Kimball Electronics (KE) 14 Aug 242024 Q4 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Kimball Electronics Fourth Quarter Fiscal 2024 Earnings Conference Call. My name is Sherry, and I will be the facilitator for today's call. [Operator Instructions]

Today's call, August 14, 2024, is being recorded. A replay of the call will be available on the Investor Relations page of Kimball Electronics website. At this time, I would now like to turn the call over to Andy Regrut, Treasurer and Investor Relations Officer. you. Thank Mr. begin. may you Regrut,

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

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

adjusted Our results. available our commentary press non-GAAP release. amounts Reconciliations of focused will are be to non-GAAP in today on GAAP

Jana few will This for start Ric your comments. complete and And quarter for fiscal morning, the our with XXXX. guidance before Ric the a financial questions. remarks taking the will results opening will prepared call review

over turn I'll the to now call Ric.

good everyone. and Andy, Thanks, morning,

QX divestiture get and results, to I on want the into Before business. touch of briefly test automation, the I measurement

was As transaction earlier announced this XX. month, finalized July on the

to wish moving AT&M for the strategic determined would its will it ownership. be significant the our on While focusing with priorities AT&M XXXX, well good team acquisition company. like under not was the aligns and for and new that forward. in we operations strides GES them and contributions growth a we positioned made for enhancing capabilities I since in their core of AT&M success opportunities longer-term best thank fit EMS Kimball,

to company invested many a divestiture Closure last step another over stronger growth year. important sharpening sale undertaking focus represented our for with and resources also small The was a towards on not our and profitable milestone strategic and returning significant the performance. the

in like deal team in I'd a the required ensuring closing the entire extra effort also Kimball and transition. thank to for the smooth

greatly sheet sale with Your liquidity financial appreciated. form balance in the have our in are contributions flexibility. proceeds AT&M, from increased working the of capital recent strengthened and of combined The management, improvements the

to As company focus, part our portfolio, the sharpening are economic conditions. mix of which strategic strategic vertical. recent verticals evaluating revenue and overly of in a actively for and forefront our particular we need balanced long-term weighted of is any is the the at growth Present the of spite not

significant continue new front-end in space. had on wins this success have medical and bringing We our efforts to focus on

to such we continue be to in and does as the to not expand Kimball customer currently medical open have. into acquisition geographies targets space capabilities or Additionally, divestitures opportunities

we another was continued control. and contract environment which QX, Kimball The on on controlling to in manufacturing based on what remains challenged, the market operating for Now can included, many focused demand. adjusted end quarter expectations have EMS weakness organizations, industry

maintain competitiveness margins flow. the free stabilize the been our drive appropriately we positive originally to to inventory to by lower than and pullback In cash significant has operating anticipated serve, continue adjusting purposefully verticals levels structure cost generate more we and

funnel future. for customer strong long-term Our remains the

$XXX in million. fourth sales the totaled Net quarter

period XX% While the this over sequentially was expectations it same X% in million QX, to line last increase decrease a or compared with year. and a represents our $X was

last for was as As a a the grew year QX company XX%. reminder, we record

in all decline of verticals global So the footprint. year each and this comparison in was year-over-year occurred steep. region our The

in to to sales. with in a we XX% the last and was revenue QX X% of for May softness this $XXX our the business. outlined a Starting company and were total full in year. with in vertical automotive, largest million, Net decline contributed compared The sales line X% year decrease decrease

we As started in steering, in opportunity. the ECUs. these control is and heavily is applications, times, the late Electronic ago. longer on suspension chassis Reynosa, automotive years program manufacturing the many our experienced learned system that growth in relatively braking We to customers a a We new concentrated focus braking have stated X setback. this Unfortunately, is Tier Mexico going produce QX, few that OEM. a no for systems

directly the issues it did quarter due did automotive this it results not While our product, the related workmanship and 'XX. to or produce fiscal in a the our quality vertical does not our outlook ability such financial development for occur in as impact to Kimball affect

been Our relationship never has customer this better. with

new In fact, in launch Romania. in XXXX will January a them we braking for program

also are collaborating the lost volumes. backfill on We additional to opportunities

FDA sales QX where compared year recall. driven in company. XX% lost in by $XXX last same the of to medical, involved an the the to XX% totaled decrease with our total again, and a million, customer associated net the Turning decline primarily Once was revenue period

$XX from of a annual net reduction were partially programs. existing The and in offset As decline year. down for new a growth the recall, compared a of from the $XX million medical sales million vertical XXXX of our reminder, $XXX medical by assumed decrease a consisted XX%. XX% fiscal guidance final prior was to result the in This million

and the market higher-level opportunities. assemblies encouraged forward, with by prospects in device look vertical we're medical we our this finished focus As on growth very

sole were medical expected commence business in is recently As our we HLA of and awarded transfer final XXXX, the care an customer. calendar transfer for our XXXX assembly impacting with of to results. work example, supplier respiratory This largest production as fiscal the

manufacturing such in overall market. very attractive in differentiator see devices an we a drug selected addition, as as In expertise auto-injectors our

business focus a encouraged opportunities very result in future development those to and significant about are this customer as continue resources space We efforts. of

weakness internal control demand last the and systems company the year-over-year of resulted are XX% in to and in for vertical Finally, X/X meters industrial Results net XX% approximately of in have the quarter smart this AT&M commoditizing. business sales with total been from business, Europe, driven year $XXX lower balance industrial down compared the the sales. in of climate AT&M decline for which with fourth sales included million, by and in

subverticals in XXXX total, products vertical term, growth and industrial diversification control into to demand consumption our declined return natural may raising was resulting within estimates. in X%, space. fiscal from coming of consumer megatrend a rebound line which a we resources. from This and other with energy for For the automation of climate green see include Longer factory awareness on increased industrial market the the for

environment We the positioned the to in in fiscal also various within off-highway the the demonstrated we're capitalize strategic by normalizes. I'll XXXX. space is are over equipment up proud EMS turn and growth, the for for to us closing, our exploring early that focus the Jana our guidance believe to review team opportunities the as call outline uniquely in We fiscal on I'm the particularly now setting more of Jana? quarter QX and sharpened and of XXXX. resilience our longer-term stages detail market. In fourth operating

morning, everyone. good and you, Thank

were As sales million, year. the QX compared fourth to decrease XX% quarter Ric net a $XXX.X mentioned, in last

Foreign exchange on impact had less than quarter. a the sales X% in

in was result our point year. X.X%, the a were which of of decrease The the from gross absorption the Both of performance the EMS a QX declining in facilities manufacturing XXXX, fourth sales. fiscal up weaker decline XXX to prior difficult compared very against AT&M, coming and these rate with margin comparison quarter lower basis in was from

a a the as administrative expense sales. last fourth driven declining Adjusted to year, efforts selling cost percentage were of sales, selling $XX.X improvement administrative million and with were XX period $XX.X decrease quarter X.X%, measured When to in QX adjusted compared compared manage and point last a in million expenses year. to the QX by basis in of

very which last or net adjusted of record of year's Adjusted fourth X.X% the to $XX.X X.X% for million operating or sales, compares was net income for was the difficult comparison. $XX.X million so quarter company, which results a of a sales

last expense $X.X Interest XX.X% of the tax was compared million was the the XX% lower million the was a by offset the currency in slightly. The from partially impairment of tax down fourth expense valuation translation. was Other QX recorded resulting quarter in increase of income The and sale from with to effective to due full taken in rate domestic last year result was driven valuation allowance. year. the quarter. expense GES, by tax XX.X% to of rate compared The year, higher foreign of the impacts allowance rate effective expense $X.X

expect a resume normalized the going We forward. to tax mid-XXs rate in

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

in were Turning XX, balance $XX now was to June $XX.X and activities the at sheet. generated million, cash by equivalents million. Cash XXXX, and cash quarter flows the operating

in to XX compared and days days fourth conversion last days in were year XXX quarter Cash XXX days the QX.

ended focus to quarter at by last improving and or on aggressively lower XX% conversion the and We QX million million million, cash QX. actively year components. Inventory to days the continuing $XXX which a compared are than $XX represents reduction $XXX.X managing

in we We with and expect continue inventory to outlook. down with progress work current rightsize our to bringing levels pleased are customers very as this our the demand

fiscal a and expenditures approach on June for the was were our $XXX.X compared Capital long-term the the company the at in needs The $XXX economic the $XXX.X range. balanced million were of was $XX XXXX, million current ago, below year and $X.X fourth result million year, to of QX. outlook. Borrowings to million reduction at quarter and guidance of million full our end the a credit XX, facility the in CapEx which

equivalents facility fourth at million cash $XXX.X plus credit Our short-term of as totaled unused of cash liquidity available the portion and quarter. our end represented the the

XXX,XXX has we to XXXX Board-authorized a X returned repurchase October stock. by share of to our invested total purchasing $X shareholders $XX.X million program, repurchase shares QX, common of million million Since In our under been shares.

of flow XXXX of and We in repurchase $X.XXX the with year-over-year sales history. Adjusted income inventory million year have from second activities sales, year net was operating highest totaling the $XX approximately on billion, down total, a fiscal X.X% $X.X company of cash million. XX% operating program. In net remaining

Now turning to guidance XXXX. for fiscal year

to in in of would XX% have billion industry with split $X.XXX roughly Under net from sales decrease operating between XXXX, conforming excluding AT&M. compared method, stock and X% been calculation fiscal expect of to of be We X.X%. Capital to fiscal $XX income new requirements. the the XXXX Adjusted we fiscal be sales. of excluding this and to to million of range net maintenance $XX to on expenditures metric. billion Starting X.X% $X.XXX XXXX, X% growth will million this compensation practice the

We fiscal as income range. to we efforts QX of year continue over year build fiscal likely below the margin cost with guidance operating our containment the course expect

we as to mix in of QX modest to and medical, quarter into trends recall, QX the anniversary forecasted As began will the impact The of in from continue for the declines expect which XXXX. the FDA the automotive be of first however, revenue, we industrial. more fiscal

company's you XXXX in best growth strong by recall, and was QX If in the history, quarter the industrial driven automotive. first

provide to continue call updates to Ric. will back as progresses. I'll the We the now year over turn

controlling in the Thanks, And levels, Jana. management another be we short Fiscal structure, capital our term, 'XX going control. and cost working expenditures. year what margin is capital and to means can investments of this

can period a Over however, growing measures and top we extending control is beyond the longer time, on focused line. of these controlling what

anticipated support As deeper on demand than impact. I markets longer and the in originally significant we a pressure been the opening X more has my trends recent comments, mentioned vertical in with

storms. and support for when Our we wider into of moving NASDAQ, operation cast capabilities in little net we over XX our have new But years, company core XX also many recognized a to the markets a technology. by where emerging has deeply manufacturing listed more them have weathered been on

drug opportunities and Our are assemblies work in today medical to new examples these in device of driving high-level efforts. combinations

balance require am where growth now how stay principles on the on focus new increase long-term that our is by to continue and be we guiding our strategic this The our journey, example announcement and proactively the With to stretching, assembly and the shareholders. to a and strong avenues company, and a operations top sheet customers, thank to and business respiratory to Kimball a sole of see your and we future line. medical of recent support. I making will great looking you accountable the HLA and customer, to profitably be how the potential. Throughout oriented, set not largest supplier care targets final on different collaborative we communicate the supports for goals through remain aspirations, our for to other openly unrealistic EMS growth, team but that company, true and our of high will attainable each excited lens our

questions. for Sherry, now open the we lines to like would

[Operator first with question B. from Instructions] Our Riley is Securities. Mike Crawford

year completing towards any of one and operational next Mexico reported continued do braking line to how technology. also that one talked year, site next steer-by-wire from So program new this affect and U.S. 'XX, in events being customers [indiscernible], fully relocation product about of just Kimball? those early aside, And your shift

that Mike, customers. our so that's steer-by-wire, as we we have been something in think with about actively

remember, bringing further start products months producing, So even is these back life the than before cycle XX that. conversations to you XX extend market to of and the typically

in And so that of disclosed largest in the XX-K. our participation year customers. one next is We our that

supply So we chain that you that assume with them. actively should are in

aware for contemplated The of. will around conversations say for to I that other company while their China. moved that their had the a and thing They're was in supply likely Mexico is expansion chain things the

great it relates partnership and of we customer would with a serve look ours, as I in we who's long-term be to to So geographies. the those as Nexteer, expect future ready that of partner Kimball to

I you China is ready we also in know and in the been facility. available as As -- as and think well our capacity to significant serve Mexico willing

then, what of midpoint for you what guidance the each that And roughly the comes do percent, if verticals? in expect of Kimball in Okay. fiscal at revenue 'XX range,

terribly trying my to scenarios give. guidance are have be I'm least going prescriptive sure exactly we contemplated now. as going we So shake different in at I we're too X to the not not that out. the the how And reason verticals were head is to right

most be daily getting right? And because the Chief that's CTO in impact and What that of going comps the reflected FDA that's fully but we've FY Medical our to anticipated. Auto, Officer be and expect we to weak, very Where Auto, it 'XX. sort say is North is to Europe is waiting insights our be going you've got in the for modest, than in the and got we're stronger Industrial I impact could would see, Chinese to from American Operating I'm

And get for given Is solutions are be me you to into going maybe is you meters, a final electronification stock? going grid? of industrial, commoditization what try the the Okay. then a emerging just some going where it question difference? make to to on smart is of can to make Or up other

point great No, a would I Yes. question. to few Mike. things,

that back commoditization smart well control, that where as return discussions the very haven't And place positioned. We is to seen we seen equipment. expect off-highway we that in come economic feel automation we've time. think We've of would to a the early think future expect factory we seen climate around over necessarily we're in there the we where growth, we're customers active stages I mentioned, of metering. today accelerate and impacts with to

returning of the that some help forward are those to would expect growth we industrial areas we and drive as to us it. So look at

actively pursuing. suggest, you as we're think, also area also is We Mike, that an

Our is next question Lake Schmidt Jaeson Street. from with

near term. here is of in the profile softer a sort the little Understanding demand

if really the simply due Just programs right? is to or you pushed curious this to being could getting canceled comment if

mean, the of aware we unfortunately the of FDA is customer lower. our up. spoke unusual I there, longer of demand a got the a is you're We is updated situation recent was braking, medical to, OEM of the that an estimate more supporting the the Tier where program. which demand demand and exception situation that on won that This and Yes, no -- X events program. estimate This we push is with

to of when see a asked lot, we demand lot, the we're our do you and So see a we continue a normalization ask -- customers patterns.

most when wait we us to hear But got and several frequent is there's probably of viewpoint our U.S. lot you I stabilizing get this back where half we comment a cycle election a that we know second calendar of customers could the see. of demand see normal of of none see of levels. would we a of as 'XX customers past course, from Of know. say

X aware we're those with not programs. But of, that losing exceptions you're

good. Our are win rates

relationships actively and where ever you're as those Our are even significant customers already time. relationships over replace as working had strong, strong those we're a those of, to remain situations really impact, volumes aware those with programs as customer

a helpful. program. as then That's And follow-up Okay. just braking that on

but you hole creating for fiscal that's if I what a did this, revenue sort missed quantify Sorry, of 'XX?

quantify We didn't it.

recall it of the about FDA terms of think revenue. should You along the in scale size same of

question next Our Fitzgerald. with is from Cantor Derek Soderberg

Yes.

electric you talk curious if Can in some what there. I there I some vehicle plans? believe. Just know for can tariffs, growth guys on just you or plans of comment least about you your on at news the some China any electric vehicles impact have that's

as softening have to us well certainly in overall, tell the mean, customers, the and as still to think been time. when. is we that. know, overall -- over I This question EV going you We Yes. it's our penetration a still increased documented uptake. of I We has talk believe, customers

One reminder there that for know. business is is China for China, you China as our

And it's and market So China, Europe relative on can the at in world, to different the that trends, differently be the time we not an export for around because certainly North depending or us. the look America. economy

Got What have some plans repurchases. quick with maybe Yes. out. on getting obviously, here change repurchases, And pushed Good then on share at some see programs of it. kind share of purchases all? Jana? one Any these Does plans there. changed that -- one to

not. is It

flow at into so cash our is cap. to improvement beyond to of thing So working out certainly the remember declining equal had hard, balance what even a we is able which with LTIP We'll out keep examine we always We we're been as company. the market. line revenue, the to significant actual is growth that least our we've that. The do really we've have that endeavor that with repurchase share in to program putting do EPS

very actually now to ago. year balance shape our where a it in good so relative sheet And was is

to can. the as so capital possibly return in And many is strategy allocation be to going ways shareholders value we as

next Anja is Soderstrom from Sidoti [Operator Our question with Instructions] Company. &

climate So commoditized? going there picks I'm with risk that that curious, going you control Europe any also to certain those are be come Europe. up? once the a Or there weaker just pretty to back Is they're in bit are are

more piece is do than where in Europe. North primarily it the exposure it from commoditizing. some Anja, to control climate derived have control North Europe, but revenue much hey, is We is that not climate So America, America

economic that not softness Chinese So we just commoditization for saw more Europe control the in. general as we much metering like we so saw in to malaise, related saw climate was smart product in coming

in And the cadence -- of terms that? we should really for about what's Okay. think year, next how

Kimball give So to whether to modeling do guidance to wanted or guidance. to and Street, a stick we provide give where there but were wanted was over give we're we going to guidance you the or is the debate we with quarterly the not decided we quarterly with within significant we annual whether seeing. What help you that annual updates

so automotive QX did is what recall. QX very we line and we shake much that of to with lap And medical it for the for of which terms FDA out, industrial, saw we with for expect in in with the where except

We quarterly to continue that. you will refine basis help on a

of quarterly European on we calls. you China the out the softness said as automotive Mike, will shakes provide in we and how and Again, market, for detail as watching but over as the autos, see we I to the can American course much year, to we'll expect industrial. We're North it

company, you for elaborate structure. capital And Okay. that? to the refinement going you the he's has Can of been the at Andy on look announced to a that elevated know when that you Treasurer

focus capital our cash, is management improves basically, getting shape. is the say capital great big sheet as would and debt and generate now -- So I as right of we in the balance on we refinement The structure? what working

just to time, I right the all sustainable. going the just we where good would company, where that, taking expect all is to our It's stewardship but of CapEx it 'XX time, to are of because know that in care of maintenance have for in grow at really that's real not FY now. point we're we ratcheted needs growth and we've the

M&A We comes a we able there in to the customer business, indicated, of to also powder We're extent a are advantage to or dry opportunity portion want way. of really have their over some take great to us, us as either activity that to attractive available wants take a that. a diversifies really us had great

hygiene And our that's is really focus enables sheet that balance future so growth.

Our is Funds. from next Hendi with Susanto Gabelli question

does X What first My like look question now? verticals digestion. major across is inventory about inventory digestion the

Yes. great much progress FY we 'XX, We indicated. very what was in line with made it in and really

we're And I've modeling if $XXX consistently to you're about balance would flow, we 'XX out. I $XX $XX said terms declines to off spent think of so of see million I has -- in $XX million been pulled guide order the million of CapEx CapEx the FY of So our similar that expect $XXX We million. cash in pull needed to I magnitude. sheet. inventory million year year. for would We last going

order of I also flow to 'XX. be expect so what we did cash FY in And of generation magnitude free

And Jana, customers? digestion inventory if clarify, like your may they does among Are Or excess there's significantly some inventories? like still what leaner? look I

Hendi, and thank apologize, I for clarifying. you Yes.

No problem.

are customers? you the seeing I I'm Electronics job. Kimball among you a outlook, did like wondering major what -- think what your great did

that of caused persists base we're 'XX, consumer in to business 'XX wait don't FY inventory is still slow FY stance as backlog that much it's that our filled the the it backlog of that 'XX. So up working of and as have in that much and through inventory know customers I so the see. FY a

that by, economic to inventories. But movements for some so in and geographies. some other working it's come -- industrial a consumers much that think political on amount as not So it they're have outcomes, through Fed differs much more I waiting posturing and medical. backlog. so tremendous automotive still signals driven of just don't our vertical. it's again, don't It's Certainly, by Arguably, things through, are I from global that has think we

clear industrial so medical. and that, Some in but be about autos, me much in not let

Where Kimball Okay. CapEx in XXXX. fiscal And the on Jana, growth I see. span year for CapEx? Electronics will

it's of growth between got it, some big the in to say that going 'XX. evenly fairly CapEx. are programs So FY split We've be bulk starting we and maintenance

And must amount we a that growth spend. of fair so capital there's

And the it the out front-end be so year. for CapEx to going full that's loaded rounding spend of sort maintenance with with

it able be all indicate to you automotive whether will in of industrial, be Would medical, or X? those

It's automotive be and going medical. to in

Industrial as got industrial. as automotive intensive the launching just in it funnel from and right, we've today, and the and Some is not business. programs flexes sits year-to-year medical, capital we're what depending for as in you type what know of that, that on

Okay. this. to ask producing no for also And of main system may a the about was OEM? then I missed like would reason? I customer Tier the challenge X What have longer

related A into not try ]. and it those commercial in get only between provider. X that that or reason help the to the that price. It producing. we of leads all I product the everyone we another also not agreement is quality am And Tier not framing understand related to or to it the at workmanship are [ to The was OEM was way

even comment we're and the providing is necessarily fair X appropriate, that product we reasonable Tier at both to it's we think so And don't normally, we and excellent because but important know customer, price. it a don't

is either see those, typically to so do the of which why movement. And has would nothing you with movement

want very clear And so to we and be just transparent.

working together. launching very to over programs we how customer closely And time we're volumes, that new Tier see those fact, in Hendi, on with X backfill working

strong. very relationship remains So that

it the Ric, does else? Okay. -- future, okay, that to when programs, on near reallocation Will And what in the for order depend on? backfill it anything depend or customers then new

successful We're and all regular above. be in new had conversations programs, we've a good about the could very of It relationship.

-- positively we're certainly with to consistently work stand also talk that have customer on product is shift. to But could commercial ability ready programs to support that to think I we to them agreements them existing high-quality our aligned provide on there. and the strong really that

question And me. Okay. then last for

its Kimball M&A able size the than potential with can Electronics interest more about indicate think deal a I potential strategic usual. sheet? Kimball balance -- you digest talks M&A, is Would in what size stronger this that to of

down what much I and make size out with option portfolio of had for in a way than strategic always long-term a what be to stand But what than don't great how we size. and still organic but is good a a what What to it of really company. I think willing so the boils banks, to digest good is partners, out God to help clear, ready and would strong. the balances digest and we this different the were growth bless really they strategic you figure to Kimball we want it's think real our could years space they're to I fit. expecting. in is be the for is incredibly practical thoughtful -- strategic the though, be X hoped ago certainly funnel something

rock the preserving look net, as leadership in incumbent still you're always Ric cast to profitably, are to line for But growing and wider the team at organic it's Our when indicated, solid. opportunities looking everything. upon the growth top at

this available conference the ID time, hours is XXXXXXXX. XXX-XXXX. by this to be in access will replay The at will questions (XXX) after approximately conference. further dialing no A conclude in X With today's

time, You may thank lines now your and at your disconnect you for participation. this