Kimball Electronics, Inc.

Good morning, ladies and gentlemen, and welcome to Kimball Electronics' first quarter fiscal 2022 earnings conference call. My name is Sylvia, and I will be your 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 Kimball Electronics leadership team, there will be a question and answer period. To ask a question, simply press star and the number one on your telephone keypad. Today's call, November 4th, 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, Sylvia, and good morning, everyone. Welcome to our first quarter conference call. With me here today is Don Sharon, our Chairman and CEO, and Janet Crum, Vice President, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the first quarter of fiscal 2022. To accompany today's call, a presentation has been posted to the Investor Relations page on our company website. Before we get started, I'd like to remind you that we will be making forward-looking statements that involve 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 forward-looking statements. All commentary today is focused on adjusted non-GAAP results. For the first quarter of fiscal 2022, this excludes one-time after-tax income totaling $1.1 million, or 4 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. Jana will review the financial results for the quarter and guidance for fiscal 2022, and Don will complete our prepared remarks before taking your questions. I'll now turn the call over to Don.

Thanks, Andy, and good morning, everyone. I'm proud of our people, our company, and the results for Q1, considering the difficult operating environment caused by issues in the global supply chain. Component shortages, which are impacting companies worldwide, continue to make it challenging to keep pace with strong market demand. We were disappointed by the lack of improvement in the overall situation in the September ending quarter when we were actually expecting some level of recovery. In fact, conditions deteriorated during July, August, September period due to increasing infections in Malaysia and the resulting restrictions and the worsening of the backlog in U.S. West Coast ports. In addition, during the last week of the period, we were faced with the challenge of power outages at our China facility. The outages continued into Q2. However, we have identified a solution that will mitigate our risk to further production. As a result of these issues, our lost absorption was more significant than original estimates. It is important to note we are committed to retaining our workforce around the world as we see these disruptions as a short-term issue. and our funnel of new product introductions remains strong. For the past 10 months, our teams have been working tirelessly to navigate these challenges, and we continue to experience a shift in a significant portion of our shippable backlog as customer demand exceeds parts availability. As supply constraints ease, we are well positioned to ramp production on our record backlog and support our strong funnel of new product introductions. In fact, we're preparing to run at maximum capacity on several production lines across the company. We function as a single source for many of our customers who are relying upon us to deliver on our contractual agreements once parts become available. We are reiterating our guidance for fiscal year 2022. although the bifurcation between the first and second halves of the fiscal year will now be more pronounced. Longer term, the outlook for our company continues to be strong, and the team we have in place to execute on a variety of growth opportunities is up to the challenge. Pivoting back to the first quarter, net sales were down 12% compared to the same period last year, with declines in three of four vertical markets. Automotive was the only major vertical market with sales increasing in Q1, up 9%. Based on customer demand and our backlog, this result could have been much stronger if we had the materials needed to fill these orders. But unfortunately, that was not the case. The Q1 growth in automotive resulted from popular vehicle models designated as high priority by our customers and the OEMs receiving an allocation of components. from the limited worldwide supply. When the global supply chain issues subside and industry-wide volumes normalize, we are still bullish on the growth prospects of this vertical market. Electronic content per vehicle continues to increase with advanced technologies and expanded operating systems being added to most vehicles. As I've mentioned in previous calls, the applications and architecture for these systems are largely the same, for both electric vehicles and vehicles driven by internal combustion engines. And the stringent production standards in the automotive industry align well with our core competencies, which gives us confidence in the growth potential of this vertical market in the years to come. The medical vertical market was down 33% in Q1. As you will recall, our sales were strong last year with our support of respiratory care products needed to combat COVID-19 during the early months of the pandemic. This combined with raw material shortages and logistical challenges made for a difficult quarter over a difficult quarter over quarter comparable. Electric procedures are still below pre pandemic levels, and while we're starting to see improvement as more of the population gets vaccinated and physicians, offices and hospitals are able to resume these activities. the recovery has been gradual. Longer term, we continue to believe the megatransit healthcare industry with an aging population and increasing access and affordability to care, decreasing device sizes and connected drug delivery systems are an excellent setup for growth. Turning to the industrial vertical market, which was down 9% in the first quarter, the decline resulted from lower sales in our climate control and smart metering products. both again largely related to parts shortages. And finally, sales and public safety were $11.1 million down 16% from the first quarter of the prior year, again largely driven by part shortages. I'll now turn the call over to Janet to discuss our Q1 results in more detail and review our guidance for fiscal year 2022. Janet?