Standex International Corp: Form 10-Q for the period ended Mar 31, 2025

Forward-Looking Statements

Statements contained in this periodic report 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,” “intend,” “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 and other global crises or catastrophic events 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, defense, 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; the impact of higher transportation and logistics costs, especially with respect to transportation of goods from Asia; the impact of inflation on the costs of providing our products and services; 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; increased costs from acquisitions to improve and coordinate managerial, operational, financial, and administrative systems, including internal controls over financial reporting and compliance with the Sarbanes-Oxley Act of 2002, and other costs related to such systems in connection with acquired businesses; 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; our ability to increase manufacturing production to meet demand including as a result of labor shortages; the impact on our operations of any successful cybersecurity attacks; and potential changes to future pension funding requirements. For a more comprehensive discussion of these and other factors, see the “Risk Factors” section of the Company’s most recent annual report on Form 10-K filed with the SEC and available on the Company’s website. 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.

Overview

We are a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. Headquartered in Salem, New Hampshire, we have six operating segments aggregated into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. Two operating segments are aggregated into Specialty Solutions. Our businesses work in close partnership with our customers to deliver custom solutions or engineered components that solve their unique and specific needs, an approach we call "Customer Intimacy".

Our long-term business strategy is to create, improve, and enhance shareholder value by building more profitable, focused industrial platforms through our Standex Value Creation System. This methodology employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management and provides both a company-wide framework and tools used to achieve our goals. We intend to continue investing organically and inorganically in high margin and growth businesses using this balanced and proven approach.

It is our objective to grow larger and more profitable business units through a commitment to both organic and inorganic initiatives. We have a particular focus on identifying and investing in businesses, new products and new applications that complement our existing products and will increase our overall scale, global presence and capabilities. We continue to execute on acquisitions where strategically aligned with our businesses and where the opportunity meets our investment metrics. We have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.

As part of our ongoing strategy:

• On February 4, 2025, we acquired McStarlite Co., a leading provider of complex sheet metal aerospace components, financed from our existing Credit Facility. Its results are reported in the Engineering Technologies segment beginning in the third quarter of fiscal year 2025.
• On November 18, 2024, we acquired Nascent Technology Manufacturing, which designs and produces high-reliability magnetics components for critical defense and industrial application. Its results are reported in the Electronics segment beginning in the second quarter of fiscal year 2025.
• On November 14, 2024, we acquired Custom Biogenic Systems, it specializes in the development and manufacturing of advanced cryogenic equipment, including unique Isothermal freezers with dry liquid nitrogen technology, to the pharmaceutical and biobank end markets within life sciences. Its results are reported in the Scientific segment beginning in the second quarter of fiscal year 2025.
• On October 28, 2024, we acquired the Amran/Narayan Group in cash and stock transactions. These transactions represent a combined enterprise value of approximately $467.5 million, comprised of 85% cash and 15% in Standex common stock for Amran Instrument Transformers and 90% cash and 10% in Standex common stock for Narayan Powertech Pvt. Ltd. The 10% share exchange related to Narayan Powertech Pvt. Ltd. is subject to India regulatory approval, which is expected to take up to six months. The cash consideration of the transactions was financed using cash-on-hand, existing credit facilities, and a $250 million 364-day term loan with existing lenders. We converted the 364-day term loan into an exercise of the accordion feature under our existing credit facilities. This acquisition significantly expands our sales in the fast-growing, high-margin electrical grid end market and our presence in India. Its results are reported in the Electronics segment beginning in the second quarter of fiscal year 2025.
• On May 3, 2024, we acquired Sanyu Electric Pte Ltd, or SEPL, a privately held distributor of reed relays. Its results are reported in the Electronics segment.
• On February 19, 2024, we acquired, through our subsidiary Standex Electronics Japan Corporation, privately-held, Japanese-based Sanyu Switch Co., Ltd (Sanyu). Sanyu designs and manufactures reed relays, test sockets, testing systems for semiconductor and other electronics manufacturing, and other switching applications. Its results are reported in the Electronics segment.
• On July 31, 2023, we acquired Minntronix, a privately held company. Minntronix designs and manufactures customized as well as standard magnetics components and products including transformers, inductors, current sensors, coils, chokes, and filters. The products are used in applications across cable fiber, smart meters, industrial control and lighting, electric vehicles, and home security markets. Its results are reported in the Electronics segment.

As a result of our portfolio moves over the past several years, we have transformed Standex to a company with a more focused group of businesses selling customized solutions to high value end markets via a compelling customer value proposition. The narrowing of the portfolio allows for greater management focus on driving operational disciplines and positions us well to use our cash flow from operations to invest selectively in our ongoing pipeline of organic and inorganic opportunities.

The Company’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy. We use cash flow generated from operations to fund investments in capital assets to upgrade our facilities, improve productivity and lower costs, invest in the strategic growth programs described above, including organic growth and acquisitions, and to return cash to our shareholders through payment of dividends and stock buybacks.

Restructuring expenses reflect costs associated with our efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in our end user markets. We incur costs for actions to size our businesses to a level appropriate for current economic conditions, improve our cost structure, enhance our competitive position and increase operating margins. Such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs, external consultants who provide additional expertise starting up plants after relocation, downsizing operations because of changing economic conditions, and other costs resulting from asset redeployment decisions. Shutdown costs include severance, benefits, stay bonuses, lease and contract terminations, asset write-downs, costs of moving fixed assets, and moving and relocation costs. Vacant facility costs include maintenance, utilities, property taxes and other costs.

Because of the diversity of the Company’s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends. Each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact its performance. Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company. A description of any such material trends is described below in the applicable segment analysis.

We monitor a number of key performance indicators (“KPIs”) including net sales, income from operations, backlog, effective income tax rate, gross profit margin, and operating cash flow. A discussion of these KPIs is included below. We may also supplement the discussion of these KPIs by identifying the impact of foreign exchange rates, acquisitions, and other significant items when they have a material impact on a specific KPI.

We believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the KPI, as applicable. For discussion of the impact of foreign exchange rates on KPIs, we calculate the impact as the difference between the current period KPI calculated at the current period exchange rate as compared to the KPI calculated at the historical exchange rate for the prior period. For discussion of the impact of acquisitions, we isolate the effect on the KPI amount that would have existed regardless of such acquisition. Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.

Unless otherwise noted, references to years are to fiscal years.

Results from Continuing Operations

(In thousands, except percentages)

(In thousands)

Net sales increased in the third quarter of fiscal year 2025 by $30.5 million or 17.2%, when compared to the prior year quarter. The recent acquisitions positively impacted sales by $46.7 million, or 26.3%. Organic sales decreased $14.4 million, or 8.1%, due to lower demand in the automotive end market in our Engraving and Electronics segments in North America and Europe, and continued softness in general industrial end markets. These decreases were partially offset by favorable project timing in our Engineering Technologies segment. Organic sales in the third quarter of fiscal year 2025 included $60.4 million attributed to fast growth markets. Foreign currency negatively impacted sales by $1.7 million, or 1.0%.

Net sales decreased in the nine months ended March 31, 2025 by $27.6 million or 5.1%, when compared to the prior year period. Organic sales decreased $50.2 million, or 9.3%, due to lower demand in the automotive end market our Engraving and Electronics segments in North America and Europe and continued softness in general industrial end markets. These decreases were partially offset by strong demand and favorable project timing in our Engineering Technologies segment. Organic sales in the first nine months of fiscal year 2025 included $123.1 million attributed to fast growth markets. The recent acquisitions positively impacted sales by $80.9 million, or 15.0%. Foreign currency negatively impacted sales by $3.1 million, or 0.6%.

Gross Profit

Gross profit in the third quarter of fiscal year 2025 increased to $82.4 million, or a gross margin of 39.7% as compared to $68.3 million, or a gross margin of 38.5%, in the third quarter of fiscal year 2024. Gross profit was impacted by the organic sales decreases, $2.2 million in purchase accounting expenses in connection with our recent acquisitions and approximately $1.6 million of net inflationary impacts in the areas of labor and materials, partially offset by productivity initiatives and contribution from recent acquisitions.

Gross profit in the nine months ended March 31, 2025 increased to $223.9 million or a gross margin of 39.4% as compared to $212.5 million or a gross margin of 39.3% in the nine months ended March 31, 2024. Gross profit was impacted by the organic sales decreases, $20.4 million in purchase accounting expenses in connection with our recent acquisitions and approximately $5.2 million of net inflationary impacts in the areas of labor and materials, partially offset by productivity initiatives and contribution from recent acquisitions.

Selling, General, and Administrative Expenses

Selling, General, and Administrative (“SG&A”) expenses for the third quarter of fiscal year 2025 were $52.0 million, or 25.1% of sales, compared to $41.8 million, or 23.6% of sales, during the prior year quarter.

Selling, General, and Administrative (“SG&A”) expenses for the nine months ended March 31, 2025 were $140.7 million, or 24.8% of sales, compared to $128.6 million, or 23.8% of sales, during the prior year period. The increase in SG&A expenses during the relevant periods primarily results from the impact of the recent acquisitions.

Restructuring Costs

We incurred restructuring expenses of $2.0 million in the third quarter of fiscal year 2025, and $4.0 million in the first nine months of fiscal year 2025 primarily related to facility closures and global headcount reductions within our Engraving and Electronics segments.

We expect to incur restructuring costs of approximately $1.0 million throughout the remainder of fiscal year 2025, as we continue to focus our efforts to reduce costs and improve productivity across our businesses.

Acquisition Related Costs

We incurred acquisition related expenses of $2.2 million in the third quarter of fiscal year 2025 and $20.4 million in the first nine months of fiscal year 2025. Acquisition related expenses typically consist of due diligence, advisory, legal, integration, and valuation expenses incurred in connection with recent or pending acquisitions.

Gain on Sale of Business

We recorded a pre-tax gain on sale of the Procon business of $62.1 million for fiscal year 2023. In the first quarter of fiscal year 2024, we recorded an additional $0.3 million gain on the sale related to closing cash adjustments. The sale transaction and financial results of Procon are classified as continuing operations in the Consolidated Financial Statements.

Income from Operations

Income from operations for the third quarter of fiscal year 2025 was $26.3 million, compared to $21.8 million during the prior year quarter. The increase of $4.4 million, or 20.2%, is primarily due to contributions from recent acquisitions and productivity improvement initiatives, partially offset by lower organic sales and acquisition related costs.

Income from operations for the nine months ended March 31, 2025 was $58.8 million compared to $74.6 million during the prior year period. The decrease of $15.8 million or 21.2%, is primarily due to lower organic sales and acquisition related costs. The decreases are partially offset by contributions from recent acquisitions and productivity improvement initiatives.

Interest Expense

Interest expense for the third quarter of fiscal year 2025 was $8.4 million, an increase from interest expense of $0.9 million during the prior year quarter. Interest expense for the nine months ended March 31, 2025 was $14.9 million an increase from interest expense of $3.2 million during the prior year period. Our effective interest rate for the nine months ended March 31, 2025 was 6.00%.

Income Taxes

The Company's effective tax rate from continuing operations for the third quarter of fiscal year 2025 and for the nine months ended March 31, 2025 was 29.6% and 1.1% compared with 21.4% and 22.5% for the prior year quarter and prior year period, respectively. The tax rate was impacted in the current period by the following items: (i) a discrete tax benefit related to the release of a previously recorded tax reserve for a one-time tax charge on historical foreign earnings, as the relevant statute of limitations expired during the quarter, (ii) the jurisdictional mix of earnings, (iii) foreign withholding taxes and (iv) federal research and development tax credits.

The tax rate was impacted in the prior period by the following items: (i) a discrete tax expense related to provision to return adjustments associated with federal research and development tax credits and the limitation on executive compensation, (ii) the jurisdictional mix of earnings and (iii) a discrete tax benefit related to foreign withholding taxes.

Backlog

Backlog includes all active or open orders for goods and services. Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules. Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems, with the exception of Engineering Technologies. Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to the nature of long-term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another.

Total backlog realizable under one year increased $50.7 million, or 25.5%, to $249.9 million at March 31, 2025, from $199.2 million at March 31, 2024. The year over year increase is primarily driven by an additional $71.6 million in backlog for the recent acquisitions in the Electronics and Engineering Technologies segments.

Changes in backlog under one year are as follows (in thousands):

(In thousands)

34

Segment Analysis

Overall

Looking forward to the remainder of fiscal year 2025, we anticipate continued improvement in key financials metrics, supported by productivity initiatives.

In general, for the remainder of fiscal year 2025, we expect:

• increased exposure to the high growth, high margin electrical grid end market as a result of the Amran/Narayan Group acquisition;
• commercial aviation and defense end markets demand to increase based on current program expectations and new product development;
• space markets to remain attractive, with volume to slightly increase from fiscal year 2024 due to new product development for existing customers;
• continued stability in hybrid and electric vehicle programs despite softness in general automotive end markets and planned new platform launches;
• scientific cold storage demand to decline due to anticipated effects of potential NIH funding cuts;
• refuse and dump end markets to remain stable;
• stable demand levels in food service equipment markets.

Electronics Group

(In thousands, except percentages)

Net sales in the third quarter of fiscal year 2025 increased $30.9 million, or 38.4%, when compared to the prior year quarter. The recent acquisitions added $38.7 million, or 48.1%, in sales for the third quarter of fiscal year 2025. An organic sales decrease of $7.2 million, or 8.9%, and foreign currency impacts of $0.6 million, or 0.8%, negatively affected net sales compared to the prior year quarter. The organic sales decline was due to continued softness in the automotive end markets in Europe and North America and in general industrial end markets.

Income from operations in the third quarter of fiscal year 2025 increased by $9.8 million, or 62.2%, when compared to the prior year quarter. The operating income increase was the result of contributions from the recent acquisitions, productivity initiatives and product mix, partially offset by lower organic sales.

Net sales in the nine months ended March 31, 2025 increased $43.4 million, or 18.0%, when compared to the prior year period. The recent acquisitions added $71.4 million, or 29.6%, in net sales for the first nine months of fiscal 2025. An organic sales decrease of $26.8 million, or 11.1%, and foreign currency impacts of $1.1 million, or 0.4%, negatively affected net sales compared to the prior year period. The organic sales decline was due to softness in the automotive end markets in Europe and North America and in general industrial end markets, and the effect of prior overstocking related to certain large customer accounts.

Income from operations in the nine months ended March 31, 2025 increased by $12.0 million, or 25.1%, when compared to the prior year period. The operating income increase was the result of contributions from the recent acquisitions, productivity initiatives and product mix, partially offset by lower organic sales.

In the fourth quarter of fiscal year 2025, on a sequential basis, we expect slightly higher revenue and similar to slightly higher operating margin, primarily driven by contributions from the Amran/Narayan acquisition, higher sales into fast growth end markets, and price realizations, partially offset by higher tariff cost and continued strategic growth investments.

Engraving Group

(In thousands, except percentages)

Net sales in the third quarter of fiscal year 2025 decreased by $5.7 million, or 15.7%, when compared to the prior year quarter. Organic sales decreased by $4.6 million, or 12.7%, due to continued softness in North America from delays in new platform rollouts. Foreign currency negative impacts on net sales were $1.1 million, or 3.0%.

Income from operations in the third quarter of fiscal year 2025 decreased by $3.2 million, or 51.2%, when compared to the prior year quarter. The operating income decrease was driven by organic sales decreases due to lower demand, partially offset by the realization of previously announced productivity initiatives and restructuring actions.

Net sales in the nine months ended March 31, 2025 decreased by $22.5 million, or 19.1%, when compared to the prior year period. The decrease is primarily driven by delays in new platform rollouts in North America and general market softness.

Income from operations in the nine months ended March 31, 2025 decreased by $9.8 million, or 42.9%, when compared to the prior year period primarily driven by lower demand and project mix, partially offset by the realization of previously announced productivity initiatives and restructuring actions.

In the fourth quarter of fiscal year 2025, on a sequential basis, we expect slightly higher revenue and moderately higher operating margin due to favorable project timing in Asia, slightly improved demand in North America and Europe, and realization of previously announced restructuring actions.

Scientific Group

(In thousands, except percentages)

Net sales in the third quarter of fiscal year 2025 increased by $1.4 million, or 8.1%, when compared to the prior year quarter. The recent acquisition of Custom Biogenic Systems added $2.7 million, or 16.1%, in sales for the third quarter of fiscal year 2025. This increase was partially offset by an organic sales decrease of $1.4 million, or 8.0%, mostly due to lower demand from academic and research institutions impacted by National Institutes of Health (NIH) funding cuts.

Income from operations in the third quarter of fiscal year 2025 decreased $1.0 million, or 20.4%, when compared to the prior year quarter. The decrease is primarily driven by organic decline, partially offset by contributions from the acquisition.

Net sales in the nine months ended March 31, 2025 increased by $3.1 million, or 5.9%, when compared to the prior year period, reflecting a $4.3 million, or 8.3%, benefit from the recent acquisition, offset by an organic sales decrease of $1.2 million, or 2.4%, mostly due to lower demand from academic and research institutions impacted by NIH funding cuts.

Income from operations in the nine months ended March 31, 2025 decreased $0.7 million, or 5.1%, when compared to the prior year period. The decrease is primarily driven by organic decline, partially offset by contributions from the acquisition.

In the fourth quarter of fiscal year 2025, on a sequential basis, we expect slightly lower revenue and operating margin due to soft demand from academic and research institutions affected by NIH funding cuts and higher tariff costs.

Engineering Technologies Group

(In thousands, except percentages)

Net sales in the third quarter of fiscal year 2025 increased by $7.3 million, or 36.2%, when compared to the prior year quarter, reflecting a $5.3 million, or 26.3%, benefit from the recent acquisition of McStarlite. The organic sales increase of $2.0 million, or 9.9%, was driven by more favorable project timing in the space end market and sales growth from new products.

Income from operations in the third quarter of fiscal year 2025 decreased by $0.1 million, or 3.0%, when compared to the prior year quarter reflecting purchase accounting expenses incurred in connection with the recent acquisition, partially offset by higher volume and contributions from the recent acquisition.

Net sales in the nine months ended March 31, 2025 increased by $12.4 million, or 21.2%, when compared to the prior year period, reflecting a $5.3 million, or 9.1%, benefit from the recent acquisition. The organic sales increase of $7.3 million, or 12.5%, was driven by more favorable project timing in the space end market which helped to drive growth in new product development and new applications. Foreign currency negative impacts on net sales were $0.2 million, or 0.4%.

Income from operations in the nine months ended March 31, 2025 increased by $1.2 million, or 12.1%, when compared to the prior year period reflecting higher volume and contributions from the recent acquisition, partially offset by purchase accounting expenses incurred in connection with the recent acquisition.

In the fourth quarter of fiscal year 2025, on a sequential basis, we expect similar to slightly higher revenue and similar operating margin.

Specialty Solutions Group

(In thousands, except percentages)

Net sales in the third quarter of fiscal year 2025 decreased by $3.3 million, or 13.9%, when compared to the prior year quarter. Organic sales for the group decreased $3.3 million, or 14.6%, as compared to the prior year quarter, reflecting softness in general market conditions in the Display Merchandising and Hydraulics businesses.

Income from operations in the third quarter of fiscal year 2025 decreased $1.4 million, or 29.8%, when compared to the prior year quarter, due to lower volume in the Display Merchandising and Hydraulics businesses.

Net sales in the nine months ended March 31, 2025 decreased by $8.7 million, or 12.1%, when compared to the prior year period. Organic sales for the group decreased $8.6 million, or 12.1%, as compared to the prior year period, reflecting softness in general market conditions in the Display Merchandising and Hydraulics businesses.

Income from operations in the nine months ended March 31, 2025 decreased $3.9 million, or 27.1%, when compared to the prior year period, due to lower volume in the Display Merchandising and Hydraulics businesses.

In the fourth quarter of fiscal year 2025, on a sequential basis, we expect moderately higher revenue and operating margin.

Corporate and Other

(In thousands, except percentages)

Corporate expenses in the third quarter and first nine months of fiscal year 2025 were relatively flat when compared to the prior year periods. We recorded a charge of $0.1 million in other operating income (expense), net for settlement of an environmental remediation claim in the third quarter of fiscal year 2024.

The restructuring, gain on sale of business and acquisition related costs have been discussed above in the Company Overview.

Discontinued Operations

In pursuing our business strategy, the Company may divest certain businesses. Future divestitures may be classified as discontinued operations based on their strategic significance to the Company. Net income (loss) from discontinued operations was less than $0.1 million for the three and nine months ended March 31, 2025, respectively. Net income (loss) from discontinued operations was less than $0.5 million for the three and nine months ended March 31, 2024, respectively.

Liquidity and Capital Resources

At March 31, 2025, our total cash balance was $109.8 million, of which $88.8 million was held by foreign subsidiaries. The amount and timing of cash repatriation is dependent upon foreign exchange rates and each business unit’s operational needs including requirements to fund working capital, capital expenditure, and jurisdictional tax payments. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.

Net cash provided by continuing operating activities for the nine months ended March 31, 2025, was $36.2 million compared to net cash provided by continuing operating activities of $64.6 million in the prior year. We generated $75.0 million from income statement activities and used $32.7 million of cash to fund working capital and other balance sheet increases. Cash flow used in investing activities for the nine months ended March 31, 2025 totaled $493.3 million and consisted of $477.4 million for the acquisition of businesses, net of cash acquired, $19.8 million used for capital expenditures offset by $3.5 million in life insurance proceeds and $0.4 million proceeds from sales of real estate and equipment. Cash used for financing activities for the nine months ended March 31, 2025 totaled $411.4 million and consisted primarily of borrowings of $792.3 million, repayments of $362.1 million, cash paid for dividends of $11.2 million, purchases of stock of $5.2 million, and $4.4 million in related financing fees.

During the third quarter of fiscal year 2023, the Company entered into a Third Amended & Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year period (“credit agreement”, or “facility”) with a borrowing limit of $500 million. The facility can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement. The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit.

Under the terms of the Credit Facility, we pay a variable rate of interest and a commitment fee on borrowed amounts as well as a commitment fee on unused amounts under the facility. The amount of the commitment fee depends upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter. As our funded debt to EBITDA ratio increases, the commitment fee increases.

Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio, are maintained), and other general corporate purposes.

During the second quarter of fiscal year 2025, the Company entered into a $250 million 364-day term loan with existing lenders. Also, during the period, we converted the 364-day term loan into an exercise of the accordion feature under our existing credit facilities. In connection with the conversion of the loan, the Company entered into a Second Amendment to Third Amended and Restated Credit Agreement. This amendment expanded the total available credit under the Revolving Credit Agreement from $500 million to $825 million.

As of March 31, 2025, the Company used $2.1 million against the letter of credit sub-facility and had the ability to borrow $169.1 million under the facility based on our current trailing twelve-month EBITDA. The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants. The Company’s current financial covenants under the facility are as follows:

Interest Coverage Ratio The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Facility”), to interest expense for the trailing twelve months of at least 2.75:1. Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition related charges up to the lower of $20.0 million or 10% of EBITDA. The facility also allows for unlimited non-cash purchase accounting and goodwill adjustments. At March 31, 2025, the Company’s Interest Coverage Ratio was 9.42:1.

Leverage Ratio The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the Credit Facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1. Under certain circumstances in connection with a Material Acquisition (as defined in the Facility), the Facility allows for the leverage ratio to go as high as 4.0:1 for a four-fiscal quarter period. At March 31, 2025, the Company’s leverage ratio was 2.78:1.

As of March 31, 2025, we had borrowings under our facility of $579.4 million. In order to manage our interest rate exposure on these borrowings, we are party to $25.0 million of active floating to fixed rate swaps. These swaps convert our interest payments from SOFR to a weighted average fixed rate of 0.81%. The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 5.63%.

Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, share repurchases, and dividends. Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility. We expect fiscal year 2025 capital spending to be between $30.0 million and $35.0 million. We expect that fiscal year 2025 depreciation and amortization expense will be between $20.0 million and $22.0 million and $12.5 million and $14.5 million, respectively.

The following table sets forth our capitalization:

(In thousands)

We sponsor a number of defined benefit and defined contribution retirement plans. The U.S. pension plan is frozen for substantially all participants. We have evaluated the current and long-term cash requirements of these plans, and our existing sources of liquidity are expected to be sufficient to cover required contributions under ERISA and other governing regulations.

The fair value of the Company's U.S. defined benefit pension plan assets was $144.1 million at March 31, 2025, as compared to $142.3 million at the most recent measurement date, which occurred as of June 30, 2024. The next measurement date to determine plan assets and benefit obligations will be on June 30, 2025.

The Company expects to pay $0.1 million in contributions to its defined benefit plans during the remainder of fiscal year 2025. Contributions of $6.2 million and $8.5 million were made during the nine months ended March 31, 2025 and March 31, 2024, respectively. The Company expects to make contributions during the remainder of fiscal year 2025 of $0.2 million and $0.3 million to its unfunded defined benefit plans in the U.S. and Germany, respectively. There are no required contributions to the plans in Japan or the U.K. Any subsequent plan contributions will depend on the results of future actuarial valuations.

We have an insurance program in place to fund supplemental retirement income benefits for two retired executives. Current executives and new hires are not eligible for this program. During the second quarter of fiscal year 2025, we received $3.5 million in proceeds under this program. At March 31, 2025, the underlying policies had a cash surrender value of $6.7 million and are reported net of loans of $2.7 million for which we have the legal right of offset, these amounts are reported net on our balance sheet.

Other Matters

Tariff – Several of our segments may be impacted by recent tariff announcements. While we cannot predict the impact of potential new tariffs on global trade and economic growth, our regional presence, strong customer relationships, and our disciplined approach to pricing and productivity actions position us well to manage through these challenges. We monitor the regulatory environment and continue to make adjustments whenever it is deemed necessary. Most of our supply chain is strategically located to service regional demand. We plan to continue to invest in our key strategic growth priorities while closely managing our cost structure and driving productivity and pricing actions and seeking alternate sources of supply to further reduce the impact of tariffs as appropriate.

Inflation – Certain of our expenses, such as wages and benefits, occupancy costs, freight and equipment repair and replacement, are subject to normal inflationary pressures. Inflation for medical costs can impact both our employee benefit costs as well as our reserves for workers' compensation claims. We monitor the inflationary rate and make adjustments to reserves whenever it is deemed necessary. Our ability to control worker compensation insurance medical cost inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities. These materials are some of the key elements in the products manufactured in these segments. Wherever possible, we will implement price increases to offset the impact of changing prices. The ultimate acceptance of these price increases will be impacted by our affected divisions’ respective competitors and the timing of their price increases. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.

Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Japanese (Yen), Peso, Chinese (Yuan) and Indian (Rupee).

Defined Benefit Pension Plans – We record expenses related to these plans based upon various actuarial assumptions such as discount rates, mortality rates, and assumed rates of returns. The Company’s pension plan is frozen for substantially all eligible U.S. employees and participants in the plan ceased accruing future benefits.

Environmental Matters – To the best of our knowledge, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.

Seasonality – We are a diversified business with generally low levels of seasonality.

Employee Relations – The Company has labor agreements with several union locals in the United States and several European employees belong to European trade unions.

Critical Accounting Policies

The condensed consolidated financial statements include the accounts of Standex International Corporation and all of its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed consolidated financial statements. Although we believe that materially different amounts would not be reported due to the accounting policies adopted, the application of certain accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our Annual Report on Form 10-K for the year ended June 30, 2024 lists a number of accounting policies which we believe to be the most critical.

Risk Management

We are exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency exchange. To reduce these risks, we selectively use, from time to time, financial instruments and other proactive management techniques. We have internal policies and procedures that place financial instruments under the direction of the Treasurer and restrict all derivative transactions to those intended for hedging purposes only. The use of financial instruments for trading purposes (except for certain investments in connection with the non-qualified defined contribution plan) or speculation is strictly prohibited. The Company has no majority-owned subsidiaries that are excluded from the consolidated financial statements. Further, we have no interests in or relationships with any special purpose entities.

Exchange Rate Risk

We are exposed to both transactional risk and translation risk associated with exchange rates. The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts. We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time. The contracts are used as a hedge against anticipated foreign cash flows, such as loan payments, customer remittances, and materials purchases, and are not used for trading or speculative purposes. The fair values of the forward foreign currency exchange contracts are sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts. However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability. At March 31, 2025 the fair value, in the aggregate, of the Company’s open foreign exchange contracts was an asset of $0.2 million.

Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan. A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at March 31, 2025, would not result in a material change in our operations, financial position, or cash flows. We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.

Interest Rate Risk

The Company’s effective interest rate on borrowings was 5.63% at March 31, 2025. Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings and is partially mitigated by our use of interest rate swap agreements to modify our exposure to interest rate movements. At March 31, 2025, we have $25.0 million of active floating to fixed rate swaps with terms through fiscal year 2025. These swaps convert our interest payments from SOFR to a weighted average rate of 0.81% on the portion of debt. At March 31, 2025, the fair value, in the aggregate, of the Company’s interest rate swaps was assets of $0.1 million. A 25-basis point increase in interest rates would increase our annual interest expense by approximately $1.5 million.

Concentration of Credit Risk

We have a diversified customer base. As such, the risk associated with concentration of credit risk is inherently minimized. As of March 31, 2025, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.

Commodity Prices

The Company is exposed to fluctuating market prices for all commodities used in its manufacturing processes. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.

The Engineering Technologies, Specialty Solutions, and Electronics segments are all sensitive to price increases for steel and aluminum products, other metal commodities such as rhodium and copper, and petroleum-based products. We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities. These materials are some of the key elements in the products manufactured in these segments. Wherever possible, we will implement price increases to offset the impact of changing prices. The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions’ respective competitors and the timing of their price increases.

At the end of the period covered by this Report, the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025 in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in the Company's internal control over financial reporting during the quarterly period ended March 31, 2025 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.