Kimball Electronics, Inc.

Good morning, ladies and gentlemen. Welcome to the Kimbell Electronics third quarter fiscal 2021 earnings conference call. My name is Cindy, and I will be the facilitator for today's call. All lines have been placed in a listen-only mode to prevent any background noise. After the completion of the prepared remarks from the Kimbell Electronics leadership team, there will be a question and answer period. To ask a question, simply press star, then the number one on your telephone keypad. Questions will be taken in the order that they are received. Today's call, May the 6th, 2021, 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, Head of Investor Relations. Mr. Regret, you may begin.

Thank you, Cindy, and good morning, everyone. My name is Andy Redgrid, and I recently joined Kimball Electronics as the head of investor relations. I'd like to welcome you to our third quarter conference call. With me here today is Don Sharon, our chairman and CEO, Mike Sergesketter, vice president and chief financial officer, and Janet Kroom, vice president finance. We issued a press release yesterday afternoon with the results of our third quarter ended March 31st, 2021. To accompany today's call, a presentation summarizing the financial results has been posted to the investor relations page on our company website within the events and presentations tab. Or if you're listening via the webcast, you can follow along by advancing the slides or download them from the downloads tab on the webcast portal. Before we get started, I'd like to remind you that on today's call 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 filings, and that actual results can differ materially from forward-looking statements. All commentary today is focused on non-GAAP results. For the third quarter of fiscal 2021, this excludes one-time after-tax benefits amounting to $0.5 million or two cents per diluted share associated with non-operating items. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Don will start the call with a few opening comments. Mike will review the financial results for the quarter, and Don will complete our prepared remarks before taking your questions. I'll now turn the call over to Don.

Thanks, Andy, and good morning, everyone. I'm very pleased with our results for the third quarter. Our team remains resilient in the face of many ongoing challenges around the world, including the COVID-19 pandemic and the global shortage of semiconductors. Despite these headwinds, we delivered solid top-line growth with very good results across multiple end-market verticals, and our adjusted EPS in the quarter was up 56% compared to Q3 last year. In addition, the operating margin rate once again exceeded our goal of 4.5%. and we generated strong cash flow from operations for the fourth consecutive quarter. On a year-to-date basis, our cash flow from operations has more than doubled from the prior year. Due to the global shortage of semiconductors, a significant amount of our shippable backlog shifted out of Q3 and Q4 of fiscal year 2021 and into the first half of fiscal year 2022. Many industry experts are forecasting that this semiconductor shortage will remain with us for most of this calendar year. Our materials teams around the world have been working day and night to find solutions to overcome this shortage. Based on the semiconductor delivery commitments that we currently have from our suppliers, we are still expecting a very strong fourth quarter of fiscal year 2021, both sequentially and year over year. Beyond these excellent results, we have never lost sight of the fact that the health and safety of our employees remains our number one priority, and we continue to make every effort to keep our facilities safe. The number of employees testing positive for COVID-19 has remained at a low level, minimizing disruptions and allowing us to continue to deliver on our promises to our customers, which was evident in our top-line results for the third quarter and year-to-date fiscal year 2021. Net sales increased 6% compared to the same period last year, and while foreign currency did have a favorable impact, the growth was solid even after adjusting for FX. Strong sales increases were posted in our automotive, industrial, and public safety verticals. Automotive sales were up 12% in Q3 from a year ago, with the strength resulting from ramp-up of certain programs, including fully electric vehicles. Lower volumes in the third quarter last year, which began to see the impact of COVID-19 and favorable foreign exchange rates. An example of the programs with electric vehicles includes electronic power steering systems. It's an application and architecture that is largely the same for both electric vehicles and vehicles driven by internal combustion engines or hybrids. This is an area where we continue to invest to keep pace with expected future growth as the popularity of electric vehicles rises. There are other applications that are similar in terms of approach and focus, and we have been successful in winning additional programs. We have strong relationships with several customers that support many of the most popular brands in the world, and we expect these relationships to fuel growth in this vertical market in the years to come. On a sequential basis, sales in automotive were down 8% from last quarter, an outcome from the global semiconductor shortage. And while dependent on our ability to overcome the component shortages, we expect sales to continue to be strong into fiscal year 2022. The medical end market vertical was down 2% in Q3 as a result of strong prior year sales related to the COVID-19 global pandemic and reduced elective procedures also due to the ongoing global pandemic. We expect this decline to be short-lived as more of the population is vaccinated and physicians, offices, and hospitals resume elective procedures and activities. Shifting now to the industrial vertical, sales increased 5 percent in the third quarter compared to the same period last year, with the strength resulting from automation tests and inspection sales, higher-end market demand for climate control products, for instance, HVAC applications in the U.S., and favorable effects, partially offset by decreased demand for smart metering products. We expect a strong fourth quarter in the industrial vertical, driven by orders for machines scheduled to be shipped by GES. And finally, sales and public safety were $13.5 million, an increase of 9% driven by the ramp up of new programs. As I alluded to in our second quarter call, we have received Board approval for another critical expansion of our global footprint. We plan to invest approximately 25 to $30 million on the expansion, which will double the size of our footprint in Mexico. We expect to break ground over the summer with completion within approximately 12 months. This combined with our Thailand expansion is a continued demonstration of our strong market positioning and growth opportunity for the future. And finally, I'm so proud of our team and the effort to deal with the challenges caused by the pandemic and the global semiconductor shortage. In April, we were honored by achieving the highest overall customer rating in Circuit Assembly's 2021 Service Excellence Awards. Consistency in anonymous surveys such as this speaks volumes about our customer service culture. So I'd like to point out that this is the third time in four years that we have been recognized for this award. Circuits Assembly is a leading industry publication covering the mixed technology electronics assembly marketplace and recognizes companies that receive the highest customer service ratings as judged by their own customers. The awards were presented to outstanding electronics manufacturing services providers in the categories of quality, dependability, timely delivery, responsiveness, value for price, and technology. and we were recognized for achieving the highest overall customer rating in all five service categories for EMS companies with annual sales over $500 million. This is a great example of how our strong company culture and core values are helping us get through this together. Now I'll turn it over to Mike to discuss our third quarter results in more detail.