Kimball Electronics(KE) - 2019 Q2 - Quarterly Report

Financial Performance - Net sales for the three months ended December 31, 2018, were $284.1 million, representing a 10% increase compared to $258.2 million in the same period of 2017[119] - Gross profit for the same period was $20.4 million, with a gross margin of 7.2%, down from 8.1% in the prior year[119] - The company reported a net income of $7.1 million for the three months ended December 31, 2018, compared to a net loss of $8.3 million in the same period of 2017[119] Market Performance - The automotive market saw a 3% decline in sales to $112.4 million for the three months ended December 31, 2018, while the medical market grew by 18% to $85.7 million[121] - Automotive market sales declined slightly in Q2 FY2019 compared to Q2 FY2018, with North America demand partially offsetting declines in China and Europe[125] - Medical market sales experienced double-digit growth in Q2 FY2019 compared to Q2 FY2018, driven by new product launches and increased demand[125] - Industrial market sales also saw double-digit growth in Q2 FY2019, attributed to the GES acquisition and increased demand for climate control products[125] Orders and Growth - Open orders increased by 33% to $321.5 million as of December 31, 2018, compared to $241.7 million in the previous year[119] - Open orders increased by 33% as of December 31, 2018, with significant growth in the automotive and medical markets[126] - The company aims for an 8% annual organic growth rate, focusing on automotive, medical, industrial, and public safety markets[111] - The GES acquisition contributed positively to sales, impacting growth by 2% in the second quarter of fiscal year 2019[122] Financial Position - The company maintains a strong balance sheet with no long-term debt and shareholders' equity of $353 million as of December 31, 2018[116] - Working capital decreased to $179.3 million as of December 31, 2018, from $208.4 million at June 30, 2018[135] - Cash Conversion Days (CCD) increased to 76 days for the quarter ended December 31, 2018, compared to 63 days for the quarter ended June 30, 2018[136] Cash Flow and Investments - Net cash used for operating activities in the first half of FY2019 was $(4.394) million, compared to $11.401 million in FY2018[141] - Cash used from changes in operating assets and liabilities in the first half of FY2019 was $31.0 million, largely due to an increase in inventory[142] - Net cash used for investing activities in the first six months of fiscal year 2019 was $52.5 million, compared to $14.7 million in the same period of fiscal year 2018[145] - The company invested $43.9 million for the GES acquisition during the first six months of fiscal year 2019[145] - Net cash provided by financing activities for the first six months of fiscal year 2019 was $47.3 million, primarily from net borrowings of $78.4 million on the primary credit facility[146] Debt and Equity - As of December 31, 2018, the company had $84.4 million in short-term borrowings under the primary credit facility, used mainly for the GES acquisition[149] - The company has recorded a net adjusted purchase price of $40.1 million for the GES acquisition, including a working capital adjustment of $7.6 million[157] - The total authorized stock repurchases under the stock repurchase plan reached $80 million, with $63.2 million repurchased through December 31, 2018[162] Capital Expenditures - Capital expenditure commitments as of December 31, 2018, were approximately $4.3 million, aimed at capacity expansion and facility improvements[159] - The company expects to continue investing in capital expenditures and acquisitions to develop beyond the EMS market[156] Risk Factors - The overall expectation for the EMS market is moderate growth with mixed demand, particularly influenced by component shortages and tariffs[109] - The company is subject to foreign exchange rate risks due to international operations, with a hypothetical 10% adverse change in foreign currency exchange rates estimated to have no material impact on profitability over an entire year[178] - The company employs derivative financial instruments to hedge certain foreign currency exposures, used solely for risk management and not for speculative purposes[178] - Forward-looking statements are subject to risks including integration of acquisitions, global economic conditions, and competitive pricing pressures[176] - Additional risk factors affecting future performance are detailed in the Annual Report for the year ended June 30, 2018[176] Cost Management - The company has a strong focus on cost control and liquidity management, with short-term liquidity totaling $136.8 million at the end of 2018[116] - Gross profit as a percentage of net sales declined in Q2 FY2019 compared to Q2 FY2018, primarily due to unfavorable product mix and higher material costs[127] - Selling and administrative expenses decreased as a percentage of net sales in Q2 FY2019 compared to Q2 FY2018, mainly due to lower incentive-based compensation[128] Accounting Policies - No material changes to critical accounting policies since the Annual Report for the year ended June 30, 2018[174]