Q1 2024 Kimball Electronics Inc Earnings Call
It's been placed in a listen only mode to prevent any background noise. After the completion of our prepared remarks, and we can boiler <unk> leadership team there'll be a question and answer period.
Ask the question at this time, please press star followed by one on your telephone keypad. If you change your mind any point I would like to revert to your question. Please press star followed by two.
Today's call November seven 2023 is being recorded a replay of the call will be available on Investor Relations page of the Kimball electronics website.
At this time I would like to turn the call over to Andy <unk>, Vice President Investor Relations. Mr. Back right you may begin.
Thank you Ellen.
Good morning, everyone welcome to our first quarter conference call.
With me here today is Rick Phillips, our Chief Executive Officer, and Janet Croom, Chief Financial Officer.
We issued a press release yesterday afternoon with our results for the first quarter of fiscal 2024 to accompany today's call 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 reconciliations of GAAP to non-GAAP amounts are available in our press release.
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One other housekeeping item dimensions, starting this quarter miscellaneous sales, which previously had been reported in the other category and our vertical market breakdown are now included in the respective vertical they pertain to.
All prior periods have been recast to reflect this change.
This morning, Rick will start the call with a few opening comments Jen will review the financial results for the quarter and guidance for fiscal 2024, and Rick will complete our prepared remarks before taking your questions I'll now turn the call over to Rick.
Thanks, Andy and good morning, everyone.
I am very pleased with our results for the first quarter, particularly in light of the current macro environment.
Q1 was a strong start to the fiscal year with record first quarter sales and operating income year over year margin expansion and 13% growth in net income.
While these results were in line with our expectations, we have been evaluating the impact of recent short term market disruptions, including the UAW strike global economic conditions, and geopolitical events and have updated our guidance for the full year of fiscal 2024 to reflect softening demand in the end market verticals we serve.
We will provide more detail in just a moment.
Net sales in Q1 totaled $438 million, an 8% increase compared to the first quarter last year with two of the three vertical markets posting double digit growth.
Automotive our largest business reported net sales of $213 million.
13% increase compared to the first quarter of fiscal 2023, and 49% of total company sales to.
To be clear these results were not materially impacted by the UAW strike.
The targeted walkouts began on September 15th and our fiscal quarter ended two weeks later at the end of that month.
Based on the locations directly impacted by the strike and the vehicle models produced at those plants, we estimate a relatively small impact to our topline in October.
However, this situation is fluid with possible downstream referrals to come as the Oems and tier one suppliers evaluate the current state.
With over 35 years of experience producing safety critical high quality electronic assemblies that meet the stringent regulatory requirements of this industry, we are ideally positioned to grow as our customers grow.
Particularly with the continued electrification of vehicles.
As an example, I recently had the privilege of representing our company at a celebration with the <unk> group when Kimball electronics was awarded a new multi year program and electronic power steering.
With the work to commence in calendar year 2025 at our facilities in Poland and China.
The strategic partnership between the companies dates back to our early beginnings in the automotive industry and has grown to where <unk> is currently our second largest customer.
Our unique manufacturing capabilities in electronic steering electronic motor controls braking systems battery management, and redundant safety systems aligned with advancements in the industry and our support of applications in internal combustion engines electric vehicles or a hybrid of the two.
Position us for growth as consumer preferences and adoption rates evolve.
Net sales in medical where $102 million.
A 12% decline compared to the same period last year and 23% of total company sales.
This result was in line with our expectations as a reminder, our annual guidance reflects a $100 million reduction in sales with a major customer in this vertical partially offset by growth in other programs.
While they are not any updates that we can speak to with regard to this customer. It is important to emphasize that our relationship with them has never been better and we are positioned to provide support as needed.
Longer term, we continue to be encouraged by Megatrends in the medical industry and believe they will support future growth, particularly as medical devices get smaller in size and require higher levels of precision and accuracy and as connected drug delivery.
<unk> become more prevalent.
Our business development efforts focus on medical applications, including sleep therapy patient monitoring aedes and surgical systems, especially with Oems looking to outsource higher level assemblies, or HLA, which is a category represent an opportunity for more value added content.
Finally, net sales in industrial totaled $123 million.
21% increase compared to Q1 last year.
And 28% of total company sales the.
The increase this quarter represented the largest for any of the three verticals, we support with climate control public safety Smart metering factory automation and.
And green energy charging storage driving the growth.
We expect the movement toward responsible usage of natural resources and heightened conservation to provide a meaningful tailwind in the years to come.
And we're aligned with products that reduce environmental impacts and promote energy efficiency safety and carbon neutrality.
This opportunity.
Could become even more pronounced for us in EV charging as consumer adoption of electric and hybrid vehicles expands globally.
So in summary, a very good quarter and strong start to fiscal 2024.
I'll now turn the call over to Janet to provide more detail on the financial results for Q1, and our guidance for the full year Janet.
Good morning, everyone before I start I just wanted to let you know we heard from some of you that our slide deck is not up we are actively working to correct that now and it should show here shortly in a moment or two.
With that just to keep us on time I'm going to continue with our.
Repaired remarks.
So as Rick highlighted we are very proud of our results in Q1 net sales in Q1 totaled $438 $1 million, a first quarter record high for the company.
8% above Q1 of fiscal 2023.
Foreign exchange favorably impacted consolidated sales by approximately 1% year over year.
The gross margin rate in Q1, with eight 1%, a 90 basis point improvement compared to the same period last year.
And this result was predominantly driven by higher levels of cost absorption in Mexico, as we continue to leverage our expansion there.
Adjusted selling and administrative expenses in the first quarter were $16 $2 million realm.
Relatively flat to the Q1 adjusted results reported last year of $16 million when measured as a percentage of sales. However, adjusted selling and administrative expenses were three 7% at 20 basis point improvement over Q1 last year.
Adjusted operating income for the first quarter was $19 3 million or four 4% of net sales.
Which compares to last year's adjusted result of $13 3 million or three 3% of net sales.
A 110 basis point improvement.
Other income and expense was expense of $6 $3 million.
Compared to expense of $1 $4 million last year.
The increase is a result of higher interest expense year over year.
A product of our elevated debt levels in the current interest rate environment.
The effective tax rate was 18, 6% in the first quarter compared to 21, 9% in Q1 of fiscal 2023 with the lower rate, resulting from our mix of earnings more heavily weighted and lower tax jurisdiction.
Adjusted net income in the first quarter of fiscal 2024, with $10 8 million or <unk> 43 per diluted share.
13% increase compared to adjusted net income in Q1 last year of $9 5 million or <unk> 38 per diluted share.
Now turning to the balance sheet.
Cash and cash equivalents at September 32023 were $56 $6 million in cash flow generated by operating activities in the quarter with $12 $8 million.
This represents our third consecutive quarter of positive cash flow generation.
Cash conversion days were 103 days compared to 94 days in the first quarter of fiscal 2023, and 94 days last quarter.
As a reminder, we started including customer advances in our CCD calculation there.
The results from fiscal 2023 reflect this change.
Inventory ended the quarter at 48.
$482 2 million compared to $450 million at the end of Q1 last year and $450 million at the end of fiscal 2023.
Capital expenditures in the first quarter were $11 $3 million.
<unk> organic growth maintenance requirements and investments in automation and efficiency.
Borrowings on our credit facility at September 32023 were $296 $7 million.
Compared to $232 $5 million, a year ago, and $281 $5 million at the end of Q4.
Our short term liquidity available represented as cash and cash equivalents plus the unused amount of our credit facilities totaled $147 $1 million at the end of the first quarter.
There were no shares repurchased in fiscal in the first quarter of fiscal 2024.
Since October 2015 under our board authorized share repurchase program, a total of $88 $8 million has been returned to our shareowners by purchasing five 8 million shares of common stock.
We have $11 $2 million remaining on the repurchase program.
As Rick highlighted we have updated our guidance for fiscal year 2024, with net sales now expected to be flat with prior year compared to our previous estimate of 4% to 7% increase.
Operating income margin is also estimated to be in line with fiscal 2023, which is within our previous guidance range of $4 70 to five 2% of net sales.
The outlook for capital expenditures did not change with a range of $70 million to $80 million.
From a top line perspective, our current outlook is approximately $100 million lower than the midpoint of our previous guidance range.
The decline is spread fairly evenly between two of our vertical.
First for automotive the EV market in North America is experiencing slower adoption as end customers wait for technology to advance, particularly in the SUV and pickup truck segment of that market.
Industrial is experiencing customer push outs occurring in climate control applications, especially in Europe as economic conditions, there continue to be challenging.
We expect sales in the second quarter to be roughly in line with Q2 last year.
And then for sequential top line growth to occur in the back half of the year.
I'll now turn the call back over to Rick.
Thanks Janet.
In closing I am very proud of our accomplishments in the first quarter and the strong start to the fiscal year.
This includes the financial results, but there were also other noteworthy awards distinctions and achievements for the company.
As an example, our facility here in Jasper was recently recognized as one of the best places to work in manufacturing in Indiana.
I want to congratulate general manager, Jason Davis, and the entire team on a job well done.
With an outlook for fiscal 2024 that is carefully navigating the current macro environment. We continue to be encouraged by the longer term growth opportunities in the three vertical end markets. We serve each supported by favorable industry Megatrends with a strong funnel of new business our capital allocation.
Strategy is focused on organic growth.
Which will likely include additional global expansions in the future combined with investments in automation and efficiency.
We are winning together the Kimball way and I'm excited about what lies ahead for our company.
Ellen.
I would now like to open the lines for questions.
Do we have any analysts with questions in the queue.
Thank you Rick Yes, as a reminder, ladies and gentlemen analysts may ask a question at this time pressing star followed by one on your adulthood, you may remove yourself from the queue by pressing star but.
We also if youre using a speakerphone you pick up your handset before asking your question and please ensure that your line is unmatched lately.
Amendment based box, we can follow up the question Keith.
Our first question today comes from Mike <unk> from B Riley Mike. Your line is open. Please go ahead.
Thank you.
In Mexico, where are you on cost absorption I know, there's some margin expansion opportunity. There. So if you could look to claim the answer in terms of <unk>.
<unk> utilization revenue margin potential that'd be very helpful.
Hey, good morning, Mike.
So good morning.
A lot of what Youre seeing in Q1 in terms of the favorable impact that we've seen for 4% Oi margin versus last year of $3. Three is really Mexico coming into its own from a cost absorption and leverage perspective offset by the fact that we just brought Poland.
On <unk>.
Mexico is tracking in line with where we expect it to track from both a revenue and NOI margin perspective, Although you know as we look at the outcome for FY 'twenty four it is gonna be slightly impacted by what we're seeing come through in terms of our.
<unk> for the North American auto market.
And but you can what you can expect is that we're going to manage the cost, particularly direct labor and indirect labor appropriately as we navigate through it for the short run.
Okay. Thanks, Shannon you kind of segue into the second part of my question was.
How is Poland ramping up since the ground breaking this summer.
Well the opening.
Yeah, you know candidly.
The industrial market and Europe has been choppy or than what we anticipated originally.
As it relates to the European market in Poland.
But the funnel is still strong and so short term absorption of Poland is not going to be as strong over the course of this fiscal year as we had hoped.
But again, we're going to control cost, we're going to control the labor market and we're not going to over index on it but.
But we do have a strong funnel of continued growth there and so what it's becoming now is a balancing act between what our customers are telling us in the short run right. So 9100 2300 days versus all of the Ntis that we know are coming in FY 'twenty five.
That we've got to get ready for.
And so its conversations with customers to make sure you know that we're not going to push out and then we can balance our labor and material needs against that.
Okay. Thank you and just one last one for me.
I know you mentioned the.
Technology advancement and the Suvs and pickups in North America, but how would you frame the impact of the UAW strike.
In one region of your global automotive vertical end market.
Affecting your overall automotive business.
In supply chain, and then when that could potentially normalize.
Yeah, so the UAW strike itself.
Had very very minimal impact on our top line right in terms of this plant shut down there was a disruption therefore, it impacted our supply chain minimal what we are seeing in conversation with our customers is.
The strike caused the oem's and thus the tier ones to re evaluate the supply chain finished goods inventory levels expectations for sales over the course of the year and so it's the ripple effect of that that we are.
Still evaluating you know, it's sort of hey don't let a good tragedy go to waste as everyone looking at what they've got and evaluating what the needs are for the next three to six months as they worked through it and see where it shakes out.
Which is why it feels like it's a temporal issue right. So short term next couple of quarters.
They they worked through it and then sort.
Sort of back to the levels that we had previously anticipated when we gave guidance at Q4.
Alright, great. Thank you very much.
Just maybe one thing to emphasize that Jim had mentioned a little bit earlier, we are really committed not just in Mexico, and Poland, but globally to.
Making sure as we see these demand signals, which we're sharing with you that we are adjusting our direct and indirect labor as quickly as possible in order to protect those margins. So that's that's a key priority for US right now in the short term softening.
Okay. Thank you very much.
Thank you. Our next question today comes from Derek <unk> from Cantor Fitzgerald, Sir Your line is open. Please proceed with your question.
Yes, good morning, thanks for taking the questions.
On the revenue guidance.
What was the biggest change this quarter I know you guys mentioned macro weakening some effects of the strike in automotive.
But what was sort of the biggest driver of the lower guide wasn't that automotive piece can you just help maybe quantify the change in guidance by segment, but particularly automotive and then I've got a follow up.
Yeah. So I will tell you, it's pretty evenly split between automotive and industrial.
And industrial it's primarily Europe, although we did see softening in North America as well.
So if I had to gauge it for you I would probably say 65 35 there.
And and the automotive market in North America, it's spread across all of our plants that service the auto market.
I know you guys mentioned macro weakening some effects of the strike in the automotive.
And it really is just a.
As we evaluate you know the SUV and pickup truck market for me.
But what was sort of the biggest driver of the lower guide was that automotive piece can you just help maybe quantify the change in guidance by segment, but particularly automotive and then I've got a follow up.
And this is something that we've talked about before that technology related to the battery and the life that you mean, the towing capability that you need in that market.
Yes, so I would tell you, it's pretty evenly split between automotive and industrial.
It feels like consumers are pressing pause or that's what we're hearing from our customers in terms of the adoption rate there.
And industrial it's primarily Europe, although we did see softening in North America as well.
We're monitoring it carefully with our customers.
So if I had to gauge it for you I'd, probably say 65 35 there.
And and the automotive market in North America, it's spread across all of our plants that service the auto market.
Got it Thats helpful.
Go ahead.
No no go ahead Joe.
No I agree with and then it's you know the finished goods inventory from the UAW strike, what we don't want to do is have to come back to you with.
And it really is just a.
As we evaluate you know the SUV and pickup truck market for it.
Lower guidance again until we tried to be very thoughtful about you know.
And this is something that we've talked about before the technology related to the battery and the life that you mean, the towing capability that you need in that market.
For the full year and what it might entail.
Got it and then just quickly on that on the automotive piece I think Rick mentioned, there is sort of a small impact on October and maybe in the next quarter or two youre going to see a little bit more pronounced impact.
It feels like consumers are pressing pause or that's what we're hearing from our customers in terms of the adoption rate there.
We're monitoring it carefully with our customers.
Our expectation that things sort of normalize by Q4 of <unk>.
Got it that's helpful.
Fiscal 'twenty four is that kind of a timeline to expect can you just maybe again kind of lay out the impact of.
Go ahead.
No no go ahead Joe.
No I was just saying then it's you know the finished goods inventory from the UAW strike, what we don't want to do is have to come back to you with.
The strike in demand on the automotive business and how we should think about that as we move through fiscal 'twenty four.
Sure I think that's probably a pretty good estimate Derek again, we're being we're being cautious.
Lower guidance again until we tried to be very thoughtful about you know.
The full year and what it might entail.
The impact is <unk>.
You mentioned, thus far has been minimal for us but.
Got it.
And then just quickly on that on the automotive piece.
We really want to watch this environment and see what the next steps are in terms of how the tier ones and the Oems respond and sort of get back to normal, but we definitely view. This as short term for sure and I think the estimate that you gave is probably consistent with what we would expect from a timing standpoint.
Rick mentioned, there is sort of a small impact on October and maybe in the next quarter or two youre going to see a little bit more pronounced impact of is the expectation that things sort of normalize by Q4.
Fiscal 'twenty four is that kind of a timeline to expect can you just maybe again kind of lay out the impact of.
Got it and then if I could just squeeze one more in.
Jana congrats on another quarter of positive cash flow.
With guidance and NOI margin.
The strike in demand on the automotive business and how we should think about that as we move through fiscal 'twenty four.
And then sort of unchanged Capex curious, how you expect cash levels to move throughout the year.
Sure I think that's probably a pretty good estimate Derek again, we're being we're being cautious.
Expectation that youre going to have to tap the credit facility. Further can you just talk a bit about cash burn and sort of your expectations for fiscal 'twenty four.
The impact as you you've mentioned, thus far has been minimal for us but.
Yeah, I was waiting for someone to ask me. This question and as all of you know balance sheet and cash flow is.
We really want to watch this environment and see what the next steps are in terms of how the tier ones and the Oems respond and sort of get back to normal, but we definitely view. This as short term for sure and I think the estimate that you gave is probably consistent with what we would expect from a timing standpoint.
Sort of where I hone in and focus and that's what drives my dreams at night. If you look at the inventory increase that we saw this year. It was seven or in Q1 it was 7%.
Got it and if I could just squeeze one more in.
Actually matches our revenue volume.
Jana congrats on another quarter of positive cash flow.
Where I am focused now is <unk>.
With guidance and NOI margin.
How does the supply chain, meaning inventory, that's going to show up on our door match against the flux in demand cycle that we're gonna have alright, so oftentimes inventory because we're still you know coming out of the supply chain challenge, we placed those orders.
And then sort of unchanged Capex curious, how you expect cash levels to move throughout the year is your expectation that youre going to have to tap. The credit facility. Further can you just talk a bit about cash burn and sort of your expectations for fiscal 'twenty four.
Yeah, I was waiting for someone to ask me. This question and as all of you know on balance sheet and cash flow is.
26, 39 weeks ago, and the demand cycle is moving more quickly than the inventory levels that we're gonna receive and so in the short run we're gonna have to work through that with our customers.
Sort of where I hone in and focus and that's what drives my dreams at night. If you look at the inventory increase that we saw this year. It was seven or in Q1 it was 7%.
My expectation, though is that we are going to over the next three to four quarters as I've been saying consistently work their inventory levels down in partnership with our customers.
Which actually matches our revenue volume.
Where I am focused now is.
How does the supply chain, meaning inventory, that's going to show up on our door match again.
What I can say is as I look at our net debt to trailing 12 month EBITDA below two at.
<unk> flux and demand cycle that we're gonna have right. So oftentimes inventory because we're still you know coming out of the supply chain challenge we place those orders.
I would like it to be sort of in that one and a half to two times range. It's actually not far off from that you know P. D. S. O H at 55 days is the thing in the past and so what does the new normal look like for chemical.
<unk> 39 weeks ago, and the demand cycle is moving more quickly than the inventory levels that we're going to receive and so in the short run we're gonna have to work through that with our customers.
Probably somewhere around 75 days right, so not where it's sitting at right now, but not what we saw two years ago and then what does that mean, a correspondingly from a financing standpoint.
My expectation, though is that we.
What I can tell you is we have a fair amount of dry powder.
We are going to over the next three to four quarters as I've been saying consistently work their inventory levels down in partnership with our customers.
You all know that we're sitting on the sidecar that we exercised last February.
What I can say is as I look at our net debt to trailing 12 month EBITDA below two at.
So we've got plenty of room for additional organic growth, including.
Including the Capex that we need for automation facility expansions et cetera, and then it's the partnership with work in the inventory levels down over time.
I would like it to be sort of in that one and a half to two times range, it's actually not far off from that.
PDF so age at 55 days as a thing in the past and so what does the new normal look like for chemicals, it's probably somewhere around 75 days right. So not where it's sitting at right now, but not what we saw two years ago and then what does that mean correspondingly from a financing Stan.
At the end of the day, just becomes a show me story right. So you're going to listen to me sad, but then every quarter youre going to look at it and say did she have positive operating cash flow how much was it in is it trending in the right direction. So what I would say at the end of the day is just you know over the next three to four quarters stay tune.
Endpoint.
What I can tell you is we have a fair amount of dry powder.
Yeah.
You all know that we're sitting on the side car that we exercised last February.
Thank you. Our next question today comes from Jason Smith from Lake Street, Jason. Your line is open. Please go ahead.
So we've got plenty of room for additional organic growth include.
Hey, guys. Thanks for taking my questions. Just curious when you look at your backlog have you seen any issues with commensurate cancellations.
Including the Capex that we need for automation facility expansions et cetera, and then it's the partnership with work in the inventory levels down over time.
So not so much the commence or cancellation much more push outs.
At the end of the day, just becomes a show me story right. So you're going to listen to me sad, but then every quarter you're going to look at it and say did she have positive operating cash flow how much was it in is it trending in the right direction. So what I would say at the end of the day is just you know over the next three to four quarters stay tune.
Right. So as you know we look at even the 100 million that we've seen this year, it's really about hey, we're going to push out.
Where we may.
Watch that again is the auto market in.
In North America is it right sizes itself, it's coming out of that finished goods inventory and really an evaluation of of the both in a dock adoption rate.
Yeah.
Thank you. Our next question today comes from Jason Smith from Lake Street, Jason. Your line is open. Please go ahead.
That always becomes a negotiation with our customers around the next generation.
Hey, guys. Thanks for taking my questions. Just curious when you look at your backlog have you seen any issues with the commensurate cancellations.
Apologies, everyone Anthony plus connections all speakers please stand by while we reconnect them.
So not so much the commits or cancellation much more push outs.
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Right. So as you know we look at even the 100 million that we've seen this year, it's really about hey, we're going to push out where we may.
Watch that again is the auto market.
In North America is it right sizes itself, it's coming out of that finished goods inventory and really an evaluation of of the both in a dock adoption rate that always becomes a negotiation with our customers around the next generation.
Apologies everyone of his people connections all speakers please standby, while we reconnect them.
Yes.
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Yes.
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Okay.
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Okay.
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Okay.
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Sure.
Thank you.
Hi, Jason Your line is now open you may continue.
Okay.
Okay.
Yeah.
Okay.
Okay. Thanks, and then just circle back to the auto strike just want to confirm that I heard correctly, you have baked in some potential headwinds from this into the new updated guidance.
Thank you.
Thank you.
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We did yes.
Okay perfect.
Okay.
That's it for me I'll jump back into queue. Thanks, guys.
[music].
Thank you and apologies for the technological challenges today, thank you for bearing with us.
Thank you very much. Our next question comes from Anthony <unk> from Sidoti. Your line is open. Please go ahead.
Hi, Jason Your line is now open you may continue.
Yeah.
Okay. Thanks, and then just circle back to the auto strike just want to confirm that I heard correctly, you have baked in some potential headwinds from this into the new updated guidance.
Hi, Thank you for taking my question most of them have been addressed already but I'm just curious.
And the medical.
End markets do you see any.
How do you what do you see that in terms of overall demand.
On your program wins.
We did yes.
There, but just in terms of the overall demand from food and medical end markets.
Okay perfect. That's it for me I'll jump back into queue. Thanks, guys.
Thanks, Tanya it's Rick Yes, great question and as you saw is Jenna outlined.
Thank you and apologies for the technological challenge today, Thank you for bearing with us.
The change in guidance from a top line standpoint, it really was in automotive and industrial story. So medical of course is as you know and as we shared in our original full year guidance had baked in a $100 million reduction from one customer who is dealing with the FDA consent decree.
Thank you very much. Our next question comes from Andrew <unk> from Sidoti.
Your line is open. Please go ahead.
Hi, Thank you for taking my questions most of them have been addressed already but I'm just curious in that.
Therefore, we guided down 10% for the year that outlook for medical has not changed so we are continuing to see wins good momentum with other customers.
And the medical.
And markets.
Yes.
How do you what do you see that in terms of overall demand.
On your program wins.
We still have high hopes in the long term for the relationship with that one customer, but overall, we like what we see in our outlook for the year in medical has not changed from what we previously communicated.
There, but just in terms of the overall demand from medical end markets.
Thanks, Tanya it's Rick Yeah, Great question and as you saw is Jenna outlined.
Okay. Thank you that was all for me.
The change in guidance from a top line standpoint, it really was in automotive and industrial story. So medical of course is as you know and as we shared in our original full year guidance had baked in a $100 million reduction from one customer was dealing with the FDA consent decree.
Thank you very much. Our next question today comes from Randy <unk> from <unk>.
Gabelli funds.
Your line is open. Please go ahead.
Good morning, Rick Good morning Jana.
Hi, Hendi.
Therefore, we guided down 10% for the year that outlook for medical has not changed so we're continuing to see wins good momentum with other customers.
Rick and Jon.
We got to the $50 million reduction in guidance for the automotive.
Could you share some insights on that.
We still have high hopes in the long term for the relationship with that one customer but overall.
International Combust internal combustion engine.
We like what we see in our outlook for the year in medical has not changed from what we've previously communicated.
Yes.
For us to understand like how much exposure.
Jim.
Okay. Thank you that was all from me.
Andy I'm going to restate your question just to make sure we heard it because we're working on technology.
Thank you very much. Our next question today comes from Hendi <unk> from Gabelli funds.
Technology here, what you said was the $50 million reduction that we saw in automotive because we.
Your line is open. Please go ahead.
Good morning, Rick Good morning Jana.
Give you a breakdown between <unk> and combustion engine.
Hi, Hendi.
Yes.
Rick and Jon.
Okay.
You got to the $50 million reduction in guidance for the automotive.
Yeah.
Could you share some insight on that.
So thank you.
Okay.
International Combust internal-combustion.
Oh, sorry, Jonathan Feeney.
Okay.
So primarily.
Yes.
And it was related to the EV market.
For us to understand like how much exposure.
As I said before though the the concern was we are still evaluating the UAW strike.
Jim.
Andy I'm going to restate your question just to make sure we heard it because we're working on technology here.
Well, we might hear from the tier one.
How they're evaluating the impact of that so we sort of talked on what we thought was a good placeholder for that impact and that would be broad related to both combustion engine and the EV market.
He said was that the $50 million reduction that we saw in automotive could we give you a breakdown between <unk> and combustion engine.
Yes in fact.
Okay, Yes.
And then as the year of paces out we'll give you more color to help you understand.
So thank you.
Oh, sorry, Jonathan continue.
Yeah.
The actual if and how they shook out.
Okay.
So primarily.
Yes.
It was related to the EBIT market.
And then second question Gena.
As I said before though the the concern was we are still evaluating the UAW strike.
So I think with a slowdown in EV.
It looks like Youre charging station business and whether you can share some color Mike.
What we might hear from the tier one.
Mike.
How much the impact may be.
How they are evaluating the impact of that so we.
Qualitatively.
Yes, that's a great question Here's the thing you already had such robust EV adoption.
Sort of attacked on.
What we thought was a good place holder for that impact and that would be broad related to both combustion engine and the EV market.
The glow.
And charging stations, particularly the supercharger station that youre going to see in place.
And then as the year of paces out we'll give you more color to help you understand.
Gas stations.
Youre going to see in places that.
The actuals and how they shook out.
Supermarket shopping centers et cetera needed to catch up to the demand.
Yes.
And then second question Jana.
And so while you might see.
And so I think with a slowdown in EV.
Softening.
There was a lot of work to be done in terms of growth there to support the last.
Does it affect your charging station business and whether you can share some color Mike.
Five years arguably of growth in the evening car market.
Mike.
How much the impact may be qualitatively.
And so we still feel really good.
Yes, that's a great question Here's the thing you already had such robust EV adoption.
<unk> EV charging as a growth opportunity for Kimball going forward.
The glow.
And.
And charging stations, particularly the supercharger station that you are going to stay in place.
We'll continue to give you updates and see how it goes but the funnel for that opportunity is very robust.
And I think as you can see kind of shorter.
Gas stations.
Earlier.
I think as we've shared earlier, but today, it's a relatively small part of that segment for us, but as Janice said, we do we are optimistic about the long term growth for sure.
Youre going to see and play with that.
Supermarket shopping centers et cetera needed to catch up to the demand.
And so while you might see.
Okay got it and then Jon Hamm, Rick I think.
Softening.
There was a lot of work to be done in terms of growth there to support the labs.
Let's say.
These type of the slowdown in automotive.
Mark good Ken.
<unk> mirrors arguably of growth in the evening car market.
Can we reasonably assume that you are partially offsetting that increase in the dollar content.
And so we still feel really good about EV charging as a growth opportunity for Kimball going forward.
So in some cases some of our contracts are balanced volume and pricing.
And we'll continue to give you updates and see how it goes but the funnel for that opportunity is very robust.
In some cases, they are not and so it really becomes an incumbent upon us not to say hey, we're going to get an increased police, Brian but to say hey, how do we control the opex expense associated with the temporary.
And I think as you can see kind of shorter earlier I think as we've shared earlier, but today, it's a relatively small part of that segment for us, but as James said, we do we are optimistic about the long term growth for sure.
Okay got it and then Jon Hamm, Rick I think.
Interruption and so.
It's a partnership with your customers that you have.
Let's say.
Please pick up the slowdown in automotive.
But a lot of it is uncommon. Upon you is the company that are controlling our costs.
Mark good.
Can we reasonably assume that you are partially offsetting that increase in the dollar content.
And Hendi, it's Rick I just wanted to clarify your question because I think you mentioned electronic content is.
Yes.
So in some cases some of our contracts are balanced volume and pricing.
Okay.
I think the in addition to that we.
We still see.
Strongly electronic content, increasing in auto and so your question is do we still think that the our participation in the electronic content will outpace unit growth of vehicles, Yes, I think that trend is.
In some cases they are not.
So it really becomes an incumbent upon us not to say hey, we're going to get in and create piece, Brian but to say hey, how do we control the opex expense.
Associated with the temporary.
Interruption.
It's just as true.
So it's a partnership with your customers that you have.
As we've seen it in the past.
Okay, Yes.
But a lot of it is uncommon. Upon you is the company that are controlling our costs.
Okay.
I know you mentioned about potential discussion with your customers in terms of managing cost.
And Hendi, it's Rick I just wanted to clarify your question because I think you mentioned electronic content is.
This caused a win win strategy for both parties submerge and then.
The company's as a supplier.
Yes.
Okay. So the so I think the in addition to that.
Could you, yes, so could you give more color what other options that when you negotiate long term supply agreement and then dealing with booths out whether you can negotiate.
We still see.
Strongly electronic content, increasing in auto and so your question is do we still think that the our participation in the electronic content will outpace unit growth of vehicles, Yes, I think that trend is.
Incentives.
So negotiations with customers are always happening.
Rick is that basically all of the time they got here.
It's just as true.
As we've seen it in the past.
With customers and so I I don't want you to think of negotiations at this point in time.
Okay.
Okay.
I know you mentioned about potential discussion with your customers in terms of managing cost.
The other thing that I would offer is this environment. It is.
Some companies discuss a win win strategy for both parties customers and then.
It's not unlike.
The EMS environment has always been which is.
There are companies as a supplier.
What is the partnership with your customers around price and volume, but the partnership with your customers around.
Could you, yes, so could you give more color what other options that when you negotiate long term supply agreement and then dealing with booths out whether you can negotiate.
Capital deployment and required return on that what is the partnership with our customers around the automation innovation and efficiency.
Incentives.
So negotiations with customers are always happening.
<unk> from you.
So in that respect nothing has changed right. This is <unk>.
Uh-huh.
Rick is that basically all of the time.
What I will say has changed based upon and again.
Negotiating with customers and so I don't want you to think of negotiations at this point in time.
So we're three years into the EMS business, but if you talk to.
The other thing that I would offer is.
Our CTO and our CMO, who have been doing that collectively combined over 50 years they'll say the auto are.
This environment.
It's not unlike.
The EMS environment has always been which is.
Better customers because they understand that you have to keep your suppliers healthy and you don't have sort of a race to the bottom and commoditization of.
What is the partnership with your customers around price and volume, but the partnership with your customers around <unk>.
Capital deployment and required return on that what is the partnership with our customers around the automation innovation and efficiency that they expect from us.
The business that you saw before and so in that respect absolute normal is win win right. It can't be beat your suppliers to try and bring out cost of the system. Because then you just have some very weak suppliers can't.
So in that respect nothing has changed strike this is E&S.
Can't deliver to you the quality of the products that.
What I will say has changed based upon and again.
The other thing that I would say.
We explicitly decided where we wanted to play in the auto market staying away from some areas that you could monetize quickly to add additional protection against that.
So we're three years into the E&S business, but if you talk to.
Our CTO and our CMO, who have been doing this collectively combined over 50 years, they'll say the auto or.
Better customers because they understand that you have to keep your suppliers healthy and you don't have sort of a race to the bottom and commoditization of.
As a reminder, if you'd like to ask a question. Please press star followed by one when your telephone keypad now.
The business that you saw before and so in that respect absolute normal is win win right.
Our next question today comes from Nick <unk> from singular Matt. Your line is open. Please go ahead.
It can't be beat your suppliers to try and bring out cost of the system. Because then it just has been very weak suppliers.
Yes. This is Mac first thing of their research good morning, Rick John and Andy.
Good morning durations on the waterfront.
Can't deliver to you the quality of the products that we have.
Congratulations on the quarter.
Other thing that I'll say.
I mean revenue was still up despite the loss of that $100 million contract in the medical vertical that we spoke about last quarter.
Explicitly decided where we wanted to play in the auto market.
I'm away from some areas that you could monetize quickly to add.
Two questions about automotive.
Additional protections against that.
You spoke about the additional revenue opportunity with that can.
Can you give us some color can you attach a revenue estimate.
On a.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
The annual basis for that additional.
Business that you plan to do with that if starting in 2025.
Our next question today comes from Matt <unk> from singular Matt. Your line is open. Please go ahead.
Well I would love to but.
[laughter].
Yes. This is Mac first thing other research good morning, Rick John Andy.
We had a great meeting by the way as I mentioned in the prepared remarks.
Good morning durations in the quarter for <unk>.
Great customer and partnership with us, but we're not able to disclose that.
Congratulations on the quarter.
Okay, it's meaningful it's meaningful for us long term.
I mean revenue was still up despite the loss of that $100 million contract in the medical vertical that we spoke about last quarter.
Okay.
Can read for a second and talk about the ripple effects that you expect in the next couple of quarters about the after UAW strike.
Two questions about automotive.
You spoke about the additional revenue opportunity with that can you give us some color can you attach a revenue estimate.
If I read it.
So the number say revenue impact I'll say, 30, 40 or $50 million over the next three or four quarters is that something that is too high or is that a number that's too low.
On a on an annual basis for that additional business.
Business that you plan to do with that if starting in 2025.
Yeah.
Well I would love to but.
The guide that we provided.
[laughter].
We had a great meeting by the way as I mentioned in the prepared remarks.
Is.
Based on the information that we have right now.
Great customer and partnership with us, but we're not able to disclose that.
Intended to be holistic for the remainder of the year.
Okay, it's meaningful it's meaningful for us long term.
Right, so $100 million down roughly versus the midpoint of our guidance range.
Okay.
Can read for a second and talk about the ripple effects that you expect in the next couple of quarters about the after UAW strike.
Very evenly between automotive and industrial.
Automotive focused more heavily in the North American market.
So that would indicate that over the three remaining quarters.
If I were to throw out.
A certain number say revenue impact I'll say, 30, 40 or $50 million over the next three or four quarters is that something that is too high or is that a number that's too low.
Ed.
$50 million.
Total <unk> for.
For the full fiscal year.
Okay. So maybe maybe revenue down by $50 million for the next three quarters.
The guide that we provided.
Yes.
Thank you. Thank you very much thank you.
Is <unk>.
Based on the information that we have right now.
We currently have makes it pretty hard on the line.
Intended to be holistic for the remainder of the year.
Yes.
Thanks, Matt.
Right, so $100 million down roughly versus the midpoint of our guidance range split fairly evenly between automotive and industrial.
We currently have no further questions from the lines, so I'd like to close the call here and thank you all for your participation.
You'd like to access the replay you can do this by dialing plus 18668139 for the right Green and use access code two six full 95.
Automotive focused more heavily in the North American market.
So that would indicate that over the three remaining quarters.
Replay instructions will also be available on the Kimball electronics Investor Relations page.
Ed.
$50 million in total for.
You all again for joining today's call you may now disconnect your lines and have a great rest of your day.
For the full.
Okay. So maybe maybe revenue down by $50 million for the next few quarters.
Yes.
Thank you. Thank you very much thank you.
We currently have makes it pretty hard on the line.
Yes.
Thanks, Matt.
We currently have no further questions from the lines, so I'd like to close the call here and thank you all for your participation.
You'd like to access the replay you can do this by dialing plus 186681394 theory, three and use access code 264 95.
Replay instructions will also be available on the Kimball electronics Investor Relations page.
You all again for joining today's call you may now disconnect your lines and have a great rest of your day.