Kimball Electronics(US:KE)2025-05-07 15:02Financial 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]