It's the mic with the pole mark at the end. Okay. Happens all the time. We are live. Let's go ahead and get started. Welcome, everybody, to this session, day two of the Wolfe Research Healthcare Conference. My name is Mike Pollard, Medical Device Analyst at Wolfe Research. I'm pleased to be joined in this session by Kimball Electronics. We have a full crew: CEO Rick Phillips, CFO Jana Croom, and Head of Investor Relations Andy Regrut. Kimball is not a covered company, but we're interested in learning more about their story. The format here: a few prepared remarks and slides introducing the company from Rick, I think, and then we'll leave 10 or 15 minutes for some Q&A. Focused on the medical business at a healthcare conference. With that set up, Rick, I'll turn it to you. Great. Thanks. You know, we'll just give a high-level overview, as mentioned. Kimball Electronics traded on the NASDAQ, a global provider of electronic manufacturing services and contract manufacturing focused on medical in that piece of our business. We do serve all three of medical, automotive, and industrial. We tend to focus on highly complex products and solutions with very high regulatory requirements, with high-quality requirements, and again, with complexity. That's really where we focus. It allows us to really sharpen our strategic focus away from commoditized products and really build long-term customer relationships. On the next page, Andy, just a quick glance. We are based in Jasper, Indiana, but very much a global company. We have locations in Asia through Thailand and Nanjing, China, in Europe, in Romania and Poland, and also facilities in the U.S. and in Mexico. Global manufacturer revenue, about $1.5 billion in fiscal 2025. And as you can see, you know, that focus that I talked about in terms of the vertical markets that we serve. I always like to talk quickly about culture. I've been with the company about two and a half years. And I tell everyone who asks that the biggest reason I came is the culture and the guiding principles that I think are such a strong part of who Kimball is. You know, a lot of companies talk about it. I really see us live these. And I do think it manifests itself long-term in performance through customer relationships, through retaining great people, and through being great partners in the communities that we serve. With that, I'm going to turn it over to Jana on the following page to talk a little bit about our global locations. Yeah, thank you, Rick. We operate primarily in three regions of the world: North America, Europe, and Asia. We have an in-region strategy, meaning what we make in North America stays in North America, what we make in Europe remains in Europe, what we make in Asia primarily remains in Asia, with the exception of our Thailand facility, which exports back to the United States. We like this geographic footprint because it allows us to service our customers in all of the regions of the world where they need us to be. We also have a diversified portfolio: automotive, medical, and industrial. For the sake of this conference, we're not going to focus on the other two verticals. The interesting thing about the EMS space is it throws off a fair amount of free cash flow from the automotive and industrial verticals. We can actually use that cash flow to reinvest it back in and grow the medical CMO space in particular, but medical, generally speaking. We have been in the medical business for about 25 years. Across that global footprint that Jana mentioned, we pretty much do the same type of work in all locations except for one, and that's in Indianapolis. Our first entrée into the medical business was with electronics for medical devices. Think printed circuit board assemblies. It has expanded at each location into higher-level assemblies and, in some cases, full assemblies. In Indianapolis, we go into more surgical devices or medical products that are fully finished, not necessarily manufacturing the electronics, but doing plastic injection molding and doing full assembly in a clean room environment. We love the medical space because of the demographics behind it. They're pretty well known. We have added capacity that Jana alluded to with our facility in Indianapolis. Just to touch on the automotive business, it's half of what we do. It's predominantly printed circuit board assemblies for steering devices. Anytime the vehicle assists you in movement of a car or a truck, we have a heavy hand in that. Think of like lane departure type of assistance. Our electronics support that. We also do some braking, which is becoming very popular, particularly in EVs. Our industrial business is very much focused on HVAC systems, both commercial and residential applications. What's the difference between EMS and CMO? The way we define it is EMS is very much the electronics. It's what we do in most locations except for Indy. It generates a lot of cash, as Jana alluded to. That capital is redeployed into the medical business, which is best represented in Indianapolis. Those finished medical devices. We are redeploying the capital to grow that business. We have expanded our footprint in Indianapolis. We are even considering inorganic opportunities to grow that business at a faster rate. We believe we're at an inflection point in our strategy and that there's a lot of good reasons to invest in Kimball Electronics. We've had really good performance from a stock price standpoint over the last six to nine months. We believe there's a lot more in front of us for a number of reasons. Andy and Jana talked about our sharpened strategic focus. It really is medical is center plate for us. That is where you see us spending most of our business development resources on new customers. Obviously, the new facility is a major investment for us. We're growing double digits in medical the last three quarters in a row. We anticipate strong growth in medical going forward. We think we've got some unique advantages. One of the things in the medical CMO that's such a big strategic focus for us is that we do have the ability to handle the drug. We're FDA qualified and meet what we call the five nines. So 99.999% quality is our expectation and our performance. We've got some differentiation in terms of what we can do there. Very strong balance sheet. We've made very significant reductions in inventory and debt paydown over the last couple of years. We've got plenty of dry powder for organic investment, as well as, Andy said, potentially inorganic. We do see the medical, and particularly the medical CMO space, as an opportunity for margin expansion. We've talked publicly that we expect our growth there to be accretive to our typical margins. We have very strong long-term customer relationships. Seventy-five percent of our customers have been with us a decade or more. That does not mean we are not trying every day to introduce new ones. We tend to get really high marks on our ability to be flexible, our ability to be partners, our ability to really spend senior management attention on our important customers to partner and to grow together. We feel like there is a lot of great potential in investing in Kimball long-term. That was a lot. This slide deck is available on our company website. Just so we can get to Mike's questions, we're going to advance to a slide to talk about our strategy. Just in conclusion here, before, as Andy said, we go to Q&A. You know, we're generating positive cash flow. We're redeploying that into growing the CMO, as evidenced in the new facility that we have. We've not opened that facility yet. We were just there last week for a board meeting and tours. The clean rooms are almost in. We're really excited about cutting the ribbon on that really soon. As I said, we expect that business to allow us to achieve higher EBITDA margins. We believe this builds on what we already do well, giving us an opportunity for even bigger and more complex programs going forward. As Andy said, we've got a great pipeline and funnel of organic opportunities that we're focused on first. We're also constantly scanning for inorganic opportunities. Those would be focused specifically on the medical CMO space that we're looking to really grow in a very significant way moving forward. Mike? Excellent. Good. I'm interested in the highest level automotive, industrial, medical. How do you talk about long-term growth rates for these segments? Low, mid, high single digits, double digits? What does the company say? On the profitability side, how do they all horse rank? Maybe a different way of asking, how much more attractive from a gross or EBITDA margin perspective is medical relative to your other two businesses? From a growth perspective, we actually expect our automotive vertical to be relatively flat and to aggressively grow medical and industrial. With the focus of evening out all of the verticals and then medical becoming our most significant over time. That is a very clear goal of Kimball. It will take time because to the extent automotive is strong and we continue to win there, that just means that we have to be more aggressive, as Rick pointed out, in growing our medical and our industrial vertical. That is where our front end is, our hunters are focused. From a profitability standpoint, you know, it is very much a Tetris board because it is automotive where versus industrial where versus medical where. I will tell you what attracted us to the CMO space, though, was CMO, particularly speaking, does have a higher opportunity for margin expansion because it is full and final assembly. It is sticky business. Your customers, while they are always concerned about margin, what they are concerned about, because this product goes in your body, on your body, is that you produce it with high quality, durability, and reliability. There is opportunity to be compensated for that. Your medical business today, the end product categories that your components that you most serve, you're most levered to, what are those? You mean in terms of products that we produce? Like the in-market exposure? For sure. Yeah, yeah. OK. Yeah. Equipment, what type of equipment? Procedural consumables? Respiratory care, which I think everyone knows, drug delivery, surgical devices. We actually have it if you go back to the medical slide. There we go. AEDs. AEDs. Patient monitoring. We used to say if you walked into a room and it was beeping, we probably made the guts of it in terms of patient monitoring and care. It is pretty representative of what we do. Is it your manufacturing expertise is universal for lots of different types of products? So medical, when you choose to expand medical capacity, it's more like, hey, we're really good at making this set of inputs and it serves a wide swath of categories. Or do you go about this like, hey, this is a category that's interesting and we think we can fit a solution to help these partners? In CMO, it's much more category-based, right? We want to do, again, you know, surgical devices, on-body devices, drug delivery. It has greater specificity in the CMO space. Within the EMS space, it's more full and final, higher-level assembly. Not just the printed circuit board, but being able to do a full and finished product for our customer that they can then ship out the door with high levels of reliability. I think, Jana, to your point, that's been a pretty significant shift in our core medical EMS business is that move to higher-level assembly. Now more than half of the products that we support in that space are higher-level assembly. Meaning we're doing more than just the electronics. We're putting the box around it. Obviously, that gives us a greater participation in the margin pool, but also makes us more sticky with those customers because we're doing more for them. They rely on us. It's investments that they don't have to make so that they can spend them on R&D or entering new therapeutic areas. You said drug delivery, and I can't help but think Indianapolis and Lilly. Is it GLP-1s? Is it weight loss medications? Is it other therapeutics? I mean, I heard auto injector. I think it's on the slide and mentioned on the last call. Just kind of what's your exposure to that concept today? And what's your interest in it in the future? Great question. Yes, I mean, if you want to, in terms of areas that we're targeting and having discussions around auto injectors for GLP-1s, absolutely. Also, much broader than that, on-body devices, insulin delivery, epinephrine products, which we are big in today and have produced for quite a while with sort of an innovative delivery mechanism. We're in, you know, we're active in multiple spaces today, but we're targeting broadening that out. Again, that ability to handle the drug is what's differentiating for us. We do not have to be sending devices back and forth and drugs back and forth. The pharmaceutical company can make the drug, send it to us, and we'll manufacture the device, insert the drug into the device, and ship it. On-body and insulin delivery, I just heard patch pumps, making those for partners or something, not to connect insulin delivery with on-body. Is that a product category that you're interested in? Yes, in both cases. OK. In both cases. Interesting. How about the inorganic side? I mean, I guess, you have Indianapolis. It sounds like it's a, I don't want to be too generic here. It's a box that stood up, and now it needs to go get filled with business. Good way to think about it. Yeah, good. Got that. That's what our board says. Yeah, yeah. OK, here's your, yeah, yeah, I got it. What about on the M&A side? I mean, what does that priority list look like? What are you solving for there? Kind of plays to your core manufacturing competencies or, you know, you're looking for ways to serve existing customers more or you're interested in customer diversification? Just describe like the first three or five bullet points as you run the M&A process. It's a little bit of all that. Yeah. So we know the manufacturing capabilities that we would like to add to the suite or the portfolio. We know the customers that we would like to expand to or the geographies. And we've also identified the end markets we would like to serve. So it's a combination of where can we find an adjacency that is a nice tuck-in or where can we expand what we're currently doing and do it better. And that could be in the United States. That could be in Europe. And that could be with existing or new customers. So we look at it, we're very open-ended. We have a pretty good idea of the transaction size. And we're looking at it very much as being additive to the organic growth strategy. And is there a stated public list of things you're most interested in or is it just we then have to stitch together general comments with answering that question? Well, I mean, we've talked about various end markets like cardiology as being interested in drug delivery expanding for sure. I'd say that we certainly have more of an interest in the United States and Europe as the geographies that we pursue. The customers are pretty self-evident as to who we would like to play with from an OEM perspective. And when you say U.S. and Europe, both, you know, the facility is located there to serve those markets? Exactly. OK. Yeah, exactly. Interesting. And if we could find a customer that's looking to expand into the United States, well, we have a facility in Indianapolis that could serve that very well. So it could very much be a strategy that would be accretive to our existing portfolio. If you size to Indianapolis, so medical is 27% of total revenue. If Indianapolis fully fills and gets fully utilized and you don't do M&A, like how much revenue does Indianapolis add? So we've not disclosed that, but I'll give you enough breadcrumbs that you can sort of fill it out. So it's 300,000 sq ft with the option to take on roughly another 200,000 sq ft. And then we would have to expand beyond that. And we could spin up the other half of that pretty quickly. You could certainly imagine, you know, as we build this up over time, that medical becomes our largest vertical. So Kimball hit my radar because of your work with your largest customer. And this was a couple of quarters ago. And kind of it sounds like, well, the question to you is just, if you want to name the name or not, that's I think we all know who it is. It's disclosed in your filing. It's Phillips. So this is your largest medical customer. Maybe let's start with this. Talk about your history with this customer and how it started, how it's evolved, the totality of what you do with them and where you do it. It's a great question. It's been a long-term relationship. It's been a great partnership and very broad. So we serve them out of all three of our geographical regions, North America, Europe, and Asia. We serve 11 different business units within the company. So it's, you know, everybody knows about the respiratory business that we've disclosed, but it's beyond that. You know, everybody knows the FDA situation that they've been in. And we've been close partners with them throughout that. So that situation was not related to Kimball, but we helped them remediate product. We stand ready to support them. We certainly don't speak for their strategy or approvals that they might have for the U.S. market or elsewhere, but we stand ready to support them. And it's a little bit easier for us now that they tripped that 10% again disclosure so that we can talk about them. OK, that's good. Yeah, yeah. It was in the. They were out of there for a while. Yes, yes, yes, yes. We noticed that. We have a tracker. So in the third quarter, they were above. But then in the fourth quarter, you just filed the case. So we don't really know. And there was maybe one, but back in the first quarter. Yes, I saw this. OK. So maybe on the respiratory care side, so if I go back before their CPAP quality challenges, what was your relationship with them on that product portfolio, if you can comment? And what does that look like now? You've made the disclosure of ramping kind of activities at Thailand. So what are you doing for them prospectively? And what were you, the totality of work with them in this category for FDA? Yeah, I cannot exactly directly answer your question, but give you a couple pieces that would help. We did disclose at the time of the FDA issue that we took $100 million annually out of our revenue to give you a sense of the relationship. The other thing that was publicly disclosed is that they did decide to close a manufacturing facility in Pittsburgh. We jointly announced that all of that business was going to Kimball over time. That has been what has transpired. We do anticipate continued growth. Again, you know, we respond to the demand forecast that we get as opposed to trying to predict exactly any U.S. market reentry. We are in a really great position to continue to support them moving forward. And your activity in Thailand to support this new business started middle of this year-ish, kind of reramping. And what have you said on expectation as to the demand forecast you are presented with, like how this continues to build into 2026, calendar '26? Yeah, I mean, obviously, a big factor would be a U.S. market reentry that, again, we don't try to predict. But we're seeing really solid growth with the program that we have right now with them ex- U.S. that we disclosed. So Mike, for the first quarter, we broke out the growth in medical like we always do. But we provided some insights as to where geographically that growth was coming from. And about half of our medical business is in North America. And it was up low to mid singles in Q1. And the other half is split between Asia and Europe. And the growth was pretty much split between Asia and Europe. And it was more robust than low to mid singles. Teens. So that sort of gives you an idea as to how we're seeing the growth. But it's not specific to one customer. It's across the customer portfolio and across all geographies. Maybe one more on this. And then I'm going to zoom back out. And I want to talk about just a vision for medical, which seems sort of important to the future of the company. Just customer diligence. And we'll talk about, I'll ask this in the context of Phillips and respiratory care. But just more broadly, I mean, when you, and especially as you continue to grow medical, how much conviction do you need to develop on the end market, you know, to kind of clear the threshold to invest in lines and production? We do a lot of end market research. OK. You have to because it's a big bet, right? So you know the Indy facility is $30 million of capital. You're not going to do that unless you feel strongly, not just in the customers, but in the demand for the end markets that they're pursuing. And it's not just a single end market. It's what are all of the different things that this facility could produce that would add value and quality for life in these end markets. And then you sort of work backwards from there. And you say, all right, strategically, here's where it makes sense to make the bet. We're just getting to know one another. But I'm curious, like Kimball, two years ago, five years ago, 10 years ago, how important was medical as a part of that narrative at any of those given time points? Has it really, like is it a new era of focus on medical for Kimball? Or am I just catching up now? No, so here's what I will say as someone who's been with the company the longest. I joined Kimball five years ago. And the previous CEO of Kimball, who I absolutely adored, had been with the company for 25 years. And he was an engineer. And so he really focused Kimball on quality, reliability, durability. He was a plant rat. Like he just loved to be in the plants. And when we started looking for a CEO to replace them, Rick is a strategist, right? And so the board and the leadership team recognized that we had built a really solid base. So we had a reputation for quality. We know how to build and manufacture for volume really, really well. What was going to take Kimball to the next evolution in terms of our capabilities as a company, we didn't need another CEO engineer. We needed Rick. And he came in, you know, day one, two and a half years ago. And was basically, I say two and a half years because he was working for us before he actually became CEO. But a lot of people don't know that. He He joined the company before he joined the company. Was, all right, strategically, where do we want to be? Who do we want to be? What is the focus? All that end market research. And so really began the trajectory of Kimball, five years, 10 years, 15 years. And that's really the journey that we've been on. So I'm glad you're here. Yeah, thank you. Yeah, I mean, the first structural move that we made, the business, you may or may not know, Kimball was running three pillars at the time. We had an automation test and measurement business in our industrial segment that we did not believe we were the right owner. It was not performing for us. We divested that. We also had what is now our Indianapolis business run as its own separate pillar from our core medical, which we believed in that business. We knew we did not have the facility to really grow it the way we wanted to. We also, frankly, were not leveraging our medical knowledge and leadership across the company. We brought those two pieces of businesses together. Then we really started to invest. That is where most of our business development resources are focused in medical. It's obviously where our capital investments are happening. It's where our inorganic assessment of opportunities is happening. We believe it's our most strategic and highest potential vertical. What's different about the CMO space, and again, we do believe that we're differentiated there with the drug delivery capability and so on, is the programs that you have the potential to win there are much, much larger than the traditional medical programs that we've had. It takes time to ramp these. You could imagine these programs being multiple hundreds of millions of dollars for a single program. Once we kind of get the facility finished and get some wins under our belt, you could see that that portion of the company that's medical and more profitable become very, very significantly larger than it is today. That's center plate strategy for us. We had to shrink to grow, right? We divested GES. We closed our Tampa facility. We did a fair amount of right sizing, had to get our balance sheet in order. While you're pursuing strategy, you're also doing the tactical execution of all the things that you've got to do. You know, we jokingly say, wow, it was a really long two years. The next two years are probably going to feel even longer. We're going to look back five years from now. We're going to say, where did the time go, right? We were able to do something really, really meaningful and very focused. There's one minute. This is a big picture question. I'm interested. The question is going to take 15 seconds. Just I used to be a services analyst. In-source, out-source. Customers can do things or they can hire people to do them for you. You're talking about medical CMO. It sounds like you have some domain expertise that will really appeal. At the highest level, multinational medtech device pharma customers, is there a general interest in not doing manufacturing that you're detecting, like more outsourcing? Do you describe that as a mega trend? Or is what you see just kind of like, hey, very specific spots, and we're going to step into that with differentiation? We do see it as a mega trend. I mean, it's what our customers tell us. They want to focus on every company's different. Every situation's different, of course. They generally want to focus on R&D. They are also, in many cases, as you see all the time, particularly on the pharmaceutical side, with these major multi-billion dollar campuses being built, they're focused on API. That's the richest part of their value chain. They should be focused there. They don't have enough capacity for things like auto injectors and some of the things and devices that we support. We see that as a big tailwind for the whole industry. We're a small player in that today. It wouldn't take much for us to really transform the company in terms of the business that we could drive there. We absolutely see that. Our customers tell us it's a trend. Good. Kimball, thanks for being here. Thank you for the discussion. Great to connect. Thank you for having us.