Kimball Electronics Reports Q2 Results With Record Sales and Expanding Operating Margin; Company Raises Outlook for Top-line Growth in Fiscal Year 2023

Rhea-AI Summary

Kimball Electronics reported a record net sales of $436.7 million for Q2 fiscal 2023, marking a 39% year-over-year increase. Despite a 5% unfavorable impact from foreign currency, the company's operating income rose to $17.5 million, equating to 4.0% of net sales. Net income more than doubled to $10.7 million, or $0.43 per diluted share. The company has raised its fiscal 2023 net sales guidance to between $1.7 billion and $1.8 billion, reflecting a projected growth of 26% to 33% year-over-year. Operating margins are anticipated to improve towards the higher end of the 4.6% to 5.2% guidance range.

Positive

• Record net sales of $436.7 million in Q2 fiscal 2023, a 39% increase year-over-year.
• Operating income of $17.5 million, a significant increase from the previous year.
• Raised fiscal 2023 sales guidance to $1.7 - $1.8 billion, a projected 26% - 33% growth.

Negative

• Operating activities resulted in cash outflow of $11.7 million during Q2.
• Cash conversion days increased to 103 days, up from 99 days in the prior quarter.

• Net sales in the second quarter of fiscal 2023 totaled $436.7 million, an all-time quarterly high and up 39% year-over-year; foreign currency had a 5% unfavorable impact on net sales compared to the second quarter of fiscal 2022

• Operating income of $17.5 million, or 4.0% of net sales, compared to operating income of $6.9 million, or 2.2% of net sales in the same period last year

• Net income of $10.7 million, or $0.43 per diluted share, compared to net income of $5.1 million, or $0.20 per diluted share, in the second quarter of fiscal 2022

JASPER, Ind.--(BUSINESS WIRE)-- Kimball Electronics, Inc. (Nasdaq: KE) today announced financial results for the second quarter ended December 31, 2022.

	Three Months Ended								Six Months Ended
	December 31,								December 31,
(Amounts in Thousands, except EPS)	2022				2021				2022				2021
Net Sales	$	436,696			$	315,264			$	842,585			$	607,981
Operating Income	$	17,489			$	6,914			$	31,060			$	11,694
Adjusted Operating Income (non-GAAP) (1)	$	17,829			$	7,316			$	31,165			$	10,625
Operating Income %		4.0	%			2.2	%			3.7	%			1.9	%
Adjusted Operating Income (non-GAAP) %		4.1	%			2.3	%			3.7	%			1.7	%
Net Income	$	10,720			$	5,113			$	20,229			$	7,677
Adjusted Net Income (non-GAAP) (1)	$	10,999			$	5,113			$	20,508			$	6,627
Diluted EPS	$	0.43			$	0.20			$	0.81			$	0.30
Adjusted Diluted EPS (non-GAAP) (1)	$	0.44			$	0.20			$	0.82			$	0.26
(1) A reconciliation of GAAP and non-GAAP financial measures is included below.

Donald D. Charron, Chairman and Chief Executive Officer, stated, “I am very pleased with our results in Q2. For the fourth consecutive quarter, net sales were at an all-time high for the Company, and operating margin expanded both sequentially and compared to the same period last year. Our team continues to ramp-up production on new and existing programs, leverage our facility expansions in Thailand and Mexico, and begin to work down the backlog of open orders resulting from pandemic-related global supply chain disruptions and component part shortages. We expect improvement in sales and margin to continue for the balance of the year, as part of a stair-stepped fiscal 2023, and we are raising our outlook for full year sales, and expect operating margin to be in the mid-to-upper end of the guidance range.”

Mr. Charron continued, “As previously announced, I will be retiring at the end of February, so this will be my last earnings release as Chairman and CEO of Kimball Electronics. It is with immense gratitude and pride that I say farewell, and thank you. I have been very fortunate throughout my career, and I’m confident our global enterprise, exceptional leadership team, and impressive incoming CEO, Ric Phillips, will build on our legacy of award-winning service to customers, the communities where we operate, and Share Owners. I have never been more excited about the future of Kimball Electronics.”

As part of today’s announcement, the Company raised its guidance for net sales in fiscal 2023 to a range of $1.7 - $1.8 billion, a 26% - 33% increase compared to the prior year. As a reminder, the original guidance for net sales was in the range of $1.6 - $1.7 billion. Operating margin is expected to be at the mid-to-upper end of the guidance range of 4.6% - 5.2% of net sales, and capital expenditures are expected to be in the range of $80 - $100 million.

Second Quarter Fiscal 2023 Overview

• Cash flow used by operating activities of $11.7 million during the second quarter of fiscal 2023
• Cash conversion days (“CCD”) for the quarter ended December 31, 2022 were 103 days, up from 99 days in the first quarter of fiscal year 2023; CCD is calculated as the sum of days sales outstanding plus contract asset days plus production days supply on hand less accounts payable days
• Investments in capital expenditures were $22.7 million during the quarter
• Cash and cash equivalents of $26.3 million and borrowings outstanding on credit facilities of $273.5 million at December 31, 2022, including $235.0 million classified as long term

Net Sales by Vertical Market for Q2 Fiscal 2023:
	Three Months Ended												Six Months Ended
	December 31,												December 31,
(Amounts in Millions)	2022			*		2021			*		Percent Change		2022			*		2021			*		Percent Change
Automotive	$	200.0		46%		$	139.0		44%		44%		$	384.5		46%		$	268.4		44%		43%
Medical		124.7		29%			89.8		29%		39%			239.5		28%			174.8		29%		37%
Industrial (1)		105.0		24%			82.6		26%		27%			205.9		24%			157.6		26%		31%
Other		7.0		1%			3.9		1%		77%			12.7		2%			7.2		1%		76%
Total Net Sales	$	436.7				$	315.3				39%		$	842.6				$	608.0				39%
* As a percent of Total Net Sales
(1) Beginning in fiscal year 2023, Public Safety was combined with Industrial; all prior periods have been recast to conform to current period presentation
– Automotive includes electronic power steering, body controls, automated driver assist systems, and electronic braking systems
– Medical includes sleep therapy and respiratory care, image guided therapy, in vitro diagnostics, drug delivery, AED, and patient monitoring
– Industrial includes climate controls, automation controls, optical inspection, smart metering, and public safety

Forward-Looking Statements

Certain statements contained within this release are considered forward-looking, including our fiscal year 2023 guidance, under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “expect,” “should,” “goal,” “predict,” “will,” “future,” “optimistic,” “confident,” and “believe.” Undue reliance should not be placed on these forward-looking statements. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. These forward-looking statements are subject to risks and uncertainties including, without limitation, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies including the COVID-19 pandemic, availability or cost of raw materials and components, foreign exchange rate fluctuations, and our ability to convert new business opportunities into customers and revenue. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the company are contained in its Annual Report on Form 10-K for the year ended June 30, 2022.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. The non-GAAP financial measures contained herein include adjusted operating income, adjusted net income, adjusted diluted EPS, and ROIC. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Reconciliation of Non-GAAP Financial Measures section below. Management believes these measures are useful and allow investors to meaningfully trend, analyze, and benchmark the performance of the company’s core operations. The company’s non-GAAP financial measures are not necessarily comparable to non-GAAP information used by other companies.

About Kimball Electronics, Inc.

Kimball Electronics is a multifaceted manufacturing solutions provider of electronics and diversified contract manufacturing services to customers around the world. From our operations in the United States, China, India, Japan, Mexico, Poland, Romania, Thailand, and Vietnam, our teams are proud to provide manufacturing services for a variety of industries. Recognized for a reputation of excellence, we are committed to a high-performance culture that values personal and organizational commitment to quality, reliability, value, speed, and ethical behavior. Kimball Electronics, Inc. (Nasdaq: KE) is headquartered in Jasper, Indiana.

To learn more about Kimball Electronics, visit: www.kimballelectronics.com.

Conference Call / Webcast
Date:		February 7, 2023
Time:		10:00 AM Eastern Time
Live Webcast:		investors.kimballelectronics.com/events-and-presentations/events
Dial-In #:		844-200-6205 (other locations - 929-526-1599)
Conference ID:		914955

For those unable to participate in the live webcast, the call will be archived at investors.kimballelectronics.com.

Lasting relationships. Global success.

Financial highlights for the second quarter and year-to-date period ended December 31, 2022 are as follows:

Condensed Consolidated Statements of Income
(Unaudited)	Three Months Ended
(Amounts in Thousands, except Per Share Data)	December 31, 2022							December 31, 2021
Net Sales	$	436,696			100.0	%		$	315,264			100.0	%
Cost of Sales		402,505			92.2	%			294,427			93.4	%
Gross Profit		34,191			7.8	%			20,837			6.6	%
Selling and Administrative Expenses		16,702			3.8	%			13,923			4.4	%
Operating Income		17,489			4.0	%			6,914			2.2	%
Other Income (Expense), net		(3,296	)		(0.7	) %			(209	)		(0.1	) %
Income Before Taxes on Income		14,193			3.3	%			6,705			2.1	%
Provision for Income Taxes		3,473			0.8	%			1,592			0.5	%
Net Income	$	10,720			2.5	%		$	5,113			1.6	%
Earnings Per Share of Common Stock:
Basic	$	0.43						$	0.20
Diluted	$	0.43						$	0.20
Average Number of Shares Outstanding:
Basic		24,881							25,238
Diluted		25,000							25,282

(Unaudited)	Six Months Ended
(Amounts in Thousands, except Per Share Data)	December 31, 2022							December 31, 2021
Net Sales	$	842,585			100.0	%		$	607,981			100.0	%
Cost of Sales		779,073			92.5	%			571,544			94.0	%
Gross Profit		63,512			7.5	%			36,437			6.0	%
Selling and Administrative Expenses		32,452			3.8	%			26,127			4.3	%
Other General Expense (Income)		—			—	%			(1,384	)		(0.2	) %
Operating Income		31,060			3.7	%			11,694			1.9	%
Other Income (Expense), net		(4,699	)		(0.6	) %			(1,458	)		(0.2	) %
Income Before Taxes on Income		26,361			3.1	%			10,236			1.7	%
Provision for Income Taxes		6,132			0.7	%			2,559			0.4	%
Net Income	$	20,229			2.4	%		$	7,677			1.3	%
Earnings Per Share of Common Stock:
Basic	$	0.81						$	0.30
Diluted	$	0.81						$	0.30
Average Number of Shares Outstanding:
Basic		24,854							25,201
Diluted		24,985							25,283

Condensed Consolidated Statements of Cash Flows	Six Months Ended
(Unaudited)	December 31,
(Amounts in Thousands)	2022				2021
Net Cash Flow used for Operating Activities	$	(71,921	)		$	(56,463	)
Net Cash Flow used for Investing Activities		(41,886	)			(27,805	)
Net Cash Flow provided by Financing Activities		91,435				35,465
Effect of Exchange Rate Change on Cash and Cash Equivalents		(593	)			(901	)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash		(22,965	)			(49,704	)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period		49,851				106,442
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	26,886			$	56,738

	(Unaudited)
Condensed Consolidated Balance Sheets	December 31, 2022			June 30, 2022
(Amounts in Thousands)
ASSETS
Cash and cash equivalents	$	26,251		$	49,851
Receivables, net		265,153			222,857
Contract assets		74,861			64,080
Inventories		487,527			395,630
Prepaid expenses and other current assets		34,505			28,665
Property and Equipment, net		238,862			206,835
Goodwill		12,011			12,011
Other Intangible Assets, net		13,882			14,707
Other Assets		42,265			41,131
Total Assets	$	1,195,317		$	1,035,767
LIABILITIES AND SHARE OWNERS’ EQUITY
Current portion of borrowings under credit facilities	$	38,534		$	35,580
Accounts payable		337,733			308,617
Accrued expenses		76,495			64,545
Long-term debt under credit facilities, less current portion		235,000			145,000
Long-term income taxes payable		5,859			7,812
Other long-term liabilities		20,548			20,242
Share Owners’ Equity		481,148			453,971
Total Liabilities and Share Owners’ Equity	$	1,195,317		$	1,035,767

Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except Per Share Data)
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2022			2021			2022				2021
Operating Income, as reported	$	17,489		$	6,914		$	31,060			$	11,694
SERP		340			402			105				315
Legal Settlements (Recovery)		—			—			—				(1,384	)
Adjusted Operating Income	$	17,829		$	7,316		$	31,165			$	10,625
Net Income, as reported	$	10,720		$	5,113		$	20,229			$	7,677
Adjustments After Measurement Period on GES Acquisition		279			—			279				—
Legal Settlements (Recovery), After-Tax		—			—			—				(1,050	)
Adjusted Net Income	$	10,999		$	5,113		$	20,508			$	6,627
Diluted Earnings per Share, as reported	$	0.43		$	0.20		$	0.81			$	0.30
Adjustments After Measurement Period on GES Acquisition		0.01			—			0.01				—
Legal Settlements (Recovery)		—			—			—				(0.04	)
Adjusted Diluted Earnings per Share	$	0.44		$	0.20		$	0.82			$	0.26
							Twelve Months Ended
							December 31,
							2022				2021
Operating Income							$	71,915			$	43,411
SERP								(1,773	)			1,027
Legal Recovery								—				(1,415	)
Adjusted Operating Income (non-GAAP)							$	70,142			$	43,023
Tax Effect								18,856				9,530
After-tax Adjusted Operating Income							$	51,286			$	33,493
Average Invested Capital (1)							$	605,772			$	424,854
ROIC								8.5	%			7.9	%
(1) Average invested capital is computed using Share Owners’ equity plus current and non-current debt less cash and cash equivalents averaged for the last five quarters.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230206005480/en/

Andrew D. Regrut

Vice President, Investor Relations

812.827.4151

Investor.Relations@kimballelectronics.com

Source: Kimball Electronics, Inc.

FAQ

What were Kimball Electronics' Q2 fiscal 2023 earnings?

In Q2 fiscal 2023, Kimball Electronics reported net income of $10.7 million, or $0.43 per diluted share.

How much did Kimball Electronics raise its sales guidance for fiscal 2023?

The company raised its sales guidance for fiscal 2023 to a range of $1.7 - $1.8 billion.

What were the operating income and margin for Kimball Electronics in Q2 fiscal 2023?

In Q2 fiscal 2023, operating income was $17.5 million, representing 4.0% of net sales.

What impact did foreign currency have on Kimball Electronics' net sales?

Foreign currency had a 5% unfavorable impact on net sales compared to Q2 fiscal 2022.