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Standex Reports First-Quarter Fiscal 2015 Financial Results

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Standex International Corporation (NYSE:SXI) today reported financial results for the first quarter of fiscal year 2015.

First Quarter Fiscal 2015 Results from Continuing Operations

  • Net sales increased 13.4% to $202.0 million from $178.1 million in the first quarter of fiscal 2014. Organic sales increased 9.8%, acquisition growth accounted for 3.5% of the increase and foreign exchange was flat year over year
  • Income from operations was $21.2 million, compared with $17.1 million in the first quarter of fiscal 2014. Operating income for the first quarter of fiscal 2015 included, pre-tax, $0.9 million of restructuring charges and $0.8 million of non-cash purchase accounting expenses. The first quarter of fiscal 2014 included, pre-tax $3.8 million of restructuring charges and $0.1 million of non-recurring management transition expenses. Excluding these items from both periods, the Company reported non-GAAP first-quarter fiscal 2015 operating income of $22.9 million, compared with $21.0 million in the year-earlier quarter.
  • Net income from continuing operations was $14.9 million, or $1.16 per diluted share, including, after tax, $0.6 million of restructuring charges and $0.6 million of non-cash purchase accounting expenses. This compares with first quarter fiscal 2014 net income from continuing operations of $12.3 million, or $0.97 per diluted share, including, after tax, $2.7 million of restructuring charges, $0.1 million of non-recurring management transition expense, and $0.2 million of non-recurring tax expenses. Excluding the aforementioned items from both periods, non-GAAP net income from continuing operations was $16.1 million, or $1.25 per diluted share, compared with $15.4 million, or $1.20 per diluted share, in the first quarter of fiscal 2014.
  • EBITDA (earnings before interest, income taxes, depreciation and amortization) was $25.5 million, compared with $21.2 million in the first quarter of fiscal 2014. Excluding the previously mentioned items from both periods. Adjusted EBITDA for the first quarter of fiscal 2015 was $27.2 million, compared with $25.1 million in the year-earlier quarter.
  • Net working capital (defined as accounts receivable plus inventories less accounts payable) was $155.0 million at the end of the first quarter of fiscal 2015, compared with $129.4 million a year earlier. Working capital turns were 5.3 for the first quarter of fiscal 2015. Adjusting for the impact of the Enginetics acquisition, working capital turns were 5.5, which is equal to the year-earlier quarter.
  • The Company closed the quarter with net debt of $53.1 million, versus net cash of $4.0 million at the end of the first quarter 2014 and $29.2 million at June 30, 2014. The increase in net debt was primarily due to the acquisition of Enginetics during the quarter.

A reconciliation of net income, earnings per share and net income from continuing operations from reported GAAP amounts to non-GAAP amounts is included later in this release.

Management Comments

“Standex is off to a strong start in fiscal 2015,” said David Dunbar, Standex President and CEO. “Three of our five segments reported double-digit growth in the first quarter and non-GAAP operating income was up 8.9% from the first quarter last year.”

Segment Review

Food Service Equipment Group sales increased 13.9% year-over-year, and operating income was down 2.5%. Excluding the impact of non-cash purchase accounting expenses related to the Ultrafyer acquisition, operating income increased 1.3% year over year.

“The food service equipment group had good growth for the quarter with organic sales growth of 10.1%, acquisition accounted for 3.7% and foreign exchange was 0.1%,” Dunbar said. “In refrigeration, this was a strong quarter for sales in both the dollar store and chain store segments. We also saw good growth in our specialty cabinet business with the beverage industry. Sales in specialty solutions were up, year-over-year, in large part due to our roll-out of a new line of open air merchandiser products. Sales in the cooking solutions group were down slightly due to the slow ramp-up of Nogales production related to the Cheyenne consolidation. The lower operating leverage at the segment level was the result of inefficiencies in Nogales. Shipments out of the plant are steadily improving as we begin the second quarter, and we are making good progress in improving the plant’s operations. We continue to expect the Cheyenne, Wyoming to Nogales facilities consolidation to generate its targeted cost savings in fiscal 2015.1

Engraving Group sales increased 12.2% year-over-year, while operating income grew 45.4%.

“The Engraving Group posted its third consecutive quarter of record sales and profitability in the first quarter, driven by strong worldwide demand in our Mold-Tech business,” said Dunbar. “We opened Mold-Tech’s fifth manufacturing facility in China during the first quarter, while also making good progress toward opening two new sites in Eastern European and Asian emerging markets. We are continuing to leverage the worldwide presence provided by our 29 Mold-Tech sites around the world, which enables us to stay close to our customers as their markets and businesses evolve geographically. The design hub we recently opened in Manchester, England is proving to be a differentiating concept in our business. Manchester did projects for several additional major OEMs during the first quarter, providing their design teams with rapid prototyping of their future automotive interior textures. We are working to replicate our success in Manchester by opening a new design hub later this year in Detroit to service North American OEMs.1

Engineering Technologies Group sales grew 16.5% year-over-year, and operating income increased 6.6%.

Sales grew organically 1.5%, acquisition growth accounted for 13.3% and foreign exchange accounted for 1.7%. “We are working to capitalize on new opportunities in aviation, in part driven by Enginetics,” said Dunbar. “Our acquisition integration plan is on track, and we are involved in some exciting sales pursuits. Our lower sales leverage during the quarter primarily reflected unfavorable mix due to higher levels of low-margin product development work in space and aviation, and slower sales into oil and gas.”

Electronics Products Group sales were up 4.7% year-over-year, while operating income increased 7.9%.

“Electronics Products Group sales experienced strong growth in North America, modest growth in Europe and largely flat sales in Asia during the first quarter,” said Dunbar. “Our growth in this segment continues to be driven primarily by increased demand for reed based sensors in the automotive and appliance sectors. The recent acquisition of Planar Quality Corporation is reinforcing this positioning with capabilities in the specialized and growing area of compact, high-current, high-density transformers. The Electronics group continues to execute its long-term strategy of moving up the value chain from being a component supplier to offering more advanced and comprehensive solutions, and Planar Quality is just the latest example. We also made operational progress in Electronics during the quarter by completing the move to our new facility in Mexico.”

The Hydraulics Products Group reported a 35.0% year-over-year sales increase, while operating income rose 46.7%.

“This was another strong quarter for the Hydraulics Group,” Dunbar said. “In addition to the continued growth in solid waste and refuse market demand for the products we have recently introduced for those applications, the recovery in our traditional North American dump truck and dump trailer markets is continuing to result in growing product demand for those applications as well. As more and more of our total Hydraulics shipment volume comes from our new Tianjin China facility, we are not only strengthening our competitive position, but also continuing to improve our margins. The ability to deliver rod cylinders out of both Tianjin and our plant in Ohio significantly reduces time-to-market for our customers, and the lower operating costs in Tianjin are expected to continue to improve our overall sales leverage as that plant ramps up.1

Business Outlook

“Although it’s still early in the year, fiscal 2015 is expected to be a strong year for Standex.1 We delivered double-digit, top-line growth in the first quarter, while continuing to improve the Company’s overall operating performance. Incoming orders are strong, and backlogs are up from a year ago in all businesses. Conditions in the majority of our end markets remain favorable, and we are making good progress on strategic growth initiatives in each of our businesses. Our recent acquisitions are performing well, and our balance sheet provides us with the flexibility to pursue opportunities for driving organic and acquisition-driven growth and delivering greater shareholder value,” concluded Dunbar.

Conference Call Details

Standex will host a conference call for investors today, October 31, 2014 at 10:00 a.m. ET. On the call, David Dunbar, President and CEO, and Thomas DeByle, CFO, will review the Company’s financial results and business and operating highlights. Investors interested in listening to the webcast should log on to the “Investor Relations” section of Standex’s website, located at www.standex.com. The Company’s slide show accompanying the webcast audio also can be accessed via its website. To listen to the playback, please dial (800) 585-8367 in the U.S. or (404) 537-3406 internationally; the passcode is 13922571. The replay also can be accessed in the “Investor Relations” section of the Company’s website, located at www.standex.com.

Use of Non-GAAP Financial Measures

EBITDA, which is “Earnings Before Interest, Taxes, Depreciation and Amortization,” non-GAAP income from operations, non-GAAP net income from continuing operations and free cash flow are non-GAAP financial measures and 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. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.

About Standex

Standex International Corporation is a multi-industry manufacturer in five broad business segments: Food Service Equipment Group, Engineering Technologies Group, Engraving Group, Electronics Products Group, and Hydraulics Products Group with operations in the United States, Europe, Canada, Australia, Singapore, Mexico, Brazil, Argentina, Turkey, South Africa, India and China. For additional information, visit the Company’s website at http://standex.com/.

1 Safe Harbor Language
Statements in this news release include, or may be based upon, management’s current expectations, estimates and/or projections about Standex’s markets and industries. These statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may materially differ from those indicated by such forward-looking statements as a result of certain risks, uncertainties and assumptions that are difficult to predict. Among the factors that could cause actual results to differ are the impact of implementation of government regulations and programs affecting our businesses, unforeseen legal judgments, fines or settlements, uncertainty in conditions in the financial and banking markets, general domestic and international economy including more specifically increases in raw material costs, the ability to substitute less expensive alternative raw materials, the heavy construction vehicle market, the ability to continue to successfully implement productivity improvements, increase market share, access new markets, introduce new products, enhance our presence in strategic channels, the successful expansion and automation of manufacturing capabilities and diversification efforts in emerging markets, the ability to continue to achieve cost savings through lean manufacturing, cost reduction activities, and low cost sourcing, effective completion of plant consolidations, successful completion and integration of acquisitions and the other factors discussed in the Annual Report of Standex on Form 10-K for the fiscal year ending June 30, 2014, which is on file with the Securities and Exchange Commission, and any subsequent periodic reports filed by the Company with the Securities and Exchange Commission. In addition, any forward-looking statements represent management’s estimates only as of the day made and should not be relied upon as representing management’s estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management’s estimates change.

Standex International Corporation
Consolidated Statement of Operations
Three Months Ended
September 30,
(In thousands) 2014 2013
Net sales $ 202,027 $ 178,140
Cost of sales 135,915 117,735
Gross profit 66,112 60,405
Selling, general and administrative expenses 43,954 39,535
Restructuring costs 862 3,806
Other operating (income) expense, net 59
Income from operations 21,237 17,064
Interest expense 643 560
Other (income) expense, net (265 ) (454 )
Total 378 106
Income from continuing operations before income taxes 20,859 16,958
Provision for income taxes 5,932 4,610
Net income from continuing operations 14,927 12,348
Income (loss) from discontinued operations, net of tax (375 ) (3,266 )
Net income $ 14,552 $ 9,082
Basic earnings per share:
Income from continuing operations $ 1.18 $ 0.98
Income (loss) from discontinued operations (0.03 ) (0.26 )
Total $ 1.15 $ 0.72
Diluted earnings per share:
Income from continuing operations $ 1.16 $ 0.97
Income (loss) from discontinued operations (0.03 ) (0.26 )
Total $ 1.13 $ 0.71
Standex International Corporation
Condensed Consolidated Balance Sheets
September 30, June 30,
(In thousands) 2014 2014
ASSETS
Current assets:
Cash and cash equivalents $ 71,983 $ 74,260
Accounts receivable, net 114,458 107,674
Inventories 111,491 97,065
Prepaid expenses and other current assets 7,592 7,034
Income taxes receivable 922
Deferred tax asset 13,072 12,981
Total current assets 318,596 299,936
Property, plant, equipment, net 108,991 96,697
Intangible assets, net 40,789 31,490
Goodwill 156,278 125,965
Deferred tax asset 910 878
Other non-current assets 24,983 23,194
Total non-current assets 331,951 278,224
Total assets $ 650,547 $ 578,160
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 70,998 $ 85,206
Accrued liabilities 47,508 51,038
Income taxes payable 7,766 4,926
Total current liabilities 126,272 141,170
Long-term debt 125,049 45,056
Accrued pension and other non-current liabilities 56,255 51,208
Total non-current liabilities 181,304 96,264
Stockholders’ equity:
Common stock 41,976 41,976
Additional paid-in capital 44,620 43,388
Retained earnings 597,285 584,014
Accumulated other comprehensive loss (63,320 ) (55,819 )
Treasury shares (277,590 ) (272,833 )
Total stockholders’ equity 342,971 340,726
Total liabilities and stockholders’ equity $ 650,547 $ 578,160
Standex International Corporation and Subsidiaries
Statements of Consolidated Cash Flows
Three Months Ended
September 30,
(In thousands) 2014 2013
Cash Flows from Operating Activities
Net income $ 14,552 $ 9,082
Income (loss) from discontinued operations (375 ) (3,266 )
Income from continuing operations 14,927 12,348
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,011 3,689
Stock-based compensation 1,045 849
Non-cash portion of restructuring charge (249 ) 3,294
Contributions to defined benefit plans (323 ) (358 )
Net changes in operating assets and liabilities (30,370 ) (18,528 )
Net cash provided by operating activities – continuing operations (10,959 ) 1,294
Net cash provided by (used in) operating activities – discontinued operations 117 (351 )
Net cash provided by (used in) operating activities (10,842 ) 943
Cash Flows from Investing Activities
Expenditures for property, plant and equipment (7,199 ) (3,730 )
Expenditures for acquisitions, net of cash acquired (57,149 )
Other investing activities 1,546 10
Net cash (used in) investing activities from continuing operations (62,802 ) (3,720 )
Net cash (used in )investing activities from discontinued operations (520 )
Net cash (used in) investing activities (62,802 ) (4,240 )
Cash Flows from Financing Activities
Proceeds from borrowings 88,600 17,700
Payments of debt (8,600 ) (17,700 )
Activity under share-based payment plans 551 72
Excess tax benefit from share-based payment activity 1,308 1,470
Cash dividends paid (1,264 ) (1,004 )
Purchase of treasury stock (6,427 ) (3,045 )
Net cash provided by (used in) financing activities 74,168 (2,507 )
Effect of exchange rate changes on cash (2,801 ) 795
Net changes in cash and cash equivalents (2,277 ) (5,009 )
Cash and cash equivalents at beginning of year 74,260 51,064
Cash and cash equivalents at end of period $ 71,983 $ 46,055
Standex International Corporation
Selected Segment Data
Three Months Ended
September 30,
(In thousands) 2014 2013

Net Sales

Food Service Equipment $ 113,833 $ 99,911
Engraving 28,088 25,027
Engineering Technologies 20,119 17,265
Electronics Products 29,470 28,144
Hydraulics Products 10,517 7,793
Total $ 202,027 $ 178,140

Income from operations

Food Service Equipment $ 11,673 $ 11,969
Engraving 6,943 4,773
Engineering Technologies 2,220 2,082
Electronics Products 5,546 5,138
Hydraulics Products 1,722 1,174
Restructuring (862 ) (3,806 )
Other operating income (expense), net (59 )
Corporate (5,946 ) (4,266 )
Total $ 21,237 $ 17,064
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended
September 30,
(In thousands, except percentages) 2014 2013

%
Change

Adjusted income from operations and
adjusted net income from continuing
operations:

Income from operations, as reported $ 21,237 $ 17,064 24.5 %
Adjustments:
Restructuring charges 862 3,806
Management Transition 136
Acquisition-related costs 785
Adjusted income from operations $ 22,884 $ 21,006 8.9 %
Interest and other income (expense), net (378 ) (106 )
Provision for income taxes (5,932 ) (4,610 )
Discrete tax items 155
Tax impact of above adjustments (468 ) (1,070 )

Net income from continuing operations,
as adjusted

$ 16,106 $ 15,375 4.8 %
EBITDA and Adjusted EBITDA:

Income from continuing operations
before income taxes, as reported

$ 20,859 $ 16,958
Add back:
Interest expense 643 560
Depreciation and amortization 4,011 3,689
EBITDA $ 25,513 $ 21,207 20.3 %
Adjustments:
Restructuring charges 862 3,806
Management Transition 136
Acquisition-related costs 785
Adjusted EBITDA $ 27,160 $ 25,149 8.0 %
Free operating cash flow:

Net cash provided by operating activities
- continuing operations, as reported

$ (10,959 ) $ 1,294
Less: Capital expenditures (7,199 ) (3,730 )
Free operating cash flow $ (18,158 ) $ (2,436 )
Net income from continuing operations 14,927 12,348
Conversion of free operating cash flow NM NM
Standex International Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended

Adjusted earnings per share from continuing
operations

September 30,
2014 2013 %
Change

Diluted earnings per share from
continuing operations, as reported

$ 1.16 $ 0.97 19.6 %
Adjustments:
Restructuring charges 0.05 0.21
Management Transition 0.01
Acquisition-related costs 0.04
Discrete tax items 0.01

Diluted earnings per share from
continuing operations, as adjusted

$ 1.25 $ 1.20 4.2 %

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