Kimball Electronics, Inc. Reports Second Quarter Fiscal 2022 Results; Reiterates Sales Guidance for Fiscal 2022 and Announces Facility Expansion in Poland

• Net sales in the second quarter of fiscal 2022 totaled $315.3 million.
• Net income of $5.1 million, or $0.20 per diluted share.

Kimball Electronics, Inc. (Nasdaq: KE) today announced financial results for the second quarter ended December 31, 2021.

Donald D. Charron, Chairman and Chief Executive Officer, stated, “Q2 was another hard fought quarter for our company, as global supply chain issues stemming from the COVID-19 pandemic persisted and adversely impacted our results. Component shortages continued to make it extremely challenging to obtain the materials needed to support customer demand. While conditions improved modestly in December with sales accelerating, the lost absorption was significant once again this quarter, as we remained committed to retaining our highly skilled workforce in anticipation of a strong second half to the fiscal year. We continue to be well positioned with record levels of backlog, and we are reiterating our sales guidance for fiscal 2022, although we expect to finish the year at the lower end of the range. We are revising our operating income margin guidance to reflect the difficult first half and our outlook for the balance of the fiscal year.”

Mr. Charron continued, “We are also excited to announce our plans to expand the facility in Poznan, Poland. This is our third facility expansion in the last 15 months, and representative of the high level of success we’ve experienced in winning new business. Similar to Thailand and Mexico, the additional capacity is needed for programs with new and existing customers. We expect the expansion in Poznan to add approximately 40% to existing production square footage, and will leverage our team in Poland to support our customers based in Europe when the expansion is complete in early fiscal 2024. We are updating our guidance for capital expenditures for fiscal 2022, which will include the early investments in Poznan and additional capital related to a major win in the next generation of electronic braking systems for a longstanding customer.”

Second Quarter Fiscal Year 2022 Overview

• Net sales decreased 2% compared to the second quarter of fiscal year 2021. Foreign currency had a negligible impact on net sales in the quarter compared to the same period a year ago.
• Cash flow used for operating activities of $48.3 million during the second quarter of fiscal 2022.
• Cash conversion days (“CCD”) for the quarter ended December 31, 2021 were 81 days, up from 75 days in the second quarter of fiscal year 2021. 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 $15.1 million during the quarter.
• Cash and cash equivalents were $56.7 million and borrowings outstanding on credit facilities were $103.0 million at December 31, 2021, including $40.0 million classified as long term.

Facility Expansion in Poznan, Poland

The company also announced its intent to expand the facility in Poznan, Poland. The additional capacity is needed for programs with new and existing customers. The expansion is expected to require approximately $8 million of capital investment, adding approximately 40% to the facility’s existing production square footage, and will leverage the team in Poland to support customers based in Europe when complete in early fiscal 2024.

Fiscal Year 2022 Guidance

The company is reiterating its sales guidance for fiscal year 2022 with net sales in the range of $1.4 - $1.5 billion, an 8% to 16% increase year-over-year, although the final result is expected to be at the lower end of the range. Operating income is estimated to be 3.75% - 4.25% of net sales, compared to the original guidance of 4.5% - 5.0% of net sales. The change in the operating income estimate reflects a difficult first half due to the unavailability of material. Under normal operating conditions, the company expects an annual run rate for operating income in the range of 4.5% - 5.0% of net sales. The second half of fiscal 2022 is expected to ramp up significantly throughout the period, with a very strong finish to the fiscal year and operating income above that range, as the backlog of open orders is worked down. Capital expenditures for fiscal year 2022 are now expected to be in the range of $70 - $80 million compared to the original guidance of $60 - $70 million. This update includes the facility expansions in Thailand, Mexico, and the early investments associated with today’s announcement of the facility expansion in Poland.

Net Sales by Vertical Market for Q2 Fiscal 2022:

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, 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.

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

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Financial highlights for the second quarter and year-to-date period ended December 31, 2021 are as follows:

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