KE - Earnings call 2 2024 | Kimball Electronics, Inc.

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Operator

Good morning, ladies and gentlemen. Welcome to the Kimball Electronics Second Quarter Fiscal 2024 Earnings Conference Call. My name is [ Jalyn ], and I'll be the facilitator for today's call. [Operator Instructions] Today's call, February 6, 2024 is being recorded. A replay of the call will be available on the Investor Relations page of the Kimball Electronics website.

would Vice turn Regrut, President, begin. I to call you time, Regrut, Andy Investor this like the to over may At Relations. Mr.

Andrew Regrut

you, Financial Ric Phillips, to Chief Executive everyone. call. Thank Jana me issued our good Croom, a and quarter Chief With is second We conference Welcome today here Officer; and operator, Officer. our morning, Relations for call, press release to page accompany of today's a fiscal has quarter our the yesterday afternoon on Investor the with website. company 'XX. second our posted presentation results been To

filings like to press Before started, risks differ can remind get non-GAAP our subject will release release. GAAP provisions we the and we from and in in materially SEC be uncertainty forward-looking I'd to statements. amounts that involve to that actual stated Reconciliations you harbor available of safe press as statements results that are forward-looking our are making our and and

we to transparency includes added One our with depreciation item which the line conversion business other stock-based financial metrics. page and release, to additional of commitment key days you have a providing amortization, housekeeping These and orders are compensation, disclosures mention, to press relevant for enhanced open other performance our in cash this metrics the and with starting periods. operations quarter, into

and call review XXXX, now Jana This fiscal I'll for morning, and Ric Ric. before over will will opening guidance taking with the to prepared financial remarks turn for will results questions. a start comments. the call complete quarter your updated few the our the Ric

Richard Phillips

morning, good everyone. and Thanks, Andy,

consumer same team customers our from as operating the Global pulling are XXXX of on hand, to softening back. markets to schedules with align and serve sales. experiencing output compared As higher elevated of production taken inventory interest uncertainties Sales demand demand QX and macro was Margins, headwinds, elevated The we navigating expected, are with manufacturing remained fiscal quarter changing being requirements. through the pressure persisted our in environment. date have second our levels period geopolitical delivery rates is and structure inflation, in we including thanks our customers last the work declined hard measures to challenging a the with other to proactive stable, lower slowing cost in part and reduced the the levels. quarter year meet fought

macro We we seems align year operating remainder industry-wide and the opportunities. did this full of have XXXX it our expenditures the income trends. the pressures guidance remain for know fiscal with some today, for in and to updated capital in for invest guidance will for what our on XXXX long-term Despite these growth expect Based sales challenging to likely we environment time. near-term not as we fiscal continue for choppiness, change

by business With driving strong supported expansion on funnel focused a balanced strategy new we're and megatrends, favorable organic global customer relationships. industry deploying long-lasting allocation a of capital growth,

recall. was is particularly involved The major with Europe. occurred an geographical decline and million, up North in Industrial perspective, compared line results in declines our vertical the Thailand, results strong X% second Asia quarter a last year. in customer to that second for low digits, market Net Medical of the offset Turning the a $XXX in back in totaled by sales to good double decrease America, which Asia impacted From our quarter. in the heavily FDA top was by

more to the general to appears the significant Europe slowdown where world of is areas of economic globe. While other region compared a be the

climate million, and vertical concentrated control quarter to strength X% charging total products. a sales QX in this quarter Industrial, year-over-year was net One year compared the last safety The company market, posted with growth of systems, $XXX XX% in sales. and increase public totaling

safety, heating to stations. frequently and With as in devices impacts, factory some and resources, we products optical cooling energy industrial systems, & reduce that of and respects, best specialize automation, locking efficiency, inspection, natural responsible own We neutrality environmental business customer. electronic promote and green we're clean, refer carbon our in the our use charging

Next totaled million, quarter decline weakening to quarter is company a compared XX% in incremental offset fiscal the X% demand Automotive, strength driven decrease by where second partially sales. sales QX by Europe, The of total and China. in XXXX this $XXX of was

growth see incorporating systems. the trend to industry vertical, for steering toward Automotive and specifically Longer by strong in a term, the electric to driven vehicles, in we continue braking more runway content

critical safety regulatory manufacturing stringent to us in expertise advancements further the proven industry meet that of these requirements the products Our support ideally positions systems.

in most adoption rates important As two. Essentially, under the consumer industry steering currently matter as electric preferences evolve a is it braking vehicles, Automotive and be what's towards or internal our combustion the reminder, doesn't hybrid it of are hood engine, transitions is these EVs. the an and business same and of motor for which whether the the and a architectures

last was to Finally, our of Medical line with year decrease in a million, net sales total with of expectations. company XX% QX and sales. XX% $XXX compared This result

to partially other sales As I reduction guidance million our earlier, by reflects this alluded in with in offset a $XXX customer vertical major annual in programs. a growth

in drug of as growth care the connected medical and affordability to become population common. these increases, and require continue and and health delivery precision to smaller get systems devices emerge higher more accuracy expect ages, size opportunities We to access levels

for systems with circuit higher-level The device value-added opportunity capabilities cold or assemblies development chain more leveraging but printed focuses team as and drug manufacturing management. plastics an category continent. board beyond a capabilities which these precision to, sterilization include, HLAs, and not Our business assemblies and are on limited electronics and complete represent involving operations delivery molded extend for assembly injected

environment a summary, for quarter updated in an a solid XXXX. operating in So fiscal outlook difficult and

Jana? review QX the guidance now for year. I'll the to the call provide for Jana and turn our over full on financial to details results more

Jana Croom

Thank you, and good morning, everyone.

compared $XXX.X decrease quarter fiscal were X% sales second of highlighted, in to Ric As XXXX. the net million, a QX

exchange had sales a favorable year-over-year. on Foreign consolidated X% impact

to improvement being product global compared compared same costs with driven material and The was XX the year, XX were in rate mix lower favorable point increase last the gross months a margin electronics a by to impacting shortages the we ago dealing basis period QX with when X.X%, industry.

We are aligning the current macro also our cost environment. to

compared with and million losses. a expense quarter for of million, by in administrative increase selling allowance Adjusted results driven the million were $XX.X $X second credit adjusted $XX.X last being QX year's the to

history charge and expected the appropriate the and of payments. customer this the timing the was is Although not consider associated outstanding of the customer bankruptcy, of to age the determined creditworthiness payment it with we in amount,

year. As percentage X.X% second basis points and or selling higher sales, of a adjusted administrative the of were last than quarter expenses XX

for of million income of was net second operating sales, or $XX.X Adjusted or last of million sales. net $XX.X X% which compares X.X% the quarter adjusted results year's to

was in a result expense The compared interest last QX elevated XXXX. of of compared and XX.X% expense was of product debt income higher $X.X second in of interest Other expense rate levels to million of increase was year-over-year, environment. quarter effective XX.X% expense the rate and million current fiscal to $X.X tax our a year. The the

$XX income $X.XX diluted net diluted in $X.X QX or net million to share. per adjusted compared of share year million XXXX or in $X.XX the of Adjusted fiscal per second of income was quarter last

the at XX, flow compared quarter to were the and million of cash second the used balance activities and now $XX.X sheet. in in quarter by Turning December XXXX, were XX $XX.X days was XXX equivalents conversion days to days quarter. Cash Cash XXXX and days operating cash last fiscal million. XXX

payable customer started year fiscal in was the our sales calculations. increase reduction day with and in driven have XXXX days. this in we results The As QX a asset CCD CCD advances by change. an prior reminder, a and contract outstanding including compared in days quarter reflect The in this increase from accounts

we addition significantly are to on inventory, days as and looking actively a to aggressively In components. its cash conversion also we our manage more improve focus

QX Inventory last end to fiscal $XXX.X compared XXXX at at and $XXX.X million ended the million million quarter quarter. the $XXX of in

we with decline to to match customers number rightsize continue outlook. demand to We expect current to inventory as this the work

requirements quarter efficiency. million, and growth, expenditures were in automation maintenance in investments the second Capital $XX.X and organic supporting

XX, Borrowings million year $XXX.X end million million at December at ago, credit XXXX, on a and the compared were to $XXX.X $XXX.X facility of our QX.

January provide domestic $XX needs. we million plus maturity operating The the date short-term capital equivalents investments available million as cash totaled XXXX, the amended February of Our meet $XXX X, increased limit short-term important on amount X, to working from our our additional quarter. for that borrowing credit note second from XXX.X the and to needed cash of credit to amendment facility XXXX. unused other X, XXXX, is the changes to and liquidity end to and liquidity represented at January the It million

repurchased were XXXX. stock. no repurchase program, our has October million of shareholders XXXX common been There $XX.X a purchase returned shares in million of shares our Since fiscal second our of to the under by Board-authorized quarter X.X total share

repurchase million the $XX.X in have We remaining program.

expenditures prior guidance compares of we Operating compared XXXX, to of income year the prior expected did sales for of is fiscal previous range with XXXX, As year. change $XX million to to fiscal X% million. to previous flat in Ric sales the the our guidance highlighted, range our of our are net with X.X% guidance for to X.X% now net to which updating year. to estimate be capital X% with with versus of decline estimated not flat The $XX the

the back now Ric. I'll call over turn to

Richard Phillips

Jana. Thanks,

once honored we with awards of on by set Kimball of highest I'd they questions, that manufacturing delivery, consistent for with customers keep our the overall They for relationships Service our our input. for worked consistently are the receiving common for the team decade I recognition. or a solely continuously improve us we Before In are for thank open team's the very proud like lines long-term and building of worldwide categories Awards. like dependability timely quality. congratulate These value being new the to our customer on recognize we've customers, more. am CIRCUITS price team, the promises. again in regardless whether technology, have priorities allowed or and customer of achieved this and to to and culture our recognize team ASSEMBLY based and direct I'd November, ratings Excellence our focus

for way I'm Kimball the what's and together winning ahead excited company. are about our We

Operator

Instructions] Derek Cantor first from from [Operator Soderberg Fitzgerald. Our comes question

Derek Soderberg

sort in end It incremental seems just Industrial Can packs end environment I wanted the would the touch sort the Automotive? feeling bit that's Or weakness on market. Medical imagine of expected. it talk strike. where revision largely by I impact to your for the the is current weakness UAE (sic) of is has a the [ of in leading incremental coming of from really, to outlook? by about market this the as UAW] broad-based? strength, of I some tracking expect like year you Is

Jana Croom

Derek, and the thank for you question.

off start to one we're that customer, probably Medical that expected, exactly a million understand. let's we decline the by range. with through which new and and see to to is the $XX related cleanest roughly the easiest as So product Medical launches come million is is some $XXX we because tracking large offset have going

And expected. so that one is going as exactly

significant to benefit the related in specifically also market. charging seeing North are the that through some come we're related offset to by being we is HVAC metering Industrial, line, we're smart and seeing particularly in product Europe, in seeing growth stations it that weakness America,

relatively in I softening also the more it is we of disruptions market. speaking, in Automotive We of holding result is just looking year. clear minor Europe is had is seeing really we really declines coming we're nice mixed in seeing is And and We are in fiscal as the as is tell disruption saw coming for of tough UAW across the anticipate the pockets are the very where some America Automotive Europe. the European any strength a North in through flat. business. strike. generally a Automotive at, bag the don't remainder board China, will from, what you,

Derek Soderberg

you can just -- -- on -- it. just take ahead. Go take yes? You want I And it

Jana Croom

North but been those mix strong. America, have really [indiscernible] in in volume sales China,

Derek Soderberg

you any is Europe? geopolitical in remarks, And prepared the of some it. just have mentioned In operations in Got Poland, I know you weakness uncertainty. you obviously expanded. the

case, about seeing wondering Red You've you conflict quantifiable of in I got this of played how I'm rates to in what if the there. sort thinking that's that a you're a year? Jana, income the up. the are the Shipping And operating quarters guidance? rest impact if the guess, to leading out not lower Sea are

Jana Croom

customers to on related the be up ended in to products suppliers to We and actively are of distribute all actually ship So impact. that us, we the incumbent to have the customers waiting Red seen upon sending Sea. able disruptions who to our letters it. It's

doing for are best we So find opportunities alternative our freight. to

They year, got sitting to it of pushing more now demand, on on scarcity of on Sea of lot relative customers 'XX. shipping in they described with much out it as us, through. true the we feels out, what -- a and inventory. had not really I'm a you'll blame shortage do going 'XX is to took you're work from Red as of push this out and now There lot that it to saw we we took of though. Europe. language seeing has slowdown notice, What A as a last the a they're if product availability. was like And to they've could took inventory and and in lot

so causing to just a and choppiness a steady as would will market, time. near-term that, that correct know through what state growth. resume that to inventory is we And of the got they've to normal itself as over we what temporal is cadence refer I then push But get

bought like of back ], for you growth of and the it have then scarcity and a steady toilet where toilet COVID paper, could CTO a they and get as XXXX to everybody ran is of toilet debacle was supply you sort there to as work to [ much paper then you state period. paper Our out

Derek Soderberg

squeeze North If around Ric, mentioned I Industrial. I just one America Well, you in appreciate Yes. the strength in. some more detail. could

that You for clean manufacturing for in opportunity for play any charging Act? sort to for re-shift the seems opportunity & Jasper real a HVAC tied some manufacturing mention credits inflation like to you growing you to tax Is way guys. stations you have Is did Reduction green, there that's that? Kimball guys? to Would of a the

Richard Phillips

We're see want about, to it know, talk We've the North you those seen American we America our and of that yes. have -- proud, something North that we around we certainly the all areas. to It's in like We customers and about talk strength network, time. us manufacturing as

be an to and certainly opportunity explore continuing we're that that's aside. So could

Operator

Our from Riley. Griffin today from next Boss comes B. question

Griffin Boss

Jana. Ric,

working in capital the on saw first, step-up the we outstanding So sales front, quarter. material days in a

relates what your curious as for and receivables? expectations this going Just are term to forward it year then longer

Jana Croom

Griffin. question, so I'll And that take

according partnership because We us in know, work right? to we do placed you our have demands here, a to lot it's of customers And with and ordering the customer as were our on with NCNR.

showing consignment XX So was to XX weeks inventory that working weeks continuing is is in it cash weeks everything customers be deposits we ago, We're the ordered ago, XX be demand some And as moving for us, ways, build. customers up. of from is through variety to going So with some of forecast from ago out to it going right? of it a and of customers. inventory is

charges, you know, is it's this preference not carrying type is of key. of the Some which, now cash, in it inventory, charges my is although environment carrying on right as

] too our expect our PDSOH that as I down, [ and DSO to weightage it -- pendulum need far. that it a said, would come previously swings I

got and so in to customers. agreements on aging our receivables work And get that with our the with line we've more our of really contractual

the is Working end, through the it capital now, debt in seeing release. way focus sheet would have to the So inventory, balance it of the impact which right? laser but our right all on relieving is it's terms a that

Griffin Boss

Got it.

Okay.

that So accounts to of a in related the major the 'XX million FDA Medical for recall I sales turning obviously, Medical. just fiscal customer. $XXX understand, reduction to guide

you Does you program is the the us, to Or later do have 'XX? not in when past, the remind -- start is XQ hit expect again not just line top sure Or remediated? that that recall you in can be to said visibility? that it in if I'm So you XXXX?

Richard Phillips

Yes. really really tried about don't. We be, What to is Griffin, we've conservative that.

discussing with customer. expectations. that we've our I before, to ready that we and great stand build multiple not relationship and said any really support. think be we conservative at to to have point into tried opportunities in We're But a we've time, continue

Medical changed that of for said, that digits single can those expectations reduction would high our and XXXX in outside that but on of overall the really we're on Jana have on, QX to growth expectations point Medical outside probably as haven't back math do one customer One you from that been low-double and customer.

So we are making progress.

We wins coming really long see continue term. and to optimistic in, we're about Medical

in But program question, any that to to expectations restarting. answer we've directly not built your related

Operator

from comes from Lake Street. Jaeson Our next question Schmidt

Jaeson Schmidt

that Understanding been but outs your macro, cancellations within have you're if seeing any there decommits curious here just backlog? with just push issues or the given

Jana Croom

yes, our orders, as is decommits not seen, you've with you've business. through which, it far got cancellations know, Normally, have out can usual away. and We got you volume, you in see come this backlog, from

huge haven't we they Industrial, example unexpected. shifts been actually good focused, were but seen they where geographically Now honestly, we've have and been that saw a quite is significant Europe

And on that partner looks like, so the what through with it. we and we work customer

we've NPIs, because come and decommits, seeing program of had existing push ramp in softening that we're years of our the solid through a in interesting some programs have we're been some really launches It's cancels place new where for outs. seeing where

Jaeson Schmidt

of And just of example that. those decommits you color. Industrial, gave but is That's concentrated it up pretty know just really based? are Okay. your following cancellations or the broad segments? I in on one Or helpful then

Jana Croom

is actually tracking Medical well. really

us peers for them. one has to strange Medical highlighted our vertical softening it's of so And because a

really softening actually where we're For seeing Industrial and us, is more going that's of exceptionally well. struggle.

vertical play on where for of customer you us. it that's But think it each so sort I and mix. your And depends

just experiencing as of expected. economy result that's America Automotive, is the some they're had European in North what a along there I softening in chugging again, really and

Jaeson Schmidt

jump all back last remainder the level, margin And through business here queue. gross one Got then how a of I'll and we dynamics high across think maybe the the shifts there. and in With 'XX? you. some mix for your just At and me, about should calendar

Jana Croom

question. is labor as now That working right and great our Yes. going through sales. year where shake materials really and percentage remainder net We're product costs the for a the a of to out of mix understanding are

level, X.X% of mid-ish at do and is be to for where tells in the last to margin guidance What gross range our alignment. seen certainly going to is look to and year containment in cost the somewhere full range the that terms you you few that you've of fiscal bolster for we If our it going that quarters can we're everything X.X%.

And then as but I can focused all without reducing the the know and where where line. sacrificing get through ] you down about just got laser it SG&A, appropriate didn't long-term growth. We ask hunker and we to bottom [ there, costs

Jaeson Schmidt

really No, all I that Okay. appreciate color.

Jana Croom

I to the the cost take us make where anymore we not absorption decision didn't the ask note It Jaeson I and talk to would say to but to abyss. bifurcated control thing not about to conversations could the thoughtful to an to by a the environment. told current like leadership mic. where we will One about, we're just you into going or or was it not that the We stepped slide we're very have those felt the we and is incumbent What any of cost align let going stair team don't margin just open like really have was decision respond.

significantly that. And so we on working are

Operator

Our next from from comes today question Sidoti. Soderstrom Anja

Anja Soderstrom

the questions. on have some I follow-ups

customer product? working taking you're on this able and prolonged to the the on of that going they're product, competitors that be to So their if terms be you exclusive going share? competitors are with that. was could where you Medical a with work be remediating in Or So to customer

Richard Phillips

Yes.

oxygen working an ventilator have We are the increase in customers are seeing we are we and do with business, and in intake. -- who other

we do part yes, work multiple So with business that across of the companies.

Anja Soderstrom

the Jana, there? mentioned reason that you and also were there. you weakness economical the And talking the see do Is you about adjustments Or in Okay. mainly weakness? inventory a broad for weakness Europe, the

Jana Croom

broader weakness, the the economical is economical weakness broader challenge. exacerbating inventory just It

But getting are in out the [indiscernible] we're We future. data seeing daily. target near some coming

Anja Soderstrom

taxes be the those America continue the the was regions. North forward? and one better be the we America and taxes than we And expect higher taxes last mix, as should as revenue related to Okay. going might to North should the one to stronger? Or I think continue noticed to are is about how doing other higher the

Jana Croom

rate of It's direct you impact. really mix through where sales are Anja, Yes. tax is just geographically. it. The nailed coming a the

tax that as expect control XX% in what say expect is to But We opportunity. somewhere rate to XX% mid-XXs in much through you I that that arbitrage should effective can as we tax range. an would the to and

Operator

Instructions] Tim Moore [Operator Our question Hutton. next comes EF from from

Timothy Moore

to for adding amount the forward. going Jana, open the press thanks release orders

just open maybe just So wondering on orders. the backlog,

mentioned You EV chargers.

HVAC can and to public Ric, other you, systems the well? You remember time not areas what last EV climate I highlight just SUVs the maybe But got any towing trucks control, for going the battery. safety. the draining

If pretty can good, on maybe light anything seeing just growing else you're pretty you good orders. that's shed interest

Jana Croom

Yes.

us. of charging So through we've a and We're got and just in softening for braking, program some Automotive, terms some that and lot by Also nailed in Medical inventory launches to that China. customers, that's it. Automotive there we're really are well. America going going going to that work going steering exciting, in you encouraging well well. It's got new seeing and station, North of offset product new see Europe. We've

Timothy Moore

That's Great. helpful.

willingness to around corporate do your to is gears, team for in changed still Has love shifting kind appetite maybe that Just M&A? the development as Ric's your got I'd what priority in anything for maybe you've I of potential near appetite know There the hear maybe Medical term? timing? place. and appetite

Richard Phillips

Yes.

free the and something out forward It's Jana as opportunities. healthy you Tim. opportunities to organic wins. are mentioned, really nice And Jana the we see are as we a we're in we wins, We the working our said, obviously and future. some we we do ignore I know significantly the I think the We balance sheet as look so see we also monitor continue of on growth really create that like to think hasn't probably playing never thinking really years, up late, shifted and time lead funnel on mean, for and flexibility the robust. places

I that's say are now, and sheet organically place the right focused we the game, right but the ever given our out we're given that and way. coming we're opportunities balance wouldn't So of really think the

Jana Croom

Yes. out Tim, macroeconomic going because that they over. can own they're is would current partner [indiscernible] some, And customers and if program take a covers that to of to cases, some it business, take want we're deciding you and higher to improvement with produce don't opportunity or and would one be it it in of us on want ways solve the to they their our going book that. interesting business, to our that environment to particular them and we the level assembly margin causes drop evaluate

you see if would be us to on So were that do vein. that in something front, it

Timothy Moore

know talked going That's my point. asking the That that you beat it. me next I've be to And exactly was because Jana, before. about was with I to question you Ric and

higher-margin with allocating they a them plate where for to. other That's capital it's good. they You've big some of have or opportunities to on know or taking care might customers about actually you some had people's And work Medical -- organic have front that's proposing if that but it because off it don't been focus you. good. seem businesses I a lot the not mean, they've I come hybrid would like themselves,

just last question. one I then got And

And bit rough by plan might to amount the think Day, be the Investor a have a Cadence doing spring? rough be, year? hold your you Day Investor out capital going be the when due you it of dollar you once private maybe maybe plant Or might macro expansion? laying year. range slowdown? timing on on that maybe I of range your or Regarding any little is global the still expenditures to for maybe is Do do

Jana Croom

for really as only spring, the it data, of So were And Investor to we this reason and to going we terms need Day we need at Day, where market fall. the be of would more and settle be the in shaking growth Investor that FY we're to continue wouldn't is right? 'XX this if so 'XX, trajectory. we And to sort look beyond, see out out the do

certainly if expansion terms you we that In region of future expansion. of the for tell I you have you now growth strategic other blue to out I'm Tim, and happy plan be were expanding right and a to Quite internally, with would me. plant in a world, honestly, come not

Timothy Moore

why I was out. asking. that's -- That's I got glad those why I'm

Jana Croom

So that strategic it. into we've plan, effort lot yes, we again, of well, certainly, a put have and

environment, got We work on also recognize future. to the what it that in this we've current before to has harder we in add

Timothy Moore

the am what Great. month. really going I in be next not I it That's Yes. want to it's hear, glad to No, makes sense.

other it Just wait of companies. a out. It happens -- lot to all

globally much some one You're boat now in and this pockets. pretty not in the slowdowns first

in I'm really that's not I'm and or next great. forward it's is, Investor month. whenever the the looking So it to Day fall glad

Operator

(XXX) after be There XXX-XXXX. to today's Thank is portion the for The of +X will you, The XXXXXX. concludes as please details this are everyone. That code a available call. this Q&A access dial today's replay follows: call.

concludes call. That you, Thank everyone. today's

Kimball Electronics (KE) 6 Feb 242024 Q2 Earnings call transcript