Operator
Good morning, ladies and gentlemen, and welcome to the Scandex International First Quarter 2027 Financial Results Conference Call. At this time, I'll end in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time, we need to call and require immediate assistance, please press our zero for the operator. This call is being recorded on Friday, October 30th, 2026. Our lecture comes 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 two. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to 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 and tangible 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. StandX believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is StandX's Chairman, President, and Chief Executive Officer David Dunbar and Chief Financial Officer and Treasurer Admir Sarsavik.
Thank you, Chris. Good morning, and welcome to our fiscal first quarter 2027 conference call. Our years-long strategy to reposition the company to serve attractive end markets and to invest effectively in new product development continues to gain momentum and deliver top-line growth. In the fiscal first quarter, we delivered record sales of approximately $233 million, driven by double-digit organic growth. This represents the fifth consecutive quarter of year-on-year organic growth. The electronic segment led the way with organic growth of nearly 30%. Corporate-wide new product sales continued to ramp and grew 56%, while sales into fast growth markets grew 25%. Our overall order book continues to grow in the fiscal first quarter with record order intake at $273 million and a books-to-bill of 1.17. This gives us confidence to raise our sales outlook for fiscal year 2027. We now expect total sales to grow high single digits in fiscal 2027, up from our prior outlook calling for mid to high single digits growth. We expect organic sales to increase by more than $100 million and adjusted earnings per share to grow in the high teens. As we put this quarter's results and the raised outlook into further context, we continue to expect to be on track to reach greater than $1.1 billion in total sales and 23% adjusted operating margin by the end of fiscal year 2028. 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 fiscal first quarter results. Prior to transitioning into more details about the quarter, I would like to highlight a couple of organizational announcements. First, I want to take a moment to welcome Colby Slaughter as our new chief legal officer and look forward to his contributions in the next leg of our journey. Earlier this month, we announced the appointment of Samantha Stoddard as our next chief financial officer beginning on December 1st. Samantha's experience as a public company CFO and a hands-on operating executive makes her an excellent fit for our needs as we continue to grow and scale efficiently. I'm also excited to share that Colby and Samantha fit well in our culture, and we expect them each to make significant contributions to StandX's future growth. I also want to extend a special thanks to Adamir Sarcevic for his contributions as CFO. It has been a great pleasure to work closely with him to shape StandX into the company we are today, and I am pleased to see him diving into his new role as President of Electronics with his usual gusto. Adam will work closely with Samantha over the next month to ensure a seamless transition. Now, let's look at the results our strategy is delivering, beginning on slide three. In the first quarter, sales of $232.6 million increased 12.4% organically. Electronics grew 29.5% organically. New product sales grew approximately 56% to approximately $17.4 million. Sales into fast growth markets grew approximately 25% to $77.8 million. We had a record quarterly order intake of approximately $273 million. We are pleased with the momentum in the business reflected in this overall book-to-bill ratio of 1.17. Adjusted gross margin of 44.4% was up 240 basis points year-on-year. Adjusted operating margin of 20.2% was up 110 basis points year-on-year, with margin expansion across each of our segments. Adjusted earnings per share of $2.41 was up 21.1% year-on-year. In fiscal second quarter 2027, we expect moderately higher revenue and adjusted operating margin and slightly higher revenue and similar adjusted operating margin on a sequential basis. For fiscal year 2027, we are raising our sales outlook. We expect organic sales to increase greater than $100 million in total sales to grow high single digits, from mid to high single digits previously. We expect high teams growth in adjusted earnings per share. I continue to be pleased with the momentum that we are building in launching new products. We still expect to launch more than 20 new products in fiscal 2027. We now expect new product sales, pro forma for the federal divestiture, to grow by $27 million to $94 million, adding more than 300 basis points of organic growth in the year. Our sales into the fast-growing markets, such as defense, space, and grid, are now expected to increase more than 20% to greater than $315 million, constituting more than 30% of our total sales. In conjunction with the results, we announced a new $100 million share repurchase authorization, effective October 27th. On this next slide, I would like to take a moment to highlight the specific areas driving growth this fiscal year. Let's turn to slide four. The methodical implementation of our strategy is showing itself in the independent drivers of growth, each now contributing meaningfully. It's no surprise that the increasing power demand of data centers is our most significant single growth driver. It is behind about 30% of our expected growth in fiscal year 2027. The grid business is also experiencing growth stemming from general increases in grid capacity to support economic growth and increased electrification. Increased investments in defense programs support growth in our A&D business and electronics edge business. We also highlight here the incremental growth of new products that are not sold into these end markets, reflecting share gain for our core businesses. Finally, a general recovery in industrial markets is lifting sales across electronics and scientific. This is a balanced set of drivers, and about 70% of our growth in 2027 will come from sources other than data centers. In summary, we have multiple independent drivers of our growth that have long runways ahead of them. Now, I would like to turn the call over to Adam here to discuss our financial performance in greater detail.
Thank you, David, and good morning, everyone. Let's turn to slide five, first quarter 2027 summary. On a consolidated basis, total revenue increased approximately 7% year-on-year to $232.6 million. This reflected organic growth of 12.4%, partially offset by 4.4% impact from federal industry's and 1% impact from foreign currency. In the quarter of 2027, adjusted operating margin increased 110 basis points year-on-year to 20.2%. Adjusted earnings per share increased 21.1% year-on-year to $2.41. Net cash provided by operating activities was $15.7 million in the first quarter of fiscal of 2027 compared to $16.8 million a year ago. Capital expenditures were $6.6 million compared to $6.4 million a year ago. As a result, we generated fiscal first quarter free cash flow of $9.1 million compared to $10.4 million a year ago. Now, please turn to slide six, and I will begin to discuss our segment performance and outlook, beginning with our engineered Electronics revenue increased 27.1% year-on-year to record $140.5 million, driven by organic growth of 29.5%, partially offset by 2.4% impact from foreign currency. Organic growth was driven by sales into fast growth markets, strong general industrial markets, and increased new product Our book-to-bill in fiscal first quarter was 1.23, with record orders of approximately $173 million. Adjusted operating margin of 29.4% in fiscal first quarter 2027 increased 60 basis points year-on-year due to higher volume and pricing initiatives, partially offset by growth investments and higher variable compensation expenses. Sequentially, in fiscal second quarter, 2027, we expect slightly higher revenue and similar adjusted operating margin. On a year-on-year basis, we expect significantly higher revenue driven by double-digit organic growth and slightly higher adjusted operating margin. Additionally, this marks my first full quarter as the president of electronic segment. I am very pleased with the results and the strong start of fiscal year 2027. We achieved several records in the court, record organic growth of almost 30%, record bookings, and record gross margin. At the same time, we continue to invest in R&D, new products, and key growth initiatives. We remain on track to significantly expand global capacity in our grid business, a key project we highlighted in our last quarterly earnings call. During the past few months, I also had an opportunity to visit sites across the globe and attend various customer meetings. Two things became even clearer. First, we have strong leaders in our businesses, dedicated talent in an accountable group of employees that work very well as a team. And secondly, customers truly value our custom products and solutions and look at us as partners, not just as suppliers. In summary, we have multiple ways to win, from serving the rising global energy demand related to data centers and AI, grid modernization, and the overall electrification of the world, to providing mission-critical components supporting the needs and requirements of the U.S. defense and market, all supported by an active new product panel to capture additional market share. I remain very optimistic about the future outlook of this segment. Moving to aerospace and defense, revenue increased 5.1% to $31.4 million, driven by project activity in the space and defense and market, partially offset by project timing. Adjusted operating margin of 19.9% increased 310 basis points year-on-year, primarily due to higher volume and project mix. Sequentially, we expect significantly higher revenue and slightly higher adjusted operating margin. On a year-on-year basis, we expect double-digit organic growth. Now, turn to slide seven for a discussion of the scientific and engraving and hydraulic segments. Scientific revenue increased 1.8% to $19.8 million due to pricing initiatives and a slight market Adjusted operating margin of 29.5% increased 420 basis points year-on-year. Sequentially, we expect similar to slightly higher revenue and similar adjusted operating margin. Engraving and hydraulics revenue decreased 14.9% to $40.9 million, reflecting an organic decline of 15.7% from softness in the North American automotive market, partially offset by 0.7% benefit from foreign currency. Adjusted operating margin of 16.4% in fiscal first quarter 2027 increased 40 basis points year-on-year. In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and adjusted operating margin. Please turn to slide 8 for a summary of standard fixed liquidity statistics and capitalization structure. Our current available Fiscal liquidity is approximately $168.5 million. At the end of the first quarter, STANDEX had net debt of $401.2 million compared to net debt of $446 million at the end of fiscal first quarter 2026. Our net leverage ratio currently stands at 2. In fiscal second quarter 2027, we expect interest expense of between $7 million to $7.5 million. Sandex's long-term debt at the end of fiscal first quarter 2027 was $518.1 million. Cash and cash equivalents totaled $116.8 million. We declared our 249 consecutive quarterly cash dividend of $0.36 per share, an approximately 5.9% increase year-on-year. In fiscal 2027, we still expect capital expenditures between $45 million and $55 million, primarily due to grid growth investments. Before I turn the call over to David for concluding remarks, as this is my last quarterly earnings call as the CFO of StandX, I would like to express my deepest gratitude to StandX Finance team for all their contributions over the past several years. We are only as good as the team around us, and I'm truly grateful for all the hard work and efforts of every individual. The finance team will be in good hands with Samantha, and I look forward to working closely with her in the transition as the president of electronics. I will now turn the call over to David for concluding remarks.
Thank you, Adamir. Please turn to slide nine. To summarize, I'm very pleased to see the continued organic growth in the first quarter and the book-to-bill ratio of 1.17. Organic growth was driven by our electronic segment, which grew 29.5%. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence in engineer components and deepen our customer relationships. Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast growth markets, and the delivery of custom solutions. In fiscal 2027, we now expect organic sales to increase by more than $100 million and total sales to grow high single digits from mid to high single digits previously. We expect high teens growth in adjusted earnings per share in fiscal 2027. We are on track to achieve greater than $1.1 billion in sales and greater than 23% adjusted operating margin by the end of fiscal year 2028. We will now open the line for questions.
Operator
Thank you, sir. Ladies and gentlemen, we now begin the question and answer session. If you'd like to ask a question, please press star for number one on each other from the keypad. If your question has been answered, like you were derived from the queue, please press star for number two. And if you're using a speakerphone, please lift your hands up before pressing any keys. One moment, please, while we compile the raster. The first question comes from Chris Moore with CGS. Please go ahead.
Hey, good morning, guys. Congrats on another really good quarter. Thanks for taking a couple. So maybe you addressed it on slide four. Maybe we could dig in a little deeper. Obviously, AI data center build-out is very beneficial to electronics, Grid in particular. It does feel like the stock has moved maybe a little bit too much in concert with the AI wins. Can you talk a little further about how important data center AI growth is to Grid, that 30% of the growth that you're talking about this year? Do you expect it to accelerate as a portion of overall growth moving forward, or just, you know, kind of any thoughts in terms of if AI growth slows a little bit, what that does to electronics overall?
Yeah, thank you, Chris. I mean, this is, obviously, this is an important message. That's why we put the page in here. We have multiple growth levers. All of them really are now contributing meaningfully, and a lot of the questions we've had in the last quarter have been data centers because everybody's excited about that growth, as are we, but to put it into context, of the 100 million-plus we expect in organic growth this year, it's about 30% of that will come from data centers, and if you zoom in on grid, which is where your question was, our growth in grid will be 40-plus. About three-quarters of that will come from data centers. The other is just the increased demand of electricity from electrification, increasing living standards. And the way we get that number is we talk with our customers. And if you just look at the public statements of large electrical equipment OEMs, there are a lot of growth drivers in the electrical equipment business. Right now, data centers is by far number one, but there's still increased demand for electricity around the world. That's driving an increase. So I wouldn't actually expect this mix to change in the future. You know, we continue to see a long-term runway for growth in electrical equipment in general, and data centers right now is providing an additional surge.
You talked about, on the electronics side, your customers kind of viewing you guys more as partners than suppliers. Any discussion with any of the big guys in terms of, you know, kind of long-term supply agreements? They, you know, looking to kind of lock in availability? Is that part of any discussions at this point in time?
Hey, good morning, Chris. It's Admir. I'll take this one. Yes. I mean, the answer is clearly yes. You know, our customers, you know, have a pretty solid book of business in the next three to five years, and they are looking at us truly as partners, somebody who can grow with them as they grow into their end market. So, you know, as we are talking to our customers, we are looking, actually, to signing three- to five-year long-term agreements with some of our key customers. At the same time, on the grid side, we are reshuffling or rearranging a little bit the way we're going to run the commercial organization. You know, we're going to run the grid more as a global grid business with key account managers assigned to each one of those, you know, global OEMs. And we truly believe there's a huge opportunity there for us to partner with them much more closely going forward and get these long-term agreements with many of them. So, yes, and they are very, very interested in actually making sure that we have a capacity to support their growth needs.
Terrific. And maybe just the last one for me. You know, I think missiles were, on the A&D side, $9 million in 26, talking about teens in fiscal 27, and potentially $40 to $80 million over the next four years. I guess the question is, what has to happen to get close to that $80 million number?
Yeah, the situation hasn't changed in that it is really a function of the annual procurement cycle, government budgeting cycle, working through the Department of Defense with the primes to then cascade orders down to us. We have seen increased activity, and recall that $9 million was really just a couple programs. It was the SAM-3, PRISM, and kind of the tail end of the ATACMS program. We had anticipated that to be $15 million this year. I think it will be closer to $20 million this year. We have had more order activity, and we think that $40 to $80 million is likely to be, you know, $50 to $90 in the coming years. And it's the same as we've communicated in the past. To get to that 90, we'll just require the primes to be able to make long-term commitments to replenish those stockpiles. But we've had several meetings with them, reviewing multiple scenarios to increase our capacity, and we're ready to go. But we would raise that expectation, both on the low end and the high end, by $10 million.
That sounds great. I will leave it there. Thanks, guys. Thank you, Chris.
Operator
Thank you. Your next question comes from Russ, Baron Blake, with William Blair. Please go ahead. Good morning, gentlemen.
Good morning, Russ. Good morning, Russ.
Starting off on electronics, can you help us break out the power orders separate from the legacy electronics business?
Yeah, I'll take that, Russ. I mean, our book to bill in the quarter was 1.23 for the total electronics. And, you know, the legacy businesses as well as grid were about the same. So each one of them were over 1.2. So the orders really continue to be strong kind of across the board for us.
Okay. And then just to back out, kind of grid revenue contribution to electronics. Forgive me if you guys gave that already.
Yeah. I mean, so we grew organically almost 30% in a quarter, and every one of our business units grew more than 20%. So it was a really, really strong organic growth kind of across the board. And, you know, based on the backlog and a book to bail, you know, we would anticipate that we're going to continue to have a strong organic growth across all of our platforms.
Okay. Well, should we think that power is leading the charge there? And I guess the back half of that question is being, you know, just where we are with Croatia and ramping that. I know that you guys cut the red tape several months back, and now it's just about filling out the capacity.
Yeah, so on Croatia first, Ross, yeah, I mean, right now we are going through customer audits. You know, it's a new site. You know, the site has to be certified and audited by our customers so before we can actually start manufacturing parts there. We are going through some of the audits by our key customers. You know, a little bit, we are at the mercy of their own schedule as to when their teams can come. That's going really well, and we are now anticipating that we're going to start, you know, making, actually manufacturing and shipping products out of Croatia, you know, within this quarter. We had some buy and resale sales coming out of Croatia in the prior month, but it's going to, you know, we're going to see a pretty nice ramp up there in Q3 and Q4. And then your question on power? Oh, you mean the...
Yeah, was it at the higher end? Was it at the higher end of the growth range? You said like 20, 30, 30.
Yeah, so, yeah, yeah. No, I got it. I now understand. Yeah, so we said, you know, if you go back, you know, we gave that outlook of $340 to $440 million, you know, years out. That range still holds. We feel pretty confident about $340,000, and obviously we're going to work to get close to the higher end of the range. For this fiscal year, Ross, our initial range was about $180,000 to $200,000. We are very confident that we're going to be at least $190,000 to $200,000. So we do think we're going to be more at the midpoint or a higher end of the range for this business.
Okay. But it's safe to assume that, sequentially, the grid business stepped up on the revenue side.
Yeah. Yeah, no question. We're very pleased with the work that the Capacity Expansion Team has done. It was a very strong first quarter.
Okay. Fantastic. I'll pass it along and head back to you guys. Thank you.
Operator
Thank you. Your next question comes from Matt Kuranda with Rob Capitals. Please go ahead.
Hey, guys. Good morning. Appreciate the bridge on slide four. Just wanted to maybe dig into, in the new products component of the organic sales bridge, is there any data center exposure there? Just curious to think about sort of, you know, the overall exposure to data center growth that you have in the growth bridge in the…
Yeah, so we tried to make this easy to read and not overdo it with explanation, but that new product number, that is only the new product sales that are outside those other markets. There are new products into data centers, but those are included in the data center box to the left.
Okay, now that makes total sense.
I appreciate that, David.
Yeah, totally does. Okay. And then maybe one for Adamir, it was kind of touched on a little bit tangentially in some of the responses to questions, but just wanted to hear, I guess, sort of your main areas of focus now that you're fully in the seat in electronics. It sounded like maybe there was a bit of a reorganization of the way you go to market with some of your longer-term OEM partners. But maybe could you touch on some of the bigger changes that are either in motion or already made since you took the seed?
Yeah, well, I've been in the seed for now a little over three months and kind of still double-during.
Well, look, I mean, I'll start answering the question by telling you, and as I, you know, visited some of the sites and spent more time with our employees and leaders, we really have a solid group of employees in electronics, you know, who truly value Standix's culture, and this is really a special place in the way we operate, and you can see that people are fully committed to their jobs and really serving the customers. We have capable business leaders. And frankly, Matt, we got exposure to some really exciting end markets in terms of our product solutions. And as I said in my prepared remarks, meeting with customers, what was really a little bit eye-opening is they truly look at us as partners. They want to partner with us in the years to come. And, you know, one of the things we are trying to do is make it easier for them to partner with us, you know. So we are looking a little bit in the way we go to market. So, for example, in Grid, historically, you know, we would go to market a little bit separately between North America and India or Asia. And, you know, our customers are really looking to have one point of contact. So we are setting up a global commercial organization. We're going to have key account managers really focused on supporting our key customers and their growth initiatives. So there'll be one example. You know, we're going to continue with a strategy we've been on for years in terms of new products. You know, we have an opportunity to, you know, continue to expand our wallet share. We have an opportunity, for example, in our grid business to look at the outdoor opportunities, which we haven't, and that's a huge market for us. And we haven't really had an opportunity or chance to truly explore that much in the past. And then, you know, the strategy is basically going to continue. So we've got talented people. We are making some changes on the commercial side. The grid expansion, the capacity expansion remains a key priority, and we'll keep on.
But I would say, like Matt teetered up for you, Adam has worked with the team to put in place the first steps of this new global commercial organization so we can. So it's not just words. I mean, there's structure coming in behind it. You've also redeployed some talent in North America to drive improvements here. That was a headwind for us last quarter. It's not fixed yet, but it is reversing and improving. So in three months, you're having an effect.
Let's see in six months, nine months before we end. Yeah, we'll give you a little bit more time before we ask the question again, Ademir. Appreciate it. Maybe the last thing I just wanted to ask was just capital allocation priorities. With the stock sort of moving against you a little bit in the last several months, and I guess the upping of the repurchase authorization, is that a signal that we should look at as, hey, we're going to go a little bit harder on deploying the buyback here? I noticed it did sort of tick up sequentially in the first quarter in terms of deployment, but wanted to hear a little bit about that versus how you balance sort of the opportunity set that's in the funnel for acquisition as well.
Yeah, there's a few things. One is we had a great discussion with the board recently about our shared buyback authorization, and our last authorization, we were running low on it. We maybe had about $20 million left on that, and our approach to buybacks has been to be somewhat opportunistic because there are times we think the market doesn't fully appreciate the value of the company, and a few years ago, we bought a lot of shares when that was the case, and we wanted to be ready to move if the same situation presented itself. And we have been trading with more of the data center stocks. There's been more volatility in the stand-up stock recently than our consistently improving results would justify. So we just wanted to be ready to respond to market conditions. We are still full speed ahead on the capacity expansion and that $40 to $50 million CapEx this year. And I would say on the M&A front, our funnel is becoming more active. We actually are adding a person to focus on corporate development so we can drive more consistently M&A activity. So no slowdown in the growth investments or the capital we expect to put into growth.
Appreciate all the detail, guys, so I'll leave it there.
Operator
Thank you. Your next question comes from Tom Asano with J.P. Morgan. Please go ahead.
Hi. Good morning, everyone. Good morning. Thanks for having us. Maybe just on margins, which were very strong this quarter, both gross margin and operating margins, as you think about the path from here, how much of the opportunity is mixed versus productivity and then operating leverage?
Yeah, I think it's a combination of both in terms of, you know, obviously, you know, the businesses that are growing at the highest rate are our highest margin businesses. So we are mixing up from that standpoint. And then, Tom, as we said in our prior quarter, we had some operating issues in our, you know, electronics edge business in North America. We had an ERP implementation, you know, a few quarters ago, and that created a little bit of an issue for us, so to speak. And, you know, we've been resolving that, so we feel we are kind of on the tail end of that, and we're going to see some of the margin lifts coming from those activities. So, you know, we're going to continue driving productivity across all of our businesses. Obviously, when the volume is up and you're running at a higher capacity, that's just going to help you, you know, get the margins up as well. But we do believe there is a margin expansion opportunity in all of our segments going forward, and we're going to continue driving that across the board.
Thank you, Ademir. And one follow-up, you remain on track for more than $1.1 billion over revenue and over 23% over margins by the end of next year, fiscal year 2028. After these quarters, where do you feel most confident, and where is there still the most work to do?
Well, yeah, we're very confident about that $1.1 billion and the 23% operating margin. The margin, you kind of answer the question on the margin yourself. If we hit the $1.1 billion, because the higher margin businesses are the ones providing the growth, I mean, we will lever it into the 23% operating margin. We're quite confident about that. If I look at our results, I'm very pleased with the multiple growth engines that are firing right now. And I would say the new products has been kind of an underappreciated growth avenue for us because this is something that is, it's very much in our control. This is a flywheel that is gaining momentum every year. I mean, this year we'll have $94 million of new products, which you think of where we came from four or five years ago, it was almost close to zero. So, every year we get better at identifying new opportunities, launching new products. I mean, in the first quarter, the sales year, we knew a 56% growth in new products. So, it's a smaller number than the fast growth markets, but it continues to grow every quarter. So, personally, I am most excited for long-term potential that that new product number brings for us.
Great. Thank you, David, and congrats on the quarter.
Yeah, thank you. Thank you.
Operator
The next question comes from Mike Sieske with DA Davidson. Please go ahead.
Good morning. Thanks for taking my questions here. Can you provide just a little bit more detail on the footprint expansion in electronics? Maybe just tell us what's currently open-ended today and what's still to come for the fiscal year? Like which exact results? Yeah.
Yeah, so Mike, if you remember, there's four different pieces of this project. The first one is expanding our India capacity, and we are up probably about 30% year on year in terms of expanding capacity in our current sites in India, and we're going to continue working on those efforts. Croatia, as we mentioned earlier, you know, is just going through customer audits right now, and it's going to start manufacturing and shipping out of the site within this quarter, and again, we expect that's going to get started to ramp up more in Q3 and Q4 of this fiscal year for us. Mexico is up and running, and so the shipping products out of Mexico, there's an existing electronics facility right across the border of Arizona. We allocate a portion of the space to the grid business, and that's already up and running. And then in Houston, you know, we are already working 24-7 in terms of the current site as of actually two weeks ago. So, we are in the process of getting a much larger facility, probably about three times, three and a half times the size of the current facility. We expect, it's a new construction, and we expect to get the keys from that site in a June-July timeframe of next year, and then probably going to take us a couple of months to get the production fully up and running. In the meantime, the other side is going to be running at full capacity, so we don't lose any opportunities. But it's all on track. It's all moving as we would expect it. And one of the reasons we're actually raising that $180 million to $200 million in grid sales to $190 million to $200 million is because we feel confident that capacity expansion work is yielding results.
Great. Thanks for that. And then I also wanted to ask about the pipeline you've got in aerospace and defense. As you look ahead at what's in the backlog today of what you signed more recently, does some of them have a higher margin profile maybe next 12 months than you saw over the last 12 months? It sounds like for a lot of contractors, they're seeing better margins. You're a supplier to other contractors, but just curious as to whether you're seeing a better mix or kind of better project work there.
I would say that the new programs that we're winning, we're winning because we have a competitive advantage in our process and making those parts with informing versus traditional methods. So that tends to be reflected in gross margin where we're able to generate. Right? So, they are marginally more, marginally higher margin than the core business. So, these new programs will help the aerospace and defense continue to mix up in margin.
Great. Thanks for that, David. I'll pass it along. Thank you.
Operator
Thank you. Your next question comes from Gary Prestopino with Barrington Research. Please go ahead.
Hey, good morning, all. A couple of quick questions just on the numbers. I noticed that it looks like the corporate expense, when you look at the segments and applied corporate expense, it really jumped year over year. What happened there, and is that the run rate we should expect going forward?
Hey, good morning, Gary. So, yeah, it's up about $3 million year on year versus prior Q1. And about two-thirds of that increase, Gary, relate to higher variable compensation expenses and stock comp, as well as higher medical costs. You know, the medical costs have been, you know, increasing for us for the past, you know, year or two, and then that continues. And then about a one-third of that increase is more like a one-time cost, you know, primarily related to some of the executive, you know, executive recruiting and transfers we had at the company, and that obviously is not going to continue. So we would expect the corporate cost is going to come somewhat down in Q2 and get a little bit more normalized as we get into the Q3 and Q4.
Okay, that's helpful. And then, before I just get into general industry questions here, if you're looking at high-teens adjusted EPS growth, what kind of growth would that come to on an adjusted EBITDA basis? Would we be looking at a similar level of percentage growth from adjusted EBITDA with an adjusted EPS growth of mid-teens or high-teens?
Yeah, I think that's probably not that far off. You know, kind of mid-teens is probably a good way to look at it.
Okay. And then, David, with the slide that you provided with the growth drivers, data centers, grid, et cetera, and Adam, maybe you can help chip in here. I mean, what are your thoughts on all of the noise that's coming out against data centers? And is there a similar movement in international markets against data center growth?
We're actually seeing more data centers planned outside America in the last three to six months. And our discussions with our customers indicate they're seeing an increase in activity investments outside the U.S. I was just in Europe a few weeks ago, depending on the country you're in. There is some of the same debate about the impact of data centers on electricity prices, on water, on the local economy. So I think all the governments and society are going to have to work that out. But we see change in our expected outlook. You know, individual programs may be pushed out. They may be – they may move geographically, but there's such a hunger to get this productivity online. All the language we hear from our customers is that they are exploring multiple options where necessary to bring that capacity online.
Thank you. Oh, no, the other thing I just wanted – well, never mind. I'll ask that offline. Thank you.
Operator
Okay. Thank you. Russ has a follow-up. Please go ahead.
Hey, thanks, guys. I just wanted to get a sense of the expectation of the capacity unlock on demand. I mean, you noted in the past that everything that you're making is shipping, and so if the demand is that immense, and we know that there's a massive imbalance between the supply and demand of gigawatts in the channel. So, I mean, should it be a pretty healthy unlock as you start to get these machines, get these employees, or do you think it would be more measured, kind of like the linear path that you presented here recently?
Russ, I think it would probably be a little bit more linear as we kind of unlock the capacity. But what I will tell you, you know, the orders remain very, very strong, and, you know, we have no worries that as we unlock the capacity, we'll be able to fulfill that capacity. in terms of, you know, being busy in terms of sales. But we do think it's going to be a little bit more linear in the quarters to come.
All right. Well, maybe a better way is just when, like, you know, purchasing patterns. I mean, do these things come in and be measured in thousands, tens of thousands? Are they kind of, you know, batch orders of size and there's a certain time frame to fill them? Or is it just kind of, again, back to the book and ship, I mean, there's just demand available in the market. And so everything you're making, it's going out the door. What does that, you know, customer sales process look like?
Yeah, I mean, you know, it's kind of, you know, customers are actually now looking, and we talked about these long-term agreements in this space, right? Customers are actually kind of looking to give you a bit of a longer lead time, a longer forecast in terms of what they need. So, you know, some of the customers are now looking and giving us a forecast, you know, six to 12 months out. So there is that visibility we are starting to get. And part of that is also just making sure that, you know, we have capacity to support them. But again, you know, what I will tell you is as we unlock the capacity, you know, that capacity gets filled pretty quickly.
I would just add to that the customers are managing their entire supply chain. So they're being quite transparent with us about their demand and their requested schedules. So we may receive orders for products to be delivered in a month or two months, but we have long-term planning sessions. So they give us an idea of what's likely to come in a quarter, in two quarters, in three quarters, and then our input on our capacity affects their own plan. So it's a very interactive process.
Yeah. Well, I mean, I imagine that their internal build rates have only been increasing over the last 18 months. Well, then maybe just...
And I do want to remind...
Yeah, I'm sorry. I just want to make another point. When we've talked about the opportunity for our grid business with instrument transformers, in our investor presentation, there's a breakdown of the total market. The total market is $12 billion. We have been serving about a billion-dollar piece of that in North America and India. There's a $3.5 billion piece of that, which is aftermarket repair. It's local business that's sold to utilities. And that is an opportunity for us to unlock as this capacity comes online. So we're not concerned about a long-term imbalance with capacity and demand because we have another larger market to begin serving longer term.
That's what I wanted to kind of get into. It was just, you know, Adam here, you know, a couple months in the seat, you mentioned, you know, partnership opportunities. David just talked about kind of a servicing and aftermarket. I mean, what else are you seeing out there? I mean, how can you start to get a bigger piece of this TAM, and is M&A required?
You know, I think, Russ, quite frankly, I think organically we feel pretty good we can capture significant market opportunities. And to David's point, there's this, you know, additional markets we haven't even explored, and we're going to start exploring opportunities in those markets as well. And, you know, on an M&A side, we have a pretty, pretty, you know, busy M&A pipeline, and obviously, we're going to continue to be acquisitive at the same time. And so our strategy is going to continue, you know, from, you know, new product development, organic focus on capacity expansion, you know, sales and commercial excellence, organic growth at the same time complemented by inorganic opportunities as they come. And, you know, as you know, those you can't really predict when they're going to happen, but we remain out there.
Okay. No, that's great, guys. I'll leave it there. Thank you. Godspeed.
I'll miss you. Thank you, Ross.
Operator
That's enough for the questions. I will turn it back to Mr. Dunbar for some closing remarks.
All right. Thank you. I want to also mention that Joanne Edwards will be retiring from the Board of Directors after eight years. She has been influential in supporting our strategy to grow in the electrical equipment and the markets, which is obviously paying off. I want to thank her for her many contributions. We wish her and her family all the best in her retirement. We're also happy to welcome Brenda Presser from Brunswick to the board. Brenda brings strong strategic planning skills and deep talent development experience, which will be valuable as we chart the next steps in our journey. I want to thank you all for joining our call today. We truly enjoy reporting on our progress and the outlook at StandX. Thank you again to all of our employees who are solving problems and taking care of customers every day, making StandX a great place to work. I look forward to speaking with you again in our fiscal second quarter 2027 call.
Operator
Ladies and gentlemen, this concludes your conference conference today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
