KE - Earnings call transcript Q3 2024 | Kimball Electronics, Inc.

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Operator

Good morning, ladies and gentlemen. Welcome to the Kimball Electronics Third Quarter Fiscal 2024 Earnings Conference Call. My name is Carla, and I will be the facilitator for today's call. [Operator Instructions]. Today's call May 8, 2024 is being recorded. call the available Kimball the Relations the of of page Electronics replay will on be Investor A website. Vice At to this Investor Regrut, turn like Relations. President, the call time, over to I would Andy Mr. begin. may you Regrut,

Andrew Regrut

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

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

Jana of non-GAAP will today This will commentary Our with our start press comments. the available complete a your review morning, prepared Reconciliations Rick for and be non-GAAP fiscal release. Rick before the will over and for turn financial XXXX, quarter will the taking the call now on adjusted questions. amounts guidance are opening in Rick. I'll few remarks results. call our GAAP results to focused to

Richard Phillips

everyone. morning, good and Andy, Thanks,

completed the already, recently first at It's company. year I know, my am the I and journey you excited future a As good Kimball Electronics. about been for

our and moving Before share update business want provide some direction to I observations structure results, on the into and I get on an forward. QX our strategic

of and great significant for the our number leadership our customers achieve announcing to to meeting locations, foundation We on working outstanding a structure with at reasons. spent of our that But focus organization and steps team list design. the the with far to position those now experiences and forward. steps are strong I performance we to divesting so creation. market Kimball value strategic the our have the of our that vertical focus, a Firstly, I following: taken Those on time deal of on mentioned are have confirmed was to My an culture opportunity we were and sharpen strategic review which in-depth perspectives. a Based and growth build visiting today or my the complete top moving opportunity profitable review, stronger recently company company include drawn measurement and early automation, further for taking first, business. test to

is business While bright has business. strategic EMS are ahead, this for future it and we the a future core opportunities is on focus and imperative in that it models our synergistic, growth business growth. for goals The fit not Kimbell not a our good

We AT&M are the active business. still customer an of

Corn Chief as increasing focus with executives Next, elevated unit and medical business core responsibility. Thompson in business, Chief Consistent structural Indianapolis have for differentiation. our and support Commercial to solutions Steve vertical our commercial Officer; X EMS operations Kathy for the further our medical we Officer. enterprise-wide including key into moves, and EMS as Operating these realigning

restructuring actions improvements. addition, We control, on of to third detail In can team, impairment quarter including we charge these resizing in support moments. period to controlling by focus the of will specific what additional taking few working capital are end some significant in market we a Jana softness responding cost our continuing actions. this recorded provide and and to

the and remained challenged environment operating our the the sales for anticipated, we EMS declined. quarter in third As industry

persist We expect XXXX. the macro headwinds fiscal in to

down Notably, over structure proactively operating with with our trends, margins focusing improvements. working we cost million softness, taking by the levels aligning period are on stable $XX and are remaining from capital this During market peak. demand of now short-term end action competitive inventory

is We to next a the months, by to business decline increased robust continue mid-teens. X funnel with the in while of given our to each XX the investments returning footprint. the stack totaled year X-year lasting markets $XXX growth $X share We make we X%, in sequential The basis, prior new with sales was owners verticals supported the million the XX% growth, relationships that on in the third in in allocation shared cash across however, XX% or support basis, year. impressive quarter of is Net longer-term strategy in XX are from opportunistic organic a sales balances quarter. that global repurchases. of in million, our deploying vertical opportunities share softness to decrease estimate a capital a experienced On growth nearly growth prior region customer low we and a which the each

China. X% quarter, Although we sales $XXX Net largest compared and last America QX company declines QX. automotive over in sales. quarter demand by posted our total increases. sequential a XX% are incremental QX was sequential both America anticipating growth and in do down softness The Europe business, were year-over-year decline this next decrease comparing and we to sales of Europe, expect When year in North last to continued vertical, in driven weak million, quarter, North the

expanded in is driven the which in vehicles, believe being be technologies We in core rate well and content growth the to and longer-term at further continue our This systems. expertise to which an electronic automotive will by advancements. capabilities and content steering specifically proven added very positions us products, with operating critical braking in manufacturing opportunity leverages increase for that for safety ideally systems align advanced

As braking and is titan, validation the hybrids the that vehicle engines, combustion and and systems the internal we highly steering automotive of EVs to numerous agnostic stringent with systems. industry or change architectures certifications, have management are regulated times, stated protocols

decline by lost was other $XXX driven cycles this sales. were a million, and is by sales compared vertical customers. last source XX% often decrease major in business a offset to total to FDA recall, awards. with span an involved year in in QX and XX% our with can growth quarter So customer of length company in results The years life with sticky X sales XX partially this program that medical single Net

reminder, assumes sales in by a million decrease guidance an our the believe automotive, sales we assemblies sizes, the medical our $XX care, delivery drug million As involved $XXX in precision, in a combined million $XX contribute higher-level in to this reduction to Similar in levels a customer from recall, increasing will outsourcing higher including aging and increasing That continue programs. access growth. need medical offset trend the with a connected annual sales existing of is top dynamic. health affordability partially line to the medical of increase new and device the decreasing for longer-term in population, to megatrends industry, industry-wide systems and with net

compared positioned million, strategically Industrial support decrease a in XX% advances year were of sales QX are We and in technological this to Net sales. XX% total $XXX through last Solutions. vertical Medical to Kimball company

environmental last the safety, industrial in climate included a been AT&M growth driven AT&M third resources, control and decline have business see the with of consumption smart systems and trend are decarbonization As In meters for Europe, this including balance by internal of energy We quarter, the incentives lower to refer carbon products that and we We the industrial support reduce clean year-over-year the the business, half reported and neutrality for vertical. impacts. in quarter, strategically frequently reminder, demand the weakness in electricity. approximately in natural resulted as in in with are as we to results green which and from products water, gas and legislation supporting commoditizing. as meaningful better efficiency, the mega that positioned promote drivers, sales

So the filled financial of for to now I'll our results developments. insights Jane? on quarter the with important call and of a a over her guidance. a number Jana turn review

Jana Croom

Thank you, good and morning, Rick, everyone.

million diluted share, $X.XX $X.XX impairment recovery offset AT&M expense mentioned or As share, $X.XX Rick ago, legal with or of goodwill million after of per expenses impairment diluted business per $XX.X support diluted moment included associated quarter $XX results per tax the as asset of the or as restructuring or in $XXX,XXX partially of in, this sharpening focus and our restructuring million of share. the share, $X.XX settlement company. activity totaled the $X.X well a per a All strategic with equaling by

quarter XX% decrease a my the of results these clarity, of review million, QX quarter fiscal to third financial the exclude items. will the Net for For compared $XXX sales were XXXX. in

selling year-over-year. For point fiscal decline Adjusted of an on quarter basis a was compared year, context, XXX decrease points the quarter million margin facilities was foreign manufacturing consolidated the decline the lower gross third the both absorption the business declining coming compared rate exchange business, to and and in sales. The results of over $XXX,XXX last to the from AT&M in XXXX, EMS There X.X% of were contributed a basis the sales AT&M administrative QX impact in bonus. in of result XXX lower with result adjusted decline. X.X%, third in an the $XX.X from to not primarily expenses our QX

the and the continuing the higher tax impact take impairment look fiscal interest the third are restructuring to effective at We and by The in currency of XXXX. of rate foreign skewed a was XX% hard rate current approximately charges in levels environment movements. quarter actual

adjusted or diluted of rate income to Adjusted diluted the quarter per $X.XX We third tax a compared share. $X.X was QX or to continue per mid-XXs. of year net income $X.XX last $XX.X in million net share in the consolidated expect in XXXX fiscal million

by operating and million. in the QX of days $XX.X hand. in $XX.X year biggest overall management quarter balance third flow XX with from compared production days and last was sales million, cash in quarter equivalents driven on decrease to XXXX, the activities and conversion of capital, days improvement Turning days day XX, CCD occurring March The Cash this in the in were cash quarter QX. better working XXX now XXX to were the was sheet. compared Cash to at

quarter XXXX as $XXX.X of looking significantly its improve last the days to the and million to compared components. our $XXX.X fiscal of manage $XXX.X million million at are continue cash conversion QX Inventory ended we to We end actively quarter. at and aggressively

and are current balance future very in automation credit were in in -- and decline continue growth, to reduction to the March X% we are expected match Borrowings the third current investments expenditures a were as with Capital at to environment, net customers prior efficiency. to compared quarter to the million inventory the to We expect maintenance inventory $XXX.X this to outlook. demand million, work rightsize on XXXX, to supporting to to of facility compared and $XX.X decline XX, requirements pleased decline year. to X% number our with sales

previously Rick has compared updated macro to of XXXX million prior indications $XX Our $XX been of stated, based million in range to estimate anticipate to million the outcome we guidance with persist on customers. $XX fiscal in our for million.As expenditures capital an expected to $XX early from headwinds

the million we a restructuring executing pretax anticipated additional expect of to million. $X As result, to to continue company efforts streamline charges with $X our

We call next provide provide more now FY back to turn over will Rick. I'll guidance. a quarter when update we fulsome 'XX the

Richard Phillips

Jana. Thanks,

the for lines We to for from the company putting of numerous to the best-in-class to believe in guiding few profits. deep The I'd summary closing. recognitions Way. the dedication XXXX. culture published sustainability. again captures and opening sustainability our report the like highlights ESG and with questions, The together report roots thank I from reflects our themed focus, our of How and XXXX Together recently of finest annual our customers, demonstrates calendar guiding is principles that citizenship the like once Before accomplishments towards sustainability-related in release the our I'd and a Are We Winning effort disclosures Kimball share team thoughts report principles a achievements our XXXX people, and

I of had be to will you found you be impressed. it that website. our am the corporate report, those not have review the thoroughly opportunity on confident For can

of will for During this as uncertainty short-term consumer The normalized announced company creation. choppiness cycles. long-term time return further to position value actions the demand to market and when today

level while solutions our focus solidifies to The we medical of and manufacturing AT&M work EMS business to operating our the operations, will reach our organizations stabilize to higher medical and extend look EMS consolidating platforms, on continue increase the margin. income our improve particularly into assemblies. We as divestiture

recent are that new addition, services our through In with leverage a technology. improving in centers excellence of organization shared we processes of investments lens

but not more of the structure with current expense leaner, company cost won't of cross that these nimble made have the and that All conditions, the line. the we growth, aligns with market actions at future

future stakeholders. the hold we As to our materializes, improving enhancing these growth competitiveness intend savings, returns and to

we excited the now the never would company. about As lines I mentioned Carla, questions. more the been future I've for of like earlier, to open

Operator

[Operator Instructions].

Griffin Our first question comes Securities. Riley B. from from Boss

Griffin Boss

more if challenging first just macro In time, start would fiscal I'm broadly. would that incremental is now maybe 'XX. weakness just there be year markets? out bit in Or this Just you right? that's Are than more little your has mentioned you're saying changed? -- some thought what quarter? seeing expectations the longer a end curious I'll Obviously, remain any little through first, in persist might being helpful. if direct color quarter, you So certain for last a it you

Richard Phillips

what predicted I Yes, continue probably see. signals we not Again, in has a in in stay to and demand success predicting are there's the return joining than delivering so and much anticipated. new programs those close seeing to say, levels and And the and with the And would expecting. we performance. say, many stability, to we them and thanks lot work signals Griffin, while for on on demand quality normal very longer building because uncertainty we're winning tried call. factors. our return it they're to their operations of haven't this funnel would I and precise obviously be our We stability customers too persisted having so to of we've just

And so why has this been point, year to on optimistic that long-term your view. have that's XXXX. But we and softness we persisting perspective really our updated fiscal to continue

Richard Phillips

short-lived volume everywhere existing would decline months Christian, said the is not our to had in some add the business. the going revenue you seeing really a new I globe. it in It's we're is of ago, will that it's if be decline Yes. we now. of to and talked us And it's what funnel X challenging have business right

interesting and so all saw impacted. And it's all this geographic because quarter, regions verticals we

saw America it So we Asia. into North and is where beyond Europe, which began

Griffin Boss

it. Got

Okay. That's helpful.

the American just quarters. in maybe in seeing of trend strength I'll changed So area that Has Or on has guess anything past and market? an changed? what of hone you Obviously, in that been I braking. North steering that's all? at couple are

Jana Croom

that's a we So consumer braking inventory it's levels North Tier seeing the In supplier a market, the also a couple inventory. And related are think Asia America the reflection we're the of Tier One, things. as just seeing result I fair business. steering softening we're market on are Xs of X sitting of to softening. the and demand. amount and in of a But

with to battery of -- fiscal automakers sort of through taking And bit we are. and is approach been improving seeing expect and a things so life, geopolitical is to that in it new. a something about, environment, I hybrid wait-and-see been think the they've of everyone work given we've some here But And and which you have terms through couple EV we be persist XXXX. do talking that to is that

Griffin Boss

of of to Okay. the Measurement switching company? the any Got to over relates sense just give size scale more as it contribution its then And to the automation or you business Can that revenue divestiture. & Understood. it. Test or

Jana Croom

Yes.

income of the help months color. give operating we'll but was and you through course, you tried of the was our as not So disclosed going sales you is because you consummated, Sure. look and will information. once release for we all you we if... 'XX, to in to give sale press I you information it to more proceed in complete months. is the But we if guess. in wouldn't give X FY fulsome well information so And actually, have some the progress. What the you, now that numbers, release, you then, giving net right press We're give the we sale give X as to Griffin, to

Griffin Boss

-- Well, Yes. to okay. I'll check All I press hey, back right. Appreciate it. mean the release.

Operator

next question Soderberg Derek Cantor comes from from Our Fitzgerald.

Derek Soderberg

change CapEx? here. start here? Can Just the basis? sort quantify growth, the expect back the an OpEx change the What's cost divestiture on divestiture maintenance annual So savings we'll to the to in there. model you maybe What's post all expect of just you you

Jana Croom

you Yes. for the and Derek, thank question.

business significantly because with intensive. easiest. not start the I'll particular capital So probably This was that's CapEx

you is in The to to function will you're And CapEx, it's business CapEx that see of not us going need going in continue rightsizing to to be going future the going the some so meaningful. see for to a more the forward be decline environment. from against but economic growth invest current

look FY for you so to similar And is 'XX be FY tell to to what I in would nature model. 'XX

The some going just that growth And cost at something adjusted and margin our it focus the to in opportunities the considering range needs -- go X.X% of deliver. be to In additional are of actually goal future Derek, say got. the the income and on going for current X% I'm savings. point, we've rightsizing is operating company stoping to the ahead we demand, goal terms for we to

that to looking be with the so in And going to deliver results. mind, we those to are streamline company

Derek Soderberg

Got it.

Jana Croom

[Indiscernible].

Jana Croom

ahead. Go Yes.

Derek Soderberg

Yes, might about sure. appreciate automotive. interest talk pipeline. big, guys. to guess, the you in talk pipeline there? move you the that America we for China? color braking? there. for Well, or I Is Curious What's level more wanted you interest when just Can see the to about win on specifically I some really next the North Can advanced breaking

Jana Croom

it. going need So QX, you up and in going Europe, we be get 'XX. to and to to actually next have at FY going and we it's to it's in We the running are be disclose breaking tell just to already permission win,

don't right will. I breaking I would QX, just still back, every expectation we I is world, have details all the and the region if well you said recall a and So for of absolutely that we while underway. -- in the eventually, that have

Derek Soderberg

of And in Jana, just then, terms here. of capital That's it. to use Got hear. good

priority you at me more bit a Do little What's that? M&A, shifted terms and of repurchases. like seems towards shares share the case? the to focus in out opportunistic? And away think from called changed then the growth Is on on XX that are guys M&A. You it here has maybe organic

Jana Croom

great Yes. Those are questions.

was quite we where where debt-to-EBITDA if here. levels, was net Part with convincing the sit at considering stock. be reason else we stock cash, inventory state that et absolutely. buying repurchase get debt balance yes, where honestly, levels, absolute we our value we're of net the it I our should suspended healthier levels, So price a stock, at price cetera, stock share candidly, to had now sheet anybody looking our debt also buy is. as an Yes, why also to Kimball and But consider aren't we trying our

And so repurchasing market our to in we are shares. going be the

to says, we I know acquisitions really to not that There in this Kimball looking is risk have. autos space terms don't the about buying can there. want That In it "Hey, be favorite you you pipeline us what reward is that And necessarily a always for well. capability book we way of know, a that to think We've opportunities. we of the Kimball our there. more say industrial. would we And though, business our well. the in would because really that not take be region for from Kimball, know honestly, that robust. it again, of acquire would a do to health that you of But interesting don't that increased was just anymore. that be over future we or would would and we've are what because some currently in the we as something add quite is us. our going It make great you that's you interested previously, said are produce do don't we can of in one to serve care were inorganic exposure geographic customer really pursuing out complement something will that's not things or be already funnels Candidly, this when got perspective,

would we that in vein. I were announce be And it so to if something, expect would

Operator

Our Street. next Smith from question from Lake Schmidt comes Jaeson --

Jaeson Schmidt

sale the on & driven being How the broader couple a is Just of much by softness? business. the versus Test outlook just Measurement updated

Jana Croom

Yes, that's a question. great

in industrial remember, year-over-year not our roughly at So as was decline quarter, That's business. this segment, we example, AT&M. look And truly half is AT&M look the from where for it's discos. that decline if AT&M lives I in in revenue we Industrial, saw of which the the at it

of we a would automotive. So business. it you color in chunk are gives had single got medical the it customer. bright so say, we're recall to AT&M pictures, hopefully, I that you in if I some in softness that -- And offsetting from But big out FDA then you've there. The half softness are that the some you've some seeing spots industrial, in is got

Jaeson Schmidt

book how and by business. noted, And helpful. then, much driven synergistic? looked this is of the driven first conditions decision is terribly the response much just Rick, broader really And being of the curious came overall Or test That's isn't in business you this Okay. in, a measurement how market when at to as you broader of business? just by

Richard Phillips

Very much the former, Jason.

be the we conducting think I together and I with in really allow EMS, capabilities bright team including strategic strategic what we spent really wasn't to think really lot that a review. that a will that is the leadership business I solutions long-term time a have. business different of also that owner And by we the future our the there. focus served got as will -- think a into AT&M on and better fit really saw I medical Kimball

opposed So current market much to as very, very conditions. strategic

Jaeson Schmidt

last a jump inventory decline and just to the worked me, Would continue bit year? this you to for one quarter. noted Got in then the expect it. queue. calendar in it And back quite Jana, we I'll down

Jana Croom

combination as in off. the shortages inventory the of to X had much then too started a What saw chain for comfortable supply wanted us X expecting Yes. realized And this year. hand on everyone because was they we suppliers that coming in wanted Tier And COVID. things. feel drop inventory excess they to everyone we're continue saw to to we fiscal decline of It's fact, and the it out demand customer

demand. rightsize amount current the so to that we had of had to the inventory And we

yet And year work to inventory what so we're working revenue remainder of we push really get cancel even the as going the inventory, produce. the for right-sized rightsize out we're we actively the what can the that through can, quarter, and this calendar we to customers and with

Operator

from And Moore from Tim Hogan. EF is our next question

Timothy Moore

see was recovery it free capital seemed in to mean working nice million benefit. I cash the about Jana, Rick it $XX like quarter. was the flow

that clawing So great, had actually back. a and Jana, still was you're I'm glad that I question. I

CapEx your to guidance to lowered think and about the that we CapEx million $XX by for year? be $XX $XX that year $XX to million kind You how over thinking million this next Are tied million much $XX next should million next year. maybe year? And million up would catch It's not roll to really CapEx of $XX you cut divestiture.

Jana Croom

very that I'm looking the refer looking a company No. a outlook to at CapEx have you're of that. as to It's little about diet we're bit clear take at. to uncommon a not what I'll as

-- it way. it of this think so And frame

things get It just the $XX very program, balance won't You that. refer maintenance I'll going know aggressively that of all depreciation place if million a CapEx to in roughly what And important maintenance is it timed you their program because $XX million. be growth. CapEx and is keep off companies that is so to happen sorts to as downstream, then do we of challenging

be can XX all you for time know, our new automotive lead XX get months. programs particularly to running, As up the to and

that that certified line get of to we're PPAC have to up what SMT capital revenue. dollar the is the we spend that aggressively really so cleared And and earning managing versus timing running

absolutely being And are programs and so mindful running the to that getting our we spending and not are keep but of we as as very, on up tight way sacrificing time, that going future just possible, growth cash. very

Timothy Moore

some Great. question how for considering potential the incoming the decisions opportunities No, customers. been especially from you years. and But I much and know X sense, on expansion customers Rick. you've house a actually I that talking about CapEx medical have makes in some in-sourcing prior taking processes guys major for in spent

it been any or the maybe of like them signed any So them? Have that's seems months. for last consideration under on XX off you of greenlit

Richard Phillips

us. yet there. situation, specifically the any the significant that, ready FDA to we've a impact assumed that And success not Well, of again, We're on And -- support not in but we that, to stand We the some that in it. we've about our to everyone clear to again, have. comment future business we're year pleased good recall really be on able knows returning had forecasts.

So a one that the significant elsewhere we've more significant We'll already just there's about have that's offset coming, very one had had right know. significant to impact, that that more begun you but be are as very talking that there that, And and wins into category fits you soon. described.

Timothy Moore

in last but have big just Because you It question I like One on so in next that Jana you for Good. immediately, maybe quarters. margin. only over not Good. I quarter light one in the in I'm as a the next bit when year. looking -- is operating backfill the X.X%, consent few could a just seems gross fiscal discontinued margin pipeline mean, But it setup that the if for a eventually an for in discontinued year the came that investors know test measurement, decree income left issue, year quarter. which quarter $X June item. exclude that and fiscal seems million in possible you gross next out you is the strip losing X.X% the and at to good should automation customer be be quarter

Jana Croom

still X%, getting is do we're you just the gross and if in sort margin tell math of to need I X.X% range, revenue. around rightsizing the you rough So goal business SG&A will the you examining the in that our X.X% What range.

quite be guidance we know FY But you that's into certainly, margin, adjusted 'XX. for get of don't where sort so the for the to of back I OI but we're be our in that have we close QX. going goal to in So math there QX, range might can OI in

Timothy Moore

year fine. don't of, And rate, to run a doing million was operating and nice. it's of that nice That's great This fine. mean proper a I -- guess that's I know, big I getting No, the it's ROI. you're loss it's but rid not $XX

a it. lot. I thanks So appreciate

Jana Croom

Yes.

Tim, So out, includes restructuring impairment. in the thing... Yes, call of the the quarter one the all I want and though, to just loss

So when you're get looking right that at GES to to business, the and you're strip have going out number. to

Timothy Moore

Yes.

was $XX So million. that

And year $X the impairment like or an stuff. million and maybe more that, goodwill so asset like a ex it's something

Okay. Well, thank you.

Operator

further Have And the of the Investors no available questions, nice website. page call kindly currently a Kimball call. this on of We have I will remind that concludes Electronics day. the a you and be conference replay today's Relations

You disconnect may your now lines.

Kimball Electronics (KE) 8 May 242024 Q3 Earnings call transcript