Kimball Electronics(US:KE)2023-05-06 07:59Financial Data and Key Metrics Changes - Net sales in Q3 were $485 million, a 32% increase compared to the same period last year and 11% better than the previous best quarter in Q2 [3] - Adjusted operating income for Q3 was $25.6 million, representing 5.3% of net sales, flat year-over-year but a 120 basis point increase sequentially [37] - Net income in Q3 was $16.4 million or $0.65 per diluted share, a 20% increase year-over-year [38] - Gross margin rate in Q3 was 8.9%, a 30 basis point decline compared to Q3 of fiscal 2022 [13] - Cash and cash equivalents at March 31, 2023, were $30.4 million, with cash flow from operating activities at $14 million, marking the first quarter of positive cash flow in some time [7] Business Line Data and Key Metrics Changes - Automotive vertical sales were $216 million, a 34% increase year-over-year, accounting for 45% of total company sales [34] - Medical vertical sales totaled $134 million, a 30% increase year-over-year, representing 28% of total sales [12] - Industrial vertical sales reached $127 million, a 29% increase year-over-year, making up 26% of total sales [5] Market Data and Key Metrics Changes - All three vertical markets reported robust double-digit increases, with each setting record highs in Q3 [3] - Foreign exchange negatively impacted sales by 2% in the quarter [13] Company Strategy and Development Direction - The company is strategically positioned to support growth in areas such as EV charging stations and medical devices, driven by industry mega trends [5][12] - The strategic plan includes a review of positioning and growth opportunities within each vertical market, with a focus on operational efficiencies and facility expansions [34][40] - The company aims for $2 billion in annual revenue, with a solid finish expected in Q4 [40][102] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain conditions are gradually improving, with parts shortages constraining top-line growth by approximately 5% in Q3 [3][15] - The company is optimistic about the future, with expectations of improved cash conversion and inventory days as supply chain challenges ease [60][80] - Management expressed confidence in the automotive sector's resilience despite potential economic slowdowns, citing the sticky nature of the business due to regulatory requirements [35][78] Other Important Information - Adjusted selling and administrative expenses in Q3 were $17.4 million, up from $14.4 million in Q3 last year, but as a percentage of sales, they improved to 3.6% [6] - Capital expenditures in Q3 were $24.7 million, primarily for facility expansions and new product introductions [102] - The company published its ESG report for 2022, highlighting its commitment to quality of life for stakeholders [18] Q&A Session Summary Question: Is there any issue with decommits or cancellations in the backlog? - Management confirmed that the backlog remains robust with no material decommits or cancellations [20] Question: Is the medical space back to a normalized environment? - Management acknowledged the impact of elective surgeries and labor shortages but indicated a return to normalcy is anticipated [21] Question: How is the company positioned for a possible recession? - Management expressed confidence in their liquidity and ability to weather economic downturns, noting strong job numbers and positive cash flow [78] Question: What is the outlook for the EV charging stations opportunity? - Management is bullish on the potential for EV charging stations, indicating ongoing discussions with customers about large opportunities [45] Question: How is the company managing pricing and negotiations in the current inflationary environment? - Management highlighted successful negotiations with customers regarding non-standard material orders and freight costs, emphasizing a partnership approach [69]