Good morning, and welcome to the Standex International Fiscal First Quarter 2023 Financial Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Chris Howe, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You could refer to Standex's most recent annual report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBIT, which is earnings before interest and taxes; adjusted EBIT, which is EBIT, excluding restructuring, purchase accounting, acquisition-related expenses and onetime items; EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, acquisition-related expenses and onetime items; EBITDA margin; and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. These non-GAAP financial measures are intended to serve as a complementary result provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic.

Thank you, Chris, and welcome to Standex. We're happy to have you join us. And good morning, everyone, and welcome to our first fiscal quarter 2023 conference call. We're very pleased with our first quarter performance, which built on a highly successful fiscal 2022. Our focus on fast growth markets, pricing disciplines and nimble execution by our global management teams positioned us to continue delivering strong earnings in a dynamic macroeconomic environment. We have an active pipeline of new business opportunities and productivity initiatives to continue our momentum. I want to thank our employees, our executives and the Board of Directors for their continued dedication and support. Now if everyone can turn to Slide 3, key messages. The continued effectiveness of our price and productivity actions improved our margin profile in the quarter and produced our sixth consecutive quarter of record adjusted operating margin. Consolidated adjusted operating margin of 15% in fiscal first quarter 2023 was a 160-basis point increase year-on-year and a 110-basis point improvement sequentially despite external challenges such as high inflation and foreign currency headwinds. Four of Standex five company business segments, each reported adjusted operating margin of at least 16% as we successfully executed company-wide productivity and price realization actions. We reported 7.3% organic revenue growth year-on-year as three of our five business segments exhibited organic revenue growth. Electric vehicles, renewable energy, commercial aviation and defense end markets remain strong while Scientific was impacted by lower demand for COVID vaccine storage. Revenue contribution from high-growth markets such as electric vehicles, green energy and the commercialization of space increased approximately 30% year-on-year to $17 million in fiscal first quarter 2023. We anticipate this revenue stream to grow by over 35% in FY '23. Our solar energy project with ENEL is progressing well and is now in the…

Thank you, David, and good morning, everyone. First, I will provide a few key takeaways from our first quarter 2023 results. Despite continued inflationary pressures and flow to drive organic growth and margin expansion. Our earnings strength reflects the successful implementation of our pricing actions and realization of our productivity initiatives. As a result, we achieved our sixth consecutive quarter of record consolidated adjusted operating margin. In addition, our end market demand trends remain healthy as we ended the first quarter with an overall book-to-bill ratio of slightly over 1. Now let's turn to Slide 9, first quarter 2023 summary. On a consolidated basis, total revenue increased 2.8% year-on-year to $180.6 million. This reflected organic revenue growth of 7.3% and 0.6% contribution from the Sensor Solutions acquisition partially offset by a 5.1% impact from foreign exchange. First quarter 2023 adjusted operating margin increased 160 basis points year-on-year to 15%, our highest in the history of the company, as our adjusted operating income grew approximately 15.7% on a 2.8% consolidated revenue increase year-on-year. Our first quarter 2020 tax rate decreased 140 basis points hear on year. Sequentially, we expect a similar tax rate in the fiscal second quarter of '23 with a full year tax rate between 23% and 24%. Adjusted earnings per share were $1.60 in the first quarter of fiscal 2023 compared to $1.34 year ago, approximately 19% growth year-on-year. Net cash used in operating activities was $2.7 million in the first quarter of 2023 compared to net cash provided by operating activities of $13.1 million a year ago. This decrease reflected annual bonus payments, onetime legal settlement payment accrued in the prior period and impact of supply chain inefficiencies. In addition, capital expenditures were $5.3 million compared to $5 million a year ago. As a result, free cash…

Thank you, Ademir. Please turn to Slide 12. Standex is well positioned to deliver sustainable, profitable growth as we have progressed from a portfolio company to an operating company comprised of a stronger mix of high-quality businesses with attractive growth rates and higher margin profiles. As such, we anticipate continued improvement across our financial metrics in fiscal year 2023. Our segments are favorably aligned with emerging and sustainable global trends in areas such as renewable energy, electric vehicles, defense, human health and the commercialization of the space. With much of these opportunities only in the early innings, we are excited about their evolution and potential for further contribution to our financial metrics. Our strong pricing disciplines and OpEx actions are offsetting the challenging inflation and supply chain environment. The financial flexibility from our strong balance sheet positions us to execute on an active pipeline of internal investments as well as to pursue an active funnel of inorganic candidates. I'm confident we are positioned to perform well in these uncertain market conditions. Our businesses are leaders in their markets, they have demonstrated an ability to adapt to dynamic market conditions and focus on attractive sales and margin opportunities. We will now open the line for questions.

[Operator Instructions] Our first question comes from Chris Moore from CJS Securities.

Yes, hi. Good morning. It's Pete Lucas for Chris. How should we think about the mix between volume and price for your '23 revenue growth?

If you think about Q1, I think the bits and pieces are in there. You've got about -- it's about half and half, volume and price. And then you net of FX.

Yes. So this is Ademir. Maybe I can just expand on that. Historically, you ran about 2/3 volume, 1/3 price. Q1, we were about 50-50 price and volume and we're thinking for the remainder of the year will be somewhere in that range between 50-50 and 2/3, 1/3 as we move forward to the rest of the fiscal year.

Very helpful. And then just looking at the segments, where do you see the biggest opportunity going forward? And then on the flip side, which do you think will be most impacted by the current rising weak environment?

Well, the biggest opportunity is the businesses that have grown the best in the last few years, they're serving very strong end markets. Electronics has got a lot of momentum in electric vehicles and renewables. Engineering Technology is commercialization of space continues to ramp up. Their military and defense business are strong. Good runway there. Those most affected by -- I don't know if it's so much the high-rate environment, but current economy. We have a couple of product lines out of Electronics that go into like residential products. We're seeing a little softness there. So for example, we sell switches and sensors that go into appliances. So we expect a little softness there. That's about 15%.

It's 10% to 12%, Electronics sales.

Electronics. And some of the -- the food equipment businesses that are in Specialty, we expect them to be sorted. But the others are all serving markets that we think are relatively unaffected.

Yes. And if I can just add to that. One thing we are really, really excited about is in what we call fast growth markets, which was 30% year-on-year in Q1, and we continue to see strength in those end markets, and we expect that to get even as we progress to the rest of the fiscal year.

The next question is from Nicholas Heymann from William Blair.

Hi, good morning. I really thought that -- the first quarter, you came out pretty well given everything that's going on. But I was curious, first on Electronics. I believe there was a $6 million of deferred revenue in Electronics in China in the last quarter. And I was curious how much you realized of that $6 million. And then secondly, how you see China evolving here as a market, given all the ongoing pandemic lockdowns, which I guess, hopefully, are going to end soon?

Yes. So first of all, you're right about it, you've good memory. The $6 million was what was held over from the lockdowns of Shanghai in our Q4. About $4 million of that shipped in the quarter. In terms of where China is going, I guess, your guess is good as mine. Our China orders continue to be strong, although we see some softness in -- of appliances in China.

Yes. And Nick, the only thing I would add to that, if you kind of look at sequentially the sales bridge between Q4 and Q1, we had about $3 million to $4 million worth of unfavorable FX headwinds on the top line. And a lot of that is actually in the Electronics and Engraving, actually all of it in Electronics and Engraving businesses, so that would have impacted some of that sequential [Inaudible].

Okay. That's helpful. You mentioned in somewhere your intentions to expand Engraving into Asia. Can you help size that market relative to the U.S. and Europe and where you think your penetration rates can evolve over time? And how big an opportunity is this? Is this...

Yes. So yes, I can handle that. So globally, our Engraving business is about 1/3 in America, Europe and Asia in our traditional businesses. Where we see the growth opportunities in soft trim in Asia. And you may recall a few years ago, we acquired this GS Engineering in the U.S. and they have a particular technology for a kind of soft trim. And that type of software is very popular and growing rapidly in China. So we're in the process of doing a technology transfer, taking that competitive advantage to our China business. We think in the next few years, we can grow that from -- it's -- well, a year ago, it was nothing. We think we can grow that to close to $10 million in the coming years.

Okay. That's good to know. In Engineering Technologies, I'll see if I can ask 1 more, can you provide more insight the project timing for the rest of the year for this business. And give us some idea as to whether or not that's just a step-up as we go through the rest of '23? Or that's something that you can visibly see extending beyond '23?

Nick, it's Ademir. I'll handle this one. Q1 of this fiscal year from a project timing standpoint is a low quarter for the Engineering Technologies business. So we expect -- as we the second quarter now that we'll see a significant ramp in sales -- moderate to significant ramp in sales as well as operating margin. And we have no reason to believe that, that type of performance would not continue through the second half of this fiscal year and then into '24. I mean I think you know the end markets for this business are pretty healthy from space, defense, commercial aviation. So we're pretty optimistic what ETG business can do over the next 12 to 18 months.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to David Dunbar for any closing remarks.

All right. I want to thank everybody for joining us for the call. We enjoy reporting on our progress at Standex. And finally, again, I want to thank our employees and shareholders for your continued support and contributions. We look forward to speaking with you again in our fiscal second quarter call.

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