Standex International Corporation Aktie

Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, May 1, 2026.

And now I would 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 2. 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 risks 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 EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, EBITDA margin and adjusted EBITDA 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 EBITDA.

Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets acquisition-related expenses and onetime items. 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 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, and welcome to our fiscal third quarter 2026 conference call. This quarter provides another strong proof point that our strategy, shifting to our faster-growing end markets and increasing new product development is working.

We delivered top line sales growth of 8%, including organic growth of 6.5%. Our sales in the fast-growing end markets are now about 30% of our total, and new products are expected to add 300 basis points of growth to our 2026 sales results. It is also exciting to see how the mix of our businesses has evolved. Today, Electronics and our Engineering Technologies business generate about 70% of sales and nearly 80% of total segment profits, both built around custom-engineered solutions for attractive secular markets. That mix shift is what we set out to achieve.

Our Engineering Technologies segment has effectively repositioned itself as a vital partner for space, defense and aviation customers. So we are renaming the segment Standex Aerospace & Defense.

Looking ahead, demand remains healthy. Company-wide book-to-bill was 1.05 and Electronics delivered 1.14, setting us up well as we move into the fourth quarter. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal third quarter 2026 results.

Now let's look at the results beginning on Slide 3. In the third quarter, sales increased 8.1% year-on-year to $224.6 million, including 6.5% organic growth. Electronics grew 6.8% organically. New product sales grew approximately 40% to approximately $18.7 million. Sales in the fast-growth markets were approximately $69 million, more than 30% of total sales. We are pleased with the momentum in the business reflected in an overall book-to-bill ratio of 1.05 and within Electronics of 1.14.

Adjusted operating margin of 19.7%, was up 30 basis points year-on-year. On March 6, we completed the divestiture of Federal Industries at an enterprise value of approximately $70 million. This is in line with our Portfolio Simplification strategy, allowing us to focus our management and capital resources more on fast growth markets and new product launches. We used the proceeds to pay down about $62 million of debt, reducing net leverage to 1.9x.

Beginning this quarter, we will report under 4 operating segments: Electronics, Aerospace & Defense, Scientific and Engraving & Hydraulics. The Hydraulics business has been combined with the Engraving business under the Engraving & Hydraulics segment. This divestiture continues a decade of deliberate portfolio shaping toward higher growth, higher-margin businesses.

In 2014, we operated 16 businesses. Today, we're to down 5. And following the Amran/Narayan acquisition, Electronics represents more than half of Standex, helping drive the performance you see today.

Our original fiscal year 2026 sales outlook included a full year contribution from Federal Industries. Even after the Federal divestiture, we still expect fiscal 2026 revenue to increase by about $100 million versus 2025, supported by momentum in new products and fast growth markets, especially in Electronics and Aerospace & Defense.

I'm pleased with the momentum that we are building and launching new products. We expect to launch more than 15 new products this fiscal year on top of 16 new products last fiscal year. We expect new product sales pro forma for the federal divestiture to grow by $24 million to $64 million, adding nearly 300 basis points of organic growth in the year.

Our sales into the fast-growing markets such as space, defense and grid, are expected to increase to approximately $270 million, constituting about 30% of our total sales. On a sequential basis, we expect slightly higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments.

On a year-on-year basis, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, driven by mid- to high single-digit organic growth from growing backlog in fast-growth markets and increased new product sales, partially offset by the revenue impact from the federal investiture. We expect slightly lower adjusted operating margin and organic growth and realization of productivity actions are more than offset by growth investments in capacity expansions, higher medical costs and increased variable compensation expenses.

I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to Slide 4, third quarter 2026 summary. On a consolidated basis, total revenue increased approximately 8.1% year-on-year to $224.6 million. This reflected organic growth of 6.5%, 0.2% benefit from acquisitions and 1.4% benefit from foreign currency.

Third quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19.7%. Adjusted earnings per share increased 13.5% year-on-year to $2.21. Net cash provided by operating activities was $9 million in the third quarter of fiscal 2026 and compared to $9.6 million a year ago. Capital expenditures were $2.7 million compared to $6.1 million a year ago. As a result, we generated fiscal third quarter free cash flow of $6.3 million compared to $3.5 million a year ago.

Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics and Aerospace & Defense. Electronics revenue increased 7.6% year-on-year to a record $119.7 million, driven by organic growth of 6.8% and 0.8% benefit from foreign currency. Organic growth was driven by sales into fast-growth markets and increased new product sales.

Adjusted operating margin of 29.3% in fiscal third quarter 2026 decreased 50 basis points year-on-year due to growth investments, partially offset by higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal third quarter was 1.14 with orders of approximately $136 million. This marks the seventh consecutive quarter with book-to-bill near or above 1. This consistent streak of book-to-bill around 1 targeted capacity expansion within grid an acceleration in new product sales as their ability to grow. In addition, our monthly order of over $50 million in both March and April, further indicating robust demand and a run rate to a strong fiscal 2027 performance as these orders convert into sales.

Sequentially, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect slightly higher adjusted operating margin, primarily due to higher revenue, partially offset by continued growth investments.

On a year-on-year basis, we expect high single-digit organic growth.

Aerospace & Defense revenue increased 33.7% to $36.6 million, driven by organic growth of 20.8%, 12.2% benefit from recent McStarlite acquisition and 0.7% benefit from foreign currency. Organic growth was driven by increased project activity in the commercialization of space end market. Adjusted operating margin of 18% decreased 60 basis points year-on-year, primarily due to project mix. Sequentially, we expect slightly to moderately higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume and realization of productivity initiatives.

On a year-on-year basis, we expect double-digit organic growth.

Now please turn to Slide 6 for a discussion of the Scientific and Engraving & Hydraulics segment. Scientific revenue decreased 1.7% to $18 million primarily due to organic decline from lower demand from academic and restitutions affected by NIH cuts. Adjusted operating margin of 21.9% decreased 70 basis points year-on-year due to lower sales. Sequentially, we have a slightly higher revenue and similar adjusted operating margin due to product mix.

Engraving & Hydraulics revenue increased 2.2% to $44.8 million, driven by 4% benefit from foreign currency, partially offset by organic decline of 1.8%. The organic decline was driven by general market weakness for hydraulic cylinders. Adjusted operating margin of 14.3% in fiscal third quarter 2026 increased 210 basis points year-on-year due to higher sales and realization of previously executed restructuring actions.

In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and similar to slightly higher adjusted operating margin, primarization of restructuring actions and productivity initiatives.

Next, please turn to Slide 7 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $191 million. At the end of the third quarter, Standex had net debt of $369.1 million compared to net debt of $47.4 million at the end of fiscal third quarter 2025.

Our net leverage ratio currently stands at 1.9%. We paid down our debt by approximately $62 million during the fiscal third quarter 2026. In fiscal fourth quarter 2026, we expect interest expense between $6.8 million and $7 million.

Standex's long-term debt at the end of fiscal third quarter 2026 was $472.8 million. Cash and cash equivalents totaled $103.7 million. We declared our 247 quarterly consecutive cash dividend of $0.34 per share and approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $27 million and $30 million.

I will now turn the call over to David for concluding remarks.

Thank you, Ademir. Please turn to Slide 8. To summarize, I'm very pleased to see the continued organic growth in the third quarter with a book-to-bill ratio of 1.05, when adjusted for the federal divestiture. Organic growth was driven by our Electronics and Aerospace & Defense segments, which grew 6.8% and 20.8%, respectively. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships.

Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast-growth markets and deliver customer solutions. With the divestiture of Federal Industries, we have realigned our company around 4 operating segments. We expect fiscal 2026 sales to increase approximately $100 million over fiscal 2025, with margin expansion. While we remain on course, we will provide an update to our long-term targets on the next earnings call, considering the changing portfolio composition with the Federal Industries' divestiture.

We will now open the line for questions.

[Operator Instructions] First, we will hear from Chris Chris Moore with CJS Securities.

maybe we could start on the defense opportunity. You talked about providing missile nose cones solutions, include nose cones for interceptors, tactile missiles as well as development hypersonics. Maybe can you just give us a sense for the scale of that opportunity? What kind of orders look like? Is there -- are there long lead times? Just any thoughts there would be really helpful.

Yes. So there, we're talking about within the Engineering Technologies. We have -- we serve defense in the magnetics business in Electronics and in Engineering Technologies. The Engineering Technologies business provides those cones out of their Wisconsin facility. And about 15% of the Engineering Technologies -- or Aerospace & Defense segment is defense. Most of that is missiles. There is an opportunity to significantly increase that in the coming years. We have had discussions with customers and actually with the [ Undersecretary ] of the Department of Defense asking if we are able to ramp -- and they give us different scenarios.

These upper scenarios really kind of depend on the government procurement process, passing orders from multiyear commitments to us. We have received some orders, so we expect a nice increase in those sales in 2027, potentially greater if they can unlock the procurement process.

Got it. I appreciate that. Maybe just switch gears to Amran/Narayan. Just in terms of the Croatian facility, trying to understand where you are in terms of construction? And then just in terms of creating the infrastructure for full market penetration there, what's a reasonable time frame? And are the competitive dynamics much different in Europe than you see in the U.S?

Yes. There's a lot in that question. We had no presence in Croatia with that business before. There was no footprint in Europe. We now have Croatia site. It is operating. We made our first products a few weeks ago. We have customers visiting this month and next to qualify the site. We have external auditors to achieve various certifications, including ISO certifications that we expect in June. So shipments are beginning at a kind of a slow rate, begin to ramp much more quickly after those June audits are complete. So we're still confident that our longer-term expectation of at least $60 million in 3 to 5 years is reasonable based on the commitments we have from our current European customers.

We are also now building a sales -- a commercial organization in Europe so we can understand your third question, which is what about the competitive dynamics there? There is certainly more opportunity than we see. It's a larger market than North America. It's a much larger market than India. And we have -- so we believe once we're on the ground with our sales team with the site there, we will be able to answer that third question for you and figure out what we need to do to take that $60 million expectation higher.

Just a quick follow up. Probably, we're a couple of years before you're really accelerating in Europe?

We ship into Europe from India now. So some of those shipments will begin to come from Europe. We'll continue to ship from India. So in our FY '27, we think upper single-digit million shipment number is kind of a reasonable expectation. There is upside to that. How it ramps beyond that, I guess we'll have to report in the coming year or so. But there certainly is upside because the market is there, and we have the footprint and are building capacity to grow beyond that.

next question will be from Matt Koranda with ROTH Capital.

I guess I just want to start with the Electronics segment and the order flow looks like it's up north of 75% year-on-year. Wanted to hear a little bit about the drivers of the strength and order flow between grid and core magnetics and Sensing Solutions business.

Yes. So the growth, I'm going to have to add Amran/Narayan, the 75%, I don't see the 75% math. We had great book-to-bill, 1.14 on growing sales. We're seeing strong order flow in our core switches business, which for us is a good indication that the general industry, certainly in Asia, is picking up. That in the quarter, we were -- the sales were up over 20%, which is relays are strong. [indiscernible] were up about 20% with a book-to-bill of about 1.1% or something. So we see very strong order flow there.

And it's kind of a tale of 2 cities in the industrial world, space, defense, grid, aviation, those businesses are all growing double digits. General industry in North America and Europe is still fairly slow. And as I said before, general industry in Asia looks like it has really picked up.

Yes. And if I can just add to that, Matt. As we said in our prepared remarks, we had 2 consecutive months of orders over $50 million for Electronics, which has never happened before. Some of that is clearly the strength we have seen and continue to see in the grid space and some of these as end markets. But also, as to David's point, indication that the general industrial markets are stabilizing, and we are kind of turning the corner.

Now it takes us a little time to convert those orders into sales, but it makes us pretty bullish about what we're going to see in FY '27 in terms of top line performance, again, assuming there is no significant macroeconomic or geopolitical challenges.

Okay, that's helpful, guys. And then I guess for my second question, I wanted to ask a portfolio question. It seems like now that you're under 2 turns of leverage, you got plenty of capacity to deploy incremental dollars to M&A. Just wanted to hear the latest on the funnel and how you guys are thinking about add-ons to kind of the core segments as you sort of add more capacity at this point in time?

Yes. Matt, we like the position we're in now. We are delighted with the integration of the Amran/Narayan of the grid business, and how that continues to perform. And with a leverage under 2 now, but we're building sizable powder. And if you look at the makeup of our business, now 70% of our sales come from Engineered Components in Engineering Technologies and Electronics. And those are the businesses that serve these fast-growing markets with customized products. So that's the unit where we will explore opportunities.

And in our funnel, we always have a number of kind of family-owned businesses that are similar to -- or privately owned businesses, similar to acquisitions we made over the decades at Standex. With the Grid acquisition, that has also opened up opportunities for us. Look at related products, to solve bigger problems, to become an even more important partner to our customers.

So in the switchgear, in addition to the instrument transformer, there are other products that support the metering and the electrical quality measures of the switchgear itself.

On the Electronics side, there are a lot of opportunities around components and modules. I think we've mentioned in the past, every time a customer works with us, we have to say for [indiscernible] switch-based sensor, a switch or a relay, they are also working with other suppliers and other components for that same product that are customized to some extent, whether it's capacitors or filters or something like this. So that really opens the aperture for us to explore wider opportunities.

So for that, we were in discussion with a number of third parties to help us identify targets. So we have an existing funnel. We're working at expanding the funnel with these new opportunities as we've fully explore opportunities to expand these engineered components businesses.

Next question will be from Ross Sparenblek with William Blair.

Maybe just a level side on the top line guide. Are we picking out the first 3 quarters of Federal, kind of $25 million? Or are we leaving that in there just taking in the fourth quarter?

The Federal is out in the fourth quarter guidance.

So just the fourth, okay. And then you guys said grid was up 20% year-over-year. So that implies what, like a [ 160 ] run rate? Pretty healthy.

Yes.

Yes, yes.

And so then you guys said a book-to-bill of 1.1. So the core organic growth [indiscernible] 1.15, up nearly 20%. We're definitely seeing some momentum?

You've got your math right? .

That's I get paid for. I mean, can you just any updates on India and the progress you've seen with rolling out [indiscernible] there and driving that capacity?

Well, I tell you, we had -- just a few weeks ago [ Danes ] here with us today. He was in India a few weeks ago with a very large team for a global grid capacity expansion [ Kaizen ]. So we have an extensive plan to look at global demand a roll-up from customers around the world by product family. We have a site in Texas, a site in India, site in Croatia now. We're producing in Mexico and our Mexico site and are looking at our global capacity expansion.

We do have assumptions that within India simply with Lean, there was another, call it, 15-plus percent capacity expansion from Lean which fuels us in addition to Mexico and Croatia through this year. As you know, we have the Texas site coming on next year.

Your question was about India. So we have a good handle on the initial -- there's unexipited Lean opportunities there, 15-plus percent capacity.

Okay. And maybe if I could squeeze one more. Can you just remind us really quick on the growth investments within Electronics, just the size of the cadence? . A couple of million in quarter?

Yes. So if you kind of break it down by part, Ross, most of our growth investments are coming in the grid business. Obviously, there's some investments been Croatia. That's probably -- it's about, call it, 30, 40 basis points, if you think about it from kind of a margin standpoint of impact right now because, obviously, shipping products yet of Croatia.

And then as David mentioned, and as you know, we're expanding capacity in Houston and Mexico. So you have to hire some people and get some of the rolling before we can -- before to those [indiscernible] sites operational. So there's probably another, I would probably tell you 50, 60 basis points of those investments as well, kind of the -- from a run rate basis standpoint.

Okay. So there's no [indiscernible] issue. There was some one-off stipulation regarding Grid. I didn't fully [indiscernible] details. It just seems like given the growth of the [indiscernible] brand, those margins did maybe a little bit higher as an Electronics?

Yes. Look, we think we're going to continue to expand margins in Electronics, especially as you kind of think about where we are growing, is our fast growth end markets where we are more profitable. So we do expect we're going to clipped at 30% in adjusted operating margin in the near future.

Next question will be from Michael Shlisky with D.A. Davidson.

Speaking of operating margins, just looking at the results, pretty clear that Engraving & Hydraulics are now kind of the lowest of the 4. I guess those are kind of 2 different businesses. Can you comment on your plans for those businesses? You're always trying to hone it a little bit better and a little bit higher year after year. Is there a potential that those are next to go, I'd say, after Federal?

Well, in there -- as you know, they're strong businesses in their sectors. They're not burning platforms in that sense. It's kind of a question of timing to find the best opportunities for these businesses. Within Engraving, we have we have some pretty interesting growth initiatives going on. We talked about making these specialized parts, functional textures, those are ramping up. So the businesses themselves are fundamentally sound. We have some profit improvement projects in both of them.

And if you look at our history, where we've invested in acquisitions, we love the Engineered Components businesses. You will likely see more of that. And we have some very good businesses that Hydraulics & Engraving, they could be fit somewhere else. And Well, we continue to monitor. [indiscernible], and we'll make a decision at the time.

Okay.In Aerospace, given the organic growth you've seen now. We've got quite a few opportunities ahead of you. Do you see a need to expand capacity there on a field basis?

In the Aerospace & Defense segment, is that your question, Mike?

Yes.

Yes. Not from a greenfield standpoint, at least not in the near term. We have a bit of a capacity in our sites. But obviously, as the business continues to grow at some point, we might have to look at additional space. But no immediate plans as of right now. We feel we conservative [indiscernible] our way in the near term.

Yes, I guess the one caveat to that, we mentioned the missile programs. If these missile orders do appear for some of these higher scenarios, then we will expand the footprint.

That's correct.

Okay. Got it.

But we would only do that with the long term -- I'm sorry, but we would only do that with a long-term commitment from the customer, and we'd certainly communicate that in a future quarter.

Right. I imagine you have an ROIC hurdle to beat there, and it wouldn't be any different than you would for [indiscernible] or anything else.

Right. Right, exactly.

Great. And then it sounds like you're not looking to give us too much guidance on fiscal 2027, but can you just comment on the new product menu for 2027. Do you have as many rolling out next year that you had this year, [indiscernible] onto the pipeline? Can you expect a halfway decent year from that part of the growth plan?

Yes. If you just step back and think our general growth model, we think we've got these fast growth markets that continue to grow upper teens, 20% a year, that's 6 points growth from that. Our new products, we still expect that to add 300 basis points of growth. And then whatever happens with general industries may be a tailwind to that.

So at a high level, I would be thinking -- in that zone for 2027 and [indiscernible] need here. So in terms of numbers of products in 2027 got in line with...

Yes, Definitely, Mike. I think we think the momentum will continue. Actually, it might even increase because as we are adding -- our funnel is increasing internally of new product ideas.

[Operator Instructions] Next, we will hear from Gary Prestopino with Barrington Research.

In your new segment breakdown, the other category, is that legacy Federal before the divestiture? What exactly is in there?

That's like a [indiscernible] it is.

Okay. That's all it. Okay. So with the sale of Federal, was the corporate expense associated with Federal, does that come out of the equation? I noticed like your corporate expense was about $8.6 million this quarter, a step down from last quarter, which was abnormally high. But as we're modeling, what kind of number should we be looking at for that corporate expense number?

Yes, Gary, it's Ademir. I mean we don't really allocate a lot of corporate costs. So there's no corporate costs that would go away with Federal. I mean it's really driving the reduction in the corporate cost for quarter is we -- some of it -- we got slightly lower medical costs versus some of the prior quarters. There was some adjustment to the bonus payouts. And that's basically it. But we do assume that going forward, kind of $9 million to $10 million run rate is probably the right number.

Okay. And then just in terms of your tax rate because I noticed it was down, I think, this quarter and obviously, a lot of moving parts with the numbers with the sale of Federal. But for Q4, is it looking like it will be about 24%?

Yes, 24% to 25% is kind of what I would tell you is a good estimate.

Okay. And then just last question in terms of what's your growth in Electronics. I mean, can you -- is it all across the board and grid replacement of grid, data centers? Or where are you starting to see abnormal growth? .

Did you say abnormal growth?

Right. Yes. Growth of what you were thinking in terms of the expectation.

Yes. So the growth driver is certainly a grid, defense. There is a defense component in Electronics. And I mentioned it earlier, our sales of [indiscernible] switches -- or n[indiscernible], which was up 20% year-on-year. So that -- they'll go everywhere. So a sign of a general industry strength primarily in Asia. And our relay sales are strong. They're driven by kind of test and measurement equipment, similar drivers to the grid, serving data centers and the equipment that go into data centers.

I know we look at it, we have 3 businesses in there as now. We've got what we used to call magnetics, our [indiscernible] business, which is really a North American business. That was that was down in the quarter year-on-year, largely due to some execution issues. Their book-to-bill was very strong. The detect, the SST business, which is where the switches, sensors are was upper single digits. That includes the switch business I talked about before. And then grid, of course, which we talked about. So kind of triangulates into your growth question from a couple of [indiscernible] angles.

at this time, Mr. Dunbar, we have no other questions registered. Please proceed, sir.

All right. Thank you. I appreciate everybody connecting today on this call. We always enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions.

I look forward to speaking with you again in our fiscal fourth quarter call.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.

Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, May 1, 2026.

And now I would 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 2. 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 risks 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 EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, EBITDA margin and adjusted EBITDA 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 EBITDA.

Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets acquisition-related expenses and onetime items. 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 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, and welcome to our fiscal third quarter 2026 conference call. This quarter provides another strong proof point that our strategy, shifting to our faster-growing end markets and increasing new product development is working.

We delivered top line sales growth of 8%, including organic growth of 6.5%. Our sales in the fast-growing end markets are now about 30% of our total, and new products are expected to add 300 basis points of growth to our 2026 sales results. It is also exciting to see how the mix of our businesses has evolved. Today, Electronics and our Engineering Technologies business generate about 70% of sales and nearly 80% of total segment profits, both built around custom-engineered solutions for attractive secular markets. That mix shift is what we set out to achieve.

Our Engineering Technologies segment has effectively repositioned itself as a vital partner for space, defense and aviation customers. So we are renaming the segment Standex Aerospace & Defense.

Looking ahead, demand remains healthy. Company-wide book-to-bill was 1.05 and Electronics delivered 1.14, setting us up well as we move into the fourth quarter. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal third quarter 2026 results.

Now let's look at the results beginning on Slide 3. In the third quarter, sales increased 8.1% year-on-year to $224.6 million, including 6.5% organic growth. Electronics grew 6.8% organically. New product sales grew approximately 40% to approximately $18.7 million. Sales in the fast-growth markets were approximately $69 million, more than 30% of total sales. We are pleased with the momentum in the business reflected in an overall book-to-bill ratio of 1.05 and within Electronics of 1.14.

Adjusted operating margin of 19.7%, was up 30 basis points year-on-year. On March 6, we completed the divestiture of Federal Industries at an enterprise value of approximately $70 million. This is in line with our Portfolio Simplification strategy, allowing us to focus our management and capital resources more on fast growth markets and new product launches. We used the proceeds to pay down about $62 million of debt, reducing net leverage to 1.9x.

Beginning this quarter, we will report under 4 operating segments: Electronics, Aerospace & Defense, Scientific and Engraving & Hydraulics. The Hydraulics business has been combined with the Engraving business under the Engraving & Hydraulics segment. This divestiture continues a decade of deliberate portfolio shaping toward higher growth, higher-margin businesses.

In 2014, we operated 16 businesses. Today, we're to down 5. And following the Amran/Narayan acquisition, Electronics represents more than half of Standex, helping drive the performance you see today.

Our original fiscal year 2026 sales outlook included a full year contribution from Federal Industries. Even after the Federal divestiture, we still expect fiscal 2026 revenue to increase by about $100 million versus 2025, supported by momentum in new products and fast growth markets, especially in Electronics and Aerospace & Defense.

I'm pleased with the momentum that we are building and launching new products. We expect to launch more than 15 new products this fiscal year on top of 16 new products last fiscal year. We expect new product sales pro forma for the federal divestiture to grow by $24 million to $64 million, adding nearly 300 basis points of organic growth in the year.

Our sales into the fast-growing markets such as space, defense and grid, are expected to increase to approximately $270 million, constituting about 30% of our total sales. On a sequential basis, we expect slightly higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments.

On a year-on-year basis, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, driven by mid- to high single-digit organic growth from growing backlog in fast-growth markets and increased new product sales, partially offset by the revenue impact from the federal investiture. We expect slightly lower adjusted operating margin and organic growth and realization of productivity actions are more than offset by growth investments in capacity expansions, higher medical costs and increased variable compensation expenses.

I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to Slide 4, third quarter 2026 summary. On a consolidated basis, total revenue increased approximately 8.1% year-on-year to $224.6 million. This reflected organic growth of 6.5%, 0.2% benefit from acquisitions and 1.4% benefit from foreign currency.

Third quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19.7%. Adjusted earnings per share increased 13.5% year-on-year to $2.21. Net cash provided by operating activities was $9 million in the third quarter of fiscal 2026 and compared to $9.6 million a year ago. Capital expenditures were $2.7 million compared to $6.1 million a year ago. As a result, we generated fiscal third quarter free cash flow of $6.3 million compared to $3.5 million a year ago.

Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics and Aerospace & Defense. Electronics revenue increased 7.6% year-on-year to a record $119.7 million, driven by organic growth of 6.8% and 0.8% benefit from foreign currency. Organic growth was driven by sales into fast-growth markets and increased new product sales.

Adjusted operating margin of 29.3% in fiscal third quarter 2026 decreased 50 basis points year-on-year due to growth investments, partially offset by higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal third quarter was 1.14 with orders of approximately $136 million. This marks the seventh consecutive quarter with book-to-bill near or above 1. This consistent streak of book-to-bill around 1 targeted capacity expansion within grid an acceleration in new product sales as their ability to grow. In addition, our monthly order of over $50 million in both March and April, further indicating robust demand and a run rate to a strong fiscal 2027 performance as these orders convert into sales.

Sequentially, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect slightly higher adjusted operating margin, primarily due to higher revenue, partially offset by continued growth investments.

On a year-on-year basis, we expect high single-digit organic growth.

Aerospace & Defense revenue increased 33.7% to $36.6 million, driven by organic growth of 20.8%, 12.2% benefit from recent McStarlite acquisition and 0.7% benefit from foreign currency. Organic growth was driven by increased project activity in the commercialization of space end market. Adjusted operating margin of 18% decreased 60 basis points year-on-year, primarily due to project mix. Sequentially, we expect slightly to moderately higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume and realization of productivity initiatives.

On a year-on-year basis, we expect double-digit organic growth.

Now please turn to Slide 6 for a discussion of the Scientific and Engraving & Hydraulics segment. Scientific revenue decreased 1.7% to $18 million primarily due to organic decline from lower demand from academic and restitutions affected by NIH cuts. Adjusted operating margin of 21.9% decreased 70 basis points year-on-year due to lower sales. Sequentially, we have a slightly higher revenue and similar adjusted operating margin due to product mix.

Engraving & Hydraulics revenue increased 2.2% to $44.8 million, driven by 4% benefit from foreign currency, partially offset by organic decline of 1.8%. The organic decline was driven by general market weakness for hydraulic cylinders. Adjusted operating margin of 14.3% in fiscal third quarter 2026 increased 210 basis points year-on-year due to higher sales and realization of previously executed restructuring actions.

In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and similar to slightly higher adjusted operating margin, primarization of restructuring actions and productivity initiatives.

Next, please turn to Slide 7 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $191 million. At the end of the third quarter, Standex had net debt of $369.1 million compared to net debt of $47.4 million at the end of fiscal third quarter 2025.

Our net leverage ratio currently stands at 1.9%. We paid down our debt by approximately $62 million during the fiscal third quarter 2026. In fiscal fourth quarter 2026, we expect interest expense between $6.8 million and $7 million.

Standex's long-term debt at the end of fiscal third quarter 2026 was $472.8 million. Cash and cash equivalents totaled $103.7 million. We declared our 247 quarterly consecutive cash dividend of $0.34 per share and approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $27 million and $30 million.

I will now turn the call over to David for concluding remarks.

Thank you, Ademir. Please turn to Slide 8. To summarize, I'm very pleased to see the continued organic growth in the third quarter with a book-to-bill ratio of 1.05, when adjusted for the federal divestiture. Organic growth was driven by our Electronics and Aerospace & Defense segments, which grew 6.8% and 20.8%, respectively. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships.

Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast-growth markets and deliver customer solutions. With the divestiture of Federal Industries, we have realigned our company around 4 operating segments. We expect fiscal 2026 sales to increase approximately $100 million over fiscal 2025, with margin expansion. While we remain on course, we will provide an update to our long-term targets on the next earnings call, considering the changing portfolio composition with the Federal Industries' divestiture.

We will now open the line for questions.

[Operator Instructions] First, we will hear from Chris Chris Moore with CJS Securities.

maybe we could start on the defense opportunity. You talked about providing missile nose cones solutions, include nose cones for interceptors, tactile missiles as well as development hypersonics. Maybe can you just give us a sense for the scale of that opportunity? What kind of orders look like? Is there -- are there long lead times? Just any thoughts there would be really helpful.

Yes. So there, we're talking about within the Engineering Technologies. We have -- we serve defense in the magnetics business in Electronics and in Engineering Technologies. The Engineering Technologies business provides those cones out of their Wisconsin facility. And about 15% of the Engineering Technologies -- or Aerospace & Defense segment is defense. Most of that is missiles. There is an opportunity to significantly increase that in the coming years. We have had discussions with customers and actually with the [ Undersecretary ] of the Department of Defense asking if we are able to ramp -- and they give us different scenarios.

These upper scenarios really kind of depend on the government procurement process, passing orders from multiyear commitments to us. We have received some orders, so we expect a nice increase in those sales in 2027, potentially greater if they can unlock the procurement process.

Got it. I appreciate that. Maybe just switch gears to Amran/Narayan. Just in terms of the Croatian facility, trying to understand where you are in terms of construction? And then just in terms of creating the infrastructure for full market penetration there, what's a reasonable time frame? And are the competitive dynamics much different in Europe than you see in the U.S?

Yes. There's a lot in that question. We had no presence in Croatia with that business before. There was no footprint in Europe. We now have Croatia site. It is operating. We made our first products a few weeks ago. We have customers visiting this month and next to qualify the site. We have external auditors to achieve various certifications, including ISO certifications that we expect in June. So shipments are beginning at a kind of a slow rate, begin to ramp much more quickly after those June audits are complete. So we're still confident that our longer-term expectation of at least $60 million in 3 to 5 years is reasonable based on the commitments we have from our current European customers.

We are also now building a sales -- a commercial organization in Europe so we can understand your third question, which is what about the competitive dynamics there? There is certainly more opportunity than we see. It's a larger market than North America. It's a much larger market than India. And we have -- so we believe once we're on the ground with our sales team with the site there, we will be able to answer that third question for you and figure out what we need to do to take that $60 million expectation higher.

Just a quick follow up. Probably, we're a couple of years before you're really accelerating in Europe?

We ship into Europe from India now. So some of those shipments will begin to come from Europe. We'll continue to ship from India. So in our FY '27, we think upper single-digit million shipment number is kind of a reasonable expectation. There is upside to that. How it ramps beyond that, I guess we'll have to report in the coming year or so. But there certainly is upside because the market is there, and we have the footprint and are building capacity to grow beyond that.

next question will be from Matt Koranda with ROTH Capital.

I guess I just want to start with the Electronics segment and the order flow looks like it's up north of 75% year-on-year. Wanted to hear a little bit about the drivers of the strength and order flow between grid and core magnetics and Sensing Solutions business.

Yes. So the growth, I'm going to have to add Amran/Narayan, the 75%, I don't see the 75% math. We had great book-to-bill, 1.14 on growing sales. We're seeing strong order flow in our core switches business, which for us is a good indication that the general industry, certainly in Asia, is picking up. That in the quarter, we were -- the sales were up over 20%, which is relays are strong. [indiscernible] were up about 20% with a book-to-bill of about 1.1% or something. So we see very strong order flow there.

And it's kind of a tale of 2 cities in the industrial world, space, defense, grid, aviation, those businesses are all growing double digits. General industry in North America and Europe is still fairly slow. And as I said before, general industry in Asia looks like it has really picked up.

Yes. And if I can just add to that, Matt. As we said in our prepared remarks, we had 2 consecutive months of orders over $50 million for Electronics, which has never happened before. Some of that is clearly the strength we have seen and continue to see in the grid space and some of these as end markets. But also, as to David's point, indication that the general industrial markets are stabilizing, and we are kind of turning the corner.

Now it takes us a little time to convert those orders into sales, but it makes us pretty bullish about what we're going to see in FY '27 in terms of top line performance, again, assuming there is no significant macroeconomic or geopolitical challenges.

Okay, that's helpful, guys. And then I guess for my second question, I wanted to ask a portfolio question. It seems like now that you're under 2 turns of leverage, you got plenty of capacity to deploy incremental dollars to M&A. Just wanted to hear the latest on the funnel and how you guys are thinking about add-ons to kind of the core segments as you sort of add more capacity at this point in time?

Yes. Matt, we like the position we're in now. We are delighted with the integration of the Amran/Narayan of the grid business, and how that continues to perform. And with a leverage under 2 now, but we're building sizable powder. And if you look at the makeup of our business, now 70% of our sales come from Engineered Components in Engineering Technologies and Electronics. And those are the businesses that serve these fast-growing markets with customized products. So that's the unit where we will explore opportunities.

And in our funnel, we always have a number of kind of family-owned businesses that are similar to -- or privately owned businesses, similar to acquisitions we made over the decades at Standex. With the Grid acquisition, that has also opened up opportunities for us. Look at related products, to solve bigger problems, to become an even more important partner to our customers.

So in the switchgear, in addition to the instrument transformer, there are other products that support the metering and the electrical quality measures of of the switchgear itself.

On the Electronics side, there are a lot of opportunities around components and modules. I think we've mentioned in the past, every time a customer works with us, we have to say for [indiscernible] switch-based sensor, a switch or a relay, they are also working with other suppliers and other components for that same product that are customized to some extent, whether it's capacitors or filters or something like this. So that really opens the aperture for us to explore wider opportunities.

So for that, we were in discussion with with a number of third parties to help us identify targets. So we have an existing funnel. We're working at expanding the funnel with these new opportunities as we've fully explore opportunities to expand these engineered components businesses.

Next question will be from Ross Sparenblek with William Blair.

Maybe just a level side on the top line guide. Are we picking out the first 3 quarters of Federal, kind of $25 million? Or are we leaving that in there just taking in the fourth quarter?

The Federal is out in the fourth quarter guidance.

So just the fourth, okay. And then you guys said grid was up 20% year-over-year. So that implies what, like a [ 160 ] run rate? Pretty healthy.

Yes.

Yes, yes.

And so then you guys said a book-to-bill of 1.1. So the core organic growth [indiscernible] 1.15, up nearly 20%. We're definitely seeing some momentum?

You've got your math right? .

That's I get paid for. I mean, can you just any updates on India and the progress you've seen with rolling out [indiscernible] there and driving that capacity?

Well, I tell you, we had -- just a few weeks ago [ Danes ] here with us today. He was in India a few weeks ago with a very large team for a global grid capacity expansion [ Kaizen ]. So we have an extensive plan to look at global demand a roll-up from customers around the world by product family. We have a site in Texas, a site in India, site in Croatia now. We're producing in Mexico and our Mexico site and are looking at our global capacity expansion.

We do have assumptions that within India simply with Lean, there was another, call it, 15-plus percent capacity expansion from Lean which fuels us in addition to Mexico and Croatia through this year. As you know, we have the Texas site coming on next year.

Your question was about India. So we have a good handle on the initial -- there's unexipited Lean opportunities there, 15-plus percent capacity.

Okay. And maybe if I could squeeze one more. Can you just remind us really quick on the growth investments within Electronics, just the size of the cadence? . A couple of million in quarter?

Yes. So if you kind of break it down by part, Ross, most of our growth investments are coming in the grid business. Obviously, there's some investments been Croatia. That's probably -- it's about, call it, 30, 40 basis points, if you think about it from kind of a margin standpoint of impact right now because, obviously, shipping products yet of Croatia.

And then as David mentioned, and as you know, we're expanding capacity in Houston and Mexico. So you have to hire some people and get some of the rolling before we can -- before to those [indiscernible] sites operational. So there's probably another, I would probably tell you 50, 60 basis points of those investments as well, kind of the -- from a run rate basis standpoint.

Okay. So there's no [indiscernible] issue. There was some one-off stipulation regarding Grid. I didn't fully [indiscernible] details. It just seems like given the growth of the [indiscernible] brand, those margins did maybe a little bit higher as an Electronics?

Yes. Look, we think we're going to continue to expand margins in Electronics, especially as you kind of think about where we are growing, is our fast growth end markets where we are more profitable. So we do expect we're going to clipped at 30% in adjusted operating margin in the near future.

Next question will be from Michael Shlisky with D.A. Davidson.

Speaking of operating margins, just looking at the results, pretty clear that Engraving & Hydraulics are now kind of the lowest of the 4. I guess those are kind of 2 different businesses. Can you comment on your plans for those businesses? You're always trying to hone it a little bit better and a little bit higher year after year. Is there a potential that those are next to go, I'd say, after Federal?

Well, in there -- as you know, they're strong businesses in their sectors. They're not burning platforms in that sense. It's kind of a question of timing to find the best opportunities for these businesses. Within Engraving, we have we have some pretty interesting growth initiatives going on. We talked about making these specialized parts, functional textures, those are ramping up. So the businesses themselves are fundamentally sound. We have some profit improvement projects in both of them.

And if you look at our history, where we've invested in acquisitions, we love the Engineered Components businesses. You will likely see more of that. And we have some very good businesses that Hydraulics & Engraving, they could be fit somewhere else. And Well, we continue to monitor. [indiscernible], and we'll make a decision at the time.

Okay.In Aerospace, given the organic growth you've seen now. We've got quite a few opportunities ahead of you. Do you see a need to expand capacity there on a field basis?

In the Aerospace & Defense segment, is that your question, Mike?

Yes.

Yes. Not from a greenfield standpoint, at least not in the near term. We have a bit of a capacity in our sites. But obviously, as the business continues to grow at some point, we might have to look at additional space. But no immediate plans as of right now. We feel we conservative [indiscernible] our way in the near term.

Yes, I guess the one caveat to that, we mentioned the missile programs. If these missile orders do appear for some of these higher scenarios, then we will expand the footprint.

That's correct.

Okay. Got it.

But we would only do that with the long term -- I'm sorry, but we would only do that with a long-term commitment from the customer, and we'd certainly communicate that in a future quarter.

Right. I imagine you have an ROIC hurdle to beat there, and it wouldn't be any different than you would for [indiscernible] or anything else.

Right. Right, exactly.

Great. And then it sounds like you're not looking to give us too much guidance on fiscal 2027, but can you just comment on the new product menu for 2027. Do you have as many rolling out next year that you had this year, [indiscernible] onto the pipeline? Can you expect a halfway decent year from that part of the growth plan?

Yes. If you just step back and think our general growth model, we think we've got these fast growth markets that continue to grow upper teens, 20% a year, that's 6 points growth from that. Our new products, we still expect that to add 300 basis points of growth. And then whatever happens with general industries may be a tailwind to that.

So at a high level, I would be thinking -- in that zone for 2027 and [indiscernible] need here. So in terms of numbers of products in 2027 got in line with...

Yes, Definitely, Mike. I think we think the momentum will continue. Actually, it might even increase because as we are adding -- our funnel is increasing internally of new product ideas.

[Operator Instructions] Next, we will hear from Gary Prestopino with Barrington Research.

In your new segment breakdown, the other category, is that legacy Federal before the divestiture? What exactly is in there?

That's like a [indiscernible] it is.

Okay. That's all it. Okay. So with the sale of Federal, was the corporate expense associated with Federal, does that come out of the equation? I noticed like your corporate expense was about $8.6 million this quarter, a step down from last quarter, which was abnormally high. But as we're modeling, what kind of number should we be looking at for that corporate expense number?

Yes, Gary, it's Ademir. I mean we don't really allocate a lot of corporate costs. So there's no corporate costs that would go away with Federal. I mean it's really driving the reduction in the corporate cost for quarter is we -- some of it -- we got slightly lower medical costs versus some of the prior quarters. There was some adjustment to the bonus payouts. And that's basically it. But we do assume that going forward, kind of $9 million to $10 million run rate is probably the right number.

Okay. And then just in terms of your tax rate because I noticed it was down, I think, this quarter and obviously, a lot of moving parts with the numbers with the sale of Federal. But for Q4, is it looking like it will be about 24%?

Yes, 24% to 25% is kind of what I would tell you is a good estimate.

Okay. And then just last question in terms of what's your growth in Electronics. I mean, can you -- is it all across the board and grid replacement of grid, data centers? Or where are you starting to see abnormal growth? .

Did you say abnormal growth?

Right. Yes. Growth of what you were thinking in terms of the expectation.

Yes. So the growth driver is certainly a grid, defense. There is a defense component in Electronics. And I mentioned it earlier, our sales of [indiscernible] switches -- or n[indiscernible], which was up 20% year-on-year. So that -- they'll go everywhere. So a sign of a general industry strength primarily in Asia. And our relay sales are strong. They're driven by kind of test and measurement equipment, similar drivers to the grid, serving data centers and the equipment that go into data centers.

I know we look at it, we have 3 businesses in there as now. We've got what we used to call magnetics, our [indiscernible] business, which is really a North American business. That was that was down in the quarter year-on-year, largely due to some execution issues. Their book-to-bill was very strong. The detect, the SST business, which is where the switches, sensors are was upper single digits. That includes the switch business I talked about before. And then grid, of course, which we talked about. So kind of triangulates into your growth question from a couple of [indiscernible] angles.

at this time, Mr. Dunbar, we have no other questions registered. Please proceed, sir.

All right. Thank you. I appreciate everybody connecting today on this call. We always enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions.

I look forward to speaking with you again in our fiscal fourth quarter call.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.

Good morning, ladies and gentlemen, and welcome to Standex International Fiscal Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Chris Howe. 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 2. 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 risks 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, EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, EBITDA margin and adjusted EBITDA 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 EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. 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, and welcome to our Fiscal Second Quarter 2026 Conference Call. I am very pleased to present results that demonstrate our years' long efforts to build a growth engine at Standex are now reading through in top line results. We recorded 6.4% organic growth and a book-to-bill ratio of 1.04 led by our Electronics segment, which grew 11.1% organically with a book-to-bill ratio of 1.08. The contributions from sales into fast growth markets, new product sales and the improving general industrial markets are now evident in our results. As such, the company is well positioned to deliver mid- to high single-digit organic growth in the fiscal third quarter and remains on track to the fiscal 2026 sales outlook.

I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal second quarter 2026 results. Now let's look at the results beginning on Slide 3. In the second quarter, sales increased 16.6% year-on-year. Contributing to this growth were new product sales and sales into fast-growth markets. New product sales grew approximately 13% to $16.3 million. Sales into fast-growth markets were approximately $61 million or 28% of total sales. These results have been literally years in the making as we begin our focus on new product development in fiscal year 2021 by increasing our R&D spending from 1% of sales to the current 3%.

In the same year, we began directing our efforts to win more applications with customers serving fast growth markets. In our August earnings call, we said that we believe both efforts were reaching an inflection point and would deliver organic growth this fiscal year. These results show they are paying off. Orders of approximately $231 million were the highest quarterly intake ever, showing our growth engine continues to accelerate and setting us up nicely for the balance of the year. In the second quarter, sales increased 6.4% organically with book-to-bill of 1.04, highlighted by the Electronics segment that grew 11.1% organically with book-to-bill of 1.08. In addition, the engraving segment grew 10.3% organically. Adjusted gross margin of 42.1% was up 120 basis points year-on-year. Adjusted operating margin of 19% was up 30 basis points year-on-year.

We paid down approximately $10 million of debt and reduced our net leverage ratio to 2.3x. We are reiterating our fiscal year 2026 sales outlook. Barring unforeseen economic global trade or tariff-related disruptions, we expect revenue to grow by over $110 million from 2025. The drivers of this increase are the strong momentum we are seeing from new product sales and sales into fast-growth markets and the full year impact of last year's acquisitions. In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth and have increased our expected sales from new products to $85 million from $78 million. We launched 4 new products in the second quarter and remain on track to release more than 15 new products in fiscal 2026. Sales from fast-growth markets are expected to grow over 45% year-on-year and exceed $270 million. On a year-on-year basis, in fiscal third quarter '26, we expect significantly higher revenue driven by mid- to high-single-digit organic growth from higher sales into fast growth end markets and increased new product sales and slightly higher adjusted operating margin due to higher volume and favorable product mix, partially offset by growth investments and higher medical costs.

On a sequential basis, we expect slightly to moderately higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments. I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to Slide 4, second quarter 2026 summary. On a consolidated basis, total revenue increased approximately 16.6% year-on-year to $221.3 million. This reflected organic growth of 6.4%, 9.4% benefit from acquisitions and 0.8% benefit from foreign currency. Second quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19%. Adjusted earnings per share increased 8.9% year-on-year to $2.08. Net cash provided by operating activities was $20.7 million in the second quarter of fiscal 2026 compared to $9.1 million a year ago. Capital expenditures were $7.7 million compared to $7 million a year ago.

As a result, we generated fiscal second quarter free cash flow of $13 million compared to $2.2 million a year ago. Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics. Segment revenue increased 20.6% year-on-year to a record $115.7 million, driven by organic growth of 11.1%, acquisition benefit of 9.1% and 0.4% benefit from foreign currency. Organic growth was driven by sales in the fast-growth markets and increased new product sales. Adjusted operating margin of 28.8% in fiscal second quarter 2026 increased 120 basis points year-on-year due to higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal second quarter was 1.08 in orders of approximately $125 million. This marks the sixth consecutive quarter with book-to-bill near or above 1. As mentioned before, due to the customized nature of our products, the conversion cycle is longer, but with higher sustainable margins. The healthy order funnel is now being realized in our organic growth results. Sequentially, in fiscal third quarter 2026 we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect similar adjusted operating margin, primarily due to product mix and continued strategic growth investments.

Please turn to Slide 6 for a discussion of Engineering Technologies and Scientific segments. Engineering Technologies revenue increased 35.3% to $30.6 million driven by 33.4% benefit from recent Master light acquisition, organic growth of 1.2% and 0.6% benefit from foreign currency. Organic growth was suppressed by delays in customer project timing. Adjusted operating margin of 18.9% increased 260 basis points year-on-year, primarily due to higher volume. Sequentially, we expect moderately to significantly higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume. Scientific revenue increased 5.5% to $19.5 million due to acquisition benefit of 8.1%, partially offset by organic decline of 2.6%, primarily due to lower demand from academic and research institutions affected by NIH cuts. Adjusted operating margin of 24.2% decreased 270 basis points year-on-year due to organic decline and product mix.

Sequentially, we expect similar revenue and slightly lower adjusted operating margin due to product mix, investments in research and development and tariff costs, partially offset by pricing and productivity initiatives. Now turn to Slide 7 for a discussion of the Engraving and Specialty Solutions segment. Engraving revenue increased 13.6% to $35.7 million, driven by organic growth of 10.3% from improved demand in Europe and North America and 3.3% benefit from foreign currency. Adjusted operating margin of 19.2% in fiscal second quarter 2026 increased 490 basis points year-on-year due to higher sales and realization of previously executed restructuring actions.

In the next -- in our next fiscal quarter, on a sequential basis, we expect similar revenue and slightly lower adjusted operating margin due to project and regional mix. Specialty Solutions segment revenue of $19.8 million decreased 7.2% year-on-year. Operating margin of 10.7% decreased 600 basis points year-on-year. Sequentially, we expect moderately to significantly higher revenue and operating margin. Next, please turn to Slide 8 for a summary of Standex' liquidity statistics and capitalization structure. Our current available liquidity is approximately $213 million. At the end of the second quarter, standards had net debt of $437.7 million compared to net debt of $413.2 million at the end of fiscal second quarter 2025. Our net leverage ratio currently stands at 2.3. We paid down our debt by approximately $10 million during the fiscal second quarter 2026. In fiscal third quarter 2026, we expect interest expense between $7 million and $7.5 million. Standex's long-term debt at the end of fiscal second quarter 2026 was $534.7 million. Cash and cash equivalents totaled $97 million.

We declared our 246th quarterly consecutive cash dividend of $0.34 a share and approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $33 million and $38 million. Relative to our debt leverage, we will continue to focus on paying down debt and anticipate that our leverage ratio will further decline through fiscal year 2026. I will now turn the call over to David for concluding remarks.

Thank you, Ademir. Please turn to Slide 9. I I'm very pleased to see the inflection in organic growth in the second quarter as new product sales grew 13% and is fast growth markets contributed 28% of revenue. Organic growth was driven by our Electronics, Engineering Technologies and the Engraving segments. The year-on-year organic growth reflects actions and investments since fiscal year 2021. During this time, we ramped up new product development across our businesses and further positioned ourselves in fast growth end markets like grid, commercialization of space and defense. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships.

This continued momentum in fast-growth markets and from new product sales helped support a record order book in the fiscal second quarter. We are reiterating our sales outlook for fiscal 2026 and remain on track to achieve our fiscal 2028 long-term targets. We will now open the line for questions.

[Operator Instructions] Your first question is from Chris Moore from CJS Securities.

Congratulations on another solid quarter. Thanks for taking up you. Maybe we just start with one on the on the purchase accounting side, the $17.98 million redeemable noncontrolling interest redemption value. I know that relates to the 10% that you could not acquire of Amarin Narayan. Maybe you could just kind of walk us through the math there and how that works?

Yes. Sure. Chris, it's Ademir here. So it's a bit of a technical answer. So we -- and we anticipated this question, so we prepared a few remarks. So let me try to explain. So kind of in general, whenever we acquire the business, our goal is to ensure full alignment and objectives and incentives between owners of the business and Standex and in many cases, actually owners and team management of the acquired business, stay on board with us not only to ensure successful integration, but also, frankly, to help us grow the business in the future. And that's been our key success with our prior acquisitions has been really strong, strategic, financial and cultural fit.

So last year, when we negotiated agreement to acquire Amarin, and Amarin is actually a U.S. legal entity and Narayan, which is an Indian legal entity, our goal is essentially the same, to ensure common goals and incentives between owners of the business and Standex. So in order to achieve this goal, we acquired 85% of Amarin in cash and 15% with Standex shares. And then we also acquired 90% of Narayan in cash, and our plan was to acquire the remaining 10% of Narayan an Indian entity with Standex shares. This acquisition actually of the remaining 10% of Narayan but Standex shares but not possible at the time of acquisition because it was subject of approval by Indian government as Indian nationals have restrictions on owning foreign equity. And since we didn't have this approval at the time of Narayan acquisition, we included in the purchase agreement, an alternative method to acquire the remaining 10% with cash, using the same 12x trailing 12-month EBITDA multiple which is measured at future points in time.

So now after 1 year, the India government approval was not obtained. And at this point, this approval is unlikely. And based on the original purchase agreement, minority owners of Narayan now have the right to sell us 1/3 of their remaining 10% interest in Narayan. And as a result of these 2 facts, but accounting rules we had to record the increased value of remaining 10% of Narayan based on trailing 12 months in Narayan EBITDA as of end of fiscal Q2 FY '26 applying the same 12x multiple to frankly represent what it would cost Standex to acquiring cash, the remaining 10% stake of Narayan as of today as per the purchase agreement. So really, Chris, it just shows the increased value of this business since the acquisition and just frankly, a phenomenal performance that this business has had as part of Standex grid. Hopefully, that helps. I mean I can read you the explanation from the fee, which is even more tactical, but hopefully, this helps clarify.

No, it does. That was perfect. Very helpful. All right. To answer the business. So maybe just continue with Amarin or Grid. So OEMs just Snider, Electric, Siemens, you all found it more efficient to outsource the low to medium voltage transformers that Grid is providing much of the engineering that they had done in-house. So maybe just a question or 2 here. How would you characterize the competitive environment here? I'm just trying to understand if do most of these OEMs have multiple relationships with companies like Amarin? Or are you sole sourcing or -- how does it work now? And what's your expectation moving forward?

Well, Chris, this is a great example of a customer intimacy market. And the idea of customer intimacy is that as customers design their next generation platforms, they've got their engineers focused on the most critical functionality within that platform, but there are other elements that are very important that must be custom designed and they need partners to do that. So over the years, instrument transformers have moved into that category and Amarin Narayan is quickly becoming a valued partner to the global equipment OEMs. If you zoom out and look at the global market for instrument transformers, about 40% of the instrument transformers are made by the electrical equipment OEMs by the GE Siemens, by Schneider Eaton. They are outsourcing more and more of that, but not all of it.

The other 60%, there are different suppliers in every region of the world. And I would -- they're not small family shops. These are the businesses about the size of Amarin and Narayan, but there are a lot of suppliers out there around the regions of the world, and we feel that we stack up well against all of them.

Got it. Very helpful. And maybe just the last 1 for me, maybe just bigger picture. India, you just signed a trade deal? Just wondering -- any thoughts there?

Well, yes, well, first of all, clarity in trade is good. clarity and consistency, so we can make our investment, make our plans. Now if you think about the Croatia site that we've started up and now ramping up, we're installing machinery now there, that makes that Croatia site even more viable long term because that's there to serve the European market. and leverages the Indian supply chain. So we don't know fully what the implications are, but it can only be good.

Got it. I will leave it there. I appreciate it, guys. .

Your next question is from Ross Sparenblek from William Blair.

On the electronics, can you maybe just help parse out the sales and order growth for the grid business versus the legacy?

Yes. I mean, again, our book-to-bill for the electronics was over 1 with the Grid business being at about 1.2 book-to-bill and the core business being at about 1.03, 1.04. I think even kind of more of an info is that our orders in the Electronics business have been strong over the past 2 quarters or few quarters. And as you know, Ross, it takes us a little while to convert some orders into sales. So we are pretty pleased with what we are seeing in the overall order book, both in the core business and especially what we are seeing on the grid business because the demand is very strong.

I just -- there's 3 big pieces of our electronics business, the grid business continues to grow kind of as it has in the last few years. Our switches and sensor business with reed switches and relays is growing upper-single digits and the magnetics business, which is primarily North American business is less than that. So our core electronics business mid-single digit.

Yes, correct. So yes, in the quarter, right, that's a good point. In the quarter, Ross, the grid business kind of got an organic growth rate because we last the year got the organic growth rate the whole total segment over 10% with the core growing at about mid-single digits organically. .

Okay. So I mean you get the sense on the legacy side that you're starting to hit an inflection here. See to indicate. But I mean we kind of think through the end markets and the drivers, I mean, is there anything really to call up there? I mean I know eBeswas a story for a bit. You want some new content, Aerospace and Defense, just what's helping sustaining that way.

Yes. On the legacy side, it's -- right, it's primarily the switches and the relays, Asia is very strong. There's a lot of economic activity in Asia, we're seeing a pickup in Europe. North America is still flat. So if you look at the geographies. The end markets, our relay business is growing with test and measurement sales release into test and measurement equipment, and that's tied to electrification, grid and data centers. Those are kind of things that stick out.

Yes. Okay. And then can you maybe help us bridge the second half walk to the 270 of fast growth sales, but we've comped over the Amarin acquisition and kind of my math, it seems like the biggest 2 bucks are probably commercial space and grid, but we also have capacity coming online there, too, that might be inhibiting that the next quarter or on the grain side?

Well, yes, yes. So last year, our sales and fast growth of 184 and I've included a partial year of the grid business. This year, we're saying 270 plus, and that's a full year of the grid business. Within that, our sales into defense in North America are up $15 million to $20 million, space about $10 million. EV is about $5 million, and the rest is the grid growth, which is primarily the Amnion acquisition, but there's some sales into grid from our legacy magnetics. .

Okay. I mean that's kind of what you're baking in for the year, that's what you've already seen in the first half.

So we're seeing that. Yes, yes. .

Okay. I'm just trying to understand there's going to be a bigger mix shift towards the grid since it is higher margin. Or when would the timing look like there?

Well, it is higher margin. But...

Yes. No, no, you're right. The grid business has higher margins. So just 1 thing, Ross, that's important is we're also investing in growth and capacity expansion in grades. So there's going to be some cost to set up our Croatia site to expand in Mexico to get the to get the Houston, Texas capacity expansion. So we do expect the margins kind of to continue to be very strong, but there's some investments we need to make now to continue to sustain this exceptional growth, frankly, on the grid side. .

Your next question is from Matthew Koranda from ROTH Capital Partners.

Maybe just continuing on the electronics chain of questioning here. Maybe could you just run us through the state of play with the capacity expansion projects you have for Amarin Narayan Orion between Houston, Mexico, Croatia, just the status there and how that sort of informs the segment profit guidance that you've laid out for us?

Yes. Let me first kind of zoom out and talk about capacity expansion. Since we acquired the business, we've increased the capacity about 50%, and that's largely through the additional shifts with work on lean, a little bit of automation. Now we're bringing on new sites. The Croatia site is now ramping up. We're moving machinery into our Mexico plant. So now if you zoom out over 5 years, within 3 to 5 years, we'll more than double the capacity with the addition of the Croatia site, the expansion in New Mexico. We will move into a larger site in Houston. That should be up and running in about 18 months, expansion in India. And then just continued automation and lean work, we'll more than double the capacity in 3 to 5 years.

Okay. Got it. Helpful on the capacity side. Just wondering, maybe Ademir can chime in on how that creates a little bit of a near-term drag on segment profitability. Just wanted to understand how that informs the guidance.

Yes, yes. No, for sure, Matt. So initially, obviously, to get -- for example, to get the Croatia site up and running. You have the set up the site, you have to hire a general manager, you have to he sales and marketing, production, et cetera. So there is some cost that's going to be incurred before we get to ramp up the production. So we don't expect electronics margins to decline in subsequent quarters. But I wouldn't expect them to increase in subsequent quarters as well.

Yes. I guess a good way to say that is we are adding resource project management resource, expertise in bringing up these new sites because it is so important. And we are doing that with the growth we're paying for that through the rest of the business and increasing margin, margin would be higher right now if we didn't make those investments, but it would compromise the capacity growth. .

Okay. That makes total sense. Okay. And then on ETG, I think you guys mentioned maybe there was some organic growth that was held back by customer timing issues and guessing just based on the guidance that, that slides into the third quarter, but maybe just talk a little bit about some of the is there.

Yes, absolutely. For long time followers of Standex, this comes up pretty regularly in that business. And whether the customer whether it's aviation space or defense, these are large shipments, they sometimes carry over from 1 quarter to the next, and it's really just a matter of timing. There's maybe they couldn't get -- there's a lot of reasons that could happen, they couldn't schedule a final inspection. But these things slip from 1 quarter to the next all the time. The backlog remains healthy and growing. Yes. No.

Yes, Matt. I mean it could be -- yes, and not really for ETG business, you kind of got to look at it over a 12-month period. to normalize for some of these ebbs and flows. But David is right, it could be a change in production on the customer side, changing timing when they need a product, but obviously affect when we work on the product, et cetera, et cetera. But over kind of 4 quarters, it all equalizes out. But you're right, we do at some of the ships out to happen happened this quarter.

Understood. Okay. Maybe just 1 more if I could sneak 1 in. On the sort of the M&A front, just given where leverage is, it's coming down to a healthy place. It looks like line of sight to under 2 at some point in the near future. Where are you focusing your efforts now just given sort of the balance sheet looks like it's in order to maybe get larger stuff done potentially? Just curious how -- where your head is at on that?

Yes. We are -- we've had extensive discussions about this recently. We're obviously looking for opportunities in grid and building up a funnel of opportunities in grid to help even accelerate the capacity expansion based on earlier questions, there are other companies out there that make instrument transformer, so we expand the instrument transformer business. Our grid customers are asking us to expand the products we sell them. So we have some ideas from our customers, like Schneider and Eaton companies we could look at -- and we're building up that pipeline. In our legacy electronics business, we know that every time we work with the customer and we customize a switch, relay or a sensor, there are other products that we could work on if we had a broader offering in that components and modules area. So you think about expanding our sensor and switch business into other related technologies, we're building up a pipeline there.

So don't be surprised if in the future, you see us building that business out, so we can offer a broader customer set. I guess the final area, we're just -- we feel pleased we have so many great end markets to look at. The space market is becoming a bigger and bigger opportunity. It is not just putting satellites in orbit anymore. If you look at the long-term plan some people have for space, there's going to be a lot going on up there with different kinds of vehicles requiring different pieces of equipment. So we're also building up a funnel in kind of emerging capabilities in the space market.

Okay. Sounds like a target rich environment a little bit there. .

Your next question is from Gary Prestopino from Barrington Research.

David, your new product sales to date, how many products have you introduced? I think you did 4 this quarter? What is it to date? .

Yes. So today, once you do 4, 5, we're 9 to date. .

Okay. So you're going to do greater than 15 this year, right?

Yes, Yes.

Are there any new products that you put out that you would have considered more wildly successful than you initially thought as you were developing them?

Well, I tell you, a lot of our sales in the commercialization of space are new products, and these are -- every year, we seem to take up our expectations of those. So the Engineering Technologies business with a Spincraft business have been very successful with their new products. .

So that's where the new products are really hitting Okay. And then -- are you at liberty to say if your fast growth markets are going to do $270 million of sales this year, I would assume a lot of that jump year-over-year is due to what you're doing in the grid, so what percentage of your sales are going to the grid right now or out of that 270, what percentage of your sales would be the grid?

Yes. I kind of ran through those numbers earlier to another question. And it's just over half of that is into the grid, 50%, 52% or something like that. And that was the run rate we saw these last couple of quarters because we've got Amarin Narayan fully in our numbers. And the rest, as I mentioned before, defense and space are the biggest pieces with a little bit of EV and renewable energy. .

Okay. And then just lastly, in terms of the Amarin acquisition, is there any more residual carryover from -- that would impact the next 2 quarters in terms of -- from the acquisition such as it would impact the income statement as it did this quarter?

Gary, are you talking about this noncontrolling interest adjustment. .

Yes. Yes, the noncontrolling.

Yes, we will have -- I mean, obviously, it will not be dissizable because this was the annual cure based on the 2 factors that kind of led us to have to book at this time. I mean, it will have to be adjusted on a quarterly basis going forward because the trailing 12-month EBITDA for which the multiple is applied, it's going to change.

Yes. I'm going to say a word about that. We are delighted that we had to make that large an adjustment that means that business is doing great. And this incentive is 10% of that Indian remaining in the hands of the owners really completely aligns our incentives. I mean I'm delighted at the cultural integration and the cooperation we're getting from the teams. -- and so this is an accounting and a technical matter, but it's playing out the way we had hoped. .

No, I understand that, but I'm just trying to get at is because they still own 10%, we're going to have this going forward for the next couple of quarters? I mean does this ever end?

Well, it would obviously end when the 10% is executed and either sold we repurchased the 10% then. But as long as I'm sorry, go ahead, I'm sorry. .

No, no, go ahead. I'm sorry.

No, no. At the point when those 10% shares transferred back to us, and we purchased them, obviously, then this would go away. But as long as there is some portion of the minority interest that's owned by the prior owners in India, there will be minority interest that has to stay on the balance sheet and a liability that we would have to pay for the remaining part at some point. Actually, in the contract, we have put in call options the way that this agreement was structured by which, for the first 3 years, the owners have the right to essentially sell us their shares and then we get the right to repurchase starting in year 4.

Your next question is from Michael Shlisky from D.A. Davidson.

I want to follow up on your last answer there. I'm also just trying to make sure I get my hands around this. Does the eventual sale of the shares or purchase of the shares has to be approved by the Indian government. And could that be an issue? And will you be just consistently revaluating this every quarter until they approve it?

Yes. So to come back to the original agreement we had, we actually -- the original objective was to purchase 10% of the Indian entity in Narayan with Standex shares. And the India government needs to approve an Indian national to own for equity of a foreign company. So if you're buying shares that it needs to be a government approval. If you're paying a bit of cash, obviously, there is no government approval that's needed. That's a pretty straightforward transaction.

That's what we're doing.

And that's, I think, what we're going to end up at some point in time over the next few years. other approvals. .

Got it. I know it's like your biggest segment, but I did notice the substantial margin decline in Specialty Solutions. I was wondering if you could maybe share -- what was behind that? I know you mentioned around the Engineering Technologies Group. How about that one? .

Yes, it's been just a very, very difficult end market in North America, Mike, in terms of where the Specialty Solutions is playing and it's all North America. And we do expect this quarter to get better. We are seeing some order intake improvement in both businesses that make up the Specialty Solutions segment. and we do expect those margins to improve this quarter as the general market conditions improve. But it's market driven. .

Okay. Okay. And similarly, I wanted to touch on the ingredient business as well as a little bit less comeback coming here after a very long period of waiting. Can you just talk it about what the pipeline of business looks like in engraving, does it go beyond a couple of quarters here?

Yes. I mean we -- like we've said in the last few quarters, we think that in North America and Europe, that activity bottomed out, and we were in that kind of in the trough in the last year. We do see that -- in North America is still kind of at similar levels. Europe is starting to pick up. We anticipate programs will be launched in America that will lead to work for us later in the summer and the fall. So we do see a pickup in that general -- in our traditional business there, And another thing we're quite excited about is the increase in our new product sales for the year is actually out of the Engraving business.

You might remember in the summer, we talked about a new win they had making these differentiated parts using kind of some proprietary knowledge we have of the soft trim process. So we're producing these parts. That is a new product for us. And the $8 million increase in new products is almost is largely from that business. So we think there's a pickup from that, we'll see in the late this quarter and into Q4.

But we are still -- we are still cautious about the overall market and engraving the auto market. .

Your next question is from Ross Sparenblek from William Blair.

Just quickly on the capacity. I mean you've spoken to a $60 million roughly in Croatia. But can you maybe just remind us of where that stood when you acquired the asset on a dollar basis?

It was -- there were only -- the Croatia was just a request from customers to install only the of Amarin.

I mean, you weren't a shift in India some of the move to expand there. .

Yes. So the capacity parent at the time of acquisition was basically in line with the sales. It was about $100 million. We have increased that capacity of that -- of the existing capacity about 50%. And then we've got these other sites coming online.

And then just want to clarify, we think they're doubling that. Are we doubling of the original base or where we stand today?

No, no, no, no. No, in fact, we're more than doubling it based on -- if they're at $150 million now, We will more than double that in the next 3 to 5 with Croatia, Mexico, Houston, new expansion in India, and lean and automation.

Okay. And then just on Amarin and just kind of a qualitative and the competitive landscape. Can you say elaborate on the right to win there? Is it the scale, the relationships? Or is it just kind of the prototyping and technical capabilities on that?

I didn't understand the question. I'm Sorry.

Yes, in the grid business. I mean we're expanding globally. There's a lot of it's a fragmented market, regional players. I mean what truly is kind of the right to win there for that business?

Well, customers are asking us to expand. They have earned a privileged position with the largest electrical equipment OEMs through great service levels. When we announced the acquisition and in previous quarters, we've explained, they have an advantage, the way their business model works, they can turn around prototypes faster. They can deliver faster than internal teams in a lot of our customers. and from our competitors. They have a great track record for quality. And they've got a great supply chain in India that gives them a cost advantage as well. So they win on a lot of fronts, all the expansion plans we're talking about are really at the request of customers. We don't have to go prospecting for business. Customers are very open with us about their long-term plans, what they want us to do. So this is a very collaborative effort to expand this capacity. .

Okay. And then maybe just 1 final 1 here. Do we think like the delta of the mid- to high single passport of finer point on those ranges and what could go wrong, what you're right. I know you guys have better visibility in some markets than others, but it feels like the cyclical pieces are pretty -- pretty much a trough at this point.

Yes. I mean, I think, yes. I mean, that's right. I mean, we feel from a kind of an overall economic environment and when the global markets we feel we are we bottomed out for sure, and now we are starting to recover and see some increased demand. So .

Working the reason -- back in August, we said that we -- there's a lot of energy in the company because we feel we're reaching an inflection point where the new products and the fast-growth markets are overcoming weakness in some other general industry markets. North America is still pretty weak. You heard about it in specialty. That's kind of a weaker spot in our legacy electronics business. So in terms of what could go wrong, if we don't see a pickup in North America, that would be kind of a that Yes. .

Okay. So more macro related, it's not timing of -- or any watch items regarding like the A350 or STACK or something like that.

No, no.

There are no further questions at this time. I will now hand the call back over to David Dunbar for the closing remarks.

I want to thank everybody for joining us for the call. We enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions. I'm excited about the company's potential in fiscal year 2026 and look forward to speaking with you again in our fiscal third quarter 2016 call. .

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

Good morning, ladies and gentlemen, and welcome to Standex International Fiscal First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Note that this call is being recorded on Friday, October 31, 2025.

And now I would like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead, sir.

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 2. 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 risks 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, EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, EBITDA margin and adjusted EBITDA 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 EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items.

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, and welcome to our fiscal first quarter 2026 conference call. Following record operating performance in fiscal year 2025, our first quarter performance provided a strong start to the fiscal year, positioning us well to exceed our previously provided guidance of greater than $100 million of incremental sales in fiscal year 2026, which includes organic growth in our core businesses as well as the full year impact of acquisitions.

First, I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal first quarter 2026 results. Now let's take a look at the results beginning on Slide 3. In the first quarter, sales increased 27.6%, contributing to this growth were new product sales and sales in the fast growth markets. New product sales grew more than 35% to approximately $14.5 million.

Sales in the fast-growth markets were approximately $62 million or 30% of total sales. Orders of approximately $226 million were the highest quarterly intake ever, setting us up nicely for the balance of the year. Despite Electronics showing an organic decline in the quarter, its book-to-bill ratio remains above 1 and organic orders were up approximately 8% year-on-year.

We remain on track for mid- to high single-digit organic growth in Electronics in fiscal 2026. Amran/Narayan Group continues to perform ahead of our expectations. In the quarter, it delivered record sales of greater than $35 million. I'm excited to announce that in the quarter, we kicked off operations in Croatia and Mexico.

Adjusted operating margin of 19.1% was up 210 basis points year-on-year. This operating performance, along with our cash generation and cash repatriation enabled us to lower our net leverage ratio to 2.4x. We are raising our fiscal year 2026 sales outlook. Barring unforeseen economics, global trade or tariffs-related disruptions we now expect revenue to grow by over $110 million, $10 million more than we communicated last quarter.

The drivers of this increase are the strong momentum we are seeing from new product sales and sales into fast-growth markets. In particular from the Amran/Narayan Group, which we now expect to grow more than 20% year-on-year in fiscal 2026. In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth. We launched 4 new products in the first quarter and remain on track to release more than 15 new products in fiscal 2026.

Sales from fast-growth markets are now expected to grow over 45% year-on-year and exceeds $270 million. On a year-on-year basis, in fiscal second quarter 2026, we expect significantly higher revenue driven by mid-single-digit organic growth and contributions from recent acquisitions and similar adjusted operating margin due to higher growth investments and less favorable product mix.

On a sequential basis, we expect slightly higher revenue due to a higher contribution from fast growth end markets and new product sales and realization of pricing initiatives. We expect slightly lower to similar adjusted operating margin due to increased investments in growth and less favorable product mix.

Please turn to Slide 4, which discusses how grid and new products support the increase in our sales outlook. We celebrated a significant anniversary on Wednesday. A year ago, the company made the largest acquisition in its history by acquiring the Amran/Narayan Group, a leader in low and medium voltage instrument transformers. We could not be more pleased with its integration, the seamless cultural fit and business results.

Building on the shared success, we are renaming Amran/Narayan as Standex Electronics Grid within the Electronics business segment. Since we owned Amran/Narayan, sales over the past 12 months have grown nearly 35% versus the 12 months before we acquired. Looking even further back, sales are up nearly 75% versus 2 years ago. This growth continues to be driven by robust end market demand within data centers, electrification and grid modernization.

To support future demand, we have expanded geographically in Croatia and Mexico. While Grid has provided a step change to our sales into fast-growth markets, I'm also excited to show here how fast growth markets as a whole has scaled, showing that there are several pathways for growth, including commercialization of space and defense. These factors give us confidence to raise our expectations to $270 million.

In addition to the fast growth markets, new products are off to a strong start. We launched 4 new products in fiscal first quarter and are on track to launch more than 15 new products this fiscal year. The majority of these new products are within fast-growing end markets or new product categories and are expected to deliver margins above our core products.

New product sales grew more than 35% to approximately $15 million in the fiscal first quarter and are expected to grow more than 40% to approximately $78 million in the fiscal year. These areas provide us with confidence to raise our fiscal 2026 sales outlook.

I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to Slide 5, first quarter 2026 summary. On a consolidated basis, total revenue increased approximately 27.6% year-on-year to $217.4 million. This reflected 26.6% benefit from recent acquisitions, organic growth of 0.6% and 0.4% benefit from foreign currency. First quarter 2026 adjusted operating margin increased 210 basis points year-on-year to 19.1%.

In the fiscal first quarter, adjusted operating income increased 43.3% on 27.6% consolidated revenue increase year-on-year. Adjusted earnings per share increased 8.2% year-on-year to $1.99. Net cash provided by operating activities was $16.8 million in the first quarter of fiscal 2026 compared to $17.5 million a year ago. Capital expenditures were $6.4 million compared to $6.7 million a year ago. As a result, we generated fiscal first quarter free cash flow of $10.4 million compared to $10.8 million a year ago.

Now please turn to Slide 6, and I will begin to discuss our segment performance and outlook, beginning with Electronics. Segment revenue of $110.6 million increased 42.2% year-on-year driven by 45.5% benefit from acquisitions, partially offset by organic decline of 3.1% and 0.1% impact from foreign currency.

The organic decline was primarily due to a closure of one of our facilities and customer delays for alternate site approvals. Adjusted operating margin of 28.8% in fiscal first quarter 2026 increased 510 basis points year-on-year due to contribution from recent Amran/Narayan Group acquisition, pricing and productivity initiatives.

Our book-to-bill in fiscal first quarter was 1.06 with orders of approximately $117 million. Organic bookings grew approximately 8% year-on-year. Sequentially, in fiscal second quarter 2026 we expect slightly higher revenue, reflecting higher contribution from the core business, partially offset by lower Amran/Narayan Group sales due to holidays in India.

On a year-on-year basis, we expect mid- to high single-digit organic growth. We expect similar adjusted operating margin sequentially driven by product mix and continued strategic growth investments. Operations have kicked off in Croatia to serve our customers in Europe and support growing power requirements for data centers and grid expansion and upgrades in the region.

Please turn to Slide 7 for a discussion of the Engineering Technologies and Scientific segments. Engineering Technologies revenue increased 45.6% to $29.9 million driven by 32.4% benefit from recent McStarlite acquisition, organic growth of 12.7% and 0.5% benefit from foreign currency. Organic growth was due to strong demand across space, defense and aviation end markets.

Adjusted operating margin of 16.8% decreased 270 basis points year-on-year primarily due to lower margins from a favorable project mix in our recent acquisition. Sequentially, we expect moderately higher revenue due to growth in new product sales and similar adjusted operating margin. Scientific revenue increased 9.9% to $19.5 million due to 18.6% benefit from recent acquisition, partially offset by organic decline of 8.7% primarily due to lower demand from academic and research institutions that were impacted by NIH funding cuts.

Adjusted operating margin of 25.3% decreased 300 basis points year-on-year due to organic decline. Sequentially, we expect similar revenue and slightly lower adjusted operating margin due to higher contribution from Custom Biogenic Systems acquisition and increased tariff costs.

Now turn to Slide 8 for a discussion of the Engraving and Specialty Solutions segments. Engraving revenue increased 7.4% to $35.8 million, driven by organic growth of 5.6% from improved demand in Europe and 1.9% benefit from foreign currency. Adjusted operating margin of 19.1% in fiscal first quarter 2026 increased 50 basis points year-on-year due to higher sales and realization of productivity initiatives and restructuring actions.

During the fiscal first quarter, we announced the closure of 4 sites, optimizing the footprint in the United Kingdom, United States, Italy and China resulting in approximately $5 million of restructuring charges. These actions are projected to yield approximately $5 million in annualized cost savings once fully implemented, and we expect to start realizing savings during the second half of fiscal year 2026.

The segment is now substantially done with restructuring activities and is well positioned to serve its customers. In our next fiscal quarter, on a sequential basis, we expect moderately lower revenue and slightly lower adjusted operating margin due to project timing. Specialty Solutions segment revenue of $21.7 million increased 2.6% year-on-year, primarily due to slightly improved demand in Hydraulics. Operating margin of 13.3% decreased 350 basis points year-on-year. Sequentially, we expect slightly higher revenue and operating margin.

Next, please turn to Slide 9 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $198 million. At the end of the first quarter, Standex had net debt of $446 million compared to net cash of $15.6 million at the end of the fiscal first quarter 2025. Our net leverage ratio currently stands at 2.4x. We paid down our debt by approximately $8 million during the fiscal first quarter 2026.

In fiscal second quarter 2026, we expect interest expense between $8 million and $8.5 million. Standex's long-term debt at the end of fiscal first quarter 2026 was $544.6 million. Cash and cash equivalents totaled $98.7 million. We declared our 245th quarterly consecutive cash dividend of $0.34 per share and approximately 6.3% increase year-on-year.

In fiscal 2026, we expect capital expenditures between $33 million and $38 million. Relative to our debt leverage, we will continue to focus on paying down debt and anticipate our leverage ratio will further decline through fiscal year 2026.

I will now turn the call over to David for concluding remarks.

Thank you, Ademir. Please turn to Slide 10. I'm very pleased to see continued momentum in the top line in the first quarter as new product sales grew more than 35% and as fast growth markets constitute a growing portion of our revenue.

The first year performance of Amran/Narayan Group now renamed as Standex Electronics Grid was above expectations and is expected to grow more than 20% in fiscal 2026. The growth within grid and from new product sales helped support a record order book in the fiscal first quarter, leading us to raise our sales outlook for fiscal 2026.

We remain on track to achieve our fiscal 2028 long-term targets. We will now open the line for questions.

[Operator Instructions] And your first question will be from Chris Moore of CJS Securities.

Congrats on another good quarter. It looks good. At some point, I don't know, either Q3 or Q4 call, you talked about Standex being roughly 2/3 of the way in this optimization journey other than potentially selling 1 of the business segments, what are the biggest areas of focus to help this further on the optimization journey?

Well, I think we've got 2 things going on. There will be ongoing -- some ongoing portfolio work, although the greatest value creation will come from realizing the potential of the organic growth initiatives. It's taken years to ramp-up new product development. New products are coming out. We've repositioned the business into faster-growing markets.

And I don't know what's higher than 2/3, it's 4, it's 5/9s or something like that. I don't know, because you see the momentum of new products and fast-growth markets, what -- this year, $340 million of our sales will come from new products and fast-growth markets. So that is getting to be big enough to be able to weather the storm of any irregularities in our core markets.

So in terms of optimizing our business model, we're well positioned to grow in all conditions. I think we're almost there. In the next year or so, that momentum will get us there. And on the portfolio optimization, as you know, we really only have good businesses in the portfolio. And if the right opportunity comes along to simplify, we'll do it as we have in the past.

Yes. And Chris, as you know, a track record, we'll continue doing what we have done in the past, and we have some really exciting platforms. And to David's point, some really good assets that at some point in the future, we may look to monetize, but we like what we have.

Got it. Very helpful. You talked about new products a couple of times, 15 this year. Are there a few that really kind of stand out in terms of -- that are being introduced this year?

Well, being introduced -- we have some exciting products in electronics. We had a couple released in the first quarter, that will go into relays and into test and measurement applications. And test and measurement is an end market, we don't talk a whole lot about, but it is driven by electrification, by grid, by data centers. Every time you generate a new generation chip or a new EV, you need test equipment to test the production and this test equipment has a lot of relays in it.

And a lot of these relays are the relays we make. So we have 2 new products that are released this quarter to go into that end market. We also in Scientific. We're excited about the release of the ultra-low temperature freezer, which the first version was released last quarter, and we'll continue to expand that. That gets the scientific business into its largest -- into the largest end market that it serves.

Perfect. And maybe just last 1 for me. Obviously, Amran/Narayan is performing exceptionally well, 30% growth. You're talking about 20% this year. I know you don't want to get ahead of yourself. Is there -- any -- are you seeing any slowing down in growth at this point in time? And you just opened up Croatia, it sounds like there's lots of opportunities there?

Well I would tell you, Chris, we are not seeing a slowdown in growth. Although we continue to look forward -- we're maybe somewhat conservative. But I'll tell you, in this coming quarter, we have a lot of meetings with customers. We've got the Croatia site ramping up. We've freed up some space in our Mexico clients and electronics, which we are now devoting to produce product for Amran, which will give us more capacity there.

So over the next few months, we'll develop a better view of the outlook -- and of course, we'll update that in our next earnings release in February. But the end market remains strong, driven by electrification, modernization of grid and continued spend in data centers. So we see no slowdown right now.

Yes. And Chris, the bookings are very strong. We just posted the highest sales quarter in Amran/Narayan or Grid, as we call it today, of $35 million. The bookings were still over 1. Over 1 book-to-bill. So the momentum continues.

Next question will be from Ross Sparenblek at William Blair.

Sticking with electronics here. Can you maybe just help us think about some of the momentum you're seeing, particularly in the legacy business, what end markets, what stands out, it looks like from what we can tell those orders have really started to pick up the last 5 quarters, but again...

Yes, just a couple of things. We communicated the book-to-bill and the bookings in the quarter were both very good. And remember, about 80% of what we sell in electronics goes to OEMs. So there's a longer cycle to convert the bookings to shipments. Strong bookings in defense in the legacy magnetics business.

In the switches and sensors business, we're seeing strength in North America and Asia geographically. We're seeing strength in test and measurement end markets and also the distribution market is up, which is kind of a reflection of general kind of general end markets.

Yes. I mean distribution feels like it's been doing well for a while. When we think about kind of the mix profile the backlog is magnetic the biggest piece of growth being the lower mix product line?

I don't think so. I don't think it's significantly -- I think both SST and magnetics order growth was similar.

Yes. I think, Ross, every -- if you look at magnetics or sensors and switches or Amran/Narayan, for that matter. The book-to-bill for all of those businesses has been over 1. And it's been actually, September was the strongest booking month we had in a very long time in all of those 3 businesses. And October is actually coming in very strong.

So the strength is kind of across the board right now. So when we talk about having that mid- to high single-digit organic growth this quarter in Electronics, it really will come from all parts of the business.

Okay. That's great to hear. I mean we think about kind of the lead times on converting this and then maybe the incrementals and the type of operating leverage we should expect for the legacy business given the prior cost out as we think about the second half of 2026?

Yes. In general, if you think about the legacy business, if you just lump together on average, the switches and sensors and magnetics business. Orders in the quarter about 30% convert within 3 months and then maybe another 30% in the following quarter and the remainder beyond Q3 and beyond?

Yes. And I think, Ross, from a margin standpoint, which I think was.

It was the second part.

Second part of your question, we really want to get -- obviously, there's going to be some margin improvement as we continue through the year. But we're also putting some money into investments. For example, we just started up the Croatia site. There will be some initial investments we're going to have to put through before that site gets ramped up.

So we'll see margin improvements, but that will be offset with the growth investments we have to make because we really want to make sure that this business continues to grow at a good organic growth rate going forward.

Yes. I definitely appreciate that. But if I recall, you guys have taken out like something like $7 million or $9 million of prior cost out actions that we haven't really seen because of the destocking over the last couple of years. So there should be some natural lift there, right?

Correct. Yes.

The next question will be from Mike Shlisky at D.A. Davidson.

I have noticed on social media and electronics. I did see the Grid brand being launched at least on social media not too long ago. But is your effort -- is the effort really not just across Amran, or across the entire electronics segment? Is there 1 brand being presented to the entire customer base? I wasn't sure if it was beyond just the Amran. Just can you comment on what your plans are for...

Yes, yes. I'm glad you asked that, Mike, just to make Yes. I'd like to make sure there's no confusion about that. After we acquired Amran/Narayan, we looked at that end market and thought there's a lot more we want to do with this business. And calling it Amran/Narayan was too narrow. That's a great trade name. Customers know Amran/Narayan. So internally, we started calling it Grid technologies because there's other acquisitions we can make. We have some product development underway that will get us into new product segments.

So Grid is a better name for that business. And then we looked at the others and that, well, the switches and sensor business, SST, that name is obvious -- may not be obvious to people. And the magnetics business is even less accurate. So we step back and said, how should we refer to each of these businesses, so we chose a Grid for the -- what is now the Amran/Narayan business, but we'll grow into a broader business.

Edge is a commonly used term for the point at which electricity is converted into useful work in products. That's what our magnetic business does to power conversion and power management products that go into our OEM businesses. And Detect describes what the switches and sensors do, they're largely used in proximity and level sensing devices. So they detect the presence of a fluid or the closing of a door or something. So Detect, Edge and Grid are the terms you'll hear us use more often in the future to describe those businesses.

Got it. That's very helpful. And maybe just turning to the topic is your -- it seems like there's a lot of smaller areas of whether it's the academic research institutions or maybe even space or even airport. Can you give us a broader view on the impact of the government shutdown on your business? Maybe you can talk individually -- about business and also kind of broadly, is there a number we can point to as to what that might be affecting your business today?

Yes. So immediately -- I mean, I can't think of any recent rapid change in prospects of any of our business due to shut down. But if you step back, some of our North American businesses are dealing with uncertainty with their customers. Our federal business, our hydraulics business, our scientific business has been affected, as you know, by the reduction in spending in the NIH. So that's not directly related to the recent shutdown, but it's related to government policy. So that North American bid of the business is affected.

In terms of any recent changes, Ademir, would you?

No, I think you summarized it well.

Except there's me. I've got some travel plans in the next few weeks. I hope I can make. But that won't affect our business results.

Well, hopefully, you can just switch it over to Zoom, if you have to. The last question was about -- I think you had mentioned the word repatriation potentially to pay down debt, something like that. Can you just share with us, Ademir, was there any onetime tax in the cash repatriation there?

No, no, no. That's not the reason. I mean there are sometimes -- when you get the money out of foreign jurisdiction, there's a little bit of a holding tax you have to pay. But lot of our cash is actually sitting in international locations, and we have a process in place, by which we try to repatriate as much as we can on a quarterly basis, and we'll continue to do that. But there is no significant tax impact.

Next question will be from Gary Prestopino of Barrington Research.

A couple of things here -- the growth in sales, especially from new products and fast-growth markets. Is that safe to assume that the bulk of that is really a function of products going into data centers, Grid modernization, et cetera, things like that? Or is it kind of spread around those 5 fast growth markets that you guys cite all the time?

Well, the Amran/Narayan acquisition, all those sales are reported in fast growth in data centers. Well, that's not just data centers, but it's all reported in fast growth. So this year, of the $270 million of fast growth, more than half of that -- about half of that would be data center and fast growth, electrification and grid business from Amran/Narayan. But the rest is we have a healthy space business. Defense is growing nicely. Believe it or not, the Electric Vehicles are growing, although it's a smaller piece of the total. So I'd say it's pretty well spread.

And the new -- you mentioned new products. The new product sales of $77 million -- these are products released in the last few years, and the majority of those sales are not in the fast growth markets. The new products to be released this year in the coming years will be more heavily weighted to fast growth. So there's very little overlap in those 2 numbers this year.

Okay. And then just in terms of -- you're putting up a plant in Croatia or you've initiated production in Croatia, correct? Can you give us some idea of what the capacity for production is at that plant because that's going to be serving what I would assume is you see the growth prospects that you see in Europe itself?

Yes. We're working closely with European customers to plan capacity for that. I think in the last call, or 2 calls ago when we talked about this, we said that over -- in 3 to 5 years, we think that gets to $60 million in sales. That's based on kind of current customer plans and our current capacity. But we have ability to expand beyond that -- and I think as we go 1 year after the other, we'll have a better feel of what the ultimate capacity is there, there's space to build out more footprint if we need to. We can add additional shifts in machinery. But I'd say $60 million is a good conservative number what that will do.

Okay. And then just lastly, on Slide 3, just to be -- just so I'm clear on this. You're citing the 15 product launches and then the bars to the right of that $55 million and $78 million, that's the actual sales that you expect to attain from the new product?

Yes, yes, right. Yes, we should have put -- yes, right, right. We should have put the dollar symbol there. It's $55 million last year, $78 million in sales this year. Good catch.

No, that's just -- just to be clear, I have a simple mind.

Okay. Yes. All right. That's fine.

Next question will be from Matt Koranda of ROTH Capital.

So the confidence in Amran/Narayan or Grid, I guess, recalling now, sounds as high as ever. But if I back into the book-to-bill for Amran/Narayan, it looks like it's just about 1x. Maybe just can you talk about order trends that you're currently seeing them or as you currently see them and then just how that informs the view on the 20% growth this year?

Yes. Well, if you look at the -- it's more than 1. 1.05, 1.06, 1.06 or 1.07 or something like that. But it's not -- I mean the book-to-bill in the quarter would support the growth rate we've seen over the last few years for this business, close to 30%.

And Matt, 1 thing the Amran/Narayan posted a record sales quarter of over $35 million in Q1, I think 35.5% and the book-to-bill was over 1 to David's point. So it continues to kind of grow and compound. So we continue to see those strong orders. They are not slowing down.

Got it. Okay. You got a high delivery on those orders as well. I guess that's a high-quality problem to have. Okay. And then the rebrand of like to Grid, I guess it makes it sound like there's quite a bit more to do with the product portfolio there. So just curious if you could elaborate for us what types of products you would look to acquire or maybe even organically develop to fill in any gaps that you see in the portfolio?

Yes. I think it accomplishes a few things. 1 is people were confused a little bit by the terms Amran and Narayan, what are those 2 different businesses. We have 1 global business. And we have 2 trade names. Amran's more common in America and Narayan rest of the world. So calling it global Grid, Standex Electronics Grid, it's 1 global business. So I wanted to clarify that.

We have some -- there's some new products that they're developing that will go into other applications that they're still transformer products, but they'll go into different applications. If you look in a switchgear or a transformer or a substation, there are other products that our customers buy. I won't name those products now because until we have a specific plan or a specific acquisition probably doesn't make sense to go into detail. But there are a handful of other products that our electrical OEMs would also buy, if we had them.

Okay. Understood. And then maybe just with leverage now kind of in the low 2s. Probably a bit more reduction later this fiscal year. It seems like capacity to make bigger acquisitions is coming back. Could you maybe just speak to the appetite currently on that front?

And also, it sounded like you alluded to, there could be simplification actions to come. Is there anything closer to the horizon than not. I guess it's been dangled out there for a little while, but just curious how close you are to any action on that front?

Well, we've had enough experience and it's very hard to predict timing on those things. And we have -- so yes, I think, it's reasonable to expect we will continue to simplify the business, simplify the portfolio although I can't give you a time or an expectation of when the next steps might be taken, but believe -- believe me, we're working on it.

And the -- yes, so we do want to build up more powder -- prior to this Amran/Narayan acquisition, the highest leverage we'd ever been to is 2.4x, 2.5x or 2.4x now. We are continuing to reduce that. But we're also simultaneously working the funnel -- so we are building powder. And when the right opportunity comes up, we'll be able to move.

[Operator Instructions] Next is a follow-up from Ross Sparenblek at William Blair.

Just wanted to quickly touch on the Engraving again. It looks like that pipeline is showing some signs of activity. I mean, we don't need a lot of volume to come back in there to get to normalized levels. Just wanted your thoughts. And then the second piece is prior cost out with the new efficiencies or productivity of the shutdowns. It feels like 20% margin is no longer the ceiling? How quickly do you think we can get there is a little bit of a volume?

Yes. Look, I mean, the engraving market, as you know, the auto market, especially in North America, has been very weak for a while now. And it's bottomed out. And now, we are -- and now I'm sorry, we were having a little bit of a noise, noise in the room. But now the market is stabilizing and is starting to improve, and we are seeing some signs in the recovery in Europe as well as in Asia.

So look, I mean, over the last couple of years, we shut down about 15 sites. And with this last announcement that we made. So we do believe that we're going to start seeing some of the savings for the last shutdown starting to realize in Q3 and Q4 of this fiscal year. And that 20% margin number that you're talking about is within reach, and we feel very confident that when the market comes back with some strength that we'll be able to surpass the 20% as well.

At this time, it appears we have no further questions. I would like to turn the conference back over to Mr. David Dunbar, CEO.

Yes. Thank you. I'd like to thank everybody for joining us for the call. We do enjoy reporting on our progress here at Standex. Thank you again also to our employees and shareholders for your continued support and contributions. I'm very excited about the company's potential in fiscal year '26 and look forward to speaking with you again in our fiscal second quarter 2026 call.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, August 1, 2025.

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 2. 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 risks 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, EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, EBITDA margin and adjusted EBITDA 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 EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. 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, and welcome to our fiscal fourth quarter 2025 conference call. Fiscal year 2025 was a turning point for Standex. We are a different company than we were even a year ago. We've been laying the groundwork for years, and our growth drivers have now crossed the threshold. They are scaling. They have reached an inflection point and are beginning to move the needle in a meaningful way. I'm very excited to share with you what we are seeing and how it is shaping our outlook.

I would like to thank our business and corporate teams for navigating this past year and achieving a record profit generation in fiscal 2025.

Now let's look at the results beginning on Slide 3, key messages. In the fourth quarter, sales increased 23.2% with contributions from acquisitions, partially offset by a slight organic decline. Electronics grew slightly on an organic basis with a book-to-bill ratio above 1 and organic orders up 16% year-on-year. This represents the first quarter of organic growth since 2023 and signals strong momentum into 2026.

Our fiscal fourth quarter sales into fast growth markets increased to 28% of total company sales. New product sales added approximately 2.8% to sales, ahead of our goal of 2%. Our Grid Technologies business continues to perform ahead of our expectations. To support strong global demand for electrical equipment, we are expanding Amran/Narayan capacity with lean projects and additional shifts in the core facility.

I am also excited to announce that in the quarter, we established a site in Croatia to serve European customers. We expect to be shipping product from Croatia within 4 months.

Operating performance was very strong in the quarter. We achieved record adjusted operating margin of 20.6%, up 120 basis points sequentially and up 350 basis points year-on-year. This operating performance, along with our cash generation and cash repatriation, enabled us to lower our net leverage ratio to 2.6x. Following record profitability in fiscal 2024, we again achieved record milestones in adjusted gross margin, adjusted operating income and adjusted earnings per share.

In fiscal year 2026, barring any unforeseen economic global trade or tariff-related disruptions, we expect revenue to grow by over $100 million with continued adjusted operating margin expansion. This will primarily be driven by mid- to high single-digit organic growth in Electronics, double-digit organic growth in Engineering Technologies and the contribution from recent acquisitions.

In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth, and we anticipate releasing more than 15 new products. Sales from fast growth markets are expected to grow approximately 45% year-on-year and exceed $265 million.

On a year-on-year basis, in fiscal first quarter 2026, we expect significantly higher revenue, comprised of contributions from recent acquisitions and organic growth and significant operating margin expansion. On a sequential basis, we expect slightly lower revenue as the impact of recent acquisitions, higher sales in fast growth end markets and realization of pricing initiatives are more than offset by project timing in Engineering Technologies and the impact of seasonality in Europe within Electronics and Engraving. We expect slightly lower adjusted operating margin due to lower sales and less favorable product mix.

Please turn to Slide 4. Our growth drivers have reached an inflection point. There are 4 sources of growth that will help deliver above-market increases in 2026. In fact, they will deliver growth even without a general market pick up. First is new product sales. As you know, we began ramping our R&D spending in 2020. New products began to be released in 2023, accelerating to 16 product releases in 2025. Sales of new products increased from $38 million to $55 million in FY 2025, exceeding our internal expectations. We expect their sales to continue to ramp and to be joined by more than 15 new products to be released in 2026, giving us confidence that incremental new product sales will add about 3% to our sales in 2026.

New products, once released, take time to reach full commercial impact. In our customer intimacy business model, success depends not only on product innovation, but in deep collaboration with our customers. Our products are often designed into our customers' own systems, which require internal approvals, engineering validation and their own development time line. This results in a natural delay between product release and peak revenue. But once adoption begins, momentum builds and endures. Products introduced in prior years continue to ramp even as we launch additional new offerings. This layered effect creates a compounding engine of organic growth that is both durable and scalable. It has taken a while to get this momentum, but we are building a long-term new product capability in this company. And as it used to be engineer, I think it is beautiful to watch.

The second source of above-market growth is our presence in end markets with long-term secular tailwinds and above-average growth. This has been a focus for some time, and our 2 acquisitions in FY '25 increased our presence in electrical grid, space and defense market, ramping our total fast growth market sales to $184 million. All of these businesses are expanding capacity to serve our customers, and we expect sales to grow to greater than $265 million in fiscal 2026. This is also beautiful to watch.

A third source of momentum is the support we are giving to recent acquisitions to maintain their growth rate. We are now bringing up a new site in Croatia for Amran/Narayan and are positioned with McStarlite to win new applications that the combined Standex McStarlite capability is better positioned to win.

Last but not least, is success at the blocking and tackling of winning new awards in our business through commercial excellence. Two noteworthy areas stand out. Engineering Technologies has been awarded applications on next-generation missile programs, which are moving to production. Engraving has successfully expanded into niche production of parts requiring our proprietary know-how. Based on the above, you can see that the incremental contribution from new products, sales into fast growth markets, successful acquisition integration and new program wins lead us to our fiscal year 2020 outlook of over $100 million in incremental sales.

I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to Slide 5, fourth quarter 2025 summary. On a consolidated basis, total revenue increased approximately 23.2% year-on-year to $222 million. This reflects a 23.4% benefit from recent acquisitions and 1.2% benefit from foreign currency, partially offset by organic revenue decline of 1.4%.

Fourth quarter 2025 adjusted operating margin increased 350 basis points year-on-year to a record 20.6%. In the fiscal fourth quarter, adjusted operating income increased 48.8% on 23.2% consolidated revenue increase year-on-year. Adjusted earnings per share increased 20.6% year-on-year to a record $2.28.

Net cash provided by operating activities was $33.4 million in the fourth quarter of 2025 compared to $28.7 million a year ago. Capital expenditures were $8.6 million compared to $6.5 million a year ago. As a result, we generated fiscal fourth quarter free cash flow of $24.9 million compared to $22.2 million a year ago.

Now please turn to Slide 6, and I will begin to discuss our segment performance and outlook, beginning with Electronics. Segment revenue of $115.2 million increased 43.2% year-on-year, driven by 41% benefit from acquisitions, organic growth of 0.3% and 1.9% benefit from foreign currency.

Adjusted operating margin of 28.5% in fiscal fourth quarter 2025 increased 640 basis points year-on-year due to contribution from recent Amran/Narayan Group acquisition, pricing and productivity initiatives and product mix.

Our book-to-bill in fiscal fourth quarter was 1.03, with orders of approximately $118 million or an increase of $10 million sequentially. Orders in Electronics core business were up sequentially with a continued increase in demand in defense, [ power magnetic ] applications and the electrical grid end market. Since our products are custom in nature, our bookings take longer to convert into revenue, but with stronger margins.

Our expansion plans for Amran/Narayan in Houston and India are well underway to support additional demand. We increased capacity by adding second shifts across facilities. In addition, we began commissioning greenfield site in Croatia to serve our customers in Europe and support growing power requirements for data centers and grid expansion and upgrades in the region. We expect first shipments of our Croatia site in the next 3 to 4 months.

Excluding recent Amran/Narayan Group acquisition, our new business opportunity funnel increased approximately 27% year-on-year to $125 million. Sequentially, in fiscal first quarter 2026, we expect slightly lower revenue, reflecting contribution from Amran/Narayan Group acquisition, higher sales into fast growth end markets and price realization more than offset by the impact of seasonality in Europe.

Although we anticipate slightly lower revenue sequentially, we are expecting significant revenue growth and adjusted operating margin expansion along with organic growth on a year-on-year basis. We expect slightly lower adjusted operating margin sequentially, driven by product mix and continued strategic growth investments.

Please turn to Slide 7 for a discussion of the Engineering Technologies and Scientific segment. Engineering Technologies revenue increased 26.8% to $32 million, driven by 25% benefit from recent McStarlite acquisition, organic growth of 0.9% and 0.9% benefit from foreign currency. Organic growth was due to growth in sales from new products. Adjusted operating margin of 18.4% decreased 250 basis points year-on-year due to product mix. Sequentially, we expect slightly lower revenue and adjusted operating margin due to project timing.

Scientific revenue increased 2.3% to $17.9 million due to 16.1% benefit from recent acquisitions, partially offset by an organic decline of 13.9%, primarily due to lower demand from academic and research institutions that were impacted by NIH funding cuts. Adjusted operating margin of 24.3% decreased 530 basis points year-on-year due to organic decline and a favorable product mix as a result of the acquisition. Sequentially, we expect slightly higher revenue and similar adjusted operating margin.

Now turn to Slide 8 for a discussion of the Engraving and Specialty Solutions segment. Engraving revenue increased 0.6% to $33 million, driven by a 1.2% benefit from foreign currency, partially offset by organic decline of 0.6%. Adjusted operating margin of 15.2% in fiscal fourth quarter 2025 increased 190 basis points year-on-year due to realization of previously announced productivity initiatives and restructuring actions.

In our next fiscal quarter, on a sequential basis, we expect similar revenue and slightly higher adjusted operating margin due to seasonality effect in Europe, offset by slightly improved demand in North America and Asia and realization of previously announced restructuring actions.

In addition, in the fiscal first quarter, our Engraving business secured the source award from a major OEM in North America to supply soft trim parts for a calendar year 2026 program.

Specialty Solutions segment revenue of $23.9 million decreased 1.2% year-on-year, primarily due to general market softness. Operating margin of 18.6% decreased 360 basis points year-on-year. Sequentially, we expect similar revenue and slightly higher operating margin.

Next, please turn to Slide 9 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $280 million. At the end of the fourth quarter, Standex had net debt of $448 million compared to net cash of $5.3 million at the end of fiscal quarter 2024. Our net leverage ratio currently stands at 2.6x. We paid down our debt by approximately $27 million during the fiscal fourth quarter 2025. In the fiscal first quarter of 2026, we expect interest expense to be approximately $9 million.

Standex's long-term debt at the end of fiscal fourth quarter of 2025 was $552.5 million. Cash and cash equivalents totaled $104.5 million. We declared our 244th quarterly consecutive cash dividend of $0.32 per share, an approximately 6.7% increase year-on-year. In fiscal 2026, we expect capital expenditures to be between $33 million and $38 million. Relative to our debt leverage, we will continue to focus on paying down debt and anticipate that our leverage ratio will further decline through fiscal year 2026.

I will now turn the call over to David for concluding remarks.

Thank you, Ademir. Please turn to Slide 10. I want to describe the emotions in the company. There is an energy here, and you can feel the shift. After years of building, refining and preparing, the results are starting to show. There's pride in seeing our efforts take hold and excitement in knowing this is just the beginning. The engine we've built is ready, and now we're starting to see what it can really do. I'm very proud of our team for their continued operational execution for the success of our recent acquisitions, both of which helped us achieve record adjusted operating margin for a third consecutive quarter.

We achieved record profit generation again in fiscal year 2025, driven by contribution from recent acquisitions, higher sales into fast growth end markets and strong operational execution. Both adjusted gross margin and adjusted operating margin expanded by more than 200 basis points, while adjusted earnings per share increased approximately 6% to a record $7.98. Through debt paydown and profit generation, our net leverage ratio was reduced to 2.6x at the end of the fiscal year.

In fiscal year 2025, sales into fast growth end markets were approximately $184 million, exceeding our fiscal year 2025 expectation of approximately $170 million. This was primarily driven by growth in data center demand and grid modernization and expansion.

Outside of the electrical grid, we are seeing growth in commercialization of space and defense applications. In fiscal year 2026, we expect sales into fast growth markets to grow by approximately 45% and exceed $265 million. To support our future growth, we continue to invest in new product development and new applications across markets with growth potential. We launched 16 new products in fiscal year 2025 and plan to launch more than 15 in fiscal year 2026, which are expected to contribute over 300 basis points of incremental growth.

In fiscal year 2026, we expect to grow revenue by over $100 million with continued adjusted operating margin expansion. Growth will be primarily driven by mid- to high single-digit organic growth in Electronics, double-digit organic growth in Engineering Technologies and the contribution from recent acquisitions. We are well positioned in this fluid economic environment due to regional presence, strong customer relationships and disciplined approach to pricing and productivity actions.

We remain on track to achieve our fiscal 2028 long-term targets of sales of greater than $1.15 billion and adjusted operating margin of greater than 23%. We are targeting ROIC of 12.5%, which has been adjusted for recent acquisitions.

We will now open the line for questions.

[Operator Instructions] Your first question comes from Michael Shlisky with D.A. Davidson.

So I wanted to maybe first talk about the $100 million or more revenue increase in fiscal '26. As I try to break down some of the numbers here, looking at Amran and McStarlite, that could bring in $60 million plus of just annualizing those businesses. And they are growing organically, so it could be even higher than that. You've got the new products, which as you said, 3 points, probably $20 million, $30 million -- you have the other fast growth products as well. So I'm just kind of curious, that $100 million of incremental revenues here, I don't want to say it's in the bag, but maybe could there be any source of upside? Or is that number a very conservative estimate just based on those areas. And then there's also the organic growth on top of that in the other businesses. Just some thoughts as to -- is there any room for upside to that $100 million? And any concerns you might have on areas that might be more of a challenge in 2026 as well?

Yes, Mike, your math is good there. The way we look at it is the full year impact of those acquisitions will bring something over $60 million. The new products just over $20 million. The underlying growth in the fast growth markets. And remember, the fast growth is largely driven by defense, commercialization of space, grid technologies, electrical equipment OEMs. These are customer commitments that will drive this year. There's about another $38 million there.

So your -- and if you just stop right there, we've made no assumptions about an overall market growth that would affect the core business and the other businesses. So we've said over $100 million. And if you just add those things up, you could comfortably say $100 million to $130 million or even more for 2026.

Got it. I also wanted to turn to Electronics and your EV business as well. EV business has kind of been in the headlines, EV broadly has been just some OEMs showing sales declines in recent quarters. You've got U.S. policies pointing towards a tougher environment for the EV market as well. Can you comment on how your EV business is doing, whether that's going to still, you think, be a positive for Electronics in fiscal '26?

Yes. We still count EVs in our fast growth markets because we think over time, the prospects are good, a, because there will be a shift to electrical vehicles and our content per vehicle is higher. Although with the growth in defense and grid, it's a smaller piece of our fast growth markets. In '25, our EV sales did dip a little bit from '25 -- from '24 -- I guess, yes, just slightly dip from '24. As you recall, our position in EVs is largely with the European brands with their higher-end models. And with new model introductions, we anticipate a nice growth in EVs in '26.

Got it. Maybe one last one for me, turning to the Amran business in Croatia. You said it will be open in the next 4 months. I just want to get a sense as to the ramp-up run rate there and how fully booked that facility already is and whether that will be kind of in the same sense, in 4 quarters from now, you'll have some great growth in fiscal '27 as that also ramps up. Just kind of curious as to how the cadence might turn out.

Yes. So we're starting -- we have customer commitments through this year, and we'll ship, I don't know, single-digit millions probably in fiscal '26. But as we look over 3 years, we think that will grow -- that can grow to $30 million plus. There's vast opportunity in Europe. So we want to get in the market, get the customers there to visit. They've got to go through their certification and approval process. Once they do that, we anticipate there's some more upside. We may need another site. I don't know. But at the starting point, this will get us $10 million, $20 million, $30 million in 3 years.

Your next question comes from Ross Sparenblek with William Blair.

Just starting off with Electronics, just to get a sense of where the kind of run rate demand is. It looks like there was some good core organic order growth in the quarter. Maybe just speak to what's driving that and kind of assumptions going into FY '26 here.

Yes. Just a couple of things. We mentioned in the script that the orders year-on-year are up 16% in the core business, that's about $12 million. Of that $12 million, about $10 million is from OEMs. So this is OEMs as they've designed our products into their next-generation products. So that will convert over the next 3, 6, 9 months. The other $2 million goes through distribution. That's a quicker conversion. A lot of that comes from Asia. We're seeing some pick up in North America. Europe is still relatively stable, I would say. But across your general industry in terms of end market outlook.

Okay. Are you -- is the expectation this is kind of a new run rate for that segment? I mean it's been a couple of down years. So like there should be some restocking at anything...

Yes, we think this is -- yes. We do absolutely. And Ademir mentioned that our new application funnel is growing. It's at a record high. In large part, that's because our -- the management team now in this last year has put in place more disciplined commercial excellence processes to track opportunities to fill the funnel. So we do think this is sustainable and this momentum will build.

Okay. And then could we put a finer point on the Amran with the capacity unlock? I mean, strong growth, but there should be maybe a sequential step-up at some point as Europe comes online. Any loose targets you threw out there as kind of a base case or full case on how that can play out.

Well, in some ways, it's embedded in that -- in the fast-growing number. But if you -- to think about capacity. So we've said the Croatia site, I think I just answering to Mike said in 3 years, we think it could be $30 million. A couple of years after that, maybe $60 million plus. In India and Texas, as you know, we've added second shifts. With lean, we're also freeing up some capacity. So they can -- so that continues to support their 20-plus percent growth that they were experiencing before we acquired them, and they continue.

Now in North America, we are also looking at an aggressive expansion in our presence in Houston. And depending on where trade and tariffs go to, we'll also look at a Mexico site potentially depending on where trade and tariffs come in at the request of our North American electrical OEMs, and that would be a step-up in capacity as well. So I can't put numbers on it. But if you continue to expect a 15%, 20% growth in Amran/Narayan, I think that's reasonable, and we will add the capacity to support that.

Yes. I guess my point is almost 2/3 of that business is North America, and you guys have done a lot of work there. I mean 15% seems like that would be a very low bar. Are you getting good pull-through and traction on the capacity has been added in North America thus far?

Yes. Yes, absolutely. We are -- every capacity we have, we're selling. And we have long-term customer commitments to drive future capacity adds. I'm not sure if I'm answering your question.

Your next question comes from Chris Moore with CJS Securities.

Congrats on a nice quarter and encouraging organic growth discussion. So maybe start with Engraving. Just is the restructuring done there?

The Engraving business, we work on tools. And we need to be close to tool shops because tools are expensive and they're not ship a lot. The evolution of the tool makers around the world is kind of shifting. They're in different places now than they were before. And with -- what's the number, 30-some sites now around the world, it's likely that there will be this ongoing process to make sure our footprint matches tool makers. So I think in the coming years, there probably will be some continued restructuring, more to align with where the end market is.

With Engraving in general, the way we think about it is this last year, we think demand kind of bottomed out. It was a very tough year for the auto OEMs and their new platform releases. Many of them were delayed kind of waiting for clarity of industrial policy, especially in America. We think that -- our outlook now shows some growth from that. But more importantly, the business to also scramble to find some new opportunities. And Ademir mentioned these kind of differentiated parts that we're making based on our kind of proprietary processes with soft trim. So we think there's a growth opportunity in Engraving. So the markets start to stabilize, come up, and we've got some growth on top of that.

Yes. And Chris, if I can just add, there was a lot of heavy lifting in Engraving with respect to eliminating some of the unprofitable sites, so to speak. And most of the heavy lifting is done. So to David's point, there's a little bit of work left to do, but majority of the restructuring actions for Engraving have been completed.

Terrific. Have the competitive dynamics changed much in that business over the last few years?

No. It's been more the demand -- in fact, there are fewer competitors now than there were 5 years ago. Because our competitors they're mostly smaller regional competitors. And so depending on what region they're in, it's been tougher sailing for them.

Got it. You mentioned and we talked about in the past, the NIH funding on the Scientific side. Just any thoughts there, how significant that is?

Yes, Chris, about 1/3 of our sales in Scientific go through a channel that it's either -- it's affected by NIH funding. And obviously, that has impacted our order rates over the last couple of quarters. But in the outlook that we are giving, we are not assuming any pick up or any significant changes in the demand from those -- that type of end market or that type of a channel. So we are more focused around new product, exploring some additional selling opportunities. And if the NIH funding comes back, there will be an upside to the guide that we gave for '26.

Great. Maybe just my last one, bigger picture. I mean if rates come down 50 to 100 basis points, does that have much of an impact anywhere?

Yes, of course. And our debt repayment, yes, it does. So we're obviously watching that closely. But look, our objective is to continue paying down our debt. Our net leverage is now at about 2.6x, and we think with the operating cash flow that we generate in this company that we can get that leverage down to about 2x, assuming current portfolio of businesses by the end of this fiscal year. So even with this type of interest rates.

Got it. I was thinking more from a product standpoint, but perfect.

Your next question comes from Matt Koranda with ROTH Capital.

Just on ETG, I was curious with McStarlite. Is that accretive to operating margins in the segment? And then are you guys factoring in revenue synergies in the organic growth commentary for this year for ETG?

It is similar margins as our core business within ETG as far as McStarlite is concerned. And yes, there are some revenue synergies, which...

No. We've actually discovered some pretty exciting synergy opportunities that our capabilities plus their capabilities allow us to design new parts with an efficiency that neither of us could do in the past that positions us well for future opportunities. Now those take a while to convert. But longer-term, we think that opens up a little higher growth rate for both businesses.

That's helpful. And then maybe just -- I know it's dynamic, but just given the tariff announcements yesterday, is there any way to just help us understand if any of those actions would be impactful to the business? I'd assume maybe the India announcement might be meaningful, but -- and then with regard to copper, any exposure on some of the new announcements there?

Yes. So let me just -- a broad statement. Ademir and I were talking about that this morning, but we have learned to love uncertainty in this company. If you go back 5 years, the most dramatic inflation we ever saw with rhodium inflation, and we put in place practices to handle those disruptions that come from those unexpected rapid increases in cost with pricing practices. We redesigned our product line. And through that whole period, we only delivered higher margins. The inflation -- the post-COVID inflation that struck every part of our business kind of drove that same discipline through all the rest of our businesses.

Now if you look back 6 months, the last couple of quarters, we've lived in an uncertain trade and tariff environment and look at the margins we just posted. Our businesses have done a great job identifying how best to deal with that in the short term. Several of our businesses are looking at their sourcing strategies, making sure that any exposure we have is being dealt with identifying and bringing on some new lines. So from a cultural standpoint, we think a highly uncertain environment kind of favors us because I think we've demonstrated we're nimble and agile.

The recent announcements, maybe I'll turn it over to Ademir here to look at the actual numbers and what the potential impact is.

Yes. So Matt, about 4% of our COGS comes from India. It's mostly within our Electronics segment. And again, to David's point, between pricing, productivity, alternative sourcing, we feel pretty good we got it covered, so.

Super clear. Maybe just last one. The longer-term target on sales, if we use just sort of an implied CAGR off of sort of the -- maybe the low end of your guidance for fiscal '26, it still would imply sort of a low double-digit sales CAGR to get to the '28 target. Is that sort of how you think about it? And maybe just how much of that comes organically versus through acquisition in your current [ indiscernible ].

Yes, let me walk through kind of a high-level bridge. We look at this in a number of different ways. If you just anchor it on 2025, year just finished, $790 million -- our new products were $55 million. This coming year, we expect them to grow about 40%. And we're just getting started with new products. So we anticipate about a 30% growth annually in the new products.

Fast growth market was $185 million last year, will grow to $265 million, and we're anticipating about a 20% growth there. In '28, so those numbers, that puts new products at $130 million, fast growth at $380 million. If you anticipate that the core -- the remaining core business, which is about $550 million, will grow about 3% a year, that adds another $50 or so million. That puts us at just shy of the $1.15 billion.

In addition to that, we think there's opportunity for a little pick up in the scientific markets. These additional defense opportunities we mentioned provide upside and these engraving wins that we described also provide. So there's maybe a $30 million, $40 million of go-get in the next 3 years, but we've got the opportunities to achieve them.

Your next question comes from Gary Prestopino with Barrington Research.

Just want to get an idea with new product sales, I would assume the majority of those are targeted to your fast growth markets. Is that kind of a correct assumption?

Yes, there is overlap in there. So Engineering Technologies has -- is a big contributor there. They've developed new products to expand their participation in space. And that's -- those new products are all in fast growth. We've got fast growth in some of our other core businesses, while some of our other businesses, scientific and federal that are just in general industry. So there is some overlap in fast growth. So I'd say about 30%, 30% of the new products go into fast growth.

Okay. So 30% new products into fast growth. Okay. And then as -- we as you scale the fast growth markets and grow the sales as you expect to, is -- can you give us some idea of relative to your adjusted operating margin that you generated this year, what kind of incremental margin increases do you get from growing net sales into these faster growth markets? I mean I assume they've got to have a higher margin profile.

Yes, they do. Just thinking through the businesses. It is higher than the average. So we mix up with every growth in fast growth markets. In terms of how many basis points of gross margin, it's got to be 300, 400 basis points higher.

Yes. I mean I think if you look at our projections, and we say we're going to get to over 23% adjusted operating margin by FY '28. If you just assume -- and it's true that our margins when we do sales into the fast growth end markets are higher, you can do back-of-the-envelope calculation and see just on the higher volume, we're going to comfortably get there. And then obviously, we're going to have pricing and productivity actions on top of that, so.

Okay. And then getting back to new products, what did you say you generate -- you put out 16 this year?

In the quarter. So it was 55 in the year.

55 in the year?

Yes. I'm sorry 16 new products were released. And the sales of products released in the last couple of years that are still new was 55.

Okay. I just want to get an idea, -- was there anything that really drove the boat there as far as growth or in any of those new product categories that you put out?

The biggest numbers in the year with Engineering Technologies sales into commercialization space. These are new products for them that expanded their share of wallet and their content on those vehicles.

Okay. And then just lastly, how would you -- the acquisition pipeline, I know you're always active there. Would you have the appetite to do another acquisition this year, this fiscal year if the opportunity came up?

We're always working the pipeline and a lot of the deals we do are the result of years of relationship building. So we're out there doing that. And with the projection of our deleverage, so now at the end of this quarter, we're 2.6x. We anticipate just in normal course with operating cash flows and things by the end of this year, we'll be at 2x. So we're rapidly developing the powder to be able to do something.

[Operator Instructions] Your next question comes from Ross Sparenblek with William Blair.

Just on the Scientific margins, decent sequential uptick with some tougher shipping rates. Can you just give us a sense what played out there in the quarter and kind of expectations looking forward for 2026 as we think about R&D as well?

Yes. So from a Scientific standpoint, you're right, the shipping rates are generally okay. The acquisition we have in The Scientific space is actually at a lower margin than our core business. So that's impacting our segment margin, if you will, a little bit. But we do expect as we get into the fiscal '26 with the combination of pricing and productivity actions, we're going to be able to offset and alternative sourcing, by the way, in this segment, we're going to be able to offset the tariff pressure we got coming in because Scientific is the business that sources some of its base products out of China. So we do expect Scientific margins to hold.

Okay. And then just one more point on free cash. Kind of a tough year. Can you maybe just speak to your ability to maybe get some more turns out of working capital and get that conversion back above 100%?

Yes, Ross, great question. Yes. And if you look at our cash flow creation in the last fiscal year, we were significantly impacted too by onetime transaction-related costs. When you do 3 deals in a year and you have to do the payments with the bankers and the lawyers, et cetera, that adds up to be a pretty sizable number. And on top of that, the acquisitions that we did have credit terms with the customers that are much longer than the credit terms that we generally had in our core businesses. So our DSO has actually increased versus what we had prior to the acquisitions. So we are working -- and frankly, some of the structure around collections is in some of those businesses not as robust as we had the standard. So we are working to putting our processes in place around receivables and collections, and we think we're going to make a very good dent and progress in collections and receivables and working capital this fiscal year. So we expect conversion of cash to be much, much better this year than last year.

All right. So can we hold you to a mean reversion back to 60 on the DSOs?

You can -- that's a -- you're going to put me on the spot. Yes, you can hold us that we're going to drive back to that low 60 number. Right now, we are about 69, 70 in terms of DSO. And our goal is over this fiscal year to drive that as close to 60 as we can.

There are no further questions at this time. I will now turn the call over to David Dunbar, CEO, for closing remarks.

All right. Thank you. Before we wrap, I want to send a special thank you to Tom Hansen, who is retiring from our Board after 12 years. Tom has been a valuable Board member and made many contributions to the company.

I also want to welcome Andy Nemeth, the CEO of Patrick Industries, who is our newest Board member. We look forward to working together.

Finally, and as always, I want to thank everybody for joining us for the call. We enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions. I'm excited for the company's potential in fiscal year 2026 and look forward to speaking with you again in our fiscal first quarter 2026 call.

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