Kimball Electronics (KE) 8 Aug 212021 Q4 Earnings call transcript

Good morning, ladies and gentlemen and welcome to the Kimball Electronics Fourth Quarter Fiscal 2021 Earnings Conference Call. My name is Adrianne and I will be your facilitator for today’s call. [Operator Instructions] Today’s call, August 5, 2021, is being recorded. A replay of the call will be available on the Investor Relations page of the Kimball Electronics website. At this time, I would now like to turn the call over to Andy Regrut, Head of Investor Relations. Mr. begin. may you Regrut,

within President, and call. everyone. is With and afternoon Croom, our operator a We fourth release press Don to quarter Chairman yesterday Vice Jana and conference with me our the today’s CEO Financial Events fiscal presentation call, the good you, ended the has Officer. Welcome issued morning fourth company Investor XX, June been full of and our our to Charron, Relations a on page XXXX. Chief Thank here website results posted tab. Presentations quarter year today To and accompany

subject Before today’s our as provisions in would call, from I statements results Safe like our on be stated and All SEC materially on differ press will actual you forward-looking are adjusted making today that forward-looking that statements. and we filings commentary to get non-GAAP we focused results. can risk and that Harbor to started, involve release remind and is uncertainty

questions. Don to will complete the the year and before for for Don. the associated our few full opening release. For million start diluted in amounts press fiscal a prepared per available a comments. Don Jana will and will excludes morning, Reconciliations your $X.XX quarter or the totaling this share after-tax are guidance XXXX, expense taking XXXX, review I the non-operating GAAP turn onetime fiscal call to $X.X the items. our financial of non-GAAP quarter will with call This results with fiscal fourth and remarks of now XXXX over

operating our I and fourth year everyone. record-setting the and our strong good Thanks, am the very to morning quarter pleased XXXX. fiscal finish for Andy results with

period headwinds, challenges commitments by the remains made team parts to X.X% of delivered ongoing operating XX% pandemic growth excellent we as our EPS goal exceeding strong quarter, and adjusted fulfilling last consecutive line QX work shortage. the income and through impressive Despite the we our for and margin the the global top the earnings customers year. the expansion caused increasing same on Our with laser-focused fourth growth, over

full rates, net a flow activities invested year, cash many for from year including margin and high. sales, financial with XXXX capital fiscal For metrics, earnings, return the operating record all-time our reaching was on company

Our team has carry resilience to unprecedented XXXX are the into positioned these demonstrated fiscal momentum in remarkable XXXX. and times, throughout year well we

of in two ahead which As shift of portion fiscal our a halves to shortage, us, result ongoing very XXXX. backlog of different year the in result likely out semiconductor continues a shippable will

will steadily as Our guidance, few up enabling to into full half Jana material of year which moments, XXXX. and contemplates catch fiscal discuss second supply surplus of the majority in backlog the ship expect XXXX, the demand throughout of to the the bifurcation, us first customer in year fiscal half year with fiscal a thus we this year the

provide that We growth on organic new backlog, strong with year-over-year and combined expect up growth. existing will programs the catching significant in

and we the have our the for lost of XXXX our fiscal XXXX, that never fact outlook record-setting fiscal results the priority. and one for safety Beyond remains sight year number health year the employees bullish of

days XX% last Net in same to allowed disruptions the compared year. as than to this minimized a our to maintain the and discussed benefit growth ago The customer period XX% ago a have from in due was a call. protocols business earnings as industry in shutdown support, after line fiscal our vertical industrial This automotive last to pandemic. year ‘XX returns sales of two normalized us to year as was QX uncertainty. of volume our industry-wide concentrated megatrends. what to the the XX stronger The ago period levels QX in the finish business excellent Our to to continues markets. during we reflected year growth top up Automotive more and compared on was increased

the road surge consumers, is and leave in reengage take keep there to you pocket most in cash society. First, communities ramping their the and demand demand red not and as vehicles for production pace. their hand hot to have sight. responding a homes have reopen to pandemic is OEMs been by foreseeable from the In with to and degree, this up

vehicle. are expanded advancements, for passenger that second with largely redundant systems; trend our advanced and driven stringent these and the business. choice. a assistance, electronic the operating are opportunities inherent being growth with There core of architecture The for long-term vehicle automated electronic continued for standards And relationships internal and for competency, is mega in growth systems a both trucks operating are we designed in These technologies all designed ongoing driver well production of align cars. vehicles braking safety and manufacturing an and systems trend Kimball of making the electric continued Moreover, supplier engines. including is Cars vehicles and good systems, efficiency. content applications combustion automotive industry these stream often and Electronics steering, orders allows examples produces management, the represent systems when stickiness for for program, self-driving by for win mega these in mobility this our electronic it

this inspection test vertical customer in XX% Sales from increased the dynamic fourth same with in gives industrial the climate period which higher the the and to last in quarter to end control base, in confidence products. see strength market You come. in the and us sales, resulting of vertical can automation, year, potential years compared growth our the this

market COVID-XX in of to of XX% result XXXX. related year. was down as fiscal QX procedures continue to a expect strength in The prior elective this sales pandemic medical year levels year lower We strong and vertical this the

this access the and device We activities. their public return so the we the increasing procedures down million, decreasing to systems. locking were the population temporary will impact trend prior And pandemic deal am megatrends the market elective Longer anticipate and $XX.X hotel population, challenges This another growth XX% commercial for to is and vertical team market. in of We travel. yet as of the reduction believe as systems able from with is are COVID-XX throughout industry, starting and efforts to safety this aging I physician’s reverse are vaccinated, world’s setup care, offices related the as as see to people of term, the excellent time year. this and normal affordability resume to and resume to more finally, in proud the are is hospitals care our sales in sales an sizes year. drug delivery primarily connected future health such smart and in over

to creating or life. turn even will solutions is XXXX. shortage. global out culture more quality over find a guidance discuss to year and fiscal I diligently working been company in This our negate great now example detail the of for for parts to strong have is minimize the Jana results to how Jana? We lay call our our

Thanks, million Don compared the and to in million, good XX% last morning QX $XXX.X everyone. Net $XXX.X a year. were fourth in sales increase quarter

sales quarter of impacted favorably fourth by the in XXXX. rates X% exchange Foreign

XXX-basis million operating highlighted, and a as Adjusted of million $XX.X profit-sharing driven X.X% fourth last up were driven gross expenses was the administrative compared last to net of Our by or year. higher increase selling the sales quarter foreign in fourth costs was $X.X salary X.X%, improved and bonuses. the automotive sales QX favorable exchange. year, higher execution, in Don increase in fourth point quarter, by This payroll-related margin the rate primarily from and volumes quarter vertical, and

expenses Adjusted fourth of jurisdictions. $X.XX administrative $X.XX compared by the our million QX for or liability, tax changes of fiscal million the period SERP of diluted quarter was income $X.X value adjusted other of $X.X share income in the reminder, year investments. offset QX which in earnings net in change million last low to mentioned, other resulting in operating per which directly expenses. our or the income FX, expense net by of or fourth a and same gains was value the XXXX. XXXX selling of and and the investments increase of X.X% the in Adjusted that offset effective of net The various fair and in primarily adjusted to administrative on profit and exclude share. from when changes favorable X.X% or expense to XX.X%. QX selling net $X.X from compared per As SERP compares rate $XX quarter income expense million The improvement partially effective gross fair an was fourth income all million by just Other The represents the is The fiscal in the income in year in driven favorable rate was this net expense year. income was in $X.X SERP expenses. of interest partially was driven a higher and quarter, last diluted $XX.X I tax offset by sales This mix year QX tax million in of sales.

in year-over-year. As Don noted, EPS a represents this XX% improvement

experienced we supply in last largely and at days million, fourth in X-day million days, improvement were a Asset activities provided was June XX, and improvement Thailand $XXX.X the days QX improvement representing a million, by were production $XX.X flow hand. million. Days to conversion ended during to support to and the programs facility turning XXXX, from Now operating Cash quarter QX Contract $XX QX investments of the XX, cash XXXX, balance on plus. our launch sheet, of ramp-up consecutive quarter. and $XX.X expansions quarter and equivalents fifth cash XXXX quarter Mexico. new our June for Capital support were and XXXX, Cash XX in the from Compared to XX-day

study needs to continue support to We capacity growth our plans.

over facilities customers were of from from needed million, opportunities. support XX, down demonstrate credit year expansions forecasted we Those our future a of and in Borrowings growth Thailand of growth support course ago. the existing strong to on which on highlighted our XXXX CapEx XXXX. and to June anticipate QX our year million and capacity add expansion our much call, is both the $XX the $XXX levels Mexico at organic higher operations As fiscal

the our as common short-term plus June under available total Since represented XX, a year Board liquidity XXXX, stock. There cash $XX.X to no in totaled shareholders $XXX of authorized credit of million shares quarter XXXX. repurchased shares Our program, facilities at million returned of our cash purchasing X.X equivalents, unused of fiscal the repurchase million by and were fourth XXXX. share was October of amount

an $XX with expense. As Adjusted X.X% to all-time point were Don resides XXXX. our $X.XXX over this income of sales highs. EPS number last compared XXX-basis company other financial a fiscal year. Net increase million currency was rate more Included fiscal than year full improvement billion, the operating of for from XXXX a net year. was in And $X.XX, the highlighted, million record-setting from X% metrics favorable double adjusted impact the in achieving income peer a income which XXXX. and was movements, fiscal Adjusted net totaled $XX.X was foreign results year sales,

adjusted for our this of above result the best fiscal the XX.X%, we and still Excluding of reported net capital in our from was a generated well invested ago. million of history. XXXX $XXX $X.X activities, impact return We on reached $X.XX, $X.XX cash operating year

is net expected income call the to XXXX. $X.X providing increase billion capital million be net finally, fiscal X.X% We to range X% And in X% I’ll sales. invest in time history, $X.X now fiscal $XX the expenditures to turn in the $XX margin estimate expect the be the over year. XX% year. million fiscal back will XXXX, to of full billion, to first to for we fiscal we over an to Don. Operating turning guidance our to Now in for of company are sales

Jana. Thanks,

our open our lines I take results reiterate a I’d We fourth operating strength. excellent we despite to like proud of posted questions, how team. for for record meaningful Before year and the headwind to moment the am finished quarter with

to committed guiding the into open the in the by for we questions lines position, would The success are we future. solid for also have to well carry in year to momentum company XXXX do like fiscal We queue? is build and growth. I in With questions. any analysts that, Operator, the a are positioned with

first The from comes line of Instructions] Soderstrom with the [Operator question Sidoti. Anja

me? Hi, you hear Can everyone.

we Yes, Anja. can,

and environment. a the challenging for taking congratulations strong and my question year quarter on Thank despite you

Thank you.

talked And about you talked industry. then controls you call, saw GS the or… and that you I auto about I there, the the industrial, just climate is in the assume follow-up And the correct strength

Yes, that’s correct.

is I controls. to Europe? and over what opening the the and up climate see then driven terms going over that And looking back control you the in do by there, the of better would people everything smart hotel offices in assume metering COVID,

But board might how in as that be elevation. smart maybe think normalizes, in bringing then that metering again the on is growth So or we that about coming industrial? Europe the should

is smart held the business back being Yes, metering by still in Europe pandemic. the

a environment those the will of bit change access yet to of able and in smart being there terms And Europe so require meters. quite purposes it of installation in for have

hoping QX And of their anxiously return, said, it’s our year. the business test vertical remains remains we’re strongest areas industrial control measurement, a quarter and and pandemic run in had would in Climate as for let’s behind you we related healthy. to watching quarter, they a that rates. healthy. number is QX of us its this So automation, and absolutely strong getting say, before but in business rest The this see, pre-pandemic

So as we for be forward. expect industrial continue the to us vertical strong go we to

Okay. of there, the there? trending is the you in growth do throughout medical sort what that How that’s And of terms see the muting quarter? electives

support We’re elective signs improving is procedures terms the and and build products to of those seeing improvement of in trend there those we surgeries. that

will optimistic continue. we’re that that So trend

we’ve reversed and Of in doesn’t sort hoping here quarter of but we’re course, get concerns trend quarter, what of that, positive good. past a this around the Delta new in with so variant terms so the far, that the seen

trend. a seeing We’re positive nice

In some it’s of business, upward. terms that it’s of take trending we going believe, the but to time, definitely return

the for the was call quarter have Okay, on elevated. missed the And it also, a bit I SG&A thank might you.

should think to forward? How was think salaries about we that due I performance bonuses. and going it

Yes.

exactly what move right. That’s up. to You’re caused number that

X.X% focus. by be requires SG&A provided, I to margin, margin the the operating that we’ve that’s than think that the income guidance, to X% Obviously, obviously, you year with that full where I’d to really guidance higher gross range. like

than that you to just give you operating trying rather and on margin gross an X%. number to so X.X%and And focus a SG&A of income between margin I’d want number, range

Okay, thank helpful. you. That’s

to of up good building been You’ve are about cash nice and you’re you quite well working going your seems to continue the manage to very it going generate and cash. use thinking some able like What capital cash, forward?

supporting foremost, our growth. Well, first and organic

of comment what types see in and our the on expansions capital, we expansions organic announced Thailand to of year, opportunities. much in a expansions, results growth cash cycle. just a strong today, just funding as needed improving this As I the And previous conversion calls capacity reiterated so the Mexico, support those working and we very new funnel am pleased with past

that’s think, did this think I But quarters. we expect we this being XX%, explained with the structurally, expect why. in the conversion cash cash past I structurally, to the that inventory at year, with We cycle to we these about we now, example, conversion and run. business talked where work the levels, various days we where structurally for run previous for and reasons higher business with about improvements year, we’re had

the line So in growth. the capital dollars with working commensurately top forward, increase will going

funding with forward. just having when working for number CapEx. think So a absolutely going capital, top capital that line. that It’s It’s we that as one allocation. our And well is not growth grow that’s priority about need

thank was Okay, for you. That me. all

Thank Anja. you,

Instructions] with question the Company. comes of Walthausen line [Operator & from Morales The Mike next

taking Don. morning, for good Jana. Good question. Thank the Hey, morning,

Good morning, Mike.

Mike. morning, Good

supply at in is that on seeing guys about what positively on the concerns of many And work industry chain changed we’re dealing with Phenomenal you or navigated and the do. put and just how to that’s or deal either all strong also too were the of there really want through did you the you’ve DNA last Certainly, with today, rest echo quarter, chain. like Thinking about has BX great I’ll negatively? quarter, that. With were mix where materially congratulations. has happening. what with outlook from the you you the those seems on great and So understanding of sitting you I you tight especially guys’ that supply had year, the without start that kind last numbers everything It up. and that to quarter the

in that semiconductor of seen areas area, whole, some let’s shortage we’ve Difficulty] have areas say, [Technical the actually worse. gotten seen We’ve improvement.

So bag. mixed it’s a of bit a

of best the manage priority in other the shippable It’s about And as know, team to range, chip the of I us. ahead as planning of with to you of We we’ve in shortages, through but on we’re we a for full many and the a get we’re put impactful. it’s out in of mentioned, lot the vehicles, we have think that are time helps In ourselves to around business gating that hard to of rolling automotive disruption especially that to spent shortages. of the we are out of target call, item. that our mentioned – operations to number guidance think around But And organically. Mike, ahead business, a the last growing on work, move many backlog of our lot billion I when but vehicles getting a that that organizing spent helps, lot backlog exact an X% a fortunate the content $X.X minimize you right. – that extra year it time our That’s the customers billion our trying $X.X had of in been that’s trying us. that vehicles we ourselves the fair as continues amount have words, shippable can. priority

backlog. of range. end catching that low of contemplates really high The some sort our that’s surplus So of end up the

how of us. that’s idea an moving dollars out how much much of kind shippable you of of gives backlog, it ahead So that

to we catch want as plans to execute we their carefully, been. our to so plan really have the well. them a customers levels continue back to they the can on have yes, something up watch that way we that’s support good And get to So need inventory

So it’s – we’re not out of it.

over year half do a could part first catch up why we these shortages, fiscal we’re to The did believe, will about that for again, the we other That’s because with going really that quarter have are quarters, us. and to the And our supply more situation ‘XX that, to yes, with analysts expect before XXXX, improve. is for predicting demand. we’re optimistic we’re improve what business. challenging would halves to and of being continue couple different quarters last us the on it running for next that will be hopeful to allow couple going two continue Most of energies focus talking the we’re aspects we of would to,

and helpful. of the really your which being a are going you to, guys kind And out guidance, these at in business on really point touched numbers comfortable shareholder, to That’s as here. you like putting response appreciating turn out there, I’d where a

I Thinking to X% out. that talked guidance out. top kind that and have the that, operating at now laid the just think a those testament targets you where about low before you folks guys that an the today. that response have you in and you’ve that end when about business speaks, growth of really is the put around mentioned improvements of you line margin at the Historically, is your it target at made X.X%, are

talked for longer guys the about the about is think about are for X%? that? targets the as is, question talk outlook revisit past, we how that you and since you term beyond a has margin you think about about that Just long-term term that now? to opportunity an we there operating to whole X.X% longer targets my it Or a in is should guys thinking as now target X.X% business, So target,

operating on staying target. income definitely We’re the

we that quite least a As there we there target hard focusing our leverage, operating get at ago, those least. out basis do you to on a for to improvements going better predict a ourselves while could more there get then ago, put on forward. at few we things really of be make the and with real pushed in ourselves, operations, that know, must have to to years And our improvements footprint, better consistent truly we use

done believe have we’ve supply the all improvements activities. chain shortages, despite And made teams we and in pandemic Our our great the headwinds a job. in that our and talked the factories about, we sustainable

sustainable. some and battling, it’s Now whether we material. those around and worker raw in improvements believe still But manufacturing things other wages are shortages, we of we’ve inflationary are are battling other increases salaries made that costs companies that

We’re four those on X.X% going tickled above that target expectations we you those through to be out the issues. we with it’s basis. full really X.X% forward, think years and that then were that a they to prove ago if We And our that sustainable improvements ourselves believe that time but had think to going and that are. to put our landing from just this in raise able between to way quarters be X% year consistent we there that And we work to those X.X%. will, area, finish all year are we

Great.

I you think thank much that makes and safe. all Don perfect color. that for Jana, sense. Stay so of

Mike. Thanks

Thanks, Mike, too. you

turn Instructions] will I Charron over for closing [Operator back to remarks. Don it now

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

This concludes today’s presentation.

You may now disconnect.