Q2 2025 Kimball Electronics Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Kimball Electronics second quarter fiscal 2025 earnings Conference call. My name is Daryl 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, the kimbo electron.
<unk> leadership team there will be a question and answer period to ask a question simply press Star and then the number one on your telephone keypad.
Speaker Change: Today's call February five 2025 is being recorded a replay of the call will be available on the Investor Relations page of the Kimball electronics website. At this time I would like to turn the call over to Andy regret Treasurer, and Investor Relations Officer. Mr. <unk> you may begin.
Speaker Change: Thank you and good morning, everyone welcome to our second quarter Conference call.
Speaker Change: With me here today is Rick Phillips, our Chief Executive Officer, Steve Horn, Chief operating officer.
Jana Croom: Jana Croom Chief Financial Officer.
Jana Croom: We issued a press release yesterday afternoon with our results for the second quarter of fiscal 2025 ended December 31st 2024 to.
Jana Croom: To accompany today's call presentation has been posted to the Investor Relations page on our company website.
Jana Croom: Before we get started I'd like to remind you that we will be making forward looking statements that involve risks and uncertainty and are subject to our safe Harbor provisions as stated in our press release and SEC filings and that actual results can differ materially from the forward looking statements. Our commentary today will be focused on adjusted non-GAAP results reconciliation.
Jana Croom: A GAAP to non-GAAP amounts are available in our press release.
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 call over to Rick.
Jana Croom: Thanks, Andy and good morning, everyone.
Jana Croom: Our results for the second quarter were in line with expectations as we continue to navigate a sustained period of declining customer demand, while focusing on what is control.
Jana Croom: For the fourth consecutive quarter cash flow generated from operating activities was positive inventory.
Jana Croom: The levels were reduced and that was paid down with borrowings nearly 40% lower than a year ago.
Jana Croom: Our improved balance sheet provides ample liquidity to weather, our current challenges along with the necessary dry powder to opportunistically and meaningfully invest in growing the business.
Jana Croom: The company is being strategically repositioned for a return to growth.
Jana Croom: With restructuring plan that includes the divestiture of the non core assets from the ATM business.
Jana Croom: Proved facility utilization with the planned closing of our plant in Tampa and increased focused on the medical CMO.
Jana Croom: Our efforts in all three vertical markets have been sharpened to target attractive new spaces that align with our capabilities.
Jana Croom: While we remain optimistic for the future we acknowledged that the necessary changes won't happen overnight as a result, we have revised our expectations for the full fiscal year as we anticipate more time will be needed to stabilize the business and return to our historical growth pattern.
Jana Croom: Net sales in the second quarter totaled $357 million or 13.
Jana Croom: 10% decline year over year, when excluding ATM with an increase in Asia offset by double digit declines in North America and Europe.
Jana Croom: From an end market perspective, each of the three verticals, we serve were down in the quarter.
Jana Croom: Starting with automotive.
Jana Croom: Net sales were $193 million, a 4% decrease compared to the second quarter of last year, and representing 54% of total company sales.
Jana Croom: Our automotive business is heavily concentrated in North America, and China and for the second consecutive quarter results in China were strong with monthly production rates, reaching record high levels in support of our largest customer.
Jana Croom: This strength, however was offset in North America, where volumes continue to soften from Overstocking lower demand and end of life production.
Jana Croom: In addition, we continue to support the wind down of the electronic braking program in Reynosa, where our customer a tier one supplier is no longer producing the system for the OEM.
Jana Croom: Operating activities associated with this program are scheduled to conclude in short order, which is in line with our original expectations.
Jana Croom: Yeah.
Jana Croom: In the automotive vertical well were also down year over year in Europe as that market continues to experience challenges.
Jana Croom: On a positive side, we're in the process of ramping up the new breaking program in Romania, where we saw our first shipments in January.
Jana Croom: Next is medical.
Jana Croom: Net sales in Q2 of 84 million, 22% decrease compared to the same period last year and 23% of total company.
Jana Croom: The decline in the quarter predominantly occurred in North America, and Asia related to a program that is going end of life in Thailand and continued revenue decline as a result of adjacent impacts of an FDA recall related to our largest medical customer.
Jana Croom: If you recall the bulk of revenue loss for this customer occurred in FY 'twenty. Four however, we are still seeing declines related to our production of parts and repair kits for existing machines.
Jana Croom: As part of our return to growth, we're encouraged by the longer term prospects in this vertical with our focus on higher level assemblies and finished medical devices.
Jana Croom: As we mentioned last quarter, we were recently selected as the sole supplier of the respiratory care final Assembly and HLA business for our largest medical customer and we are working towards the launch of this program in late fiscal 2026.
Jana Croom: Our manufacturing capabilities as a CMO extend beyond electronics and printed circuit board assemblies and include operations, such as precision injected molded plastics complete device Assembly and cold chain management, all of which support the production of selected drug delivery devices, such as auto injectors.
Jana Croom: These capabilities are a differentiator and an overall very attractive market and we expect similar growth opportunities to continue to emerge as the population ages XL.
Access and affordability to healthcare increases.
Jana Croom: Medical devices get smaller in size and require higher levels of precision and accuracy.
Jana Croom: And connected drug delivery systems become more common as consumer adoption increases.
Jana Croom: To keep pace with the industry growth, we are looking to elevate our prominence as a CMO with an expanded manufacturing footprint through adjacencies and additional vertical integration of our production capabilities.
Jana Croom: Finally, industrial with net sales of $81 million down 20% year over year, when excluding ATM and representing 23% of total company sales. The decrease occurred in North America, and Europe sales in Asia were slightly lower with declines in smart metering programs, where our customers are experiencing.
Jana Croom: <unk> continued market share loss from Commoditization and moderate reductions in climate controls and public safety.
Jana Croom: I'll now turn the call over to Jana to provide more details on the financial results for Q2, and our updated guidance for the full year Janet.
Jana Croom: Thank you Rick and good morning, everyone.
Speaker Change: As Rick highlighted net sales in the second quarter were 357, 4, million% to 15% decrease year over year, 13% when excluding a T N N.
Jana Croom: Foreign exchange had a near zero impact on sales in Q2.
Jana Croom: On a sequential basis, however, sales were down 5% compared to Q1, driven by declines in both the medical and industrial verticals, partially offset by a low single digit increase in automotive.
Jana Croom: The gross margin rate in Q2 was 6.6% and 160 basis point decline compared to the second quarter of fiscal 'twenty 'twenty four with the decrease coming from lower absorption.
Jana Croom: A lot of declining sales.
Jana Croom: Adjusted selling and administrative expense in the second quarter was $10 $1 million, a $5 3 million or 34% reduction compared to the $15 $4 million gain reported in Q2 last year.
Jana Croom: The decrease was driven by our efforts to align discretionary spending with current demand lower bonus expense.
Jana Croom: With no ATM expenses, this year compared to a full quarter and fiscal 'twenty 'twenty four.
Jana Croom: In addition, if you recall a year ago, we recorded a 2 million dollar allowance for credit losses, which was not required again.
Jana Croom: When measured as a percentage of sales adjusted selling and administrative expenses were two 9% an 80 basis point improvement compared to three 7% in Q2 last year.
Jana Croom: Our expectation for SG&A as a percentage of net sales remained at three 5%.
Jana Croom: Although there will be fluctuations at times as we look to rightsize expense prudently, while we work through the current environment.
Jana Croom: Adjusted operating income for the second quarter was $13 $3 million or three 7% of net sales, which compares to last year's adjusted results of $19 $1 million or four 5% of net sales.
Jana Croom: As a reminder, we have adopted the industry norm of excluding stock compensation expense from the calculation on this metrics.
Jana Croom: The result from last year has been recast to reflect this change.
Jana Croom: Yeah.
Jana Croom: Other income and expense was expense of $4 $8 million compared to $5 $3 million of expense last year with the reduction.
Jana Croom: That shouldn't be driven by lower interest expense down 31% year over year.
Jana Croom: The effective tax rate was one 2% in the second quarter compared to 26, 5% in Q2 of fiscal 2020 four.
Jana Croom: This is due primarily to the reversal of the valuation allowance as we reconcile the anticipated closure of our Tampa facility, but the sale of the ATM business we.
Jana Croom: We expect the tax rate in the mid twenties for the full fiscal year.
Jana Croom: Adjusted net income in the second quarter of fiscal 2025 was seven $4 million or 29 cents per diluted share compared to adjusted net income in Q2 last year of $9 8 million or 39 cents per diluted share.
Jana Croom: Turning now to the balance sheet.
Jana Croom: Cash and cash equivalents at December 31, 2024, or $53 $9 million.
Jana Croom: Cash flow generated by operating activities in the quarter was $29 $5 million, our fourth consecutive quarter of positive cash flow.
Jana Croom: Cash conversion days were 107 days compared to 117 days in Q2 of fiscal 2024, and 108 days last quarter.
Jana Croom: We are continuing to focus on improving cash conversion days by actively managing the components and are pleased with our progress thus far.
Jana Croom: Inventory ended the quarter at $306 2 million, which represents a $29 million reduction compared to Q1 and $149 million or 33% lower than a year ago.
Jana Croom: Again, we're pleased with our progress in reducing inventory and we will continue to work with our customers to right size the current demand outlook.
Jana Croom: Capital expenditures in the second quarter were $6 $5 million balance between maintenance requirements and investment in long term growth.
Jana Croom: Borrowings at December 31, 2024 were $205 million, a $41 million reduction from the first quarter and down 90 million or 30% from the beginning of the fiscal year.
Jana Croom: Short term liquidity available represented as cash and cash equivalents plus the unused portion of our credit facilities totaled $283 million at the end of the second quarter.
Jana Croom: This is a great example of controlling what we can control and setting up our balance sheet for future growth.
Jana Croom: It is important to highlight that during Q2, we significantly enhanced our capital structure with the amendment of the credit facility, replacing the $100 million sidecar that was up for renewal in January with a term loan a of the same amount and with a pricing grid that mirrors the rib.
Jana Croom: Walter.
Jana Croom: T. L. A provides additional domestic liquidity for investments needed to meet working capital and other operating needs as well as supporting our efforts to grow the business through organic and inorganic channels.
Jana Croom: The term loan a has a tenor of that as off cycle from the revolver and we added a new lender to the syndicate.
Jana Croom: I would like to thank all of our banking partners for their ongoing support as well as our team here at Jasper for their hard work diligence and patients needed on this transaction, particularly given much of the heavy lift occurred during the holiday season.
Jana Croom: Okay.
In the second quarter, we invested $3 million to repurchase 160000 shares.
Jana Croom: Since October 2015 under our board authorized share repurchase program, a total of $97 $7 million has been returned to our shareholders by purchasing six 3 million shares of common stocks.
Jana Croom: We have $22 $3 million remaining on the repurchase program.
Jana Croom: During the November meeting of the board of Directors the board unanimously increase the share repurchase program by $20 million.
Jana Croom: As Rick mentioned, we are updating our guidance for fiscal year 2025, with net sale is now expected to be in the range of one four to 1.44 billion compared to the previous guidance of 144 to 1555 $4 billion.
Jana Croom: Adjusted operating income is estimated at 3.4 to three 6% of net sales compared to our previous guidance of four to four 5% of net sales.
Jana Croom: The outlook for capital expenditures remains unchanged at $40 million to $50 million.
Jana Croom: And then in addition, we now estimate total exit costs associated to the closing of a facility in Tampa and the range of six five to $8 5 million and we fully expect the proceeds from the sale of the property to exceed the exit costs.
Ray: I'll now turn the call back over to Ray.
Ray: Thanks Jana.
Speaker Change: As you know President Trump issued three executive orders implementing tariffs on February one on virtually all goods from China, Mexico and Canada.
Ray: Which have now been paused 30 days in the case of Mexico and Canada.
Ray: We are partnering with our customers to understand the impacts and to determine the best solutions in the short term and the long term for their supply chains.
Ray: Our Mexico facility exports, approximately 25% to 30% of its production into the United States.
Ray: Our U S facilities import certain components from China, Mexico, and Canada on our customers' behalf to use in manufacturing.
Ray: Their products.
Ray: There are a variety of options, we will continue to review with our customers.
Ray: Our customers may be able to change Kimball's final delivery location shift production to another kimball facility or pay the tariffs.
Ray: We are also evaluating the impact to our supply chain, including the goods, we import into the U S that support manufacturing and our U S locations.
Ray: As you would expect given our guiding principles and our reputation for customer service Kimball stands ready to support our overall supply chain and our customers as they navigate these significant developments.
Ray: Lastly, I'd like to recognize our team for once again being honored by circuits Assembly Service Excellence Awards.
Ray: In November we achieved the highest overall customer ratings in all seven categories of dependability and timely delivery.
Ray: Manufacturing quality responsiveness technology.
Ray: For the price.
Ray: <unk> ability and overall satisfaction.
Ray: These awards are based solely on direct customer input and I am very proud of our team's consistent focus on building long term relationships with all customers regardless of whether they are new or those we've worked with for a decade or more.
Ray: Kimball team is well known for our culture, driven by our guiding principles and a common set of priorities. They have allowed us to continuously improve and to keep our promises even during the most challenging of times.
Speaker Change: With customer demand continuing to soften in the markets, we support and the timing of a recovery in our core EMS business becomes increasingly more difficult to predict and likely continuing through calendar year 2025, we have intensified our efforts to broaden our capabilities and role as the CFO.
Ray: Okay.
Ray: With a strong balance sheet pursuing different paths of growth.
Ray: Focused on emerging medical technologies high level assemblies, and a variety of drug device combinations.
Ray: As I mentioned earlier. However, these changes will not come overnight, but I am excited for the future of the company and thank you for your support.
Speaker Change: Daryl we would now like to open the lines for questions.
Speaker Change: Ladies and gentlemen analysts may ask a question at this time by simply pressing star one on your dial pad you may remove yourself from the queue by pressing star too on your dialed pad. We ask that if you are using a speakerphone you pick up your handset before asking your question one moment. Please for the first question.
Speaker Change: Our first questions come from the line of Derek Soderberg with Cantor Fitzgerald. Please proceed with your questions.
Derek Soderberg: Yeah, Hey, everyone. Thanks for taking my questions.
Derek Soderberg: It seems like Youre continuing to navigate this environment pretty well here congrats on reducing those borrowings just a question on tariffs to start.
Derek Soderberg: Is there a level of tariffs, where it wouldn't make sense to move production back even at 25%, it's still better manufacturer there versus Jasper.
Derek Soderberg: How should we think about that 25% number even 25% would would you still consider moving some of that production to Jasper and then on top of that what's sort of the utilization rate in Jasper today, and how much free capacity do you have there in that event and then I've got a follow up.
Hey, Derrick this steep corn, let me try to answer that for you.
Speaker Change: Done some analysis, where a few customers on that 25% with the tariffs coming from China additional tariffs there plus the ones that were their previous sleep first Trump administration with the bite administration did it's still more cost effective for where most projects to be done in Mexico.
Derek Soderberg: Those additional tariffs.
Derek Soderberg: If required we would see a better solution potentially moving business to Thailand.
Derek Soderberg: Eliminating both the tariffs from Mexico, and China at that time.
Derek Soderberg: Okay.
Derek Soderberg: Okay.
Derek Soderberg: Got it that's helpful.
Derek Soderberg: Yeah.
Derek Soderberg: It is it is.
Derek Soderberg: And then Jan so inventory is getting reduced like I said, you're paying down some of that debt balance sheets in a good place.
Derek Soderberg: You know how much more room do we have here on the inventory inventory to work with how do you expect that to trend over the next few quarters here.
Derek Soderberg: Then where do you see cash conversion days moving towards how is that trending thanks.
Speaker Change: Well, Steve and I will tag team. This one together because what I was going to say is at this point. The focus is on days more than it is absolute dollars of reduction you know your your inventory. If you think about it this way should be a function of revenue in terms of.
Speaker Change: And so we've done a great job of right sizing inventory, bringing it down as we've seen our revenues come down.
Speaker Change: Usually sitting at a 107 days isn't where we want to be but we're very very pleased with the progress. We've made thus far pulling 10 days out versus a year ago, a day lower than we were last quarter.
Speaker Change: We're continuing to work with our customers to see.
Speaker Change: What the right sizing is going to continue to look like.
Speaker Change: You know at some point, we're going to start to grow again, and you may see inventory in absolute dollars increased.
Speaker Change: But it's it's really it is about the days management.
Speaker Change: I'd like it if it was not a three digit number isn't even with a two digit number.
Derek Soderberg: What you have to add with that yeah, I think what we see Derek is our internal data shows the inventory is going to continue to drop over the next six to 12 months as we burn through some of the inventory.
Speaker Change: Inventory that we bought some of that was with the.
The agreements that our customers had with the suppliers. So we continue to see a positive trend going forward on the inventory reducing.
Speaker Change: Yeah.
Speaker Change: That's great really appreciate it thanks.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question is come from the line of Mike Crawford with B Riley Securities. Please proceed with your questions.
Speaker Change: Thank you.
Mike Crawford: How should we track what youre doing to start winning the winter boat like is there a bid and proposal pipeline you can quantify or.
Win rate on bids submitted or anything like that.
Mike Crawford: Yeah. So Mike we are in the process now of working with our Chief commercial officer Earth to begin disclosing more information on the funnel and win rates.
Mike Crawford: We're looking at what our competitors disclose and how we can capture our data in a way that would be more valuable to us. So.
Mike Crawford: We hear you loud and clear and that is something that we are actively working on and you should look for us to roll out in the coming quarters I don't know if it will be Q3, or if we might roll it out in Q4, along with FY 'twenty six guidance.
Mike Crawford: But we understand that we need to help you understand son'll win rates and future opportunities for Kimball for modeling purposes.
Mike Crawford: Mhm and so in that regard you might not give us that answer three months ago, and then we might not.
Mike Crawford: We might have to wait.
Mike Crawford: Six months before we got fiscal 'twenty six guidance.
Speaker Change: Is that what you're saying.
Speaker Change: So I am interpreting that as Deanna hurry up.
Speaker Change: And we hear from you.
Speaker Change: So we will definitely work on that for next quarter, but.
Speaker Change: Oh, Okay, you know and I know, you're not providing fiscal 'twenty six guidance.
Speaker Change: Right now but.
Speaker Change: Where we stand today without knowing what your funnel is insane programs drop off is hard to model fiscal 'twenty six being any higher than fiscal 'twenty, five but I would.
Speaker Change: How do you how.
Speaker Change: How would you look at that logic.
Follow the logic, Mike I think the as you know the.
Speaker Change: As we mentioned.
Speaker Change: Earlier in the call.
Speaker Change: This sustained customer demand weakness has.
Speaker Change: It's been longer than we anticipated and it's been more difficult to predict.
Speaker Change: This stabilization so as you can imagine we're we're all over it.
Speaker Change: Spend a ton of time as a team on the funnel in the future and not just the future funnel of wins, but the return to more stable levels on the programs that we already won that are just happened to be delivering it at lower numbers of demand that are there, but but I don't think you're way off.
Speaker Change: <unk>.
Speaker Change: And we hope to update that over the coming months, but the softness has sustained to your point calendar 'twenty five is going to be difficult.
Speaker Change: What we're looking at now which would take you through the first half of fiscal 'twenty.
Speaker Change: What we're looking at now is everything thats launching in the back half of fiscal 'twenty, six which would be calendar 'twenty six right.
Speaker Change: In terms of.
Speaker Change: Table innovation.
Speaker Change: <unk> returned to growth and we're not prepared to get into the details of that now because we still got more data coming in as well.
Speaker Change: Trying to shore up the 12 month four accounts.
Speaker Change: But we will continue to give you the information.
Speaker Change: Nation as we know it in the coming earnings calls.
Speaker Change: Okay. Thank you and then I I don't think I heard the answer to the Jasper utilization and maybe you could frame that.
Speaker Change: In terms of different shifts or.
Speaker Change: Potential incremental.
Speaker Change: I spent there.
Speaker Change: Yes, I think in the Jasper utilization is probably right now around 65%.
Speaker Change: Utilization.
Speaker Change: We pair down some ships, we basically work their 24 seven.
Speaker Change: Mike.
Speaker Change: But we do have space and capacity available obviously, we're moving that some of the Tampa work into Jasper as we speak.
Speaker Change: And then we do have space for other customers and.
Speaker Change: It had been reached out to buy other customers about potentially doing some of the work. They do in Mexico that we're not doing for them right now, but that they do in Mexico, and having to move to Jasper. So we're in those discussions as we speak.
Speaker Change: Okay, well that sounds like you get potential increase to the funnel. So thank you very much.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is come from the line of Jason Schmidt with the Lake Street Capital markets. Please proceed with your questions.
Speaker Change: Hey, guys. Thanks for taking my questions just looking at the revised guidance for fiscal 'twenty. Five is this being driven by one particular vertical or is it just broad based softness across the entire business.
Speaker Change: We're seeing broad based softness but.
Speaker Change: Autos is holding and even with the exit of the AED 100 program autos is holding in quite well driven by strength in Asia, We're still waiting for our medical and our industrial verticals to sort of get their sea legs around them.
Speaker Change: I would say that that is likely to continue over the next few quarters.
Speaker Change: Okay.
Speaker Change: Gotcha, and John I know you just laid out that you're going to be providing some additional metrics in the future, but just curious when you look at the bookings activity in the December quarter or if it was in line with your guys internal expectations or has there been a deterioration.
Speaker Change: And so our bookings activity both in December and now here in the March quarter.
Speaker Change: Hey, Jason I'll answer that what we've seen over the last six months as our bookings have been in line with our expectations.
Speaker Change: Both with new business as well as.
Speaker Change: Some extensions of current business. So they are in line with what our expectations were in the first six months of the fiscal year.
Speaker Change: Okay. That's really helpful. And then last question from me and ill jump back into queue. When we think about sort of the restructuring and the opex rationalization.
Speaker Change: This sort of 10.5 million and selling and administrative expenses for the new run rate going forward.
Speaker Change: We're likely not going to be able to hold it down low whereas sustained theory at Tommy.
Speaker Change: What we're trying to figure out.
Speaker Change: What is the discretionary balance so so part of the challenge quite honestly is there are some real inflationary pressures related to our business for costs like insurance health care et cetera, and so we've done a lot of discretionary cuts to try and offset those and reduce them down further.
Speaker Change: But there are limitations to all of the things that we can take off the table as those costs continue to term out our goal is 3.5% of net sales.
Speaker Change: But we as a leadership team also feel very very strongly that it can't just be all on the facilities to reduce costs right. So corporate spending has to be tamed as well and we have to be really really good partners globally as we look to contain costs.
Speaker Change: Okay. That's really helpful. Thanks, guys.
Speaker Change: Thank you. Our next question will come from the line of <unk> with Sidoti. Please proceed with your questions.
Speaker Change: Hi, Thank you for taking my questions most of them have been answered already but I'm just curious when you talk about the refocus on that.
Speaker Change: Medical is Brent to call are you, making any changes to your organization for that.
Speaker Change: Yes, So we had high on yes, right good good to hear from you.
Speaker Change: Yes, so we.
Speaker Change: At the at the time, when we made the decision.
Speaker Change: We were going to move forward with the disposition of the ATM business.
Speaker Change: At that same time, we actually took what at that point was it was a third pillar of the company.
Speaker Change: Which is our drug delivery business, that's really focused on CMO and we moved that together with our core EMS medical vertical.
Speaker Change: And that was we felt like a really important move for for multiple reasons. Both in terms of leadership talent in collaboration and engagement and.
Speaker Change: And also to bring together.
Speaker Change: <unk>.
Speaker Change: Very complementary capabilities of those two in it we think in a pretty differentiated way. So so we did make that change from a from an actual structure standpoint.
Speaker Change: And Thats, how we are going to market there and so we've got the full force of our business development team in E. Commerce now collaborating to help target that space. So yes, we did make a structural change and we're and we're excited about what we're seeing there as you know it takes time.
Speaker Change: It's from wins to convert to $2 on the P&L, but we're really encouraged and we're investing there and we like the profile of that business as well as the market growth rates that we see over time in that business in medical.
Mike Crawford: Okay. Thank you and then Tim the Industrials this is Mike.
Speaker Change: Smart meter Commoditization is still hurting you wonder why that's kind of bottom out and how much on.
Mike Crawford: How much of a revenue contribution on whatsapp.
Mike Crawford: Watson.
Mike Crawford: When I do think we will end up.
Mike Crawford: Let me try to answer that for you I think from a total revenue standpoint, the smart metering business. If you look at our total revenue globally.
Mike Crawford: Based off of 141 5 billion run rate.
Mike Crawford: Smart metering business might've been.
Mike Crawford: 2% to 3% of that number.
Mike Crawford: We think where we're running today is is this the bottom.
Mike Crawford: From where we're at we're seeing a little bit of positive activity, there, but I would say we're at the bottom end.
Mike Crawford: But it is still very competitive.
Mike Crawford: We'll see a significant amount of growth in that part of our of our industrial but we have other other opportunities in the industrial where we see growth.
Speaker Change: Okay. Thank you and then.
Have you seen on the changes to the company and I'm not at all.
Speaker Change: That's a really good question I think what we've seen recently.
Speaker Change: Both on the competitive environment in other environments.
And which has been a little bit different is some of our automotive customers.
Speaker Change: Providing opportunity to move product from some of our competitors to us so a little quicker ramp we're seeing more of that activity right now not quite sure why that's probably been a little unique for us.
Speaker Change: And then overall the competitive environment depend upon where we're at in the world.
Speaker Change: <unk>.
Speaker Change: It's like it's been I've been in EMS for 37 years, its as competitive as it has always been and sometimes it's a little bit more competitive if somebody has excess capacity somewhere so I wouldn't say, it's significantly different than what we saw before.
Speaker Change: And just in general the outsourcing trend.
Speaker Change: Yeah, that's kind of the increase came on maybe when you were talking about some people wanting to move their production in Mexico.
Speaker Change: European gas burn.
Speaker Change: Yes, and I think as Rick stated early with the medical HLA, we're seeing more more in that opportunity of opportunities of people moving out not wanting to do the full manufacturing deal with all of the FDA manufacturing requirements. The GMP I think is what we're seeing more activity.
Speaker Change: I think this this opportunity with Mexico, who knows where it's going to land on March 1st in.
Speaker Change: And I think we all got to take the current administration serious when they say something we learned that in the first time they were in place with the tariffs on China.
Speaker Change: Those opportunities are going to happen as people look at their own manufacturing footprint and where is the right place to put it and where kimball can help them be successful.
That's going to continue until we get through some of these these potential.
Speaker Change: Tariffs and trade wars, and whereas the right place to put put manufacturing.
Speaker Change: And some are going to offset that.
Speaker Change: Yes.
Speaker Change: Some are going to offset it with hey, we want to do a portion of it in the U S to be prepared and we're going to keep the rest in Mexico or somewhere else I think that's where we're going to see some activity.
Speaker Change: Okay. Thank you that's all for me.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your dial pad.
Speaker Change: Our next questions come from the line of Hendi <unk> with Gabelli funds. Please proceed with your questions.
Mike Crawford: Morning, Mike.
Speaker Change: First question.
Speaker Change: Would you be able to remind us how much exposure you have.
Speaker Change: In China automotive market between local versus foreign Oems.
Speaker Change: Yes, so what we've seen you know a lot as Rick.
Speaker Change: Hendi, we added we had.
The fourth quarter of the calendar year are our highest revenue ever what we're seeing is we're continuing to to grow with the local Oems local Chinese manufacturers is where we see that growth with our customers.
Speaker Change: So today I would say, we're probably somewhere around.
Speaker Change: 50 50.
Speaker Change: Foreign versus local but it's the fastest growth for us is with the local manufacturers.
Speaker Change: Yes.
Speaker Change: And then some companies do express confidence that automotive business in China.
Speaker Change: <unk> continued to demonstrate positive growth.
Speaker Change: Despite of weaknesses in.
Speaker Change: America and Europe.
Speaker Change: Do you share that female she may lose confidence.
Speaker Change: We're confident in our China operations, competing and continuing to support the Chinese auto market.
Speaker Change: They have done a great job and we see ourselves continuing to.
Speaker Change: To be a great supplier there for those customers and any I know, it's when we say this all the time and I'm sure you're aware of it but maybe it's maybe worth restating because our board certainly asked us about it but we're China for China right. So that that product is staying in country.
Speaker Change: We're manufacturing there so it's a different risk profile right and thinking about that as a major export market, which is not for us.
Speaker Change: And then I would like to learn more about the ramp up of breaking program in Romania, which end market and what geography, and what for heat cool categories will it serve when its launch this year.
Speaker Change: We can share all that information with me, but it is it is launched.
Speaker Change: And it launched in January as Rick said and continues to grow its fits in its first month, but we see a good trend there for the European market today, it's an ice vehicles.
Speaker Change: There is a portion of that will go to EV, but the EV sales in Europe similar to North America are down. So today most of what we're supporting our ice vehicles with that new breaking platform.
Speaker Change: Okay. That's very helpful and then.
Speaker Change: Okay.
Speaker Change: The end customer is a German manufacturer of that's what we can share it.
Speaker Change: Great. Thanks Al.
Speaker Change: Okay. Thank you for the for the data volume and then the next question is about the tariff if Congress takes place how much room of negotiation considering that pricing is part of the annual contract with customers.
Speaker Change: Yes, that's a good question Andy.
Speaker Change: For the Mexico operation and what we manufacture in Mexico.
Speaker Change: You know as we really as we.
Speaker Change: A shared in the release, 75% of what we do in Mexico stays in Mexico. So theres no tariffs for us on any of that product.
Speaker Change: And it goes to an end customers facility in Mexico, which they will add value to and then imported or exported into the to the U S for us for what we ship into the U S is an export.
Speaker Change: The U S and the customer will take ownership at the border and they would be responsible for the tariff costs on that portion of it for the component side of things, that's where the negotiation would come for the products that we build in Jasper Indianapolis or Tampa today yet.
Speaker Change: That's where the negotiations would come in and we've learned a lot eight years ago with the first group of tariffs that that.
Speaker Change: The administration did with China, we have very good processes, and we've had really good discussions with our customers with that so we feel confident that we'll be able to negotiate those cost with them.
Speaker Change: Got it and then one last question.
Speaker Change: If you need to move our production to Thailand, how long the qualification process will take in general.
Speaker Change: Yes, that's different by customer so one of the products. We just moved out of Tampa as part of their total was going to Thailand.
Speaker Change: That took us about three and a half months to move that product and it is fully qualified now okay.
Speaker Change: Okay.
Speaker Change: Maybe even a little bit shorter than that but we started in November and here. We sit in February and we're done so its a little lot three months is a safe number depending upon the product.
Speaker Change: The specific tooling for that product and any qualification on the customer side.
Speaker Change: Okay. Thank you and then all the best.
Speaker Change: Thanks.
Speaker Change: Andy.
Speaker Change: Thank you so much that does conclude our question and answer session.
Speaker Change: With that ladies and gentlemen, thank you for joining today's call a replay of the call will be made available on the Investor Relations page on the Kimball electronics website.
Speaker Change: Can access the replay by dialing 877.
Speaker Change: 606853.
Speaker Change: Sure.
Speaker Change: Zero one.
Speaker Change: Six one to 7415, the replay will be available until February 19th 2025.
Speaker Change: Access I D is 137.
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Speaker Change: Thank you again, you may now disconnect.
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