Financial Report Key Information Review - Total revenue for Q2 2023 was RMB 20,204 million, representing a year-over-year increase of 21% [1] - Existing home revenue was RMB 6,050 million, up 49% year-over-year [1] - New home revenue reached RMB 8,404 million, a 42% year-over-year increase [1] - Gross profit was RMB 6,350 million, with a gross profit margin (GPM) of 25.5% [1] - Operating profit was RMB 2,978 million, showing a significant increase of 215.3% [1] - Non-GAAP net profit was RMB 3,561 million, with a net profit margin (NPM) of 21.6% [1] Management's Strategic Focus - The company is enhancing its home decoration business by improving product design and project management capabilities, with project managers achieving a 156% year-over-year increase in average monthly orders [2] - In the rental service sector, the company manages over 500,000 rental properties, focusing on improving default management and renewal rates [2] AI Technology Application - An AI-driven housing search system has been launched in two cities, capturing 40% of homepage traffic [2] - Over 200,000 agents are using tools that allow them to manage more than 2.5 million clients, improving efficiency metrics [2] - An AI property maintenance system has been adopted by 110,000 agents, servicing 400,000 homeowners [2] Market Outlook - The second-hand housing market showed strong recovery in Q1, with a 16% year-over-year increase in transactions, driven by policy effects that lowered purchasing thresholds [3] - In major cities like Beijing and Shanghai, second-hand home prices remained stable or slightly increased [4] - The new home market was stable, with a slight year-over-year decline of 0.4% in sales [4] - The company anticipates a typical seasonal slowdown in Q2, but expects a slight year-over-year increase in second-hand transaction volume [5] - The impact of international trade tensions on the real estate market is being closely monitored, with a focus on maintaining stable homeowner sentiment [5]

Core Viewpoint - The overall performance of Beike's latest earnings report is better than expected, with significant revenue growth, but the persistent issue of increasing revenue without profit remains unresolved [1][12][46]. Group 1: Existing Home Business - The GTV (Gross Transaction Value) of the existing home business increased by 28% year-on-year, outperforming the expected 24% growth, indicating the continued impact of policy benefits [1][15]. - Revenue from the existing home business grew by 20%, but this was lower than the GTV growth, reflecting a decline in the comprehensive commission rate [1][17]. - The comprehensive commission rate for existing homes decreased by 1.4 basis points to 1.18%, attributed to a higher proportion of non-self-operated business and potential commission discounts to stimulate transactions [1][17]. Group 2: New Home Business - The new home business saw a remarkable growth in transaction value, with a year-on-year increase of 53%, significantly exceeding market expectations [2][20]. - However, the revenue growth rate for new homes was lower than expected due to a decline in the comprehensive realization rate, which fell by 20 basis points [2][24]. - The new home business's revenue increased by 64% year-on-year, but the growth rate showed a deceleration compared to the previous quarter [2][24]. Group 3: Secondary Business Lines - The secondary business lines, including home decoration, rental, and home services, generated total revenue of 8.38 billion, a year-on-year increase of 39%, surpassing expectations [3][27]. - The rental business experienced a significant growth of 94% year-on-year, indicating a strong market position despite a generally weak rental market [3][29]. - The home decoration business, while improving, still underperformed expectations with a revenue growth of 22% [3][29]. Group 4: Profitability Issues - Despite revenue growth, the adjusted net profit remained nearly flat year-on-year, highlighting the ongoing issue of revenue growth not translating into profit [4][6][34]. - The overall gross profit margin decreased to 20.7%, down 2.3 percentage points from the previous quarter, primarily due to rising commission costs and a higher proportion of low-margin rental business [5][37]. - The operating profit margin fell from 3.2% to 2.5%, reflecting the challenges in maintaining profitability amidst rising costs [5][43]. Group 5: Market Outlook - The performance of Beike is significantly influenced by macroeconomic conditions in the real estate market, making future predictions challenging [12][13]. - Long-term prospects for Beike remain positive due to its dominant market position and execution capabilities, despite short-term volatility [12][13]. - Current valuation corresponds to an adjusted net profit multiple of approximately 16-17x PE, with potential for higher multiples if profit growth resumes [12][13].

PART I FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited Condensed Consolidated Financial Statements for the quarter ended March 31, 2025, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2025 ($ in thousands) | June 30, 2024 ($ in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | 707,303 | 847,006 | | **Total Assets** | 1,074,555 | 1,207,919 | | **Total Current Liabilities** | 330,957 | 375,322 | | **Total Liabilities** | 526,440 | 667,458 | | **Total Share Owners' Equity** | 548,115 | 540,461 | Condensed Consolidated Statements of Income Highlights (Unaudited) | Metric | Three Months Ended Mar 31, 2025 ($ in thousands) | Three Months Ended Mar 31, 2024 ($ in thousands) | Nine Months Ended Mar 31, 2025 ($ in thousands) | Nine Months Ended Mar 31, 2024 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $374,607 | $425,036 | $1,106,255 | $1,284,352 | | **Gross Profit** | $26,896 | $33,544 | $73,923 | $103,519 | | **Operating Income (Loss)** | $11,716 | $(6,431) | $29,061 | $29,669 | | **Net Income (Loss)** | $3,817 | $(6,076) | $10,403 | $12,968 | | **Diluted EPS** | $0.15 | $(0.24) | $0.41 | $0.51 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Category | Nine Months Ended Mar 31, 2025 ($ in thousands) | Nine Months Ended Mar 31, 2024 ($ in thousands) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | 105,870 | 24,717 | | **Net cash used for investing activities** | (5,160) | (37,702) | | **Net cash (used for) provided by financing activities** | (126,615) | 36,571 | | **Net (Decrease) Increase in Cash** | (25,892) | 23,473 | [Note 2. Revenue from Contracts with Customers](index=13&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) Revenue is disaggregated by end market vertical, showing declines in Automotive and Industrial sectors, with most revenue recognized over time Revenue by End Market Vertical (in millions) | Vertical Markets | Three Months Ended Mar 31, 2025 (in millions) | Three Months Ended Mar 31, 2024 (in millions) | Nine Months Ended Mar 31, 2025 (in millions) | Nine Months Ended Mar 31, 2024 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Automotive | $173.1 | $202.0 | $554.3 | $614.7 | | Medical | $115.2 | $113.0 | $288.9 | $323.5 | | Industrial | $86.3 | $110.0 | $263.1 | $346.2 | | **Total net sales** | **$374.6** | **$425.0** | **$1,106.3** | **$1,284.4** | - For the nine months ended March 31, 2025, approximately **98%** of net sales were recognized over time as manufacturing services were performed, consistent with **96%** in the prior year period[43](index=43&type=chunk) [Note 3. Sale of GES](index=13&type=section&id=Note%203.%20Sale%20of%20GES) The company completed the sale of its GES business on July 31, 2024, generating cash proceeds and a pre-tax gain in Q1 FY2025 - The sale of GES was completed on July 31, 2024, for cash proceeds of **$18.5 million**, resulting in a pre-tax gain of **$1.3 million** in Q1 FY2025[46](index=46&type=chunk) [Note 4. Restructuring Activities](index=14&type=section&id=Note%204.%20Restructuring%20Activities) The company recorded restructuring expenses for workforce resizing and the Tampa facility closure to align costs with reduced demand - In the nine months ended March 31, 2025, the company recorded restructuring expenses of **$5.3 million** to align costs with demand and **$3.7 million** related to the Tampa facility closure plan[48](index=48&type=chunk)[49](index=49&type=chunk) - Total expected exit costs for the Tampa Closure Plan are estimated to be between **$6.5 million** and **$8.5 million**, primarily for employee termination benefits and logistical costs[49](index=49&type=chunk) [Note 8. Credit Facilities](index=16&type=section&id=Note%208.%20Credit%20Facilities) Total borrowings under credit facilities significantly reduced to **$178.8 million** by March 31, 2025, following an amendment to add a term loan and terminate a secondary facility Credit Facilities Summary (in millions) | Facility | Available Borrowing Capacity (Mar 31, 2025, in millions) | Borrowings Outstanding (Mar 31, 2025, in millions) | Borrowings Outstanding (Jun 30, 2024, in millions) | | :--- | :--- | :--- | :--- | | Primary credit facility, revolving | $219.6 | $80.0 | $285.5 | | Primary credit facility, term | $1.2 | $98.8 | $— | | **Total credit facilities** | **$253.2** | **$178.8** | **$294.8** | - On December 20, 2024, the company amended its primary credit agreement, adding a **$100 million** term loan facility and terminating its secondary **$100 million** revolving credit facility[56](index=56&type=chunk)[60](index=60&type=chunk) [Note 14. Share Owners' Equity](index=23&type=section&id=Note%2014.%20Share%20Owners%27%20Equity) The company repurchased **$8.9 million** of common stock at an average price of **$18.10** per share under its **$120 million** repurchase plan - Under its **$120 million** Repurchase Plan, the company repurchased **$8.9 million** of common stock in the nine months ended March 31, 2025[89](index=89&type=chunk)[90](index=90&type=chunk) - The average price paid per share for repurchases during the nine months ended March 31, 2025 was **$18.10**[90](index=90&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a **12%** decrease in Q3 FY2025 net sales, driven by automotive and industrial declines, alongside restructuring efforts and a strong balance sheet with a **0.3** debt-to-equity ratio [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Net sales for Q3 FY2025 decreased **12%** to **$374.6 million**, primarily due to declines in automotive and industrial sectors, while gross margin contracted to **7.2%** Net Sales by Vertical Market (in millions) | Vertical | Q3 2025 (in millions) | Q3 2024 (in millions) | % Change | YTD 2025 (in millions) | YTD 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Automotive | $173.1 | $202.0 | (14)% | $554.3 | $614.7 | (10)% | | Medical | $115.2 | $113.0 | 2% | $288.9 | $323.5 | (11)% | | Industrial | $86.3 | $110.0 | (22)% | $263.1 | $346.2 | (24)% | | **Total** | **$374.6** | **$425.0** | **(12)%** | **$1,106.3** | **$1,284.4** | **(14)%** | - Gross profit as a percentage of net sales declined in Q3 FY2025 to **7.2%** from **7.9%** in Q3 FY2024, primarily due to lost absorption on lower revenue and dilution from a non-recurring consignment inventory sale[107](index=107&type=chunk)[109](index=109&type=chunk) - Selling and administrative expenses decreased by **22%** in Q3 FY2025 compared to the prior year, driven by cost reduction efforts, reclassification of factoring fees, and a lower allowance for credit losses[107](index=107&type=chunk)[110](index=110&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a solid financial position with **$376.3 million** working capital, a **2.1** current ratio, and improved Cash Conversion Days of **99**, driven by increased operating cash flow Key Liquidity Metrics | Metric | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Working Capital (in millions) | $376.3 | $471.7 | | Current Ratio | 2.1 | 2.3 | | Debt-to-Equity Ratio | 0.3 | 0.5 | Cash Conversion Days (CCD) | Period | March 31, 2025 (Days) | March 31, 2024 (Days) | | :--- | :--- | :--- | | Cash Conversion Days | 99 | 110 | - Net cash provided by operating activities increased to **$105.9 million** for the nine months ended March 31, 2025, compared to **$24.7 million** in the prior-year period, mainly due to a **$32.5 million** decrease in accounts receivable and a **$39.9 million** decrease in inventory[120](index=120&type=chunk)[123](index=123&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in market risk exposure, including foreign currency and interest rates, compared to its prior fiscal year 10-K 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, 2024[147](index=147&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[148](index=148&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2025[148](index=148&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material legal proceedings, with routine litigation not expected to have a material adverse financial impact - The company is not involved in any material legal proceedings; any existing litigation is routine and not expected to have a material adverse impact[150](index=150&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report on Form 10-K for comprehensive risk factor disclosure, with no new or updated risks presented in this 10-Q - For a comprehensive disclosure of risk factors, the company refers investors to its Annual Report on Form 10-K for the year ended June 30, 2024[151](index=151&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **174,312** shares for **$3.0 million** during Q3 FY2025 under its **$120 million** authorized stock repurchase plan Share Repurchases for the Three Months Ended March 31, 2025 | Period | Total Number of Shares Purchased (Shares) | Average Price Paid per Share ($) | Maximum Dollar Value Remaining Under Plan ($) | | :--- | :--- | :--- | :--- | | Jan 2025 | — | $— | $22,294,134 | | Feb 2025 | 58,994 | $18.18 | $21,221,626 | | Mar 2025 | 115,318 | $16.70 | $19,295,851 | | **Total** | **174,312** | **$17.20** | **N/A** | [Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during Q3 FY2025 - During the quarter ended March 31, 2025, no officers or directors adopted or terminated any contract, instruction, or written plan for the purchase or sale of the Company's securities under Rule 10b5-1(c)[155](index=155&type=chunk) [Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Key exhibits filed include: * 31.1: CEO Certification (Section 302) * 31.2: CFO Certification (Section 302) * 32.1: CEO Certification (Section 906) * 32.2: CFO Certification (Section 906) * 101 & 104: Inline XBRL and Cover Page Interactive Data files[156](index=156&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q3 totaled $375 million, representing a 10% decline year over year when excluding the divested AT and M business [8][12] - Gross margin rate in Q3 was 7.2%, a 70 basis point decline compared to 7.9% in the same period last year [12] - Adjusted net income in Q3 was $6.8 million or $0.27 per diluted share, down from $9.8 million or $0.39 per diluted share in the same quarter last year [16] Business Line Data and Key Metrics Changes - Medical segment net sales were $115 million, up 2% year over year, driven by non-recurring consignment inventory sales [8][9] - Automotive segment net sales were $173 million, a 14% decrease year over year, representing 46% of total company sales [10] - Industrial segment net sales were $86 million, down 15% year over year, representing 23% of total company sales [10][11] Market Data and Key Metrics Changes - Sales in the Medical market increased, while the Automotive and Industrial markets experienced declines [8][10] - The automotive business is heavily concentrated in North America and China, with growth noted in Europe due to a new braking platform [10] Company Strategy and Development Direction - The company is focusing on expanding its presence in the medical contract manufacturing organization (CMO) sector, with a new manufacturing facility in Indianapolis [6][9] - The strategy includes utilizing cash generated from EMS operations to invest in the CMO sector, with expectations for organic revenue growth over time [7][9] - The company aims to improve its global capacity utilization by closing the Tampa facility and streamlining operations [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to growth through emerging medical technologies and high-level assemblies [23] - The current tariff environment presents uncertainty, impacting the timing of recovery in the core EMS business [20][22] - Management reiterated guidance for fiscal year 2025, expecting to be at the high end of sales and operating income ranges [19] Other Important Information - Cash flow generated by operating activities in the quarter was $30.9 million, marking the fifth consecutive quarter of positive cash flow [16] - The company has $304.6 million in short-term liquidity available at the end of Q3 [18] - The company invested $3 million to repurchase 175,000 shares of common stock during the quarter [19] Q&A Session Summary Question: Details about the new facility in Indianapolis - The new facility provides more space for growth in the medical CMO sector and is leased to minimize upfront costs [25][26] Question: Impact of the existing facility's sale - It is too early to determine the potential value of the existing facility, with a transition period of two to three years expected [30] Question: Trends in open orders or backlog - The greatest increase in backlog was seen in the medical vertical, followed by industrial and automotive [32] Question: Orders pulled into March due to tariffs - Management is uncertain if orders were pulled forward due to tariffs but is monitoring customer feedback [36] Question: Operating expenses trends for the rest of the year - SG&A expenses are expected to rise as investments are needed to prepare for growth [41] Question: Short-term moves in gross margin and operating income - Next quarter is expected to be similar to Q3, with conservative estimates due to market uncertainties [48] Question: Demand environment in medical - The investment in the new facility was made to capture larger business opportunities in the medical CMO sector [50] Question: Inventory management and cash conversion - There is still room for improvement in cash conversion days, with ongoing efforts to manage inventory effectively [53]

Financial Data and Key Metrics Changes - Net sales for Q3 totaled $375 million, representing a 10% decline year over year when excluding the divested AT and M business [8][13] - Gross margin rate in Q3 was 7.2%, a 70 basis point decline compared to 7.9% in the same period last year, primarily due to a non-recurring consignment inventory sale [13][14] - Adjusted net income for Q3 was $6.8 million or $0.27 per diluted share, down from $9.8 million or $0.39 per diluted share in the same quarter last year [17] Business Line Data and Key Metrics Changes - Medical segment net sales were $115 million, up 2% year over year, driven by non-recurring consignment inventory sales [8][9] - Automotive segment net sales were $173 million, a 14% decrease year over year, representing 46% of total company sales [10] - Industrial segment net sales were $86 million, down 15% year over year, representing 23% of total company sales [11] Market Data and Key Metrics Changes - Sales in the Medical market increased, while the Automotive and Industrial markets experienced declines [8][10][11] - The automotive business is heavily concentrated in North America and China, with growth noted in Europe due to a new electronic braking platform [10] Company Strategy and Development Direction - The company is focusing on expanding its presence in the medical contract manufacturing organization (CMO) space, with a new manufacturing facility in Indianapolis [6][9] - The strategy includes utilizing cash generated from EMS operations to invest in the medical CMO, with expectations for organic revenue growth over time [6][7] - The company aims to improve its global capacity utilization by closing the Tampa facility and streamlining operations [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to growth through emerging medical technologies and high-level assemblies [25] - The current tariff environment presents uncertainty, impacting the business and customer demand [23][24] - Management is closely monitoring customer demand and market conditions to navigate the unpredictable environment [23][40] Other Important Information - Cash and cash equivalents at the end of Q3 were $51.4 million, with cash flow from operating activities at $30.9 million [17][19] - The company has $19.3 million remaining on its share repurchase program, having repurchased $3 million worth of shares in Q3 [20] Q&A Session Summary Question: Details about the new facility in Indianapolis - The new facility provides more space for growth in the medical CMO and is leased to minimize upfront costs [28][30] Question: Impact of the existing facility's sale - It is too early to determine the potential value of the existing facility, with a transition period of two to three years expected [32] Question: Trends in open orders or backlog - The medical vertical saw the greatest increase in open orders, followed by industrial and automotive [34] Question: Orders pulled into March due to tariffs - Management is uncertain if orders were pulled forward due to tariffs but is monitoring customer feedback [38] Question: Operating expenses outlook - SG&A expenses are expected to rise in FY 2026 as investments are needed for growth [43] Question: Impact of the Tampa facility closure on gross margin - Some gross margin improvement is expected from the Tampa closure, but pressures from tariffs remain [67]

Financial Data and Key Metrics Changes - Net sales for Q3 totaled $375 million, representing a 10% decline year over year when excluding the divested AT and M business [8][13] - Gross margin rate in Q3 was 7.2%, a 70 basis point decline compared to 7.9% in the same period last year [13] - Adjusted net income in Q3 was $6.8 million or $0.27 per diluted share, down from $9.8 million or $0.39 per diluted share in the same quarter last year [16] Business Line Data and Key Metrics Changes - Medical segment net sales were $115 million, up 2% year over year, driven by non-recurring consignment inventory sales [8][9] - Automotive segment net sales were $173 million, a 14% decrease year over year, with strong performance in China and Europe but a decline in North America [10][11] - Industrial segment net sales were $86 million, down 15% year over year, with declines across all regions [12] Market Data and Key Metrics Changes - Sales in the Medical market increased, while the Automotive and Industrial markets experienced declines [8][10][12] - The company noted strong sales in China for the automotive segment, with a modest increase in Europe [10] Company Strategy and Development Direction - The company is focusing on expanding its presence in the medical contract manufacturing organization (CMO) space, with a new facility in Indianapolis dedicated to this sector [6][9] - The strategy includes utilizing cash generated from EMS operations to invest in the CMO business, with expectations for organic revenue growth over time [7][9] - The company is also closing its Tampa facility to streamline operations and improve global capacity utilization [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to growth through emerging medical technologies and high-level assemblies [23] - The current tariff environment presents uncertainty, impacting the timing of recovery in the core EMS business [21][22] - Management reiterated guidance for fiscal year 2025, expecting to be at the high end of sales and operating income ranges [19] Other Important Information - Cash and cash equivalents at the end of Q3 were $51.4 million, with operating cash flow of $30.9 million [16][18] - The company has reduced borrowings by 40% from the beginning of the fiscal year, indicating improved financial health [18] Q&A Session Summary Question: Details about the new facility in Indianapolis - The new facility provides more space and capabilities for medical CMO, with lease terms designed to minimize upfront costs [25][26] Question: Impact of the existing facility's sale - It is too early to determine the potential value of the existing facility, with a transition period of two to three years expected [31][32] Question: Trends in open orders or backlog - The greatest increase in backlog was seen in the medical vertical, followed by industrial and automotive [33] Question: Orders pulled into March due to tariffs - Management is uncertain if orders were pulled forward but acknowledges the possibility [37] Question: Outlook for operating expenses - SG&A expenses are expected to rise in FY 2026 as investments are needed for growth [42] Question: Impact of tariffs on gross margin - Tariffs are expected to pressure gross margins, but management is working to maintain them [65]

Financial Performance - Net sales for Q3 totaled $374.6 million, a 12% year-over-year decrease, or a 10% decrease excluding AT&M[24, 26] - Medical net sales in Q3 were $115 million, up 2% compared to last year, representing 31% of total company sales[13, 15] - Automotive net sales were $173 million, a 14% decrease compared to last year, representing 46% of total company sales[17, 20] - Industrial net sales were $86 million, down 15% year-over-year excluding AT&M, representing 23% of total company sales[21, 23] - Adjusted selling & administrative expense totaled $11.2 million, a 24% reduction compared to last year, representing 3.0% of sales[33] - Adjusted operating income was $15.7 million, or 4.2% of net sales[37] Strategic Initiatives - The company is reiterating fiscal year 2025 guidance, expecting sales and operating income to be at the high-end of the range[8, 53] - A new manufacturing facility in Indianapolis focused on the medical industry is being added to expand presence as a medical CMO[8, 16] - Borrowings were reduced by $116 million, or 40%, from the beginning of the fiscal year, with short-term liquidity available totaling $304.6 million[50] Other - The gross margin rate in Q3 was 7.2%, a 70 bps decline compared to last year[27, 29]

Company Performance - Kimball Electronics reported quarterly earnings of $0.27 per share, exceeding the Zacks Consensus Estimate of $0.26 per share, but down from $0.34 per share a year ago, representing an earnings surprise of 3.85% [1] - The company posted revenues of $374.61 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 8.46%, but down from $425.04 million year-over-year [2] - Over the last four quarters, Kimball Electronics has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Stock Performance - Kimball Electronics shares have declined approximately 21.7% since the beginning of the year, compared to a decline of 3.9% for the S&P 500 [3] - The current consensus EPS estimate for the upcoming quarter is $0.26 on revenues of $341.4 million, and for the current fiscal year, it is $0.89 on revenues of $1.42 billion [7] Industry Outlook - The Zacks Industry Rank for Electronics - Miscellaneous Products is currently in the bottom 43% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that industry outlook can significantly impact stock performance [5][8]

Financial Performance - Net sales for Q3 fiscal 2025 totaled $374.6 million, a decrease of 12% compared to $425.0 million in Q3 fiscal 2024[4] - Operating income for Q3 was $11.7 million, representing 3.1% of net sales, with adjusted operating income at 4.2%[4] - Net sales for the three months ended March 31, 2025, were $374.6 million, a decrease of 11.8% compared to $425.0 million for the same period in 2024[19] - Gross profit margin decreased to 7.2% for the three months ended March 31, 2025, down from 7.9% in the prior year[19] - Operating income improved to $11.7 million for the three months ended March 31, 2025, compared to an operating loss of $6.4 million in the same period last year[19] - Net income for the three months ended March 31, 2025, was $3.8 million, a significant recovery from a net loss of $6.1 million in the prior year[19] - Net sales growth for the three months ended March 31, 2025, decreased by 12% compared to the same period in the prior year[25] - Adjusted operating income for the nine months ended March 31, 2025, was $41,629, down from $58,802 in the prior year[25] - Adjusted net income for the nine months ended March 31, 2025, was $19,718, compared to $31,607 in the prior year[25] - Operating income for the twelve months ended March 31, 2025, was $48,669, compared to $61,118 in the prior year[25] - Return on invested capital (ROIC) for the twelve months ended March 31, 2025, was 6.1%, down from 9.0% in the prior year[25] Cash Flow and Liquidity - Cash generated from operating activities was $30.9 million, marking the fifth consecutive quarter of positive cash flow[4] - Cash flow from operating activities for the nine months ended March 31, 2025, was $105.9 million, a substantial increase from $24.7 million in the same period of 2024[20] - The company has cash and cash equivalents of $51.4 million and available borrowing capacity of $253.2 million[4] - Borrowings on credit facilities decreased by $26.2 million from Q2, totaling $178.8 million, and down $116 million, or 40%, year-to-date[4] Inventory and Orders - Inventory decreased by $9.6 million from Q2 to $296.6 million[4] - The company reported a decrease in open orders to $642 million as of March 31, 2025, compared to $831 million a year earlier, primarily due to demand reductions[22][23] Expenses and Restructuring - Selling and administrative expenses for the three months ended March 31, 2025, were reported at $13,154, down from $16,861 in the prior year[25] - The company incurred restructuring expenses of $2.0 million for the three months ended March 31, 2025, compared to $1.6 million in the same period of 2024[19] - Restructuring expenses for the twelve months ended March 31, 2025, totaled $9,783, compared to $1,622 in the prior year[25] - Stock compensation expense for the nine months ended March 31, 2025, was $4,528, compared to $5,435 in the prior year[25] Future Outlook - The company expects fiscal 2025 net sales to be in the range of $1.40 billion to $1.44 billion, with adjusted operating income projected at 3.4% to 3.6% of net sales[9] - Capital expenditures for fiscal 2025 are estimated to be at the low-end of the guidance range of $40 million to $50 million[9] - A new manufacturing facility in Indianapolis is being added to support the company's strategy to drive growth in the medical CMO sector[4] Earnings Per Share - Basic earnings per share for the three months ended March 31, 2025, was $0.15, a recovery from a loss of $0.24 per share in the same period last year[19] - Diluted earnings per share, as reported, for the three months ended March 31, 2025, was $0.15, a decrease from $(0.24) in the prior year[25] - Adjusted diluted earnings per share for the nine months ended March 31, 2025, was $0.79, down from $1.25 in the prior year[25] - The current portion of long-term debt decreased to $28.9 million as of March 31, 2025, from $59.8 million in the previous year[21]

Financial Data and Key Metrics Changes - Net sales for Q2 totaled $357 million, a 15% decrease year over year, with a 13% decline when excluding AT and M [8][14] - Adjusted operating income for Q2 was $13.3 million, or 3.7% of net sales, compared to $19.1 million, or 4.5% of net sales, in the previous year [16] - Adjusted net income in Q2 was $7.4 million, or $0.29 per diluted share, down from $9.8 million, or $0.39 per diluted share, in the same quarter last year [17] - Cash flow generated from operating activities was $29.5 million, marking the fourth consecutive quarter of positive cash flow [17][18] - Inventory levels decreased by $149 million, or 33%, year over year, ending the quarter at $306.2 million [18] Business Line Data and Key Metrics Changes - Automotive net sales were $193 million, a 4% decrease year over year, representing 54% of total company sales [9] - Medical net sales were $84 million, a 22% decrease year over year, accounting for 23% of total company sales [10] - Industrial net sales were $81 million, down 20% year over year, also representing 23% of total company sales [12] Market Data and Key Metrics Changes - North America and Europe experienced double-digit declines, while Asia saw an increase in sales [8] - The automotive business in China showed strong performance, with record production rates, contrasting with declining volumes in North America [9] Company Strategy and Development Direction - The company is strategically repositioning for growth, focusing on divesting non-core assets and enhancing facility utilization [6][7] - There is an increased focus on the medical CMO sector, with plans to expand manufacturing capabilities [12][27] - The company is exploring opportunities in emerging medical technologies and high-level assemblies [27] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a sustained period of declining customer demand and revised expectations for the full fiscal year [6][7] - The company is optimistic about future growth but recognizes that necessary changes will take time [7][27] - Management is actively working with customers to navigate the impacts of tariffs and supply chain challenges [22][24] Other Important Information - The company has amended its credit facility, enhancing its capital structure and providing additional liquidity for investments [19][20] - A total of $97.7 million has been returned to shareholders through share repurchases since October 2015, with $22.3 million remaining on the repurchase program [20][21] Q&A Session Summary Question: What is the impact of tariffs on production decisions? - Management indicated that even with a 25% tariff, it remains more cost-effective for most products to be manufactured in Mexico [30] Question: How is inventory reduction trending? - Management noted that inventory is expected to continue decreasing over the next six to twelve months as they manage customer agreements [35] Question: What is the current utilization rate in Jasper? - The utilization rate in Jasper is around 65%, with discussions ongoing about moving additional work from Tampa to Jasper [43] Question: Is the revised guidance driven by a specific vertical? - The revised guidance reflects broad-based softness across all verticals, although the automotive sector is holding steady due to strength in Asia [46] Question: What changes are being made to focus on the medical vertical? - The company has restructured to combine its drug delivery business with the core EMS medical vertical to enhance collaboration and capabilities [54]