Kimball Electronics at The Gateway Conference: Strategic Moves Amid Challenges

On Wednesday, 03 September 2025, Kimball Electronics (NASDAQ:KE) presented at The Gateway Conference 2025, outlining its strategic plans amidst both challenges and opportunities. Despite facing revenue declines due to specific program losses and a medical customer recall, the company emphasized its robust financial position and commitment to future growth, particularly in the medical contract manufacturing organization (CMO) market.

Key Takeaways

• Kimball Electronics plans to expand its Indianapolis facility and pursue acquisitions to strengthen its position in the fragmented CMO market.
• The company reported FY25 revenue close to $1.5 billion, with a significant impact from lost programs and a medical customer recall.
• FY26 guidance suggests a slight revenue decrease, with net sales expected between $1.35 billion and $1.45 billion.
• Strategic focus on returning to growth in FY27, driven by improved capacity utilization and strategic initiatives.
• Emphasis on sustainability and serving customers efficiently and effectively.

Financial Results

• FY25 revenue reached nearly $1.5 billion, despite a $200 million impact from lost programs and over $100 million from a medical customer recall.
• Inventory levels decreased by nearly 20% year-over-year, and cash from operating activities hit a record of almost $185 million.
• FY26 net sales guidance is set between $1.35 billion and $1.45 billion, with adjusted operating income margin expected to remain consistent with the prior year.
• Capital expenditures are projected to range from $50 million to $60 million.

Operational Updates

• Kimball Electronics expanded its global footprint, doubling capacity at facilities in Mexico and Thailand, and increasing the Poland facility by 40%.
• The company plans to open a new 300,000 square foot manufacturing facility in Indianapolis, focusing on the CMO market.
• A loss of a braking program in Reynosa, Mexico, will negatively impact FY26 by $60 million.
• Production from the closed Tampa facility will be transferred to Jasper, Reynosa, and Thailand.

Future Outlook

• The company aims to return to growth in FY27, focusing on capacity utilization and strategic expansion of the CMO portfolio.
• Plans to attract blue-chip customers with long product life cycles in the CMO market.
• Continued commitment to share repurchases and strategic capital allocation.
• Investment in the new Indianapolis facility is expected to support future growth.

Q&A Highlights

• CFO Jana Croom highlighted the strategic rationale for expanding into the medical CMO market, differentiating from other EMS players by focusing on CMO opportunities.
• The new Indianapolis facility is seen as crucial for attracting blue-chip CMO customers.

Readers are encouraged to refer to the full transcript for a more detailed understanding of Kimball Electronics’ strategic plans and financial performance.

Full transcript - The Gateway Conference 2025:

Jana Croom, Chief Financial Officer, Kimball Electronics: Okay. All right. Good morning everyone. My name is Jana Croom and I am the Chief Financial Officer for Kimball Electronics coming to speak to you today about our company, its history, and its future. So with that, we’ll jump in.

Safe Harbor Statement. Andy requires me to let you all know this is here. So Kimball Electronics, we are NASDAQ traded KE. We are a global electronics manufacturing and contract manufacturing organization. And I’ll go into what that means more later in the presentation.

But our customers’ products are diversified portfolio, that offers a long runway of growth, right, supported by secular tailwinds. We play in three distinct verticals, that are really geared towards growth in the things that we do live and appreciate every day. We’re uniquely positioned because we don’t focus on non commodity products. So so things like the three c’s, computers, cellulars, and consumer. We don’t play in those areas.

They commoditize quickly. It’s really hard to maintain margin and value there. And we pride ourselves on long term customer relationships. At least over 70% of our customers we’ve had relationship with for ten years or longer. That makes the business sticky, and it makes us more likely to win the next program, which is critical in our business.

Our company at a glance. So for fiscal year twenty five, which we just completed, one point almost 5,000,000,000 of revenue. We’re headquartered in Jasper, Indiana. Our company is 60 four years old. We have been publicly traded as a spinout of Kimball International for eleven years, and we have 5,700 employees worldwide.

So why invest? Right? So why Kimball? And I’m imagining if you’re in the room, you’ve done a bit of homework on the company and you’ve seen the results from the last thirty days. We are a strong company with a proven ability to deliver.

So top line growth, sustainable competitive advantage, which in the EMS business and the CMO business is really critical to your success. It’s high barriers to entry, a lot of capital deployment, customer relationships, and being able to deliver quality time after time after time. Our balance sheet is in a position of competitive strength. It’s never been stronger. We’ve got $374,000,000 in liquidity and we’re gonna use that to opportunistically grow our business.

Competitive advantages, global consistency. So there are things that I think sometimes people take for granted when you’re running a multinational company. Kimball runs on a single instance of SAP. And so over the years as we’ve grown organically and inorganically, we have done the work of maintaining the integrity of our systems. That means from an inventory standpoint, working capital management, etcetera, we are all on the same system.

We share Lean Six Sigma practices across all of our facilities, and that matters. Deep domain expertise. I can’t tell you how many, thirty year employee luncheons I go to, forty year employee luncheons I go go to, and Kimball’s culture is really specific about each one teach one, and making sure that that body of knowledge related to high quality and high reliability is being transferred effectively across the globe. Regulatory compliance, all the ISO certifications, FDA regulations, and so it’s interesting, somebody said to me, you know, well, you all were in auto shop, was it difficult to get into medical? I said, no, because the ISO certifications required for braking and steering.

Right? The systems that will save your life in a car are actually more stringent in some cases than FDA certifications. So when you have a plant manufacturing automotive, it was really easy to get FDA approval to have that plant also manufacture medical equipment. Global footprint, we are in North America, Asia, and Europe. I’ll talk about that a little bit more later.

I spoke to customer relationships and and megatrends. Right? So one of the things with our our autos is we saw the electronification of steering coming several years ago. We made a big investment in that. So our philosophy at Kimball is skate to where the puck is going.

Right? So just don’t think about the now in terms of megatrends. Think about what is going to be happening in the future, the evolution of that, and where Kimball can participate to add the greatest value to our customers and our shareholders. These are our guiding principles, and they have stood the test of time. Very simply, our customer is our business, our people are the company, the environment is our home, and my favorite, profits are the ultimate measure of how efficiently and effectively we serve our customers.

We are an EP company. Right? We focus on economic profit, return on invested capital. If you only have a dollar, where are you investing it? How are you moving it through the company to generate value?

That matters. We provide end to end solutions and support. So from design and development, all the way through to aftermarket support, Kimball is the one stop shop for our customers to meet their needs. So you’re thinking of doing, what we call in

Andy, Treasurer, Kimball Electronics: the

Jana Croom, Chief Financial Officer, Kimball Electronics: industry NPI, new product introduction. You come to us with an initial design. We help you figure out how to take that design and manufacture it for volume. We come in and we are your contract manufacturing partner to help you deliver. We’ve got a rich history of growth and expansion.

As I said, we were founded in 1950, and what you can see is we started off manufacturing organs. And then we started manufacturing computers. IBM at one

Andy, Treasurer, Kimball Electronics: point was our largest customer. And then we started to support the medical market space. We have grown from a US only company to a company that now manufactures in multiple regions of the world.

Jana Croom, Chief Financial Officer, Kimball Electronics: So here is our global footprint. We have four facilities in North America. We have two facilities in Asia, and we have two facilities in Europe. It says three on here because we have The Netherlands. I don’t really count that, it’s more of a financial entity than it is a manufacturing entity.

But nonetheless, we certainly have it. Capital allocation strategy. So this is a question I get asked about often. You know, you’ve got a really really strong balance sheet, what do you do with the cash? So what you’ll see is we’ve got a solid history of share repurchase.

Know, buying back stock at least equal to the amount that we’re of equity that we’re issuing for LTIP. And in many cases, at least two x that. You saw us very active in the market repurchasing shares in FY twenty four and FY twenty five, supporting our share price and lowering EPS. Other than that, robust CapEx investment. In FY22 and FY23 we expanded three facilities globally.

Our Mexico facility, which we doubled the capacity of, our Thailand facility, which we doubled the capacity of, and our Poland facility, which we increased 40%. We have a new facility that we are expanding, which I’ll talk about a little bit later. We have a diversified portfolio focused on three end markets. And so I spoke about automotive and medical. We also have an industrial vertical that we focus on.

So the manufacturing market insider, which is the electronics manufacturing body that sort of governs EMS, does a ranking every year. We are sixth in automotive, seventh in medical, and twenty second in industrial.

Andy, Treasurer, Kimball Electronics: So,

Jana Croom, Chief Financial Officer, Kimball Electronics: let’s talk a little bit about the vertical specifically. So, in medical, we support the continuum of care. Sleep and oxygen therapy, surgical systems, AEDs, ambulance and hospital patient monitoring, and drug delivery. And we like this because of the megatrends that I spoke about earlier, right? So we have an aging population, affordability and access to care, connected drug delivery.

What we also have is a globe that is now wanting better healthcare options. So, just a US focus, but Europe also having the desire for better healthcare, and Asia, and supporting those markets. Organic growth opportunities within medical. So, we focused initially on the printed circuit board assembly. Right?

So, think of it as the motherboard, the electronic guts of whatever we were producing. What we realized very quickly was if we could move to higher level and finished medical devices, the ASP moves up considerably. Right? So, an average selling price of $35 per unit becomes an average selling price of $150 per unit, because you’re doing the full and final assembly. We were recently awarded a transfer of work from our biggest medical customer.

We will be the sole supplier of respiratory care and final assembly for that business. The transfer is gonna commence this year, and the production is gonna impact FY ’26. Moving on to the automotive vertical. Again, fueled by vehicle electrification, which I spoke about. So when you think about a car, you know, we are now living in the age of Knight Rider.

So I’m I’m gonna date myself for a minute. Right? So kit is real. Your car is just a big computer, and it talks to you, and it tells you things. And so the electronification of that is something Kimball has benefited from significantly.

So when you think about steering in particular, and overwhelmingly, our business is steering. Automatic lane departure features, self parking, autonomous driving, all of the things that your car now does are born out of the steering column and that is what Kimball makes. And so the electronification of that, you know, and so as you think about steer by wire, as you think about brake by wire, you know, there’s no longer a hose connecting, that that brake pedal to to stop your car. It’s all electric content. And it’s really interesting.

The other thing is we think about forward steering, rear steering. So anybody who drives a Land Rover or a Mercedes or, I’m trying to think, BMW, the turn radius on your car is so tight now because you have front steering and you have rear steering. Making things that were once difficult to that five point turn you had to make to get into that parking space now. Single point turn. And so the electronification and the advancement, this is what Kimball does.

This is where we participate, and and it’s been a really really great area for us. I should note, we don’t hunt automotive. Our position in automotive as number six in the industry is so solidified that our customers come to us. We have an absolute reputation in the space for excellence. We do it incredibly well, and it’s something that we’re known for, and we’re very proud of that.

Moving on to industrial. And this is our small smallest vertical, but one that we’re we’re growing in. Right? So if you think about IoT and factory automation, as you think about green energy storage and charging, climate control, smart meters, everybody says, you know, how are you participating in in the advancement of of data storage and data systems? It takes a lot to cool those buildings.

And climate control and smart energy is something that is very highly in demand in that space and we participate there. We’re looking at diversification into other sub verticals within the industrial space, but we’re very happy with where we play. So now turning to some financial information. Fiscal twenty twenty five was a year of controlling what we could control. Inventory was down nearly 20% year over year and the cash generated from operating activities was almost a $185,000,000, which was a record for our company.

What I am really, really proud of, and we’ll talk about it a little bit later, is in the midst of losing two large programs, one in automotive, one in medical, that were not our fault, but certainly our problem worth, you know, $200,000,000, we demonstrated fiscal balance sheet excellence. Pulling the inventory down, focusing on days, so not just absolute dollars, but what are our turns look like, DSO, DPO, debt reduction, cash management. It it’s you know, during times like this, this is where being a balance sheet focused CFO really pays in terms of the delivery of value back to your shareholders. The top line will come back, but what are you doing in the meantime? How are you protecting the company and how are you taking care of your shareholders?

Revenue and EPS. And so what you’ll see is we were growing we grew 35% in one year in FY twenty three, followed by two years of declines. We are focusing on returning to growth. Again, the medical customer that was involved in an FDA recall has just named us sole supplier of their respiratory care higher and final assemblies. That recall was not a KE related issue, but it did result in over a $100,000,000 of revenue coming off our top line.

We look forward to that coming back over time beginning in this fiscal year. So what do you do in the midst of of all of these things? You really, really focus on how you need to shift the organization in the midst of softening demand to hold your margin. And so what you’ll see in the gray box is f y ’25. We have 2,000 fewer employees globally than we did when we started the year.

And that was a difficult decision, right? These are people who we work side by side with every day. But in the midst of softening demand, we controlled what we needed to control. Our selling and administrative expenses were also significantly reduced. Right?

So gross margin in the plants, selling administrative in terms of management fee, really focused on batting down the hatches and taking care of our shareholders while we were focused on returning to profitable growth. Our balance sheet is at a competitive strength. This is one of my favorite slides. Look at that. You know, we took our inventory from peak levels and we pulled it down significantly.

My next favorite slide is when this does the reverse, but not because our inventory levels are too high sitting at ninety nine days, but because our revenue is growing and so in absolute dollars, our inventory has to start to grow as well. So we expect fiscal twenty twenty six to be another step forward. This journey is gonna unfold over time. Those of you who know the EMS business well know that it takes time from when you win to when you deliver the first widget for your customer. We’re anticipating return to growth in FY twenty seven, better cap capacity utilizations will result in higher margins.

So let’s talk about the guidance for fiscal year twenty twenty six. Net sales of 1.35 to $1,450,000,000. So at the midpoint of the range expecting a decrease compared to fiscal twenty five roughly five ish percent. But what I am very proud of is adjusted operating income margin as a percentage of net sales roughly in line with prior year. So another year of difficult top line growth, but we’re gonna hold our margin.

Capital expenditures of 50 to $60,000,000, I’ll talk a bit about that later. That is primarily related to our investment in our new ND facility, focused on the CMO and our medical space. Sales guidance in perspective, and so this is an important slide. There were two events that occurred in fiscal twenty five normalized when planning for FY ’26, and this is just sort of to help calibrate everyone’s model. We lost a breaking program in our Reynosa, Mexico facility that’s gonna have a $60,000,000 unfavorable impact on the year.

The loss of that program was not related to any issue of Kimball’s workmanship. It was our tier one customer who also did not have quality or workmanship with issues. It was a commercial dispute that the OEM solved by giving the business to someone else. And we also had a large consigned inventory sale. Again, our medical customer who was preparing to return to market had a fair amount of inventory that they needed us to scrap for them.

It was roughly $25,000,000 of non recurring sales and that’s just the way it flows through technically. So, with these two items out, our top line is approximately flat year over year. We expect modest growth in Medical and Industrial offset by the decline in Automotive and that decline is related to the loss of the braking program I just referenced. But margins are estimated to be in line with FY ’25. Right?

So we’re gonna re poke repurpose some of the benefit of the Tampa closure. We did a rightsizing of the Kimbell portfolio over the last two years, not an easy decision, but one that had to be done. We sold the automated test and measurement business. It was not a core competency. It was not a focus of the company.

And we closed our Tampa facility. We took the products that were made out of Tampa, we transferred them to Jasper, we transferred them to Reynosa, a little bit went to Thailand, so we have better capacity utilization out of those facilities. Capital expenditures are gonna be heavily weighted towards our new facility in Indianapolis. I look forward to talking to you about that in just a moment. So the company is now repositioned for a return to to growth with a sharpened strategic focus.

Right? So we’ve had a record number of new wins for future business in our EMS space. Meaningful increase in the number of green customer scorecards and quality ratings at a fifteen year high. Right? So our brand, our reputation with our customers that represent over 70% of our revenue has never been stronger.

We’re elevating our prominence as a CMO with an expanded manufacturing footprint. We have invested in a 300,000 square foot manufacturing facility in Indianapolis that is going to be state of the art world class. We’re taking the adjacencies and vertical integration from the EMS business and we’re positioning the CMO for growth. We expect that over time in addition to this footprint in U. S, we’ll expand new geographies and new capabilities as we really grow out the CMO portfolio.

So here’s a little bit about EMS versus CMO. EMS primarily printed circuit board assemblies, full and final assembly, large capacity equipment assembly and so, you know, just a lot of automation volume. CMO, it’s focused on the medical market, right? And so here are some of the things that we’re focused on. Injection molding, cold chain management, drug delivery.

We are one of the only manufacturing facilities in The US that can actually handle the drug. Right? So, you deliver the drug to us, we will make the cartridge, and we can ship it right out the door. Clean room, complex medical assembly, design, engineering services. We’re approaching the medical CMO strategy with additional steps to position the company for long term profitable growth.

Right? So we’re gonna continue to generate positive cash flow. You saw how much cash EMS throws off. And we’re gonna deploy that capital towards growing the CMO and returning value to shareholders via share repurchase. Medical CMO represents an opportunity for higher EBITDA margin.

So it’s not just about growth, but it’s increasing profitability as you grow. We wanna serve blue chip customers with long product life cycles and a high degree of visibility. So again, think about key mega trends, skate to where the puck is going, and where do we wanna be in terms of our focus. What we know is also that the CMO market in the medical space is fairly fragmented. It’s got a lot of, I’ll call them mom and pop shops for lack of a better way of saying it.

So a company that’s, you know, $50,000,000 of revenue, $25,000,000 of revenue that does something really interesting that perhaps could use additional capital, the owner is interested in selling. We’ve got a lot of dry power powder and we are committed to inorganic options to augment this space, which is gonna be really important if you want to grow the CMO portfolio strategically and thoughtfully over time. The new medical facility in Indiana is an important milestone because the other thing that we know is without a state of the art medical facility of size, it was going to be difficult for us to attract those blue chip customers that I talked about in previous slides. Right? And so the investment not just in the building but also in the equipment manufacturing capability talent to serve that market well.

And Andy, our treasurer in IRR is always available to answer questions if you have them.

Andy, Treasurer, Kimball Electronics: Thanks, Shana. We’ll go ahead and open up the floor for q and a if anybody has a question or two before we turn the call over. Well to kick things off, I got one for you. Jana, you mentioned that you guys are making a clear push to expand the medical CMO. You mentioned the Indianapolis facility.

Can you just talk a little bit more about why this is such an important area of growth and how it differentiates you from other traditional EMS players?

Jana Croom, Chief Financial Officer, Kimball Electronics: Yeah. So first of all, most EMS players have spent the last several years thinking about how they wanted to diversify in the EMS space, and they’ve done a really great job of that. You know, our our competitors are are very talented. For us, as we were looking at our strategic path to profitable growth, the CMO just made more space or more sense. There’s there’s space, there’s opportunity for growth strategically, inorganic opportunity abounds, and there are customers that we do business with on the EMS medical side that also have CMO needs.

And so the ability to transfer those adjacencies and those relationships to move into that segment just made a lot of strategic sense for Kimball. But the feedback that we got was that our Indianapolis facility was just ill equipped for what they needed. And so if we were gonna be serious about our investment in CMO, we had to be serious about investing the capital that we needed to really grow that business

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