Standex International : Download Presentation

STANDEXINTERNATIONAL

Baird 2020 Global Industrial Conference November 11, 2020

www.standex.com

Safe Harbor Statement

Statements contained in this presentation that are not based on historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as "should," "could," "may," "will," "expect," "believe," "estimate," "anticipate," "intends," "continue," or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company's business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include, but are not limited to: the impact of pandemics such as the current coronavirus on employees, our supply chain, and the demand for our products and services around the world; materially adverse or unanticipated legal judgments, fines, penalties or settlements; conditions in the financial and banking markets, including fluctuations in exchange rates and the inability to repatriate foreign cash; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, transportation, food service equipment, consumer appliance, energy, oil and gas and general industrial markets; lower- cost competition; the relative mix of products which impact margins and operating efficiencies in certain of our businesses; the impact of higher raw material and component costs, particularly steel, certain materials used in electronics parts, petroleum based products, and refrigeration components; an inability to realize the expected cost savings from restructuring activities including effective completion of plant consolidations, cost reduction efforts including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques; the potential for losses associated with the exit from or divestiture of businesses that are no longer strategic or no longer meet our growth and return expectations; the inability to achieve the savings expected from global sourcing of raw materials and diversification efforts in emerging markets; the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs; the inability to attain expected benefits from acquisitions and the inability to effectively consummate and integrate such acquisitions and achieve synergies envisioned by the Company; market acceptance of our products; our ability to design, introduce and sell new products and related product components; the ability to redesign certain of our products to continue meeting evolving regulatory requirements; the impact of delays initiated by our customers; and our ability to increase manufacturing production to meet demand; and potential changes to future pension funding requirements. 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.

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Key Messages

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Leading global industrial manufacturer in high value markets; providing clients with customized, differentiated solutions supported by deep technical and applications expertise

Building our higher-margin business segments into more significant platforms; established Scientific as a stand-alone segment and divested Refrigerated Solutions Group in fiscal 2020

Active funnel of cost savings and operational excellence initiatives strengthening market leadership and cost positions; on track to deliver over $7 million of savings in FY21

Significant financial flexibility supported by strong balance sheet and liquidity position; consistent free cash flow generation, continued cash repatriation and interest expense and tax savings initiatives

Disciplined and balanced capital allocation with healthy pipeline of organic and inorganic growth opportunities; >55 consecutive years of dividend payments

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Standex - at a glance

										GLOBAL LEADERSHIP
HISTORY	Founded 1955;IPO in 1964			2020 REVENUE1		2020 ADJ.		2020 ADJ.			POSITIONS
HEADQUARTERS	Salem,NH			$605M		EBITDA1		EBITDA MARGIN1		•	REED SWITCH
				$99M		16.4%			PRODUCTION
EMPLOYEES	~3,900									•	SURFACE
LOCATIONS	Locations in 28 Countries										TEXTURING
									SOLUTIONS
				MARKET CAP2		DIVIDEND YIELD2		NET DEBT		•	CNC SPIN
				$845M		1.4%		TO ADJ. EBITDA
								FORMING
								1.1x

			FY 20 Revenue Profile1
Segment			End Markets		Geography
	Scientific			Commercial Aviation			North America
			Food Service
	9%		Space & Defense
	Specialty		9%	9% 7%
31%
	Solutions			19%
		Life				Asia Pacific
	19%		11%7%			63%
Electronics			Sciences				18%16	68%
					24%General
	17%			22%	42%	Industry &
2624%	Engineering	Automotive		Consumer	14%
		38%		21%
Engraving%		Technologies					EMEA

1Pro forma for RSG divestiture. 2Based upon price on 11/6/20 and 12.4 million shares outstanding.

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Key Q1 FY21 Messages

Q1 FY21 RESULTS &TRENDS

POSITIONING FOR HIGHER GROWTH & MARGIN

IMPLEMENTING ADDITIONAL PRODUCTIVITY & FINANCE INITIATIVES

STRONG FINANCIAL POSITION

OUTLOOK

• Sequential revenue growth of 8.5%; strength in Electronics, Engraving, and Scientific
• Electronics increased revenue 18.6% YOY on strength in magnetics and contribution from Renco acquisition
• Engraving increased operating margin 800 basis points sequentially to 16.1% on cost and productivity actions
• Scientific reported its highest quarterly revenue ever of $16.7M
• Scientific - expect continued sequential growth through FY21 fueled by COVID-19 vaccine storage needs
• Electronics - new opportunity funnel of $56M will deliver incremental sales in variety of markets including industrial applications, electric vehicles, safety systems and military.
• Engraving - opportunities in tool finishing and soft trim tools in all regions
• Productivity actions on track to deliver over $7M of cost savings in FY21
• Tax initiatives expected to deliver cash savings of $2M-$3M in FY21 and approximately 500 bps reduction in tax rate YOY to 22% in FY21
• Expect to realize $1.5M in savings from previously announced floating to fixed rate interest swaps
• ~ $206M of available liquidity; 1.1x TTM net debt to adjusted EBITDA
• Consistent free cash flow generation; $4.4M in Q1 FY21
• Repatriated ~$8M from foreign subsidiaries in Q1 FY21; expect $35M in repatriation in FY21
• FY21 off to a solid start and expect continued growth and margin improvement through FY21
• Continue to strengthen financial flexibility with FCF generation, cash repatriation, and new tax initiatives
• In Q2 FY21, expect consolidated revenue to be flat to slightly above Q1 FY21 and a slight to moderate increase in segment operating margin

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Senior Management Team

David Dunbar

CEO, President and Chairmanof theBoard

Ademir Sarcevic

VP, CFO andTreasurer

Paul Burns

VP, Strategy and

BusinessDevelopment

Jim Hooven

VP,Operations

and

Supply Chain

Alan Glass

VP, Chief Legal Officer

and Secretary

Annemarie Bell

VP, Chief Human Resources Officer

• Joined Company in 2014;over 30 years experience in the industrial sector
• Previous roles include President of Pentair Valves & Controls and Emerson Process Management Europe
• Prior to Emerson Electric, served in numerous industrial automation and control business roles at Honeywell International
• BS and Masters in Electrical Engineering from Stanford University
• Joined as CFO in 2019
• Over 20 years senior financial experience in the industrial sector
• PreviouslyChief AccountingOfficer at Pentair plc and CFO at Pentair Valves and Controls segment
• BS from BridgeportUniversity and MBA from ThunderbirdSchool at Arizona State
• Joined Company in 2015; 20 years experience in strategic growth management
• Prior roles include Director, Corporate Development at General Motors and Tyco Flow Control; Senior Manager - McKinsey and Company
• BBA/BA Finance and History at The Universityof Texas at Austin and MBA from The Universityof Edinburgh
• Joined Company in 2020; over 20 years operational and management experience in the industrial sector
• Prior experience includes Danaher, Hillenbrand and Trane; Certified Six SigmaBlackbelt
• B.S. Johnson & Wales University and MBA from RiderUniversity
• Joined Company in 2016; +20 years in publicly-tradedglobal industrial manufacturing companies
• Previously led legal, complianceand risk management functions at CIRCOR International
• BA Cornell Universityand JD degree from Boston University
• Joined Standex in 2015;over 30 years experiencein human resourcesleadershipand talentmanagement
• Prior roles at Perkin Elmerand Parlex
• BA Merrimack College

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Segment Overview

ELECTRONICS		SCIENTIFIC	ENGINEERIING	SPECIALTY
ENGRAVING	TECHNOLOGIES	SOLUTIONS

					$144M						$114M
	2020 REVENUE		$185M	2020 REVENUE	2020 REVENUE	$57M	2020 REVENUE	$104M	2020 REVENUE
	2020 ADJ. OPERATING	16.1%	2020 ADJ. OPERATING	14.3%	2020 OPERATING	23.9%	2020 OPERATING	13.5%	2020 OPERATING	16.3%
	MARGIN1	MARGIN1	MARGIN	MARGIN	MARGIN

PRODUCTS

END MARKETS

• Reed switches	• Laser engraving
• Reed relays
• Chemical engraving
• Reed sensors
• Architexture design studio
• Fluid level sensors
• Tool enhancement
• Magnetics
• Tool finishing
• Planar transformersand
• Nickel shell molds
inductors

• Industrial	• Transportation
• Transportation	• Consumer
• Appliances	• Industrial

• Distribution
• Instrumentation & Meters
• Utility & Smart Grid

• Laboratory and medical grade refrigerators, freezers and accessories
• Cryogenic storage tanks and accessories
• Environmental stability chambers and incubators
• Medical
• Pharmaceutical
• Scientific
• Biotech
• Industrial

• Fuel tanks, tank domes,	• Single acting telescopics
combustion liners, nozzles,	• Double acting telescopic
and crewvehicle	• Wet line kitsand pumps
structures	• Custom singlepiston
• Seals, heat shields,and	rods
combustor element	• Merchandise displays
aerostructures	• Pump systems
• MRI scannervessel ends,
shields, and centrifuge
bowls
• Aviation	• Construction
• Space	• RefuseTrucks
• Defense	• Dump Trucks
• Medical	• Airline Service
• Energy/Oil & Gas	• Convenience stores and
	supermarkets
	• Carbonation/beverage

systems

• Hotels

1Adjusted operating margin excludes impact of Pro forma for Refrigerated SolutionsGroup divestiture.

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Customers by Segment

EngravingElectronics

Engineering	Scientific	Specialty
Technologies		Solutions

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Transforming Our Portfolio

Strengthening the Foundation

Executing on Strategic Priorities

FY21 and Beyond

Scaling Higher Margin Businesses

• Electronics New Business Opportunity Funnel of $56M; smart grid, electric vehicles, safety systems
• Created stand-alone Scientific segment; COVID-19 opportunity
• Enhancing Electronics and Engraving scale and leadership positions
• Divested Cooking and Refrigerated Solutions

Adding to Financial Strength

• Net debt to Adj. EBITDA of 1.1x; ~ $206M of liquidity
• Interest expense and tax savings initiatives
• Consistent FCF generation
• Expect to have repatriated ~$125M FY19-FY21

Executing on Productivity Initiatives

• $7M in savings from productivity actions in FY21
• Significant funnel of operational excellence initiatives
• Addressing Electronics materials inflation; changes in reed switch production and material substitution

• Further transform portfolio and extend competitive advantages to drive profitable growth
• Drive growth laneways and NBO funnel
• Leverage Standex Value Creation System; deepen continuous improvement culture
• Maintain disciplined and balanced capital allocation approach

• More focused industrial company with significant runway for higher growth and profitability
• Pipeline of new products and new applications in core markets supported by growth laneways and acquisitions
• Financial flexibility for attractive return internal projects and inorganic growth opportunities

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Strengths & Competitive Advantages

Market LeadershipWith

Recognized Brands

Deep Technical and Applications Expertise

Strong Customer Value

Proposition

Standex Value Creation

System

Manufacturing Know-How

Engineer to Engineer sales process focused on knowledgeand performance

• Electronics - design expertise for mission critical applications high reliability magnetics and magnetic sensing
• Engraving - design capabilities;process know how and deployedadvancedtechnologies
• Scientific- deep knowledge of life science refrigeration regulatory compliance
• Compete through "Customer intimacy": Partner-Solve-Deliver
• Global Engraving presence
• Advanced spin forming capability reduces input material and processing time

Comprehensivesystem to improve the predictabilityand consistency of performance

• BPP Management Process
• Growth Disciplines
• OperationalExcellence
• TalentManagement
• Industry leading soft trim tool production
• Unmatched reed switch quality and yield
• Spin forming single piece domesand lipskins forspaceandaviation applications

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Embedded With Our Customers

Next Gen Space Vehicles/Missiles

Customer Led Innovation

New Land Rover Defender

AftermarketService Initiative

GDP+ Growth Process

Electronics

• Traditional reed switch technology could not solve a level measurement application
• Collaborated with customer to develop a new capacitive level sensor, applying technology from high- performance race cars
• Successful development led to other new applications opportunities with the same customer

Engraving

• Unique global presence/supply chain
• Architexture design studio developed new textures
• Nickel shell soft trim tool
• Laser engraving and traditional etching
• Project managed execution in UK, Portugal, China, France, Germany, Bohemia and Italy

Engineering

Technologies

• Intensely collaborative co- development projects to support new platforms
• Standex proprietary spin forming process reduces material inputs and machining processes for fuel tank domes and nose cones

Specialty

Solutions

• Federal brand milk merchandiser
• Flexibility to merchandise wide assortment of products
• Reduces labor by not removing milk every night
• Innovative condenser cleaning alarm with Standex Electronics sensor

Scientific

• Only freezer in its class with controlled auto defrost
• Patent pending innovation from Standex Scientific; product of our Growth Discipline Processes
• Ideal for storage of frozen vaccines

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Standex Value Creation System

Our approach to building a high performance industrial company

Standex

Fiscal 2021

BPP Management				Growth			Operational			Talent
	Process				Disciplines			Excellence			Management
•	Target			•	Cost	Customer	•	Standard work		•	Succession
	setting				effectively	•	Value			planning
•	Goal				pursue			stream		•	360 Reviews
	alignment				growth oppt's			mapping		•	Performance
•	Regular			•	Market maps		•	Kaizen events			monitoring
	management			•	Market tests		•	Safety			and review
	review			•	Laneways		•	Productivity		•	Compensation
	cadence			•	Acquisition			improvements			plans
					targets		•	Cost reductions		•	Leadership
							•	Restructuring			training

Strategy: Build Strategic Platforms

Values: Integrity Innovation Accountability Teamwork

Vision

Value

Creation

System

Business Strategy

Culture

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Q1 FY21 Capitalization

Favorable Liquidity Profile

• Net debt to adj. EBITDA of 1.1x
• Net debt to total capital of 18.2%
• ~9.9x interest coverage ratio
• ~$206M of available liquidity

Capital Spending

• $4.8M of CAPEX in Q1 FY21 compared to $6.7M in Q1 FY20
• CAPEX between $25M - $28M in FY21
• Expect depreciation of $20M - $22M in FY21
• Amortization expected to be $12M - $13M in FY21

				Q1 FY21				Q4 FY20
	(in $M)		9/30/2020				6/30/2020
	Debt (with-issuance costs)	199.9				199.1
	Cash		93.7				118.8
	Net Debt	106.2				80.3
	Net Debt to Capital Ratio	18.2%				14.8%
	Funded Debt to Capital	29.6%				30.1%
	Leverage Ratio per Bank	1.45		x	1.47		x
	Credit Agreement
	TTM Adjusted EBITDA as Reported	98.1				98.9
	Adjusted EBITDA to Net Debt		1.08		x	0.81		x

• Net debt to capital at 18.2% vs 14.8% in Q4 FY20
• Repatriated $8M in Q1 FY21 and expect to repatriate ~$35M in FY21
• Q1 FY21 capital spending focused on maintenance, safety & highest priority growth activities

Strong Balance Sheet With Significant Liquidity

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Disciplined Capital Allocation Process

Standex cash prioritization

Goal: Stay investment grade

1.5x to 3.0xleverage

1. Maintenance Capital
2. Growth Capital: IRR ≥ 15%
3. Pay down debt if highly levered
   4:Acquisitions: IRR ≥ 15%

1. Return cash to shareholders in the form of increased dividend or share buyback

Disciplined use of Capital as all decisions pass through a "returns filter"

Targeting High Return Opportunities Including Growth Laneways and Acquisitions

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Focused Acquisition Approach

Complementary	FINANCIAL
products, services or
markets	CRITERIA
Clearlydefined	✓ Revenue and Cost Synergies
synergies
	✓ Accretive to EPS in First FullYear
Strong cultural
and strategic fit	✓ Accretive to EBITDA margin
Disciplinedvaluation	✓
model	IRR ≥15%

Internally-led process

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Key Messages

1

2

3

4

5

Leading global industrial manufacturer in high value markets; providing clients with customized, differentiated solutions supported by deep technical and applications expertise

Building our higher-margin business segments into more significant platforms; established Scientific as a stand-alone segment and divested Refrigerated Solutions Group in fiscal 2020

Active funnel of cost savings and operational excellence initiatives strengthening market leadership and cost positions; on track to deliver over $7 million of savings in FY21

Significant financial flexibility supported by strong balance sheet and liquidity position; consistent free cash flow generation, continued cash repatriation and interest expense and tax savings initiatives

Disciplined and balanced capital allocation with healthy pipeline of organic and inorganic growth opportunities; >55 consecutive years of dividend payments

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APPENDIX

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Q1 FY21 Income Statement Summary

($ in M's)	Q1 FY21	Q1 FY20	YOY	Comments
Revenue	$151.3	$156.0	-3.0%	Decrease reflects economic impact of COVID-19
				Organic revenue: -8.2% YOY
				Acquisition-related impact :+3.8%
				F/X impact : +1.4%
Gross Margin	36.6%	37.3%	-70 bps
Adj. EBIT	$16.6	$17.7	-6.2%	Impact of COVID-19 on sales & material inflation, offset by cost &
Margin %	11.0%	11.3%	-30 bps	productivity actions
Adj. EBITDA	$24.8	$25.7	-3.3%
Margin %	16.4%	16.5%	-10 bps
Net, Interest Expense	$1.5	$2.1	-29.9%	Lower fixed interest rate due to swaps executed in FY20
				Lower tax rate due to implementation of new tax
Tax Rate %	22.0%	27.8%	-580 bps	strategies, including foreign tax credit optimization
Adj. Net Income	$11.8	$11.2	5.3%
Margin %	7.8%	7.2%	+60 bps
Adj. EPS	$0.96	$0.91	5.5%
Shares Outstanding	12.3	12.4	-1.0%	87,000 shares repurchased in Q1 FY21

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Q1 FY21 Free Cash Flow

		Q1			Q1
AS REPORTED ($M)		FY 21			FY 20
Net cash provided by operating activities, as
reported	$	9.2	$	9.4
Less: Capital Expenditures		(4.8)			(6.7)
Free operating cash flow	$	4.4	$	2.8

• Year-over-yearFCF primarily a result of lower cash outlays for capital expenditures
• Investments were focused on maintenance, safety and highest priority growth initiatives

Consistent Free Cash Flow Generation

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Q1 FY21 GAAP to Non-GAAP Income Bridge

				Q1 FY21								Q1 FY20
		Pre-tax				Net					Pre-tax				Net
		Income		Tax		Income		EPS			Income		Tax		Income		EPS
Reported - GAAP	$	13.0	$	(2.7)	$	10.3	$	0.84		$	14.7	$	(4.1)	$	10.6	$	0.85
Add:
Restructuring Charges		1.5		(0.3)		1.2		0.10			1.5		(0.2)		1.3		0.11
Purchase Accounting		0.6		(0.1)		0.5		0.04			-		-		-		-
Acquisition-related costs		0.0		(0.0)		0.0		-			0.7		(0.1)		0.6		0.05
Less:
Discrete Tax Items		-		(0.2)		(0.2)		(0.02)			-		-		-		-
Life Insurance Benefit		-		-		-		-			(1.3)		-		(1.3)		(0.10)
Adjusted
$	15.1	$	(3.3)	$	11.8	$	0.96		$	15.6	$	(4.3)	$	11.2	$	0.91
Diluted Shares
							12,281									12,403

GAAP 1st Quarter Net Income $10.3M versus Prior Year at $10.6

Non-GAAP Net Income $11.8M versus Prior Year at $11.2M

GAAP EPS decreased 1.2%; Non-GAAP EPS grew 5.5%

Note : Some totals will not foot due to rounding

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