Standex International Corp/De/ Q4 FY2025 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Fourth Quarter 2025 Financial Results Conference Call. 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 one-time 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 a 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 timeline. 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 the 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 a 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 a 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 a 41% benefit from acquisitions, organic growth of 0.3% and a 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 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 a 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 from 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 a 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 a 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 a 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.

Your first question comes from Michael Shlisky with D.A. Davidson.

I wanted to start by discussing the revenue increase of $100 million or more expected in fiscal '26. When I look at the figures for Amran and McStarlite, those two could contribute over $60 million by annualizing their performances. Both are experiencing organic growth, so the total could be even higher. Then there are the new products, which you mentioned could add around $20 million to $30 million, along with other rapidly growing products. I'm curious about the potential for that $100 million in additional revenues; I wouldn't say it's guaranteed, but is there a chance for any upside? Or is that figure a conservative estimate based on these areas? Additionally, there is organic growth to consider in other parts of the business. I would appreciate any insights on the potential for exceeding that $100 million target and any concerns you might have regarding potential challenges 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, and electrical equipment OEMs. These are customer commitments that will drive this year. There's about another $38 million there. So 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. The 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, 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 '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 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. We're starting with customer commitments for this year, and we expect to ship single-digit millions in fiscal '26. Over the next three years, we believe this could grow to over $30 million. There is significant opportunity in Europe, and we plan to enter the market and engage customers there. They will need to complete their certification and approval process. Once that is done, we foresee additional potential. We might need another location, but initially, we project this could yield $10 million to $30 million in three 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 pickup in North America. Europe is still relatively stable, I would say. But across your general industry in terms of end market outlook.

Okay. 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 believe this is the case. Our new application funnel is indeed growing and has reached a record high. This growth can be attributed to the management team implementing more disciplined commercial excellence processes over the past year to track opportunities and enhance the funnel. We are confident that this progress is sustainable and that the momentum will continue to increase.

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.

In some ways, it's reflected in the rapid growth. Regarding capacity, we believe the Croatia site could reach $30 million in three years, potentially growing to over $60 million a couple of years later. In India and Texas, we’ve added second shifts and optimized capacity through lean methods, which continues to support the 20-plus percent growth they experienced prior to our acquisition. In North America, we are also aggressively expanding our operations in Houston. Depending on the developments in trade and tariffs, we may consider a site in Mexico at the request of our North American electrical OEMs, which would also increase our capacity. While I can't provide specific numbers, expecting a 15% to 20% growth in Amran/Narayan seems reasonable, and we will add the necessary 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 that has been added in North America thus far?

Yes, we are selling every bit of our capacity. We also have long-term customer commitments that will help us add capacity in the future. I'm not certain if I addressed your question fully.

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 involves working closely with tool shops, as tools are expensive and not frequently shipped. There's been a shift in the locations of tool makers globally, and with over 30 sites worldwide, we will continue adjusting our presence to align with their needs. In the coming years, we expect some ongoing restructuring to match where the market is headed. For Engraving in particular, demand seems to have bottomed out this past year, which was challenging for the automotive OEMs and their new platform releases, many of which were delayed due to uncertainties in industrial policy, especially in the United States. Our outlook indicates potential growth from this point forward. Additionally, the business has been seeking new opportunities, including differentiated parts we are creating using our proprietary processes for soft trim. Ultimately, we see a growth opportunity in Engraving as the markets stabilize and begin to improve, allowing us to grow alongside 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 the 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, the demand has changed. In fact, there are fewer competitors now than there were five years ago. Most of our competitors are smaller regional firms, and depending on their region, they have faced more challenges.

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 a third of our sales in Scientific go through a channel influenced by NIH funding, which has affected our order rates over the past couple of quarters. However, in our outlook, we are not predicting any significant changes in demand from that end market or channel. Our focus is instead on new products and exploring additional selling opportunities. If NIH funding does improve, it could positively impact our guidance for 2026.

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. Given the tariff announcements yesterday, can you help us understand if any of those actions would impact the business? I would assume the India announcement might be significant. Also, regarding copper, is there any exposure to the new announcements?

Yes. Let me make a broad statement. Ademir and I discussed this this morning, and we've come to embrace uncertainty at this company. Looking back five years, we faced significant inflation, particularly with rhodium, and we implemented practices to manage the unexpected rapid cost increases through pricing strategies. We also redesigned our product line. Throughout that period, we consistently achieved higher margins. The post-COVID inflation that affected every aspect of our business instilled that same discipline across all our operations. In the last six months, despite the uncertain trade and tariff environment, our margins have remained strong. Our businesses have excelled at identifying effective short-term strategies. Many are reassessing their sourcing strategies to mitigate any exposure and are actively seeking new suppliers. Culturally, we believe that navigating a highly uncertain environment plays to our strengths, as we've shown ourselves to be nimble and agile. Now, I'll hand it over to Ademir to discuss the actual numbers and their potential impact.

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 the last one. The longer-term target on sales, if we consider an implied compound annual growth rate based on the low end of your guidance for fiscal '26, it would still suggest a low double-digit sales growth rate to reach the '28 target. Is that how you view it? Additionally, can you share what portion of that growth is expected to be organic compared to acquisitions in your current pipeline?

Yes, let me provide a higher-level overview. We assess this from various angles. If we focus on 2025, which has just concluded, our revenue reached $790 million, with new products contributing $55 million. This year, we expect them to grow by approximately 40%, and we believe we’re only scratching the surface with new products. We project an annual growth rate of about 30% for these new offerings. Last year's revenue from fast growth markets was $185 million, and we anticipate it will increase to $265 million, reflecting an expected growth of around 20%. By 2028, this translates to new products generating $130 million and fast growth markets reaching $380 million. If we factor in the remaining core business, approximately $550 million, which we expect to grow around 3% annually, that would add about $50 million. Therefore, we are approaching nearly $1.15 billion. Additionally, we see potential for some growth in the scientific markets. The new defense opportunities we've mentioned offer added potential, as do the engraving successes we've discussed. So there could be an additional $30 million to $40 million in opportunities over the next three years, and we have the potential to realize these targets.

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 that area. Engineering Technologies is a significant contributor, having developed new products to enhance their involvement in the space sector. These new products are all experiencing rapid growth. We also have strong growth in some of our other core businesses, while certain sectors, like scientific and federal, are more aligned with general industry trends. Therefore, some of this rapid growth does overlap, and I would estimate that about 30% of the new products are aimed at fast growth markets.

Okay. So 30% of new products are in fast growth. As you scale in these fast growth markets and increase sales as expected, can you provide some insight regarding the adjusted operating margin you achieved this year? What kind of incremental margin increases can you anticipate from growing net sales in these faster growth markets? I assume they likely 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.

I believe our projections indicate that we will achieve over a 23% adjusted operating margin by fiscal year 2028. It's clear that our margins from sales in fast-growing markets are higher. A simple calculation shows that with increased volume, we will comfortably reach that target. Additionally, we will implement pricing and productivity measures to enhance our margins further.

Okay. And then getting back to new products, did you say you launched 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.

I just want to understand if there was a specific factor that significantly contributed to growth in any of the new product categories you introduced.

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 lastly, regarding the acquisition pipeline, I know you're always active there. Would you consider pursuing another acquisition this fiscal year if the opportunity arises?

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.

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 of 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, that's a great question. Looking at our cash flow creation in the last fiscal year, we were significantly affected by one-time transaction-related costs. Completing three deals in a year involves considerable payments to bankers, lawyers, and others, which adds up. Additionally, the acquisitions involved credit terms with customers that are much longer than those we usually have in our core businesses. Consequently, our Days Sales Outstanding has increased compared to what it was before the acquisitions. We are actively working on improving our collections processes, as the structures in some of those businesses are not as strong as our usual standards. We believe we can make significant progress in collections and receivables, which will enhance our working capital this fiscal year. Therefore, we expect our cash conversion to be much improved this year compared to last year.

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

Yes, you can count on us to aim for that low 60 number. Currently, we are around 69 or 70 in terms of Days Sales Outstanding. Our goal for this fiscal year is to bring that down as close to 60 as possible.

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.