KE - Earnings call transcript Q3 2019 | Kimball Electronics, Inc.

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Operator

Good morning, ladies and gentlemen. My name is Josh, 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 2019 Financial Results Conference Call. [Operator Instructions] Today’s call May 8, 2019 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, 2018 and in 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 today’s now Charron. over to like Mr. may you Charron, begin.

Don Charron

everyone welcome call. our third and Josh quarter you, to Thank conference

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

the to the presentation Investor and financial summary record organic you quarter, our We posted EPS have. I’ll to verticals that, turn overview. growth the accompany via within you questions sales The end a Relations our by Industrial webcast income call. overall the set new for record. delivered third our on financial goal helped listening presentation tab any I & our Downloads or can quarterly Strong it organic have the can and tab, found making us market net will We a X% conference be are on in Presentations if After diluted begin that exceed income, Events website over few this growth a answer portal. on we’ll in double-digit find Medical you may and it quarter. webcast, the and in sales, operating Mike remarks

helping progress to goal by income. XXXX, fiscal New operating points when business program our our caused and quarter XX certain the us macroeconomic basis global operating of launches successful exceed made X.X% optimizing third of primarily and were ramp-ups programs conditions excellent more uncertainties. than by in offset continued compared our as year other softness margin expanding trade we We

become solutions as with strategy work focused multi-faceted GES company. manufacturing integration a remain our we acquisition Our continues on to

quarter. basis The begin achieve to We income have X.X% generating points by income. when progress can consolidated operating goals focus improve, prior are initiatives priorities X% global third experiencing yield on and also we organic that of capital Margin the prior improve and units, to good fiscal In income optimistic our expansion drive growth the year while fewer be operation and projects compared its chain our improved to in improve quarter net supply and our the Across consistently efficiency Lean shortages. continue its Romania for increased component continue will continues and of disruptions. of minimize to operating We and we for we availability to we the our Sigma throughput are us. milestone ramp-up to XX percent levels Six all component impact margins. cautiously inventory general, to and another to and momentum, achieving continue during periods

demand, up levels. we As to to our back expect inventory down normal to supply catches work

for impact China XXXX, XX quarter inventory primarily last days increased the tariffs. increased minimize have Our ended is direct to Thus in far, from XX days March which days year, levels. to we due these managed XX, of cash conversion up quarter the the the same to

supplier on overall However, China be concern. and continues a the demand on strain added customer and indirect in the impact relationships the to

outcome are trade China of We awaiting the anxiously the talks. U.S.

support in year We XXXX will third of ramp that in We up part investments the growth sheet new sales strong continue our and the further $X.X invested of fiscal and to to programs. launch quarter leverage drive balance million profit. expenditures make in capital to in

measurement of which our share XXXX Board-authorized quarter and common and manufacturing I our $X.X XXX,XXX are GES stock, of technologies brings strategy capabilities our GES. of we test fiscal solutions significant integration a multi-faceted in acquisition The diligently since third as finally, working us brings is earlier, shares of owners and to under we provider. step to the a also share shares the $XX.X new And program. million During purchased total to X.X repurchase our of by stated XXXX, and in purchasing returned our million year million on become October automation,

to customers and about solutions capabilities and We to the the these present own technologies existing deploy our opportunities to GES in facilities. manufacturing are excited our

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

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

Mike Sergesketter

Thanks, Don.

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

a quarterly third Adversely our impacting quarter net quarter which exchange which million sales net year to million, third for of year our was $XXX.X a quarter of sales X% increase As compared net a prior quarter. XX% to sales $XXX.X foreign net new rates, were the in shown X, the record third our sales reduced Slide ago. the were on compared

year, which and, ago by our Comparing However, additional rates China our added X% was degree, quarter X standards demand Europe, our vertical of the from same quarter, lesser as from Slide to X% the new to net more consolidated from acquisition, a accounting offsetting the the the foreign largely than X% in sales consolidated new the impact to sales North program represents the resulting adoption America higher compared to year lower the impact quarter. an of a mix in ramp-up market. vertical introductions. net the added the our net the sales GES of same in Automotive continued net by quarter sales while recognition to were currency offset revenue sales vertical sales in down prior in

by to digits compared in was of double the the Automotive growth all up quarter, geographic our vertical markets. second However, from sequentially our when

XX% in current primarily for the year vertical to compared strong was Medical up last programs. existing Our QX quarter demand from

the as with GES was associated climate XX% for vertical acquisition. increase control of the up additional programs, result Our existing a from demand ago also an and in Industrial year a revenue including products

both existing programs from for our year quarter vertical and Lastly, Safety up from launches. product demand new was X% Public third increased the prior

Our last of year. the gross third from X, the on which margin Slide X.X% improved third was quarter, quarter reflected in X.X% in

fair to the professional were the gains value of offset in by fair in the from current Our the $XXX,XXX which introduction is absolute $XXX,XXX to approximately and of current expense, ago. primarily the the In adjusted XX.X% compared plan, volume, in which partially a SERP was employee expenses, the tax acquisition, year in The again the this administrative The quarter and during $XX.X currency the and the was the quarter, X in SERP recorded in the year return income tax the was net fees X GES retirement acquisition in increase credit in were adjustments year up result foreign new acquired effective million quarter income in Other sales the largely of increase compared recorded SERP third SERP benefits of SERP supplemental income the offset in to third investments product exchange margin liability. offset by offsetting result gains income or impacted income Other higher to revaluation provision in approximately a on service the of the quarter These net Largely our recognized. selling in the of the quarter, the financing year with quarter points quarter. in expenses gains. product an and increase a XX.X% which of is $X.X of gains income by net exactly in was X.X% gross the last ago the prior liability lower was related in our third other the amortization the in higher of GES increased which of increases primarily million Slide for rate of the gains expense net. in quarter income or of third primarily basis foreign million the borrowings was expense quarter. new compared the goal gains to $XXX,XXX year year. was year year discrete on mix Slide to of the Other year was fiscal programs Operating quarterly in of period trend. This the result million year $X increase quarter investments, $X.X which discrete approximately to in and came $XXX,XXX liability. to $XXX,XXX assets, million in compares were and primarily sales, which X topping at favorable selling The of and Selling net general the $XX.X was of same favorably tax and to SERP leverage finite-lived facilities, year or ago. of and current costs margin the higher for investment million deck, to quarter corporate prior XX in current XXXX. the $XXX,XXX for compared record down including foreign net operating the same purposes. exchange compares currency in were value X.X% interest net year on quarter, of administrative in currency tax due dollars quarter, sales third Slide quarter related the effective deck, prior third third our to was rate third $XX.X and true-ups. in reflects net third on approximately The absolute the administrative dollars prior were income year intangible X.X%. a of income quarter,

XX% a the Cash million record adjusted XX. net year of last of $XX.X at adjusted quarter third Cuts earnings income million in and at the in of on net million. which in of net income Diluted third for cash $XX.X Act. of net year, Our a income which Jobs share from fiscal the of and fiscal to equivalents $XX Slide ago quarterly adjustments Tax quarter came this to are cash $X.XX the and trends $XX.X new quarter quarter income XX, XXXX. March million up excluded fiscal non-GAAP related reported year $X.XX XXXX U.S. $XX.X in shown flow million, at the was third of a year. XXXX, Operating The ended GAAP same the compares per were

working in $XX.X items. increase volumes, sales Our income more capital, our cash operating the offset net used as third related plus million largely was provided an during non-cash an in higher from receivables cash to by flow than increase by quarter current activities year

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

Our days, raw ended X to the inventories to XX, the environment. for maintain increased CCD, same material in or an compared primarily months in year, to the period current appropriate cash XXXX, March levels buffer supply in related the prior tight XX conversion days when increase stock

year and year; million metric outstanding days prior the new third to primarily offset and a Borrowings a on contract inventory recognized million, and inventory the capital XXXX, reduction over and to contract were offset year recognition accordance quarter to on related largely our sales contracts revenue increase awards of and our guidance. the equipment now under X asset the new The our The receivables first days production increase should manufacture in $X.X result guidance. an facilities of X-day when at accounts or to only are XX The large includes of relate XX new year metric. related from the recognized we sales to $X increase the during days PDSOH, depreciation of a from revenue Slide March support trends. quarter the over is acquisition adopted PDSOH revenue inventories were component that date The tight recognized X-day or XX, growth for Our time working current in contract receivables improvement days XX, totaled be Capital June the which borrowings in needs needs, in with stock. to new $XXX the days recognition our our compared the for acceleration as work to related million, and are repurchase production increase in cash this for for of CCD capital current up majority quarter funding common metric, DSO, time performed fiscal a addition of the calculation product. during revenue payable of our the domestic XXXX. as at including were partially hand, days revenue as manufacturing with capacity. fiscal investments new the guidance the in days credit and other asset the days GES is sales time to and which including higher due asset in days over part recognized in increase for revenue higher inventory levels our from reflects relieve the to we and market

cash optimistic the volumes In questions optimization analysts of our like today’s and questions and from our with March do in remain we I our million on equivalents revenue, Josh, improved X.X% record organic income short-term our goal Our $XXX to any share represented resulted liquidity begin net totaled the of plus income. analysts. We consistently will have that that, of call and by cash operating cautiously queue? and operations. facilities, as available X% up would operating With were conclusion, to unused XX, growth higher credit to open in deliver QX we at and amount XXXX. the per earnings results driven income,

Operator

comes Mr. Choi question proceed your may John first with you from our Singh And Choi, Instructions] of Partners. Medina question. [Operator

John Choi

Hey, first basis of mean you us Don. versus I of margin gross the help raw gross of versus regarding costs? XX Mike. is mix the understand material question say can My was expansion? some it margins how point Hey, Romania much components

Mike Sergesketter

part sales in gross were we had in do commented a our industrial and we quarter. big a down that that bit, mix the a that the We and and medical big I in was of up to end-markets, shift think margin. part Well, automotive were other general, the with think our within

John Choi

but X% it’s expecting, And X% adding from acquisition, is about growth GES acquisition, second regarding call question been the this Okay. it, know only I we revenue my X%. were to

So we help drivers less has revenue been than the a some the little contribution understand of why us expected? bit behind initially

Don Charron

Yes.

November, run-rate before spelled their portfolio the we and has the GES of some previous the looking typically current typically at season is have there XX kind So high annual was in April, number out on their webcast, as and overall the December as low that has we mentioned May, provided we And of been sort in timeframe. a if October, will, sort of business. season, And of the last month to you the been seasonality timeframe calls, June view.

seasonality And there so some is there.

X% business, to the that a start. X% acquisition. I as number before the business really full will view we similar at looking in off to our was did somewhat the prior in way it say has the provided XX-month months performing So, slower a of XX gotten a

I assembly slower quarters. business revenue seeing their some the mobile primarily in supports our we the couple here with think cyclicality are that first numbers also device semiconductor industry. Again, of in of current portfolio smart

that to those And so time lower will, slower we so in had at are but both cycling off look the I you think are also if than point and expected, this of a we improve we start in for to end markets, future.

John Choi

for thanks Well, questions. Okay. taking the

Don Charron

you. Thank

Operator

any time. over Charron I remarks. for further am Thank call you. Don [Operator at this the like to turn I back Instructions] any And questions would not to further showing now

Don Charron

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

Operator

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

Kimball Electronics (KE) 13 May 192019 Q3 Earnings call transcript