Good day, and welcome to the Standex International Fiscal Third Quarter Results Call. Please note, this event is being recorded. I would now like to turn the conference over to Chris 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, which is EBIT, excluding restructuring, purchase accounting, acquisition-related expenses and one-time items; EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, acquisition-related expenses and one-time items; 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. 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 third quarter 2023 conference call. We are very pleased with the results. We continued our trend of record operating margin. Sales into fast-growth markets continue to accelerate. New product developments and new application pursuits continue to expand across our businesses. I want to thank our employees, our executives and the Board of Directors for their continued dedication and support. Now if everyone can turn to Slide 3, key messages. We reported 1.5% organic revenue growth year-on-year as 3 of our 5 business segments exhibited organic revenue growth. Our long-term growth profile continues to improve as sales into fast-growth end markets grew 40% from the prior year to $23 million in the quarter. We anticipate this revenue stream to grow by approximately 50% in fiscal year 2023 to approximately $85 million. Overall, we anticipate organic revenue growth in fiscal year 2023 from 4 of our 5 business segments. Profitability continues at record levels. The continued effectiveness of our price and productivity actions maintained our record margin set last quarter, representing our eighth consecutive quarter of record level adjusted operating margin. Consolidated adjusted operating margin of 15.2% in fiscal third quarter 2023 was a 140 basis point increase year-on-year. 3 of Standex's 5 business segments expanded margin year-on-year. 4 of our 5 segments reported operating margin near 15% or greater with our Specialty Solutions segment delivering a 22.2% margin. We are pleased to see continued improvement in our ROIC, which is now at 12% on an annualized basis through Q3 FY '23. With free cash flow of $17.6 million and the divestiture of Procon in the quarter, our net debt-to-EBITDA ratio is now at 0. This leaves us approximately $344 million of available liquidity to invest in our healthy funnel of organic growth and acquisition opportunities. Ademir will focus our financial performance, liquidity position and capital allocation in greater detail later in the call. In fiscal fourth quarter 2023, on a sequential basis, we expect similar revenue with organic sales growth offsetting the impact of the Procon divestiture. We expect similar to slightly higher adjusted operating margin compared to fiscal third quarter 2023. On a year-on-year basis, we expect mid- to high single-digit organic growth, offset by the Procon divestiture and significant adjusted operating margin improvement, driven by continued realization of pricing and productivity initiatives. We reaffirm our long-term financial outlook by fiscal year 2028. These targets include high single-digit organic growth to greater than $1 billion in sales, adjusted operating margin greater than 19%, return on invested capital of greater than 15%, and free cash flow conversion at approximately 100% of GAAP net income. Let's turn to Slide 4: Fast growth end markets. Here, we highlight our fast-growth end markets and how they are driving growth across Standex. In the renewable energy end market, our isolation relays, which are able to withstand high voltages, play a critical role in solar inverters to enable safe and efficient switching. Moving to electric vehicle applications. The physical properties of our reed relays are designed to withstand high voltage batteries in safety circuits. Here, we anticipate to benefit from increased content on electric vehicles versus traditional combustion engine vehicles. In soft trim, our highly efficient soft trim tool improves manufacturing productivity and reduces maintenance costs. For the commercialization of space, we are a leading solution supplier of fuel tank domes for launch vehicles. Our differentiated spin forming capability has allowed us to enter new and exciting development projects like the next-generation prototype zero-emission aircraft. Shifting to Defense. New defense power management needs are driving demand for our custom magnetic solutions such as critical hardware for new hypersonic, interceptor and tactical missile programs. 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, third quarter 2023 summary. On a consolidated basis, total revenue decreased 2.6% year-on-year to $184.3 million. This reflected organic revenue growth of 1.5%, offset by a 1.6% impact from the Procon divestiture and a 2.5% impact from foreign exchange. Third quarter 2023 adjusted operating margin increased 140 basis points year-on-year to 15.2%, matching our highest adjusted operating margin in company history from the prior quarter. Our adjusted operating income grew approximately 7% on a 2.6% consolidated revenue decrease year-on-year. Adjusted earnings per share were $1.65 in the third quarter of fiscal 2023, compared to $1.54 a year ago, approximately 7% growth year-on-year. Net cash provided by operating activities was $23.3 million in the third quarter of 2023 compared to $11.9 million a year ago. Capital expenditures were $5.6 million, compared to $3.4 million a year ago. As a result, free cash flow was $17.6 million in fiscal third quarter 2023 compared to free cash flow of approximately $8.5 million a year ago. Our balance sheet continues to provide substantial flexibility to support an active pipeline of organic and inorganic opportunities as well as increased investment in R&D and growth capital. Now please turn to Slide 6, and I will begin to discuss our segment performance and outlook, beginning with electronics. Segment revenue of $78.2 million decreased 2.1% year-on-year as an organic increase of 1.3% was more than offset by a 3.4% negative impact from foreign exchange. Although softness in appliances and distribution end markets remains, power management, renewable energy and EV-related markets remain robust. From a regional standpoint, North America market demand was strong, while China and Europe demand has been slower to recover. Adjusted operating margin of 21.8% in fiscal third quarter 2023 decreased 230 basis points versus the year ago period primarily due to lower sales and unfavorable product mix, offsetting price and productivity initiatives. Sequentially, we expect similar revenue and operating margin in our fiscal fourth quarter as increased sales in the fast-growth markets, offset by a slow recovery in China and Europe. On a year-on-year basis, we expect double-digit organic growth in this segment, mostly due to improved market conditions in China and Europe versus a year ago. Please turn to Slide 7 for a discussion of the Engraving and Scientific segments. Engraving revenue decreased 0.8% to $36.9 million as organic growth of 3.9% was more than offset by a 4.7% headwind from foreign exchange. Operating margin of 14.5% in fiscal third quarter 2023 decreased 90 basis points year-on-year due to unfavorable regional mix. The segment continues to see positive trends in soft trim tools, laser engraving and tool finishing. In our next fiscal quarter, on a sequential basis, we expect similar to slightly higher revenue and operating margin. Scientific revenue remained relatively flat at $18.9 million, primarily driven by higher sales in the research and academic end markets, offset by lower demand for COVID-19 vaccine storage. Operating margin of 24.1% increased 220 basis points year-on-year due to price and productivity initiatives and lower freight costs. On a sequential basis, in fiscal fourth quarter of 2023, we expect similar revenue and slightly higher operating margin. We expect that the year-on-year comparison will become more favorable in upcoming quarters as we are now fully behind our COVID-related demand surge for our vaccine storage units. Now I'll turn to Slide 8 for a discussion of the Engineering Technologies and Specialty Solutions segments. Engineering Technologies revenue of $18.1 million decreased 13.6% year-on-year, reflecting lower volume due to project timing, partially offset by higher revenue from new product development. Operating margin of 13% increased 190 basis points year-on-year as price and productivity initiatives offset lower volume. In fiscal fourth quarter 2023, on a sequential basis, we expect a moderate increase in revenue and operating margin due to more favorable project timing in Aviation and Space end markets. Specialty Solutions revenue of $32.3 million remained flat year-on-year, reflecting strong organic growth in the Display Merchandising business, offset by an organic decline in the Hydraulics business and the Procon divestiture. Operating margin increased significantly to 22.1% from 11.2% a year ago, driven by higher sales in the Display Merchandising business and realization of productivity initiatives in the Hydraulics business. In the fiscal fourth quarter of 2023, on a sequential basis, we expect revenue to decrease moderately to significantly primarily due to the Procon divestiture and lower sales in the Display Merchandising business. Operating margin is expected to be slightly lower. Next, please turn to Slide 9 for a summary of Standex's liquidity statistics and the capitalization structure, which remains strong. Standex ended fiscal third quarter 2023 with $344 million of available liquidity, an increase of approximately $44 million from the prior year. At the end of the third quarter, Standex had net cash of $2 million compared to net debt of $70 million at the end of fiscal 2022 and net debt of $65.8 million at the end of fiscal third quarter 2022. Standex's long-term debt at the end of fiscal third quarter 2023 was $173.3 million. Cash and cash equivalents totaled $175.3 million. With regards to capital allocation, we repurchased approximately 42,500 shares for $5 million in the third quarter and $72.1 million is remaining under the current repurchase authorization. We also declared our 235th quarterly cash dividend of $0.28 per share and approximately 7.7% increase year-on-year. In fiscal 2023, we now expect capital expenditures to be between $25 million and $30 million compared to approximately $24 million in fiscal 2022. I will now turn the call over to David to discuss our key takeaways on our third quarter results.

Thank you, Ademir. Please turn to Slide 10. Standex is well positioned to deliver solid organic growth as an operating company, driven by increased activity and demand within our fast-growth end markets. We are excited about seeing these opportunities materialize and expand. Our regional presence, strong customer relationships and disciplined approach to pricing and productivity provide protection from supply chain challenges and inflation. As a result, we have continued to deliver sustainable, profitable growth through this environment. Our strong balance sheet positions us well to be opportunistic on an active pipeline of internal investments and an active funnel of inorganic candidates. We'll now open the line for questions.

We will now begin the question-and-answer session. Our first question comes from Chris Moore from CJS Securities.

Maybe we'll start with electronics. It appears that revenue will be essentially flat year-over-year. The backlog has decreased slightly. Could you discuss the visibility for the Electronics segment beyond Q4?

We serve a wide range of end markets through various channels, each with different levels of visibility. We are optimistic about continued growth in fast-growing markets. For distribution channels, our visibility is somewhat limited as it often correlates with the overall economy. However, we maintain a long-term perspective and are confident in our business, holding a strong competitive position in promising markets with good growth potential. In the shorter term, I will hand it over to Ademir.

Yes, Chris, from a regional perspective, demand in North America has remained steady, while Europe and China are gradually recovering. The appliance market is still somewhat weak, but as David mentioned, we are very confident about our exposure to fast-growth markets, which we believe can more than compensate for the challenges we are facing in our plans. This is largely influenced by general economic conditions, so we maintain an optimistic outlook.

Got it. Helpful. I'll leave it there. On the fast growth side, markets like smart grid defense, electric vehicles, your positioning is a function of both your SST and magnetic products. That said, is either of those a more significant revenue growth driver longer term?

You mean SST or Magnetics?

Yes.

I believe both segments are making equal contributions in these rapidly growing markets, particularly in Magnetics. We have a strong presence in Defense, for instance. However, we expect that the momentum from renewable energy and electric vehicles will lead to quicker sales growth in SST. Therefore, we are likely to see higher growth rates in that sector compared to other fast-growth markets.

Yes. And if I can just add, Chris, and if you take a look at electric vehicles, for example, that's where our SST business has a very good position. And as those vehicles replace combustion vehicles, that's where we keep seeing about 3 to 5 times more content per vehicle than in the current combustion scenario. So SST clearly is in a good position to capitalize on these market trends.

Got it. That's helpful. And maybe the last one, just maybe you can talk a little bit more about M&A. Strategic M&A has obviously been a big part of your guys' history. You certainly have the balance sheet, net debt is at 0. How would you characterize the M&A efforts currently, versus, say, a year ago? Just how are you looking at it long term? And it's just some add-ons? Or is there anything significant out there?

M&A is always a priority for us. We operate in two distinct M&A markets, primarily focusing on acquiring family-owned or privately-owned businesses. These owners sell for their unique reasons and at their own pace, which means their transactions don't necessarily align with broader market trends. Currently, we have a strong pipeline of such companies, and some may become actionable soon. We believe we are well positioned as a preferred buyer for appealing companies, having nurtured these relationships over a long time. When the owners decide to transition, we are prepared to step in. In the past year, thanks to our successful track record, particularly in integrating acquisitions into our Electronics segment, we have been actively seeking larger businesses for potential acquisition. Many of these opportunities are from the broader M&A market. However, even though we are building our pipeline, there are fewer actionable opportunities available in the short term, as the overall M&A market seems to be experiencing a slowdown.

Our next question comes from Michael Legg from Benchmark.

Congratulations on a nice quarter, guys. Just wanted to touch base a little bit on the economic impact we're seeing today on what you're seeing in the supply chain, on hiring and wages, and then your ability to increase your pricing related to your supply chain costs. Can you just talk a little bit about that, please?

Well, first of all, just the umbrella statement. We feel very, very good about our team's abilities to manage their price to cover the cost of material inflation and inputs, both supply chain and materials; they proved it in spades throughout the last 3 years of the pandemic. It varies a bit business by business how that plays out. But you can see we've expanded our margins through the pandemic. In terms of current conditions, supply chain issues have eased for our businesses in the last few years. And right now, it's not impacting our deliveries or any of our current commitments.

Yes, I got nothing to add.

And on hiring and wages?

No, we are seeing more pressure on wages. I'd say I can't quantify this statement, but it has taken a little longer to fill positions, especially in Europe and North America. But we are finding candidates. We've got a good story here. It's a good company. We're able to attract good candidates and bring them in. But we are seeing some wage inflation and delays in hiring.

And then just one last question. ENEL, now any update on that project?

Yes. Well, this is a great project with our partner ENEL, the solar energy project. We have in the last 6 months of the year proven that the technologies we've developed together do deliver performance improvements for the solar panels. We are in a phase of industrialization. We're designing the manufacturing processes. We're also working with them on business models to determine what the right participation model is. I'd say the project has become a little — it's still in development, so it's a little harder to predict the timeline. So we're maybe taking longer than we thought we would a year ago, but the project still has a lot of support from ENEL. We're excited about it, and we'll continue to communicate as we make progress. But we're in this kind of final phases of development is maybe the way to put it.

And Mike, if I can just add, all of the numbers that we put out there in terms of the longer-term guidance do not include any contribution from this project. So when and if this becomes a contributing factor to our performance, that will be on top of the numbers we communicated.

Our next question comes from Gary Prestopino from Barrington Research.

A couple of questions here. In terms of 8 consecutive quarterly records of adjusted operating margin, I think it was a 140 basis point lift year-over-year. Yes, I would assume the majority of that is due to what you're doing on the productivity side. Has pricing been a big issue there? And then I guess the other question I would then layer on top of that is with the fast-growth markets sales, do those have a higher margin profile than the consolidated operating margin for the company?

Yes. Let me say — I'll turn it over to Ademir. It really is multiple things. If you go back 3 years, our portfolio is much better. All the businesses are performing well. There are productivity programs reading through. They've all done well, realizing price and covering their inflation. And the new products in the fast-growth markets are at higher margins than the corporate average. So we mix up in margin as that grows.

Yes. I mean I think that's right. We have a pretty robust operating model, Gary, kind of across all of the units where we track pricing and productivity initiatives for each of the businesses. And we are fortunate to have people in our businesses who are very accountable and know the customers, know the markets, and run those business units very well. And we are proud of our achievement of 8 consecutive quarters and we'll see how it plays in the future.

Could you quantify how much higher the fast-growth markets' margins are, or is that information not public?

We haven't made it public. Just how do you answer that? They're higher.

Okay.

Gross margin, if you think — what's our gross margin side for — is it 3.8%?

Yes, it's 3.5%.

3.5%. Gross margin on the fast-growth markets is above that by several hundred basis points.

Correct.

Okay. That's very helpful. And then lastly, just to refresh my memory, what you're doing in the EV market, you're doing both standard passenger cars, off-road vehicles, correct? Are you also doing things like last-mile delivery trucks, things that are not more of the standard EVs as we think about them?

Yes. Most of our volume is in passenger vehicles. The last-mile delivery vehicle volume is starting to pick up. The way to think of where we play, especially with the relays for the safety escalation circuits and the battery management systems, those have applications in vehicles that operate at higher voltages. So newer vehicles are operating at higher voltages to achieve more efficiency. All the off-road vehicles are higher voltages and the last-mile vehicles as well.

This concludes our question-and-answer session. I would like to turn the conference back over to David Dunbar for any closing remarks.

All right. Thank you. I want to thank everybody for joining us for this call. We always enjoy reporting on our progress here at Standex. And finally, again, I want to thank our employees, our Board of Directors and shareholders for your continued support and contributions. We look forward to speaking with you again in our fiscal fourth quarter 2023 call.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.