Kimball Electronics, Inc. Q1 FY2025 earnings call

• Strategically restructured by divesting noncore AT&M business and folding medical CMO into EMS. - Sharpened strategic focus in vertical markets on areas like automotive domain controllers, industrial energy storage, and medical drug device combinations. - Proactively adjusted resources and costs due to market demand softness, lowered inventory by over $150 million, and generated positive cash flow. - Announced closure of Tampa manufacturing facility to drive efficiency, with production activities transferred to Mexico and Jasper facilities. - Q1 results in line with expectations despite challenging market conditions, adjusted selling and administrative expenses reduced by $3.5 million, and balance sheet strengthened with lower debt levels.

For the first quarter of fiscal 2025, net sales totaled $374 million, a 15% decrease year-over-year (13% excluding AT&M). By vertical segment: Automotive had net sales of $188 million, down 11% YoY, accounting for 50% of total company sales. Medical had net sales of $90 million, down 12% YoY, 24% of total. Industrial had net sales of $96 million, down 22% YoY, 25% of total.

• Net sales expected to be in the range of $1.44 billion to $1.54 billion for fiscal 2025. - Adjusted operating income expected to be 4% to 4.5% of net sales. - Capital expenditures预计 to be $40 million to $50 million. - Incurring approximately $8 million to $11 million in Tampa exit costs, predominantly cash expenditures. - Q2 revenue decline expected to be roughly in line with Q1, with margin improvement anticipated in the back half of the year.

• Market demand softness impacting vertical segments. - Challenges in managing inventory levels, especially in automotive due to long lead times. - Uncertainty around the timing of demand stabilization in end markets. - Impact of program cancellations and transitions on operations and revenue.

Q: Can you remind us what's on the books for the Tampa facility and clarify proceeds from selling it?

A: Tampa has annual revenue of ~$75M. Proceeds from selling the building and land are expected to exceed exit costs.

Q: What's the visibility on clearing elevated inventory in auto?

A: Have regular contact with customers to update demand, but no clear line of sight on timing of demand stabilization.

Q: How should we think about gross margin trending?

A: Expected measured improvement in Q2 and more significant improvement in the back half of the year, dependent on revenue and cost reduction efforts.

Q: Is September the low watermark for revenue?

A: Likely October is the low watermark as Q2 decline is in line with Q1.

Q: Clarify sequential decline in Q2 revenue?

A: By revenue, with improved gross margin.

Q: Details on inventory in auto and remedy?

A: Automotive inventory is challenging due to long lead times; work with customers to right-size, and will fully recover inventory.

Q: Timing of Tampa exit costs?

A: Will begin process immediately, with some costs expected in Q2.

Q: Savings from Tampa closure?

A: Not disclosed yet, but utilization of other facilities will improve, and more info will be given in Q2.