KE - Earnings call transcript Q3 2018 | Kimball Electronics, Inc.

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Operator

Good morning, ladies and gentlemen. My name is Norma, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball Electronics Third Quarter Fiscal 2018 Financial Results Conference Call. [Operator Instructions] Today’s call, May 3, 2018, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Risk factors that may influence the outcome of forward-looking statements can be seen in Kimball’s annual report on Form 10-K for the year ended June 30, 2017, and today’s release. Kimball call Executive Charron, Vice Officer; Chief Officer today’s Board of President for Financial Chief and and of panel is Chairman Don the and The Electronics. Mike Sergesketter, turn I would call to Don the now Charron. over to like

begin, may You sir.

Don Charron

everyone, welcome, call. our third And Norma. quarter you, to Thank conference

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

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

quarter year for of automotive fiscal ninth up end Very third to helped consecutive medical quarter XX% third the and a verticals in growth quarterly set in the new strong of us when quarter market up sales XXXX XX% year record from previous fiscal and Our compared the sequentially sales our were quarter. XXXX. the

significantly now in fiscal sales annual our We years a goal, $X to are in billion ago, exceed year pace on set of almost three XXXX.

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

EPS recently new XXXX as focus income third new for be improvements net efforts, on in and of year a on year fiscal quarter programs. fourth quarter we have launched quarterly to fiscal margin will continue set our expansion yield and pleased The throughput are XXXX. the pivotal for We of quarter records diluted to

For of us ramp-up Romania in help the the to our achieve progress income. goal operating on X.X%

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

rate quarter. our We of this approach to of impact this of next operating Romania basis the sales points, from third double break-even and the the was to a income fiscal XX expect point XXXX on fiscal run quarter fiscal consolidated expect than by fiscal our for The to operating margin. fourth ramp-up year income year important we our the operating have effect milestone year our of approximately on reaching quarter XXXX, measurable XXXX so will fourth more end quarter income

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

flow further and balance in expenditures investments drive total would in We cash to We our that in our sales sheet quarter continued to third growth leverage fiscal year XXXX bringing strong fiscal year $X.X and capital of the XXXX, million profits. $XX to million. make invested

existing our our And and remain begun our so demand on the of that of work on XXXX to ramp-up focused the doing finally, expenditures necessary materials last our supply levels. implementation in secure our approximate this updated during fiscal the plan. the tight to we capital second has first XXXX to new call, as to raw quarter year due approved market order from we production what’s board of customers, we stated stronger-than-expected on we calls, strategic several We million. can level expect $XX As year stated fiscal

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

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

turn to quarter more to in results over detail. Now our it third discuss Mike I’ll

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

Mike Sergesketter

Don. Thanks,

our During Events can webcast, webcast Presentations you’re my website comments, on which I can tab within Relations will the on you be referring if Investor & it to Don tab; deck or the the listening downloads in found be slide via portal. find the mentioned,

markets. As $XXX.X favorable net a introductions net new in from program sales year our of million. rate well X% shown was market. Partially year increase vertical of a $XXX.X in record were X from accounted third was represents the Comparing assisting to X, growth. year increase quarter. of record the mix on as new automotive largely million, ago our our strong was sales to compared prior vertical which of movements the due exchange our sales to to vertical to geographic ago our a Slide the up of the increase quarter The ago year which sales million $XXX.X compared XX% was a by a ago, demand quarterly in net sales year for three quarter Slide net third by ramp-up net XX% all our a over same as a

the was in the current both ramp-up of up XX% quarter from year vertical compared demand existing increased of for last medical new programs to Our QX and programs.

from demand a exit related more the than softer was product smart X% existing was down ago and by from certain ramp-up to as in launches of a continued other devices metering of programs. programs new vertical industrial increases offset Our year slight the

of from safety our as by life. and digits vertical result demand prior a year down public Lastly, reaching of overall quarter double third was the programs end

this Slide third the last slightly year Our X% from quarter up which of same on the and year. sequentially reflected X.X%, flat second fiscal the was quarter gross in in from margin X, was quarter, was

year costs, SERP, prior the current and partially lower higher and selling due including increase Supplemental revaluation to the the the Our of noncash and Plan, deck, dollars third benefit Selling was the the stock X product in expenses, associated margin part in result which third the the increased for compensation salary was leverage from of in costs, absolute to offsetting normal compared increase. to compensation accounted The by related costs XX prior basis ago related increase support the compared employee quarter. expense the expense in administrative which point to the costs, were a million year compared absolute basis which was incentive administrative to points Retirement the in gross sales, of S&A and dollars, Employee or and quarter, less liability. year Partially costs the a $X.X of were offset impact favorable quarter with increased expenses including year up in new mix. product in introductions up XX and million $XX.X a Slide were

tax rate $XX.X $XXX,XXX benefits, on foreign tax for recognized benefits. third exchange for million, period period X.X% reduction compared the Our Slide In year in the reflects a revaluation did of the current of third our to our locations to in on X gains of operating in third ago. year in of the of XXXX. third of in quarter, the approximately compared income in Slide was included prior assets $X.X tax quarter for the related $XXX,XXX gains. tax year with of in The came rate including year was year In sales tax to currencies XXXX in a our quarter Retirement in the other the U.S. foreign fiscal Plan Other income significant income our tax the a blended the the the currency operating year deck, investments in effective $X.X fair in third $XXX,XXX corporate which the foreign XX.X% deferred have quarter a rate XX.X% of the prior quarter, of of quarter. the Other income to compares million we net net, net primarily by our in prior tax million income income million adjustment the rate impact value the to current recognized same in third $XXX,XXX Employee or reform. net effective strengthening dollar. quarter, Supplemental year third $X.X year or of currency year X driven adjusted tax In and net quarter, for not exchange the income quarter third $XXX,XXX sales, XXXX U.S. X.X% the $XXX,XXX trend. current was at effective XX.X% less The net the gain fiscal approximately net, result to discrete than current discrete fiscal a quarter. compared associated on measurement we year

of fiscal of is Our third million came the in $X.X XXXX. XXXX quarter reported a in $XX.X record net net the of a recorded income quarterly fiscal to of million increase quarter compared XX% third with income the year which new GAAP year in

the non-GAAP third tax share in adjusted quarterly $X.XX at the was adjustment for net the ended the third year, record income at per a current Slide are excluding earnings cash trends XX, reform March XXXX, period million measurement which Operating year. compares quarter cash to mentioned this of I $XX.X for year shown quarter Our were up $XX.X previously. Diluted quarter, equivalents same $X.XX XX. flow fiscal of Cash and last on million.

levels. receivables during cash primarily operations increase increase our items working the net more capital, flow related $X.X as offset higher current an usage cash plus to million, to related quarter an Our sales income of the third year than in non-cash from in was from

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

equipment our payments days support offset by on the our our increased a as were receivables programs. and Our Sales ended support volumes June $X.X million to XX, prior credit a largely period customers, sales than from capacity. from from factoring implantation year capital to XXXX, Hand, cash and outstanding, one inventory the from – investments X in quarter March XXXX, inventory customers which or third XXXX. conversion Slide new more facilities metric, On volumes program new in Production our Capital investment which higher of in reflects utilizing million, which depreciation manufacturing when medical faster manufacturing up four our to three Days or DSO, largest for March related months metric, the our our totaled the day management is for million, days PDSOH, is XX same trends. XX, production $X.X awards of and day five in to partly the and increased which our $XX.X compared new Borrowings at the was increase decline XX, increased days

amount the liquidity cash in balance totaled like saying continued well conclude we be that, $XX unused facilities, by plus growth. XX, March sheet questions short-term today’s that with our call cash our up open credit equivalents believe continues at queue? to from I’d have available With and and XXXX. to to like Our as Norma, we’re the represented of strong, any positioned analysts would I questions do to analysts. for I the million

Operator

Our [Operator Gabelli Instructions] Susanto first question & Hendi Company. from of comes

line Your is open.

Hendi Susanto

taking thank my Good morning, and for your questions.

Don. and automotive. First are year? Don seeing into for we possibly sustainable seeing is question are we the How in fiscal growth positive automotive in high XX% going QX growth in next is QX

Don Charron

would had on certainly the pretty programs we quarter demand how demand was the in that the mentioned, but programs very strong to during world. past from can’t had, visibility at we as were strong growth we demand. comment that that period I that there, were quarter. say all we also, of demand outlook the of three we was had from the was Well, ramp-up this it significant terms I that, the Fairly regions Mike experienced, really, surprised and really strong unexpected certainly that in

Hendi Susanto

fair And new more still assume that in design is are not were to there QX that realized? it wins

Don Charron

still healthy a do pretty, still of have us. launch schedule we Well, ahead

been were pretty in that supporting because we we’ve a of had for run an more sort period we’ve to looking to calls, Mike say, times running activity the support of near good consider new would I been several proxy we that CapEx, we what last, look somewhat really, a don’t coming times X it’s programs. say, that been our CapEx, But as to past of a X for rate in mentioned, most rate rate something depreciation. future, X continue of launches. out mentioned we’ve rate years, X see the would through run at And for a new normal on is those activity. now would CapEx something approximated a new sort time in that years. double we’ve introduction to of at or our do on We’ve be equipment at let’s of, We As times where similar the again, of when renormalizing launch as a see, a unusual product

Hendi Susanto

organic share Okay. Kimball services company. Don, goal? you want multifaceted organic to versus more mentioned you terms that And go that colors of Can in to EMS you then, Electronics beyond toward

Don Charron

Yes. of there, work We new development. stages acquisitions organic would our platform our to early see launching most be in here of versus an the strategy

very We into the of the of feature. needs in the interested in working are way the servicing ecosystems companies our smart are that factory

So we we areas, make like areas investments like Those those and our by and and the in know looking test the way, future. that to factories. know We we’re are areas automation megatrends. measurement, that into the own the are

factories. investments We a those going own have lot in of on our

also being in a manufacturer the future. a high-tech in to good we keenly service in are ourself interested So position as

Hendi Susanto

facility. I And the it. Got about question then, Mike, Romanian have a

will Romanian you the share gross the a you of by breakeven goal by this end. reaching post year? or set anything that facility June year fiscal breakeven What like boost margin can ramp reaching So XXXX

Mike Sergesketter

his a we’ve quarter reach impact saw XX within to income we about in we quarter. communicating, rate this point what Don basis year and in Well, the in as QX expected operating by stated breakeven been comments, of run the

And it in to it at XX look operating is up going some I think, expect would something facility to way that gets gets basis on that we to see a that or of points improvement as breakeven. and speed to forward so, good maybe terms

Hendi Susanto

assume So fiscal on basis, to is take next XX a it the point reasonable in boost place may, may year? quarterly that basis

Don Charron

our company at X.X%. for consolidated we our Obviously, Well, quarter, business, goal is And the the the this as ended certainly. in line. X.X% we in, income at for set operating line all we’ve look current

we have it consolidated current the look and look in to So the if the we level, as would Romania hold stay at forward, improvement say, let’s we business can, add that to make serve at level. X.X%

Hendi Susanto

facility does that factor Romania the then Can breakeven, how of I does some utilization mean, range Can it me what – kind to to correspond factor rate? correlate And breakeven run at you what Okay. in like the utilizations? running share give you will idea?

Don Charron

around XX% the be a phase utilization It that would somewhere at construction of Yes. point. X

Hendi Susanto

Thank Okay, got you. it.

Don Charron

Thank Hendi.

Operator

from [Operator Basta Instructions] comes Our AWH question Capital. of Chase next

Your is line open.

Chase Basta

up on grow vertical a result of Is concerted a here there to kind effort or demand? automotive Just just the of strength. following this meeting is

Don Charron

I’d Chase. important say, growth. terms strategy that targets portfolio We portfolio our we goals return been I mean, we’re of this but market it’s overall we’re capital going have an pretty it’s target steady, of can any our sort end for not that – in turn meet part vertical for, has long-term away plan of growth aiming on. to – organic that we think is our growth do

world. cars and because and build really a happens been, very electronics of your that’s, the of those past just growth where I stated new is something we’ve kind variables And regions there’s on also, we of of of world, we’re stronger-than-expected our in this And the And fortunate just we’ve right that what in those right there growth vehicles, rate. having something the go calls, think winning I’ve programs. really saw where those that not right ramp-up about in fortunate on is for the the around in of been itself. as by we the growth quarter strong So us content, ultimate lot factor the programs launching content, the past And terms the result programs. in that new

that hardly pretty growth certainly, same So QX are ramp-up predict, of of higher contributed expected. we good going total end those thing just good to we finished. and But we’ve feel predict, us. will be forward, got we can’t One what anyone The still is on to had full SARs quarter was than rate about the have going the like ahead for production we year. some activity we the can in programs

Chase Basta

Okay.

is automotive out or of called negative I Is kind guys in the margins think result the growth result you vertical having slight in drove mix of the quarter. that? new impact kind ramping of or as a what of a business that higher mix more of up it on

Don Charron

or would When be like MPI midpoint maybe production, automotive is said, – a our probably the years in Well, It’s past of the look example, take in spot. time the vehicle in a of as sort we challenged activity. launch product in quarters time capital, phase. it full X program, ramp-up about go two more production, Chase, calls, in also, in maybe seven the as development, lifecycle maybe we’re we X, at sweet are is we on deploying hiring launch years in production for most ahead the those typically ramp frame much resources platform programs to up at in because that a that then to and X of as their

So end programs them of front we’re when most challenged we at production. these into the get

recently our talked first because improvements programs, their on – trying that’s on when usually, yield about those shoulder and invested So to we’re throughput rates it quoted months, margins return capital. XX and program that to that we get putting launched really and where we’re into

to last program of us and get think, operating of have some quoted up, the that those we it it So long-stated also we approach quarter our goal income goal rates. for on we Romania and that for the And reaching say, a – their over new line, I line, this launches QX, our just should occurred we we X.X% to XX – But we quarter, should OI us, QX. run or to not two, months, next combination of operating coming start only income. the called pivotal is stated breakeven stated expect for

Chase Basta

zero you Are that guys And like sure point so next is it saying quarter this understand a Romania, that it’s to the whole make I okay, on exiting quarter. to at zero? goes Okay. for quarter or headwind basis just XX

Don Charron

breakeven of to by quarter. the expect the we approach our end So

Chase Basta

sheet. thought the you buyers been holding guys on than just in then your is the And for? process and just recent the cash pretty opportunities buybacks there? a of there? at the And the what’s didn’t prices any thought I of see Or stock considerably at a the despite lot pretty kind that of rated cash higher have flow operating in of that aside kind commentary Okay. there cash process I’m on in curious what you’re pipeline of nice release, balance it’s steady kind months. Are other imminent press

Don Charron

do is standard each the Board to that our Well, a investment course, answer have are in meeting, that decision. I would are. depends acquisitions of that right, new The market, our strategy, those same with shares key those in our our other our we as repurchase, new – And factors in that mentioned opportunities it on board we number as Directors, then, my number of factors, investment platform timing, of our And Chase. actual a decide of strategy. answer, ourselves be quarter, we factors. priorities of to the primarily price, And those all be one on you’re we we expect we launch of what stream – meeting commentary in into

so as you’re And we stating buyback market. programs going to acquisitive follow you’re projects, governed in to the the work when on have be that those we that rules

yes, correct, have to reasons we to and has it’s didn’t I that be all for that of just the those all rules mentioned. and shares quarter So during you’re followed. buy any be balanced And

Chase Basta

question quarter period next sense. your or margin you terms And final Do annual goals updating makes some sales to is you for in going targets both plan on those fiscal of and forward? It operating XXXX guys XXXX Okay. goals. fiscal plan my hit

Don Charron

of our part process. It’s

to in our quarter outlook section we our the release, best And look the our as press we’ve going past at make out those XXXX. we’ll close and now done through operating at look those plans years, progress. provide update fourth XXXX, the updating our we’ll QX we’re goals, yes, we’ll do targets. to year And fiscal when of the as for we in So release upcoming

Chase Basta

guys. Okay, great. Thanks

Operator

for time, Don like At Charron turn comments. I’d closing this the back call to to

Don Charron

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

Operator

participation Ladies your thank and today’s you gentlemen, for in conference.

wonderful You may a day. disconnect. Have

Kimball Electronics (KE) 4 May 182018 Q3 Earnings call transcript