Kimball Electronics, Inc.

Good morning, ladies and gentlemen, and welcome to the Kimball Electronics Third Quarter Fiscal 2025 Earnings Conference Call. My name is Kevin, and I'll 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 session. To ask a question, simply press star and the number one on your telephone keypad. Today's call, May 7, 2025, is being recorded. A replay of the call will be made available on the Investor Relations page of the Kimball Electronics website. At this time, I'd like to turn the call over to Andy Redrutt, Treasurer and Investor Relations Officer. Mr. Redrutt, you may begin.

Thank you, and good morning, everyone. Welcome to our third quarter conference call. With me here today is Rick Phillips, our Chief Executive Officer, Jana Kroon, Chief Financial Officer, and Steve Korn, Chief Operating Officer. We issued a press release yesterday afternoon with our results for the third quarter of fiscal 2025 ended March 31st, 2025. 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 25. 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 proud of the results for the third quarter and our team's ability to navigate an environment of uncertainty while focusing on gross control. Sales in Q3 were in line with expectations and increased sequentially. Margins improved. We continue to generate cash from operating activities. And the pay down of debt continued with borrowings now 45% lower than peak levels. We have ample liquidity to weather the short-term unpredictable environment and significant dry powder to opportunistically invest in the business longer term. As part of today's release, we are reiterating our guidance for fiscal 2025 with the expectation that we'll be at the top end of the range for sales and operating income. We also announced the addition of a new manufacturing facility in Indianapolis focused on the medical industry. This is another step of repositioning the company for a return to growth and expanding our presence as a medical CMO, which will occur over time. To accelerate this strategy, we're looking to better strategically utilize the cash generated from our EMS operations and redeploy capital to the CMO. We remind everyone that the revenue cycle of CMO is similar to EMS, and as a result, organic revenue growth will take time. In our company's history, EMS generates high levels of cash when operating conditions are at historic norms, and this cash will be used to grow the medical CMO through organic and potentially inorganic channels. The margin profile on higher-level assemblies and finished medical devices could be accretive to the returns that are customary with contract manufacturing and EMS. To keep pace with industry growth, we are looking to continue to elevate our prominence in medical with an expanded manufacturing footprint through adjacencies and additional vertical integration of our production capabilities. Turning back to the third quarter, net sales totaled $375 million, a 10% decline year over year when excluding the AT&M business, which was divested earlier this fiscal year. From an end market perspective, Sales in medical increased, while the other two verticals we served were down in the quarter. Starting with medical, net sales in Q3 were $115 million, up 2% compared to the same period last year, and 31% of total company sales. It is important to highlight that the increase in the quarter was driven by non-recurring consignment inventory sales to our largest medical customer. This transaction was related to obsolete inventory associated with the FDA recall. We estimate the Q3 revenue impact on the medical vertical from the inventory sale was approximately 2%, and the revenue impact in total was about 6%. As previously announced, we are working with this same customer out of our facility in Thailand to launch their respiratory care final assembly and HLA business this summer. and will continue to see volume growth as the customer restores its place in the market. The step of adding a new, larger, medically focused manufacturing facility in Indianapolis reflects our commitment to the CMO. The leased facility represents 300,000 square feet, a complement to our capabilities that 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 medical disposables, surgical instruments, and selected drug delivery devices such as auto injectors. The plan is to transfer existing programs in Indianapolis to the new building over time and sell the buildings we currently operate out of. We will have more than enough floor space in the new facility for future growth with new and existing customers, including the transfer work. Next is automotive, our largest business with net sales of $173 million, a 14% decrease compared to the third quarter of last year and 46% of the total company. Our automotive business is heavily concentrated in North America and China, but growing in Europe with the launch of the breaking platform in Romania. For the third consecutive quarter, results in China were strong. Sales in Europe increased modestly as the new electronic braking program in Romania started to ramp production. North America, on the other hand, reported a decline in sales, primarily driven by the electronic braking program in Renosa, as previously discussed. We continue to monitor the demand for electronic steering systems for EVs globally, which were sequentially lower in the quarter. Finally, industrial, with net sales of $86 million, down 15% year-over-year when excluding AT&M, and representing 23% of total company sales. The decrease occurred in all regions with the largest decline in Europe, followed by Asia, and a modest decrease in North America. Our customers continue to experience market share loss from the commoditization of smart meters and reductions in climate control and public safety products. we are seeing stability in climate control on the horizon. However, we do not anticipate smart meters to be a significant portion of our industrial vertical going forward. I'll now turn the call over to Jana to provide more details on the financial results for Q3 and our guidance for the full year. Jana?