Kimball Electronics Reports Q3 Results With Record Sales and Strong Operating Margin; Company Expects a Strong Pace to Carry Through the Fourth Quarter

Rhea-AI Summary

Kimball Electronics (KE) announced record net sales of $368.1 million for Q3 FY2022, a 19% year-over-year increase. Operating income rose to $20.3 million, representing 5.5% of net sales, an 80 basis point improvement. Net income reached $13.6 million, or $0.54 per diluted share, a 30% increase from the previous year. Despite challenges from the Ukraine conflict and COVID-19 lockdowns in China, the company expects a strong fourth quarter with net sales projected between $370 to $390 million. Fiscal 2022 net sales guidance is updated to $1.345 to $1.365 billion.

Positive

• Record Q3 net sales of $368.1 million, up 19% YoY.
• Operating income increased to $20.3 million, or 5.5% of net sales.
• Net income improved to $13.6 million, a 30% increase from last year.
• Guidance for strong Q4 sales between $370 to $390 million.
• Record level of open orders supporting growth objectives.

Negative

• Updated guidance for FY2022 net sales decreased from approximately $1.4 billion to a range of $1.345 to $1.365 billion.
• Impact of Ukraine conflict on operations and associates' wellbeing.
• Potential disruptions from COVID-19 lockdowns in China affecting supply chain.

• Net sales in the third quarter of fiscal 2022 totaled $368.1 million, an all-time quarterly high and up 19% year-over-year.
• Operating income of $20.3 million or 5.5% of net sales, an 80 basis point improvement compared to the third quarter of fiscal 2021.
• Net income of $13.6 million, or $0.54 per diluted share, a 30% improvement compared to $10.5 million, or $0.41 per diluted share in Q3 last year.

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(Amounts in Thousands, except EPS)		2022				2021				2022				2021
Net Sales		$	368,057			$	310,329			$	976,038			$	962,682
Operating Income		$	20,277			$	14,638			$	31,971			$	48,624
Adjusted Operating Income (non-GAAP) (1)		$	19,558			$	14,426			$	30,183			$	49,432
Operating Income %			5.5	%			4.7	%			3.3	%			5.1	%
Adjusted Operating Income (non-GAAP) %			5.3	%			4.6	%			3.1	%			5.1	%
Net Income		$	13,638			$	10,472			$	21,315			$	42,345
Adjusted Net Income (non-GAAP) (1)		$	13,638			$	9,933			$	20,265			$	41,680
Diluted EPS		$	0.54			$	0.41			$	0.84			$	1.67
Adjusted Diluted EPS (non-GAAP) (1)		$	0.54			$	0.39			$	0.80			$	1.65
(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 the results in Q3. Sales exceeded our all-time high in a quarter by 10%, operating margin was 5.5% of net sales, which is significantly better than the first half of the fiscal year and 80 basis points higher than a year ago, and diluted EPS increased by more than 30% year-over-year. With our backlog of open orders at record levels, and manufacturing facilities running at higher utilization and expanding capacity, we are ideally positioned to maintain strength and momentum in this bifurcated year, and we expect a strong pace to carry through the fourth quarter. I continue to be extremely impressed with our team, and how we’ve managed the global supply chain issues stemming from the pandemic and component parts shortages.”

Mr. Charron continued, “The challenges in Q3, however, were compounded by the devastation in Ukraine. We have Ukrainian associates in our U.S. and European operations, and facilities located in nearby Poland and Romania. Our number one priority has been the health and safety of our associates, and supporting their families directly affected by the conflict. We are also closely monitoring the impact of China’s zero tolerance policy related to COVID-19. Several cities experienced shutdowns recently due to a rise in COVID cases. If shutdowns continue to occur in major cities across China, there may be temporary disruptions in both the supply chain and demand as our customers balance manufacturing delays. We’ve updated our guidance for net sales to reflect the uncertainty from these developments; however, we are reiterating our guidance for operating income margin for fiscal year 2022.”

Third Quarter Fiscal 2022 Overview

• Net sales increased 19% compared to the third quarter of fiscal year 2021. Foreign currency had a 2% unfavorable impact on net sales in the quarter compared to the same period a year ago.
• Cash flow used for operating activities of $28.2 million during the third quarter of fiscal 2022, driven by an increase in accounts receivable as a result of the strong sales in the quarter.
• Cash conversion days (“CCD”) for the quarter ended March 31, 2022 were 83 days, up from 66 days in the third quarter of fiscal year 2021, driven by an increase in inventory. 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 $22.3 million during the quarter.
• Returned $4.9 million to Share Owners during the quarter in the form of common stock repurchases.
• Cash and cash equivalents of $35.6 million and borrowings outstanding on credit facilities of $137.1 million at March 31, 2022, including $95.0 million classified as long term.

Net Sales by Vertical Market for Q3 Fiscal 2022:

	Three Months Ended
	March 31,
(Amounts in Millions)	2022			*			2021			*			Percent Change
Automotive	$	161.5		44	%		$	139.6		45	%		16	%
Medical		102.9		28	%			85.4		28	%		20	%
Industrial		84.4		23	%			69.2		22	%		22	%
Public Safety		13.8		4	%			13.5		4	%		2	%
Other		5.5		1	%			2.6		1	%		115	%
Total Net Sales	$	368.1					$	310.3					19	%
* As a percent of Total Net Sales
– 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, and smart metering
– Public Safety includes thermal imaging, first responder electronics, and security

Fiscal Year 2022 Guidance

The company is updating its guidance for fiscal year 2022 with net sales estimated to be in the range of $1.345 - $1.365 billion, a 4% - 6% increase year-over-year. The company’s previous guidance for net sales was approximately $1.4 billion. The company is reiterating its guidance for operating income margin, which is expected to be in the range of 3.75% - 4.25%, and capital expenditures, which are expected to be in the range of $70 - $80 million.

Mr. Charron continued, “We are very pleased with how the company is positioned. Q3 results were excellent. While supply chain disruptions from the pandemic continue to normalize and improve, the recent wave of lockdowns in China add a level of unpredictability that did not exist a few months ago. We expect the fourth quarter to be robust with net sales in the range of $370 to $390 million, and operating margin once again above 5%. Our record level of open orders, and recent facility expansions, support our growth objectives as we look toward the $2 billion annual revenue milestone. Finally, our hearts and thoughts are with all people both inside and outside the Kimball Electronics family impacted by the tragic turn of events in Ukraine.”

Forward-Looking Statements

Certain statements contained within this release are considered forward-looking, including our fiscal year 2022 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, 2021.

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:		May 6, 2022
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:		250193

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 third quarter and year-to-date period ended March 31, 2022 are as follows:

Condensed Consolidated Statements of Income
(Unaudited)	Three Months Ended
(Amounts in Thousands, except Per Share Data)	March 31, 2022							March 31, 2021
Net Sales	$	368,057			100.0	%		$	310,329			100.0	%
Cost of Sales		334,113			90.8	%			284,323			91.6	%
Gross Profit		33,944			9.2	%			26,006			8.4	%
Selling and Administrative Expenses		13,667			3.7	%			11,744			3.8	%
Other General Expense (Income)		—			—	%			(376	)		(0.1	) %
Operating Income		20,277			5.5	%			14,638			4.7	%
Other Income (Expense), net		(2,103	)		(0.6	) %			(641	)		(0.2	) %
Income Before Taxes on Income		18,174			4.9	%			13,997			4.5	%
Provision for Income Taxes		4,536			1.2	%			3,525			1.1	%
Net Income	$	13,638			3.7	%		$	10,472			3.4	%
Earnings Per Share of Common Stock:
Basic	$	0.54						$	0.42
Diluted	$	0.54						$	0.41
Average Number of Shares Outstanding:
Basic		25,175							25,049
Diluted		25,272							25,217

(Unaudited)	Nine Months Ended
(Amounts in Thousands, except Per Share Data)	March 31, 2022							March 31, 2021
Net Sales	$	976,038			100.0	%		$	962,682			100.0	%
Cost of Sales		905,657			92.8	%			876,428			91.0	%
Gross Profit		70,381			7.2	%			86,254			9.0	%
Selling and Administrative Expenses		39,794			4.0	%			38,347			4.0	%
Other General Expense (Income)		(1,384	)		(0.1	) %			(717	)		(0.1	) %
Operating Income		31,971			3.3	%			48,624			5.1	%
Other Income (Expense), net		(3,561	)		(0.4	) %			3,905			0.4	%
Income Before Taxes on Income		28,410			2.9	%			52,529			5.5	%
Provision for Income Taxes		7,095			0.7	%			10,184			1.1	%
Net Income	$	21,315			2.2	%		$	42,345			4.4	%
Earnings Per Share of Common Stock:
Basic	$	0.84						$	1.68
Diluted	$	0.84						$	1.67
Average Number of Shares Outstanding:
Basic		25,192							25,101
Diluted		25,291							25,288

Condensed Consolidated Statements of Cash Flows		Nine Months Ended
(Unaudited)		March 31,
(Amounts in Thousands)		2022				2021
Net Cash Flow (used for) provided by Operating Activities		$	(84,665	)		$	103,755
Net Cash Flow used for Investing Activities			(50,023	)			(22,972	)
Net Cash Flow provided by (used for) Financing Activities			64,856				(58,729	)
Effect of Exchange Rate Change on Cash and Cash Equivalents			(1,007	)			2,607
Net (Decrease) Increase in Cash and Cash Equivalents			(70,839	)			24,661
Cash and Cash Equivalents at Beginning of Period			106,442				64,990
Cash and Cash Equivalents at End of Period		$	35,603			$	89,651

		(Unaudited)
Condensed Consolidated Balance Sheets		March 31, 2022			June 30, 2021
(Amounts in Thousands)
ASSETS
Cash and cash equivalents		$	35,603		$	106,442
Receivables, net			224,216			203,382
Contract assets			63,761			45,863
Inventories			338,375			200,386
Prepaid expenses and other current assets			31,302			27,320
Property and Equipment, net			191,370			163,251
Goodwill			12,011			12,011
Other Intangible Assets, net			15,117			17,008
Other Assets			41,665			38,398
Total Assets		$	953,420		$	814,061
LIABILITIES AND SHARE OWNERS’ EQUITY
Current portion of borrowings under credit facilities		$	42,096		$	26,214
Accounts payable			275,799			216,544
Accrued expenses			58,733			58,016
Long-term debt under credit facilities, less current portion			95,000			40,000
Long-term income taxes payable			7,812			8,854
Other			20,246			22,461
Share Owners’ Equity			453,734			441,972
Total Liabilities and Share Owners’ Equity		$	953,420		$	814,061

Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except Per Share Data)
	Three Months Ended								Nine Months Ended
	March 31,								March 31,
	2022				2021				2022				2021
Operating Income, as reported	$	20,277			$	14,638			$	31,971			$	48,624
SERP		(719	)			164				(404	)			1,525
Legal Recovery		—				(376	)			(1,384	)			(717	)
Adjusted Operating Income	$	19,558			$	14,426			$	30,183			$	49,432
Net Income, as reported	$	13,638			$	10,472			$	21,315			$	42,345
Adjustments After Measurement Period on GES Acquisition		—				(254	)			—				(121	)
Legal Recovery, After-Tax		—				(285	)			(1,050	)			(544	)
Adjusted Net Income	$	13,638			$	9,933			$	20,265			$	41,680
Diluted Earnings per Share, as reported	$	0.54			$	0.41			$	0.84			$	1.67
Adjustments After Measurement Period on GES Acquisition		—				(0.01	)			—				—
Legal Recovery		—				(0.01	)			(0.04	)			(0.02	)
Adjusted Diluted Earnings per Share	$	0.54			$	0.39			$	0.80			$	1.65
									Twelve Months Ended
									March 31,
									2022				2021
Operating Income									$	49,050			$	50,233
Goodwill Impairment										—				7,925
SERP										144				2,807
Legal Recovery										(1,039	)			(717	)
Adjusted Operating Income (non-GAAP)									$	48,155			$	60,248
Tax Effect										10,774				11,786
After-tax Adjusted Operating Income									$	37,381			$	48,462
Average Invested Capital (1)									$	453,479			$	423,545
ROIC										8.2	%			11.4	%
(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/20220505006007/en/

Andrew D. Regrut

Vice President, Investor Relations

812.827.4151

Investor.Relations@kimballelectronics.com

Source: Kimball Electronics, Inc.

FAQ

What were Kimball Electronics' Q3 FY2022 net sales results?

Kimball Electronics reported net sales of $368.1 million for Q3 FY2022, a 19% increase from the previous year.

How did Kimball Electronics perform in terms of operating income in Q3 FY2022?

The operating income for Q3 FY2022 was $20.3 million, representing 5.5% of net sales.

What was the net income for Kimball Electronics in Q3 FY2022?

Net income for Q3 FY2022 was $13.6 million, or $0.54 per diluted share, a 30% improvement year-over-year.

What is the updated net sales guidance for Kimball Electronics for FY2022?

Kimball Electronics updated its FY2022 net sales guidance to a range of $1.345 to $1.365 billion.

What challenges did Kimball Electronics mention in the Q3 FY2022 report?

The company highlighted challenges from the Ukraine conflict and potential supply chain disruptions due to COVID-19 lockdowns in China.