Kimball Electronics, Inc. · NASDAQ:KE

Kimball Electronics — Midwest IDEAS Investor Conference (August 2018)

38 slides from Kimball Electronics's conference presentation, August 2018

  1. Slide 1: Investor Presentation

    Investor Presentation August 2018

  2. Slide 2: Safe Harbor Statement

    KIMBALL ELECTRONICS (Nasdaq: KE) // Safe Harbor Statement Certain statements contained within this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties including, but not limited to, successful integratio

  3. Slide 3: Who We Are

    KIMBALL ELECTRONICS (Nasdaq: KE) // Who We Are Global contract manufacturer Headquarters: of electronic components used in… Jasper, Indiana Automotive, Industrial, Medical & Public Safety Industries Established in 1961 Focused on non-commodity products and components that require … Nasdaq: KE comple

  4. Slide 4: Why Invest?

    KIMBALL ELECTRONICS (Nasdaq: KE) // Why Invest? Expect high single-digit revenue • Utilization rates increase growth Opportunities Above Average • New customer programs • Focus on secular growth trends to Expand Revenue mature • Positive outsourcing trends Profitability • Contribution from new Growt

  5. Slide 5: What We Do

    KIMBALL ELECTRONICS (Nasdaq: KE) // What We Do PUBLIC SAFETY 6%* INDUSTRIAL 20%* • Thermal Imaging • Climate Controls • Fire Detection • Automation Controls • Defense • LED Lighting • Security • Operator Interface $1.1B OTHER 1% FY 2018 NET SALES AUTOMOTIVE 44%* MEDICAL 29%* • Electronic Power Steer

  6. Slide 6: Our Value Proposition/Competitive Moat

    KIMBALL ELECTRONICS (Nasdaq: KE) // Our Value Proposition/Competitive Moat Global consistency - Single instance of SAP supports manufacturing operations globally. Standard lean six sigma practices shared across all facilities. Deep domain expertise - Experienced body of knowledge required for high q

  7. Slide 7: Sustainable Long-Term Customer Relationships

    KIMBALL ELECTRONICS (Nasdaq: KE) // Sustainable Long-Term Customer Relationships 11% More than 10 Years 28 Customers Typical Program Length 5-10 Years Automotive: 5-7 years 28% 18 Customers Medical: 10 years 61% Industrial: 3-5 years Less than 5 Years 30 Customers % of Net Sales FY18 Programs are mo

  8. Slide 8: Sizable Addressable Market

    KIMBALL ELECTRONICS (Nasdaq: KE) // Sizable Addressable Market Total Market Size $471 Billion Industrial Market CAGR CAGR Medical $31 Verticals 2012-2017 2017-2022 Billion Automotive 5.9% 8.3% $19 Medical 5.1% 6.2% Billion Industrial 2.5% 5.9% Total Market 2.7% 7.5% Automotive $14 Billion Focused on

  9. Slide 9: Rapid Change for Traditional Manufacturing

    KIMBALL ELECTRONICS (Nasdaq: KE) // Rapid Change for Traditional Manufacturing • Outsourcing is accelerating… – Faster time to market – Allocating resources to points of differentiation – Eco-system is becoming exponentially more complicated – Global worker shortage – Near sourcing •Disruption is co

  10. Slide 10: Megatrends Opportunities

    KIMBALL ELECTRONICS (Nasdaq: KE) // Megatrends Opportunities Increasing electronic content per vehicle • Advanced Driver Assistance Systems (“ADAS”) • Infotainment Systems • Passenger Safety Systems • Mobility/Vehicle Management • Electric Vehicles • Redundant Systems for Self Driving Cars Global Au

  11. Slide 11: Megatrends Opportunities

    KIMBALL ELECTRONICS (Nasdaq: KE) // Megatrends Opportunities Healthcare Growth Internet Connected Devices • Aging Population • Internet of Things • Increasing Access to Care • Smart Metering • Remote Patient Monitoring • Energy Efficient Lighting • Decreasing Device Size • Connected Drug Delivery Gl

  12. Slide 12: Creating Shareholder Value

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value Target end markets with strong secular growth Make investments that enable greater strategic customer engagement and enhance return profile Leveraging existing assets & continuously improving efficiencies KIMBALL ELECTRONICS 12

  13. Slide 13: End Markets with Secular Growth - Automotive

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value (Unaudited) End Markets with Secular Growth - Automotive Kimball Automotive Growth 44% of Revenue* AUTOMOTIVE CAGR 2014-2018 FY18 Growth • Electronic Power Steering • Anti-Lock Brakes 14% 24% • Occupant Safety • Telematics Market Growth

  14. Slide 14: Automotive Revenue Vs. Global Production

    KIMBALL ELECTRONICS (Nasdaq: KE) // Automotive Revenue Vs. Global Production 35% 31.9% 30% 25% 20% 16.8% 13.3% 15% 10% 6.0% 4.8% 5% 1.8% 2.1% 1.7% 0% 2015 2016 2017 YTD June'18*** KE Automotive Revenue Growth** Change in global light vehicle production* Key Drivers: Increasing Electronic Content Per

  15. Slide 15: End Markets with Secular Growth - Medical

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value (Unaudited) End Markets with Secular Growth - Medical Kimball Medical Growth 29% of Revenue* CAGR 2014-2018 FY18 Growth MEDICAL • Sleep Therapy and 11% 22% Respiratory Care • Patient Care and Monitoring • In Vitro Diagnostics • Drug Deli

  16. Slide 16: End Markets with Secular Growth – Industrial

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value (Unaudited) End Markets with Secular Growth – Industrial 20% of Revenue* Kimball Industrial Growth INDUSTRIAL CAGR 2014-2018 FY18 Growth • Climate Controls • Automation Controls • LED Lighting 3% 6% • Operator Interface Market Growth Rep

  17. Slide 17: Investments that Increase Customer Engagement

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value Investments that Increase Customer Engagement Diversified Contract Manufacturing Services (DCMS) Offer manufacturing services for non-electronic components, plastics, and metal fabrication in existing markets/customers • Increase custome

  18. Slide 18: Investments that Increase Customer Engagement

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value Investments that Increase Customer Engagement Automation, Test & Measurement Systems (AT&M) Expand capabilities to manufacture, install, and service manufacturing systems • Enable greater strategic customer engagement – Engaged in the de

  19. Slide 19: Acquisition Strategy

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value Acquisition Strategy Primary Focus: Key Criteria To establish a global market leadership • New capabilities position as a premier AT&M provider • Alignment with four end-market strategy Secondary Focus: • New customer relationships and m

  20. Slide 20: Leveraging Existing Assets

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value Leveraging Existing Assets Greenfield Romania Plant Completed Construction in FY 2016 Reached Breakeven by FYE 2018 Greenfield China Plant Poznan, Poland Completed Construction in 2005 Reach Target Contribution by 2010 Indianapolis, IN J

  21. Slide 21: Profitability

    KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value ROIC Measured Over Multiple Years As new programs mature, volumes ramp and cost efficiencies are gained Increased launch activity in recent years has put near term pressure on profitability/returns ROIC measured over multiple years Progr

  22. Slide 22: Financial Review

    KIMBALL ELECTRONICS (Nasdaq: KE) // Financial Review Revenue Growth, Margin Expansion, and Strong Financial Profile KIMBALL ELECTRONICS 22

  23. Slide 23: Financial Targets

    KIMBALL ELECTRONICS (Nasdaq: KE) // Financial Targets 8% 4.5% 12.5% Revenue Growth Operating Margin ROIC KIMBALL ELECTRONICS 23

  24. Slide 24: Revenue Performance

    KIMBALL ELECTRONICS (Nasdaq: KE) // Revenue Performance Target 8% - Achieving above target growth rates 10% - CAGR Fiscal Year 2014 to Fiscal Year 2018 15% growth FY18 (ended June 30, 2018) $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 FY14 FY15 FY16 FY17 FY18 In $ millions KIMBALL ELECTRONICS 24

  25. Slide 25: Revenue Mix by Vertical Market

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Revenue Mix by Vertical Market 100% 2% 2% 2% 2% 1% 7% 7% 7% 6% 7% 90% 20% 80% 26% 24% 22% 22% 70% 60% 29% 30% 28% 50% 28% 30% 40% 30% 20% 41% 44% 37% 37% 39% 10% 0% FY14 FY15 FY16 FY17 FY18 Automotive Medical Industiral Public Safety Other KIMBALL ELEC

  26. Slide 26: Adjusted Operating Income/Margin

    KIMBALL ELECTRONICS (Nasdaq: KE) // Profitability Trends (Unaudited) Adjusted Operating Income/Margin* Target 4.5% Operating Margin Expect improvement from ramping utilization of greenfield plant in Romania and maturity of new programs $45 4.8% 4.0% 5.0% 4.2% 4.5% $40 3.6% 3.5% 4.0% $35 3.5% $30 3.0

  27. Slide 27: Adjusted EBITDA/Margin

    KIMBALL ELECTRONICS (Nasdaq: KE) // Profitability Trends (Unaudited) Adjusted EBITDA/Margin* Expect improvement from ramping utilization of greenfield plant in Romania and maturity of new programs $80 8.0% 6.9% 7.0% 6.7% $70 6.3% 7.0% 5.7% 6.0% $60 5.0% $50 4.0% $40 3.0% $30 2.0% $20 1.0% $10 0.0% I

  28. Slide 28: Target 12.5% ROIC

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Target 12.5% ROIC Significant capex spending to fuel multi-year organic growth and expansion in ROIC • DCMS • Romanian Plant FY2015 to FY2017 - $40 million+ investment in excess of D&A spent on Growth 14.0% 12.4% 12.5% 14.0 11.6% 11.8% 12.0% 10.7% 10.7

  29. Slide 29: Capital Allocation

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Capital Allocation Reinvest in the business – Significant capex spending of approximately $30 million/year to multi-year organic growth and expansion in ROIC Acquisitions - $10+ million of opportunistic acquisitions over past three years. Going forward

  30. Slide 30: Strong Balance Sheet

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Strong Balance Sheet Ample Liquidity for Growth $46M in cash* No long-term debt* $150M credit facility, with option to increase to $225 million** 1.2 million square feet of owned manufacturing space Consistent Working Capital Management DSO – 57 to 62

  31. Slide 31: Growing Book Value

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Growing Book Value Growth in Tangible Book Value Per Share/ Adjusted Earnings Per Share* $13 $12 $1.28 $1.12 $11 EPS $0.77 Book Value $10 $0.97 $9 $8 $7 $6 FY15 FY16 FY17 FY18 * Adjusted Earnings Per share and Tangible Book Value are Non-GAAP terms. KI

  32. Slide 32: Why Invest?

    KIMBALL ELECTRONICS (Nasdaq: KE) // Why Invest? Expect high single-digit revenue • Utilization rates increase growth Opportunities Above Average • New customer programs • Focus on secular growth trends to Expand Revenue mature • Positive outsourcing trends Profitability • Contribution from new Growt

  33. Slide 33: QUESTIONS

    QUESTIONS KIMBALL ELECTRONICS 33

  34. Slide 34: Reconciliation of Non-GAAP Results

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results KIMBALL ELECTRONICS 34

  35. Slide 35: Reconciliation of Non-GAAP Results

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Millions) FY14 FY15 FY16 FY17 FY18 Revenue, as reported $ 742 $ 819 $ 842 $ 931 $ 1,072 Operating Income, as reported $ 29.930 $ 36.355 $ 29.722 $ 43.057 $ 42.348 Add: Spin-off Expenses 2.233 2.594 0.137 - - Add:

  36. Slide 36: Reconciliation of Non-GAAP Results

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Millions, except per share data) FY15 FY16 FY17 FY18 Shareholders Equity, as reported $ 312.449 $ 324.369 $ 342.272 $ 355.527 Goodwill & Intangibles $ 7.073 $ 10.784 $ 10.772 $ 10.566 Tangible Book Value $ 305.376

  37. Slide 37: Reconciliation of Non-GAAP Results

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Tho usands) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Operating Income, As Reported (YTD) $ 7,787 $ 16,484 $ 27,305 $ 36,355 $ 6,921 $ 13,854 $ 20,932 $ 29,722 Add: Spin-off Expenses (YTD) 964 2,249 2,571 2,594 137

  38. Slide 38: Reconciliation of Non-GAAP Results

    KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Tho usands) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Operating Income, As Reported (YTD) $ 12,822 $ 25,063 $ 34,602 $ 43,057 $ 9,590 $ 19,783 $ 30,994 $ 42,348 Add: Spin-off Expenses (YTD) - - - - - - - - Less: Law

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