KE - Earnings call transcript Q2 2018 | Kimball Electronics, Inc.

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Operator

Good morning, ladies and gentlemen. My name is Michelle and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball Electronics Second Quarter Fiscal 2018 Financial Results Conference Call. All lines have been placed on listen-only mode to prevent any background noise. After the Kimball speakers' opening remarks, there will be a question-and-answer period where Kimball will respond to questions from analysts. February statements will Private as Reform of call, may recorded Securities Today's Act forward-looking contain defined XXXX. Instructions] X, be XXXX, and Litigation [Operator under the can the Form on for today's the XX, of influence release. annual June XX-K may ended and that in Kimball's factors forward-looking Risk statements XXXX, be year seen report outcome in Financial Electronics. Mike The and Chief Board Chairman of Sergesketter, President panel Vice the for Kimball today's call is Officer and Chief Officer, Charron, and of Don Executive I to to like would Charron. Don over now call the turn Mr. Charron, you may begin.

Donald D. Charron

our Thank you, everyone welcome Michelle, and second to quarter conference call.

issued afternoon quarter was release earnings our XXXX. of the second Our December XX, yesterday on results ended

Downloads within a then that you find call. summary be it over tab few our After the portal. can have. the listening a the We to Webcast financial questions the accompany Presentations Web-site via can will on on financial overall tab, or that, will Events The will have are may making by Webcast, and overview. if presentation in we I this answer conference you found I posted begin on Mike for Relations the any the quarter, presentation you Investor turn and remarks to it

XXXX. in new us $X year our quarterly of XXXX. fiscal year-over-year Our and XX% medical the previous year up a long-stated record quarter fiscal quarter growth in when exceed second sales and year and in helped automotive us this compared second sales Double-digit quarter X% in consecutive verticals the to kept fiscal set annual of of up were our XXXX billion from market pace end the quarter sales eighth to on for the goal

beyond growth next look our XXXX, our is approximately sales. annual to Company growth this As $X compound through grow CAGR and past the the sustain fiscal few to rate stated as was we rate goal we three billion fiscal years years in year quarter, or last the over over X% annual

the margins of fiscal second fiscal in to year. quarter quarter first improved compared when slightly this of Our the year XXXX

are still target operating income X.X%. we However, new below our of

sequential and new our new to yields on toward We goal throughput recently expect our drive improvement as continue margins to actions improve launched to make we programs. achieving incremental

Romania Our of on ramp-up track. phase next activity in is

our expect more We year than from fourth quarter XXXX rate fiscal last the of relatively sales fourth fiscal income double year run XXXX, year on The to quarter expect to breakeven and income to operating the point Romania our was we of operating of fiscal XXXX approach the of by the flat impact quarter second the XXXX. with same end fiscal ramp-up our period year year.

will fiscal our achieve progress have While for to efficiency of we Margin long-term work focus year expansion good continue ROIC. and made to we capital goal year. priorities in be still this us do fiscal XX.X% of XXXX, to

fiscal We of continue capital profits. sales bringing and to XXXX, We growth our invested year quarter to second fiscal total in make investments that million in in the will expenditures year million. drive $XX.X $X.X XXXX further

demand from forecasted of we capital on XXXX fiscal of quarter several expect XXXX stronger-than-expected the year approximate year call, $XX stated to due existing first we our As million. fiscal to level our customers, expenditures

returns. newly new raw production securing We and deployed up materials, the ensuring through forecasted launch on ramping getting that achieves on focused capital focused are cycles, to remain expected We levels. our

million million and returned XXXX, million purchasing $X X During our by on work strategic our implementation Board XXXX second last the to shares purchased since stock, under October $XX our of which Board-approved our share quarter program. our shareowners has stated our And repurchase shares of authorized of we finally, we fiscal plan. on our updated as begun call, brings total also to the year XXX,XXX common

efficiency, capital committed sales beyond are and our multifaceted our will We to develop by are and us to EMS solutions on optimizing high-quality a that new business we help making revenue growth, investments margin to focusing committed expansion manufacturing EMS company.

are create us for would also the future. exploring new establish optionality in We platforms opportunities and that

turn over discuss to results quarter to our Mike I Now, more in second it will detail.

the your open then questions. will call We to Mike?

Michael K. Sergesketter

Thanks Don.

the comments, referring my or listening Presentations Don the the to slide be it the can can During deck via Webcast I'll in you found find within Events you Investor Relations and tab are Webcast, mentioned, on our Downloads the be tab, which Web-site, on portal. if

year of market. prior of vertical Slide the a and sales $XXX.X largely Partially compared vertical which rate up the in a from year on shown sales net ago growth strong which and XX% record ramp-up represents movement net Europe. was quarter. new net The our to assisting a ago, mix second America year affected X program was quarter million, demand automotive by our X%. net the the Slide $XXX.X sales X, in were million. of by quarter a record were our Comparing ago introductions sales a over ago XX% sales year favorable net As by our in to to new to second increase a million from a $XXX.X was year compared same North quarterly due vertical net exchange to our a in sales increase increase

from down improvement the sequentially While a quarter. year-over-year, our sales we were did nice China automotive prior see

was compared Our of by medical QX digits ramp-up to the last year, primarily programs. double up vertical new from

products. related continued year of as devices metering result Our for ramp-up as of was demand a increased well ago from as climate industrial product a up launches new vertical to smart the control our

the down by result Lastly, lower quarter a our demand. prior year public was double-digits overall of second as from safety vertical

which quarter, last the from quarter Slide was down the reflected in second same gross in X.X% X, margin was on Our year. X.X%,

the year. quarter However, X.X% our from gross fiscal sequentially did margin improve posted in this of first

to basis of with expenses, ago during were product deck, contributing to compared expense up supplemental in gross or The in prior in in in part due increase of the absolute prior points related compared and cost in compensation in retirement second cost support XX the which absolute $XX.X to quarter. and new XX healthcare administrative in SERP revaluation S&A increase the and part employee X year to decline and increase. employee the as employee normal the the count, Also associated salaries in Slide domestic with yields up $X.X due a for million to stock the were higher quarter, higher the which compared as plan quarter well year on cost, year to dollars, are the higher second higher administrative the Our Selling impact basis margin current and to and selling introductions current increases liability. mostly dollars was associated million was point quarter. year accounted related benefit a

revaluation the the is income/expense, SERP in the expenses and in income. investment is SERP the to is revaluation related to recognized expense the reminder, the SERP administrative liability exactly other offset neutral net. by that selling the in a in of recorded from the impact a As net Therefore, gain of

income X.X% to net in $XX.X net income/expense, sales, the an on fiscal in quarter year million, or at the income sales X to $XX.X net Slide income was XXXX. Our deck Other which compared XXXX ago. in quarter, of million second second year a year or the million of of fiscal operating in of came operating expense $XXX,XXX compares of $X an X.X% of

strengthening other the gain exchange the quarter, value During in net U.S. was year of year $XXX,XXX prior of fair primarily income/expense, The the other the current second includes on net driven second income/expense, by the ago. the losses result currency a a quarter year of investments dollar net SERP. foreign

reform was impacted ultimately U.S. the year rate corporate Our effective tax federal tax by and XX% Tax significantly the of rate reform. quarter U.S. tax the tax from the for quarter Jobs The during enactment second current Act, to XX%. Cuts lowered the

as XX.X%, federal rate end, fiscal XX are June However, in blended for XXXX. with XX% our new year will fiscal fiscal statutory kicking current we the be year rate a our year

period. for and While for current in a the is of market, repatriation cash We and the long the have accumulated move tax and for recorded for estimated and tax foreign deemed federal in of unfavorable assets, $XX.X lowering earnings over in did significant quarter repatriation foreign is U.S. reform imposed the improve the quarter. on global The us we held unremitted X% positive an in it corporate other tax, expect it earnings applaud will current liquid and tax the during the one-time foreign businesses XX.X% expense approximately accumulated competitiveness eight-year residual this of of tax this run earnings. of which the unremitted impact payable U.S. accumulated unremitted businesses million believe rate a deemed the

had items an XX, December required resulted recognized recording $X.X were the addition, XXXX statutory impact our tax the rates, of XXXX, $X.X a tax result deferred the new the net tax of unfavorable discrete year change of These the quarter additional for a trend. per second fiscal earnings we X as current million In as as reform. In income our in quarter. we in expense reflects million. the net loss Slide assets share approximately a of of U.S. result tax to to revalue $X.XX in using the of which quarter diluted the rates,

the diluted flow in adjusted XXXX cash $X.X dilutive income prior tax December cash reform income million. year related to which $X.XX, are the equivalents items. discrete the quarter, second income million, discrete per in on loss share Cash quarter. was However, quarter current EPS $X.X Operating recognized tax Diluted for current excludes non-GAAP $X.XX. a $X.XX and of EPS prior our quarter, XX. was net of was which shown the tax from were in the non-GAAP $X.XX to year adjusted year $XX.X Slide compares reform, second our excluding while items net the We second impact trends at recorded the XX, of million

an related income in of operations charges was the adjusted cash usage strong to tax and more quarter Our loss to our increase payable million, accounts a an $XX.X flow year inventory. for from than depreciation, as current increase tax related in cash offset reform, second net during

$XX.X second in from Our operating cash million. flow activities quarter prior the year was

implementation in payable compared depreciation equipment to more to prior receivables quarter second which our than support offset in and reflects totaled an days reduction outstanding Slide largely to capital the for days awards. our day Capital introductions customers, of product largest trend. investment year which XX increased and investments manufacturing ended metric, the in XXXX on and new increase accounts one manufacturing new Days year, $X.X million, three and prior in PDSOH, the to Production to new inventory medical our Sales XX, increased program volumes new inventory our our Our six the Hand, months management increased for one is period increased as days when by cash support compared same our of and quarter sales related a our December conversion days the our in metric. capacity,

from repurchased which were during As up common million Don Borrowings credit facilities our mentioned, XX XXXX. $XX $X on XX, was we $X at million, million of June our stock the XXXX December of quarter.

and Our would we XX, today's XXXX. our well December up open plus totaled by questions short-term in our liquidity positioned With analysts. I and the our cash as continued equivalents our available, represented to support sheet $XX strong credit that, is to unused facilities, questions growth. do queue? balance any amount at analysts of million saying, cash I from like to conclude call very we are with have to Michelle, like the would

Operator

with a am I we Instructions] Susanto Company. from question Hendi [Operator Gabelli showing have &

is line ahead. Your go Please open.

Hendi Susanto

have there in strength kind several are is some introductions, of quarters we for the see next to and terms ramp-up? automotive, stage? ramp-up further good mentioned of or some Do ramp-up the reached in it's the product where leg of have you still for question, we some may new final the ramp-up First

Donald D. Charron

programs we this for the that still No, year, have are of remainder launching Hendi. fiscal

level quite I over four launch would had five or activity though, quarters. we say busy pretty So, the in last are we've similar mode. as

still like of a or so in three we two quarters look terms So, ahead ramp-up have automotive. the five it of activity in us, last lot quarters or four

Hendi Susanto

further sequential that quarter? every imply that will growth So,

Donald D. Charron

in that we ramp Hendi, of as of sales we we as a new our programs but give do given automotive have programs, predictability certain know that market those up characteristics there's guidance and projection, and we launch on don't vertical. end you visibility just certainly amount the

program continued yes, the ahead because us, combined of would base have new we on we automotive So that expect with yes. in existing our going of launches strength

Hendi Susanto

fiscal Mike, Okay. that calendar rate kick Is the in year tax that XX% year mentioned And you then, will or XXXX XXXX. XXXX?

Michael K. Sergesketter

Hendi. year The fiscal XXXX,

Hendi Susanto

Okay.

QX will QX? the still rate same as So, see tax in

Michael K. Sergesketter

Similar, yes.

Hendi Susanto

how your Okay. much now And of then ramp-up drag a the Romania of facility?

Donald D. Charron

impact? the was much How

Hendi Susanto

Yes, on the operating margin.

Donald D. Charron

track And XX will as the on in that income the of quarter breakeven we're basis line, approaching our to our that Webcast, running we today said XX line year. be this Hendi. of believe the I fourth is income points we on around operating It's in been and on phase the operating ramp-up in fiscal

Hendi Susanto

that to you when breakeven, And able be utilization, would up let's start tie qualitatively? like say how you much

Donald D. Charron

I Can you know don't repeat caught that, you. if Hendi? I

Hendi Susanto

When to your the in you let's are Romania said utilizations? that that facility breakeven how fiscal you year end targeting of relate should the we XXXX, say by

Donald D. Charron

of the utilization operation? The

Hendi Susanto

Yes.

Donald D. Charron

Romanian our would Phase to XX% we be for that yes, in And point X So, put somewhere facility. in again, the XX% of would range time. utilization the at the that

quarter this we customer XX% still our base, structure somewhere of XX% the have as but which our year. fourth available is between and expansion further to exit European us, plans be So, fiscal to utilized would the current we would important

Hendi Susanto

share that business what for March expecting of can are the Okay. kind every And you you for Don, vertical insights quarter? then,

Donald D. Charron

ask Hendi? question. you I sure that make I'll your again, understood Can

Hendi Susanto

business like different for the your quarter? verticals Okay, for March environment the

Donald D. Charron

QX feel coming think that with growth, momentum quarter some good the our we into XX% fiscal year. us with way automotive and together with and course I leading growth. Yes, of overall exited pretty third the We obviously with medical both strong very of momentum

that market would a some for exception verticals, our maybe across automotive, second in. into yes, we of we're safety some industrial, is So, us, little it's our lumpier momentum, momentum end when carry I quarter which medical, year with we bit but say are currently the of four vertical, look all with and XXXX we out at smallest of this fiscal public us good the seeing quarter good

Hendi Susanto

of then expect similar fiscal should million like about year we buyback me, how for a lot share buyback XXXX. XX And like year Okay. share of question in last we Should think You fiscal in XXXX? magnitude? did

Donald D. Charron

play of that available that obviously number buyback options a market factors of conditions, factors us, investments of the environment, we into weigh number that a it. the our operating There's program, other have to into current will

We $XX keep to left have we priorities so the as continue program, the return as our part we to shortlist our on million for go of and of will capital approximately authorized allocation Board through forward. certainly shareowners buyback buyback

in Board-approved strategic mentioned see closing, As making really my our we are investments plan that updated I plan. strategic we do support about updated looking ourselves at and future excited to

do the our forward, be about and to will we capital updated list. on things priorities strategic And as so, think certainly we priority allocation items plan going some that of to want relative

Hendi Susanto

Got you, it. Thank you, Don. Thank Mike.

Operator

Basta comes Capital. question next AWH Our with from the line of Chase

Your line is open. Please go ahead.

Chase Basta

cash tax implications help you the repatriation Can understand of the charge? us deemed

Michael K. Sergesketter

to an I Sure, quarter. as we in expense schedule But it calculation, little booked that talk to we on pretty repatriation can that was period. government the a the significant payment mentioned, a deemed over eight-year bit that. is The the

XX% last X% years due, and XX%, it is five the in three then first then the goes to So, of balance the and XX%. years

So kind effect. a it's of back-loaded

eight years. over in And the next see flow our effect we'll cash that so

Chase Basta

helpful. the order margin to is around on Do quarter. headwind to basis wins Okay, to terms I ramp get was happen a that in kind way impact what Then built, to you customer breakeven? to needs the the that's QX? mentioned gross points or Romania breakeven book XX needs in new need you to of its to mean XX happen along guys, the of What you

Donald D. Charron

like the think growth this I good got QX news to year. reported we visibility line there top and in growth, we've had It's that QX is that feel fiscal and we good

the part. to and protocols, done recall That's ramp validation of a us critical on say income therefore ramp As to year. as this very point quarter most ahead predictable approach quarters, about what QX fourth that we're ramp and QX that a got get to get for previous of predictable it you how approvals have on gives track We've to confidence us. the we in fiscal us. and talked customer the line up We've ahead may operating was of from breakeven our we to

Chase Basta

QX, how a could on about margin, think negative basis you how operating once from hit of goes that but in we additive Romania the to breakeven on kind so side of other so be XX being you're should breakeven? Okay, XX impact

Donald D. Charron

the say as more to same continue business get we're got everywhere in income, of X.X% that in fourth look basically quarter and fiscal approaching of year, doing finished we because work at the the like we've ramp-up wins serve operating to time hard work breakeven our holding It's in Romania, the side operating we secure to we operating just other breakeven. Romania to could more income to Romania footprint, on to X.X% Company, our in do the income else goal but at we feel quarter at getting we our be to this with

Chase Basta

helpful. that's Okay, guys. Thanks

Operator

I'd Charron [Operator to Instructions] to questions remarks. no conference over further for back turn the closing time I'm and at this showing Don like Mr. any

Donald D. Charron

Michelle. today's with Thank the Thank speaking next call. day. you, end look brings you you call. our That great We a and us on appreciate and to your forward interest of to have

Operator

At this and from disconnect Thank time, great day. up listeners may a you the to simply call. have hang

Kimball Electronics (KE) 8 Feb 182018 Q2 Earnings call transcript