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Kimball Electronics Reports Q3 Results; Company Announces Renewed Strategic Focus, Including Expected Divestiture of the Automation, Test & Measurement Business

Kimball Electronics, Inc. (Nasdaq: KE) today announced financial results for the third quarter of fiscal 2024 with net sales totaling $425.0 million and a net loss of $6.1 million, or $0.24 per share. This result includes the impairment of the Automation, Test & Measurement business, which the Company expects to divest, along with restructuring expense, partially offset by the recovery of a legal settlement. A detailed reconciliation is provided later in this release.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20240507684308/en/

  • Excluding these items, adjusted net income in the third quarter of fiscal 2024 totaled $8.4 million, or $0.34 per diluted share, and adjusted operating income equaled $17.0 million, or 4.0% of net sales.
  • Cash flow from operating activities in the quarter was $42.6 million driven by inventory reductions.
  • Company sharpens strategic focus on EMS operations and aligns cost structure to short-term demand trends.
  • Guidance for adjusted operating income in fiscal 2024 reiterated, while the estimate for net sales was updated, in response to the challenging operating environment, and capital expenditures strategically reduced.
  • Resumption of share repurchases approved by the Board of Directors.

 

Three Months Ended

 

Nine Months Ended

 

March 31,

 

March 31,

(Amounts in Thousands, except EPS)

2024

 

2023

 

2024

 

2023

Net Sales

$

425,036

 

 

$

484,703

 

 

$

1,284,352

 

 

$

1,327,288

 

Operating Income

$

(6,431

)

 

$

25,220

 

 

$

29,669

 

 

$

56,280

 

Adjusted Operating Income (non-GAAP) (1)

$

16,960

 

 

$

25,573

 

 

$

53,367

 

 

$

56,738

 

Operating Income %

 

(1.5

)%

 

 

5.2

%

 

 

2.3

%

 

 

4.2

%

Adjusted Operating Income (non-GAAP) %

 

4.0

%

 

 

5.3

%

 

 

4.2

%

 

 

4.3

%

Net Income (Loss)

$

(6,076

)

 

$

16,400

 

 

$

12,968

 

 

$

36,629

 

Adjusted Net Income (non-GAAP) (1)

$

8,441

 

 

$

16,400

 

 

$

27,485

 

 

$

36,908

 

Diluted EPS

$

(0.24

)

 

$

0.65

 

 

$

0.51

 

 

$

1.46

 

Adjusted Diluted EPS (non-GAAP) (1)

$

0.34

 

 

$

0.65

 

 

$

1.09

 

 

$

1.47

 

 

(1) A reconciliation of GAAP and non-GAAP financial measures is included below.

Commenting on today’s announcement, Richard D. Phillips, Chief Executive Officer, stated, “As we anticipated, the operating environment has remained challenged for the EMS industry, and our sales in the third quarter declined as expected. During this period of end market softness, we have focused on ‘controlling what we can control,’ proactively aligning our cost structure with short-term demand trends, maintaining competitiveness with stable operating margins, and focusing on working capital improvements.”

Mr. Phillips continued, “We’re taking meaningful steps to sharpen our strategic focus and further position the Company for profitable growth, and stronger performance moving forward. With the expected divestiture of the Automation, Test & Measurement business, our team can increase focus and support on our core EMS operations. While we suspect the macro headwinds will persist in fiscal 2025, we’re continuing to make investments in long-term growth opportunities supported by a robust funnel for new business in the next 18-24 months, while deploying a capital allocation strategy that balances growth, lasting customer relationships, and returning cash to Share Owners with opportunistic share repurchases.”

The Company ended the third quarter of fiscal 2024 with cash and cash equivalents of $65.2 million and borrowings outstanding on credit facilities of $319.6 million, including $235.0 million classified as long term, and $117.4 million of borrowing capacity available. Capital expenditures were $13.4 million in Q3.

Net Sales by Vertical Market for Q3 Fiscal 2024:

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

March 31,

 

 

 

March 31,

 

 

(Amounts in Millions)

2024

 

*

 

2023

 

*

 

Percent

Change

 

2024

 

*

 

2023

 

*

 

Percent

Change

Automotive (1)

$

202.0

 

47

%

 

$

221.9

 

46

%

 

(9

)%

 

$

614.7

 

48

%

 

$

615.3

 

46

%

 

%

Medical (1)

 

113.0

 

 

27

%

 

 

135.5

 

 

28

%

 

(17

)%

 

 

323.5

 

 

25

%

 

 

377.1

 

 

29

%

 

(14

)%

Industrial (1)

 

110.0

 

 

26

%

 

 

127.3

 

 

26

%

 

(14

)%

 

 

346.2

 

 

27

%

 

 

334.9

 

 

25

%

 

3

%

Total Net Sales

$

425.0

 

 

 

 

$

484.7

 

 

 

 

(12

)%

 

$

1,284.4

 

 

 

 

$

1,327.3

 

 

 

 

(3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* As a percent of Total Net Sales

(1) Beginning in fiscal year 2024, miscellaneous sales previously reported in Other are now reported in the respective three end market verticals; all prior periods have been recast to conform to current period presentation

 

Automotive includes electronic power steering, body controls, automated driver assist systems, and electronic braking systems

Medical includes sleep therapy and respiratory care, image guided therapy, in vitro diagnostics, drug delivery, AED, and patient monitoring

Industrial includes climate controls, automation controls, optical inspection, and public safety

Guidance for Fiscal Year 2024

The Company reiterated its guidance for adjusted operating income in fiscal year 2024 of 4.2% to 4.6% of net sales. In response to the current economic environment, net sales are now expected to decline 4% to 6%, compared to the previous estimate of a 2% to 4% decrease. Capital expenditures are estimated to be in the range of $55 to $60 million, compared to the previous guidance of $70 to $80 million.

Forward-Looking Statements

Certain statements contained within this release are considered forward-looking, including our fiscal year 2024 guidance, under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “expect,” “should,” “goal,” “predict,” “will,” “future,” “optimistic,” “confident,” and “believe.” Undue reliance should not be placed on these forward-looking statements. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. These forward-looking statements are subject to risks and uncertainties including, without limitation, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies, availability or cost of raw materials and components, foreign exchange rate fluctuations, and our ability to convert new business opportunities into customers and revenue. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the company are contained in its Annual Report on Form 10-K for the year ended June 30, 2023.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. The non-GAAP financial measures contained herein include constant currency growth, adjusted operating income, adjusted net income, adjusted diluted EPS, and ROIC. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Reconciliation of Non-GAAP Financial Measures section below. Management believes these measures are useful and allow investors to meaningfully trend, analyze, and benchmark the performance of the company’s core operations. The company’s non-GAAP financial measures are not necessarily comparable to non-GAAP information used by other companies.

About Kimball Electronics, Inc.

Kimball Electronics is a multifaceted manufacturing solutions provider of electronics and diversified contract manufacturing services to customers around the world. From our operations in the United States, China, India, Japan, Mexico, Poland, Romania, Thailand, and Vietnam, our teams are proud to provide manufacturing services for a variety of industries. Recognized for a reputation of excellence, we are committed to a high-performance culture that values personal and organizational commitment to quality, reliability, value, speed, and ethical behavior. Kimball Electronics, Inc. (Nasdaq: KE) is headquartered in Jasper, Indiana.

To learn more about Kimball Electronics, visit: www.kimballelectronics.com.

Conference Call / Webcast

 

 

 

Date:

 

May 8, 2024

Time:

 

10:00 AM Eastern Time

Live Webcast:

 

investors.kimballelectronics.com/events-and-presentations/events

Dial-In #:

 

404-975-4839 (other locations - 833-470-1428)

Conference ID:

 

889032

For those unable to participate in the live webcast, the call will be archived at investors.kimballelectronics.com.

Lasting relationships. Global success.

Financial highlights for the third quarter and year-to-date period ended March 31, 2024 are as follows:

Condensed Consolidated Statements of Income

(Unaudited)

Three Months Ended

(Amounts in Thousands, except Per Share Data)

March 31, 2024

 

March 31, 2023

Net Sales

$

425,036

 

 

100.0

%

 

$

484,703

 

 

100.0

%

Cost of Sales

 

391,492

 

 

92.1

%

 

 

441,731

 

 

91.1

%

Gross Profit

 

33,544

 

 

7.9

%

 

 

42,972

 

 

8.9

%

Selling and Administrative Expenses

 

16,861

 

 

3.9

%

 

 

17,752

 

 

3.7

%

Other General Expense (Income)

 

(892

)

 

(0.2

)%

 

 

 

 

%

Restructuring Expense

 

1,622

 

 

0.4

%

 

 

 

 

%

Goodwill Impairment

 

5,820

 

 

1.4

%

 

 

 

 

%

Asset Impairment

 

16,564

 

 

3.9

%

 

 

 

 

%

Operating Income (Loss)

 

(6,431

)

 

(1.5

)%

 

 

25,220

 

 

5.2

%

Interest Income

 

83

 

 

%

 

 

45

 

 

%

Interest Expense

 

(5,875

)

 

(1.4

)%

 

 

(4,822

)

 

(1.0

)%

Non-Operating Income (Expense), net

 

(530

)

 

(0.1

)%

 

 

1,433

 

 

0.3

%

Other Income (Expense), net

 

(6,322

)

 

(1.5

)%

 

 

(3,344

)

 

(0.7

)%

Income Before Taxes on Income

 

(12,753

)

 

(3.0

)%

 

 

21,876

 

 

4.5

%

Provision for Income Taxes

 

(6,677

)

 

(1.6

)%

 

 

5,476

 

 

1.1

%

Net Income (Loss)

$

(6,076

)

 

(1.4

)%

 

$

16,400

 

 

3.4

%

 

 

 

 

 

 

 

 

Earnings Per Share of Common Stock:

 

 

 

 

 

 

 

Basic

$

(0.24

)

 

 

 

$

0.66

 

 

 

Diluted

$

(0.24

)

 

 

 

$

0.65

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

25,118

 

 

 

 

 

24,898

 

 

 

Diluted

 

25,118

 

 

 

 

 

25,067

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

Nine Months Ended

(Amounts in Thousands, except Per Share Data)

March 31, 2024

 

March 31, 2023

Net Sales

$

1,284,352

 

 

100.0

%

 

$

1,327,288

 

 

100.0

%

Cost of Sales

 

1,180,833

 

 

91.9

%

 

 

1,220,804

 

 

92.0

%

Gross Profit

 

103,519

 

 

8.1

%

 

 

106,484

 

 

8.0

%

Selling and Administrative Expenses

 

50,736

 

 

4.0

%

 

 

50,204

 

 

3.8

%

Other General Expense (Income)

 

(892

)

 

(0.1

)%

 

 

 

 

%

Restructuring Expense

 

1,622

 

 

0.1

%

 

 

 

 

%

Goodwill Impairment

 

5,820

 

 

0.5

%

 

 

 

 

%

Asset Impairment

 

16,564

 

 

1.3

%

 

 

 

 

%

Operating Income

 

29,669

 

 

2.3

%

 

 

56,280

 

 

4.2

%

Interest Income

 

483

 

 

%

 

 

88

 

 

%

Interest Expense

 

(17,459

)

 

(1.4

)%

 

 

(10,790

)

 

(0.8

)%

Non-Operating Income (Expense), net

 

(959

)

 

%

 

 

2,659

 

 

0.2

%

Other Income (Expense), net

 

(17,935

)

 

(1.4

)%

 

 

(8,043

)

 

(0.6

)%

Income Before Taxes on Income

 

11,734

 

 

0.9

%

 

 

48,237

 

 

3.6

%

Provision for Income Taxes

 

(1,234

)

 

(0.1

)%

 

 

11,608

 

 

0.8

%

Net Income

$

12,968

 

 

1.0

%

 

$

36,629

 

 

2.8

%

 

 

 

 

 

 

 

 

Earnings Per Share of Common Stock:

 

 

 

 

 

 

 

Basic

$

0.52

 

 

 

 

$

1.47

 

 

 

Diluted

$

0.51

 

 

 

 

$

1.46

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

25,084

 

 

 

 

 

24,868

 

 

 

Diluted

 

25,263

 

 

 

 

 

25,031

 

 

 

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

(Unaudited)

March 31,

(Amounts in Thousands)

2024

 

2023

Net Cash Flow provided by (used for) Operating Activities

$

24,717

 

 

$

(57,885

)

Net Cash Flow used for Investing Activities

 

(37,702

)

 

 

(66,497

)

Net Cash Flow provided by Financing Activities

 

36,571

 

 

 

107,148

 

Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash

 

(113

)

 

 

(294

)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

 

23,473

 

 

 

(17,528

)

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

 

43,864

 

 

 

49,851

 

Cash, Cash Equivalents, and Restricted Cash at End of Period

$

67,337

 

 

$

32,323

 

 

(Unaudited)

 

 

Condensed Consolidated Balance Sheets

March 31,

2024

 

June 30,

2023

(Amounts in Thousands)

ASSETS

 

 

 

Cash and cash equivalents

$

65,208

 

$

42,955

Receivables, net

 

277,894

 

 

 

308,167

 

Contract assets

 

76,073

 

 

 

78,798

 

Inventories

 

396,199

 

 

 

450,319

 

Prepaid expenses and other current assets

 

43,018

 

 

 

49,188

 

Assets held for sale

 

29,619

 

 

 

 

Property and Equipment, net

 

273,823

 

 

 

267,684

 

Goodwill

 

6,191

 

 

 

12,011

 

Other Intangible Assets, net

 

3,197

 

 

 

12,335

 

Other Assets

 

89,606

 

 

 

38,262

 

Total Assets

$

1,260,828

 

 

$

1,259,719

 

 

 

 

 

LIABILITIES AND SHARE OWNERS EQUITY

 

 

 

Current portion of borrowings under credit facilities

$

84,618

 

 

$

46,454

 

Accounts payable

 

248,174

 

 

 

322,274

 

Advances from customers

 

36,099

 

 

 

33,905

 

Accrued expenses

 

59,621

 

 

 

72,515

 

Liabilities held for sale

 

9,369

 

 

 

 

Long-term debt under credit facilities, less current portion

 

235,000

 

 

 

235,000

 

Long-term income taxes payable

 

3,255

 

 

 

5,859

 

Other long-term liabilities

 

45,631

 

 

 

19,718

 

Share Owners’ Equity

 

539,061

 

 

 

523,994

 

Total Liabilities and Share Owners’ Equity

$

1,260,828

 

 

$

1,259,719

 

Other Financial Metrics

(Unaudited)

(Amounts in Millions, except CCD)

 

At or For the

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

March 31,

 

March 31,

 

2024

 

2023

 

2024

 

2023

Depreciation and Amortization

$

10.5

 

$

8.2

 

$

28.5

 

$

23.8

Stock-Based Compensation

$

1.8

 

 

$

2.0

 

 

$

5.4

 

 

$

5.4

 

Cash Conversion Days (CCD) (1)

 

110

 

 

 

92

 

 

 

 

 

Open Orders (2)

$

831

 

 

$

882

 

 

 

 

 

(1)

Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding plus Contract Asset Days plus Production Days Supply on Hand less Accounts Payable Days and less Advances from Customers Days. CCD, or a similar metric, is used in our industry and by our management to measure the efficiency of managing working capital.

(2)

Open Orders are the aggregate sales price of production pursuant to unfulfilled customer orders.

Select Financial Results of Automation, Test & Measurement

(Unaudited)

(Amounts in Millions)

 

Three Months Ended

 

Nine Months Ended

 

March 31,

 

March 31,

 

2024

 

2023

 

2024

 

2023

Net Sales

$

8.1

 

 

$

16.8

 

$

30.9

 

 

$

40.6

Operating Income (Loss) (1)

$

(25.4

)

 

$

1.6

 

 

$

(24.3

)

 

$

0.1

 

(1)

Includes goodwill impairment of $5.8 million and asset impairment of $16.6 million for the three and nine months ended March 31, 2024. Also includes allocated corporate overhead expenses.

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

(Amounts in Thousands, except Per Share Data)

 

Three Months Ended

 

Nine Months Ended

 

March 31,

 

March 31,

 

2024

 

2023

 

2024

 

2023

Net Sales Growth (vs. same period in prior year)

 

(12

)%

 

 

32

%

 

 

(3

)%

 

 

36

%

Foreign Currency Exchange Impact

 

%

 

 

(2

)%

 

 

%

 

 

(4

)%

Constant Currency Growth

 

(12

)%

 

 

34

%

 

 

(3

)%

 

 

40

%

 

 

 

 

 

 

 

 

Selling and Administrative Expenses, as reported

$

16,861

 

 

$

17,752

 

 

$

50,736

 

 

$

50,204

 

SERP

 

(277

)

 

 

(353

)

 

 

(584

)

 

 

(458

)

Adjusted Selling and Administrative Expenses

$

16,584

 

 

$

17,399

 

 

$

50,152

 

 

$

49,746

 

 

 

 

 

 

 

 

 

Operating Income (Loss), as reported

$

(6,431

)

 

$

25,220

 

 

$

29,669

 

 

$

56,280

 

SERP

 

277

 

 

 

353

 

 

 

584

 

 

 

458

 

Legal Settlements (Recovery)

 

(892

)

 

 

 

 

 

(892

)

 

 

 

Restructuring Expense

 

1,622

 

 

 

 

 

 

1,622

 

 

 

 

Goodwill Impairment

 

5,820

 

 

 

 

 

 

5,820

 

 

 

 

Asset Impairment

 

16,564

 

 

 

 

 

 

16,564

 

 

 

 

Adjusted Operating Income

$

16,960

 

 

$

25,573

 

 

$

53,367

 

 

$

56,738

 

 

 

 

 

 

 

 

 

Net Income (Loss), as reported

$

(6,076

)

 

$

16,400

 

 

$

12,968

 

 

$

36,629

 

Adjustments After Measurement Period on GES Acquisition

 

 

 

 

 

 

 

 

 

 

279

 

Legal Settlements (Recovery), After-Tax

 

(676

)

 

 

 

 

 

(676

)

 

 

 

Restructuring Expense, After-Tax

 

1,230

 

 

 

 

 

 

1,230

 

 

 

 

Goodwill Impairment, After-Tax

 

4,414

 

 

 

 

 

 

4,414

 

 

 

 

Asset Impairment, After-Tax

 

9,549

 

 

 

 

 

 

9,549

 

 

 

 

Adjusted Net Income

$

8,441

 

 

$

16,400

 

 

$

27,485

 

 

$

36,908

 

 

 

 

 

 

 

 

 

Diluted Earnings per Share, as reported

$

(0.24

)

 

$

0.65

 

 

$

0.51

 

 

$

1.46

 

Adjustments After Measurement Period on GES Acquisition

 

 

 

 

 

 

 

 

 

 

0.01

 

Legal Settlements (Recovery)

 

(0.03

)

 

 

 

 

 

(0.03

)

 

 

 

Restructuring Expense

 

0.05

 

 

 

 

 

 

0.05

 

 

 

 

Goodwill Impairment

 

0.18

 

 

 

 

 

 

0.18

 

 

 

 

Asset Impairment

 

0.38

 

 

 

 

 

 

0.38

 

 

 

 

Adjusted Diluted Earnings per Share

$

0.34

 

 

$

0.65

 

 

$

1.09

 

 

$

1.47

 

 

 

 

 

 

 

 

 

 

 

 

Twelve Months Ended

 

 

 

March 31,

 

 

 

 

 

 

2024

 

 

 

2023

 

Operating Income

 

 

 

 

$

61,118

 

 

$

76,858

 

Goodwill Impairment

 

 

 

 

 

5,820

 

 

 

 

SERP

 

 

 

 

 

827

 

 

 

(701

)

Legal Recovery

 

 

 

 

 

(1,104

)

 

 

 

Restructuring Expense

 

 

 

 

 

1,622

 

 

 

 

Asset Impairment

 

 

 

 

 

16,564

 

 

 

 

Adjusted Operating Income (non-GAAP)

 

 

 

 

$

84,847

 

 

$

76,157

 

Tax Effect

 

 

 

 

 

19,947

 

 

 

20,375

 

After-tax Adjusted Operating Income

 

 

 

 

$

64,900

 

 

$

55,782

 

Average Invested Capital (1)

 

 

 

 

$

783,059

 

 

$

659,911

 

ROIC

 

 

 

 

 

8.3

%

 

 

8.5

%

(1)

Average invested capital is computed using Share Owners’ equity plus current and non-current debt less cash and cash equivalents averaged for the last five quarters.

 

Kimball Electronics reports Q3 results; Company announces renewed strategic focus, including expected divestiture of the Automation, Test & Measurement business.

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