Kimball Electronics(KE) - 2025 Q4 - Annual Results

Executive Summary & Management Commentary Q4 2025 Performance Overview The CEO expressed encouragement regarding Q4 FY2025 performance, noting sequential sales growth, improved margins, and working capital management driving the sixth consecutive quarter of positive cash flow, used for debt repayment, positioning the company's balance sheet competitively - Q4 sales grew sequentially, margins improved, and working capital management drove the sixth consecutive quarter of positive cash flow, used for debt repayment[3] - The company's balance sheet is in a competitive position, with ample liquidity to navigate an uncertain environment and fund opportunistic investments[3] FY 2025 Performance Overview The CEO characterized FY2025 as a year of 'controlling the controllables,' highlighting significant progress in achieving profitable growth, including record new business awards, cost structure adjustments, product portfolio alignment with demand trends, and a strengthened focus as a medical CMO - FY2025 is anticipated to be a year of 'controlling the controllables,' with significant progress made in achieving profitable growth[4] - Achieved record new business awards, adjusted cost structure, aligned product portfolio with demand trends, and strengthened focus as a medical CMO[4] Management Outlook The CFO noted FY2026 will be a transitional year, with modest growth expected in medical and industrial businesses, offset by a decline in automotive due to the full impact of the Reynosa brake program loss; margins are projected to be flat with FY2025, and capital expenditures will primarily fund the new Indianapolis facility - FY2026 is anticipated to be a transitional year, with modest growth in medical and industrial businesses[10] - Automotive business is expected to decline due to the full impact of the Reynosa brake program loss, offsetting growth in medical and industrial segments[10] - Margins are projected to be flat with FY2025, and capital expenditures will primarily fund the new Indianapolis facility[10] Financial Highlights & Performance Key Financial Metrics (Q4 & FY25) In Q4 FY2025, the company reported net sales of $380.5 million, operating income of $16.5 million, and adjusted operating income of $19.6 million; for the full year, net sales were $1.4867 billion, operating income $45.5 million, and adjusted operating income $61.3 million, with all metrics showing a decrease compared to the prior year Key Financial Metrics for Q4 and Full Year FY2025 | Metric | June 30, 2025 (Q4, $ in thousands) | June 30, 2024 (Q4, $ in thousands) | June 30, 2025 (FY, $ in thousands) | June 30, 2024 (FY, $ in thousands) | | :----------------------------- | :--------------------------------- | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net Sales | $380,472 | $430,158 | $1,486,727 | $1,714,510 | | Operating Income | $16,474 | $19,608 | $45,535 | $49,277 | | Adjusted Operating Income (Non-GAAP) | $19,638 | $22,694 | $61,267 | $81,496 | | Operating Income % | 4.3% | 4.6% | 3.1% | 2.9% | | Adjusted Operating Income % (Non-GAAP) | 5.2% | 5.3% | 4.1% | 4.8% | | Net Income | $6,581 | $7,543 | $16,984 | $20,511 | | Adjusted Net Income (Non-GAAP) | $8,438 | $9,688 | $28,156 | $41,295 | | Diluted EPS | $0.26 | $0.30 | $0.68 | $0.81 | | Adjusted Diluted EPS (Non-GAAP) | $0.34 | $0.38 | $1.12 | $1.64 | Net Sales by Vertical Market (Q4 & FY25) In Q4 FY2025, medical vertical market sales grew 5% year-over-year, while automotive and industrial (excluding AT&M) markets decreased by 13% and 12% respectively; for the full year, sales in medical, automotive, and industrial (excluding AT&M) markets all declined, with the AT&M business divested on July 31, 2024 Net Sales by Vertical Market for Q4 and Full Year FY2025 | Vertical Market | June 30, 2025 (Q4, $ in millions) | June 30, 2024 (Q4, $ in millions) | Percentage Change (QoQ) | June 30, 2025 (FY, $ in millions) | June 30, 2024 (FY, $ in millions) | Percentage Change (YoY) | | :----------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :-------------------------------- | :-------------------------------- | :---------------- | | Automotive | $183.7 (48%) | $211.7 (49%) | (13)% | $737.9 (49%) | $826.4 (48%) | (11)% | | Medical | $107.2 (28%) | $102.2 (24%) | 5% | $396.2 (27%) | $425.7 (25%) | (7)% | | Industrial (Excluding AT&M) | $89.6 (24%) | $101.5 (24%) | (12)% | $350.5 (24%) | $416.7 (24%) | (16)% | | Net Sales Excluding AT&M | $380.5 (100%) | $415.4 (97%) | (8)% | $1,484.6 (100%) | $1,668.8 (97%) | (11)% | | AT&M | $— (—%) | $14.8 (3%) | (100)% | $2.1 (—%) | $45.7 (3%) | (95)% | | Total Net Sales | $380.5 (100%) | $430.2 (100%) | (12)% | $1,486.7 (100%) | $1,714.5 (100%) | (13)% | Fourth Quarter 2025 Highlights In Q4 FY2025, the company achieved net sales of $380.5 million, a 2% sequential increase, with operating income of $16.5 million and adjusted operating income of $19.6 million; inventory decreased by $23.1 million, and cash generated from operations was $78.1 million, marking the sixth consecutive quarter of positive cash flow, with credit facility borrowings reduced by $31.3 million and cash conversion days falling to 85 days, a three-year low - Net sales reached $380.5 million, representing a 2% sequential increase[5] Key Financial Data for Q4 FY2025 | Metric | Amount (USD Million) | | :----------------------- | :------------------- | | Net Sales | 380.5 | | Operating Income | 16.5 (4.3% of Net Sales) | | Adjusted Operating Income | 19.6 (5.2% of Net Sales) | | Inventory Reduction | 23.1 | | Cash Flow from Operations | 78.1 | | Credit Facility Borrowing Reduction | 31.3 | | Cash and Cash Equivalents | 88.8 | | Borrowing Capacity | 291.7 | | Cash Conversion Days (CCD) | 85 (Three-Year Low) | | Common Stock Repurchases | 3.0 (162,000 shares) | Fiscal Year 2025 Highlights For the full FY2025, net sales reached $1.4867 billion, the third-highest annual revenue in company history, with operating income of $45.5 million and adjusted operating income of $61.3 million; inventory decreased by $64.6 million (19%), debt repayment totaled $147.3 million (50% year-over-year decrease), reaching a three-year low, and cash generated from operations was $183.9 million, an annual record - Net sales reached $1.4867 billion, marking the third-highest annual revenue in company history[9] Key Financial Data for Full Year FY2025 | Metric | Amount (USD Million) | | :----------------------- | :------------------- | | Net Sales | 1,486.7 | | Operating Income | 45.5 (3.1% of Net Sales) | | Adjusted Operating Income | 61.3 (4.1% of Net Sales) | | Inventory Reduction | 64.6 (19%) | | Debt Repayment | 147.3 (50% YoY Decrease, Three-Year Low) | | Cash Flow from Operations | 183.9 (Annual Record) | | Common Stock Repurchases | 12.0 (653,000 shares) | Other Financial Metrics The company disclosed other key financial metrics, including depreciation and amortization, cash conversion days (CCD), and backlog; in Q4 FY2025, cash conversion days decreased to 85 days, a three-year low, and backlog increased to $702 million Other Financial Metrics | Metric | June 30, 2025 (Q4, $ in millions) | March 31, 2025 (Q3, $ in millions) | June 30, 2024 (Q4, $ in millions) | | :----------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Depreciation & Amortization | $9.6 | $9.2 | $9.5 | | Cash Conversion Days (CCD) | 85 | 99 | 100 | | Backlog | $702 | $642 | $714 | - Cash Conversion Days (CCD) stood at 85 days, the lowest level in three years, indicating improved working capital management efficiency[26] Divested Business Performance (Automation, Test and Measurement) The Automation, Test and Measurement (AT&M) business was divested on July 31, 2024; in Q4 FY2025, this business reported zero net sales and operating income of $1.1 million (including $1.1 million in gain on sale), while for the full year, net sales were $2.1 million and operating income was $2.0 million Financial Performance of Automation, Test and Measurement (AT&M) Business | Metric | June 30, 2025 (Q4, $ in millions) | June 30, 2024 (Q4, $ in millions) | June 30, 2025 (FY, $ in millions) | June 30, 2024 (FY, $ in millions) | | :----------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net Sales | $— | $14.8 | $2.1 | $45.7 | | Operating Income (Loss) | $1.1 | $2.0 | $2.0 | $(22.2) | - Q4 FY2025 operating income included a $1.1 million gain on sale, and full-year FY2025 included a $2.4 million gain on sale[28] Fiscal Year 2026 Guidance FY 2026 Financial Outlook The company projects FY2026 net sales to be between $1.35 billion and $1.45 billion, representing a 2% to 9% decrease from FY2025; adjusted operating income is expected to be 4.0% to 4.25% of net sales, largely consistent with FY2025's 4.1%, and capital expenditures are anticipated to be $50 million to $60 million FY2026 Guidance | Metric | FY2026 Guidance | Compared to FY2025 | | :----------------------- | :-------------------------- | :-------------------------- | | Net Sales | $1,350 - $1,450 Million | 2% to 9% Decrease from FY2025 | | Adjusted Operating Income | 4.0% - 4.25% of Net Sales | 4.1% in FY2025 | | Capital Expenditures | $50 - $60 Million | - | Consolidated Financial Statements Condensed Consolidated Statements of Income In Q4 FY2025, the company reported net sales of $380.5 million, gross profit of $30.5 million, operating income of $16.5 million, and net income of $6.6 million; for the full year, net sales were $1.4867 billion, gross profit $104.4 million, operating income $45.5 million, and net income $17.0 million Condensed Consolidated Statements of Income (Selected) | Metric | June 30, 2025 (Q4, $ in thousands) | June 30, 2024 (Q4, $ in thousands) | June 30, 2025 (FY, $ in thousands) | June 30, 2024 (FY, $ in thousands) | | :----------------------- | :--------------------------------- | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net Sales | $380,472 | $430,158 | $1,486,727 | $1,714,510 | | Cost of Sales | $349,991 | $393,420 | $1,382,323 | $1,574,253 | | Gross Profit | $30,481 | $36,738 | $104,404 | $140,257 | | Selling and Administrative Expenses | $13,163 | $15,890 | $50,270 | $66,626 | | Restructuring Charges | $1,971 | $764 | $10,990 | $2,386 | | Operating Income | $16,474 | $19,608 | $45,535 | $49,277 | | Interest Expense | $(2,776) | $(5,380) | $(14,745) | $(22,839) | | Provision for Income Taxes | $6,136 | $5,922 | $9,245 | $4,688 | | Net Income | $6,581 | $7,543 | $16,984 | $20,511 | | Diluted EPS | $0.26 | $0.30 | $0.68 | $0.81 | Condensed Consolidated Statements of Cash Flows In FY2025, net cash provided by operating activities was $183.9 million, net cash used in investing activities was $14.7 million, and net cash used in financing activities was $160.9 million; total cash, cash equivalents, and restricted cash at period-end amounted to $89.5 million Condensed Consolidated Statements of Cash Flows (Selected) | Metric | June 30, 2025 (FY, $ in thousands) | June 30, 2024 (FY, $ in thousands) | | :--------------------------------------- | :--------------------------------- | :--------------------------------- | | Net Cash Provided by Operating Activities | $183,937 | $73,217 | | Net Cash Used in Investing Activities | $(14,700) | $(46,521) | | Net Cash (Used in) Provided by Financing Activities | $(160,874) | $8,974 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $89,467 | $78,779 | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $1.0773 billion, a decrease from $1.2079 billion on June 30, 2024; cash and cash equivalents increased to $88.8 million, inventory decreased to $273.5 million, and total liabilities and shareholders' equity matched total assets Condensed Consolidated Balance Sheets (Selected) | Metric | June 30, 2025 ($ in thousands) | June 30, 2024 ($ in thousands) | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Assets | | | | Cash and Cash Equivalents | $88,781 | $77,965 | | Accounts Receivable, Net | $222,623 | $282,336 | | Inventories | $273,500 | $338,116 | | Property, Plant and Equipment, Net | $264,804 | $269,659 | | Total Assets | $1,077,312 | $1,207,919 | | Liabilities and Shareholders' Equity | | | | Current Portion of Long-Term Debt | $17,400 | $59,837 | | Accounts Payable | $218,805 | $213,551 | | Long-Term Debt, Less Current Portion | $129,650 | $235,000 | | Shareholders' Equity | $569,884 | $540,461 | | Total Liabilities and Shareholders' Equity | $1,077,312 | $1,207,919 | Non-GAAP Financial Measures Reconciliation Reconciliation of Non-GAAP Measures The company provided a reconciliation of GAAP to non-GAAP financial measures, including adjusted operating income, net income, and diluted EPS; these adjustments primarily exclude non-recurring items such as share-based compensation expense, restructuring charges, and asset impairment (gain on disposal) to offer a clearer view of core business performance Non-GAAP Financial Measures Reconciliation (Selected) | Metric | June 30, 2025 (Q4, $ in thousands) | June 30, 2024 (Q4, $ in thousands) | June 30, 2025 (FY, $ in thousands) | June 30, 2024 (FY, $ in thousands) | | :--------------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Reported Operating Income | $16,474 | $19,608 | $45,535 | $49,277 | | Share-based Compensation Expense | $1,991 | $1,750 | $6,519 | $7,185 | | Restructuring Charges | $1,971 | $764 | $10,990 | $2,386 | | Asset Impairment (Gain on Disposal) | $(1,127) | $476 | $(2,391) | $17,040 | | Adjusted Operating Income | $19,638 | $22,694 | $61,267 | $81,496 | | Reported Net Income | $6,581 | $7,543 | $16,984 | $20,511 | | Share-based Compensation Expense (Tax Effect) | $1,510 | $1,327 | $4,944 | $5,449 | | Restructuring Charges (Tax Effect) | $1,474 | $580 | $8,314 | $1,810 | | Asset Impairment (Gain on Disposal) (Tax Effect) | $(1,127) | $238 | $(2,086) | $9,787 | | Adjusted Net Income | $8,438 | $9,688 | $28,156 | $41,295 | | Reported Diluted EPS | $0.26 | $0.30 | $0.68 | $0.81 | | Adjusted Diluted EPS | $0.34 | $0.38 | $1.12 | $1.64 | Additional Information Forward-Looking Statements This press release contains forward-looking statements subject to uncertainties; actual results may differ materially from expectations due to risk factors such as global economic conditions, geopolitical environment, raw material costs, tariffs, currency fluctuations, and the company's ability to convert new business opportunities into revenue - Forward-looking statements are based on current expectations and are inherently subject to uncertainties[15] - Actual results may differ materially due to risks including global economic conditions, geopolitical environment, availability or cost of raw materials and components, tariffs, currency fluctuations, and the company's ability to convert new business opportunities into customers and revenue[15] Non-GAAP Financial Measures Explanation This press release includes non-GAAP financial measures such as constant currency growth, net sales excluding Automation, Test and Measurement business, adjusted selling and administrative expenses, adjusted operating income, adjusted net income, adjusted diluted EPS, and ROIC; management believes these metrics aid investors in analyzing and measuring the company's core business performance - Non-GAAP financial measures include constant currency growth, adjusted operating income, adjusted net income, adjusted diluted EPS, and ROIC[16] - Management believes these metrics help investors meaningfully track, analyze, and measure the company's core business performance[16] About Kimball Electronics, Inc. Kimball Electronics is a global diversified manufacturer providing Electronic Manufacturing Services (EMS) and Contract Manufacturing Organization (CMO) solutions to customers worldwide; the company operates in the US, China, Mexico, Poland, Romania, and Thailand, known for its reputation for excellence and commitment to a high-performance culture valuing quality, reliability, value, speed, and ethical conduct - Kimball Electronics is a global diversified manufacturer, offering EMS and CMO solutions[17] - Operates globally with a reputation for excellence and a commitment to a high-performance culture[17] Contact Information Investor Relations contact is Andrew D. Regrut, Treasurer and Investor Relations Officer - Investor Relations contact: Andrew D. Regrut, Treasurer and Investor Relations Officer[20]