Q3 2022 Kimball Electronics Inc Earnings Call
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[music].
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Good morning, ladies and gentlemen, and welcome to the Kimball Electronics third quarter fiscal earnings Conference call. My name is Danielle and I will be the facilitator for today's call. All lines have been placed in a listen only mode to prevent any background noise.
After the completion of the prepared remarks from the kids Kimball Electronics leadership team there will be a question and answer period.
Ask a question simply press star and the number one on your telephone keypad.
Today's call May six 2022 is being recorded a replay of the call will be available on the Investor Relations page of the Kimball electronics website.
At this time I would now like to turn the call over to Andy regroup.
Vice President.
And investors relations Mr. Regroup please.
May begin.
Thank you Danielle and good morning, everyone welcome to our third quarter Conference call with me here today is Don Charron, our chairman and CEO and Janet Croom, Chief Financial Officer, We issued a press release yesterday afternoon with our results for the third quarter of fiscal 2022 to accompany today's call.
A presentation has been posted to the Investor Relations page on our company website.
Before we get started I'd like to remind you that we will be making forward looking statements that involve risks and uncertainty and are subject to our safe Harbor provisions as stated in our press release and SEC filings and that actual results can differ materially from the forward looking statements. All commentary today is focused on adjusted non-GAAP results reconciliations.
A GAAP to non-GAAP amounts are available in our press release.
This morning, Dan will start the call with a few opening comments Jana will review the financial results for the quarter and guidance for fiscal 2022, and Don will complete our prepared remarks before taking your questions I'll now turn the call over to Don.
Thanks, Andy.
Everyone.
I am very pleased with the incredibly strong results in Q3.
Sales exceeded our all time high in a quarter by 10% operating margin was five 5% of net sales, which is significantly better than the first half of the fiscal year and 80 basis points higher than a year ago.
Diluted EPS increased more than 30% year over year.
With our backlog of open orders at record levels and manufacturing facilities running at higher utilization.
And capacity expansion is underway, we are ideally positioned to maintain strength and momentum in this bifurcated year, and we expect a strong pace to carry through the fourth quarter.
Further given the strength of our funnel and a slate of new product introductions, we are well positioned to continue this solid performance.
Fiscal year 2023 and beyond.
I continue to be extremely impressed with our team and how we've managed the global supply chain issues stemming from the pandemic and the component shortages.
The challenges in Q3, however were compounded by the devastation in Ukraine.
We have Ukrainian associates in our U S and European operations and facilities located in nearby Poland and Romania.
Our number one priority has been the health and safety of our associates.
And supporting their families directly affected by the conflict.
Many of these individuals are actively involved in refugee support efforts and our company has made monetary donations as well.
Our hearts and thoughts are with all people, both inside and outside the Kimball electronics family impacted by this tragic turn of events.
We've also taken appropriate measures to safeguard our business and continued to fulfill customer commitments.
In March I travel to our facility in Posen.
Which is located in western Poland, roughly 240 kilometers from Berlin to meet with our team and tour the facility.
We employ approximately 1000 associates, there and recently announced an expansion targeted for completion in early fiscal year 2024.
I am pleased to report the morale of the team is positive and upbeat the business is operating well all things considered and any expansion remains on schedule.
We continue to monitor and evaluate information, including concerns over securing ample natural gas and other resources for our facilities.
Longer term, it's estimated the conflict could cause incremental stress on global supply chain and further disrupt the auto industry Russia.
Russia is a large exporter of commodities, including metals and mining output relative to car manufacturing. They are a major supplier of palladium platinum nickel and aluminum.
Palladium and platinum are key raw materials for catalytic converters Nicolas.
<unk> is used in electric vehicle batteries, and aluminum and copper are needed for vehicle framing and wiring.
Recently prices for these commodities have been on the rise however, with multiple global sources for the materials. The price movement has been characterized as manageable.
Ukraine also plays an important role in the auto industry by producing wiring harnesses for cars and being a supplier of neon and other normal gases that are critical for semiconductor production.
Not surprisingly many of the factories, making these components have slowed or shutdown altogether in the face of the conflict.
There is some speculation that combined impact from Russia, and Ukraine will increase autopart shortages and adversely affect car manufacturing in eastern Europe and Germany.
This is supported by Volkswagen's announcement earlier this year to cut production estimates for 2022.
I believe these steps could create an opportunity for Chinese automakers to fill the demand. However, given the fluidity of the situation only time will tell.
Please keep in mind that we do not directly purchase any materials from Russia, or Ukraine, and the financial impact of the conflict on our operations in the quarter was not material.
What additional risk we are monitoring as the ongoing impact of China's zero tolerance policy related to Covid.
As you know several cities experience experienced shutdowns recently due to a rise in the number of Covid cases.
If shutdowns continue to occur in major cities across China, there may be temporary disruptions in both the supply chain and demand as our customers balanced manufacturing delays.
This concern is somewhat offset by the record output of semiconductors coming out of the Taiwanese market a response to global demand.
We've updated our outlook for net sales to reflect the uncertainty from these developments.
And while we are reiterating our guidance for operating income margin for fiscal year 2022, we expect it to come in at the lower end of the range.
We anticipate the impacts of the China, Covid lockdowns to be shorter term in nature.
And that any temporary disruptions will rectify over time.
Turning back to the third quarter net sales were $368 million, a 19% increase compared to Q3 last year and $50 million higher than Q2.
The strength this quarter occurred in all four vertical markets with sales in automotive exceeding $160 million, a 16% increase year over year.
And we're 44% of our total company sales in the quarter.
This represents an all time high for the automotive vertical market and resulted from the ramp up of certain programs, including programs supporting full fully electric vehicles.
It's also quite a turnaround from the second quarter when components shortages drove a decline in sales.
But as conditions improved in Q3 and parts became more available.
We were ready to respond.
The investments made throughout the pandemic to maintain our highly trained workforce and strategic inventory builds in the first half of the fiscal year.
Both allowed us to quickly increase production in response to the strong worldwide demand for vehicles.
During the quarter. We also completed our multi year strategic plan with a comprehensive analysis analysis of our positioning and growth opportunities within each vertical market.
Our work confirmed that the megatrends in the auto industry continued to represent a meaningful tailwind for our company as electronic content is being added to cars and trucks at an increasing rate with advanced technologies and expanded operating systems.
In addition, we see the rapid adoption of electric vehicles, the expansion of autonomous driving and vehicles with increasing connectivity as additional areas of upside where our chassis control expertise and core manufacturing competencies could align very well with the stringent production requirements of the automotive industry.
Yeah.
Net sales in medical were $103 million, a 20% increase compared to Q3 of last year and represented 28% of our total company sales.
This is a very good result for the medical vertical market and suggests the industry is continuing to recover and normalize from the pandemic.
The increase this quarter was driven by the launch and ramp up of new programs.
Some of which are coming online in the quarter after a pandemic related delays.
Automotive the work on our strategic plan validated the long term growth opportunities in medical resulting from Mega trends in the healthcare industry.
<unk> the worlds aging population, increasing access and affordability to health care and decreasing device sizes and connected drug delivery systems.
Industrial was up 22% in Q3 with sales totaling $84 million, representing 23% of our total sales once again this quarter higher end market demand for climate control products and new customer additions drove the increase.
Longer term, we continue to see growth opportunities for this vertical as the importance of consumption awareness and conservation of water gas and electricity continues to increase globally.
And finally sales in our public safety vertical were $13 8 million, a 2% increase compared to the third quarter of last year.
So in summary, an excellent quarter and a promising outlook.
I'll now turn the call over to Jana to discuss Q3 in more detail and review our guidance for the balance of the year.
Janet.
Thank you and good morning, everyone.
As Don just detailed total net sales in the third quarter were $368 million a record for our company and up 19% compared to Q3 last year.
Foreign exchange rates had an unfavorable impact of 2% on sales in the quarter.
The gross margin rate in Q3 with nine 2%, an 80 basis point increase over the same period last year.
With the improvement driven by lower depreciation and the leverage gains that occur on higher levels of sales.
As a reminder, the depreciation impact occurred when we changed the estimated useful lives on SMT production equipment last quarter.
Benefits were partially offset by higher material costs and increased freight from the component parts shortly again.
Adjusted selling and administrative expense in the third quarter were $14 3 million compared to $11 6 million in Q3 last year.
With the increase resulting from higher salary and related payroll.
And stock based compensation.
When measured as a percentage of sales however, adjusted selling and administrative expenses were three 9% a 20 basis point improvement compared to Q3 last year.
Adjusted operating income for the third quarter was $19 6 million or five 3% of net sales.
As Don highlighted this was a significant improvement compared to the first half of the fiscal year.
And last year, when adjusted operating income was $14 4 million.
Or four 6% of net sales.
Other income and expense was expense.
At $2 $1 million in the third quarter.
These expense.
Zero point $6 million in Q3, and fiscal 2021 with the change resulting from higher interest expense this year and adjustments after the measurement period last year on the Ges acquisition.
The effective tax rate was approximately 25% in both fiscal 2022 and fiscal 2021 third quarter.
Net income in the third quarter of fiscal 2020 to $13 6 million or <unk> 54 per diluted share compared to adjusted net income in Q3 last year of $9 9 million or <unk> 39 per diluted share representing a <unk> <unk>.
7% increase.
Over a year.
Now turning to the balance sheet.
Cash and cash equivalents at March 31, 2022, with $35 $6 million in.
Cash flow used for operating activities in the quarter was $28 $2 million.
This was primarily driven by an increase in accounts receivable due to higher sales in the quarter.
Cash conversion days in Q3 were 83 days.
Up from 66 days in the third quarter of last year.
Inventory has continued to increase.
$157 million compared to Q3 last year and $138 million.
In fiscal 2018.
This trend is driven by material purchases that are needed and available today. So that we can fill customer orders were in part impacted by the component shortages are received.
We expect inventory levels to normalize as the part shortage situation improves and we work down the backlog of open orders.
Capital expenditures in the third quarter were $22 $3 million largely in support of our facility expansion and new business awards, such as the next generation braking system and Reynosa, Mexico that we announced in February .
We continue to expect total capex in the range of $70 million to $80 million in the fiscal year.
Borrowings on our credit facility at March 31 were $137 million.
<unk> to $65 million at March 31, 2021.
$103 million at the end of Q2.
Our short term liquidity available represented as cash and cash equivalents.
Unused amount of our credit facilities totaled $78 million at March 31, 2022.
During the third quarter, we invested $4 $9 million to repurchase 259000 shares at an average price of $18 87.
Since October 2015 under our board authorized share repurchase program at.
A total of $84 $6 million has been returned to our shareowners by purchasing five 6 million shares of common stock.
We have $15 $4 million remaining on the repurchase program.
Looking forward, our capital allocation priorities will continue to be.
Investing in organic growth first and foremost this is.
As evidenced by our three facility expansions in the last year, and a half and capital expenditures to support New program.
Second returning cash to our shareowners with opportunistic share repurchases.
And finally strategic act acquisition that are appropriately valued.
In fairness these of <unk>.
Been difficult to find in today's market.
And while we have historically generated a lot of cash and have a strong balance sheet. We have also recently expanded our credit facilities to support these priority.
On may 4th we amended our primary credit facility.
Increasing the capacity from $150 million to $300 million.
With our banking partners.
This amended five year revolving credit facility gives us the flexibility to meet Capex and working capital needs to support expansion new product introductions and other long term strategic goal.
As Don noted we are updating our guidance for fiscal year 2022, with net sales estimated to be in the range of 1345 to $1 36 5 billion.
A 4% to 6% increase year over year.
As a reminder, our previous guidance was for revenue of approximately $1 4 billion.
We are reiterating our guidance for operating income margin, which is expected to be in the range of $3 75 to $4 two 5% of net sales, albeit at the lower end.
Capital expenditures totaling $70 million to $80 million.
Based on our results through the third quarter. This full year outlook suggests a topline in Q4 of approximately $370 million to $390 million.
Operating income margin in the range of 5% to five 3% of sales.
And capex of $20 million to $30 million.
With that I'll now turn the call back over to Don.
Thanks Jana.
I hope you all can.
That we are both very happy.
With how the company is positioned.
Q3 results were excellent and we expect a strong finish to the fiscal year 2022, and with the momentum carrying into fiscal year 2023.
Especially as we think about the supply chain disruptions and component shortages continuing to abate.
Crisis in Ukraine, reaching a settlement.
The recent COVID-19 related Lockdowns in China subsiding.
And the abnormally high levels of inflation slowing.
Our open order backlog totaled $930 million.
Record high.
43% year over year.
And driven by component shortages as well as new business wins.
This new business aligns our facility expansions with our customers' growth as we look toward the $2 billion in annual sales.
Milestone.
Our strategic plan identified key areas of focus to achieve this goal with manufacturing capacity being a critical one.
We generate approximately $1 million of sales volume per 1000 square feet in our facilities and the additional capacity, we're adding is meaningful.
As an example, our facility in Thailand was first opened in the year 2000 and finished fiscal year 2021 with revenue in excess of $100 million much.
Much of the product produced in Thailand is exported with a heavy focus on medical one of the vertical markets identified in our strategic plan with significant growth potential in the years to come.
Our recently completed expansion doubled the capacity of Thailand, as we look to capitalize on those growth opportunities.
Mexico on the other hand did more than $265 million of sales in fiscal year 2021, and is scheduled to have its footprint doubled with the expansion scheduled for completion this summer.
This facility has a heavy focus on the automotive and industrial vertical market, which also aligns very well with the growth in our strategic plan.
And finally, Poland, a facility with $268 million of revenue last fiscal year, we will be adding approximately 40% to existing production square footage by early fiscal year 2024.
The road to $2 billion in annual sales is in our sights.
It took our company 57 years to reach $1 billion in annual sales I'm quite confident our second billion dollars will be achieved in a fraction of that time.
And I frankly have never been more bullish about our company.
Finally, I'd like to close by taking a moment to welcome the newest member of our leadership team.
Isabelle Wells, who joined the company the Kimball electronics family in April as our Chief Information Officer.
Bill brings over 20 years of global experience.
And we will build upon the world class organization that Sandy Smith left behind we were expanding the best in her retirement, we are thrilled to have an executive of Isabella caliber and pedigree on our team.
I would now like to open the lines for questions.
Operator, do we have any analysts with questions in the queue.
Certainly.
To ask a question. It is star one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question policies briefly as questions are registered.
The first question comes from.
On Anja Soderstrom.
Okay.
Please proceed.
Hi, Thank you for taking my question and congratulations on another great quarter, despite the challenging environment.
I just wanted to ask.
Second did you see most of our challenging and procuring materials.
Is there anything to call out that narrow market.
Based headwinds.
Yeah, it's good.
It's broad based.
All of our verticals have had to deal with component shortages through this period and and really when we look at the rate of improvement.
Similar across all verticals.
And as you can see from the from our quarterly report today, we were happy to get more material this quarter than last quarter and that resulted in $50 million of additional of additional sales in the quarter. So it's obviously improving.
And so it certainly improved from last quarter, but we're still battling every day.
Mortgages to help us continue to improve our output and make up that order backlog that was caused by it.
Okay, Let me see it improving.
Slightly but is.
Improving.
Yeah Yeah.
I think last quarters sales compared to this quarter sales that increase really we had the same we had the same team in place both quarters, we understand capability to achieve that output in both quarters.
Increased quarter over quarter came solely because we have we were able to get more material and to build more product.
So it is getting better.
Okay and then.
You might have held up pretty well, despite having this kind of headwind.
Yeah.
Is there anything you can call out there.
How do you get this.
Camera margins.
Well for sure as we reported in the previous two quarters. We had we worked hard to keep our team in place to retain our highly skilled workers around the world.
We didn't have the sales didn't have the parts to generate the sales. So we reported under absorption really in both of the last quarter or so seeing utilization move up with the increase in output.
Certainly helped us a great deal and contributed significantly.
The margin improvement because we didn't have that under absorption in the quarter.
Okay, and then you have.
Prepared remarks here it seems like you're flagging for.
Some risk.
More headwinds within the auto market due to them.
In Ukraine, and how the auto market is dependent on supply from there.
What are you seeing there currently.
Our next comes from John <unk>.
Does it take to have that.
Yes, as we stated for the quarter, we just finished.
That we're reporting today, the impact was really negligible not material.
So we're obviously keeping a very close eye on it.
We are watching very carefully what the car makers in Europe are saying about their production schedules because we know eventually that will show up in our production schedules.
But it was not impactful to Q3.
With our updated updated guidance for the full year and for Q4, we contemplated what what the impact could be short term in that fourth quarter.
Yes.
Three of uncertainty there in terms of how.
How the Ukraine, Russia crisis impacts.
Really the global economy, but especially the economy in Europe .
We're watching that carefully theres a degree of uncertainty there, but at least for now little impact in Q3, and we think we've contemplated the impact that that's it.
Reflected in the Q4 guidance that we provided.
Okay and then also.
Can you quantify how much of your backlog is.
My headline for not a headwind.
Program.
Yeah. That's a that's it is difficult to give you any degree of accuracy on the exact amount of that but you know its interesting as we analyze.
Where we are year to date with our results.
Look at our growth in inventory, we look at our growth in open order backlog and.
We think if we didn't have the parts shortages that we've had during this fiscal year that has constrained our production.
We'd be comfortably within our original full year guidance that we provided of one four to $1 5 billion. So it gives you at least a general idea of how much of that backlog.
<unk> is due to the fact that we had shortages and couldnt fill orders that customers wanted.
But there is also as you know and we've talked about in the last call. There is a significant amount of that order backlog increase thats due to new business Awards.
And as those programs ramp up.
They will they will add nicely to our growth strategy and what we're talking about now is our path to two 2 billion in annual revenue.
Okay. Thank you and gentlemen, how are you.
Thank you your capital allocation priorities.
What are your thoughts around the dividend.
So dividend is something that.
We will always look at as a company in terms of capital allocation priorities.
It's something along with share purchase that.
Just as part of the normal work, we do as a management team, we would evaluate with the board.
But as you know that's a big decision and one that you don't take back.
Once you do it.
Well.
Lots of conversation around capital allocation for Campbell focus is very clearly on the organic growth that we've got capex that at higher levels than the company has seen historically in a long time.
But we're evaluating.
Okay. Thank you that's all from me.
Thanks, Tania have a good rest of the day.
Thank you.
Thank you. The next question comes from the Hindi substantive.
Gabelli funds.
Good morning, Don Jana Andy.
Henry.
Yeah.
Would you refresh our memory in terms of the capacity expansion.
Doubling the capacity of the Thailand festivals will be in Mexico facility.
Does it mean potentially doubling the revenues in those facilities from let's say combined sales of 365 million to $730 million and then Furthermore, should we assume steady and incremental production employees, a step up increase or a hockey stick figure.
Yes.
Yes, so to answer the first question certainly when we evaluated the size of the expansions.
Those locations, you mentioned, Thailand, Mexico and of course, Poland coming next March it's underway.
When we when we put together our analysis and our business case.
To determine how big the expansion should be.
And the capital that we wanted to allocate to it yes, it contemplated filling those additional capacity expansions up with business.
That would equate to the business we have in those operations today in other words, we're expecting to get roughly roughly about the same output and sales out of those expansions that we've gotten out of the existing facilities. That's roughly the business case, and so yes, doubling Thailand doubling Mexico.
<unk> would mean that in the next let's say three to five years, we would expect to be.
Approaching the capacity limits are higher.
The utilization level, we want to have in those expansion.
In Poland. We are just not as big of an expansion as Thailand, and Mexico were adding roughly 40% to our manufacturing footprint there.
Same would hold true the business case, we used to deploy that capital was too.
Phil that expansion with business and a commensurate kind of sales per square footage.
Ratio.
I see and then done.
Can you talk about exposure to EV or it sounds like ex EV.
And then how should we assume gross margin EV versus traditional combustion engine models.
Yes.
If I understood your question perfectly well hendi, but maybe that's that work it backwards.
In terms of.
Is there a different margin profile for the content that we have on electric vehicles.
<unk> combustion internal combustion engines or a hybrid there's really no significant difference it is.
Very similar.
In terms of how we build our proposals to customers and how we're awarded business.
What is different I would say in the automotive playbook that we run by today is really being.
Just.
Intensive around the volume discussion what is the volume that we're quoting what is the current volume what is the part of the market that that carmakers are going to go after what are their underlying assumptions because really what makes our our economy, our economic model work.
Is considering the economies of scale in those volumes, how fast they ramp up and how accurate they are.
So as you can imagine with electric vehicle carmakers getting the volume right has been a little bit difficult you could say, maybe tesla by far and away is ahead of the pack with what they're able to do to forecast volumes and build to it and sell those vehicles.
Especially the latest sort of round of what they were able to do in Shanghai. So there are differences for sure that when we consider that volume question and manage to the the business plan that we're putting together behind that volume, we really want to de risk that in our whole.
And our whole quoting process, and making proposals to customers and in our execution. When we start those when we start those programs up in our facilities.
I hope I answered your question there.
Not a difference in margin profile and the key really is still the same whether it's an electric vehicle.
Or an internal combustion engine or a hybrid of the two getting the volume rate is really key to success in our business.
And then on China.
Secure at face in terms of how to model the tax rate going forward.
Yeah, I would assume a tax rate in the mid twenties.
All in would be in there somewhere and you know 20% 25%.
Okay. That's helpful.
Yeah, Okay. Thank you so much.
Thanks, Andy and thank you Andy.
Thank you. The next question comes from Mike Morales.
<unk> and company.
Hey, Mike Good morning.
Hey, good morning, Jeff.
And Andy Thanks for taking my question and again I'll Echo good work on navigating.
Challenging environment.
Yes.
So maybe just first a housekeeping question.
On the pumping backlog really.
Is any of the new auto contracts to be produced in the Mexico facility included on that is there some small amount or.
Really just trying to parse between as much as we can.
Supply chain disruption versus new business or pipeline growth here.
Yes for sure yes.
New automotive awards are being placed in our footprint, including the expansions that we've talked about in Mexico and soon to be in Poland. We don't do automotive per se at large volumes in Thailand, but it's more of a medical focused there, but yes that we are those new awards are being played.
<unk> into those expansion further business plan that we have some cases only maybe a small amount has so far ended up in our open order backlog.
Probably the biggest increase thats in there Jana mentioned next generation braking program that we were awarded in starting starting up production now that would be a significant one that has been added to the open order backlog. During this fiscal year and there are others. There are several others. So yes.
The expansion has really allowed us to be able to execute our plan more to be further out with those awards is difficult to have.
Customer of ours give us the award when the plants are built.
Yet, but we're at least a couple of years out.
Working on those new orders and as we work on them, we are making soft allocations of our footprint.
To those customers.
Makes sense.
Maybe touching on bright specifically switching gears a little bit can you guys just shed some color on how youre managing or thinking about freight with just the magnitude of cost inflation that we've seen and when we have contract negotiations starting at long Beach scene, how is that all factoring into your thinking and how you're planning here.
Yes, Mike I'll, just keep that one very simple I mean, we were part of the negotiation if there's much of a negotiation to be had frankly, but our strategy for our business and how we work with our customers is to pass that through to the selling price whatever that increase is.
And we're pretty transparent about that with our customers.
We are proactive about that.
I would say, we're fortunate to have customers that understand that we can't be caught in the middle caught in the squeeze and while they are not happy about getting a price increase with those kinds of cost increases being passed through but they understand and so.
We look to neutralize ourselves and not to have a margin impact due to freight increases.
And again the strategy is simple, we just have to pass it through to the selling price.
Great. Thanks.
And just looking back through my notes and there was a slide in the deck about this one but.
Don you talked about it was back in fiscal 2018, you guys guided for over $1 billion in revenue achieved that year.
A few years later here, we are with $2 billion on the horizon.
From the commentary the color in the deck was helpful on the facility expansion.
What's happening there I know, it's a bit early but.
Are you starting to think about other capital projects as you look beyond 2 billion just the strength of the pipeline.
It sounds like that reasonably could be on the table here.
Yes, especially towards the sort of the out year of that of that plan. So as we mentioned today, our planning cycle coincides with our fiscal year and as we look to close out fiscal year 2022, we're working on a plan for the next three years. So we're looking at $23 24, and 25 and as we look out.
There on the horizon at our 25.
Growth in sales figure as a result of it yes, we can see that there are a few facilities that we're going to have to look at next.
For expansion to achieve what comes after 2 billion, we would say this though I mean, if all of our growth fell perfectly well in the footprint, we have and now we're expanding.
Maybe maybe that would maybe that wouldn't be the case, but we know there are some.
Now three facility expansions, Mike So you know.
Our footprint is very popular.
That part of our footprint has been very popular obviously, we sold out the capacity and we are now in expansion mode, but we have other facilities that are also approaching.
Full utilization and so as we look at our three year plan, we are factoring in.
Those kinds of needs as well.
The good news is as we still have room to expand where we operate and so one of the things that we would like to do with the footprint strategically speaking is too to just maximize and optimize within the locations where we're operating.
Not necessarily go with another new new country kind of add in this planning horizon. So we're as a leadership team. We're working closely on expansion plans of the footprint. We currently operate in.
One thing that I'll add to that is we are working on an analyst day.
<unk> that were <unk>.
Currently putting together.
And that we hope to have in late fall.
We'll give more color on the strategic plan capital allocation discussions organic growth et cetera.
So we can help you model out further than the next fiscal year, we can shed light on what we're thinking about for the next three five and 10 years at the company.
Yes, you read my mind, it sounds like a great topic for an analyst day.
Great and then lastly for me.
Touching on the medical side a bit you mentioned this in the prepared remarks, but it seems like trends are starting to.
Eric will normalize here as much as he can call anything normal these days.
Don if you could just speak to the opportunities that we're seeing there on the new business development side as well.
Keep in mind, the goal of getting up to 30% of revenue longer term.
Yeah, I think that there is a lot of our customers both existing and customers were working to land that are really seriously rethinking a lot of their strategies around manufacturing supply chain contract manufacturing et cetera, I think as we see it.
All sort of good news for us in the contract manufacturing space.
And.
With our existing customers have really solid growth plans in place for them.
And we.
We look to take full advantage of those.
Growth opportunities with customers like Philips medical.
As you know we disclosed as.
As a customer with greater than 10% of our total company sales. So we've got opportunities with with people like Philips in multiple different product categories and different divisions, which is really exciting, but we also have a number of other existing customers that are presenting us with.
Really significant growth opportunities and we're so we're excited about that and I would say more than more than anything.
The pandemic caused anything.
Caused a lot of these medical med tech companies to sort of rethink their strategies and again embracing the outsourcing model more and more.
Making decisions about how they want to geographically locate their manufacturing partners and Thats all good for us. It's all good for us and leading a leading us to new customers and growth opportunities with existing customers.
Great.
<unk> Andy I appreciate it thanks, again and Thats speaks Inc.
Hey, Mike Mike.
Thank you.
No further questions registered at this time so as a reminder is star one on your telephone keypad to ask a question.
Thank you everyone.
That brings us to the end of today's call.
We appreciate your interest and look forward to speaking with you in the near future take.
Take care.
Yeah.
That concludes the conference call. Thank you for your participation you may now disconnect your line.