Kimball Electronics, Inc.

Good morning, ladies and gentlemen. Welcome to Kimball Electronics first quarter fiscal 2025 earnings conference call. My name is Maria and I'll 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'll 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 5th, 2024 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 Ragout, Treasurer and Investor Relations Officer. Mr. Ragout, you may begin.

Thank you, and good morning, everyone. Welcome to our first quarter conference call. With me here today is Rick Phillips, our Chief Executive Officer, and Jana Kroon, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the first quarter of fiscal 2025 ended September 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 filings. and that actual results can differ materially from the forward-looking statements. 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, Andy. And good morning, everyone. Before we get into the quarterly results and our continued theme to control what we can control, I'd like to take a moment to highlight the progress we have made thus far to strategically position the business for the future. First, we restructured the company by divesting the non-core AT&M business, and we folded the medical CMO business into our core EMS portfolio, allowing us greater focus on key and growing areas of the medical vertical. We are seeing the differentiation and potential new customer opportunities from this shift. Next, and consistent with this move, we have sharpened our strategic focus in all three of our vertical markets to target attractive current and new market spaces that fit our capabilities. Some examples of these spaces include domain controllers and automotive, off-highway equipment and energy storage solutions and industrial, and high-level assemblies and drug device combinations and medical. Another set of actions to position our business for the future has been on the cost side, where we've been very proactive in adjusting our resources and costs to the ongoing market demand softness. This will serve us well as demand returns to more stable levels. In addition, we've been shoring up our balance sheet, lowering inventory levels by over $150 million and generating significant positive cash flow. Finally, Last night, we announced a streamlining of our manufacturing footprint with the closure of our Tampa manufacturing facility, which I'll discuss more in a moment. But from a strategic perspective, this move will both drive efficiency for the future and will help provide the necessary dry powder to meaningfully invest in growing the core business, which we intend to do. Collectively, we believe this series of strategic moves will position us very well for the future. As I mentioned a moment ago, we announced last night that we made the difficult decision to close our facility in Tampa as part of our objective to sharpen the strategic focus of the company. This will help us improve competitiveness by leveraging capacity in our global footprint while streamlining the operating structure. Production activities on existing customer programs will be transferred out of Tampa, with the majority of the work going to the newly expanded facility in Mexico and to our Jasper facility. We expect operations in Tampa to cease by the end of the fiscal year, and we anticipate the facility will close in Q1 of fiscal 2026. As you can imagine, shutting down a location is a difficult decision and one that we did not take lightly. But we feel it's an appropriate path forward considering the preferences of our customers, our outlook for U.S. manufacturing, and an objective of returning the company to profitable growth and stronger performance. We are grateful to the employees in Tampa and their accomplishments since the Reptron acquisition in 2007. The team there played a vital role during the pandemic, supplying ventilators to those in need, and we appreciate their contributions as part of Kimball. Throughout this process, we remain committed to doing the right thing for our people, our customers, our suppliers, and the local community. These actions have been designed to set Kimball up for a bright future. We look forward to sharing more with you as our strategy unfolds in the quarters to come. Now turning to the first quarter with Q1 representing another chapter of controlling what we can control while navigating the challenging operating environment stemming from sustained end market weakness. Our results were in line with expectations considering the difficult comparisons from a record setting Q1 last year. We continue to adjust costs, improve working capital management, and generate positive cash flow to pay down debt, which was nearly $50 million in Q1, reducing our debt levels to a two-year low. Net sales in the quarter totaled $374 million, a 15% decrease year over year, when excluding AT&M from both periods, the decrease was 13%. From an end market perspective, each of the three verticals we serve posted declines. Starting with automotive, Net sales were $188 million, down 11% compared to the first quarter last year, and 50% of total company sales. The decrease in Q1 occurred in Europe and North America, partially offset by a modest increase in Asia. The decline in the quarter is due to volume softening, a result of overstocking, lower demand, and dynamic timing of NPIs versus end-of-life productions. As we announced in August, we are working through a setback with an electronic braking program. Our customer, a Tier 1 supplier, learned they will no longer be producing the system for the OEM. We are supporting the wind down of production and transfer as necessary and expect operating activities to conclude by the end of Q3. As such, there was no impact to revenue in the quarter due to this program ending. On a positive note, we're on schedule with this same customer for the launch and ramp-up of a new braking program in Romania in Q3. We expect growth in the vertical to return when vehicle sales burn through the elevated inventory levels that exist in the industry-wide supply chain. Next is medical, with net sales in the first quarter of $90 million, a 12% decrease compared to the same period last year, and 24% of total company. The decline in the quarter was heavily concentrated in Asia, driven by volume declines due to excess inventory. Additionally, North America and Europe were both down slightly. As we look forward, we're encouraged by the growth prospects in this vertical market with our focus on higher level assemblies and finished medical devices. 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 toward the fiscal 2026 launch of this program. Our expertise in manufacturing selected drug devices, such as auto injectors, is a differentiator in an overall very attractive market, and we're encouraged about our current customer discussions and future opportunities in this area. Finally, industrial, with net sales of $96 million, down 22% year over year. When excluding AT&M, From both periods, net sales were $94 million, a decrease of 17%, and 25% of total company sales. The decline predominantly occurred in North America and Europe. Sales in Asia were down slightly, with weak demand for internal climate control systems, public safety products, and smart meters in Europe, which have been commoditizing. We expect to return to growth coming from a rebound for climate control products, and opportunities in other sub-verticals within the industrial space. I'll now turn the call over to Jana for more detail on the quarter and insights on the outlook. Jana?