expect similar to slightly higher revenue due to new products and new applications and slightly lower operating margin due to product mix

Specialty solution segment revenue of $21.1 million decreased 18.3% year on year. Primarily due to softness in general market conditions in the display merchandizing business and in the hydraulics business. Operating margin of 16.8% decrease 490 basis points year on year. Sequentially, we expect slightly higher revenue and operating margin.

Next, please turn to slide 15, for a summary of statistic liquidity statistics and the capitalization structure.

At the end of the first quarter, Standex had net cash of $15.6 million compared to net cash of $5.3 million at the end of fiscal quarter, 2024.

Standex's long-term debt. At the end of fiscal first quarter, 2025 was $149 million cash and cash equivalents totalled $164.6 million.

We declared our 241st quarterly consecutive cash dividend of $0.32 per share and approximately 6.7% increase year on year

In fiscal 2025, excluding the Amra Narayan Group acquisition, we expect capital expenditures to be between $35 million and $40 million.

Following the acquisition of the Amran/Narayan group, our net leverage ratio is approximately 2.2 times, and our available liquidity is greater than $300 million.

I will now turn the call over to David to discuss our key takeaways from our first quarter results and our acquisition of the Amran/Narayan group.

Thank you, Ademir. Please turn to slide 16.

I'm very proud of our team for their continued operational execution that led to our record gross margin in the fiscal first quarter. I'm also especially proud of the creativity, the commitment that it took to execute this very complex transaction with Amran/Narayan Group. And we also saw a lot of creativity and collaboration in the Amran/Narayan teams that reinforced to us. We are going to make a great team together.

The acquisition significantly expands our presence in the fast-growing high margin electrical grid and market benefiting from infrastructure upgrades, capacity expansions and data center demand.

Now with this acquisition, our exposure to fast growth markets has effectively doubled on pro forma fiscal 2024 basis. We look forward to welcoming the entire Amran/Narayan team to our company and are excited by our combined growth potential.

To support our future growth, we continue to invest in our engineering capabilities to drive new product development and new applications across markets with growth potential.

In fiscal year 2025, we continue to be on track for new products to be released in every one of our businesses which are expected to add over 100 basis points of incremental growth.

With the acquisition of the Amran/Narayan Group, we intend to use our cash flows to reduce debt while we continue to assess an active pipeline of organic and inorganic growth opportunities that support future growth.

We expect to reduce our net leverage ratio below one times EBITA within the 1st 24 months post transaction. With the added exposure to high margin, fast growth markets, we've never been in a better position as a company to offset challenging market conditions and capitalize on market opportunities.

Considering our acquisition of the Amran/Narayan Group, we will provide an updated long term financial outlook on our fiscal second quarter earnings call. We will now open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Christopher Moore, CJS Securities

Good morning, guys. Congratulations. It looks like a lot of work went into this one for sure.

Absolutely, just in terms of a reasonable expectation for organic growth for, for 2025. I know things are kind of stabilizing Q2 and, and, and pick up, are you expecting organic growth to be slightly positive for the year or just how should we look at that?

Yeah Chris, I think we obviously electronics is now our biggest, biggest segment by far. And as we look through our Q2, as we look at our recent order rates, we feel the market is stabilizing is starting to pick up. So Q2, we 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 made to high single digits organic growth.

And obviously, when you put the Amran acquisition on top of that and then growing at a pretty significant kicker, we have a pretty high expectations for that for that business.

Engraving business has been challenged with some of the push outs from the OEM. So, we don't look at engraving as being a 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) starting to recover.

I would probably tell you as we move through the rest of the year, probably kind of a mid-single digit growth and the specialty has been choppy a little bit around US elections and uncertainties as to what's going to happen.

So, we're kind of monitoring what happens in that segment, and we'll obviously provide a little bit more guide on that as we see what happens after the election. So, I don't know if that, hopefully that helps.

Yeah, it does. I appreciate that. So, in terms of the acquisition, can you talk a little bit more? What does it mean to be sister companies? Is there a lot of overlap between what they do? Is most of production happening out of one facility? I'm just trying to understand how that looks.

Yeah, we look at it as one global company. It was founded in the 90s in India with success there. They then expanded into the US, created a separate legal entity to serve the US market. Initially, really all the design expertise, the supply chain came from India.

In the last 20 years, the, the business in Houston has been increasing its own technical staff. Its engineering team has ability to customize designs in the US for US customers. But it's the same family has founded and grown the teams with similar culture across the businesses,

But they're two legal entities, maybe that's more inside baseball for us because it complicated the transaction because we had to acquire the entity separately. But it's effectively coming into US as a single global business.

Got it. That's helpful. So, you talked about growth over the last three years, 30%. A couple of things there. Is that a reasonable target for this business for the next 3 to 5 years or? Just any thoughts there?

Well, as we get our feet on the ground to get to know each other, we'd love to see that. If you look at the external data, the increased investment in grid, their own backlog, there's a lot of momentum in that business.

I would say for planning purposes, if you think (mid-teen) would be a very safe number to plan growth around and then as the coming quarters roll out, with our experience, we have better and better visibility.

Got it. That's helpful. Obviously, data center is a hot term these days. The $100 million revenue is half of that data center, is just a piece of it, and that's the fast-growing piece or just trying to understand kind of the end market splits a little bit.

Right, the products they make are agnostic as to what actually is pulling the electricity. So, anything that drives expansion of the grid will drive their sales. And I don't know the percent.

The incremental investment in the grid (will get) 10% to 15%.

Simply for data centers would be 10% to 15% of the growth for this business. But there's also aging infrastructure around the world.

Well, just in the US, the fires Texas, in Hawaii and California caused by old grid that needs to be replaced and upgraded, that will drive demand.

And in much of the world, the growth in living standards depends on more electricity to more rural areas that will drive a lot of instruments. So, all of these things drive the same product. But certainly, data centers is another 10% to15% growth on top of that.

That's awesome. A lot of fast-growing markets here. I will jump back in line. I really appreciate it guys.

Thank you for that question.

Michael Legg, The Benchmark Company, LLC.

Thanks. Good morning. Congrats on the acquisition. Just want to follow up on Chris' s questions there. So, just on the growth of the 30% growth that they historically had for the acquisitions. I thought I heard you say on the conference call that by joining Standex could accelerate the growth. But then you just answer that we should be modelling the growth. Can you just explain that please?

We're asking you to be conservative. Let us get a quarter or two under our belt to get to know the business and the customers.

Yeah, you can call us a little conservative here with that number. We think that's a very dependable number. The (mid-teen).

Okay, great. And then just on the customer, is there any major customer, any key customer concentration?

No. Yeah, they serve all the big players and the OEM equipment, both in Europe and in the US and in India.

And 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 can make made a step or two. 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.

Okay, great. And then just on the EBITA margin there is obviously very strong. Usually when acquisitions, you get some leverage, is there opportunity to even increase that EBITA ahead of where it is for this business?

I would say that they would increase it through growth through leverage on the top line as opposed to cost you any cost synergies, I think we'll be able to expand more cost effectively. So going into Europe for example, we've got a team that can leverage, and the growth should be a little more efficient and speedy.

Okay, and then just last question, the pipeline is a little lighter than it's been, but your book to bill was extremely strong. Can you just comment on that a little bit more?

Oh, Mike, is that about electronics?

Yeah.

Yeah, obviously we look at electronics orders daily. And we have said on our last conference call that we have seen an update. That update has continued in a $75 million worth of orders in a quarter is the highest orders quarter we had over in over a year.

And we fully expect that. We're going to be at that number maybe a little bit higher in this fiscal quarter as well from an order standpoint. So, you know, we see the market stabilizing starting to recover and that makes us cautiously optimistic as we enter the second half of our fiscal year.

Okay, great. Thanks guys. Congrats on the acquisition.

Thank you, Mike.

Mike Shlisky, D.A. Davidson & Companies.

Good morning. Thanks for taking my questions. Looking at the acquired entities, the $100 million of revenue with 4% income margins, it's hard to argue with those numbers, but I do have to ask.

Do you see any synergies close deal that we should be kind of a model here?

The synergy we describe and more to position them better to grow into Europe. We think they help us cross selling our other products into the India market through their relationships. This business is running so well, and they have things they can teach us.

We're not going to rapidly drive cost synergy of their organization, but of course, you will look at sourcing. I think they've got some sourcing relationship for the better position that we do. They have an India supply chain, which is very exciting to us, which we can leverage. So, I'd say those are added lower percentage impact on value creation in the near term. The primary thing is to help them grow and gain the leverage on the top line.

Okay. This may be in some kind of filing. There's a lot being fired this morning.

If I missed it, I apologize. The shares that are being issued as part of the deal is that priced as of yesterday's closing price for Standex or I'm not sure what to assume there.

A 30-day average Mike.

Okay, great. Then just send this to the ongoing businesses. I want to ask about the engraving margins, they were up, I don't know, 4, maybe 5 points from the prior quarter.

And I don't recall you being quite that bullish on the margins for engraving and with sales being down. It's even more surprising to see that, a quarter from the previous quarter. What's the story there? Was there a mix in the first quarter here? and what you're seeing right now? Does it make sense to step away from any customers if they're not providing the appropriate returns on your event?

Yeah, I think Mike, there's a little bit of a mix but there's also a lot of productivity actions that business has taken over the last few quarters. If you recall, we took some restructuring actions in Germany and the United States, we continue to look at leveraging our cost base more effectively.

So, that kind of what drove the margins to where they, where you see them today and we expect to continue with some of those options as we get to get into our second quarter and then the rest of the fiscal year.

And as far, our footprint and where we operate and the customer we serve. We obviously look at that consistently and when things don't make sense for us, then we'll reconsider where we operate and how we operate.

Okay.

All right. I appreciate the answers. I'll pass it along.

Thank you much.

Gary Prestopino, Barrington Research Associates, Inc.

Yeah, good morning. Well, several questions here. First of all, can you consolidate this immediately or do you have to wait until you get this India regulatory approval?

No, Gary, I mean, it's been signed and closed, and the acquisition has been Consummated. So, it's done. The only, the only issue there is about 10% of the Narayan ownership that is going to be held by minority owners at this point, the current owners of Narayan and we expect we're going to get that Indian regulatory approval within the next 3 to 6 months. In which case, we're going to convert them into shares and then we'll own 100% of the, of the Narayan entity.

Okay.

Maybe 90%.

Okay. Of the combined entity, you said it's about $100 million of revenues, right? Can you break that down geographically on a broad-brush Europe? US, South America, Asia.

There's not much in Europe, I would probably tell you it's about 30%-40% the United States and the rest would be Asia.

55%

Yeah 55%

45 out of the taxes price. (Multiple Speakers)

That the rest of Asia is there, particularly with their Indian operations. Is their functional currency over there? The Rupee or are they, how are they billing? I mean, are we going to have, FX risk here regarding the Rupee?

Well, that's a good question. So, they're basically in country for country. So, the supply; the customers from the India plant for the India supply chain. There're a single digit million shipments into Europe. We want to supply that from a European site which we will build with them.

So, we'll be in the Eurozone. Our cost will be in EUR. And then the North American site is in Texas. There is some sourcing from India because that the basic supply chain goes back to India. So, I hope that gives you an idea, the footprint and answers your question.

Well, now, I'm just trying to understand. When this entity was a separate entity, how are they billing? Are they billing in INR? And then you have to convert that back into dollars once the billing is done.

They bill their Indian customers in Rupee, all the US customers, which is 40%-45% of the sales. Those are dollar transactions and dollar costs. And the exports to Europe are in Europe but that's just a few million dollars.

Okay, that's fine. Thank you. And then did you say this opens up a $200 billion market for you?

I was trying to write it.

$2 billion

$2 billion Okay.

$2 billion. Yeah.

You wish it was (inaudible)

If you look at total annual investments in the grid are about $600 billion. That's on everything, you know, cable stations, transformer city distribution. So, this is $2 billion of this, of the 600 of the International Energy Agency projects that to grow to $1.1 billion, $1.2 billion by 2030. So, that ratio ought to hold the instrument transformers are a smaller part of that, but they perform a very critical function throughout the entire transmission and distribution system.

Okay? Do they is their business? You said it's custom solutions? So, they're working with whatever entity needs their products. Is the initial step based on an RFP to bid on the business or it doesn't involve an RFP. It involves direct contact between.

That's a great question. This is very similar to our electronics business. The way we compete on customer intimacy, often the first application into a customer. Maybe through an RFP or through some other means once we successfully execute a first application, though the relation and chip is formed, it deepens and then the next application, we're invited to design, and we progressively become partners with the customer. So that's effectively what they're doing. A lot of their growth is just picking up a new and larger set of new applications within each of their customers.

Okay. That's good. Great. And then just lastly and I'll drop off. It looks like if you use the stock portion of both of the consideration for both. I'm sorry, the cash for both, acquisitions, it looks like about $400 million of cash which I assume that that's going to be borrowings or the majority of it. What kind of are you paying right now on those borrowings?

Yeah, I think it's a little bit less than what you just mentioned in terms of the dollar value Gary, but the way I would think about it, we are having this 364 day-loan that we took. There's a little bit of a higher interest rate on that loan until we syndicate it back and get it back into accordion.

You can assume between a kind of full burden on the amount of money we borrowed you can probably assume 6.5% to 7% in this quarter. And then we expect it to come down to 5-ish, maybe a little higher than 5% as we move into Q3 and Q4, as we get this 364 day-loan terminated, and put into the accordion and we look to put some swaps in place.

Okay, thank you.

Ross Sparenblek, William Blair & Company

Hey, good morning, guys.

Here, right. (multiple speakers)

Hey, I just like to get a sense of the genesis of how these two acquisitions came in the fold. I mean, were they sourced, were you talking to them for several years here? I never really got the sense that this opportunity existed.

Yeah, thanks for asking the question. For the last few years, we've been, as we've directed our internal teams to focus more on opportunities and fast growth markets. We've also applied that filter to opportunities in the acquisition funnel and we became aware of this business a couple of years ago.

We really started, I first met them just after the new year. I think February was the first time I met them. We've had a lot of meetings since then with increasing regularity. The business was founded in the 90s. They're getting to a point in their book in the business growth.

They could leverage that. They could use a partner like Standex. And also, for the family too, it's meaningful to have a broader organization to work with them to grow around the world. So, this was just two parts, just them and us talking since about February and coming to terms on the deal, a bilateral deal that met both of our needs were very excited about it.

We spent a lot of time together. The first kind of gain comfort that we run, we run the businesses in, in compatible ways is a very compatible culture. We've come to really know and respect the, the, the team that has founded the company and runs the company. So, it's larger, but it's very typical for the kind of acquisitions we've done over the years.

Yeah. So, do you, did they reach out to you guys, or did you just stumbled across it and wanted to see if they wanted to partner?

Well, our fantastic director of IR Chris, Howe called him up and said, hey, we'd like to talk to you, and they took the car.

And Ross, we'll tell you like from the future potential standpoint. Dave's been here for 10 years, I've been here for 5 or 6. This is the acquisition that we are most excited about. We look at this really as a transformational opportunity for us. Then markets are phenomenal. The growth opportunity is great.

You see the financial profile of the entities, so we think we could do some special things together and hopefully we can.

Yeah, absolutely. And congrats to Chris on that. Hopefully, you guys remember that bonus time.

Thinking about kind of the competitive landscape, $2 billion (inaudible) looks like 5% market share globally. Why do they have a right to win? Is it the customized aspect higher into the market? Well, what is truly unique about these two companies?

They over the years, they've developed a unique business model that serves the market where they have an integrated organization. They can turn around a prototype in days to a week. Whereas competitors may take weeks to months to turn the prototype around.

They embed them very early on in the design cycle with their OEM. So, they've become a trusted partner.

In fact, early on when we were looking into this space, we did some voice of customer, work with these customers. And we weren't specifically asking about Amran/Narayan. We were just asking them about who are the suppliers, and they specifically mentioned what a great partner, Amran/Narayan is. So, we got great confirmation from the customers of the relationship and how they build the trust.

So, it comes from a very flexible business model. It's an India completes India supply chain. They've got a great cost position and they've been innovative with their design as well. They've been innovative and compressing the instrument transformers in smaller spaces and meeting the increasing power and efficiency requirements of the new designs from the OEM.

Okay. You guys are the number one globally. Do you have a sense of this is a couple other larger competitors out there?

They're not, they're not number one in volume but we would say, they have the highest reputation. They also become an outsource partner. Some of that the $2 billion market is the external spend on instrument transformers. The large global OEM, they have some more standard product that they do internally. So, it is a much larger market and with Amran/Narayan's success in the customer intimacy model. They've actually kind of succeeded in having their OEM partners progressively give them a greater piece of their transformer business. For the higher end, the most demanding transformers.

Yeah, that's very helpful. Quickly electronics. Can you maybe just update us on how orders move through the quarter on like a monthly basis? I'm just trying to gauge the confidence for the second half recovery.

We take out the $11 million of new products. It looks like first quarter revenue overall, we're down about 15%. It is difficult to just try to assess where we are in the overall macro cycle versus maybe anything that's maybe idiosyncratic like potential share losses on certain product lines that we should be aware of.

Yeah, I think Ross, if you kind of look at our order intake in electronics over the past four quarters, that book to bill was 0.6%-0.7%, I think we were running at about $60million- $65 million per quarter in orders.

I think we are seeing some of those lower orders kind of flush through our sales in the last quarter or two. So, it probably takes kind of, I would tell you on depends again on its (inaudible) business, but, 3 to 6 months to kind of this stuff to get from the orders into the sales.

But look, we had $75 million worth of bookings last quarter. As you remember on our last starting call, we were pretty optimistic about it. It kind of played out the way we thought, and we think this quarter will be similar.

Maybe slightly up and then all indications from our customers are that into our fiscal Q3 and Q4. That order intake is going to continue to pick up. So, that's what we're basing kind of our, our assessment on.

Yeah, I definitely imagine that the distribution channel is pretty balanced at this point, if not a little stuff.

That's exactly right. Yeah, that's right.

Okay. Maybe just one last one. So, I'm on the tail end here, productivity versus mix for electronic margins in the quarter. And I know you guys have done some great cost out. There's a division over there that's finding a broader project funnel for you guys. But how should we just think about the legacy business going forward?

II, I think you would, you do.

Acquisitions. Yeah.

Yeah, that's a good question. I think as we get into the Q3 and Q4 of this fiscal year, we know, on the base business, we would expect to continue to slightly improve operating margins and grow.

First of all, to slightly improve gross margins as we move forward, that would also lead to improvement of the operating margins. So, if you think about modelling without Amran/Narayan group, we would expect if there wasn't an acquisition that the business performance would improve both from the top line and from the gross margin, operating line standpoint and kind of slightly as you move to the quarter.

Yeah, getting back to kind of that mid-20 range though, do you have a sense of the timeline there?

You've done a lot so far, right?

We'll kind of give you a better view on that for us as we get into the second quarter. We want to really look at as to what we have for in terms of Amran/Narayan and how those margins and that kind of fits into the overall picture. If we would assume that we would be improving margin sequentially and get to the 25% range at some point in the next few quarters.

Once the volumes fall off, right. Just describe. (multiple speakers)

Got there. Yeah, exactly. (multiple speakers)

I'm just trying to be conservative, Ross. Letting me be conservative.

So, thanks for the time gentlemen, and congrats again.

Thank you. Ross.

Thanks.

Thank you. We have no further questions. I will turn the call back over to David Dunbar for closing comments.

All right, I want to thank everybody for connecting today. We threw a curveball by scheduling and then rescheduling this call. This is a very complicated transaction, and I want to thank everybody for adjusting your schedules. We're very excited about that hope that came through today and as we go forward.

You'll see the impact it has on our business. I want to thank you all for joining us for the call. We really do enjoy reporting on the progress at Standex. And finally, again, I want to thank all of our employees, both new and old for the continued support and contributions.

This transaction was complicated. There were many people across Standex and across Amran/Narayan that participated, and it really demonstrated the talent, the commitment, and the creativity of our teams to get things done.

Thank you also for the shareholders for your continued support and contributions. We look forward to speaking with you again in our fiscal second quarter, 2025 call.

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your line.