Good morning and welcome to the Standex International fourth quarter 2020 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Gary Farber, Affinity Growth Advisors. Please go ahead.

Thank you Alyssa, 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 SEC filings and public announcements for a detailed list of risk factors. In addition, I’d like to remind you today that today’s discussion will include references to the non-GAAP measures of EBITDA, which is earnings before interest, taxes, depreciation and amortization, adjusted EBITDA which is EBITDA excluding restructuring, purchase accounting, acquisition-related expenses and one-time items, EBITDA margin and adjusted EBITDA margin. We will also refer to other non-GAAP measures including adjusted net income, adjusted income from operations, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow, and pro forma net debt to EBITDA. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company’s performance. On the call today is Standex’s Chairman, President and Chief Executive Officer, David Dunbar, and Chief Financial Officer and Treasurer, Ademir Sarcevic. With that, I’ll turn it over to David.

Thank you Gary. Good morning and welcome to our fourth quarter fiscal 2020 conference call. Before I discuss this quarter’s results and our outlook, I want to thank our employees around the world. I am very proud of their efforts in this challenging environment and the dedication, creativity and resilience they’ve demonstrated. On today’s call, I will first provide commentary on the fiscal fourth quarter 2020 results and the trends we are currently seeing. I’ll then discuss several of the key themes and accomplishments in the quarter. From there, I will discuss the segment performance and trends. Ademir will follow with a discussion of our consolidated results and financial position in greater detail. Finally, I will conclude with some comments on our outlook and key takeaways from our results and initiatives. Now if everyone can turn to Slide 3 and key messages, overall fiscal fourth quarter results were in line with our expectations despite the very challenging operating environment as our teams displayed a high degree of global collaboration and coordination while maintaining a safe and healthy environment. Importantly, since the end of April our end markets sequentially have exhibited a gradual increase in the level of customer activity that has continued into our first quarter, most notably at our engraving, electronics and scientific segments. We also continued to make substantial progress further positioning Standex around more profitable platforms with favorable growth prospects and compelling customer value propositions. At the beginning of the quarter, we completed the divestiture of our refrigerated solutions group. This transaction is accretive to our consolidated operating margin profile by approximately 200 points. The transaction also continued the process that began with our divestiture of the cooking business in early 2019. In July, we announced the acquisition of Renco Electronics. Renco is a leading U.S.-based custom…

Thank you David, and good morning everyone. First, I will provide a few key takeaways from our fiscal fourth quarter 2020 results. Our results were in line with the overall expectations we had entering the quarter. As expected, the majority of our end markets were impacted by the COVID-19 pandemic and as a result, we recorded a year-on-year decrease in adjusted EPS. Second, as David mentioned, we continue to maintain a very strong financial position, as evidenced by our significant liquidity, low leverage ratios, and persistent free cash flow generation. This was complemented by our ongoing cash repatriation program which came in ahead of our prior estimates for the year. We plan to continue to add [indiscernible] repatriation efforts in fiscal ’21. In addition, our interest expense declined year-on-year, reflecting the swap of variable debt to a lower rate fixed rate debt, which was completed in our fiscal third quarter. We also delivered on our cost savings initiatives in the quarter. We realized $4.2 million in savings in the fourth quarter and expect $7 million in annualized savings from these efforts in fiscal ’21. Finally, our capital allocation remains balanced and disciplined. We announced earlier in the quarter our acquisition of Renco Electronics, which was financed from our cash on hand. Additionally during the quarter, we repaid debt, repurchased shares, and declared our 224th consecutive dividend. Now let’s turn to Slide 9, fiscal fourth quarter 2020 income statement summary. On a consolidated basis, total revenue declined 17.4% year-on-year. This reflects organic weakness associated with the economic impact of the COVID-19 pandemic. Acquisitions had a nominal contribution of 0.1% to overall growth in the quarter while FX was headwind with a negative impact of 1.1%. Gross margin decreased 200 basis points year-on-year to 33.7%, primarily reflecting the volume decline partially offset…

Thank you Ademir. If everyone can please turn to Slide 13, I’ll provide some thoughts on our fiscal first quarter 2021 outlook and key takeaways from today’s call. In fiscal first quarter ’21, we expect revenues to be flat to slightly above fiscal fourth quarter ’20 and operating margins to improve sequentially. This outlook assumes the following. Electronics and engraving segments are expected to have meaningful sequential revenue increases due to an increased level of customer activity and associated volume, as well as a contribution from the recently closed Renco acquisition at the electronics segment. We also expect a meaningful sequential revenue increase at the scientific segment as customers resume capital equipment orders. We also expect to benefit from a continued increase in the level of flu vaccinations delivered through pharmacies. These increases will be balanced with a significant sequential decline at engineering technologies due to the economic impact of COVID-19 on the commercial aviation market and the timing of orders in the space end market. Specialty solutions revenue is expected to be sequentially similar to fiscal fourth quarter 2020. From a strategic perspective, we remain active in our business portfolio in the quarter, divesting refrigerated solutions, acquiring Renco Electronics, and today establishing scientific and specialty solutions as standalone segments, all with the intention of building our higher margin growth businesses into more significant platforms. Capturing cost structure efficiencies will remain a priority with $7 million in cost savings in fiscal 2021 expected from the actions we have already announced. These efforts are being supported by a significant funnel of operational excellence actions in fiscal 2021. Our financial position remains solid, supported by our strong balance sheet, significant liquidity, consistent free cash flow generation, and continued repatriation of cash. This significant financial flexibility will allow us to pursue a healthy pipeline of organic and inorganic growth opportunities. Operator, I will now open the line for questions.

[Operator instructions] The first question today comes from Chris Moore of CJS Securities. Please go ahead.

Hey, good morning guys. Maybe we could start with the area where the sequential revenue increases - you know, electronics obviously partly impacted by Renco, engraving and scientific. Just trying to get a little better feel for if--you know, how much of this is COVID catch-up and how much is--obviously you’re not giving guidance for Q2, but what’s one-time and what might be things are getting back on track?

Our view is April was really the bottom for the markets we serve, and we see those markets gradually climbing out of that trough, so we think there is a secular and long term trend to grow out of that. It’s obviously growing more slowly than it declined, so we think there’s an undercurrent of growth in all the segments. There was some dramatic catch-up in Asia in electronics in the fourth quarter. We think that’s kind of caught up and now that’s just back to normal growth. Virtually the same thing in North America, which has more or less caught up. Auto really took a dip in fourth quarter, then started to wake up again in June, and now auto production is ramping up again and the centers that we supply to. Our engraving business, quite a bit of catch-up because in the first two months of Q4, tools were held up and tool shops weren’t being shipped into our service centers. Those started to be released in June. Employees of our OEMs could come and complete the mark-ups, so our shops are very busy right now with that catch-up along with the regularly planned work to support the upcoming starts of production. So there was a bit of a surge from some catch-up, but there is an underlying growth.

Got it, that’s helpful. Maybe talk about electronics a little bit. You mentioned that you’re splitting it into two separate P&Ls, and maybe you could just give a little more detail there and what’s driving that, and how that helps you moving forward.

Yes, the electronics business has grown quite a bit. Just 10 years ago, it was a $40 million business. We acquired a European business, it became $80 million. We acquired OKI, we get in the mid-100s; we acquired Agile, North Lake, and now Renco. Even with COVID, it’s north of $250 million, in mid-200s, and it’s become a more complex business. When we looked at it, we realized the same people were supporting all these new product lines, all the new acquisitions, and there was a fundamental difference between the high reliability magnetics business and the switches and sensor business. They had different customers, different products, different underlying technologies, different competitors, different supply chains, so we thought creating two structures focused on those businesses would provide better focus, so then can each grow, they can invest appropriately, and focus on new technologies, on being the best in those product categories.

Got it. Obviously you did the Renco acquisition. Is one of those areas, switch and sensors versus high reliability, more likely on the M&A side? Are you looking in both, or one piece of that?

Well, there have been more opportunities in our funnel in the magnetics side. It is a more fragmented market, there’s a higher number of smaller players out there, but there are opportunities in the sensor business. We have taken a run at a few but they didn’t work out. They tend to be a little higher priced, higher multiples, but we still see good opportunities to expand into adjacencies with some sensor acquisitions, so don’t be surprised if in the future, we were to come out with a sensor acquisition.

Got it. On the scientific M&A side, you talked about potential bolt-on acquisitions. Is that new markets, new technology that would expand what you’re doing, or--?

Well for the moment with scientific, as we look at acquisitions, we want to look at acquisitions where we can take maximum advantage of the strengths that our scientific business has, which is great relationships with the channel, great understanding of the changing dynamic of the market based on regulatory changes and distribution changes for medications and vaccines, so that leads us to look at all the related equipment that is often purchased in conjunction with the cabinets that we sell. If you look in the facilities where our products are, you’ll also see things like incubators, centrifuges, biosafety containment hoods. There’s a core set of lab equipment that you find, and these products are sold through similar channels. There are a number of focused companies, some privately held that participate in these categories, so that would be the first place we’d look. We see that as a pretty clean bolt-on strategy. But I would also say that we’ve ramped up R&D and organic growth initiatives in scientific. We have a number of new products in development that we will be launching, releasing in the course of this fiscal year. The business had a very small development group before. We’ve ramped that up, we brought in a leader for that business who is experienced in managing larger engineering organizations with a stage gate process and a formal new product development funnel. We’re spending about 3% of sales on R&D now in scientific, so we’re quite excited about the organic growth and then have enough confidence in the market and that management team to be looking at related equipment acquisitions.

Got it. Very helpful, thanks David. I’ll jump back in line.

Thank you Chris.

The next question today comes from Chris Howe of Barrington Research. Please go ahead.

Good morning David and Ademir. Just following up on that last question about the M&A opportunities within scientific, when we look at the historical mix moving into Q1, you mentioned some of the related equipment opportunities, from incubators to hoods. Has this funnel already started to build? Scientific has been under the wing for some time now, and how would you describe where you are in building that funnel for M&A opportunities, and more specifically your healthy margins in this segment, how do those margins compare to potential accretive private opportunities?

Let’s start first with the funnel. We started in earnest to build the funnel at least a year ago, maybe longer - a year and a half ago, so there are a dozen or more opportunities we’ve been working, and some of these things take years to come together. We approach the owners, get to know them, they get to know us, but we’ve got several irons in the fire, and this is a multi-year process as we see it. The profitability of the business, there is a spectrum. You know, some we look at, we think their margins are maybe lower than they could be or ought to be; others have similar margins to the business that we have, so we think based on the characteristics of the market that 20%, low 20% operating margin is certainly a reasonable expectation for our business, and based on what we’ve seen it’s probably representative of the market.

Excellent, that’s very helpful. I definitely am in favor of the realignment of the segments, but without putting too much focus on the scientific, I wanted to actually talk about specialty solutions. You mentioned some of the weakness it’s experiencing in end markets. A prediction on a normal environment is anyone’s guess. With April being the trough, can you talk about how this could potentially be an upside surprise in the future once these end markets come back, snap back, and people are moving about in a normal way? Is there a potential opportunity here that may be neglected?

There certainly is an opportunity for a snap back, depending on how quickly people start going out again and restaurant become more active. In the specialty solutions business, the federal business, the display merchandising business and the Procon Pump business are the two that serve that food service equipment end market. Procon Pump business is highly levered or exposed through carbonated beverage decks and espresso machines, are the two largest product lines. We expect more strength in espresso machines earlier than in carbonated beverage decks, but we’re starting to see that ramp slowly, so there is activity out there. People are investing in that equipment. The federal merchandising business, they serve more end markets. We showed a picture of this milk merchandiser - this is a new product we developed using our growth discipline processes into a segment where the last--I mean, the last new product that was introduced was probably when you were kid getting milk in elementary school. It’s an end market that has been underserved. We brought some innovative features with this product, and schools are reopening. Some school are reopening, they’re ordering these milk merchandisers. We’re seeing strength in the convenience store segment. Traditional restaurants are beginning to rethink the way they serve food to customers. We’re getting more inquiries for restaurants that want to establish grab-and-go islands in their restaurants so their customers can pick up food that’s been already prepackaged and set. That’s another potential upside there as the business model of food delivery continues to evolve. The third business in there, hydraulics, exposed to garbage and waste vehicles, is a very steady end market and continues to be healthy. The dump truck and dump trailer market would be strongly influenced by an infrastructure bill if we were to see one in America, so that would be an upside impetus in that business. These three businesses are fundamentally good businesses. They deliver good margins, they have good differentiated positions in their end markets, they’re carrying their weight with good return on assets and good margins. Of course, they’ve been hit by this recent downturn in their markets, but these are not problem businesses by any means.

Great, and one last question, if I may, related to the aviation. You mentioned the decline in sales here, but despite the decline, operating margin still remains healthy and showed improvement, and this improvement is expected to continue into Q1. Perhaps some additional color on the margin opportunity, maybe further down the line as we get through this slow recovery and what this could mean incrementally.

Yes, well first of all, the lead times in that industry are long enough that Q4 virtually had no impact in its sales and margins from the slowdown in aviation, but we did call out we expect a significant decline in the quarter and the related deleverage would flow through to the profitability in the quarter. We have all along conveyed that this business as we’ve repositioned it in the last few years to focus on space and aviation was heading towards a plus-15% EBIT range, and it has delivered in several quarters in the last year, so it was getting there. With this reduction in build rates in aviation in Airbus and Boeing, that has pushed that out so this business is headed for a tough few quarters, and we just have to watch very closely the build rates when they begin to ramp up again, because that volume will be critical to deliver 15% EBIT long term in the business.

Thank you for taking my questions. I’ll hop back in queue.

Thank you Chris.

The next question comes from Chris McGinnis from Sidoti & Company. Please go ahead.

Good morning. Thanks for taking the questions. I think just to dive into engineering, since we were just on it, how much of that is now--when you look at the portfolio, how much of that is aero versus the other parts--you know, the space, and can you just maybe dive into that and maybe talk about the need for volume to come back to get that market profile up. How do you think about that business in this environment as you are starting to dispose of some assets--you know, you think about that playing in the portfolio longer term.

While you were asking the second part of your question, I was reaching for a document, so I might have to ask you--you may have to repeat that.

Sure.

On the first on the split of the business, last year the sales were roughly 40% aviation, about 30, 35% space, 12% oil and gas, and about the same amount defense with a little bit of medical in there. Space, we expect to be a steady business this year. The defense business will grow. The energy business, we expect it to be relatively flat in the year, and aviation is where we’re seeing the decline, so you’ll see those percentages move in the coming year.

Sure, okay, and I guess the second part was just you rationalized your portfolio of product over the last couple of years, obviously. Just your thoughts if this is a long-term kind of draw out with a bounce back in volumes for aviation, how does that play into your thoughts about the segment itself?

You’ve seen the plants. We have a differentiated process. Our spin forming capability is highly differentiated and brings great advantages to the production of certain parts, like the domes for the space industry. That is a solid industry, we have a solid position there. That plant is very busy now and will be, we expect, for the coming years. The lipskin business, largely for Airbus, is also a very solid business. It’s down now, but we’re differentiated. That business makes good margins, great quality reputation, great service levels for the customer. The remaining bit of our aviation exposure is with engine parts, and that’s a more competitive end market. That plant uses a hydroforming process as opposed to spin forming process, and that’s the plant where you’re seeing the highest deleverage and the greatest challenge. We are in negotiations with customers now about the possibility of moving more volume our way where there are two sources. We are actively bidding new parts. All of our plants, including the engine parts plant have great reputations with the customers. We’ve been qualified as the highest tier supplier based on our quality and our delivering performance, so long term there’s a great opportunity for these plants, but for several quarters and probably through the year, it’s going to be slow going simply based on the end market demand.

I appreciate that. That’s some good color. Thinking about the breakout of scientific now, does that mean it’s one of the new platforms? I think historically you’ve referenced trying to target $300 million on a platform. Is that a possibility here, or is it more of just highlighting--obviously, we’re in the middle of COVID so the revenue growth isn’t there, but obviously that should bounce back over time, but just that longer term opportunity for that platform. Thanks.

Yes, well there are rules that we have to follow about what businesses report, how we break them out, which businesses are called out separately, which are combined into groups. When we divested the refrigeration group, it didn’t really make sense to refer to a group a food service anymore, so as we stepped back and looked at it, we thought the scientific business has grown to be larger than the hydraulics business, it’s more profitable, and it has a stronger growth trajectory, so in terms of helping investors understand what’s going on at Standex, that seemed like a logical move to break that out. The specialty solutions businesses, those three, what a lot of people don’t understand is those three have actually been managed by the same president for almost two years, so that’s a reflection of how we’re organized internally. As for the expectations for the business and this $300 million target, we do want our business businesses to grow and we’ve certainly got electronics well on their way to $300 million plus. Engraving has come a long way in the last few years, but all of our businesses now are high quality businesses - they have good positions in their markets, they deliver good margins, we will invest to grow them, but they’re carrying their weight even at their current size. A good example is on the specialty solutions page. We show the example of that milk merchandiser. We’ve invested some energy to explore the adjacent markets in that business, brought a new product to market which has good margins, is helping us penetrate that milk merchandiser segment, so that $300 million number is maybe less important than it was a few years ago when we really had to focus on building a few large platforms we could build a corporation around. But all the businesses that we’re managing now are solid, well performing businesses, strong in their markets.

Great. Just thinking about COVID, we’re obviously, I think, through the worst part, hopefully, with this. Could you just maybe talk about some opportunities that presented themselves over the last few months? Is there a change in focus in anything or is there a spot where there’s maybe some more opportunity, given the disruption that’s taken place across multiple industries for you? Just maybe talk a little bit about that, thanks.

Yes, actually there are several categories of opportunities we see now that we either didn’t have before or didn’t have the same awareness of. The first is all of our companies are relatively small niche players. We’re big fish in small ponds, and we compete with smaller players. We know now some of the competitors of our businesses have struggled a lot more than we have, and so we believe that we are picking up more inquiries for new applications and new business opportunities that will result in another incremental move in our market position and our stronger relationships with customers, so I think that’s come out of COVID. A second thing is all the businesses, it was an all-hands-on-deck situation in March and April. Everybody looked at their cost structure, looked at their organizations, took decisive action to take some costs out, but also maintain the investment in engineering and customer-facing organizations. This is right after Jim Hooven, our VP of Ops started, so that really paved the way for Jim to get engaged in a very deep way with the businesses to focus on driving operational excellence. Internally, we think there’s an acceleration there. Now, maybe right in line with what you’re thinking, if you think of our scientific business, two opportunities are really being driven by COVID for scientific. One is there is an acceleration of investment to provide more standard flu season vaccines through pharmacies. We’re seeing those orders right now - I mean, that started in June and July, and the initial though was COVID vaccines would first be distributed through medical facilities - clinics, hospitals, etc., so they wanted to get that flu vaccine out in pharmacies, and there was a view that patients were not going to want to go into hospitals, into their clinics just because of the concern about picking up COVID, so we’re seeing a ramp there. The second opportunity obviously is the COVID vaccine, once approved, vaccines once they are approved will need to be distributed and stored, and these vaccines are stored at either just above freezing or below freezing in the kinds of cabinets we manufacture. We believe we’re well positioned for this opportunity - in fact, we just had a meeting with that management team yesterday and we authorized the ramp up and purchase of some inventory so that we can be ready as that opportunity comes. We’re talking with pharmacies, we’re talking with the distributors and the channels into those market, so we’re quite excited about that. It is a very dynamic and evolving situation, but clearly a new opportunity that’s come out of COVID.

Thanks, and then just last one, just one last question. We’re almost to the end of August. Obviously you gave guidance around, or at least some commentary around demand trends. I guess just thinking--you know, as you’ve seen throughout the last quarter and the one you’re in now, on a monthly basis, can you just talk maybe about the cadence you’ve seen? Has it continued to improve on most of those orders, maybe except outside of engineering?

Yes, as I said before, the trough was April and the business has been coming back since. May was stronger than April, June was stronger than May, July is stronger, August is stronger. We have weekly calls with our businesses and the sales leaders, and I’d say in general every week, things have gotten a little bit stronger, so we continue to see that momentum.

Great. Thanks very much for your time today, and good luck in Q1.

Thank you Chris.

As a reminder, if you have a question, please press star then one. Showing no further questions, this does conclude our question and answer session. I would like to turn the conference back over to David Dunbar for any closing remarks.

All right, I’d like to thank everyone today for their interest in Standex and allowing us the opportunity to discuss our fourth quarter results and progress. Again, I want to thank our employees and shareholders for their continued support. We’re confident in our ability to further execute and progress on our strategic priorities as we enter the new fiscal year, and we look forward to speaking with you again in the first quarter of fiscal ’21 in the fall. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.