Earnings Call Transcript - SXI Q2 2026

Operator, Operator

Good morning, everyone, and welcome to Standex International's Fiscal Second Quarter 2026 Financial Results Conference Call. I would now like to hand the call over to Chris Howe. Please proceed.

Chris Howe, Investor Relations

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.

David Dunbar, CEO

Thank you, Chris. Good morning, and welcome to our Fiscal Second Quarter 2026 Conference Call. I am very pleased to present results that demonstrate our years-long efforts to build a growth engine at Standex are now reading through in top line results. We recorded 6.4% organic growth and a book-to-bill ratio of 1.04, led by our Electronics segment, which grew 11.1% organically with a book-to-bill ratio of 1.08. The contributions from sales into fast growth markets, new product sales and the improving general industrial markets are now evident in our results. As such, the company is well positioned to deliver mid- to high-single-digit organic growth in the fiscal third quarter and remains on track to the fiscal 2026 sales outlook. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal second quarter 2026 results. Now let's look at the results beginning on Slide 3. In the second quarter, sales increased 16.6% year-on-year. Contributing to this growth were new product sales and sales into fast-growth markets. New product sales grew approximately 13% to $16.3 million. Sales into fast-growth markets were approximately $61 million or 28% of total sales. These results have been literally years in the making as we began our focus on new product development in fiscal year 2021 by increasing our R&D spending from 1% of sales to the current 3%. In the same year, we began directing our efforts to win more applications with customers serving fast growth markets. In our August earnings call, we said that we believe both efforts were reaching an inflection point and would deliver organic growth this fiscal year. These results show they are paying off. Orders of approximately $231 million were the highest quarterly intake ever, showing our growth engine continues to accelerate and setting us up nicely for the balance of the year. In addition, the engraving segment grew 10.3% organically. Adjusted gross margin of 42.1% was up 120 basis points year-on-year. Adjusted operating margin of 19% was up 30 basis points year-on-year. We paid down approximately $10 million of debt and reduced our net leverage ratio to 2.3x. We are reiterating our fiscal year 2026 sales outlook. Barring unforeseen economic global trade or tariff-related disruptions, we expect revenue to grow by over $110 million from 2025. The drivers of this increase are the strong momentum we are seeing from new product sales and sales into fast-growth markets and the full year impact of last year's acquisitions. In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth and have increased our expected sales from new products to $85 million from $78 million. We launched 4 new products in the second quarter and remain on track to release more than 15 new products in fiscal 2026. Sales from fast-growth markets are expected to grow over 45% year-on-year and exceed $270 million. On a year-on-year basis, in fiscal third quarter '26, we expect significantly higher revenue driven by mid- to high-single-digit organic growth from higher sales into fast growth end markets and increased new product sales and slightly higher adjusted operating margin due to higher volume and favorable product mix, partially offset by growth investments and higher medical costs. On a sequential basis, we expect slightly to moderately higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments. I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Ademir Sarcevic, CFO

Thank you, David, and good morning, everyone. Let's look at the second quarter 2026 summary. Overall, total revenue rose about 16.6% year-over-year to $221.3 million. This included an organic growth of 6.4%, a 9.4% contribution from acquisitions, and a 0.8% boost from foreign currency effects. The adjusted operating margin for the second quarter increased by 30 basis points compared to last year, reaching 19%. Adjusted earnings per share grew by 8.9% from the previous year to $2.08. We generated $20.7 million in net cash from operating activities during the second quarter of fiscal 2026, compared to $9.1 million a year ago. Our capital expenditures were $7.7 million, compared to $7 million last year. Consequently, our free cash flow for the second quarter was $13 million, up from $2.2 million a year ago. Now, let's discuss our segment performance and outlook, beginning with Electronics. Segment revenue surged by 20.6% year-on-year to a record $115.7 million, fueled by an organic growth of 11.1%, a 9.1% contribution from acquisitions, and a 0.4% benefit from foreign currency. Organic growth was supported by sales in rapidly expanding markets and an increase in new product offerings. The adjusted operating margin of 28.8% for the fiscal second quarter rose by 120 basis points year-on-year due to higher volume, pricing actions, and product mix. Our book-to-bill ratio for the quarter was 1.08, representing orders of about $125 million. This is the sixth consecutive quarter with a book-to-bill near or above 1. As previously stated, the customized nature of our products results in a longer conversion cycle but with higher sustainable margins. The strong order pipeline is now reflecting in our organic growth results. Looking ahead to the fiscal third quarter of 2026, we anticipate slightly to moderately higher revenue as we see increased sales in fast-growing end markets and rising new product sales. We expect the adjusted operating margin to remain similar, mainly due to product mix and ongoing strategic growth investments. Now, let’s move on to the Engineering Technologies and Scientific segments. Engineering Technologies revenue grew by 35.3% to $30.6 million, driven by a 33.4% contribution from the recent McStarlite acquisition, an organic growth of 1.2%, and a 0.6% benefit from foreign currency. Organic growth faced challenges due to delays in customer project timelines. The adjusted operating margin of 18.9% increased by 260 basis points year-on-year, mainly because of higher volume. For the next quarter, we expect moderately to significantly higher revenue due to growth in new product sales and better project timing, with adjusted operating margin also anticipated to be slightly to moderately higher thanks to increased volume. Scientific revenue grew by 5.5% to $19.5 million, bolstered by an 8.1% acquisition benefit, but partially offset by an organic decline of 2.6%, mainly due to reduced demand from academic and research institutions affected by NIH budget cuts. The adjusted operating margin of 24.2% dropped by 270 basis points year-on-year due to the organic decline and product mix. We expect similar revenue sequentially and slightly lower adjusted operating margin as a result of product mix, ongoing investments in research and development, and tariff costs, though these impacts will be partially mitigated by pricing and productivity initiatives. Now, let’s discuss the Engraving and Specialty Solutions segment. Engraving revenue increased by 13.6% to $35.7 million, driven by organic growth of 10.3% from improved demand in Europe and North America, along with a 3.3% benefit from foreign currency. The adjusted operating margin of 19.2% for the second quarter rose by 490 basis points year-on-year due to higher sales and the realization of prior restructuring actions. In the next quarter, we expect similar revenue and a slightly reduced adjusted operating margin from project and regional mix. The Specialty Solutions segment's revenue of $19.8 million decreased by 7.2% year-on-year and the operating margin fell by 600 basis points year-on-year. We anticipate moderately to significantly higher revenue and operating margin in the following quarter. Turning to Standex's liquidity and capitalization structure, our current available liquidity stands at approximately $213 million. At the end of the second quarter, our net debt was $437.7 million, up from $413.2 million at the end of the fiscal second quarter 2025. Our net leverage ratio now stands at 2.3 times. We reduced our debt by around $10 million during the fiscal second quarter 2026. For the fiscal third quarter 2026, we project interest expenses to be between $7 million and $7.5 million. Standex's long-term debt at the end of the fiscal second quarter 2026 equaled $534.7 million, while cash and cash equivalents were $97 million. We declared our 246th consecutive quarterly cash dividend of $0.34 per share, representing an approximately 6.3% year-on-year increase. For fiscal 2026, we expect our capital expenditures to range between $33 million and $38 million. Regarding our debt leverage, we will continue to prioritize debt repayment and expect our leverage ratio to decrease further throughout fiscal year 2026. I will now hand the call back to David for his concluding remarks.

David Dunbar, CEO

Thank you, Ademir. Please turn to Slide 9. I'm very pleased to see the inflection in organic growth in the second quarter as new product sales grew 13% and as fast growth markets contributed 28% of revenue. Organic growth was driven by our Electronics, Engineering Technologies and Engraving segments. The year-on-year organic growth reflects actions and investments since fiscal year 2021. During this time, we ramped up new product development across our businesses and further positioned ourselves in fast growth end markets like Grid, commercialization of Space and Defense. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships. This continued momentum in fast-growth markets and from new product sales helped support a record order book in the fiscal second quarter. We are reiterating our sales outlook for fiscal 2026 and remain on track to achieve our fiscal 2028 long-term targets. We will now open the line for questions.

Operator, Operator

Your first question is from Chris Moore from CJS Securities.

Christopher Moore, Analyst

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

Ademir Sarcevic, CFO

Yes, it's Ademir here. It's a somewhat technical explanation, but we anticipated this question and prepared some remarks. Whenever we acquire a business, our goal is to align objectives and incentives between the business owners and Standex. Often, the owners and management of the acquired business remain with us to facilitate successful integration and assist in future growth. This strategy has contributed to our success in previous acquisitions, emphasizing strong strategic, financial, and cultural fit. Last year, when we negotiated the acquisition of Amran, a U.S. entity, and Narayan, an Indian entity, our objective was consistent—to establish common goals and incentives with the business owners. We purchased 85% of Amran with cash and 15% with Standex shares, while also acquiring 90% of Narayan in cash, with plans to use Standex shares for the remaining 10%. However, acquiring this last 10% required government approval in India, which we did not obtain at the acquisition time. Due to this, we included a clause for an alternative method to buy that remaining 10% with cash, using a 12x multiple based on trailing 12-month EBITDA. Now, a year later, government approval has not been received and seems unlikely. As stipulated in the original purchase agreement, minority owners of Narayan can now sell us a third of their remaining 10% interest. Consequently, according to accounting rules, we had to adjust the recorded value of the remaining interest in Narayan based on the trailing 12-month EBITDA as of the end of fiscal Q2 FY '26, applying the same 12x multiple to reflect the cost for Standex to acquire that remaining stake in cash. This demonstrates the increased value of this business since its acquisition and highlights the impressive performance it has shown as part of Standex. I hope this clarifies things.

Christopher Moore, Analyst

That was perfect and very helpful. Now, moving on to the business, let's continue discussing Amran or Grid. OEMs like Schneider Electric, Siemens, and GE have found it more efficient to outsource the low to medium voltage transformers that Grid is supplying, which were previously engineered in-house. I have a couple of questions about the competitive landscape. How would you describe it? Do most of these OEMs have multiple partnerships with companies like Amran, or are you mainly their sole source? What does it look like currently, and what are your expectations for the future?

David Dunbar, CEO

This is a great example of a market focused on customer relationships. The concept of customer intimacy suggests that as customers develop their next-generation platforms, their engineers concentrate on the most essential features of that platform. However, other significant components must be custom-designed, and customers need partners for that process. Over time, instrument transformers have become part of that category, and Amran Narayan is rapidly emerging as a valued partner to the global equipment manufacturers. If we consider the global market for instrument transformers, approximately 40% are produced by electrical equipment manufacturers such as GE, Siemens, Schneider, and Eaton. These companies are increasingly outsourcing this production, although not completely. The remaining 60% comes from various suppliers in different regions worldwide. These suppliers are not small family-owned businesses; they are companies about the same size as Amran and Narayan, and there are many suppliers around the globe. We believe we compete well against all of them.

Christopher Moore, Analyst

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

David Dunbar, CEO

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

Operator, Operator

Your next question is from Ross Sparenblek from William Blair.

Ross Sparenblek, Analyst

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

Ademir Sarcevic, CFO

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

David Dunbar, CEO

There are three main segments of our electronics business. The grid segment continues to grow as it has in recent years. Our switches and sensor business, which includes reed switches and relays, is experiencing growth in the upper-single digits, while the magnetics segment, mainly focused in North America, is growing at a lower rate. Overall, our core electronics business is seeing mid-single digit growth.

Ademir Sarcevic, CFO

Yes, correct. Yes, yes.

David Dunbar, CEO

And then that grid business.

Ademir Sarcevic, CFO

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

Ross Sparenblek, Analyst

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

David Dunbar, CEO

Yes. On the legacy side, it's primarily the switches and the relays, and Asia is performing very well. There's significant economic activity in Asia, and we're noticing an improvement in Europe, while North America remains steady. When examining the different regions, our relay business is expanding in the test and measurement sector, supplying relays for test and measurement equipment, which is connected to electrification, grid development, and data centers. These are the key highlights.

Ross Sparenblek, Analyst

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

David Dunbar, CEO

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

Ross Sparenblek, Analyst

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

David Dunbar, CEO

No, we're seeing that. Yes, yes.

Ross Sparenblek, Analyst

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

David Dunbar, CEO

Well, it is higher margin. But...

Ademir Sarcevic, CFO

Yes, you're correct. The grid business has higher margins. It's important to note that we are also investing in growth and expanding capacity in the grid sector. There will be some costs associated with setting up our facility in Croatia and expanding in Mexico, as well as increasing our capacity in Houston, Texas. We expect the margins to remain very strong, but some investments are necessary now to maintain this exceptional growth on the grid side.

Operator, Operator

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

Matt Koranda, Analyst

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

David Dunbar, CEO

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

Matt Koranda, Analyst

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

Ademir Sarcevic, CFO

Yes, Matt. Initially, to get the Croatia site operational, we need to set up the location, hire a general manager, and recruit staff for sales, marketing, production, and so on. There will be costs incurred before we can ramp up production. We do not expect electronics margins to decline in the coming quarters, but I also don't anticipate them to increase during this time.

David Dunbar, CEO

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

Ademir Sarcevic, CFO

That's right.

Matt Koranda, Analyst

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

David Dunbar, CEO

Yes, definitely. For those who have been following Standex for a long time, this situation occurs frequently in our business. Whether it's in aviation, space, or defense, these are significant shipments that can sometimes extend from one quarter to the next due to various timing issues. There could be multiple reasons for this delay, such as scheduling a final inspection. It's common for these situations to shift from one quarter to another. However, our backlog remains strong and continues to grow.

Ademir Sarcevic, CFO

Yes, Matt. For the ETG business, it's important to look at it over a 12-month period to smooth out some of the fluctuations. David is correct; it could be due to changes in production on the customer side or changes in the timing of when they need a product, which impacts when we work on it. However, over four quarters, everything tends to balance out. You're also right that we are seeing some shifts from Q2 occurring this quarter.

Matt Koranda, Analyst

Understood. Okay. Maybe just one more if I could sneak one in. On the M&A front, considering where leverage is, it's coming down to a healthy place. It seems likely to fall under 2 at some point in the near future. Where are you focusing your efforts now, given that the balance sheet looks in order to potentially pursue larger deals? I'm just curious about your thoughts on that.

David Dunbar, CEO

We have been having in-depth discussions recently about various opportunities, particularly in the grid sector, to accelerate our capacity expansion. There are other companies that manufacture instrument transformers, which presents an opportunity to grow that business as our grid customers are asking for an expanded product range. We are receiving suggestions from customers, such as Schneider and Eaton, about potential acquisition targets. Additionally, in our legacy electronics segment, we recognize that every time we partner with a customer to customize a switch, relay, or sensor, there are further products we could explore if we had a wider offering in components and modules. Thus, we are working on expanding our sensor and switch businesses into related technologies. Therefore, it wouldn’t be surprising if you see us develop that area further to serve a broader customer base. Lastly, we are excited about the strong prospects across various end markets, particularly in the space sector, which is evolving into a significant opportunity. It’s not solely about launching satellites anymore; the long-term vision for space includes various vehicles that will require different types of equipment. We are also building a funnel of emerging capabilities in this market.

Matt Koranda, Analyst

Okay. Sounds like a target rich environment, I'll leave it there.

David Dunbar, CEO

Yes, yes.

Gary Prestopino, Analyst

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

David Dunbar, CEO

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

Gary Prestopino, Analyst

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

David Dunbar, CEO

Yes, Yes.

Gary Prestopino, Analyst

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

David Dunbar, CEO

A significant portion of our sales in space commercialization consists of new products. Each year, we tend to raise our expectations for them. The Engineering Technologies division, along with the Spincraft business, has achieved substantial success with their new offerings.

Gary Prestopino, Analyst

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

David Dunbar, CEO

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

Gary Prestopino, Analyst

Okay. Lastly, regarding the Amran acquisition, is there any remaining impact that will affect the next two quarters in terms of the income statement like it did this quarter?

Ademir Sarcevic, CFO

Gary, are you talking about this noncontrolling interest adjustment?

Gary Prestopino, Analyst

Yes. Yes, the noncontrolling.

Ademir Sarcevic, CFO

Yes, we will have adjustments, although it won't be as significant because this was the annual true-up related to the factors that required us to recognize it this time. It will need to be adjusted quarterly going forward since the trailing 12-month EBITDA, which the multiple is based on, will change.

David Dunbar, CEO

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

Gary Prestopino, Analyst

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

Ademir Sarcevic, CFO

It would clearly conclude when the 10% is executed and either sold or if we repurchased the 10% at that time.

Gary Prestopino, Analyst

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

Ademir Sarcevic, CFO

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

Operator, Operator

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

Michael Shlisky, Analyst

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

Ademir Sarcevic, CFO

Yes. To return to our initial agreement, the goal was to acquire 10% of the Indian entity in Narayan using Standex shares. The Indian government must authorize an Indian national to hold equity in a foreign company. Therefore, if the acquisition is made with shares, government approval is required. In contrast, if payment is made in cash, no government approval is necessary. It's a fairly straightforward transaction.

David Dunbar, CEO

And that's what we're doing.

Ademir Sarcevic, CFO

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

Michael Shlisky, Analyst

No approvals. Got it. I know it's not your biggest segment, but I did notice the substantial margin decline in Specialty Solutions. I was wondering if you could maybe share what was behind that? I know you mentioned one of the Engineering Technologies Group, but how about that one?

Ademir Sarcevic, CFO

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

Michael Shlisky, Analyst

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

David Dunbar, CEO

Yes. As we've mentioned in the past few quarters, we believe that activity in North America and Europe has reached its lowest point, and we were in the trough last year. North America is holding steady at similar levels, while Europe is beginning to improve. We expect several programs to launch in America that will create work for us later in the summer and fall. Therefore, we see growth in our traditional business in that area. Additionally, we are excited about the increase in new product sales this year, particularly from the Engraving business. You may recall that last summer we highlighted a new achievement in producing differentiated parts using our proprietary knowledge of the soft trim process. This represents a new product for us, and the $8 million increase in new products is largely attributed to that area. We anticipate seeing further growth from this towards the end of this quarter and into Q4.

Ademir Sarcevic, CFO

But we are still cautious about the overall market in Engraving and the auto market.

Operator, Operator

Your next question is from Ross Sparenblek from William Blair.

Ross Sparenblek, Analyst

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

David Dunbar, CEO

There was no revenue; the request from customers in Croatia was solely to install the capacity.

Ross Sparenblek, Analyst

I mean, the capacity of Amran. I mean, you weren't able to move to expand there.

David Dunbar, CEO

Yes. At the time of acquisition, the capacity was approximately in line with sales at around $100 million. We have since increased that capacity by about 50%, and we have additional sites coming online.

Ross Sparenblek, Analyst

And then just want to clarify, we think through doubling that, are we doubling it off the original base or where we stand today?

David Dunbar, CEO

No, in fact, we're more than doubling it. They are at $150 million now, and we will more than double that in the next 3 to 5 years with Croatia, Mexico, Houston, new expansion in India, and lean and automation.

Ross Sparenblek, Analyst

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

David Dunbar, CEO

I didn't understand the question, Amran.

Ross Sparenblek, Analyst

Sorry. Yes, regarding Amran and the grid business, we are expanding globally. It's a fragmented market with many regional players. What are the key advantages for success in that business?

David Dunbar, CEO

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

Ross Sparenblek, Analyst

Okay. And then maybe just one final question here. Can you clarify the delta of the mid- to high-single digits and what might go right or wrong with those ranges? I understand you have better visibility in some markets than others, but it seems like the cyclical elements are at a low point right now.

Ademir Sarcevic, CFO

Yes, I believe that's correct. Overall, in terms of the economic environment and global markets, we definitely feel that we have reached a bottom and are now beginning to recover, seeing some increased demand.

David Dunbar, CEO

In terms of potential challenges, back in August, we mentioned the positive momentum within the company as we believe we are hitting a turning point where our new products and rapidly growing markets are compensating for weaknesses in other general industry sectors. However, North America remains quite weak, particularly in Specialty, which is a vulnerable area for our legacy electronics business. If we do not witness an improvement in North America, that could pose a significant concern.

Ademir Sarcevic, CFO

Yes, definitely.

Operator, Operator

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

David Dunbar, CEO

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

Operator, Operator

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