Kimball Electronics(US:KE)2021-02-06 03:45Financial Data and Key Metrics Changes - The company reported net sales of $320.6 million for Q2 2021, a 4% increase from $307.1 million in Q2 2020, primarily driven by increased volumes in the automotive vertical [15][16] - Gross margin improved to 9.3%, a 260 basis point increase from the prior year, attributed to better operating execution and a favorable product mix [19] - Adjusted operating income was $17 million, or 5.3% of net sales, up from $9.2 million or 3% of net sales in the same period last year [21] - Net income for Q2 2021 was $15.1 million, compared to $6.6 million in Q2 2020 [24] - Diluted earnings per share increased to $0.60 from $0.26 in the same quarter last year [25] Business Line Data and Key Metrics Changes - Sales in the medical vertical increased by 2% year-over-year but decreased by 31% sequentially as sales normalized post-COVID-19 [8] - Automotive vertical sales rose by 13% year-over-year and 28% sequentially, driven by the ramp-up of programs for fully electric vehicles [9][16] - The industrial vertical saw a 2% increase, mainly due to improved sales of automation and climate control products [17] - Public safety vertical sales were $10.5 million, down 28% from the prior year due to the phase-out of certain programs [19] Market Data and Key Metrics Changes - The company noted a significant impact from semiconductor shortages affecting the automotive industry, which could influence global automotive production [9][35] - The backlog of orders for machines in the GES business has grown, positioning the company well for future deliveries [10] Company Strategy and Development Direction - The company aims for 8% organic growth and remains optimistic about new business opportunities [6] - A $8 million expansion plan for the Thailand operation has been initiated, expected to double capacity within 12 months [12][28] - The focus remains on organic growth, with capital allocation prioritized for expansions rather than acquisitions [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong performance despite ongoing pandemic challenges, emphasizing the importance of employee health and safety [7][14] - The company anticipates that the automotive sector will continue to grow, driven by low inventory levels and recovering demand [51] - Future growth in the medical vertical is expected as normal healthcare services resume post-pandemic [67] Other Important Information - The company repurchased 190,000 shares for a total of $3 million during the quarter, with a total of $79.7 million returned to shareholders since 2015 [13] - Cash and cash equivalents stood at $93.6 million, with operating cash flow reaching a record $51.6 million for the quarter [25][26] Q&A Session Summary Question: Update on supply chain and semiconductor shortages - Management acknowledged the semiconductor shortages affecting the automotive sector and noted potential opportunities for the GES business as capacity is added in the semiconductor industry [32][33] Question: Sustainability of strong cash flow performance - Management indicated that while the recent cash flow performance was exceptional, ongoing efforts in working capital management should continue to support strong cash flow in the future [39][40] Question: Capital allocation strategy and acquisition opportunities - The company remains focused on organic growth and is actively looking for acquisition opportunities in the medical space, though finding suitable targets has been challenging [44][45] Question: Capacity expansion and growth in automotive business - Management confirmed that expansions are planned for existing facilities, particularly in Thailand, and expressed optimism about growth in the automotive sector, including electric vehicles [50][61] Question: Future expectations for gross margins - Management expects operational improvements to sustain gross margins, although some favorable conditions may not continue [53][54] Question: Impact of COVID-19 on medical vertical - Management noted that while COVID-19 related increases have normalized, there are still areas in the medical vertical that are recovering from pandemic-related delays [66][67]