[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Kimball Electronics, Inc.'s unaudited condensed consolidated financial statements for the quarter ended September 30, 2023, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of share owners' equity, along with detailed notes explaining business operations, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of September 30, 2023, and June 30, 2023 Balance Sheet Data | Metric | September 30, 2023 (Thousands) | June 30, 2023 (Thousands) | | :-------------------------------- | :----------------------------- | :-------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $56,581 | $42,955 | | Receivables, net | $259,419 | $308,167 | | Contract assets | $87,675 | $78,798 | | Inventories | $482,229 | $450,319 | | Total current assets | $931,045 | $929,427 | | Property and Equipment, net | $268,645 | $267,684 | | Goodwill | $12,011 | $12,011 | | Other Intangible Assets, net | $11,603 | $12,335 | | Total Assets | $1,263,166 | $1,259,719 | | **LIABILITIES AND SHARE OWNERS' EQUITY** | | | | Current portion of borrowings | $61,680 | $46,454 | | Accounts payable | $308,912 | $322,274 | | Advances from customers | $41,467 | $33,905 | | Total current liabilities | $478,331 | $475,148 | | Long-term debt | $235,000 | $235,000 | | Total Liabilities | $734,904 | $735,725 | | Total Share Owners' Equity | $528,262 | $523,994 | | Total Liabilities and Share Owners' Equity | $1,263,166 | $1,259,719 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section details the company's financial performance over the three months ended September 30, 2023, including net sales, gross profit, operating income, and net income Income Statement Data | Metric | Three Months Ended September 30, 2023 (Thousands) | Three Months Ended September 30, 2022 (Thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net Sales | $438,081 | $405,889 | | Cost of Sales | $402,539 | $376,568 | | Gross Profit | $35,542 | $29,321 | | Selling and Administrative Expenses | $16,052 | $15,750 | | Operating Income | $19,490 | $13,571 | | Other income (expense), net | $(6,279) | $(1,403) | | Income Before Taxes on Income | $13,211 | $12,168 | | Provision for Income Taxes | $2,457 | $2,659 | | Net Income | $10,754 | $9,509 | | Basic Earnings Per Share | $0.43 | $0.38 | | Diluted Earnings Per Share | $0.43 | $0.38 | - Net Sales increased by **8% YoY to $438.1 million** for the three months ended September 30, 2023, compared to $405.9 million in the prior year period. Gross Profit increased by **21% YoY to $35.5 million**, and Operating Income increased by **44% YoY to $19.5 million**. Net Income rose by **13% YoY to $10.8 million**, with Diluted Earnings Per Share also increasing by **13% to $0.43**[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section outlines the company's total comprehensive income, including net income and other comprehensive income (loss) components, for the three months ended September 30, 2023 Comprehensive Income Data | Metric | Three Months Ended September 30, 2023 (Thousands) | Three Months Ended September 30, 2022 (Thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $10,754 | $9,509 | | Other comprehensive income (loss), net of tax | $(6,735) | $(7,417) | | Total comprehensive income | $4,019 | $2,092 | - Total comprehensive income increased by **92% YoY to $4.0 million** for the three months ended September 30, 2023, primarily due to a smaller other comprehensive loss compared to the prior year[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended September 30, 2023 Cash Flow Data | Metric | Three Months Ended September 30, 2023 (Thousands) | Three Months Ended September 30, 2022 (Thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by (used for) operating activities | $12,801 | $(60,194) | | Net cash used for investing activities | $(11,302) | $(19,320) | | Net cash provided by financing activities | $13,985 | $50,769 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $14,935 | $(30,136) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $58,799 | $19,715 | - Net cash provided by operating activities significantly improved to a positive **$12.8 million** in Q1 FY2024 from a net cash usage of **$60.2 million** in Q1 FY2023. This was largely driven by a decrease in accounts receivable providing **$45.3 million** in cash, partially offset by an increase in inventory using **$34.0 million**[17](index=17&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - Net cash used for investing activities decreased to **$11.3 million** in Q1 FY2024 from **$19.3 million** in Q1 FY2023, reflecting reduced capital expenditures[17](index=17&type=chunk)[112](index=112&type=chunk) - Net cash provided by financing activities decreased to **$14.0 million** in Q1 FY2024 from **$50.8 million** in Q1 FY2023, primarily due to lower net borrowings on credit facilities[17](index=17&type=chunk)[113](index=113&type=chunk) [Condensed Consolidated Statement of Share Owners' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statement%20of%20Share%20Owners%27%20Equity) This section presents changes in the company's share owners' equity, including net income, other comprehensive income, and stock compensation, for the period ended September 30, 2023 Share Owners' Equity Data | Metric | September 30, 2023 (Thousands) | June 30, 2023 (Thousands) | | :-------------------------------- | :----------------------------- | :-------------------------- | | Total Share Owners' Equity | $528,262 | $523,994 | | Net income | $10,754 | N/A | | Other comprehensive income (loss) | $(6,735) | N/A | | Compensation expense related to stock compensation plans | $1,613 | N/A | | Performance and restricted share issuance | $(1,364) | N/A | - Total Share Owners' Equity increased to **$528.3 million** as of September 30, 2023, from **$524.0 million** as of June 30, 2023, driven by net income and stock compensation expense, partially offset by other comprehensive loss and share issuance[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, revenue, inventories, and other financial items [Note 1. Business Description and Summary of Significant Accounting Policies](index=10&type=section&id=Note%201.%20Business%20Description%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Kimball Electronics, Inc.'s global manufacturing solutions business and outlines its key accounting policies, including revenue recognition and treatment of non-operating income - Kimball Electronics, Inc. is a global manufacturing solutions provider offering electronics manufacturing services (EMS) and contract manufacturing for non-electronic components, medical disposables, precision molded plastics, and production automation equipment across automotive, medical, and industrial end markets[22](index=22&type=chunk) - The company recognizes revenue primarily over time as manufacturing services are performed for customer-specified products with no alternative use, and an enforceable right to payment exists[26](index=26&type=chunk) - Kimball Electronics sold **$103.0 million** and **$97.6 million** of accounts receivable without recourse in the three months ended September 30, 2023 and 2022, respectively, incurring factoring fees of **$0.9 million** in both periods[31](index=31&type=chunk) - Non-operating income (expense), net, includes foreign currency rate movements, derivative gains/losses, fair value adjustments on SERP investments, government subsidies, and bank charges[34](index=34&type=chunk) [Note 2. Revenue from Contracts with Customers](index=13&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) This note provides a breakdown of net sales by vertical market and details the company's contract assets related to revenue recognition Net Sales by Vertical Market | Vertical Market | Three Months Ended September 30, 2023 (Millions) | Three Months Ended September 30, 2022 (Millions) | | :---------------- | :------------------------------------------ | :------------------------------------------ | | Automotive | $212.5 | $188.2 | | Medical | $102.4 | $116.0 | | Industrial | $123.2 | $101.7 | | Total net sales | $438.1 | $405.9 | - Approximately **97%** of net sales in Q1 FY2024 (**96%** in Q1 FY2023) were recognized over time as manufacturing services were performed[43](index=43&type=chunk) - Contract assets, representing unbilled accounts receivable, increased to **$87.7 million** as of September 30, 2023, from **$78.8 million** as of June 30, 2023[44](index=44&type=chunk) [Note 3. Inventories](index=13&type=section&id=Note%203.%20Inventories) This note details the composition of the company's inventories, including finished products, work-in-process, and raw materials, as of September 30, 2023 Inventory Composition | Inventory Component | September 30, 2023 (Thousands) | June 30, 2023 (Thousands) | | :------------------ | :----------------------------- | :-------------------------- | | Finished products | $54 | $432 | | Work-in-process | $4,347 | $3,117 | | Raw materials | $477,828 | $446,770 | | Total inventory | $482,229 | $450,319 | - Total inventory increased to **$482.2 million** as of September 30, 2023, from **$450.3 million** as of June 30, 2023, primarily driven by an increase in raw materials[46](index=46&type=chunk) [Note 4. Accumulated Other Comprehensive Income (Loss)](index=14&type=section&id=Note%204.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note provides a breakdown of the components contributing to accumulated other comprehensive income (loss), including foreign currency translation adjustments and derivative gains/losses Accumulated Other Comprehensive Income (Loss) Components | Component | Balance at September 30, 2023 (Thousands) | Balance at June 30, 2023 (Thousands) | | :-------------------------------- | :-------------------------------------- | :----------------------------------- | | Foreign Currency Translation Adjustments | $(16,062) | $(11,832) | | Derivative Gain (Loss) | $(1,154) | $1,368 | | Post Employment Benefits Net Actuarial Gain (Loss) | $(565) | $(582) | | Accumulated Other Comprehensive Income (Loss) | $(17,781) | $(11,046) | - Accumulated Other Comprehensive Loss increased to **$17.8 million** as of September 30, 2023, from **$11.0 million** as of June 30, 2023, primarily due to foreign currency translation adjustments and derivative losses[47](index=47&type=chunk) Reclassification from AOCI to Income | Reclassification from AOCI to Income | Three Months Ended September 30, 2023 (Thousands) | Three Months Ended September 30, 2022 (Thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Derivative gain (loss), net of tax | $2,213 | $408 | | Postemployment Benefits, net of tax | $5 | $77 | | Total reclassifications for the period, net of tax | $2,218 | $485 | [Note 5. Commitments and Contingent Liabilities](index=14&type=section&id=Note%205.%20Commitments%20and%20Contingent%20Liabilities) This note discusses the company's commitments and contingent liabilities, including warranty provisions, which are deemed immaterial for the reporting period - The Company provides assurance-type warranties for workmanship and product specifications, with related liability and expense being immaterial for the three months ended September 30, 2023 and 2022[49](index=49&type=chunk) [Note 6. Credit Facilities](index=15&type=section&id=Note%206.%20Credit%20Facilities) This note outlines the company's credit facilities, including available borrowing capacity, outstanding borrowings, and weighted-average interest rates Credit Facility Details | Credit Facility | Available Borrowing Capacity at Sep 30, 2023 (Millions) | Borrowings Outstanding at Sep 30, 2023 (Millions) | Borrowings Outstanding at Jun 30, 2023 (Millions) | | :------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Primary credit facility | $12.1 | $287.5 | $272.1 | | Secondary credit facility | $50.0 | — | — | | Foreign credit facilities | $28.4 | $9.2 | $9.4 | | Total credit facilities | $90.5 | $296.7 | $281.5 | | Long-term debt under credit facilities, less current portion | N/A | $235.0 | $235.0 | - The weighted-average interest rate on borrowings outstanding under credit facilities increased to **7.1%** at September 30, 2023, from **6.8%** at June 30, 2023[54](index=54&type=chunk) - The Company maintains a **$300 million** primary credit facility maturing May 4, 2027, and a **$50 million** secondary credit facility maturing February 2, 2024, for working capital and general corporate purposes[50](index=50&type=chunk)[52](index=52&type=chunk) [Note 7. Fair Value](index=17&type=section&id=Note%207.%20Fair%20Value) This note provides fair value measurements for financial instruments, including derivatives and trading securities, categorized by valuation input levels Fair Value of Financial Instruments | Financial Instrument | September 30, 2023 (Thousands) | June 30, 2023 (Thousands) | | :-------------------------------- | :----------------------------- | :-------------------------- | | **Assets** | | | | Derivatives: foreign exchange contracts (Level 2) | $2,642 | $6,320 | | Trading securities: mutual funds held in nonqualified SERP (Level 1) | $6,019 | $8,668 | | Total assets at fair value | $8,661 | $14,988 | | **Liabilities** | | | | Derivatives: foreign exchange contracts (Level 2) | $2,136 | $1,245 | | Total liabilities at fair value | $2,136 | $1,245 | - The fair value of derivative assets (foreign exchange contracts) decreased from **$6.3 million** to **$2.6 million**, while derivative liabilities increased from **$1.2 million** to **$2.1 million** between June 30, 2023, and September 30, 2023[56](index=56&type=chunk) [Note 8. Derivative Instruments](index=18&type=section&id=Note%208.%20Derivative%20Instruments) This note describes the company's use of derivative instruments, primarily foreign exchange forward contracts, to manage currency risks and their impact on financial statements - The Company uses foreign exchange forward contracts as cash flow hedges to manage foreign currency exchange rate risks in forecasted transactions and non-designated contracts for intercompany balances[60](index=60&type=chunk)[61](index=61&type=chunk) - As of September 30, 2023, outstanding foreign exchange contracts had an aggregate notional amount of **$14.1 million** against the U.S. dollar and **59.8 million Euro** against the Euro[61](index=61&type=chunk) Derivative Gains and Losses in OCI | Derivative Type | Pre-Tax Gain or (Loss) Recognized in OCI (Sep 30, 2023) (Thousands) | Pre-Tax Gain or (Loss) Recognized in OCI (Sep 30, 2022) (Thousands) | | :---------------------- | :---------------------------------------------------------- | :---------------------------------------------------------- | | Foreign exchange contracts | $(387) | $283 | Derivative Reclassifications from AOCI | Derivative Type | Pre-Tax Gain or (Loss) Reclassified from AOCI into Income (Sep 30, 2023) (Thousands) | Pre-Tax Gain or (Loss) Reclassified from AOCI into Income (Sep 30, 2022) (Thousands) | | :---------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------- | | Foreign exchange contracts | $2,867 | $346 | [Note 9. Employee Benefit Plans](index=20&type=section&id=Note%209.%20Employee%20Benefit%20Plans) This note details the company's employee benefit plans, including defined contribution retirement plans, the Supplemental Employee Retirement Plan (SERP), and other postemployment plans - Employer contributions to domestic defined contribution retirement plans were **$1.6 million** for Q1 FY2024, up from **$1.5 million** in Q1 FY2023[70](index=70&type=chunk) - The Supplemental Employee Retirement Plan (SERP) assets and obligations totaled **$6.0 million** as of September 30, 2023, down from **$8.7 million** as of June 30, 2023[71](index=71&type=chunk) - The Company maintains severance plans for domestic employees and other postemployment plans for certain foreign subsidiaries, with total obligations of **$6.6 million** as of September 30, 2023[73](index=73&type=chunk) [Note 10. Stock Compensation Plans](index=21&type=section&id=Note%2010.%20Stock%20Compensation%20Plans) This note describes the company's stock compensation plans, including the 2014 Stock Option and Incentive Plan and the newly adopted 2023 Equity Incentive Plan, along with details of recent awards - The 2014 Stock Option and Incentive Plan allows for the issuance of up to **4.5 million shares** and expires on October 1, 2024. A new 2023 Equity Incentive Plan was adopted by the Board, subject to shareholder approval[74](index=74&type=chunk) Stock Compensation Granted | Stock Compensation Granted (Q1 FY2024) | Shares/Units | Grant Date Fair Value | | :------------------------------------- | :----------- | :-------------------- | | Long-Term Performance Shares | 172,079 | $29.19 | | Restricted Shares | 71,422 | $29.19 | - Long-term performance share awards granted in Q1 FY2024 will cliff vest at the third anniversary in FY2027, based on profitability and growth metrics[77](index=77&type=chunk) [Note 11. Goodwill and Other Intangible Assets](index=22&type=section&id=Note%2011.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides a breakdown of goodwill and other intangible assets, including capitalized software, customer relationships, and trade names, as of September 30, 2023 Goodwill and Other Intangible Assets Breakdown | Asset Type | September 30, 2023 (Thousands) | June 30, 2023 (Thousands) | | :---------------------- | :----------------------------- | :-------------------------- | | Goodwill, net | $12,011 | $12,011 | | Capitalized Software, net | $3,284 | $3,482 | | Customer Relationships, net | $4,965 | $5,094 | | Technology, net | — | $244 | | Trade Name, net | $3,354 | $3,515 | | Other Intangible Assets, net | $11,603 | $12,335 | - Goodwill remained stable at **$12.0 million**. Other intangible assets, net, decreased slightly to **$11.6 million** from **$12.3 million**, with amortization expense of **$0.9 million** for both Q1 FY2024 and Q1 FY2023[79](index=79&type=chunk) [Note 12. Share Owners' Equity](index=22&type=section&id=Note%2012.%20Share%20Owners%27%20Equity) This note discusses the company's share owners' equity, including details on the Board-authorized stock repurchase plan and recent repurchase activity - The Company has a Board-authorized stock repurchase plan of up to **$100 million**, with **$88.8 million** repurchased since inception through September 30, 2023. No share repurchases occurred in Q1 FY2024 or Q1 FY2023[81](index=81&type=chunk)[82](index=82&type=chunk)[123](index=123&type=chunk) [Note 13. Earnings Per Share](index=23&type=section&id=Note%2013.%20Earnings%20Per%20Share) This note provides a calculation of basic and diluted earnings per share, along with the weighted average common shares outstanding for the reporting periods Earnings Per Share Metrics | Metric | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Net Income allocated to common Share Owners | $10,738 | $9,496 | | Basic weighted average common shares outstanding | 25,041 | 24,826 | | Dilutive weighted average shares outstanding | 25,238 | 24,955 | | Basic Earnings Per Share | $0.43 | $0.38 | | Diluted Earnings Per Share | $0.43 | $0.38 | - Basic and Diluted Earnings Per Share both increased to **$0.43** in Q1 FY2024 from **$0.38** in Q1 FY2023, reflecting higher net income allocated to common shareholders[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, condition, and future outlook for the quarter ended September 30, 2023. It covers business overview, detailed results of operations, liquidity and capital resources, and critical accounting policies, highlighting key drivers of revenue and profitability changes, and strategies for managing working capital and growth [Forward-Looking Statements](index=23&type=section&id=Forward-Looking%20Statements) This section highlights that the document contains forward-looking statements subject to various risks and uncertainties, including global economic conditions and supply chain challenges - The document contains forward-looking statements subject to risks such as global economic conditions, geopolitical conflicts, raw material availability/cost, foreign exchange fluctuations, and the ability to convert new business opportunities[84](index=84&type=chunk) [Business Overview](index=23&type=section&id=Business%20Overview) This section provides an overview of Kimball Electronics' global manufacturing solutions business, its market position, and the industry trends and challenges it faces - Kimball Electronics is a global, multifaceted manufacturing solutions provider specializing in electronics manufacturing services (EMS) for automotive, medical, and industrial markets, also offering contract manufacturing for non-electronic components and medical devices[85](index=85&type=chunk) - The EMS industry is projected to grow at a CAGR of **5.5%** through 2027, while the worldwide assembly market for electronics products is expected to grow at **4.3%**[87](index=87&type=chunk) - The Company faces ongoing challenges from component shortages (especially semiconductors), allocations, shipping delays, and industry-wide inflation, which impact costs and working capital[89](index=89&type=chunk)[90](index=90&type=chunk) Customer Tenure and Net Sales Contribution | Customer Service Years | % of Net Sales (Sep 30, 2023) | of Customers (Sep 30, 2023) | % of Net Sales (Sep 30, 2022) | of Customers (Sep 30, 2022) | | :--------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | More than 10 Years | 74 % | 33 | 80 % | 31 | | 5 to 10 Years | 20 % | 20 | 16 % | 18 | | Less than 5 Years | 6 % | 11 | 4 % | 11 | | Total | 100 % | 64 | 100 % | 60 | [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance for the three months ended September 30, 2023, detailing changes in net sales, gross profit, operating income, and net income by vertical market Key Financial Results | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | % Change | | :-------------------------------- | :------------------- | :------------------- | :------- | | Net Sales | $438.1 | $405.9 | 8 % | | Gross Profit | $35.5 | $29.3 | 21 % | | Selling and Administrative Expenses | $16.0 | $15.7 | 2 % | | Operating Income | $19.5 | $13.6 | 44 % | | Other Income (Expense) | $(6.2) | $(1.4) | N/A | | Provision for Income Taxes | $2.5 | $2.7 | (8)% | | Net Income | $10.8 | $9.5 | 13 % | | Diluted Earnings per Share | $0.43 | $0.38 | 13 % | | Open Orders | $907 | $1,069 | (15)% | Net Sales by Vertical Market | Vertical Market | Q1 FY2024 Net Sales (Millions) | Q1 FY2023 Net Sales (Millions) | % Change | | :---------------- | :----------------------------- | :----------------------------- | :------- | | Automotive | $212.5 | $188.2 | 13 % | | Medical | $102.4 | $116.0 | (12)% | | Industrial | $123.2 | $101.7 | 21 % | | Total Net Sales | $438.1 | $405.9 | 8 % | - Automotive sales increased **13%** due to program ramp-ups, new product launches, and improved component availability. Industrial sales increased **21%** from program ramp-ups. Medical sales declined **12%** primarily due to decreased sales with a large customer remediating a recall unrelated to the Company's products[99](index=99&type=chunk) - Gross profit as a percentage of net sales improved in Q1 FY2024, reflecting optimized operating performance post-facility expansions. Selling and administrative expenses remained relatively flat in absolute dollars but declined as a percentage of net sales[100](index=100&type=chunk)[101](index=101&type=chunk) - Interest expense increased significantly due to higher interest rates and increased borrowings. Open orders decreased by **15% YoY**, mainly driven by reduced orders from a large medical customer[101](index=101&type=chunk)[103](index=103&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial liquidity, capital management, and ability to meet short-term and long-term obligations, including cash flows, credit facilities, and working capital metrics - Working capital was **$452.7 million** at September 30, 2023, compared to **$454.3 million** at June 30, 2023. The current ratio was **1.9**, and the debt-to-equity ratio was **0.6** at September 30, 2023[104](index=104&type=chunk) Working Capital and Efficiency Metrics | Metric | Sep 30, 2023 | Jun 30, 2023 | Sep 30, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Days Sales Outstanding | 58 | 56 | 54 | | Contract Asset Days | 17 | 14 | 14 | | Production Days Supply on Hand | 108 | 97 | 106 | | Accounts Payable Days | 71 | 65 | 73 | | Advances from Customers Days | 9 | 8 | 7 | | Cash Conversion Days | 103 | 94 | 94 | - Cash Conversion Days (CCD) increased to **103** at September 30, 2023, from **94** at June 30, 2023, primarily due to strategic inventory builds to mitigate parts shortages, which adversely impacted Production Days Supply on Hand[106](index=106&type=chunk) [Cash Flows](index=28&type=section&id=Cash%20Flows) This subsection analyzes the company's cash generation and usage from operating, investing, and financing activities, highlighting key changes and their drivers Summary Cash Flows | Cash Flow Category | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :-------------------------------- | :------------------- | :------------------- | | Net cash provided by (used for) operating activities | $12.8 | $(60.2) | | Net cash used for investing activities | $(11.3) | $(19.3) | | Net cash provided by financing activities | $14.0 | $50.8 | - Operating cash flow significantly improved to a positive **$12.8 million** in Q1 FY2024, compared to a negative **$60.2 million** in Q1 FY2023, mainly due to a decrease in accounts receivable and a smaller increase in inventory[109](index=109&type=chunk)[110](index=110&type=chunk) - Investing activities used **$11.3 million** in Q1 FY2024, down from **$19.3 million** in Q1 FY2023, reflecting lower capital expenditures for new business awards and facility expansions[112](index=112&type=chunk) - Financing activities provided **$14.0 million** in Q1 FY2024, primarily from net borrowings on credit facilities, a decrease from **$50.8 million** in Q1 FY2023[113](index=113&type=chunk) [Credit Facilities](index=29&type=section&id=Credit%20Facilities) This subsection details the company's credit facilities, including their purpose, maturity dates, and compliance with financial covenants - The Company maintains a **$300 million** primary credit facility (maturing May 4, 2027) and a **$50 million** secondary credit facility (maturing February 2, 2024) for working capital and general corporate purposes[114](index=114&type=chunk) - The Company was in compliance with all financial covenants of its primary and secondary credit facilities as of September 30, 2023[114](index=114&type=chunk) - Foreign credit facilities are also maintained for working capital at specific international locations (Thailand, China, Netherlands, Poland, Vietnam)[115](index=115&type=chunk) [Factoring Arrangements](index=29&type=section&id=Factoring%20Arrangements) This subsection explains the company's use of non-recourse accounts receivable factoring arrangements to manage customer payment terms and cash flow - The Company utilizes non-recourse accounts receivable factoring arrangements, selling **$103.0 million** and **$97.6 million** of receivables in Q1 FY2024 and Q1 FY2023, respectively, to extend customer terms without impacting cash flow[117](index=117&type=chunk) [Future Liquidity](index=29&type=section&id=Future%20Liquidity) This subsection outlines management's assessment of future liquidity, including expected sufficiency of funds, capital expenditure commitments, and foreign cash holdings - Management believes current liquidity sources (cash, operations, credit facilities) are sufficient for the next 12 months. Unused borrowing capacity totaled **$90.5 million** at September 30, 2023[118](index=118&type=chunk) - Capital expenditure commitments were approximately **$12 million** at September 30, 2023, primarily for new program wins and facility expansions[120](index=120&type=chunk) - Foreign operations held **$54.1 million** in cash, with accumulated unremitted foreign earnings intended for permanent reinvestment outside the U.S.[122](index=122&type=chunk) [Fair Value](index=30&type=section&id=Fair%20Value) This section discusses the fair value of financial instruments and the impact of market liquidity on their valuation during the reporting period - No Level 1 or Level 2 financial instruments were affected by a lack of market liquidity in Q1 FY2024. Foreign currency derivative assets and liabilities were valued using observable market inputs[125](index=125&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements as of September 30, 2023 - As of September 30, 2023, the Company did not have any material off-balance sheet arrangements[126](index=126&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) This section states that there have been no material changes to the company's critical accounting policies since the last annual report - There have been no material changes to the Company's critical accounting policies since the Annual Report on Form 10-K for the year ended June 30, 2023[128](index=128&type=chunk) [New Accounting Standards](index=31&type=section&id=New%20Accounting%20Standards) This section indicates that no newly issued accounting standards are expected to have a material impact on the company's financial statements - There are no issued but not yet adopted accounting standards expected to have a material impact on the Company[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there were no material changes in the Company's exposure to market risks related to foreign currency exchange rates and interest rates compared to the fiscal year ended June 30, 2023 - No material changes in exposure to market risks for foreign currency exchange rates and interest rates were reported compared to the fiscal year ended June 30, 2023[130](index=130&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2023, and reports no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2023[131](index=131&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2023[131](index=131&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is not a party to any material legal proceedings beyond ordinary routine litigation incidental to its business, and the outcome of current litigation is not expected to have a material adverse impact - The Company is not involved in any legal proceedings expected to have a material adverse impact on its business or financial condition, beyond routine litigation[133](index=133&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive disclosure of risk factors in the Company's Annual Report on Form 10-K for the year ended June 30, 2023 - A comprehensive disclosure of risk factors is available in the Company's Annual Report on Form 10-K for the year ended June 30, 2023[134](index=134&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's stock repurchase plan, which authorizes up to $100 million in common stock repurchases. No shares were purchased during the quarter ended September 30, 2023, leaving $11.2 million remaining under the plan - The Board-approved stock repurchase plan authorizes up to **$100 million** in common stock repurchases[135](index=135&type=chunk) - No common stock was purchased under the Repurchase Plan during the three months ended September 30, 2023[136](index=136&type=chunk) - The maximum value of remaining shares that may be purchased under the plan was **$11.2 million** as of September 30, 2023[136](index=136&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) This section confirms that no officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended September 30, 2023 - No officers or directors adopted or terminated Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[137](index=137&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including articles of incorporation, by-laws, CEO/CFO certifications, and Inline XBRL documents - The report includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[138](index=138&type=chunk) [SIGNATURES](index=34&type=section&id=SIGNATURES) This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the filing of the report on November 7, 2023 - The report was signed by Richard D. Phillips (Chief Executive Officer) and Jana T. Croom (Chief Financial Officer) on November 7, 2023[142](index=142&type=chunk)

Financial Data and Key Metrics Changes - Adjusted operating income for Q1 was $19.3 million, or 4.4% of net sales, compared to $13.3 million, or 3.3% of net sales last year, reflecting a 110 basis point improvement [6] - Net sales in Q1 totaled $438 million, an 8% increase compared to the first quarter last year [33] - Adjusted net income in Q1 was $10.8 million, or $0.43 per diluted share, a 13% increase from $9.5 million, or $0.38 per diluted share in Q1 last year [17] - The effective tax rate was 18.6% in Q1 compared to 21.9% in Q1 of fiscal 2023 [6] - Inventory at the end of the quarter was $482.2 million, up from $450 million at the end of Q1 last year [18] Business Line Data and Key Metrics Changes - Automotive segment reported net sales of $213 million, a 13% increase year-over-year, accounting for 49% of total company sales [33] - Medical segment net sales were $102 million, a 12% decline compared to the same period last year, representing 23% of total sales [35] - Industrial segment net sales totaled $123 million, a 21% increase year-over-year, making up 28% of total sales [36] Market Data and Key Metrics Changes - The automotive market is experiencing slower adoption of electric vehicles (EVs) in North America, particularly in the SUV and pickup truck segments [41] - The industrial market in Europe has been more challenging than anticipated, impacting revenue expectations [51] Company Strategy and Development Direction - The company is focused on organic growth, with plans for global expansions and investments in automation and efficiency [7] - The strategic partnership with ZF Group is expected to enhance growth opportunities in electronic power steering starting in 2025 [5] Management Comments on Operating Environment and Future Outlook - Management expressed caution regarding the impact of recent market disruptions, including the UAW strike and geopolitical events, on future demand [11] - The company updated its guidance for fiscal 2024, now expecting net sales to be flat compared to the prior year, down from a previous estimate of a 4% to 7% increase [19] Other Important Information - Capital expenditures in Q1 were $11.3 million, supporting organic growth and investments in automation [18] - The company has returned $88.8 million to shareholders through share repurchases since October 2015, with $11.2 million remaining on the repurchase program [19] Q&A Session Summary Question: What was the biggest change in revenue guidance this quarter? - The change was evenly split between automotive and industrial segments, with automotive impacted by slower EV adoption and industrial affected by challenges in Europe [51][52] Question: Have there been any issues with decommits or cancellations in the backlog? - There have been no significant decommits or cancellations, but there have been pushouts in timelines [57] Question: What is the expected impact of the UAW strike on the automotive business? - The impact has been minimal so far, but management is monitoring the situation closely for potential downstream effects [27][70] Question: How does the company expect cash levels to move throughout the year? - The company anticipates managing inventory levels down over the next three to four quarters while maintaining positive operating cash flow [71][72] Question: Can you provide insight on the $50 million reduction in automotive guidance? - The reduction is primarily related to the EV market, with ongoing evaluations of the UAW strike's impact [80][86]

Quarter Ended September 30, 2023 Kimball Electronics | 1 Certain statements contained within this supplementary information, including our fiscal year 2024 guidance, and any statements made during our earnings conference call today may be considered forward-looking 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 ...

Financial Performance - For the fiscal year ended June 30, 2023, Kimball Electronics reported that 45% of net sales came from the automotive sector, 27% from medical, and 26% from industrial markets[40]. - The company reported record sales of $1,823.4 million for fiscal year 2023, a 35% increase from $1,349.5 million in fiscal year 2022[149]. - Gross profit increased by 49% to $156.2 million, with gross profit as a percentage of net sales improving to 8.6% from 7.8%[149][152]. - Net income for fiscal year 2023 was $55.8 million, or $2.22 per diluted share, representing a 79% increase from $31.3 million, or $1.24 per diluted share, in fiscal year 2022[157]. - The automotive market generated $820.1 million in sales, a 41% increase from the previous year, driven by new product launches and improved component availability[150][151]. - Selling and administrative expenses increased by 28% to $68.7 million, driven by higher factoring fees and wage inflation[149][153]. - The company maintained a strong balance sheet with a current ratio of 2.0 and a debt-to-equity ratio of 0.5, with shareholders' equity at $524 million[144]. - Working capital increased to $454.3 million as of June 30, 2023, compared to $352.3 million in the previous year, with a current ratio of 2.0[159]. - Net cash used for operating activities was $(13.8) million in fiscal year 2023, significantly improved from $(83.2) million in fiscal year 2022[163]. - Cash used for investing activities totaled $(90.5) million in fiscal year 2023, primarily for capital investments in Mexico, Thailand, and Poland[167]. Market Position and Customer Base - Major customers included Nexteer Automotive (15% of net sales), Philips (14%), and ZF (12%)[40]. - Kimball Electronics is ranked as the 20th largest global EMS provider for calendar year 2022, indicating a competitive position in the market[36]. - A substantial majority of revenues are derived from international operations, exposing the company to various financial and operational risks[71]. Manufacturing and Operations - The company operates twelve manufacturing facilities across the United States, China, Mexico, Poland, Romania, Thailand, and Vietnam, with recent expansions in Thailand, Mexico, and Poland[37]. - The company has harmonized quality systems to meet industry certifications, enabling cost-effective manufacturing across electronic and non-electronic products[24]. - The company’s manufacturing operations require significant amounts of energy, and disruptions could materially affect production and profitability[108]. - The contract manufacturing business is characterized by frequent start-ups of new programs to replace expiring ones, with customer agreements typically being short-term and subject to cancellation[41]. Supply Chain and Component Shortages - Raw materials for manufacturing are generally available, but the industry can experience shortages due to supply and demand fluctuations and unforeseen global events[42]. - The EMS industry continues to face component shortages, particularly with semiconductors, which may increase component costs and disrupt operations[43]. - Supply chain disruptions may hinder the ability to purchase sufficient materials, particularly semiconductors, leading to production delays and curtailed shipments[66]. - The company has faced shortages due to the COVID-19 pandemic and geopolitical events, which could unpredictably impact the supply chain[67]. - Component shortages may increase the cost of goods sold, potentially harming profitability if price increases cannot be offset[68]. Sustainability and Social Responsibility - Kimball Electronics focuses on sustainability by optimizing manufacturing processes, increasing clean energy usage, and developing low carbon products and technologies[31]. - The company is committed to a socially responsible supply chain, requiring suppliers to conduct due diligence on conflict minerals[47]. - Kimball Electronics' ESG Report, issued in March 2023, highlights its commitment to environmental, social, and governance principles[46]. - The company has committed to significantly reduce greenhouse gas emissions, water usage, electrical usage, and air emissions by 2025 as part of its sustainability strategy[91]. - In fiscal year 2023, Kimball Electronics committed $100,000 to the Southwestern Indiana Child Advocacy Center Coalition and made a final installment of this commitment[55]. - The company has donated $100,000 to refugee-related activities, including aid for Ukrainian refugees, in 2022[55]. Governance and Management - As of June 30, 2023, three of the seven independent members of the Board of Directors are female, reflecting the company's commitment to diversity[58]. - The company’s executive officers were appointed as of August 23, 2023, with Richard D. Phillips serving as CEO[117]. - Management concluded that internal control over financial reporting was effective as of June 30, 2023[200]. Financial Risks and Compliance - The company is exposed to credit risk from customers, with elevated risks of potential bankruptcy affecting accounts receivable[96]. - The company is monitoring working capital closely, as customer financial difficulties and manufacturing delays could adversely affect cash flow from operations[97]. - The company is exposed to foreign currency risk, with fluctuations in exchange rates potentially impacting operating results[102]. - High inflation levels may increase costs and impact pricing and customer demand, affecting revenues and earnings[104]. - Compliance with government legislation and regulations may significantly increase operating costs, impacting profitability[93]. - The company is assessing its obligations under the Corporate Sustainability Reporting Directive (CSRD) and expects significant compliance efforts in future years[89]. Capital Structure and Investments - As of June 30, 2023, the company had $281.5 million in borrowings under its credit facilities and total cash and cash equivalents of $43.0 million[103]. - The company has a stock repurchase plan authorized for up to $100 million, with $88.8 million repurchased through June 30, 2023[179]. - The company expects to continue investing in capital expenditures and potential acquisitions to support growth[175]. - Capital expenditure commitments were approximately $13 million as of June 30, 2023, mainly for equipment related to facility expansions[176]. Financial Statements and Audit - Total assets increased to $1,259,719,000 in June 2023 from $1,035,767,000 in June 2022, representing a growth of approximately 21.6%[217]. - Current assets rose to $929,427,000 in June 2023, up from $761,083,000 in June 2022, reflecting an increase of about 22.1%[217]. - Total liabilities increased to $735,725,000 in June 2023, compared to $581,796,000 in June 2022, marking a rise of approximately 26.4%[217]. - Long-term debt under credit facilities increased to $235,000,000 in June 2023 from $145,000,000 in June 2022, a significant increase of 62.1%[217]. - Shareholders' equity grew to $523,994,000 in June 2023, up from $453,971,000 in June 2022, indicating an increase of about 15.4%[217]. - The company has been audited by Deloitte & Touche LLP since 2014, with the audit conducted in accordance with PCAOB standards[215].

· Drug Delivery Kimball Electronics | 5 • 34% increase compared to Q3 last year • 8% sequential step-up from Q2 Foreign exchange negatively impacted sales by 2% in the quarter o $500 $485 $475 $450 $437 $425 $406 $400 $373 $368 $375 Millions $350 $329 $325 $315 $300 $293 $275 $250 $225 $200 Q1'22 Q2'22 Q3'22 Q1'23 Q2'23 Q4'21 Q4'22 Q3'23 • 7% step-up from Q2 | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|---------------------------------------------|-------|-------| ...

Financial Data and Key Metrics Changes - Net sales in Q3 were $485 million, a 32% increase compared to the same period last year and 11% better than the previous best quarter in Q2 [3] - Adjusted operating income for Q3 was $25.6 million, representing 5.3% of net sales, flat year-over-year but a 120 basis point increase sequentially [37] - Net income in Q3 was $16.4 million or $0.65 per diluted share, a 20% increase year-over-year [38] - Gross margin rate in Q3 was 8.9%, a 30 basis point decline compared to Q3 of fiscal 2022 [13] - Cash and cash equivalents at March 31, 2023, were $30.4 million, with cash flow from operating activities at $14 million, marking the first quarter of positive cash flow in some time [7] Business Line Data and Key Metrics Changes - Automotive vertical sales were $216 million, a 34% increase year-over-year, accounting for 45% of total company sales [34] - Medical vertical sales totaled $134 million, a 30% increase year-over-year, representing 28% of total sales [12] - Industrial vertical sales reached $127 million, a 29% increase year-over-year, making up 26% of total sales [5] Market Data and Key Metrics Changes - All three vertical markets reported robust double-digit increases, with each setting record highs in Q3 [3] - Foreign exchange negatively impacted sales by 2% in the quarter [13] Company Strategy and Development Direction - The company is strategically positioned to support growth in areas such as EV charging stations and medical devices, driven by industry mega trends [5][12] - The strategic plan includes a review of positioning and growth opportunities within each vertical market, with a focus on operational efficiencies and facility expansions [34][40] - The company aims for $2 billion in annual revenue, with a solid finish expected in Q4 [40][102] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain conditions are gradually improving, with parts shortages constraining top-line growth by approximately 5% in Q3 [3][15] - The company is optimistic about the future, with expectations of improved cash conversion and inventory days as supply chain challenges ease [60][80] - Management expressed confidence in the automotive sector's resilience despite potential economic slowdowns, citing the sticky nature of the business due to regulatory requirements [35][78] Other Important Information - Adjusted selling and administrative expenses in Q3 were $17.4 million, up from $14.4 million in Q3 last year, but as a percentage of sales, they improved to 3.6% [6] - Capital expenditures in Q3 were $24.7 million, primarily for facility expansions and new product introductions [102] - The company published its ESG report for 2022, highlighting its commitment to quality of life for stakeholders [18] Q&A Session Summary Question: Is there any issue with decommits or cancellations in the backlog? - Management confirmed that the backlog remains robust with no material decommits or cancellations [20] Question: Is the medical space back to a normalized environment? - Management acknowledged the impact of elective surgeries and labor shortages but indicated a return to normalcy is anticipated [21] Question: How is the company positioned for a possible recession? - Management expressed confidence in their liquidity and ability to weather economic downturns, noting strong job numbers and positive cash flow [78] Question: What is the outlook for the EV charging stations opportunity? - Management is bullish on the potential for EV charging stations, indicating ongoing discussions with customers about large opportunities [45] Question: How is the company managing pricing and negotiations in the current inflationary environment? - Management highlighted successful negotiations with customers regarding non-standard material orders and freight costs, emphasizing a partnership approach [69]

Financial Performance - The company reported record quarterly net sales of $484.7 million for the third quarter of fiscal year 2023, a 32% increase from $368.1 million in the same quarter of fiscal year 2022[97]. - Gross profit for the third quarter of fiscal year 2023 was $43.0 million, representing 8.9% of net sales, compared to $33.9 million or 9.2% of net sales in the prior year[102]. - Net income for the third quarter of fiscal year 2023 was $16.4 million, a 20% increase from $13.6 million in the same quarter of fiscal year 2022[102]. - The automotive market experienced a 34% increase in sales to $216.0 million in the third quarter of fiscal year 2023, and a 40% increase to $600.5 million year-to-date compared to the prior year[102]. - Sales to customers in the medical market increased by 30% in the third quarter of fiscal year 2023 compared to the same quarter in fiscal year 2022, and by 34% year-to-date[109]. Expenses and Cost Management - Selling and administrative expenses increased by 30% to $17.8 million in the third quarter of fiscal year 2023 compared to $13.6 million in the same quarter of fiscal year 2022[102]. - Selling and administrative expenses increased in absolute dollars in the third quarter of fiscal year 2023, driven by higher liability fair value for the supplemental employee retirement plan, increased factoring fees, and wage inflation[106]. - The company is focused on cost control while managing growth prospects and has made investments to expand capabilities in Mexico and Thailand[98]. Balance Sheet and Liquidity - The company maintained a strong balance sheet with a current ratio of 1.9 and a debt-to-equity ratio of 0.6 as of March 31, 2023[99]. - Working capital at March 31, 2023 was $441.8 million, up from $352.3 million at June 30, 2022, with a current ratio of 1.9[113]. - The debt-to-equity ratio increased to 0.6 at March 31, 2023, compared to 0.4 at June 30, 2022[113]. - The company had $279.0 million in borrowings under the primary credit facility as of March 31, 2023, an increase from $171.4 million at June 30, 2022[126]. - The company maintained unused borrowings totaling $98.1 million under all credit facilities as of March 31, 2023, including a $50 million secondary credit facility expiring in February 2024[134]. Cash Flow and Investments - Net cash used for operating activities was $(57.9) million for the first nine months of fiscal year 2023, an improvement from $(84.7) million in the prior year[117]. - Net cash used for investing activities was $66.5 million in the first nine months of fiscal year 2023, primarily for expansions in Mexico, Thailand, and Poland[121]. - Capital expenditure commitments were approximately $16 million as of March 31, 2023, primarily for equipment related to facility expansions in Mexico and Thailand, and commitments for the Poland facility[136]. Market Outlook and Challenges - The EMS industry is projected to grow at a compound annual growth rate (CAGR) of 5.5% through 2026, indicating a positive market outlook[93]. - The company faced challenges with component shortages and shipping delays, particularly with semiconductors, impacting operational efficiency[95]. - Open orders decreased by 5% to $882 million as of March 31, 2023, driven by improved component availability[103]. Future Plans and Commitments - The company expects to complete its Poland facility expansion in early fiscal year 2024, following recent expansions in Thailand and Mexico[135]. - The company has a financial covenant requiring the ratio of consolidated total indebtedness to adjusted consolidated EBITDA to not exceed 3.0 to 1.0, increasing to 3.5 to 1.0 following a material permitted acquisition[130]. - The company anticipates that available funds, cash generated from operations, and borrowing capacity will be sufficient to meet working capital needs for at least the next 12 months[134]. Foreign Operations - As of March 31, 2023, foreign entities held cash totaling $30.1 million, with plans to permanently reinvest these funds outside the United States[138]. - The company has entered into various foreign credit facilities, including a $10.1 million overdraft facility in Thailand and a $7.5 million facility for its EMS operation in China, with no borrowings under these facilities as of March 31, 2023[137].

Kimball Electronics, Inc. (NASDAQ:KE) Q2 2023 Earnings Conference Call February 9, 2023 10:00 AM ET Company Representatives Don Charron - Chairman, Chief Executive Officer Jana Croom - Chief Financial Officer Ric Phillips - Incoming Chief Executive Officer Andrew Regrut - Vice President of Investor Relations Conference Call Participants Anja Soderstrom - Sidoti Jaeson Schmidt - Lake Street Capital Mac Furst - Singular Research Operator Good morning, ladies and gentlemen. Welcome to Kimball Electronics, Seco ...

Financial Performance - The company reported record quarterly net sales of $436.7 million for the second quarter of fiscal year 2023, a 39% increase from $315.3 million in the same quarter of the prior year[95]. - The company experienced a 39% increase in net sales for the six months ended December 31, 2022, totaling $842.6 million compared to $608.0 million in the same period of the previous year[100]. - Sales in the automotive market reached $200.0 million in the second quarter, up 44% from $139.0 million in the same quarter of fiscal year 2022, driven by program ramp-ups and new product launches[100]. - Sales to customers in the medical market had a double-digit increase in both the second quarter and year-to-date period of fiscal year 2023 compared to the prior fiscal year[104]. - Sales to customers in the industrial market increased by 27% in the second quarter of fiscal year 2023 compared to the same period in fiscal year 2022[104]. - The impact of foreign currency fluctuations was an unfavorable 5% on net sales in the current quarter compared to the same period of fiscal year 2022[100]. Profitability and Margins - The gross profit margin improved to 7.8% in the second quarter of fiscal year 2023, compared to 6.6% in the same quarter of the previous year, reflecting a 64% increase in gross profit[100]. - Gross profit as a percentage of net sales improved in the second quarter and first half of fiscal year 2023 compared to the same periods in fiscal year 2022[102]. - Selling and administrative expenses increased in absolute dollars but declined as a percentage of net sales in the second quarter and first half of fiscal year 2023 compared to the same periods in fiscal year 2022[103]. Balance Sheet and Liquidity - The company maintained a strong balance sheet with a current ratio of 2.0 and a debt-to-equity ratio of 0.6, with shareholders' equity at $481 million as of December 31, 2022[97]. - The current ratio improved to 2.0 at December 31, 2022, up from 1.9 at June 30, 2022[108]. - Open orders increased by 35% to $1,037 million compared to $771 million in the prior year, indicating strong demand and a growing backlog[100]. - Open orders increased by 35% as of December 31, 2022 compared to December 31, 2021, but decreased by 13% compared to June 30, 2022[101]. Operational Challenges - The company faced challenges due to component shortages and shipping delays, particularly with semiconductors, which could impact future operations and costs[93]. - The company has implemented cost control measures while managing growth prospects, including capacity expansions in Mexico and Thailand[96]. Capital Expenditures and Borrowings - Borrowings on credit facilities increased by $93.0 million primarily for working capital and capital expenditures supporting expansions[107]. - The company had $264.3 million in borrowings under the primary credit facility at December 31, 2022, compared to $171.4 million at June 30, 2022[121]. - The company sold $225.1 million of accounts receivable without recourse in the six months ended December 31, 2022, compared to $125.3 million in the same period of 2021[125]. - Capital expenditure commitments as of December 31, 2022, were approximately $23 million, primarily for facility expansions in Poland, Mexico, and Thailand[129]. - A new 364-day multi-currency revolving credit facility was entered into on February 3, 2023, allowing for borrowings up to $50 million to support equipment and working capital needs[126]. Future Outlook - The EMS industry is projected to grow at a compound annual growth rate (CAGR) of 5.5% through 2026, indicating a favorable market outlook for the company[91]. - The company expects to complete its Poland facility expansion in early fiscal year 2024, following recent expansions in Thailand and Mexico[128]. Shareholder Returns - The company has a Board-authorized stock repurchase plan allowing for the repurchase of up to $100 million of common stock, with $88.8 million repurchased through December 31, 2022[132].

Quarter Ended December 31, 2022 Second Quarter Fiscal 2023 Results Supplementary Information to the February 7, 2023, Earnings Conference Call & Webcast Kimball Electronics (Nasdaq: KE) Safe Harbor Statement This supplementary information contains non-GAAP financial measures. The non-GAAP financial measures contained herein include Constant Currency Growth, Adjusted Selling & Administrative Expenses, Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings Per Share, and Return on Invested ...