Standex International First Quarter 2027 Financial Results - STANDEX INTERNATIONAL CORP

Good morning, ladies and gentlemen, and welcome to the Scandex International First Quarter 2027 Financial Results Conference Call. At this time, I'll enter in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time you need to call or require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, October 30th, 2026. I would like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead, sir. 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 two. 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 EBITTA, EBITDAR Margin, and Adjusted EBITDR Margin. We will also refer to other non-GAAP measures, including Adjusted Net Income, Adjusted Operating Income Adjusted Met Income from Continuing Operations, Adjusting Earning Per Share, Adjustated Operating Margin Free Operating Cash Flow, and Pro Forma Net Debt to EBITDO 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, Admir Sarsavik. Thank you, Chris. Good morning, and welcome to our fiscal first quarter 2027 conference call. Our years-long strategy to reposition the company to serve attractive end markets and to invest effectively in new product development continues to gain momentum and deliver top-line growth. In the fiscal first quarter, we delivered record sales of approximately $233 million, driven by double-digit organic growth. This represents the fifth consecutive quarter of year-on-year organic growth, The electronic segment led the way with organic growth of nearly 30%. Corporate-wide new product sales continued to ramp and grew 56%, while sales into fast growth markets grew 25%. Our overall order book continues to grow in the fiscal first quarter with record order intake at $273 million and a books-to-bill of 1.17. This gives us confidence to raise our sales outlook for fiscal year 2027. We now expect total sales to grow high single digits in fiscal 2027, up from our prior outlook calling for mid- to high single-digits growth. We expect organic sales to increase by more than $100 million and adjusted earnings per share to grow in the high teens. As we put this quarter's results and the raised outlook into further context, we continue to expect to be on track to reach greater than $1.1 billion in total sales and 23% adjusted operating margin by the end of fiscal year 2028. 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 fiscal first quarter results. Prior to transitioning into more details about the quarter, I would like to highlight a couple of organizational announcements. First, I want to take a moment to welcome Colby Slaughter as our new Chief Legal Officer and look forward to his contributions in the next leg of our journey. Earlier this month, we announced the appointment of Samantha Stoddard as our next chief financial officer beginning on December 1st. Samantha's experience as a public company CFO and a hands-on operating executive makes her an excellent fit for our needs as we continue to grow and scale efficiently. I'm also excited to share that Colby and Samantha fit well in our culture, and we expect them each to make significant contributions to Standex's future growth. I also want to extend a special thanks to Adam Yarsarcevic for his contributions as CFO. It has been a great pleasure to work closely with him to shape Standex into the company we are today, and I am pleased to see him diving into his new role as President of Electronics with his usual gusto. Adamant will work closely with Samantha over the next month to ensure a seamless transition. Now, let's look at the results our strategy is delivering, beginning on slide three. In the first quarter, sales of $232.6 million increased 12.4% organically. Electronics grew 29.5% organically, new product sales grew approximately 56% to approximately $17.4 million. Sales into fast growth markets grew approximately 25% to $77.8 million. We had a record quarterly order intake of approximately $273 million. We are pleased with the momentum in the business reflected in this overall book-to-bill ratio of 1.17. Adjusted gross margin of 44.4% was up 240 basis points year-on-year. Adjusting operating margin of 20.2% was up 110 basis points year-in-year, with margin expansion across each of our segments. Adjustable earnings per share of $2.41 was up 21.1% year-on-year. In fiscal second quarter 2027, we expect moderately higher revenue and adjusted operating margin and slightly higher revenue and similar adjusted operating margin on sequential basis. For fiscal year 2027 we are raising our sales outlook. We expect organic sales to increase greater than 100 million dollars and total sales to grow high single digits from mid to high single digits previously. We expect high teams growth and adjusted earnings per share. I continue to be pleased with the momentum that we are building in launching new products. We still expect to launch more than 20 new products in fiscal 2027. We now expect new product sales pro forma for the federal divestiture to grow by $27 million to $94 million, adding more than 300 basis points of organic growth in the year. Our sales into the fast growing markets such as defense, space, and grid are now expected to increase more than 20% to greater than $315 million, constituting more than 30% of our total sales. In conjunction with results, we announced a new $100 million share repurchase authorization effective October 27th. On this next slide, I would like to take a moment to highlight the specific areas driving growth this fiscal year. Let's turn to slide four. The methodical implementation of our strategy is showing itself in the independent drivers of growth, each now contributing meaningfully. It's no surprise that the increasing power demand of data centers is our most significant single growth driver. It is behind about 30% of our expected growth in fiscal year 2027. The grid business is also experiencing growth stemming from general increases in grid capacity to support economic growth and increased electrification. Increased investments in defense programs support growth in our A&D business and electronics edge business. We also highlight here the incremental growth of new products that are not sold into these end markets, reflecting share gain for our core businesses. Finally, a general recovery in industrial markets is lifting sales across electronics and scientific. This is a balanced set of drivers, and about 70% of our growth in 2027 will come from sources other than data centers. In summary, we have multiple independent drivers of our grow-up that have long runways ahead of them. Now, I would like to turn the call over to Ademir to discuss our financial performance in greater detail. Thank you, David, and good morning, everyone. Let's turn to slide five, first quarter 2027 summary. On a consolidated basis, total revenue increased approximately 7% year-on-year to $232.6 million. This reflected organic growth of 12.4%, partially offset by 4.4% impact from federal industries divestiture and 1% impact on foreign currency. First quarter of 2027, adjusted operating margin increased 110 basis points year-on-year to 20.2%. Adjusted earnings per share increased 21.1% year-in-year to $2.41. Net cash provided by operating activities was $15.7 million in the first quarter of fiscal 2027 compared to $16.8 million a year ago. Capital expenditures were $6.6 million compared to $6,400,000 a year ago. As a result, we generated fiscal first quarter free cash flow of $9,100,000 compared to $10,400 million a year before. Now, please turn to slide six, and I will begin to discuss our segment performance and outlook, beginning with our engineered component segments. Electronics revenue increased 27.1% year-on-year to a record $140.5 million, driven by organic growth of 29.5%, partially offset by 2.4% impact from foreign currency. Organic growth was driven by sales into fast-growth markets, strong general industrial markets, and increased new product sales. Our book-to-bill in fiscal first quarter was 1.23, with record orders of approximately $173 million. Adjusted operating margin of 29.4% in fiscal second quarter 2027 increased 60 basis points year-on-year due to higher volume and pricing initiatives partially offset by growth investments and higher variable compensation expenses. Sequentially, in fiscal second quarter 2027, we expect slightly higher revenue and similar adjusted operating margin. On a year-on-year basis, we expected significantly higher revenue driven by double-digit organic growth and slightly higher adjusted operating margins. Additionally, this marks my first full quarter as the president of electronic segment. I am very pleased with the results and the strong start of fiscal year 2027. We achieved several records in the quarter, record organic growth of almost 30 percent, record bookings, and record gross margin. At the same time, we continue to invest in R&D, new products, and key growth initiatives. We remain on track to significantly expand global capacity in our grid business, a key project we highlighted in our last quarterly earnings call. the past few months, I also had an opportunity to visit sites across the globe and attend various customer meetings. Two things became even clearer. First, we have strong leaders in our businesses, dedicated talent in an accountable group of employees that work very well as a team. And secondly, customers truly value our custom products and solutions and look at us as partners, not just as suppliers. In summary, we had multiple ways to win. From serving the rising global energy demand related to data centers and AI, grid modernization, and the overall electrification of the world, to providing mission-critical components supporting the needs and requirements of the U.S. defense and market, all supported by an active new product panel to capture additional market share. I remain very optimistic about the future outlook of this segment. Moving to aerospace and defense, revenue increased 5.1% to $31.4 million, driven by project activity in the space and defense and markets, partially offset by project timing. Adjusted operating margin of 19.9% increased 310 basis points year-on-year, primarily due to higher volume and project mix. Sequentially, we expect significantly higher revenue and slightly higher adjusted operating margin. On a year-on-year basis, we expect double-digit organic growth. Now, turn to slide 7 for a discussion of the scientific and engraving and hydraulic segments. Scientific revenue increased 1.8% to $19.8 million due to pricing initiatives and a slight market recovery. Adjusted operating margin of 29.5% increased 420 basis points year-one-year. Sequentially, we expect similar to slightly higher revenue and similar adjusted operating margin. Engraving and hydraulics revenue decreased 14.9% to $40.9 million, reflecting an organic decline of 15.7% from softness in the North American automotive market, partially offset by 0.7 percent benefit from foreign currency. Adjusted operating margin of 16.4% in fiscal first quarter 2027 increased 40 basis points year-on-year. In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and adjusted operating margin. Next, please turn to slide 8 for a summary of Standard Fiscal Liquidity statistics and capitalization structure. Our current available liquidity is approximately $168.5 million. At the end of the first quarter, Standex had net debt of $401.2 million compared to net debt of $446 million at the end fiscal first quarter 2026. Our net leverage ratio currently stands at two. In fiscal second quarter 2027, we expect interest expense of between $7 million to $7.5 Tandex's long-term debt at the end of fiscal first quarter 2027 was $518.1 million. Cash and cash equivalents totaled $116.8 million. We declared our 249 consecutive quarterly cash dividend of $0.36 per share, an approximately 5.9% increase year-on-year. In fiscal 2027, we still expect capital expenditures between $45 million and $55 million, primarily due to grid growth investments. Before I turn the call over to David for concluding remarks, as this is my last quarterly earnings call as the CFO of Standex, I would like to express my deepest gratitude to Standex's finance team for all their contributions over the past several years. We are only as good as the team around us, and I'm truly grateful for all the hard work and efforts of every individual. The finance team will be in good hands with Samantha, and I look forward to working closely with her in the transition as the president of electronics. I will now turn the call over to David for concluding remarks. Thank you, Ademir. Please turn to slide nine. To summarize, I'm very pleased to see the continued organic growth in the first quarter and the book-to-bill ratio of 1.17. Organic growth was driven by our electronics segment, which grew 29.5%. We will continue to align our organic and inorganic growth investments around secular markets and new products that expand our presence in engineer components and deepen our customer relationships. Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast-growth markets, and the delivery of custom solutions. In fiscal 2027, we now expect organic sales to increase by more than $100 million and total sales to grow high single digits from mid to high single digit previously. We expect high teens growth in adjusted earnings per share in fiscal 2026. We are on track to achieve greater than $1.1 billion in sales and greater than 23% adjusted operating margin by the end of fiscal year 2028. We will now open the line for questions. Thank you, sir. Ladies and gentlemen, we now begin the question and answer session. If you'd like to ask a question, please press star for number one on each of your keypads. If your question has been answered, you'd likely withdraw from the queue. Please press star followed by number two. And if you're using a speakerphone, please lift your hands up before pressing any keys. One moment, please, while we compile the roster. The first question comes from Chris Moore with TGS. Please go ahead. Hey, good morning, guys. Congrats on another really good quarter. Thanks for taking a couple. So maybe you addressed it on slide four. Maybe we could dig in a little deeper. Obviously, AI data center build out very beneficial to electronics grid in particular. It does feel like the stock has kind of moved maybe a little bit too much in concert with the AI wins. Can you talk a little further about, you know, how important data center AI growth is to grid that 30% of the growth that you're talking about this year, do you expect it to accelerate as a portion of overall growth moving forward or just, you know, kind of any thoughts in terms of if AI growth slows a little bit what that does to electronics overall. Yeah, thank you, Chris. I mean, this is, obviously, this is an important message. That's why we put the page in here. We have multiple growth levers. All of them really are now contributing meaningfully. And a lot of the questions we've had in the last quarter have been data centers, because everybody's excited about that growth, as are we. But to put it into context, of the 100 million plus we expect in organic growth this year, it's about 30% of that will come from data centers. And if you zoom in on grid, which is where your question was, our growth in grid will be 40-plus million. About three-quarters of that Will come from data centers, the other is just the increased demands of electricity from electrification, increasing living standards. and the way we get that number is we talk with our customers and if you just look at the public statements of large electrical equipment OEMs there are a lot of growth drivers in the electrical equipment business right now data centers is by far number one but there's still increased demand for electricity around the world that's driving an increase So I wouldn't actually expect this mix to change in the future. You know, we continue to see a long-term runway for growth in electrical equipment in general, and data centers right now is providing an additional surge. Awesome. Very helpful. You talked about, on the electronics side, your customers kind of viewing you guys more as partners than suppliers. Any discussion with any of the big guys in terms of, you know, kind of long-term supply agreements? Are they, you now, looking to kind of lock in availability? Is that part of any of these discussions at this point in time? Hey, good morning, Chris. It's Adam here. I'll take this one. Yes. I mean, the answer is clearly yes. You know, our customers, younow, have a pretty solid book of business. in the next three to five years, and they are looking at us truly as partners, somebody who can grow with them as they grow into their end market. So, you know, as we are talking to our customers, we are looking actually to signing three to four-year long-term agreements with some of our key customers. At the same time, on the grid side, we are reshuffling or rearranging a little bit the way we're going to run the commercial organization. You know, we're gonna run the grid more as a global grid business with key account managers assigned to each one of those global OEMs, and we truly believe there's a huge opportunity there for us to partner with them much more closely going forward and get these long-term agreements with many of them. So, yes, and they are very, very interested in actually making sure that we have a capacity to support their growth needs. Got it. Terrific. And maybe just the last one for me. You know, I think missiles were, on the A&D side, $9 million in 26, talking about teens in fiscal 27, and potentially $40 to $80 million over the next four years. I guess the question is, what has to happen to get close to that $80-million number? Yeah, the situation hasn't changed in that it is really a function of the annual procurement cycle, government budgeting cycle, working through the Department of Defense with the primes to then cascade orders down to us. We have seen increased activity, and recall that $9 million was really just a couple programs. It was the SAM-3, PRISM, and kind of the tail end of the ATTACOMS program. We had anticipated that to be $15 million this year. I think it will be closer to $20 million thisyear. We have had more order activity, and we think that $40 to $80 million is likely to be, you know, $50 to $90 in the coming years. and it's the same as we've communicated in the past. To get to that 90, we'll just require the primes to be able to make long-term commitments to replenish those stockpiles. But we've had several meetings with them reviewing multiple scenarios to increase our capacity and we're ready to go. But we would raise that expectation both on the low end and the high by $10 million. That sounds great. I will leave it there. Thanks, guys. Thank you, Chris. Thank you. Your next question comes from Ross with William Blair. Please go ahead. Good morning, gentlemen. Good morning. Good morning to you, Ross. Starting off on electronics, can you help us break out the power orders separate from the legacy electronics business? yeah i'll take that ross i mean our book to bill in the quarter was 1.23 for the total electronics and you know the legacy businesses as well as great were about the same so each one of them were over 1.2 so the orders really continue to be strong kind of across across the board for us okay and then uh just to back out kind of grid revenue contribution to electronics forgive me if you guys gave that already yeah i mean so so we we grew organically almost 30 percent in a quarter and every one of our business units grew more than 20 percent so it was a really really strong organic growth kind of across across the board and you know based on the backlog and a book to bill you know we would anticipate that we're going to continue to have a strong organic road across all of our platforms okay well should we think that power is leading the charge there um and i guess the back half that question just being you know just where we are with croatia and ramping that i know that you guys cut the red tape several months back and that's just about filling out the uh the capacity yeah so on croatian first ross yeah yeah i mean right now we are going through customer audits you know it's a new site you know the order the site has to be certified and audited by our customers so before we can actually start manufacturing parts there we're going through some of the audits about key customers you know a little bit we are at the mercy of their own schedule as to when their teams can come that's going really well and we are now anticipating uh that we're going to start you know making actually manufacturing and shipping products out of croatia you know within this quarter we had some buy and resale sales coming out of croatian in the prior month but it's gonna you know uh we're gonna see a pretty nice ramp up there in q3 and q4 um and then your question on power right oh you mean yeah was it at the higher Was it the higher end of the growth range? You said like 20, 30, 40? Yeah, I got it. I now understand. Yeah, so we said if you go back, we gave that outlook of $340 to $440 million years out. That range still holds. We feel pretty confident about $3.40, and obviously, we're going to work to get close to the higher end of The Range. For this fiscal year, Ross, our initial range was about $180 to $200. I will probably, we are very confident that we're going to be at least 190 to 200. So, you know, we do think we're gonna be more at the midpoint or a higher end of the range for this fiscal year. Okay, but it's safe to assume that sequentially the grid business stepped up on the revenue side. Yeah. Yeah, no question. I actually, we're very pleased with the work that the capacity expansion team has done. And it was a very strong first quarter. Okay, fantastic. I'll pass it along and head back and get you guys. Thank you. Thank you, Russ. Thanks, Russ, yeah. Thank you for your time. Thank you very much. Your next question comes from Matt Karanda with Roth Capitals. Please go ahead. Hey, guys, good morning. Appreciate the bridge on slide four. Just wanted to maybe dig into, in the new products component of the organic sales bridge, Is there any data center exposure there? I'm just curious to think about sort of, you know, the overall exposure to data center growth that you have in the growth bridge. Yeah, so we tried to make this easy to read and not overdo it with explanation, but that new product number, that is only the new product sales that are outside those other markets. There are new products into data centers, but those are included in the data center box to the left. Okay, so that makes total sense. That answers your question. I appreciate that, David. Yeah. Yeah, it totally does. Okay. And then maybe one for Adam here. It was kind of touched on a little bit tangentially in some of the responses to questions, but just wanted to hear, I guess, sort of your main areas of focus now that you're fully in the seat in electronics. It sounded like maybe there was a bit of a reorganization of the way you go to market with some of your longer-term OEM partners. But maybe could you touch on some of the bigger changes that are either in motion or already made since you took the seat? Yeah, well, I've been in the seat for now a little over three months and kind of still double-doing. Dog years. Well, look, I mean, I'll start answering the question by telling you, as I, you know, visited some of the sites and spent more time with our employees and leaders, we really have a solid group of employees in electronics, you know, who truly value Stanix's culture, and this is really a special place in the way we operate, and you can see that people are fully committed to their jobs and really serving the customers. We have capable business leaders, and frankly, Matt, we got exposure to some really exciting end markets in terms of our products, solutions, and as I said in my prepared remarks, meeting with customers, what was really a little bit eye-opening is they truly look at us as partners. They want to partner with us in the years to come, and one of the things we are trying to do is make it easier for them to partner avec us, so we are looking a little b in the way we go to market. So, for example, in grid, historically, you know, we would go to market a little bit separately between North America and India or Asia. And, you now, our customers are really looking to have one point of contact. So, we are setting up a global commercial organization. We're going to have key account managers really focused on supporting our key customers and their growth initiatives. So, there'll be one example. You know, We're Going to Continue with a strategy we've been on for years in terms of new products. You know, we have an opportunity to, you know, continue to expand our wallet share. We have an ability, for example, in our grid business to look at the outdoor opportunities, which we haven't. And that's a huge market for us. And we haven'T really had an opportunity or chance to truly explore that much in the past. And then, you Know, the strategy is basically going to continue. So we've got talented people. We are making some changes on the commercial side. The grid expansion, the capacity expansion remains a key priority, and we'll keep on going. But I would say, like Matt teed it up for you, Adamir has worked with the team to put in place the first steps of this new global commercial organization so it's not just words. I mean, there's structure coming in behind it. You've also redeployed some talent in North America to drive improvements here. That was a headwind for us last quarter. It's not fixed yet, but it is reversing and improving. So, you know, in three months, you're having an effect. Let's see in six months, nine months before we, yeah. Yeah, we'll give you a little bit more time before we ask the question again, Adamir. Thanks. Maybe the last thing I just wanted to ask was just capital allocation priorities. With the stock sort of moving against you a Little bit in the last several months, and I guess the upping of the repurchase authorization, is that a signal that we should look at as, hey, we're going to go a little bit harder on deploying the buyback here? I noticed it did sort of tick up sequentially in the first quarter in terms of deployment. I wanted to hear a little about that versus how you balance sort of the opportunity set that's in the funnel for acquisition as well. Yeah, there's a few things. One is we had a great discussion with the board recently about our share buyback authorization. And our last authorization, we were running low on it. We maybe had about $20 million left on that. And our approach to buybacks has been to be somewhat opportunistic because there are times we think the market doesn't fully appreciate the value of the company. And a few years ago, we bought a lot of shares when that was the case. And we wanted to be ready to move if the same situation presented itself. And we have been trading with more of the data center stocks. There's been more volatility in the Standex stock recently than our consistently improving results would justify. So we just wanted to being ready to respond to market conditions. We are still full speed ahead on the capacity expansion in that $40 to $50 million CapEx this year. And I would say on the M&A front, our funnel is becoming more active. We actually are adding a person to focus on corporate development so we can drive more consistently M&As. So no slowdown in the growth investments or the capital we expect to put into growth. Okay. Appreciate all the detail, guys. So I'll leave it there. Thank you. Your next question comes from Tom Asano with J.P. Morgan. Please go ahead. Hi. Good morning, everyone. Morning. Morning. Thanks for having us. Maybe just on margins, which were very strong this quarter, both gross margin and operating margins. As you think about the path from here, How much of the opportunity is mixed versus productivity and then operating leverage? Yeah, I think it's a combination of both in terms of, you know, obviously, you know, the businesses that are growing at the highest rate are our highest margin businesses, so we are mixing up from that standpoint. And then, Tomo, as we said in a prior quarter, we had some operating issues in our electronics edge business in North America. We had an ERP implementation a few quarters ago and that created a little bit of an issue for us so to speak. We've been resolving that so we feel we are on the tail end of that and we're going to see some of the margin lift coming from those activities. We're going to continue driving productivity across all of our businesses. Obviously when the volume is up and you're running at a higher capacity, that's just going to help you get the margins up as well. But we do believe there is a margin expansion opportunity in all of our segments going forward, and we're going to continue driving that across the board. Thank you, Ademir. And one follow-up, you remain on track for more than $1.1 billion of revenue and over 23% of your margins by the end of next year, fiscal year 2028. After these quarters, where do you feel most confident and where is there still the most work to do? Well, yeah, we're very confident about that $1.1 billion and the 23% operating margin. The margin, you kind of answered the question on the margin yourself. We hit the hitting the $1,1 billion because the higher margin businesses are the ones providing the growth. I mean, we will lever into that 23% operating margin. We're quite confident about that. If I look at our results, I'm very pleased with the multiple growth engines that are firing right now. And I would say the new product has been kind of an underappreciated growth avenue for us because this is something that is very much in our control. This is a flywheel that is gaining momentum every year. I mean, this year we'll have $94 million of new products, which if you think of where we came from four or five years ago, it was almost close to zero. And every year we get better at identifying new opportunities, launching new products. I mean in the first quarter of the sales year, we knew a 56% growth in new products so it's a smaller number than the fast growth markets, but it continues to grow every quarter. So, personally, I'm most excited for the long-term potential that that new product number brings for us. Great. Thank you, David, and congrats on the quarter. Yeah, thank you. Thank you. The next question comes from Mike Hiskey with DA Davidson. Please go ahead. Good morning. Thanks for taking my questions here. Can you provide just a little bit more detail on the footprint expansion in electronics? Maybe just tell us what's currently open-ended today and what's still to come for the fiscal year? Like which exact facilities? Yeah. Yeah, so Mike, if you remember, there's four different pieces of this project. The first one is expanding our India capacity, and we are up probably about 30% year-on-year in terms of expanding capacity in our current sites in India, and we're going to continue working on those efforts. Croatia, as we mentioned earlier, you know, is just going through customer audits right now and is going to start manufacturing and shipping out of the site within this quarter. And again, we expect that's going to get started to ramp up more in Q3 and Q4 of this fiscal year for us. Mexico is up and running and sort of the shipping products out of Mexico. There is an existing electronics facility right across the border of Arizona. We allocate the portion of the space to the grid business, and that's already up and run. And then in Houston, you know, we are already working 24-7 in terms of the current site as of actually two weeks ago. We are in the process of getting a much larger facility, probably about three times, three and a half times the size of the correct facility. We expect it's a new construction and we expect to get the keys from that site in June, July timeframe of next year. and then probably going to take us a couple of months to get the production fully up and running. In the meantime, the other side is going to be running at full capacity so we don't lose any opportunities. But it's all on track. It's all moving as we would expect it. And one of the reasons we're actually raising that $180 to $200 million in grid sales to $190 to $2000 is because we feel confident that capacity expansion work is yielding results. Great. Thanks for that. And then I also wanted to ask about the pipeline you've got in aerospace and defense. As you look ahead at what's in the backlog today of what you signed more recently, does something have a higher margin profile maybe next 12 months than you saw over the last 12 months? It sounds like for a lot of contractors, they're seeing better margins. You're a supplier to other contractors, but just curious as to whether you're seeing a better mix or kind of better project work there? I would say that the new programs that we're winning, we're winning because we have a competitive advantage in our process and making those parts with spin forming versus traditional methods. So that tends to be reflected in gross margin where we're able to generate. So they are marginally more, marginally higher margin than the core business. So, these new programs will help the aerospace and defense continue to mix up in margin. Great. Thanks for that, David. I'll pass it along. Thank you. All right. Thank You. Your next question comes from Gary Pristopina with Barrington Research. Please go ahead. Hey, good morning, all. A couple of quick questions just on the numbers. I noticed that it looks like the corporate expense, when you look at the segments and applied corporate expense it really jumped year over year. What happened there and is that the run rate we should expect going forward? Hey good morning Gary. So yeah it's up about three million year on year you know versus prior Q1 and about two-thirds of that increase Gary relate to higher variable compensation expenses and stock comp, as well as higher medical costs. The medical costs have been increasing for us over the past year or two, and that continues. And there are about one-third of that increase is more like a one-time cost, primarily related to some of the executive recruiting and transfers we had at the company, and it obviously is not going to continue. So we would expect the corporate cost is going to come somewhat down in Q2. and get a little bit more normalized as we get into the Q3 and Q4. Okay, that's helpful. And then before I just get into general industry questions here, if you're looking at high-teens adjusted EPS growth, what kind of growth would that come to on an adjusted EBITDA basis? Would we be looking at a similar level of percentage growth from adjusted EBITA with an adjusted EPS growth of, you know, mid-teens or high-teENS? Yeah, I think that's probably not that far off. You know, kind of mid-Teens is probably a good way to look at it. Okay. And then, David, with the slide that you provided with the growth drivers, data centers, grid, et cetera, and, Adam, maybe you can help chip in here. I mean, what are your thoughts on all of the noise that's coming out against data centers? And is there a similar movement in international markets against data center growth? We're actually seeing more data centers planned outside America in the last three to six months. and our discussions with our customers indicate that they're seeing an increase in activity investments outside the U.S. I was just in Europe a few weeks ago. Depending on the country you're in, there is some of the same debate about the impact of data centers on electricity prices, on water, on the local economy. So I think all the governments and society are going to have to work that out, but we see change in our expected outlook. Individual programs may be pushed out. They may move geographically, but there's such a hunger to get this productivity online. And all the language we hear from our customers is that they are exploring multiple options where necessary to bring that capacity online. Okay. Thank you. Oh, no, the other thing I just want to – well, never mind. I'll ask that offline. Thank you, Gary. Thank you very much. Thank you for your question. Russ has a follow-up. Please go ahead. hey thanks guys um yeah i just wanted to get a sense of you know the expectation of the capacity unlock on demand i mean you know it in the past that everything that you're making is shipping and so if the demand is that immense and we know that there's a massive imbalance between you know supply and demand of gigawatts in the channel um i mean should it be a pretty healthy unlock as you start to get these machines get these employees uh do you think it'd be more measured, kind of like the linear path that you presented here recently? Russ, I think it'll probably be a little bit more linear as we kind of unlock the capacity. But what I will tell you, the orders remain very, very strong. And we have no worries that as we unlock the capability, we'll be able to fulfill that capacity in terms of being busy in terms of sales so but we do think it's going to be a little bit more linear in the in the quarters to come all right well maybe a better way is i just wouldn't like you know purchasing patterns i mean do these things come in and you know measured in uh thousands tens of thousands of the kind of you know batch orders of size and there's a certain time frame to fill them or is it just kind of again back to the book and ship i mean there's just demand available in the market and so everything you're making here is going out the door just what does that uh you know customer sales process look like? Yeah, I mean, you know, it's kind of, you know, customers are actually now looking, and we talked about these long-term agreements in this space, right? Customers are actually kind of looking to give you a bit of a longer term, longer lead time, a longer forecast in terms of what they need. So, you know, some of the customers are now looking and giving us a forecast, you know, six to 12 months out. So there is that visibility we are starting to get. And part of that is also just making sure that, you know, we have capacity to support them. But, again, you know, what I will tell you is as we unlock the capacity, you know, that capacity gets filled pretty quickly. I would just add, too, that the customers are managing their entire supply chain. So they're being quite transparent with us about their demand and their requested schedules. So we may receive orders for products to be delivered in a month or two months, but we have long-term planning sessions. So they give us an idea what's likely to come in a quarter, in two quarters, and three-quarters. And then our input on our capacity affects their own plan. So it's a very interactive process. Very dynamic, yeah. Yeah. Well, I mean, I imagine that their internal build rates have only been increasing over the last 18 months. Well then, maybe just... Yeah, I'm sorry. I just want to make another point. When we've talked about the opportunity for our grid business with instrument transformers, in our investor presentation, there's a breakdown of the total market. Total market is $12 billion. We have been serving about a billion-dollar piece of that in North America and India. There's a $3.5 billion piece of that, which is aftermarket repair. It's local business that's sold to utilities. And that is an opportunity for us to unlock as this capacity comes online. So we're not concerned about a long-term imbalance with capacity and demand because we have another larger market to begin serving longer term. That's what I wanted to kind of get into is just, you know, Adam, you're a couple months in the seat. You mentioned, you now, partnership opportunities. David just talked about kind of a service even aftermarket. I mean, what else are you seeing out there? I mean how can you start to get a bigger piece of this TAM and is M&A required? You know, I think, Ross, quite frankly, I think organically we feel pretty good we can capture significant market opportunities. And to David's point, there's this, you know, additional markets we haven't even explored and we're going to start exploring opportunities in those markets as well. And, you Know, on an M&As side, we have a pretty, pretty busy M&a pipeline and obviously we're gonna continue to be acquisitive at the same time. And so our strategy is going to continue, you know, from, you know new product development, organic focus on capacity expansion, you know sales and commercial excellence, organic growth at the time and at the same time complemented by inorganic opportunities as they come. And, you know, as you know those you can't really predict when they're going to happen but we remain out there. Okay. That's great guys. I'll leave it there. Thank you. And Adam or Godspeed. I'll miss you. Thank you, Russ. That's enough for the questions. I will turn it back to Mr. Dunbar for some closing remarks. All right. Thank you. I want to also mention that Joanne Edwards will be retiring from the Board of Directors after eight years. She has been influential in supporting our strategy to grow in the electrical equipment and the markets, which is obviously paying off. I want thank her for her many contributions. We wish her and her family all the best in her retirement. We're also happy to welcome Brenna Presser from Brunswick to the board. Brenna brings strong strategic planning skills and deep talent development experience, which will be valuable as we chart the next steps in our journey. I want to thank you all for joining our call today. We truly enjoy reporting on our progress and the outlook at Standex. Thank you again to all of our employees who are solving problems and taking care of customers every day, making Standex a great place to work. I look forward to speaking with you again in our fiscal second quarter 2027 call. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask you to please disconnect your lines. Have a great day.