Kimball Electronics(KE) - 2020 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Presents unaudited condensed consolidated financial statements for Q1 FY20 and FY19, with notes on accounting policies and key events Condensed Consolidated Financial Statements Kimball Electronics reported Q1 FY20 net sales of $313.4 million (18% increase) and net income of $6.6 million Condensed Consolidated Statements of Income (Q1 FY20 vs Q1 FY19) | (Amounts in Thousands) | Three Months Ended September 30, 2019 ($ Thousands) | Three Months Ended September 30, 2018 ($ Thousands) | | :--- | :--- | :--- | | Net Sales | $313,385 | $265,620 | | Gross Profit | $22,193 | $18,186 | | Operating Income | $11,115 | $7,032 | | Net Income | $6,598 | $5,069 | | Diluted EPS | $0.26 | $0.19 | Condensed Consolidated Balance Sheets Highlights | (Amounts in Thousands) | September 30, 2019 (Unaudited) ($ Thousands) | June 30, 2019 ($ Thousands) | | :--- | :--- | :--- | | Total current assets | $528,052 | $555,313 | | Total Assets | $739,895 | $764,111 | | Total current liabilities | $249,577 | $274,910 | | Total Liabilities | $370,642 | $394,257 | | Total Share Owners' Equity | $369,253 | $369,854 | Condensed Consolidated Statements of Cash Flows Highlights | (Amounts in Thousands) | Three Months Ended September 30, 2019 ($ Thousands) | Three Months Ended September 30, 2018 ($ Thousands) | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $39,619 | $(10,013) | | Net cash used for investing activities | $(11,725) | $(4,646) | | Net cash (used for) provided by financing activities | $(20,588) | $43,714 | | Net Increase in Cash and Cash Equivalents | $6,075 | $28,541 | Notes to Condensed Consolidated Financial Statements Details accounting policies, revenue disaggregation by market, the GES acquisition, new lease accounting standards, and share repurchases - The company is a global manufacturing solutions provider for the automotive, medical, industrial, and public safety end markets, specializing in durable electronics and diversified manufacturing services[22] Revenue from Contracts with Customers by Vertical Market (Q1 FY20 vs Q1 FY19) | (Amounts in Millions) | 2019 ($ Millions) | 2018 ($ Millions) | | :--- | :--- | :--- | | Automotive | $124.4 | $105.9 | | Medical | $101.3 | $82.2 | | Industrial | $64.7 | $57.4 | | Public Safety | $17.1 | $17.1 | | Other | $5.9 | $3.0 | | Total net sales | $313.4 | $265.6 | - The acquisition of GES was completed on October 1, 2018, with a net adjusted purchase price of $42.4 million, including a disputed $7.6 million net working capital adjustment, primarily funded by the company's credit facility[44][47][48] - On July 1, 2019, the company adopted the new lease accounting standard, recognizing $2.6 million of right-of-use assets and lease liabilities on the balance sheet[38][41] - During Q1 FY20, the company repurchased $3.5 million of common stock at an average price of $15.10 per share, bringing the total repurchased since inception to $71.4 million[99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 FY20 financial performance, highlighting 18% net sales growth, improved margins, strong liquidity, and operational strategies Business Overview Kimball Electronics focuses on automotive, medical, industrial, and public safety markets, targeting 8% annual organic growth - The company's strategic focus is on four key vertical markets: automotive, medical, industrial, and public safety, with a stated goal of an 8% annual organic growth rate[105] - In the first half of calendar year 2019, the company's revenue grew 12.7% compared to the industry average of 4.9% for the top 20 contract manufacturers[104] - The company maintains strong, long-term customer relationships, with 76% of net sales in Q1 FY20 coming from customers served for more than 10 years, an increase from 66% in the prior year[111] Financial Overview and Results of Operations Q1 FY20 net sales increased 18% to $313.4 million, operating income surged 58% to $11.1 million, driven by strong demand Financial Highlights (Q1 FY20 vs Q1 FY19) | (Amounts in Millions) | 2019 ($ Millions) | 2018 ($ Millions) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $313.4 | $265.6 | 18% | | Gross Profit | $22.2 | $18.2 | 22% | | Operating Income | $11.1 | $7.0 | 58% | | Net Income | $6.6 | $5.1 | 30% | | Diluted EPS | $0.26 | $0.19 | 37% | | Open Orders | $389.5 | $278.2 | 40% | - Sales growth was driven by the ramp-up of new programs, new product introductions, and increased demand, with the GES acquisition contributing 2% to sales growth, offset by a 2% unfavorable currency impact[113] - Three key customers, Philips, Nexteer Automotive, and ZF, accounted for 14%, 14%, and 10% of net sales, respectively, for the quarter[116] Liquidity and Capital Resources The company maintained strong liquidity with $132.2 million available and improved Cash Conversion Days to 73 days - Short-term liquidity available was $132.2 million at September 30, 2019, up from $110.7 million at June 30, 2019[124] Cash Conversion Days (CCD) Trend | | Sep 30, 2019 (Days) | Jun 30, 2019 (Days) | Sep 30, 2018 (Days) | | :--- | :--- | :--- | :--- | | DSO | 50 | 59 | 55 | | CAD | 16 | 15 | 15 | | PDSOH | 65 | 64 | 67 | | APD | 58 | 61 | 69 | | CCD | 73 | 77 | 68 | - Net cash from operating activities was a positive $39.6 million, a significant improvement from a negative $10.0 million in the prior year, mainly due to a $38.9 million cash inflow from decreased receivables[128][129][130] - The company has repurchased $71.4 million of common stock under its $80 million authorization plan since its inception[147] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposure, including foreign currency and interest rates, were reported for the quarter - No material changes in market risk exposure related to foreign currency exchange rates and interest rates were reported for the quarter[161] Controls and Procedures CEO and CFO concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[162] - No material changes to the company's internal control over financial reporting were identified during the quarter[162] PART II OTHER INFORMATION Legal Proceedings The company is not a party to any material pending legal proceedings outside the normal course of business - The company is not involved in any material pending legal proceedings outside of the ordinary course of business[165] Risk Factors No material changes to the risk factors previously disclosed in the company's most recent Form 10-K were reported - There have been no material changes to the risk factors disclosed in the company's most recent Form 10-K[166] Unregistered Sales of Equity Securities and Use of Proceeds Details the company's stock repurchase activity for the quarter, including 230,482 shares bought back as part of an $80 million authorization Issuer Purchases of Equity Securities (Q1 FY20) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan ($) | | :--- | :--- | :--- | :--- | | July 1 - 31, 2019 | — | $— | $12,085,191 | | Aug 1 - 31, 2019 | — | $— | $12,085,191 | | Sep 1 - 30, 2019 | 230,482 | $15.10 | $8,604,701 | | Total | 230,482 | $15.10 | | - The Board of Directors has authorized a total of $80 million for stock repurchases under the plan, which has no expiration date[169] Exhibits Lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL Interactive Data Files - Filed exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[171]