Q4 2024 Kimball Electronics Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Kimball electronics fourth quarter fiscal 'twenty 'twenty four earnings Conference call. My name is Sherry 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.

Sherri: Good morning, ladies and gentlemen, and welcome to the Kimball Electronics Fourth Quarter Fiscal 2024 Earnings Conference Call. My name is Sherri, 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.

Sherri: After the completion of the prepared remarks from Kimball Electronics' leadership team, there will be a question and answer session period. To ask a question, simply press star and 1 on your telephone keypad. Today's call, August 14, 2024, is being recorded. A replay of the call will be available on the Investor Relations page of Kimball Electronics' website. At this time, I would now like to turn the call over to Andy Regrut, Treasurer and Investor Relations Officer. Thank you, Mr. Regrut.

After the completion of the prepared remarks from Kimball electronics leadership team that will be a question and answer session periods to ask a question simply press star and one on your telephone keypad todays call August 14th 'twenty 'twenty four is being recorded a replay of the call will be available on the.

Speaker Change: Investor Relations page of Kimball Electronics website at this time I would now like to turn the call over to Andy Regrow Trey.

Speaker Change: <unk> Treasurer and Investor Relations officer. Thank you Mr. Waybright, you may begin.

Speaker Change: Thank you Sherry and good morning, everyone welcome to our fourth quarter Conference call.

Andy Regrut: You may begin. Thank you, Sherry, and good morning, everyone. Welcome to our fourth quarter conference call. With me here today is Rick Phillips, our Chief Executive Officer, and Jana Croom, Chief Financial Officer. We issued a press release yesterday with our results for the fourth quarter and full fiscal year ended June 30, 2024. 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 risk and uncertainty and are subject to our safe harbor provisions as stated in our press release and SEC filing, and that actual results can differ materially from the forward-looking statement.

Speaker Change: With me here today is Rick Phillips, our Chief Executive Officer, and Janet Croom, Chief Financial Officer.

Speaker Change: We issued a press release yesterday with our results for the fourth quarter and full fiscal year ending June 30th 2024 to accompany todays call. A presentation has been posted to the Investor Relations page on our company website.

Speaker Change: Before we get started I'd like to remind you that we will be making forward looking statements that involve risks and uncertainties 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. Our commentary today will be focused on adjusted non-GAAP results.

Speaker Change: <unk> of GAAP to non-GAAP amounts are available in our press release.

Andy Regrut: Our commentary today will be focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Rick will start the call with a few opening comments. Jana will review the financial results for the quarter and guidance for fiscal 2025, and Rick will complete our prepared remarks before taking your questions. I'll now turn the call over to Rick. Thanks, Hendi, and good morning, everyone.

Speaker 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 2025, and Rick will complete our prepared remarks before taking your questions I'll now turn the call over to Rick.

Rick Phillips: Thanks, Andy and good morning, everyone.

Rick Phillips: Before I get into Q4 results, I want to briefly touch on the divestiture of the automation test and measurement business. As announced earlier this month, the transaction was finalized on July 31st. While we made significant strides enhancing capabilities in AT&M since the acquisition of GES in 2018, it was not a good fit for Kimball, and we determined that focusing on core EMS operations aligns best with our strategic priorities and longer-term growth opportunities for the future. AT&M will be well positioned under its new ownership.

Jen: Before I get into Q4 results I want to briefly touch on the divestiture of the automation test and measurement business.

Jen: As announced earlier this month the transaction was finalized on July 31.

Jen: While we made significant strides enhancing capabilities in ATM since the acquisition of Ges in 2018, it was not a good fit for Kimball and we determined that focusing on core E&S operations aligns best with our strategic priorities and longer term growth opportunities for the company.

Jen: ATM will be well positioned under its new ownership I would like to thank the ATM team for their contributions and wish them success moving forward.

Rick Phillips: I would like to thank the AT&M team for their contributions and wish them success moving forward. Closure on the sale also represented a significant milestone for our company and another important step toward sharpening our strategic focus and returning to profitable growth and stronger performance. The divestiture was not a small undertaking, with many resources invested over the last, I'd also like to thank the entire Kimball team for the extra effort required in closing the deal and in ensuring a smooth transition. Your contributions are greatly appreciated.

Jen: Closure on the sale also represented a significant milestone for our company and another important step towards sharpening, our strategic focus and returning to profitable growth and stronger performance.

Jen: The divestiture was not a small undertaking with many resources invested over the last year.

Speaker Change: I'd also like to thank the entire Kimball team for the extra effort required and closing the deal and in ensuring a smooth transition your contributions are greatly appreciated.

Rick Phillips: The proceeds from the sale of AT&M.., combined with the recent improvements in working capital management have strengthened our balance sheet in the form of increased liquidity and financial flexibility. As part of sharpening our strategic focus, we are actively evaluating our mix of revenue and verticals in light of the recent economic conditions. Present at the forefront is the long-term strategic growth of the company and need for a balanced portfolio which is not overly weighted to any particular vertical.

Jen: The proceeds from the sale of ATM.

Jen: Combined with the recent improvements in working capital management have strengthened our balance sheet in the form of increased liquidity and financial flexibility.

Jen: As part of sharpening our strategic focus we are actively evaluating our mix of revenue and verticals light of the recent economic conditions.

Speaker Change: Present at the forefront is the long term strategic growth of the company and need for a balanced portfolio, which is not overly weighted to any particular vertical we.

Rick Phillips: We have had significant success in bringing on new medical wins and continue to focus our front-end efforts on this space. Additionally, we continue to be open to acquisition targets such as customer divestitures in the medical space and opportunities to expand into geographies or capabilities Kimball does not currently have.

Speaker Change: We have had significant success in bringing on new medical wins and continue to focus our front end efforts on this space. Additionally.

Speaker Change: Additionally, we continue to be open to acquisition targets, such as customer divestitures in the medical space and opportunities to expand in new geographies or capabilities Kimball does not currently have.

Speaker Change: Now onto Q4, which was another quarter focused on controlling what we can control the.

Rick Phillips: Now, on to Q4, which was another quarter focused on controlling what we can control. The operating environment for the EMS industry remains challenged, and many contract manufacturing organizations, Kimball included, have adjusted expectations based on continued weakness in end-market demand. In the verticals we serve, the pullback has been more significant than originally anticipated, and we continue to maintain competitiveness by appropriately adjusting our cost structure to stabilize operating margins, and purposefully drive inventory levels lower to generate positive free cash.

Speaker Change: The operating environment for the EMS industry remains challenged and many contract manufacturing organizations. Kimball included have adjusted expectations based on continued weakness in end market demand.

Speaker Change: In the verticals we serve.

Speaker Change: Pullback has been more significant than originally anticipated and we continue to maintain competitiveness by appropriately adjusting our cost structure to stabilize operating margins and purposefully drive inventory levels lower to generate positive free cash flow.

Rick Phillips: Our long-term customer funnel remains strong for the... Nest sales in the fourth quarter totaled $430 million. While this was in line with our expectations and represents a $5 million or 1% increase sequentially over Q3, it was a 13% decrease compared to the same period last year. As a reminder, Q4 last year was a record for the company as we grew 33%, so the year-over-year comparison was steep. The decline this year occurred in all verticals and in each region of our global footprint.

Speaker Change: Our long term customer funnel remains strong for the future.

Speaker Change: Net sales in the fourth quarter totaled $430 million.

Speaker Change: While this was in line with our expectations and represents a $5 million or 1% increase sequentially over Q3. It was a 13% decrease compared to the same period last year.

Speaker Change: As a reminder, Q4 last year was a record for the company as we grew 33% so the year over year comparison with steep.

Speaker Change: Decline this year occurred in all verticals each region of our global footprint.

Speaker Change: Starting with automotive our largest business net sales were $212 million, a 7% decrease compared to Q4 last year and 49% of total company sales.

Rick Phillips: Starting with automotive, our largest business, net sales were $212 million, a 7% decrease compared to Q4 last year, and 49% of total company sales. The decline was in line with the softness we outlined in May and contributed to a 2% decrease in revenue in this vertical for the... As we have stated many times, our focus in automotive is heavily concentrated on chassis control applications, that is, steering, braking, and suspension ECUs. Electronic braking is a relatively new growth opportunity. We started manufacturing these systems in Reynosa, Mexico a few years ago.

The decline was in line with the softness we outlined in May and contributed to a 2% decrease in revenue in this vertical for the full year.

Speaker Change: As we have stated many times our focus in automotive is heavily concentrated on chassis control applications that is steering braking and suspension easy use.

Speaker Change: Electronic braking is a relatively new growth opportunity. We started manufacturing these systems in Reynosa, Mexico, a few years ago.

Speaker Change: Unfortunately in late Q4 this program experienced a setback.

Rick Phillips: Unfortunately, in late Q4, this program experienced a setback. We learned that the Tier 1 customer is no longer going to produce the system for the OEM, while this development did not directly impact our financial results in the quarter. And it did not occur due to a Kimball-related issue such as workmanship, quality, or our ability to produce the product.

Speaker Change: We learned that the tier one customer is no longer going to produce the system for the Oems.

Speaker Change: While this development did not directly impact our financial results in the quarter and.

Speaker Change: And it did not occur due to a kimball related issues, such as workmanship quality or our ability to produce the product. It does affect our outlook for the automotive vertical in fiscal 'twenty five.

Rick Phillips: It does affect our outlook for the automotive vertical in Fiscal 25. Our relationship with this customer has never been better. In fact, we will launch a new braking program for them in January 2025 in Romania. We are also collaborating on additional opportunities to backfill the lost volume. Turning to medical, where net sales in Q4 totaled $102 million, a 17% decrease compared to the same period last year, and 24% of the total.

Speaker Change: Our relationship with this customer has never been better in fact, we will launch a new braking program for them in January 2025, and Romania.

Speaker Change: We are also collaborating on additional opportunities to backfill the lost volumes.

Speaker Change: Turning to medical where net sales in Q4 totaled $102 million, a 17% decrease compared to the same period last year and 24% of the total company.

Rick Phillips: Once again, the decline was primarily driven by the lost revenue associated with our customer involved in an FDA recall. As a reminder, our annual guidance assumed a net $50 million reduction in medical sales or down 10% compared to the prior year. This consisted of a $100 million decrease from the recall, partially offset by $50 million of growth from new and existing programs. The final result for the medical vertical in fiscal 2024 was a decline of 15%.

Speaker Change: Once again the decline was primarily driven by the lost revenue associated with our customer involved in an FDA recall.

Speaker Change: As a reminder, our annual guidance assumed a net $50 million reduction in medical sales were down 10% compared to the prior year.

Speaker Change: This consisted of $100 million decrease from the recall, partially offset by $50 million of growth from new and existing programs. The final result for the medical vertical in fiscal 2024 was a decline of 15%.

Speaker Change: As we look forward, we're very encouraged by the growth prospects in this vertical market with our focus on higher level assemblies and finished medical device opportunities.

Rick Phillips: As we look forward, we're very encouraged by the growth prospects in this vertical market with our focus on higher-level assemblies, finished medical device opportunity. As an example... We were recently awarded the Transfer of Work as the sole supplier of Respiratory Care Final Assembly and HLL business, for our largest medical customer. This transfer is expected to commence in calendar 2025, with production impacting our fiscal 2026 results. In addition, we see our expertise in manufacturing selected drug devices such as auto-injectors as a differentiator in an overall very attractive market.

Speaker Change: As an example, we.

Speaker Change: We were recently awarded the transfer of work as the sole supplier of respiratory care final Assembly and H L. L business for our largest medical customer.

Speaker Change: This transfer is expected to commence in calendar 2025 with production impacting our fiscal 2026 results.

Speaker Change: In addition, we see our expertise in manufacturing selected drug devices, such as auto injectors as a differentiator and an overall very attractive market.

We continue to focus significant business development resources in this space and are very encouraged about future customer opportunities as a result of those efforts.

Rick Phillips: We continue to focus significant business development resources in this space and are very encouraged about future customer opportunities as a result of those efforts. Finally, Industrial, with net sales of $116 million, down 19% compared to the fourth quarter last year, and 27% of total company sales. Results for the AT&M business are included in this vertical, and approximately one-half of the decline in sales in industrial resulted from year-over-year weakness in the AT&M business, with the balance driven by lower demand for internal climate control systems and smart meters in Europe, which have been commodities. For fiscal 2024 in total, the industrial vertical declined 3%, which was in line with our estimates.

Speaker Change: Finally, industrial with net sales of $116 million down, 19% compared to the fourth quarter last year and 27% of total company sales.

Speaker Change: Results for the ATM business are included in this vertical and approximately one half of the decline in sales in industrial resulted from year over year weakness in the ATM business with the balance driven by lower demand for internal climate control systems, and smart meters in Europe, which have been commoditizing.

Speaker Change: For fiscal 2024 in total the industrial vertical declined 3%, which was in line with our estimates.

Rick Phillips: Longer term, we see a return to growth coming from a market rebound for climate control products and diversification into other sub-verticals within the industrial space. This may include increased demand for factory automation and green energy resulting from the mega-trend of raising consumer awareness on consumption of natural resources. We are also in the early stages of exploring the off-highway equipment.

Speaker Change: Longer term, we see a return to growth coming from a market rebound for climate control products and diversification into other sub verticals within the industrial space.

Speaker Change: This may include increased demand for factory automation, and Green energy, resulting from the Mega trend of raising consumer awareness on consumption of natural resources.

Speaker Change: We are also in the early stages of exploring the off highway equipment market.

Speaker Change: In closing I'm proud of the resilience demonstrated by our team in the fourth quarter and fiscal 2024.

Jana Croom: In closing, I'm proud of the resilience demonstrated by our team in the fourth quarter and fiscal 2020. We believe we're uniquely positioned to capitalize on the various opportunities within the EMS space and that our sharp and strategic focus is setting us up for longer-term growth, particularly as the operating environment normalizes. I'll now turn the call over to Jana to review Q4 in more detail and outline our guidance for fiscal 2025. Jana?

Speaker Change: We believe we are uniquely positioned to capitalize on the various opportunities within the EMS space and that our sharpen strategic focus is setting us up for longer term growth, particularly as the operating environment normalizes.

I'll now turn the call over to Jana to review Q4 in more detail and outline our guidance for fiscal 2025 Janet.

Jana: Thank you and good morning, everyone.

Jana Croom: Thank you and good morning everyone. As Rick mentioned, net sales in the fourth quarter were $430.2 million, a 13% decrease compared to Q4 last year, foreign exchange had less than a 1% impact on sales in the quarter. The gross margin rate in Q4 was 8.5%. A 150 basis points decline compared to the fourth quarter of fiscal 2023, with a decrease coming from lower absorption in our EMS manufacturing facility, and Weaker Performance in AT&M, which was up against a very difficult comparison from the prior year.

Jana: As Rick mentioned net sales in the fourth quarter were $432 million.

Janet Croom: 13% decrease compared to Q4 last year.

Jana: Foreign exchange had less than a 1% impact on sales in the quarter.

Janet Croom: The gross margin rate in Q4 was eight 5%.

Speaker Change: 150 basis point decline compared to the fourth quarter of fiscal 2023 with the decrease coming from lower absorption in our E&S manufacturing facilities and weaker performance in ATM, which was up against a very difficult comparison from the prior year.

Jana Croom: Both of these were the result of declining sales. Adjusted selling and administrative expense in the fourth quarter were $15.8 million compared to $18.2 million in Q4 last year, with a decrease driven by efforts to manage cost in a period of declining sales.

Speaker Change: Both of these were the result of declining sales.

Speaker Change: Adjusted selling and administrative expense in the fourth quarter were $15 $8 million compared to $18 $2 million in Q4 last year with the decrease driven by efforts to manage cost in a period of declining sales.

Jana Croom: When measured as a percentage of sales, adjusted selling and administrative expenses were 3.6%, a 10 basis point improvement compared to Q4 last year. Adjusted operating income for the fourth quarter was $20.9 million, or 4.9% of net sales, which compares to last year's adjusted results of $31.5 million, or 6.3% of net sales, which was a record for the company, so a very difficult comparison. Other income and expense was expense of $6.1 million compared to expense of $4.9 million last year with the increase resulting from impact from foreign currency translation.

Speaker Change: When measured as a percentage of sales adjusted selling and administrative expenses were three 6%, a 10 basis point improvement compared to Q4 last year.

Speaker Change: Adjusted operating income for the fourth quarter was $29 million or four 9% of net sales.

Speaker Change: Which compares to last year's adjusted results of $31 $5 million or six 3% of net sales, which was a record for the company. So a very difficult comparison.

Speaker Change: Other income and expense was expense of $6 $1 million compared to expense of $4 $9 million last year with the increase resulting from impacts from foreign currency translation.

Jana Croom: Interest expense was down slightly. The effective tax rate was 44% in the fourth quarter compared to 27.6% in Q4 last year. The higher tax rate was the result of a domestic valuation allowance recorded in the quarter.

Speaker Change: Interest expense was down slightly.

Speaker Change: The effective tax rate was 44% in the fourth quarter compared to 27, 6% in Q4 of last year.

Speaker Change: Higher tax rate was the result of the domestic valuation allowance recorded in the quarter. The full year effective tax rate of 18, 6% was driven lower by the impairment taken due to the sale of Ges.

Jana Croom: The full year effective tax rate of 18.6% was driven lower by the impairment taken due to the sale of GES, partially offset by the valuation allowance. We expect to resume a normalized tax rate in the mid-20s going forward. Adjusted net income for the fourth quarter of fiscal 2024 was $8.4 million, or $0.33 per diluted share, compared to adjusted net income in Q4 last year of $19 million, or $0.76 per diluted share.

Speaker Change: Actually offset by the valuation allowance.

Speaker Change: We expect to resume our normalized tax rate in the mid Twenty's going forward.

Speaker Change: Adjusted net income for the fourth quarter of fiscal 2024 was $8 $4 million or 33 cents per diluted share compared to adjusted net income in Q4 last year of $19 million or <unk> 76 cents per diluted share.

Turning now to the balance sheet.

Jana Croom: Turning now to The Balance Sheet. Cash and cash equivalents at June 30, 2024 were $78 million and clash flows generated by operating activities in the quarter was $48.5 million. Cash conversion days were 100 days compared to 94 days in the fourth quarter last year and 110 days in Q3.

Speaker Change: Cash and cash equivalents at June 30 of 2024 were $78 million and clash flows generated by operating activities in the quarter with $48 $5 million.

Speaker Change: Cash conversion days or 100 days compared to 94 days in the fourth quarter last year and 110 days in Q3.

Speaker Change: We are continuing to focus on improving cash conversion days by aggressively and actively managing the component.

Jana Croom: We are continuing to focus on improving cash conversion days by aggressively and actively managing the commodity. Inventory ended the quarter at $338.1 million, which represents a $112 million, or 25% reduction compared to Q4 last year, and $58 million lower than, We are very pleased with our progress in bringing down inventory levels and expect this to continue as we work with our customers to right-size the current demand output. Capital expenditures in the fourth quarter were $9.1 million and $4.7 million for the full fiscal year which was below our guidance.

Speaker Change: Inventory ended the quarter at $338 $1 million, which represents a $112 million or 25% reduction compared to Q4 last year and $58 million lower than Q3.

Speaker Change: We are very pleased with our progress in bringing down inventory levels and expect this to continue as we work with our customers to right size the current demand outlook.

Speaker Change: Capital expenditures in the fourth quarter were $9 $1 million and $47 million for the full fiscal year, which was below our guidance range.

Jana Croom: The reduction in CapEx was the result of a balanced approach to the long-term needs of the company and the current economic outlook. Barring's on our credit facility at June 30, 2024 for $294.8 million compared to $281 million a year ago at $319.6 million at the end of Q3, Our short-term liquidity available represented is cash and cash equivalents, plus the unused portion of our credit facility totaled $220.1 million at the end of the fourth quarter.

Speaker Change: The reduction in Capex with the result of a balanced approach to the long term needs of the company and the current economic outlook.

Speaker Change: Borrowings on our credit facility at June 30 of 'twenty, 'twenty, four for $294 $8 million compared to $281 million a year ago at $319 $6 million at the end of Q3.

Speaker Change: Our short term liquidity available represented as cash and cash equivalents plus the unused portion of our credit facility totaled $221 million at the end of the fourth quarter.

Speaker Change: In Q4, we invested $3 million to repurchase 136000 shares.

Jana Croom: In Q4, we invested $3 million to repurchase $136,000 shares. Since October 2015, under our Board Authorized Share Repurchase Program, a total of $91.8 million has been returned to our shareholders by purchasing 6 million shares of common stock. We have $8.2 million remaining on the repurchase program.

Speaker Change: Since October 2015 under our board authorized share repurchase program, a total of $91 $8 million has been returned for our shareholders by purchasing 6 million shares of common stock.

Speaker Change: We have $8 $2 million remaining on the repurchase program.

Speaker Change: And total fiscal 'twenty 'twenty four was a year with net sales.

Jana Croom: In total, fiscal 2024 was a year with net sales totaling $1.715 billion, second highest year in company history. Adjusted operating income of 4.3% of net sales. Inventory down 25% year over year, and Cash Flow from Operating Activities of Approximately $73M, Now turning to guidance for fiscal year 2025. We expect net sales to be in the range of $1.440 to $1.540 billion. An 8-14% decrease compared to fiscal 2024, excluding AT&N. Adjusted operating income of 4 to 4.5% of net sales. Starting in fiscal 2025, we will be conforming with the industry practice of excluding stock compensation from the calculation on this metric. Under this new method, fiscal 2024 would have been 4.8%.

Speaker Change: Italy, 171 $5 billion, the second highest year in company history.

Speaker Change: Adjusted operating income of four 3% of net sales.

Speaker Change: And then torry down 25% year over year in.

Speaker Change: In cash flow from operating activities of approximately $73 million.

Speaker Change: Now turning to guidance for fiscal year 2025.

Speaker Change: We expect net sales to be in the range of 1.44021 0.5 for $1 billion.

Speaker Change: And 8% to 14% decrease compared to fiscal 2024, excluding ATM.

Speaker Change: Adjusted operating income of four to four 5% in that sales.

Speaker Change: Starting in fiscal 2025, we will be conforming with the industry practice of excluding stock compensation from the calculation on this metric.

Speaker Change: Under this new method fiscal 'twenty 'twenty four would've been four 8%.

Speaker Change: Capital expenditures of $40 million to $50 million roughly split between growth and maintenance requirements.

Jana Croom: Capital expenditures of $40-$50 million roughly split between growth and maintenance requirements. We expect operating income margin to build over the course of the fiscal year as we continue, with Q1 likely below our fiscal year guidance. As to the mix of revenue... We expect the trends from Q4 to continue into Q1 for automotive and industrial. The forecasted declines in medical, however, will be more modest as we anniversary the impact of the FDA recall, which began in the first quarter of fiscal 2024.

Sherry: Good morning, ladies and gentlemen, and welcome to the Kimball Electronics 4th quarter fiscal 2024 earnings conference call. My name is Sherry 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 Kimball Electronics Leadership Team, there will be a question and answer session period. To ask a question, simply press star and one on your telephone keypad.

Speaker Change: We expect the operating income margin to build over the course of the fiscal year as we continue cost containment effort.

Speaker Change: With Q1 likely below our fiscal year guidance range.

Speaker Change: As to the mix of revenue, we expect the trends from Q4 to continue into Q1 for automotive and industrial.

Speaker Change: The forecasted declines in medical however will be more modest.

Sherry: Today's call of the 14th 2024 is being recorded. A replay of the call will be available on the investor relations page of Kimball Electronics website. At this time, I would now like to turn the call over to Andy Regrut, Treasurer and Investor Relations Officer. Thank you, Mr. Regrut. You may begin. Thank you Sherry and good morning, everyone. Welcome to our 4th quarter conference call. With me here today is Rick Phillips, our chief executive officer and Janet Krum, chief financial officer.

Speaker Change: We anniversary the impact of the F D. A recall, which began in the first quarter of fiscal 2020 four.

Jana Croom: If you recall, Q1 2024 was the best first quarter in the company's history. Driven by Strong Growth in Industrial and Automotive. We will continue to provide updates as the year progresses. I'll now turn the call back over to, Thanks, Jana.

Speaker Change: If you recall Q1, 'twenty 'twenty four what's the best fourth first quarter in the company's history, driven by strong growth in industrial and automotive.

Speaker Change: We will continue to provide updates as the year progresses.

I'll now turn the call back over to Rick.

Thanks Jana.

Rick Phillips: Fiscal 25 is going to be another year of controlling what we can control, and in the short term this means our cost structure, margin levels, working capital management, and investments in capital expenditures. Over a longer period of time, however, controlling what we can control is extending beyond these measures and focused on growing the top. As I mentioned in my opening comments, the recent pressure on demand trends in the three vertical markets we support has been more significant than originally anticipated with a deeper and longer impact.

Fiscal 'twenty five is going to be another year of controlling what we can control and in the short term. This means our cost structure margin levels working capital management and investments in capital expenditures.

Sherry: We issued a press release yesterday with our results for the 4th quarter in full fiscal year in June 30th, 2024. 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 risk and uncertainty, and are subject to our safe harbor provisions as stated in our press release in SEC filings, and that actual results can differ materially from the forward-looking statements.

Rick Phillips: Over a longer period of time, however, controlling what we can control is extending beyond these measures and focused on growing the topline.

Rick Phillips: As I mentioned in my opening comments the recent pressure on demand trends in the three vertical markets. We support has been more significant than originally anticipated with a deeper and longer impact our.

Rick Phillips: Our company has been in operation for over 60 years, ten of them listed on the NASDAQ, and we have weathered many storms. But we've also recognized when to cast a net a little wider by moving more deeply into new markets where our core manufacturing capabilities support emerging techno, Our work today in driving to new opportunities in medical high-level assemblies and drug-device combinations are examples of this.

Rick Phillips: Our company has been in operation for over 60 years 10 of them listed on the NASDAQ and we have weathered many storms.

Sherry: Our commentary today will be focused on adjusted non-gap results. Reconciliation of gap to non-gap amounts are available in our press release. This morning, Rick will start the call with a few opening comments. Janet will review the financial results for the quarter and guidance for fiscal 2025, and Rick will complete our prepared remarks before taking your questions.

Rick Phillips: We are also recognized when to cast the net a little wider by moving more deeply into new markets, where our core manufacturing capabilities support emerging technologies.

Rick Phillips: Our work today and driving to new opportunities in medical high level assemblies and drug device combinations are examples of these efforts.

Rick Phillips: I'll now turn the call over to Rick. Thanks, Andy, and good morning, everyone. Before I get into Q4 results, I want to briefly touch on the divestiture of the automation, test, and measurement business. As announced earlier this month, the transaction was finalized on July 31st.

With our strategic focus on EMS operations, and a strong balance sheet that now supports different avenues of growth, we will be looking through a new lens on where and how to profitably increase the top line.

Rick Phillips: With our strategic focus on EMS operations and a strong balance sheet that now supports different avenues of growth, we will be looking through a new lens on where and how to profitably increase the top. The recent announcement by our largest medical customers. Making Kimball the sole supplier on the respiratory care, final assembly, and HLA business is a great example of where we see the growth.

Rick Phillips: The recent announcement by our largest medical customer, making kimball the sole supplier on the respiratory care vinyl Assembly, an HLA business is a great example, where we see the growth potential.

Rick Phillips: While we made significant strides in enhancing capabilities in AT&M since the acquisition of GES in 2018, it was not a good fit for Kimball, and we determined that focusing on core EMS operations aligns best with our strategic priorities and longer-term growth opportunities for the company. AT&M will be well-positioned under its new ownership. I would like to thank the AT&M team for their contributions and wish them success moving forward. Closure on the sale also represented a significant milestone for our company and another important step towards sharpening our strategic focus and returning to profitable growth and stronger performance.

Rick Phillips: Throughout this journey, we will stay true to our guiding principles and continue to be collaborative and team oriented.

Sherri: Throughout this journey, we will stay true to our guiding principles and continue to be collaborative and team-oriented, set high long-term aspirations, not unrealistic goals but attainable targets that require stretching, communicate openly and proactively, and remain accountable to our company, to our customers, to each other, and to our shareholders. I am excited about the future of the company, and thank you for your support.

Set high long term aspirations, not unrealistic goals, but attainable targets that require stretching.

Rick Phillips: Communicate openly and proactively and remain accountable to our company to our customers to each other and to our shareholders.

Rick Phillips: I am excited for the future of the company and thank you for your support.

Rick Phillips: Sherry, we would now like to open the lines for questions.

Sherri: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Sherry: Thank you at this time, we will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment.

Rick Phillips: The divestiture was not a small undertaking with many resources invested over the last year. I'd also like to thank the entire Kimball team for the extra effort required in closing the deal and in ensuring a smooth transition. Your contributions are greatly appreciated. The proceeds from the sale of AT&M combined with the recent improvements in working capital management have strengthened our balance sheet in the form of increased liquidity and financial flexibility. As part of sharpening our strategic focus, we are actively evaluating our mix of revenue and verticals, despite of the recent economic conditions.

Sherry: It may be necessary to pick up your handset before pressing the star. He has one moment, while we poll for questions.

Speaker Change: Our first question is from Mike Crawford with B Riley Securities. Please proceed.

Sherri: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Mike Crawford with the Riley Securities, please proceed. Thank you. So that one breaking program aside, one of your customers next year just reported and talked about completing product line relocation from U.S. to Mexico, next year, Changsu, New site being fully operational in early 25, and also this continued shift towards here by wire technology, and how do you any of those events affect Kimball? and Mike, good morning.

Mike Crawford: Thank you so Ah that word breaking program aside one of your customers next year, just reported and talked about completing product line relocation from U S to Mexico next year.

Rick Phillips: Present at the forefront is the long-term strategic growth of the company and need for a balanced portfolio which is not overly weighted to any particular vertical. We have had significant success in bringing on new medical wins and continue to focus our front and efforts on this space. Additionally, we continue to be open to acquisition targets such as customer divestitures in the medical space and opportunities to expand into geographies or capabilities Kimball is not currently having.

Mike Crawford: Thanks you.

Speaker Change: Site being fully operational in early 'twenty five and also this continued shift towards a steer by wire.

Speaker Change: Technology, and how do you any of those events affect them.

Speaker Change: Kimball.

Rick Phillips: Now on to Q4, which was another quarter focused on controlling what we can control. The operating environment for the EMS industry remains challenged and many contract manufacturing organizations Kimball included have adjusted expectations based on continued weakness in end market demand. In the verticals we serve the pullback has been more significant than originally anticipated and we continue to maintain competitiveness by appropriately adjusting our cost structure to stabilize operating margins and purposefully drive inventory levels lower to generate positive free cash flow.

Mike Crawford: And Mike Good morning, So as we think about you know steer by wire.

Rick Phillips: So as we think about, you know, steer by wire, that's something that we have been actively in with our customers. And so, remember, the life cycle of bringing these products to market is typically 18 months to 24 before you start producing. And the conversations even extend further back than that.

That's something that we.

Speaker Change: Have been actively and with our customers.

And so remember, though the lifecycle of bringing these products to market is typically 18 months to 24 before you start producing and the conversations even extend further back than that until our participation in that you know next year is one of our largest customers we disclosed that in the 10-K. So you should see that.

Rick Phillips: And so, our participation in that, you know, Nextier is one of our largest customers. We disclosed that in the 10K. So you should assume that we are actively in that supply chain with them. The other thing that I will say is...

Speaker Change: We are actively in that our supply chain with them.

Speaker Change: The other thing that I will say as the conversations around their expansion in China, they're moved to Mexico, where things at the company and had likely contemplated for a while and their supply chain was aware of so and as we look to the long term future of Kimball as it relates to partnership.

Rick Phillips: Our long-term customer funnel remains strong for the future. Nest sales in the fourth quarter total 430 million. While this was in line with our expectations and represents a $5 million or 1% increase sequentially over Q3, it was a 13% decrease compared to the same period last year. As a reminder, Q4 last year was a record for the company as we grew 33%. So the year-over-year comparison was steep. The decline this year occurred in all verticals and each region of our global footprint.

Rick Phillips: Conversations around their expansion in China, their move to Mexico, or things that the company, had likely contemplated for a while, and their supply chain was aware of. So as we look to the long-term future of Kimball, as it relates to partnership with Nexir, who's a great partner and customer of ours, expect that we would be ready to serve in those geographies, as we also have, and I think you know this, significant available capacity in Mexico and stand ready and willing to serve as well as in our China. Okay, thank you, and then...

Speaker Change: With next year is a great partner and customer of ours I expect that we would be ready to serve in those geographies. As we also have and I think you know that significant available capacity in Mexico.

Speaker Change: And stand ready and willing to serve as well as in our China facility.

Rick Phillips: Starting with automotive our largest business, net sales were $212 million, a 7% decrease compared to Q4 last year, and 49% of total company sales. The decline was in line with the softness we outlined in May and contributed to a 2% decrease in revenue in this vertical for the full year. As we have stated many times our focus in automotive is heavily concentrated on chassis control applications. That is steering, braking, and suspension ECUs.

Speaker Change: Okay. Thank you and then.

Rick Phillips: If, if Kimball, revenue in fiscal 25 comes in at the midpoint of that guidance range, you know, roughly what percent would you expect for each of the verticals? So I'm trying not to be too terribly prescriptive right now. And the reason is we're not exactly sure how the verticals are gonna. I have at least five different scenarios in my head as we contemplated the guidance that we were going to give. What I would say is the impact in medical is going to be the most modest, right?

Speaker Change: If if kimball.

Speaker Change: Revenue in fiscal 'twenty five comes in at the midpoint of that guidance range, you know roughly what percent would.

Speaker Change: What do you expect for each of the verticals.

Speaker Change: So I'm trying not to be too terribly prescriptive right now and the reason is we're not exactly sure how the verticals are gonna.

Rick Phillips: Electronic braking is a relatively new growth opportunity. We started manufacturing these systems in North America a few years ago. Unfortunately in late Q4 this program experienced a setback. We learned that the Tier 1 customer was no longer going to produce the system for the OEM. While this development did not directly impact our financial results in the quarter and it did not occur due to a Kimbell-related issue such as workmanship, quality, or our ability to produce the product, it does affect our outlook for the automotive vertical and fiscal 25.

Speaker Change: Shake out.

Speaker Change: I have at least five different scenarios in my head as we contemplated the guidance that we were going against what I would say as he and pack and medical is going to be the most modest right and that's because he's got the F D a impact.

Rick Phillips: And that's because you've got the FDA impact that's going to be fully reflected in the comps that we've got for FY24. What where I'm, sort of waiting to see and we're getting insights daily from our CCO and our Chief Operating Officer is North American Auto. Chinese auto.

Speaker Change: That's gonna be fully re felt reflected in the comps that we've got for FY 'twenty four.

Speaker Change: Where I'm sort of waiting to see and where we're getting insights daily from our CTO and our chief operating officer.

Speaker Change: North American auto.

Rick Phillips: Our relationship with this customer has never been better. In fact we will launch a new braking program for them in January 2025 in Romania. We are also collaborating on additional opportunities to backfill the lost volumes. Turning to medical where net sales in Q4 totaled 102 million, a 17% decrease compared to the same period last year, and 24% of the total. Company. Once again, the decline was primarily driven by the lost revenue associated with our customer involved in an FDA recall.

Speaker Change: Chinese auto.

And we expect industrial in Europe to be very weak, but it could be stronger than anticipated.

Rick Phillips: And we expect industrial in Europe to be very. But it could be stronger than. Okay, thank you, and then maybe a final question from me, on industrial given commoditization of smart meters as, What...? ...uh... What is going to make up the suck?

Speaker Change: Oh, Okay. Thank you and then maybe a final question for me is just.

Speaker Change: Industrial given commoditization and smart meters.

Speaker Change: Uh huh.

Speaker Change: What.

Speaker Change: What is going to make up this like is it gonna be is it gonna be once you're on vacation.

Rick Phillips: Is it going to be electronification of the grid, or are you going to? try to get into some other emerging solutions where you can make a difference. Yeah, no, great question.

Speaker Change: The grid or or are you going to.

Rick Phillips: As a reminder, our annual guidance assumed a net $50 million reduction in medical sales were down 10 percent compared to the prior year. This consisted of a $100 million decrease from the recall partially offset by $50 million of growth from new and existing programs. The final result for the medical vertical in fiscal 2024 was decline of 15 percent. As we look forward, we're very encouraged by the growth prospects in this vertical market with our focus on higher-level assemblies and finished medical device opportunities.

Speaker Change: Try to.

Speaker Change: Getting into some other.

Speaker Change: Emerging solutions, where you can make.

Speaker Change: Make a difference.

Mike: Yeah No. Great question, you know I I wouldn't point to a few things Mike I think the return of climate control, you know, where we haven't necessarily seen the commoditization that we've seen in smart metering, we've seen economic impacts there that we would expect to come back to growth and we feel very well positioned.

Rick Phillips: You know, I would point to a few things, Mike, I think, the return of climate control, you know, where we haven't necessarily seen the commoditization that we've seen in smart metering, we've seen economic impacts there that we would expect to come back to growth, and we feel very well positioned. We think factory automation is a, you know, a place where we're active today, that we expect to accelerate over time. And as mentioned, you know, we're in the early stages of discussions with future customers around off-highway equipment.

Mike: We think factory automation is a place where we're active today that we expect to accelerate over time and as mentioned.

Rick Phillips: As an example, we were recently awarded the transfer of work as the sole supplier of respiratory care final assembly and HLL business for our largest medical customer. This transfer is expected to commence in calendar 2025 with production impacting our fiscal 2026 results. In addition, we see our expertise in manufacturing selected drug devices such as auto injectors as a differentiator in an overall very attractive market. We continue to focus significant business development resources in this space and are very encouraged about future customer opportunities as a result of those efforts.

Mike: We're in the early stages of discussions with future customers around off highway equipment. So those are some of the areas as we look forward at an industrial and returning to growth that we would expect to help us drive it.

Rick Phillips: So those are some of the areas, as we look forward at industrial and returning to growth, that we would expect to help us drive. All right, thank you. If you'd suggest, Mike, that is an area we're also active in. All right, thank you, Jim.

Blake: Thank you Blake.

Speaker Change: Can you suggest my that is an area. We're also actively pursuing.

Jamie: Alright, Thank you Jamie.

Jamie: Our next question is from Jason Smith with Lake Street.

Jason Schmidt: Our next question is from Jason Schmidt with Lake Street. Please proceed. Hey guys, thanks for taking my questions, understandings are the demand profiles a little softer here in the near term. Just curious if you could comment if this is really being due to programs getting canceled or simply pushed to the right. Yeah, Derek, I mean, with the exception of the unusual events that, you know, you're aware of that we spoke to the medical FDA situation, and the more recent breaking, which was a, you know, a situation where our tier one customers is unfortunately no longer supporting the OEM on that program.

Speaker Change: Please proceed.

Jason Smith: Hey, guys. Thanks for taking my questions understanding sort of the demand profile is a little softer here in the near term just curious if you could comment if this is really being due to programs getting canceled or simply pushed to the right.

Rick Phillips: Finally, industrial with net sales of $116 million now 19 percent compared to the fourth quarter last year and 27 percent of total company sales. Results for the AT&M business are included in this vertical and approximately one half of the decline in sales and industrial resulted from year over year weakness in the AT&M business with the balanced driven by lower demand for internal climate control systems and smart meters in Europe which have been commoditizing.

Speaker Change: Yeah sure I mean with the exception of the unusual events that youre aware of that we spoke to the medical FDA situation and the more recent breaking which was a.

Jason Schmidt: This is demand push out. This is, you know, this is, we want a program, we got an estimate of demand, and the updated estimate of demand is lower. So we continue to see, you know, we're asked a lot, and we ask our customers a lot, when do you see a normalization of the demand patterns? Of course, none of us know.

Speaker Change: A situation, where our tier one customers is unfortunately, no longer supporting the am the OEM on that program.

Rick Phillips: For fiscal 2024 and total, the industrial vertical declined 3 percent which was in line with our estimates. Longer term, we see a return to growth coming from a market rebound for climate control products and diversification into other sub verticals within the industrial space. This may include increased demand for factory automation and green energy resulting from the mega trend of raising consumer awareness on consumption of natural resources. We are also in the early stages of exploring the off highway equipment market.

Speaker Change: This is demand push out. This is a you know this is we want a program we got an estimate of the demand and the updated estimated demand is lower.

Rick Phillips: I would say that probably the most frequent comment we hear back from customers is, you know, we know we got to get past this US election cycle, where there's a lot of wait and see. But you could see second half of calendar 25 as a viewpoint of several of our customers of when we see a stabilizing of normal demand levels. But with those two exceptions that you're aware of, you know, we are not, we're not losing programs, our win rates are good, our customer relationships are really strong, even though situations where programs, you know, had significant impact, as you're already aware of, those relationships remain as strong as ever.

Speaker Change: So.

Speaker Change: We continue to see God, we're asked a lot and we ask our customers a lot when do you see a normalization of the demand patterns of course, none of US know, our I would say that.

Speaker Change: Probably the most frequent comment we hear back from customers.

Speaker Change: As you know we know we got to get past. This U S election cycle, where there's a lot of wait and see but you could see second half of calendar 'twenty five.

Rick Phillips: In closing, I'm proud of the resilience demonstrated by our team in the fourth quarter and fiscal 2024. We believe we're uniquely positioned to capitalize on the various opportunities within the EMS space and then our sharpened strategic focus is setting us up for longer term growth, particularly as the operating environment normalizes.

Speaker Change: As a a viewpoint of several of our customers of when we see a stabilizing of normal demand levels, but with those two exceptions that youre aware of.

Speaker Change: We're not we're not losing programs are our win rates are good our customer relationships are really strong, even though the situations where where programs.

Jana Croom: I'll now turn the call over to Jana to review Q4 in more detail and outline our guidance for fiscal 2025. Jana?

Speaker Change: It has significant impact as you're already aware of those relationships remain as strong as ever and were working actively with those customers to replace those volumes over time.

Jana Croom: Thank you and good morning everyone. As Rick mentioned, net sales in the fourth quarter were $430.2 million, a 13 percent decrease compared to Q4 last year. For an exchange, had less than a 1 percent impact on sales in the quarter. The growth margin rate in Q4 was 8.5 percent, a 150 basis point decline compared to the fourth quarter of fiscal 2023. With the decrease coming from lower absorption in our EMS manufacturing facilities and weaker performance in AT&M, which was up against a very difficult comparison from the prior year.

Rick Phillips: And we're working actively with those customers to replace those volumes. Okay, that's helpful. And then just as a follow up on that breaking program, sorry if I missed this, but did you quantify what sort of a revenue revenue hole that's creating for fiscal 25? We didn't quantify it, but you should think about it along the same scale of the FDA recall in terms of size spread.

Speaker Change: Okay. That's helpful. And then just as a follow up on that breaking program sorry.

Speaker Change: Sorry, if I missed this but did you quantify what sort of revenue revenue hold that's creating for fiscal 'twenty five.

Speaker Change: We didn't quantify it but you should think about about it along the same scale of the F. D. A recall in terms of size of revenue.

Speaker Change: Gotcha, alright, thanks, a lot guys.

Rick Phillips: Gotcha. All right. Thanks a lot, guys.

Jerry: Thanks Jerry.

Derek Soderberg: Our next question is from Derek Soderberg with Cantor Fitzgerald. Please proceed. Yeah, hey, thanks for taking my questions. I'm just curious if you can comment on some of the electric vehicle tariffs. You know, some some news there.

Our next question is from Derek Soderberg with Cantor Fitzgerald. Please proceed.

Jana Croom: Both of these were the results of declining sales. Adjusted selling and administrative expense in the fourth quarter were $15.8 million compared to $18.2 million in Q4 last year, with the decrease driven by efforts to manage cost in a period of declining sales. When measured as a percentage of sales, adjusted selling and administrative expenses were 3.6 percent at 10 basis point improvement compared to Q4 last year. Adjusted operating income for the fourth quarter was $20.9 million or 4.9 percent of net sales, which compares to last year's adjusted results of $31.5 million or 6.3 percent of net sales, which was a record for the company, so a very difficult comparison.

Derek Soderberg: Yeah, Hey, thanks for taking my questions I'm just curious if you can comment on some of the electric vehicle tariffs you know some some news there I know you guys have some growth plans for electric vehicles in China or at least I. That's what I believe can you just talk about.

Rick Phillips: I know you guys have some growth plans for electric vehicles in China, or at least I that's what I believe. Can you just talk about, you know, any impact there on your plans? Yeah, I mean, overall, as you know, I think the, you know, the softening has been well documented overall, in the in the EV uptake, you know, we still as we talk to customers, it's still a question of when, you know, this, this is going to have increased penetration over time, we certainly believe in our customers tell us that.

Speaker Change: Any impact there on your plants.

Speaker Change: Yeah, I mean overall, it's as you know I think the you know the softening has been well documented overall in the in the EV uptake.

Rick Phillips: One reminder for China is that our business there is China for China, as you know. So, you know, we look at that differently, because it's not an export market for us. And the trends, depending on you know, the time in the economy around the world can be different in in China, certainly relative to Europe or North America. Yep, got it.

Speaker Change: We still as we talked to customers.

Speaker Change: It's still a question of when you know this this is going to have increased penetration over time, we certainly believe and our customers tell us that one reminder, for China is that our business. There is China for China as you know so.

Jana Croom: Other income and expense was expenses $6.1 million compared to expense of $4.9 million last year, with the increase resulting from impacts from foreign currency translation. Interest expense was down slightly. The effective tax rate was 44 percent in the fourth quarter compared to 27.6 percent in Q4 last year. The higher tax rate was the result of a domestic valuation allowance recorded in the quarter. The full year effective tax rate of 18.6 percent was driven lower by the impairment taken due to the sale of GES partially offset by the valuation allowance.

Speaker Change: We look at that differently, because it's not an export market for us and the trends depending on the time and the economy around the world can be different in a in China, certainly relative to Europe or North America.

Speaker Change: Yep got it.

Rick Phillips: And then one quick one on share repurchases, you know, good to see some some purchases there. What's obviously plans have kind of changed maybe here with, you know, some of these programs getting pushed out. Does that change at all? Any plans on share repurchases, you know? It does not.

Speaker Change: And then one quick one on share repurchases are you know good to see some some purchases there. What's obviously plants of have kind of changed maybe here with Oh. Some of these programs getting pushed out does that change at all any plans on share repurchases.

Speaker Change: It does not so what we always endeavor to do is have a share repurchase program, that's at least equal to our.

Rick Phillips: So what we always endeavor to do is have a share repurchase program that's at least, equal to our, Elton, that we're putting out into the market, we do that so that we keep our EPS in line with the actual growth of the company. We'll certainly examine beyond that. The thing to remember is even with declining revenue which is really hard, we've had significant cash flow improvement as we've been able to balance out working cap.

Jana Croom: We expect to resume a normalized tax rate in mid-20s going forward. Adjusted net income for the fourth quarter of fiscal 2024 was $8.4 million or 33 cents per diluted share compared to adjusted net income in Q4 last year of $19 million or 76 cents per diluted share.

Speaker Change: Alta that we're putting out into the market, we do that so that we keep our EPS in line with the actual growth as a company.

Speaker Change: We will certainly examined beyond that are there.

Speaker Change: The thing to remember is even with declining revenue, which is really hard we've had significant.

Jana Croom: Turning now to the balance sheet. Caching cash equivalents at June 30, 2024 were $78 million and cash flows generated by operating activities in the quarter was $48.5 million. Cash conversion days were 100 days compared to 94 days in the fourth quarter last year and 110 days in Q3. We are continuing to focus on improving cash conversion days by aggressively and actively managing the components. Inventory into the quarter at $338.1 million which represents a $112 million or 25 percent reduction compared to Q4 last year and $58 million lower than Q3.

Speaker Change: Cash flow improvement as we've been able to balance our working cap and sell our balance sheet is actually in very good shape now relative to where it was a year ago and so the capital allocation strategy is going to be return value to shareholders.

Rick Phillips: And so our balance sheet is actually in very good shape now relative to where it was a year ago. And so the capital allocation strategy is going to be return value to shareholders and as many ways as we've talked. Got it.

Speaker Change: And as many ways as we possibly can.

Speaker Change: Got it thanks.

Speaker Change: It has.

Sherri: Thanks. As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Anja Soderstrom with Sidoti and Company. Please proceed. Thank you for taking my question. So I'm just curious, with this climate control that's a bit weaker in Europe, is there any risk there that those are also going to be commoditized, or are you pretty certain they're going to come back once Europe picks up?

Speaker Change: As a reminder, it is star one on your telephone keypad, if he would like to ask a question.

Speaker Change: Our next question is from Anja Soderstrom with Sidoti and company. Please proceed.

Anja Söderström: Thank you for taking my question.

Speaker Change: Climate control.

Jana Croom: We are very pleased with our progress in bringing down inventory levels and expect this to continue as we work with our customers to right size the current demand outlook. Capital expenditures in the fourth quarter were $9.1 million and $4.7 million for the full fiscal year which was below our guidance range. The reduction in CapEx was the result of a balanced approach to the long term needs of the company and the current economic outlook, at June 30, 2024 for $294.8 million compared to $281 million a year ago at $319.6 million at the end of Q3.

Speaker Change: Okay.

Speaker Change: Europe.

Speaker Change: I think we scared that those are also going to be.

Speaker Change: Or are you.

Speaker Change: To come back.

Speaker Change: Okay.

Speaker Change: So hey on the other climate control piece is much more North America than it is Europe, we do have some exposure to climate control and in Europe, but primarily that revenue derived from North America, where it is not commoditizing. So the softness that we.

Sherri: So, hey, Anja, the climate Control piece is much more North America than it is Europe. We do have some exposure to climate Control in Europe, but primarily, that revenue derives from North America, where it is not commoditizing. So the softness that we saw in climate Control was more related to just general economic malaise, not so much commoditization, like we saw for smart reading in Europe as we saw Chinese products.

Speaker Change: We saw and climate control, but more related to just the general economic malaise not so much commoditized commoditization like we saw for smart metering in Europe as we saw you know Chinese product coming in.

Jana Croom: Our short-term liquidity available is cash and cash equivalents plus the portion of our credit facility told $220.1 million at the end of the fourth quarter. In Q4, we invested $3 million to repurchase $136,000 shares. Since October 2015, under our Board Authorized Share Repurchase Program, a total of $91.8 million has been returned for our shareholders by purchasing 6 million shares of common stock. We have $8.2 million remaining on the repurchase program.

Andrew: Okay. Thank you Andrew.

Anja Söderström: Okay, thank you. And in terms of the quarterly cadence for next year, how should we think about that? So, there was a significant debate within Kimball over whether or not we wanted to give annual guidance or whether or not we wanted to give quarterly guidance.

Speaker Change: Securely cadence for next year.

Speaker Change: Should we think about that.

Speaker Change: So.

Speaker Change: There wasn't a significant debate within chemical over whether or not we wanted to give annual guidance or whether we wanted to give quarterly guidance, but we decided we were gonna do they stick with the annual guidance that we provide to the street.

Rick Phillips: What we decided we were going to do is stick with the annual guidance that we provide to the street, but give you quarterly updates to help you with the modeling and where we're seeing. And so we did that with Q1 for where we expected to shake out, which is very much in line with Q4 in terms of what we saw for automotive and industrial, except for the lap of medical with the FDA recall.

Speaker Change: But give you quarterly updates to help you with the modeling are and where we're seeing and so we did that with Q1 mm for four where we expect it to shake out which is very much in line with Q4 in terms of what we saw for automotive and industrial except for the lab.

Jana Croom: In total, fiscal 2024 was a year with net sales totaling $1.715 billion, the second highest year in company history. Adjusted operating income of 4.3 percent of net sales, inventory down 25 percent year over year, and cash flow from operating activities of approximately $73 million.

Speaker Change: Of of medical with the F. D. A recall, we will continue on a quarterly basis to help you refine that again.

Rick Phillips: We will continue on a quarterly basis to help you refine that. Again, as I said to Mike, we expect softness in North American autos and European industrial. We're watching China for the automotive market. But we'll see how it shakes out over the course of the year. And we will provide to you as much detail as we can on the quarterly. Okay, thank you. And when you announced that Andy had been elevated to treasurer for the company, you noted he's going to look at the refinement of the capital structure. Can you elaborate on that?

Speaker Change: Again, as I said to Mike you know, we expect softness and North American autos and European Industrial we're watching China for the automotive market.

Speaker Change: But we'll see how it shakes out over the course of the year and we will provide to you as much detail as we can on our quarterly calls.

Jana Croom: Now turning to guidance for fiscal year 2025, we expect net sales to be in the range of 1.440 to 1.540 billion dollars and 8 to 14 percent decrease compared to fiscal 2024 excluding AT&M. Adjusted operating income of 4 to 4.5 percent of net sales. Starting in fiscal 2025, we will be conforming with the industry practice of excluding stock compensation from the calculation on this metric. Under this new method, fiscal 2024 would have been 4.8 percent.

Speaker Change: Okay. Thank you.

Speaker Change: Well you know that.

Speaker Change: It's been elevated to press you are for the company.

Speaker Change: And he's going to get the refinement of the capital structure can you elaborate on that.

Speaker Change: The refinement of the capital structure.

Rick Phillips: The refinement of the capital structure. So basically what I would say is, as we, as working capital, improves, and we generate cash, you know, the, Big focus right now is on debt management and getting our balance sheet in great shape. I would expect that our CapEx and FY26 is going to have to grow because we've really ratcheted it to the point where we are, you know, real-time, just-in-time taking care of all of the growth and maintenance needs of the company, but we all know that that's not sustainable. It's just good stewardship for where we're at right now.

Speaker Change: Yes.

Speaker Change: Basically what I would say as athlete as working capital.

Speaker Change: Improved and we generate cash are you know the.

Speaker Change: Big focus right now is on our debt management and getting our balance sheet in great shape.

Speaker Change: I would expect that our cap ex in FY 'twenty six is going to have to grow because we've really ratcheted. It to the point, where we are you know real time, just in time, taking care of all of the the growth and maintenance needs as a company, but we all know that that's not sustainable and you just couldn't stewardship for where.

Jana Croom: Capital expenditures of $40 to $50 million roughly split between growth and maintenance requirements. We expect operating income margin to build over the course of the fiscal year as we continue cost containment efforts with Q1 likely below our fiscal year guidance range. As to the mix of revenue, we expect the trends from Q4 to continue into Q1 for automotive and industrial. The forecasted declines in medical, however, will be more modest as the anniversary the impact of the FDA recall which began in the first quarter of fiscal 2024. If you recall, Q1 2024 was the best first quarter in the company's history driven by strong growth in industrial and automotive.

Speaker Change: We're at right now.

Speaker Change: We also want to have dry powder, so to the extent a really great opportunity comes available to US either you know our customer wants us to take over a portion of their business. As we had indicated are there some are attractive M&A activity that diversifies us and a really great way, we're able to take advantage of that.

Anja Söderström: We also want to have dry powder, so to the extent a really great opportunity comes available to us, either, you know, a customer wants us to take over a portion of their business as we had indicated, or there's some attractive M&A activity that diversifies us in a really great way, we're able to take advantage of that. And so that's really our focus is balance sheet hygiene that enables future growth. Okay, thank you. That was all from me.

Speaker Change: Pat.

Pat: And so that that's really our focus is balance sheet hygiene that enables future growth.

Pat: Okay. Thank you that was all for me.

Jana Croom: We will continue to provide updates to see your progressives.

Pat: Yes.

Andy Senter: Our next question is from a handy center with Gabelli funds. Please proceed.

Hendi Susanto: Our next question is from Hendi Susanto with Gabelli Funds. Please proceed. Good morning, Rick. Good morning, Jana.

Rick Phillips: I'll now turn the call back over to Rick. Thanks, Jenna. Fiscal 25 is going to be another year of controlling what we can control. And in the short term, this means our cost structure, margin levels, working capital management, and investments in capital expenditures. Over a longer period of time, however, controlling what we can control is extending beyond these measures and focused on growing the top line.

Andy Senter: Good morning, Greg Good morning Jana.

Hendi Susanto: My first question is about inventory digestion. What does inventory digestion look like across the three major verticals now? Yeah, we made really great progress in FY 24. And it was very much in line with what we indicated. So I think I consistently said we needed to pull about $100 million of inventory. Off the balance sheet, we pulled 112 out.

Andy Senter: Question is about the exemplary digestion.

Speaker Change: What does he invented Heath I'd say similar across the three major fairly close now.

Speaker Change: Yeah, we made really great progress in FY 'twenty 'twenty four and it was very much in line with what we indicated so I think I've consistently said, we needed to pull about $100 million of inventory off the balance sheet and call. It 112 out.

Rick Phillips: As I mentioned in my opening comments, the recent pressure on demand trends in the three vertical markets we support has been more significant than originally anticipated with a deeper and longer impact. Our company has been in operation for over 60 years. Ten of them listed on the NASDAQ and we have weathered many storms. But we have also recognized when to cast a net a little wider by moving more deeply into new markets where our core manufacturing capabilities support emerging technology.

Speaker Change: I would expect them.

Speaker Change: Similar.

Speaker Change: Declines that we're gonna see in FY 'twenty five in terms of order of magnitude.

Jana Croom: I would expect, and Moler declines that we're going to see in FY25 in terms of order of magnitude. And if you're modeling cash flow, I would, so our CapEx guide for the year has been... $40-$50 million dollars. We spent $47 million on CapEx last year, and so I also expect free cash flow generation.

Rick Phillips: Our work today in driving to new opportunities in medical high level assemblies and drug device combinations are examples of these efforts. With our strategic focus on EMS operations and a strong balance sheet that now supports different avenues of growth, we will be looking through a new lens on where and how to profitably increase the top line. The recent announcement by our largest medical customer making Kimball the sole supplier on the respiratory care final assembly and HLA business is a great example we see the growth potential.

Speaker Change: And if you're modeling our cash flow I wouldn't so our Capex guide for the year has been $40 million to $50 million that you spent 47 million Capex last year and so I also expect free cash flow generation to be order of magnitude of what we did in FY 'twenty four.

Speaker Change: Okay fair enough if I may close.

Speaker Change: Yeah.

Jana Croom: If I may clarify, what does inventory digestion look like among your customers? Are they significantly like leaner or there's still some excess inventories? Yes. I apologize, Hendi.

Speaker Change: Could you clarify.

Speaker Change: What does the inventory digestion look like among your customers out of basically if they come in like manner or if you'll flip as inventories.

Rick Phillips: Throughout this journey, we will stay true to our guiding principles and continue to be collaborative and team oriented, set high long-term aspirations, not unrealistic goals but attainable targets that require stretching, communicate openly and proactively. And remain accountable to our company, to our customers, to each other and to our shareholders.

Speaker Change: Yeah, I apologize Hendi I think.

Hendi: For clarity.

Jana Croom: Thank you for clarifying. No problem. I think Kimball Electronics did a great job. I'm wondering what the outlook, like what you are seeing among your major customers. So, the backlog of inventory that our customers have built up in FY22 and FY23, that caused the base business to slow in FY24. I don't know that it's so much the backlog of inventory that still persists that we're working through as much as it is a consumer's stance of weight. So, I don't think that it's that our customers have a tremendous amount of backlog. Certainly, it differs by vertical.

Hendi: I think it is.

Speaker Change: That's usually electronic did a great job on what like what what's the outlook like what you are seeing among your major customers.

Speaker Change: Yeah, so the backlog of inventory that our customers itself hub and FY 'twenty, two and FY2023.

Rick Phillips: I am excited for the future of the company and thank you for your support.

Speaker Change: That caused the base business to slow in FY 'twenty for them.

Sherry: Sherry, we would now like to open the lines for questions. Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate your linings in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment while we pull for questions.

Speaker Change: I don't know that it's so much the backlog of inventory that still persist that we're working through as much as it is a consumer stance of wait and see so I don't think that it's that our customers have a tremendous amount of backlog certainly it differs by vertical arguably automotive's still has some that they're working through.

Jana Croom: It's more driven by, again, global economic posturing as we're waiting for some signals to come through from, you know, political outcomes. Fed movements and things in other geographies, but I don't I don't think it's so much inventories. Some in autos, let me be clear about that, but not so much in industrial.

Jim: Not so much on industrial and medical it's more Japan by again Jim.

Jim: Global economic posturing as we're waiting for some signals to come through from.

Michael Crawford: Our first question is from Mike Crawford with the Riley Securities. Please proceed. Thank you.

Jim: Political outcomes.

Rick Phillips: So that one breaking program aside, one of your customers next year just reported and talked about completing product line relocation from U.S, to Mexico next year. [inaudible] The conversations around their expansion in China, their move to Mexico were things that the company had likely contemplated for a while and their supply chain was aware of. So as we look to the long-term future of Kimball, as it relates to partnership with next year, who's a great partner and customer of ours, expect that we would be ready to serve in those geographies. As we also have, and I think you know this, significant available capacity in Mexico and staying ready and willing to serve as well as in our China facility.

Matt: Chad This is Matt.

Jim: <unk>.

Speaker Change: And things in other geographies, but I don't I don't think it's so much inventory seminar.

Speaker Change: Be clear about that.

Speaker Change: But not so much in industrial and medical.

Rick Phillips: Okay, thank you.

Speaker Change: Okay, I see that's going to China.

Jana Croom: Okay, I see. And Jana, for CAPEX in fiscal year 2025, where will Kimball Electronics span on the growth CAPEX? So the bulk of it, we say it's evenly split between, Growth and Maintenance CapEx. We've got some fairly big programs that are going to be starting in FY26. And so there's a fair amount of growth capital that we must spend. And so that's going to be sort of the front end loaded spend of CapEx with maintenance rounding it out for the full year.

Speaker Change: For Capex in fiscal year 'twenty 'twenty five.

Speaker Change: Where the wheel Kimball electronics span on the growth Capex.

Speaker Change: So the bulk of that we say, it's evenly split between our.

Speaker Change: Growth in maintenance Capex, and we've got some fairly big programs that are going to be starting in FY 'twenty six and so there's a fair amount of growth capital that we must spend.

Speaker Change: And so that's going to be sort of a front end loaded spend of capex with maintenance rounding it out for the full year.

Speaker Change: Would you be able to indicate whether it will be in medical industrial automotive or.

Jana Croom: Would you be able to indicate whether it will be in medical, industrial, automotive, or, all over those three. It's going to be an automotive and metal. Summon Industrial. Industrial is just not as capital intensive as what we've got in the funnel for automotive and medical, write to as it sits today and you know that that's life, from year to year depending on what programs we're launching and the type of, Okay, and then I also would like to ask about the challenge of a Tier 1 customer no longer producing systems for OEM. I may miss this. What was the main reason?

Speaker Change: 000 for those three.

Speaker Change: It's going to be and automotive and medical.

Speaker Change: Some in industrial industrial its just not as capital intensive as what we've got and the funnel for automotive and medical.

Speaker Change: As it sits today and you know that that flexes from year to year, depending on what programs, we're launching and the type of business.

Speaker Change: Okay, and then I'll send it back.

Speaker Change: But the challenge of a tier one customer no longer producing system for O E. M. I mean this is what was the main reason.

Speaker Change: Our commercial agreement between the OEM and another.

Rick Phillips: a commercial agreement between the OEM and another provider. And we try not to get into those weeds. The only reason that I am framing it in that way is to help everyone understand it was not at all related to the quality or workmanship of the product that we or the Tier 1 were producing. It was also not related to price.

Speaker Change: Provider and we try not to get into those we the only reason that I am framing it in that way is to help everyone understand it was not at all related to the quality of workmanship of the product that we use for the tier one or producing it was also not related to price.

Rick Phillips: And then, if Kimball revenue in fiscal 25 comes in at the midpoint of that guidance range, you know, roughly what percent would you expect for each of the verticals? So I'm trying not to be too terribly prescriptive right now, and the reason is we're not exactly sure how the verticals are going to shake out. I have at least five different scenarios in my head as we contemplated the guidance that we were going to give.

Speaker Change: On himself.

Rick Phillips: And so... Normally, we don't even comment because we don't necessarily think it's appropriate, but it is important to know that both we and the Tier 1 customer were providing excellent product at a fair and reasonable price, and so the movement had nothing to do with that, with either of those, which is typically why you would see movement. And so we just want to be very clear. And in fact, Hendi, you know, we're working with that tier one customer very closely over time to see how we backfill those volumes working on launching new programs together.

Speaker Change: Normally we don't even comment because we don't necessarily think it's appropriate but it is important to know that both we and the tier one customer we are providing excellent product at a fair and reasonable price and so then there's no. It had nothing to do with either of those which is.

Rick Phillips: Because what I would say is the impact in medical is going to be the most modest, right? And that's because you've got the FDA impact that's going to be fully reflected in the comps that we've got for FY24. What we're waiting to see and we're getting insights daily from our CTO and our Chief Operating Officer is North American Auto, Chinese Auto, and we expect industrial in Europe to be very weak. But it could be stronger than anticipated.

Speaker Change: Typically why you would see movement and so we just wanted to be very clear and interesting and in fact hendi.

Rick Phillips: So that relationship remains very strong. And then Rick, for the customers to backfill the order in the near future, what does it depend on? Will it depend on new programs, reallocation, or anything else? It could be all of the above.

Speaker Change: Working with that tier one customer very closely over time to see how we backfill those volumes working on launching new programs together so that relationship remains very strong.

Speaker Change: Okay, Okay, and then break out win okay.

Speaker Change: For the customers to backfill the order in the near future.

Speaker Change: What does it depend on will it depend on new programs reallocation or anything else.

Speaker Change: It could be all of the above we're in very regular conversations about new programs and we've had a good successful relationship I think the.

Rick Phillips: We're in very regular conversations about new programs, and we've had a good, successful relationship. I think our ability to work flexibly with that customer, to provide high-quality product consistently, to have really strong commercial agreements that we're aligned on is there. But we certainly also talk to them and stand ready to support them on existing programs that could show.

Rick Phillips: Okay, thank you. And then maybe a final question for me. Just on industrial given commoditization of smart meters, as what, what is going to make up the sock? Is it going to be, is it going to be electrification of the grid? Or are you going to try to get into some other emerging solutions where you can make a difference? Yeah, no, great question. I would point to a few things. Mike, I think the return of climate control, you know, where we haven't necessarily seen the commoditization that we've seen in smart metering.

Speaker Change: Our ability to our workforce with that customer to provide high quality product consistently to have really strong commercial agreements that we're aligned on is is there but.

Speaker Change: But we certainly also talk to them.

Speaker Change: And stand ready to support them on existing programs that could shift.

Speaker Change: Okay and then last question for me I think this is a kimball electronics talks about those he interrupted she came in eight more than usual.

Rick Phillips: Kimball Electronics Inc. talks about its interest in strategic M&A more than usual. Would you be able to indicate the size of potential M&A, what potential deal size that Kimball can, digest with a stronger balance sheet. I don't think it's so much the size of what we could digest, but what would make a good strategic fit. You know, God bless the banks, they stand ready to be great partners and they're always willing to help you figure out how to digest something of size. What it really boils down to is... What is a good long-term strategic option for Kimball? and what balances out the portfolio in a really practical and thoughtful.

Speaker Change: To be able to indicate the size of a perpetual M&A, what perpetual deals size that kimbo, okay and.

Rick Phillips: So we've seen economic impacts there that we would expect to come back to growth and we feel very well positioned. We think factory automation is a, you know, a place where we're active today that we expect to accelerate over time. And as mentioned, you know, we're in the early stages of discussions with future customers around off highway equipment. So those are some of the areas as we look forward at industrial and returning to growth that we would expect to help us drive it.

Speaker Change: Digests with us.

Speaker Change: Stronger balance sheets.

Speaker Change: I don't think it's so much the size of what we can digest what would mean because they are strategic fit you know God bless the banks they stand ready to be great partners and they're always willing to help you figure out how to digest something aside what.

Speaker Change: What it really boils down to is.

Speaker Change: What is a good long term strategic option for Campbell.

Rick Phillips: All right, thank you. As you suggest, Mike, that is an area we're also actively pursuing.

Speaker Change: And and what balances out the portfolio and a really practical and thoughtful strategic win for the company.

Rick Phillips: All right, thank you, Jamie.

Jason Schmidt: Our next question is from Jason Schmidt with Lake Street. Please proceed. Hey guys, thanks for taking my questions, understandings are the demand profiles a little softer here in the near term. Just curious if you could comment if this is really being due to programs getting canceled or simply pushed to the right. The situation where our tier one customers is unfortunately no longer supporting the OEM on that program. This is demand push-up, this is we want a program, we got an estimated demand and the updated estimated demand is lower.

Rick Phillips: Regent Wade for the Council. I want to be real clear though, you know, the organic growth, This is, a different space, and I think... You know, we had hoped to be in two years ago and certainly than we were expecting, but our funnel is still incredibly strong, are organic opportunities for growth, are still rock solid. But, you know, it's Rick indicated in the cast of Wider Net, you're looking at preserving and growing the top line profit. It's incumbent upon the leadership team always to look at everything.

Speaker Change: I want to be real clear, though you know the organic growth with.

Speaker Change: This is.

Speaker Change: And a different space and I think.

Speaker Change: We had hoped to be N two years ago, and certainly than we were expecting but our funnel is still incredibly strong.

Speaker Change: Our organic opportunities for growth.

Speaker Change: Our still rock solid.

Speaker Change: But you know as Rick indicated and the cast a wider net.

Rick Phillips: When youre looking at preserving and growing the top line profitably.

Rick Phillips: Incumbent upon the leadership team always to look at everything.

Speaker Change: Thank you Blake Thank you Tanner.

Speaker Change: Penni.

Speaker Change: With no further questions at this time this will conclude today's conference a retail play will be available in approximately three hours. After the conference by dialing into 8776606853 to access a D. It's 1374.

Sherri: Thank you, Rick. Thank you, Jana. With no further questions at this time, this will conclude today's conference. A replay will be available in approximately three hours after the conference by dialing in to 877-660-6853. The access ID is 13747697. You may now disconnect your lines at this time and thank you for your participation. [music] https://www.youtube.com.uk, [music]

Jason Schmidt: So we continue to see and we're asked a lot and we ask our customers a lot. When do you see a normalization of the demand patterns? Of course none of us know. I would say that probably the most frequent comment we hear back from customers is we know we got to get past this US election cycle where there's a lot of weight and sea. But you could see second half of calendar 25 as a viewpoint of several of our customers of when we see a stabilizing of normal demand levels.

Speaker Change: 7697, you may now disconnect your lines at this time and thank you for your participation.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Hum.

Jason Schmidt: But with those two exceptions that you're aware of, we are not losing programs, our win rates are good, our customer relationships are really strong. Even though situations where programs had significant impact as you're already aware of, those relationships remain as strong as ever and we're working actively with those customers to replace those volumes over time. Okay, that's helpful and then just as a follow up on that breaking program, sorry if I missed this, but did you quantify what sort of revenue, revenue hole that's creating for fiscal 25? We didn't quantify it, but you should think about it along the same scale as the FDA recall in terms of size revenue. Gotcha. All right, thanks a lot guys. Thanks, Eric.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Mhm.

Speaker Change: Hum.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Hum.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Derek Satterberg: Our next question is from Derek Satterberg with Cantor Fitzgerald. Please proceed. Yeah, hey, thanks for taking my questions. Just curious if you can comment on some of the electric vehicle tariffs, you know, some some news there. I know you guys have some growth plans for electric vehicles in China, or at least I, that's what I believe. Can you just talk about, you know, any impact there on your plans?

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Rick Phillips: Thanks. Yeah, I mean, overall, as you know, I think the, you know, this, this offening has been well documented overall in the, in the EV uptake. You know, we, we still, as we talk to customers, it's still a question of when, you know, this, this is going to have increased penetration over time. We certainly believe in our customers. Tell us that one reminder for China is that our business there is China for China, as you know, so, you know, we, we look at that differently because it's not an export market for us. And the trends, depending on, you know, the time and the economy around the world can be different in China, certainly relative to Europe or North America.

Speaker Change: Okay.

[music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Hum.

Rick Phillips: Yep, got it. And then one quick one on share repurchases, you know, good to see some purchases there. What's, you know, obviously plans have kind of changed maybe here with, you know, some of these programs getting pushed out. Does that change at all? Any plans on share repurchases, you know? It does not. So what we always endeavor to do is have a share repurchase program that's at least equal to our LTIP that we're putting out into the market.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Rick Phillips: We do that so that we keep our EPS in line with the actual growth of the company. We'll certainly examine beyond that. The thing to remember is even with declining revenue, which is really hard, we've had significant cash flow improvement as we've been able to balance out working cap. And so our balance sheet is actually in very good shape now relative to where it was a year ago. And so the capital allocation strategy is going to be return value to shareholders and as many ways as we possibly can.

Rick Phillips: Got it.

Speaker Change: Good.

Rick Phillips: Thanks.

Okay.

Speaker Change: Uh huh.

Speaker Change: Yeah.

Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Sherry: As a reminder, it is star one on your telephone keypad if you would like to ask a question.

Anja Söderström: Our next question is from Anja Satterstrom with Dodie and Company. Please proceed. Okay. Thank you for taking my question. So I'm just curious for this climate control that's a bit weaker in Europe. Is that a risk there that those are also going to be commoditized? Or are you pretty certain they're going to come back once Europe picks up? So Anja, the climate control piece is much more North America than it is Europe.

Speaker Change: Hum.

Anja Söderström: We do have some exposure to climate control in Europe, but primarily that revenue derived from North America where it is not commoditizing. So the softness that we saw in climate control was more related to just general economic malaise, not so much commoditization like we saw for smart metering in Europe as we saw Chinese product coming in. Okay. Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Mhm.

Speaker Change: Hmm.

Speaker Change: Hum.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: Yes.

Speaker Change: [music].

Rick Phillips: And in terms of the opportunity Cato's for next year, how should we think about that? So there was a significant debate within Kempel over whether or not we wanted to give annual guidance or whether we wanted to give quarterly guidance. What we decided we were going to do is stick with the annual guidance that we provide to the street, but give you quarterly updates to help you with the modeling and where we're seeing.

Speaker Change: Okay.

Speaker Change: Mhm.

Speaker Change: Yes.

Speaker Change: Hum.

Okay.

Speaker Change: Hum.

Speaker Change: Okay.

[music].

Rick Phillips: And so we did that with Q1 for where we expected to shake out, which is very much in line with Q4 in terms of what we saw for automotive and industrial, except for the lap of medical with the FDA recall. We will continue on a quarterly basis to help you refine that. Again, as I said to Mike, we expect softness in North American autos and European industrial. We're watching China for the automotive market. But we'll see how it shakes out over the course of the year, and we will provide to you as much detail as we can on the quarterly calls. Okay, thank you.

Rick Phillips: And when you're now that Anja has been elevated to treasure for a company, you know that he's going to look at the refinement of the capital structure. Can you elaborate on that? The refinement of the capital structure. As we, as working capital improves and we generate cash, you know, the big focus right now is on debt management and getting our balance sheet and great shape. I would expect that our cap X and FY26 is going to have to grow because we've really ratcheted it to the point where we are, you know, real time just in time taking care of all of the growth and maintenance needs of the company.

Speaker Change: Okay.

Speaker Change: [music].

Rick Phillips: But we all know that that's not sustainable. It's just good stewardship for where we're at right now. We also want to have dry powder. So to the extent a really great opportunity comes available to us. It's either, you know, a customer wants us to take over a portion of their business as we had indicated or there's some attractive and an activity that diversifies us in a really great way. We're able to take advantage of that. And so that that's really our focus is balance sheet hygiene that enables future growth. Okay. Thank you.

Speaker Change: Okay.

Speaker Change: [music].

Rick Phillips: That was all for me.

Hendi Susanto: Our next question is from a handy to center with good belly funds. Please proceed. Good morning, great. Good morning, Jenna. My first question is about inventory digestion. What does inventory digestion look like across the three major verticals now? Yeah. We made really great progress in FY 2024. And it was very much in line with what we indicated. So I think I consistently said we needed to pull about $100 million of inventory off the balance sheet.

Hendi Susanto: We pulled 112 out. I would expect similar declines that we're going to see in FY 25 in terms of order of magnitude. And if you're modeling cash flow, I would, so our capex guide for the years been $40 to $50 million. We spent $47 million in capex last year. And so I also expect free cash flow generations to be ordered of magnitude of what we did in FY 24. And Jenna, if I may clarify, what does inventory digestion look like among your customers?

Speaker Change: Hum.

Speaker Change: [music].

Hum.

Speaker Change: Mhm.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Hum.

Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Uh huh.

Hendi Susanto: Are they significantly cleaner or there's still some access inventories? Yes. I apologize, Cindy. Thank you for clearing up. No problem. I think you did. The electronic did a great job. I'm wondering what the outlook, like what you're seeing among your major customers. So, the backlog of inventory that our customers will top in FY22 and FY23 that caused the base business to slow in FY24. I don't know that it's so much the backlog of inventory that still persists that we're working through as much as it is a consumer stance of wait and see.

Speaker Change: Yeah.

Speaker Change: Uh huh.

Speaker Change: [music].

Speaker Change:

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Okay.

Hendi Susanto: So, I don't think that it's that our customers have a tremendous amount of backlog. Certainly, it differs by vertical. Arguably automotive still has some that they're working through, not so much on industrial and medical. It's more driven by, again, just global economic posturing is waiting for some signals to come through from political outcomes, bad movements and things and other geographies, but I don't think it's so much inventory. Some in autos, let me be clear about that, but not so much in industrial and medical.

Hendi Susanto: Okay, I see. And Jana, four CAPEX in FY2025, where will Kimball Electronics span on the growth CAPEX? So, the bulk of it, we say it's evenly split between growth and maintenance CAPEX. We've got some fairly big programs that are going to be starting in FY26. And so, there's a fair amount of growth capital that we must spend. And so, that's going to be sort of the front-end-loaded span of CAPEX with maintenance rounding it out for the full year.

Hendi Susanto: Would you be able to indicate whether it will be in medical, industrial, automotive, or all over those three? It's going to be an automotive and medical. Some in industrial, industrial is just not as capital intensive as what we've got in the funnel for automotive and medical. Right. As it says today, you know that that flexes from year to year, depending on what programs we're launching and the type of business. Okay. And then I also would like to ask about the challenge of a tier one customer, no longer producing system for all EM.

Hendi Susanto: I may miss this. What was the main reason? A commercial agreement between the OEM and another provider. And we try not to get into those weeds. The only reason that I am framing it in that way is to help everyone understand. And it was not at all related to the quality and your workmanship of the product that we or the tier one were producing. It was also not related to price. And so, normally we don't even comment because we don't necessarily think it's appropriate.

Hendi Susanto: But it is important to know that both we and the tier one customer were providing excellent product at a fair and reasonable price. And so, the movement had nothing, to do with either of those, which is typically why you would see movement, and so we just want to be very clear and interesting. And in fact, Hendi, you know, we're working with that tier one customer very closely over time to see how we backfill those volumes working on launching new programs together.

Hendi Susanto: So that relationship remains very strong. Okay. For the customers to backfill the order in the near future, what does it depend on? Will it depend on new programs, re-avocation, or anything else? It could be all the above. We're in very regular conversations about new programs, and we've had a good, successful relationship. I think the, you know, our ability to work plus we with that customer to provide high quality product consistently to have really strong commercial agreements that we're aligned on is there.

Hendi Susanto: But we certainly also talk to them and and stand ready to support them on existing programs that could shift. Okay. And then last question for me, I think this is like Kimball Electronics talks about it's interest in strategic MNA Morgan usual, which would be able to indicate the size of potential MNA, what potential deal size that Kimball can digest with stronger balance sheet. I don't think it's so much the size of what we could digest but what would make a good strategic fit.

Hendi Susanto: You know, God bless the banks. They stand ready to be great partners and they're only willing to help you figure out how to digest something of size. What it really boils down to is what is a good long term strategic option for Kimball and what balances out the portfolio in a really practical and thoughtful strategic way for the company. I want to be real clear though, you know, the organic growth with this is a different space.

Hendi Susanto: And I think, you know, we had hoped to be in two years ago and certainly we were expecting but our funnel is still incredibly strong. And our organic opportunities for growth are still rock solid. But, you know, it's regentated and the cast a wider net when you're looking at preserving and growing the top line profitably. It's incumbent upon leadership team always to look at everything. Thank you, Rick. Thank you, Jenna. Freddie.

Hendi Susanto: With no further questions at this time, this will conclude today's conference. A refill play will be available in approximately three hours after the conference by dialing into 877-660-6853. The access ID is 1374-7697. You may now disconnect your lines at this time and thank you for your participation. [inaudible] Dr. Soderberg, Dr. Soderberg, Dr. Soderberg, Dr. Soderberg,[inaudible] Soderberg, Dr. Soderberg, Dr. Soderberg,[inaudible] Dr. Soderberg, Dr. Soderberg, Dr. Soderberg, . . [inaudible] a lot of work to do. She's got a lot of work to do.