Kimball Electronics, Inc. · NASDAQ:KE
Kimball Electronics — Q4 2019 Earnings Presentation
36 slides from Kimball Electronics's earnings presentation, Aug 27, 2019
Slide 1: Investor Presentation Fourth Quarter Fiscal Year 2019
Exhibit 99.1 Investor Presentation Fourth Quarter Fiscal Year 2019
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
Slide 3: Who We Are
KIMBALL ELECTRONICS (Nasdaq: KE) // Who We Are Global manufacturing solutions provider Headquarters: of contract electronics and diversified manufacturing services Jasper, Indiana used in… Automotive, Industrial, Medical & Public Safety Industries Established in 1961 Focused on non-commodity product
Slide 4: Why Invest?
KIMBALL ELECTRONICS (Nasdaq: KE) // Why Invest? Expect high single-digit revenue • Utilization rates increase growth Opportunities Above Average to Expand • New customer programs • Focus on secular growth trends mature Revenue • Positive outsourcing trends Profitability Growth • Contribution from ne
Slide 5: What We Do
KIMBALL ELECTRONICS (Nasdaq: KE) // What We Do PUBLIC SAFETY 6%* INDUSTRIAL 22%* • Thermal Imaging • Climate Controls • Fire Detection • Automation Controls • Defense • LED Lighting • Security • Operator Interface $1.2B OTHER 1%* FY 2019 NET SALES AUTOMOTIVE 40%* MEDICAL 31%* • Electronic Power Stee
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
Slide 7: Global Footprint
KIMBALL ELECTRONICS (Nasdaq: KE) // Global Footprint Poznan, Poland Indianapolis, IN San Jose, CA Chiba, Japan Timisoara, Romania Nanjing, China Jasper, IN Tampa, FL Suzhou, China Reynosa, Mexico Trivandrum, India Ho Chi Minh City, Vietnam Laem Chabang, Thailand 1.3 million square feet of owned manu
Slide 8: Sustainable Long-Term Customer Relationships
KIMBALL ELECTRONICS (Nasdaq: KE) // Sustainable Long-Term Customer Relationships 11% More than 10 Years 11% 37 Customers Typical Program Length 5-10 Years Automotive: 5-7 years 17 Customers Medical: 10 years Industrial: 3-5 years 78% Less than 5 Years 21 Customers % of Net Sales FY19 Programs are mo
Slide 9: 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
Slide 10: 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
Slide 11: Megatrends Opportunities: Automotive
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
Slide 12: Megatrends Opportunities: Healthcare and Connected Devices
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
Slide 13: 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 13
Slide 14: End Markets with Secular Growth - Automotive
KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value (Unaudited) End Markets with Secular Growth - Automotive Kimball Automotive Growth 40% of Revenue* AUTOMOTIVE CAGR 2015-2019 FY19 vs FY18 Growth • Electronic Power Steering • Anti-Lock Brakes 12% 1% • Occupant Safety • Telematics Market
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 31% of Revenue* CAGR 2015-2019 FY19 vs FY18 Growth MEDICAL • Sleep Therapy and 11% 17% Respiratory Care • Patient Care and Monitoring • In Vitro Diagnostics • D
Slide 16: End Markets with Secular Growth - Industrial
KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value (Unaudited) End Markets with Secular Growth – Industrial 22% of Revenue* Kimball Industrial Growth INDUSTRIAL CAGR 2015-2019 FY19 vs FY18 Growth • Climate Controls • Automation Controls • LED Lighting 6% 18% • Operator Interface Market G
Slide 17: Multifaceted Manufacturing Solutions Company
KIMBALL ELECTRONICS (Nasdaq: KE) // Creating Shareholder Value Multifaceted Manufacturing Solutions Company Organic Growth Electronics Manufacturing Outsourced Manufacturing Services Services M&A Investments that Increase Customer Engagement Diversified Add manufacturing services for non-electronic
Slide 18: 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
Slide 19: ROIC Measured Over Multiple Years
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 Prog
Slide 20: Financial Review
KIMBALL ELECTRONICS (Nasdaq: KE) // Financial Review Revenue Growth, Margin Expansion, and Strong Financial Profile KIMBALL ELECTRONICS 20
Slide 21: Financial Targets
KIMBALL ELECTRONICS (Nasdaq: KE) // Financial Targets 8% 4.5% 12.5% Revenue Growth Operating Margin ROIC KIMBALL ELECTRONICS 21
Slide 22: Revenue Performance
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Revenue Performance Target 8% - Achieving above target growth rates 10% - CAGR FY2015 to FY2019 10% Growth FY19 (ended June 30, 2019) $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 FY16 FY17 FY18 FY19 In $ millions KIMBALL ELECTRONICS 2
Slide 23: Revenue Mix by Vertical Market
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Revenue Mix by Vertical Market 100% 2% 2% 1% 1% 6% 7% 7% 6% 90% 20% 22% 80% 22% 22% 70% 60% 29% 31% 30% 28% 50% 40% 30% 44% 20% 39% 41% 40% 10% 0% FY16 FY17 FY18 FY19 Automotive Medical Industrial Public Safety Other KIMBALL ELECTRONICS 23
Slide 24: Profitability Trends: Adjusted Operating Income/Margin
KIMBALL ELECTRONICS (Nasdaq: KE) // Profitability Trends (Unaudited) Adjusted Operating Income/Margin* Target 4.5% Operating Margin Expect improvement from maturity of new programs and integration of GES operations $45 4.2% 3.9% 3.5% 4.5% $40 3.5% 4.0% $35 3.5% $30 3.0% $25 2.5% $20 2.0% $15 1.5% $1
Slide 25: Profitability Trends: Adjusted EBITDA/Margin
KIMBALL ELECTRONICS (Nasdaq: KE) // Profitability Trends (Unaudited) Adjusted EBITDA/Margin* Expect improvement from maturity of new programs and integration of GES operations $80 8.0% 7.0% 6.7% 6.0% $70 7.0% 5.7% $60 6.0% 5.0% $50 4.0% $40 3.0% $30 2.0% $20 1.0% $10 0.0% FY16 FY17 FY18 FY19 In $ mi
Slide 26: Capital Expenditures and D&A
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Capital Expenditures and D&A Significant capex spending to fuel multi-year organic growth and expansion in ROIC $14 $12 $10 $8 $6 $4 $2 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 In $ millions D&A Total Capex KIMBALL ELECTRONICS 2
Slide 27: Target ROIC 12.5%
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Target ROIC 12.5% Significant capex spending to fuel multi-year organic growth and expansion in ROIC 14.0% 12.0% 10.3% 10.1% 10.0% 8.9% 8.7% 8.0% 6.0% 4.0% 2.0% 0.0% FY16 FY17 FY18 FY19 * ROIC is a Non-GAAP term. A reconciliation is provided in the app
Slide 28: 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 - $50+ million of acquisitions over past four years. Going forward M&A will play
Slide 29: Strong Balance Sheet
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Strong Balance Sheet Ample Liquidity for Growth $49M in Cash* $111 million in total liquidity* $150M credit facility, with option to increase to $225 million 1.3 million square feet of owned manufacturing space Consistent Working Capital Management** D
Slide 30: Consistent Growth in Book Value and Adjusted EPS
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Consistent Growth in Book Value and Adjusted EPS $14 $1.60 $13 $12.77 $12.64 $12.04 $1.40 $12 $1.28 $11 $10.75 $1.19 $10.39 $1.12 $1.20 $10 $0.97 $9 $1.00 $8 $0.77 $0.80 $7 $6 $0.60 FY15 FY16 FY17 FY18 FY19 Tangible BV/ Share EPS * Adjusted Earnings Pe
Slide 31: Why Invest?
KIMBALL ELECTRONICS (Nasdaq: KE) // Why Invest? Expect high single-digit revenue • Utilization rates increase growth Opportunities Above Average to Expand • New customer programs • Focus on secular growth trends mature Revenue • Positive outsourcing trends Profitability Growth • Contribution from ne
Slide 32: Questions
QUESTIONS KIMBALL ELECTRONICS 32
Slide 33: Reconciliation of Non-GAAP Results
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Millions) FY16 FY17 FY18 FY19 Revenue, as reported $ 842 $ 931 $ 1,072 $ 1,182 Operating Income (GAAP) $ 29.518 $ 42.780 $ 42.038 $ 42.060 Add: Spin-off Expenses 0.137 - - - Less: Lawsuit Proceeds - 4.005 - 0.307
Slide 34: Reconciliation of Non-GAAP Results
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Millions, except per share data) FY16 FY17 FY18 FY19 Shareholders Equity, as reported $ 324.369 $ 342.272 $ 355.527 $ 369.854 Goodwill & Intangibles $ 10.784 $ 10.772 $ 10.566 $ 40.292 Tangible Book Value $ 313.58
Slide 35: Reconciliation of Non-GAAP Results
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Thousands) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Operating Income (GAAP) (TTM) $ 35,381 $ 40,671 $ 43,115 $ 42,780 $ 39,568 $ 37,515 $ 39,177 $ 42,038 $ 39,547 $ 39,640 $ 43,007 $ 42,060 Less
Slide 36: Reconciliation of Non-GAAP Results
KIMBALL ELECTRONICS (Nasdaq: KE) // (Unaudited) Reconciliation of Non-GAAP Results (In Thousands) FY16 FY17 FY18 FY19 Operating Income (GAAP) $ 29,518 $ 42,780 $ 42,038 $ 42,060 Add: Spin-off Expenses $ 137 $ - $ - $ - Less: Lawsuit Proceeds $ - $ 4,005 $ - $ 307 Adjusted Operating Income (non-GAAP)