KE - Earnings call transcript Q3 2020 | Kimball Electronics, Inc.

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Operator

Good morning, ladies and gentlemen. My name is Angel, and I will be your operator for today's conference call. At this time, I would like to welcome everyone to the Kimball Electronics Third Quarter Fiscal 2020 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. May 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 statements the on Commission, report XX-K the and today's other for June in of influence filings Kimball's ending Form may release. year SEC XXXX that seen in and factors the Risk Exchange forward-looking XX, can the with be annual Securities outcome and the and Charron, The Officer Officer; Chief panel Board today's of for President of Financial Executive Don Mike Chief Chairman Vice is Electronics. Sergesketter, and the call and Campbell would call Charron. I to like now turn over to today's Don Mr. may begin. you Charron

Don Charron

Thank you, call. conference Angel. quarter Welcome to third our everyone

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

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

delivered the health and quarter customers, third and in we and employees, of XXXX, results The the by caused are challenges interruptions suppliers with the despite our paramount. year pleased the are COVID-XX We of communities safety fiscal pandemic.

critical device essential are our by applicable the around safe, facilities keep assemblies the suggested we every businesses. facilities country variety guidelines making manufacture of are We to as current our effort authorities. classified medical Because of world, following

our sales In medical varying to experienced in COVID-XX. primarily was in geographies a double-digit customers. degrees And unrelated have decline so serve affected portfolio diversified markets, are COVID-XX. but We and to third by of quarter, our a currently to vertical, been customers which operational, all we

assemblies However, a care near we seeing future, specifically are significant and medical related products. respiratory in those patient monitoring demand for the for increase to

essential We and people to the have around products whose globe. the of customers, safety are health

we're people see such shutdowns the for their We are results, the to extraordinary will severity the an automotive I third and role fourth efforts results of and our we of during this this in COVID-XX our plant time. quarter fiscal reflected the our impact what in and do in important world company feel to our privileged pandemic. America extensive In although and proud play automotive can and North contributions vertical, proud help until in challenging from our quarter. that impact the started our be Europe we of of not honored

of customers recent encouraged by We our their on to restart production domestic and announcements the automotive are however plans of several May XX.

pleased pre-COVID-XX of return are to output the our production also with We run China rates. in near

significant vertical overall XXXX. hard who And run to rates we when growth half including to of in deals immediate These return the that single-digit OEM customers generate strong, respiratory and continue increases the of and of in in increases normal. related fiscal these ramp-up medical a the the from will vertical, XXXX business with demand our as in medical return fiscal quarter these XXXX. fiscal to of half new fourth will our care equipment to been when fully our growth added and our COVID-XX us We will working us shortages expect over These the our new year of first vehicles. are that have base in added We increases vertical to programs pandemic several our they ramp-up customers year of help programs, electric and product a first quarters specializes products. a our middle continue respond to existing in rates Within medical world the patient-monitoring for year medical program will to categories. vehicle for customer, an existing next large anticipate supports for automotive the their several new the double-digit the the

in We call GES I quarter machines, last the gain for recent fiscal are year XXXX. of traction be business opportunities our on our The orders continue to schedule in on quarter for pipeline new the mentioned to business. new delivered fourth

the solution in tab, XXXX. GES in EM work is our playing we X.X to GES-developed digital as are We roll about all also software in excited a strategy, out role our and facilities Industry global

are diligently overall our change and to of in the volatility the respond business. mix to working We in demand

We continue our on goals. achieve margin invested return to operating and our relentless capital pursuit

We efficiency in capital of are expansion our supply and to Margin projects be us. global down Lean margins. improvement and execution priorities doubling for across to units, to and our we yield will improve continue of on throughput and focus all Sigma Six drive as drive continue initiatives chain

Our XX, cash days XX up ended and XX, in conversion XXXX XX XX XXXX days. were from the in the XXXX. days quarter fiscal days quarter for quarter March of second from the year ended March

days achieve conversion actions. inventory goals our expansion invested quarter our to of in While support thus in the ramp-up we $X.X expenditures has the difficult fiscal cash and and committed investments demand to objectives, new for made of it capacity volatility the programs. objectives, remain reduction our We inventory us for The launch capital third these of year XXXX. and in capital to were majority and million

since to share XXX,XXX returned of brings our purchasing stock, common and which year fiscal by purchased our third shares Board-authorized million total XXXX, program. to $XX.X X.X October million our shares the also During quarter million we under our $X.X owners share XXXX, of repurchase

has finally, our so to of collective by determination And earlier, I people temporarily As our Board. the our a around COVID-XX the and world result COVID-XX proud stated until been I response suspended the plan our environment, as further am of pandemic.

us and help together. have to and this Our core get company strong through culture will continue values

priority number safe. employees be will to Our one keeping and healthy continue our

a We in will our committed continue position to is the we promises future. company success solid in and The our build are deliver on to to customers.

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

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

Mike Sergesketter

Thanks, Don.

to able medical helping lives. medical demand part on solid of financial strong. get normal into the stress wanted to the devices relative believe condition results, I be we help market in the I increased and support solve save our that my we the pandemic our discussion a COVID-XX And to to critical shortage Before to to our be are do financial in position to necessary continues in

available cash at plus totaled equivalents amount March unused and of as our credit short-term represented XXXX. the cash facilities XX, liquidity Our $XXX million

credit have options our borrowing subject facility an We million as to the upon on request liquidity. our lenders, by capacity the consent to primary additional $XX enhance well of other the to ability increase as participating

will Presentations QX our by can the referring you're slide regarding deck the Don on Or tab. listening our be I webcast results, Relations can website Now slides via be Events the within which along advancing follow portal. mentioned, the on you if the and to Investor found webcast

XXXX net a third which was very quarter shown slide year million, with Difficulty] of net to X% sales of million. $XXX.X were fiscal a $XXX.X compared decrease strong As X, third [Technical quarter sales on our

Operator

and Ladies please gentlemen, hold.

Mike Sergesketter

I'll continue with our sales results.

X% of strong third which was year primarily our of on net shown $XXX.X sales net compared to X $XXX.X vertical, in XXXX of quarter sales third decrease million, quarter COVID-XX. were a a decline medical The as So demand, to result the the sales prior unrelated net largely very with particularly, was was fiscal compared which million. in the overall to lower slide year,

exchange a the partially product vertical net our quarter of existing Foreign ago consolidated demand the by of demand our same market. net X Comparing our part which sales year rates Slide negative sales by quarter, quarter the the was vertical from compared in including ago. a to the down by sales offset by to fully quarter starting approximately lower automotive year introductions. net the products to the programs, vertical electric same in mix of driven last third was prior our represents year, vehicles new to X% and reduced certain by largely impact the COVID-XX, ramp-up compared X%

see automotive results, fourth fiscal although mentioned, industry quarter. severity our quarter of not be we our the to the results impact impact third -- the the As in COVID-XX of will the reflected until COVID our on started Don in

We Our was from to resulting related global in we quarter a vertical of patient medical compared lower quarters a in of currently overall of current in products. from related partially equipment. monitoring result respiratory as to the demand market are to assemblies, growth as offset medical XX% those sales the pandemic was medical anticipate third down in the COVID-XX year and ramp-up the certain the of increase quarter that by the significant customers demand direct experiencing respiratory and care specifically, products shortage upcoming prior

X% year programs partially a down ago of was market lower the vertical offset from certain industrial as products for increased metering control products. out by demand for climate were phase and smart demand Our end

demand. our continued third of certain down were overall the a the safety public programs in quarter sales lower as vertical from Lastly, year XX% and prior phase result of out

margin in X quarter basis XXX reflected from last on year. was which points quarter of was in slide X.X% third gross of a third the decline Our the the X.X%,

second quarter basis from XXXX. margin our the improve However, year did XX gross points sequentially fiscal of

or in exactly slide investments year operating SERP net of million decline to $XX.X The Operating was of gains basis decrease on recorded compares other in in of mix, liability primarily third the is X.X% $XXX,XXX year investments quarter quarter in gross and quarter The XX% SERP the in relating ago on to and at Other of profit was product which in includes compared for the result the no included million to other $XXX,XXX of the year of absolute were to the net in dollars partially compares of the XX.X% for compared the during to partially exchange expense current tax or in items accounted other impacted impact bonus margin slightly the above third and earnings million in to of jurisdictions. quarter to third second the in the of various year and prior operating offset sales. changes decrease profit on Our is $XXX,XXX was interest year of and SERP offset in same by the period expense. fair which compares quarter percent effective expense down decrease the driven in interest the rate SERP the quarter adjusted liability fluctuations Selling adjustments. year value basis from impact expense. mentioned, year This net net investments compared to related income sales favorable XXXX. the third $XXX,XXX rate year partially of prior to changes of million income tax effective selling or sales ago offset third was losses gains due expenses, among of year the in X.X% $X.X million current in a income. was in the net prior Other XX in $X.X favorable improved points gross to net $XX.X to previously which income quarter, liability. and prior the as by $X.X in which rate quarter. income to has by due in fiscal liability of basis our an sharing absolute losses lower the gross income the for largely volumes by expense offset income which Other net quarter in in deck, current Supplemental administrative XX our the expense the as percent fair income net and The compared profit. improvement and third in $X.X the benefits slide Slide quarter fluctuations and a points six year million of quarter. as which the and points approximately which unfavorable our third items. in year exchange $X.X Employee were revaluation Plan offset rate third the the third year SERP to SERP net or dollars the were a value by Retirement largely lower and prior came XX current quarter, prior Sequentially tax comparison $XXX,XXX of The by SERP million administrative quarter which from of the quarter. by change by net was tax favorable provision third sales percent our rate expected effective down our deck, revaluation to was a our in a due favorably a in seven third mix mid-XX% The primarily is and eight range income trend. recorded the reflects tax return expense rate discrete quarter is on on

Operating slide flow to on our net cash to EPS of quarter reported million the last third in our the cash fiscal at of in record Our Diluted compares quarter year in XXst, also at the fiscal $X.XX XXXX. XX. us. XXXX quarter This are million. a year and income third income equivalents which year compares diluted the per were Cash were share for million. EPS $XX.X $X.X shown in quarter which for fiscal of quarter quarterly trends of net earnings third March was $X.XX $XX.X same of XXXX diluted for this came

cash Our in year which third third activities plus net the provided assets was and operating the million during non-cash operating In offset $XX by quarter used income of driven cash. quarter, liabilities. partially was flow operating by year by activities items changes $XX.X prior current only million

or conversion ended sequentially in our period to the and days XX was Slide our compared CCD or same prior And up to days XXst, driven an quarter CCD trends. XXXX our reflects year. capital when by depreciation months for XXXX three Days. days, six five Asset in cash of Our increase the second year increased fiscal the the Contract CAD March

believe XXth, demand in pandemic As facilities medical to to million XXst, COVID-XX borrowings new do save we're XXXX condition Don the to shortage credit to which $X of to to our largely $X.X solid the related medical support to in In and helping our necessary financial $XXX to critical capital a to market to totaled were strong related our manufacturing in continues we be able at conclusion, and from and million, were be our position June investments quarter increase capacity. mentioned, awards the equipment help increased support in part lives. down on third the at million solve production devices March our XXXX. Borrowings

As on support the up today's that, we mentioned, proud this questions to Don a global very to work have scale. any With questions efforts queue? the our teams from would are do analysts. combat I with we're to disease analysts the of open in like doing Angel, the to call

Operator

Anja ahead. [Operator Instructions] go Thank from you. And your Please first question Company. Sidoti comes Soderstrom from &

Anja Soderstrom

my Yeah. Hi, you taking everyone. Thank for questions.

that manufacturers could you the It seems even going segment. helped by more the program give if a there. auto might auto drop-off So there be be though like new me some you're ramps among to first Is correct? color on

Don Charron

That's correct.

-- go So Anja. can I maybe ahead

Anja Soderstrom

you Yes. next more coming program quarters? auto ramps if in among And a new to in think -- just affect going the your to the -- how there's industry, be is that going severe how that slowdown the

Don Charron

Yes.

start I and for Anja, we affects date XX customers. now restart the the would majority as said Europe North at fact and I with May we have America our the think a least of that So that script in of

And down for month basically May. April. the half so for we of been basically of And have the first yes

pre-COVID-XX those back expect approach to a end take run restart the value QX up happens, -- news once So to June that rate. of crank But we'll that the OEMs a start have run month good chain date. we few and rate. and pre-COVID and the it'll expect of towards to the those we the the for but restart That's we weeks supports

America course essentially to pre-COVID-XX run somewhere China to around and near looks essentially quarter there. and Europe production rate, But North the lost at something level. that QX the exiting of like So us happen equal

Anja Soderstrom

do it That in are And But was seems there of And turnaround? you what a weakness are color. in you covered helpful production? additional helped those? related your then segment, production. What see by Okay. medical the like in there's the terms other

Don Charron

our through that categories category separate by and care obviously are then changes had the their delivery going monitoring. device go-to-market are We supporting product in drug Yes customers some strategy. patient significant respiratory some that of

resulted in shortfall. if the will majority that a so year-over-year the And change of you that up made

it the comparison the going QX-to-QX recent level reported I successful be them of is because news with that quarter. did It business we the may take go-to-market I will strategy and think enjoyed good impact there we good news successful. for back effect overall, but change of this expect before its be that, their few But quarters get will for change to into the a them. think, most to them

Anja Soderstrom

Okay.

to of production? couple related quarters, at sort of expected least that weakness them we COVID-XX a So more the offset is for but by on from that go partially

Don Charron

Yeah.

So demand is again, I would relative we're say, care I would as growth. the for And the product and comments respiratory expecting immediate. script I strong double-digit Anja, in the monitoring patient say to mentioned the

COVID-XX so And next issues, and mentioned component working immediately the chain to and the availability we ramp-up supply in through expect over quarters. related we're we're I several business of while the capacity as or occur the in quarter

Anja Soderstrom

Okay. of economic order from And book? then you just on demand, seen any sort in impact the, prolonged terms of, your potential like slowdown overall have

Don Charron

that get in America lifted. But being starting at we're these in, and rates Europe, run see of will that, when were both demand say It's difficult places the back here North by how restrictions workers lifted restricted clearly has shutdown, they're that change been in customers been will of America I onto to we're as pre-COVID-XX. that overall impacted in also the where we restrictions now relaying fast our has we so to mobility and The an are us those are government some Latin and value signs where that determine to availability impact. being

shutdowns I ramping in to say on that's QX placing are April chain the we're customers restrictions optimistic, cautiously work. here we short-term and we kinds back will were impact normal and optimistic significant with rates pre-COVID-XX. these at/or get at we how us but seeing up the fairly the flow. ramp to demand lifted interruptions and us are once fast run Our restrictions definitely related were certainly the production rates near be there, quickly to But run of up will month of value about would other the

Anja Soderstrom

Okay.

say you're what overall you Just capacity overall? now -- how running at would

Don Charron

best really at a shut give our let month would line were complicated of May. America for That's you the my and me I in say Europe it. automotive and answer, difficult shot to but and question literally down North April the half first of for

period. to the utilization as to six-week get pre-COVID-XX. in the utilization them calculation that for we the were rate, is of ramp-up at we we areas lines, growing run So expect And pretty easy then automotive those back

high over Our that medical mentioned, they as have line rate. with utilization equipment the us, placed been will And had meet to run up some very automotive capacity utilize we've to add some the several on able at to our Mike is, we've on ramp-ups. line freed even quarters. news support the of next those been And good capital demand increases the to the

portion to able demand. -- the the totally it's automotive medical capacity is this lower -- support we because a the that of are at at in a in utilization to loss point, increase medical the the use So not

Anja Soderstrom

is challenges. have Okay, supply that some How And chain you? you. noted EMS other then thank affecting the

Don Charron

it some restrictions a the with chain suppliers shutdown. but took as on They of that as the challenge the pandemic the were the and time component side us. well, Well, value the includes for it's spread, impacted boosted also us other especially

people -- even to and back of And and availability work. the just workers lifted were are after coming so restrictions

is on progress for patient it to It's a to challenge. for levels, us example, monitoring. increases the there. product get And great challenge so We're and respiratory care those for medical been a ramp-up yes making

are working really teams hard. Our

the Our great is are challenge we're that short-term. supply partners certainly making here working But, hard, really the there. in and progress

in side, that a was there shutdown. automotive was different it the On

this And here so to and we're now going restarting and week. we're back work, next week

we increases. rapid So, were necessarily to of with kind trying dealing let's with we're different pre-COVID-XX. there to not We're say, a return yeah, at, run scenario rates

anticipating our the base terms pandemic with as although differently has global. in responded of in is say, they not issues how would customers dealt many I'm supply restrictions. our with every dealing So this how And there, for automotive I the they're And restart. region

Anja Soderstrom

terms in there that. now diversified the coming seems GES I like and Thank business, see it an Or... you have Okay. of business, back. is of you. Do improvement And industrial the helping then But segment? semi-cap you that's terms GES the know in

Don Charron

supports we've some those held for also and Yeah. traction the mentioned last we mobile the We're market manufacturing demand end-market, We surprised you been device business smart smart which And nice I script. far QX both semiconductor the schedule unit as them, as to -- were terms our GES starting on mentioned, getting mobile the the area. in that machines. quarter, deliver in up so in for of devices

So, back we'll see too. develops. are the And how semiconductor yeah, guys coming that

We positive signs some of are momentum seeing there. forming

comes we're good that up when of So, take here we demand all accepted that those firm position in to the advantage seeing to for. machines, these we're looking forward quarter And already back. with a

Anja Soderstrom

Thank me. was all Okay. That you. from

Don Charron

great Thank day. you, a Have Anja.

Operator

turn for over Don [Operator Instructions] I'd back And closing like now, call remarks. the to to

Don Charron

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

Operator

on you. today's up call. from our appreciate the of That listeners Thank a and We the to brings forward Thank may and nice next simply and call. you speaking end day. us hang you, time, At to call. your with look have this interest, disconnect

Kimball Electronics (KE) 5 May 202020 Q3 Earnings call transcript