Kimball Electronics, Inc.

Good morning ladies and gentlemen and welcome to the Kimball Electronics third quarter fiscal 2023 earnings conference call. My name is Daisy and I'll be facilitating your call today. 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, May 5th, 2023, is being recorded, and 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 your host, Andy Regrat, Vice President of Investor Relations, to begin. So, Mr. Regrat, please go ahead.

Thank you, and good morning, everyone. Welcome to our third quarter conference call. With me here today is Rick Phillips, our Chief Executive Officer. and Jana Kroom, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the third quarter of fiscal 2023. 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 statements. All commentary today is 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 2023. And Rick will complete our prepared remarks before taking your questions. I'll now turn the call over to Rick.

Thanks, Andy. And good morning, everyone. I am very pleased with my first quarter as CEO of Kimball Electronics and with the opportunity to share strong results for Q3. The last 90 days have been filled with team meetings, customer introductions, facility visits, and investor activities. I can assure you, after a fast-paced onboarding, that I'm even more excited about the future for our company. We've been on a path of unprecedented growth, and for the fifth consecutive quarter, revenue reached an all-time record high. Throughout this journey, operating margin has improved as we ramp up new and existing programs and leverage our facility expansions in Thailand and Mexico. We are forecasting a solid finish in the fourth quarter and are updating our outlook for the fiscal year, with sales expected at the high end and adjusted operating margin in the mid to low end of our guidance range. Net sales in Q3 were $485 million. a 32% increase compared to the same period last year, and 11% better than our previous best quarter, which was in Q2. While conditions in the global supply chain continue to improve, the recovery remains gradual, with only modest increases in the availability of the component parts that are in short supply and needed for the products we produce. We estimate top line growth was constrained approximately 5% in Q3 by part shortages. Similar to the first two quarters of the fiscal year, all three vertical markets reported robust, double-digit increases, and this quarter, all of them set record highs. Net sales in the automotive vertical, our largest business, were $216 million. This represents a 34% increase compared to Q3 last year and 45% of total company sales. It is also an 8% sequential step-up from Q2. During the quarter, we have also been updating our strategic plan, which includes a review of our positioning and the growth opportunities within each of the vertical markets we support. The industry megatrends in the automotive vertical identified during this review continue to present a meaningful tailwind for the company, even if consumer demand softens during a global economic slowdown. Electronic content that leverages advanced technologies and expanded operating systems is being added to cars and trucks at an increasing rate and could generate growth for our company at four times the OEM's vehicle production rate over the planning period. Approximately 70% of our automotive business is in electronic power steering and the balance is in other applications such as innovative next generation braking system in Reynosa, Mexico, for example. Within steering, Features such as autonomous driving, lane departure, and self-parking are increasing in popularity, and the technology to support them resides in an ECU, or electronic control unit, in the steering column. The architecture to turn the wheels for electric motors, internal combustion engines, or a hybrid of the two is roughly the same, meaning the applications we support are agnostic to the type of vehicles produced. Because the physical size of the ECU is fixed, Adding functionality to it increases the complexity of the manufacturing process and it increases the value to our customers. In addition, the automotive industry is highly regulated with stringent certifications, validation protocols, and change management systems. So this business is sticky and often results in program life cycles that can span eight to 10 years in length with single source awards. The combination of these insights give us confidence that our positioning within automotive will continue to generate meaningful growth for the company. Turning now to the medical vertical market, net sales in the third quarter were $134 million, a 30% increase compared to Q3 last year, and 28% of total company sales. This was a record result in the fourth consecutive quarter with growth of 30% or more compared to the same period in the prior year. It was also a 7% step up versus Q2. Similar to automotive, our strategic plan identified meaningful growth opportunities for medical, fueled by industry megatrends including an aging population, increasing access and affordability to healthcare, decreasing medical device sizes with added electronic content, connected drug delivery systems, and an overall trend by OEMs to outsource higher level assemblies. We are strategically positioned to support this growth in areas such as respiratory care, surgical systems, patient monitoring equipment, in vitro diagnostics, drug delivery, and imaging systems, all with a focus on Class 2 and Class 3 devices and higher level assembly production. Net sales in the industrial vertical market totaled $127 million, a 29% increase over the third quarter last year, and 26% of total company sales. This was a record, topping our previous quarterly high by 21%. Industrial, which we refer to as green and clean, supports products that promote energy, efficiency, safety, carbon neutrality, and the better consumption of natural resources, including water, gas, and electricity. We are well positioned within the value chain for most major brands of residential and commercial heating and cooling systems, smart metering, particularly in Europe, factory automation, and a new emerging market for EV charging stations, ones that dramatically reduce the length of time required to recharge electric vehicles through a supercharging process. We see the megatrend in legislation and incentives supporting decarbonization as meaningful growth drivers, and we are strategically positioned to support products that reduce environmental impacts. So in summary, a very good quarter. with record-setting sales in all three vertical markets and good momentum as we look to close out fiscal 2023. I'll now turn the call over to Jana to review the Q3 financials in more detail and outline the outlook for the fiscal year. Jana?