Kimball Electronics(KE) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements for Kimball Electronics, Inc. and related management discussion Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Kimball Electronics, Inc. as of September 30, 2022, and for the three-month period then ended, including balance sheets, income statements, comprehensive income, cash flows, and share owners' equity Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2022, shows total assets of $1.10 billion, an increase from $1.04 billion at June 30, 2022, primarily driven by increased inventories and receivables, funded by higher borrowings Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Jun 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $820,017 | $761,083 | | Inventories | $449,528 | $395,630 | | Total Assets | $1,101,763 | $1,035,767 | | Total Current Liabilities | $439,962 | $408,742 | | Total Debt (Current + Long-term) | $232,505 | $180,580 | | Total Liabilities | $645,518 | $581,796 | | Total Share Owners' Equity | $456,245 | $453,971 | Condensed Consolidated Statements of Income For the three months ended September 30, 2022, net sales grew 38.7% to $405.9 million, with gross profit increasing 88.0% and net income rising to $9.5 million, or $0.38 per diluted share Consolidated Income Statement (Three Months Ended Sep 30, in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Sales | $405,889 | $292,717 | | Gross Profit | $29,321 | $15,600 | | Operating Income | $13,571 | $4,780 | | Net Income | $9,509 | $2,564 | | Diluted EPS | $0.38 | $0.10 | Condensed Consolidated Statements of Comprehensive Income For the three months ended September 30, 2022, total comprehensive income was $2.1 million, comprising $9.5 million in net income offset by a $7.4 million other comprehensive loss, primarily due to negative foreign currency translation adjustments Comprehensive Income (Three Months Ended Sep 30, in thousands) | Component | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $9,509 | $2,564 | | Foreign currency translation adjustments | $(7,237) | $(2,953) | | Other comprehensive income (loss) | $(7,417) | $(4,266) | | Total comprehensive income (loss) | $2,092 | $(1,702) | Condensed Consolidated Statements of Cash Flows Net cash used for operating activities was $60.2 million for the first three months of fiscal 2023, primarily due to increased working capital needs, resulting in a net decrease in cash of $30.1 million Cash Flow Summary (Three Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used for operating activities | $(60,194) | $(8,187) | | Net cash used for investing activities | $(19,320) | $(12,868) | | Net cash provided by financing activities | $50,769 | $4,965 | | Net Decrease in Cash | $(30,136) | $(17,118) | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on accounting policies, revenue recognition, and a breakdown of revenue by end market, including a $2.0 million decrease in depreciation expense due to a change in estimated useful lives of production equipment - The company provides contract electronics manufacturing services (EMS) and diversified manufacturing services to the automotive, medical, and industrial end markets[23] - A change in the estimated useful lives of Surface Mount Technology production equipment, effective November 1, 2021, resulted in a $2.0 million decrease in depreciation expense and a $1.6 million increase in net income for the three months ended September 30, 2022[26] Revenue by End Market Vertical (Three Months Ended Sep 30, in millions) | Vertical Market | 2022 | 2021 | | :--- | :--- | :--- | | Automotive | $184.5 | $129.4 | | Medical | $114.8 | $85.0 | | Industrial | $100.9 | $75.0 | | Other | $5.7 | $3.3 | | Total net sales | $405.9 | $292.7 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the record-setting Q1 FY2023 financial performance, with net sales growing 39% year-over-year to $405.9 million driven by double-digit growth across all end markets, despite ongoing supply chain and inflation challenges Business and Market Overview The company operates as a global manufacturing solutions provider, actively monitoring risks such as the COVID-19 pandemic, component shortages, inflation, and geopolitical impacts, while achieving record quarterly sales due to improved supply chains and strong demand - The company is monitoring several key risks: the ongoing COVID-19 pandemic, component shortages and shipping delays, industry-wide inflation, and the geopolitical and economic impact of the war in Ukraine[86][87][89] - Q1 FY2023 net sales were a company record, increasing 39% YoY, with double-digit growth in all three end market verticals (Automotive, Medical, Industrial)[90] - The company maintains long-term customer relationships, with 80% of net sales in Q1 FY2023 coming from customers served for more than 10 years[94] Financial Overview and Results of Operations Q1 FY2023 net sales increased 39% to a record $405.9 million, with all verticals showing strong growth, gross margin improving to 7.2%, and net income surging 271% to $9.5 million Financial Highlights (Three Months Ended Sep 30, in millions) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $405.9 | $292.7 | 39% | | Gross Profit | $29.3 | $15.6 | 88% | | Operating Income | $13.6 | $4.8 | 184% | | Net Income | $9.5 | $2.6 | 271% | | Diluted EPS | $0.38 | $0.10 | 280% | Significant Customer Sales (% of Net Sales) | Customer | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Philips | 17% | 14% | | Nexteer Automotive | 15% | 17% | | ZF | 12% | * | *amount is less than 10% of total - Open orders increased 43% to $1,069 million as of September 30, 2022, compared to $749 million a year prior, driven by increased demand and component shortages limiting fulfillment[95][97] Liquidity and Capital Resources The company's liquidity remains strong with $113.4 million available, despite net cash used for operations being $60.2 million due to increased working capital and strategic inventory builds, with capital expenditures primarily for facility expansions Liquidity and Working Capital Metrics | Metric | Sep 30, 2022 | Jun 30, 2022 | | :--- | :--- | :--- | | Working Capital | $380.1M | $352.3M | | Current Ratio | 1.9 | 1.9 | | Debt-to-Equity Ratio | 0.5 | 0.4 | | Short-term Liquidity Available | $113.4M | $178.6M | Cash Conversion Days (CCD) | Period Ended | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | :--- | | CCD | 99 | 91 | 73 | - Net cash used for operating activities was $(60.2) million, primarily due to a $57.6 million increase in inventory and a $33.3 million increase in accounts receivable[108][110] - Capital expenditure commitments were approximately $26 million as of September 30, 2022, primarily for the Poland facility expansion and equipment for new programs[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its exposure to market risks, including foreign currency exchange rates and interest rates, compared to its prior fiscal year-end disclosures - There were no material changes in the company's exposure to market risks for changes in foreign currency exchange rates and interest rates as compared to the fiscal year ended June 30, 2022[131] Item 4. Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[132] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[132] PART II OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is not party to any pending legal proceedings, other than routine litigation incidental to its business, which is not expected to have a material adverse impact - The company and its subsidiaries are not parties to any pending legal proceedings, other than ordinary routine litigation incidental to the business, which is not expected to have a material adverse impact[135] Item 1A. Risk Factors This section refers to the comprehensive disclosure of risk factors detailed in the company's Annual Report on Form 10-K for the year ended June 30, 2022, with no new or updated factors presented in this quarterly report - A comprehensive disclosure of risk factors can be found in the company's Annual Report on Form 10-K for the year ended June 30, 2022[136] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the three months ended September 30, 2022, with $11.2 million remaining available under its $100 million stock repurchase plan - During the three months ended September 30, 2022, the Company did not purchase any common stock[138] - The maximum value of shares remaining for purchase under the stock repurchase plan was $11.2 million at September 30, 2022[138] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents for financial reporting - Exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files (101 series)[140]