Kimball’s Medical Surge Lifts Outlook Despite Automotive Slump

Date of Call: Feb 5, 2026

Financials Results

• Revenue: $341.3 million, a 5% decrease year-over-year
• EPS: $0.28 per diluted share, compared to $0.29 per diluted share last year
• Gross Margin: 8.2%, a 160 basis point improvement compared to 6.6% in the same period of fiscal 2025
• Operating Margin: 4.5% of net sales, compared to 3.7% of net sales last year

Guidance:

• Net sales for fiscal 2026 expected to be in the range of $1.4 billion to $1.46 billion, compared to previous guidance of $1.35 billion to $1.45 billion.
• Adjusted operating income estimated to be 4.2% to 4.5% of net sales, versus prior estimate of 4.0% to 4.25%.
• Capital expenditures guidance for the fiscal year unchanged, with a range of $50 million to $60 million.

Business Commentary:

Medical Vertical Growth:

• Kimball Electronics reported Medical sales of $96 million in Q2, up 15% year-over-year, representing 28% of total company sales.
• The growth was driven by strong double-digit year-over-year growth in the Medical vertical, with increases in Poland and Thailand, and the company views this vertical as a compelling opportunity for top-line diversification.

Automotive Segment Decline:

• The company's Automotive sales were $162 million, down 13% compared to the same quarter last year, contributing to 48% of total sales.
• The decline was due to lower sales in North America, specifically from the electronic braking program transferred out and tariff pressures, although there was strong growth in Poland and Romania.

Industrial Sales Decline:

• Industrial sales totaled $83 million, a 5% decrease compared to Q2 last year, comprising 24% of total company sales.
• The decline was mainly due to reduced sales in the North American climate control submarket, partially offset by higher sales in Europe from a rebound in the smart meter business.

Raising Fiscal 2026 Guidance:

• Kimball Electronics raised its guidance for fiscal 2026, expecting net sales in the range of $1.4 billion to $1.46 billion.
• The improvement is driven by strength in the Medical vertical and the ramp of Automotive programs at European facilities.

New Indianapolis Facility:

• The grand opening of the new medical manufacturing facility in Indianapolis was highlighted, which is 300,000 square feet.
• This facility is aimed at expanding the company's capabilities and services in the Medical vertical, complementing organic growth and supporting the strategy to become Kimball Solutions.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed being 'pleased with the results' and 'raised the outlook for the fiscal year, driven by strength in the Medical vertical.' The CEO stated, 'I've never been more excited about the company.'

Q&A:

• Question from Michael Crawford (B. Riley Securities): What percent was Nexteer in the December quarter?
  Response: Nexteer was 20% of Automotive sales in the December quarter.

• Question from Michael Crawford (B. Riley Securities): Are your other customers also expanding steer-by-wire, or is it more braking driving recovery?
  Response: Steering and braking growth is seen with multiple large automotive customers, not exclusive to Nexteer.

• Question from Michael Crawford (B. Riley Securities): What is the capacity and ramp expectations for the new Indianapolis facility?
  Response: The facility is 300,000 square feet, representing a significant opportunity for growth, though exact revenue impact depends on program mix.

• Question from Michael Crawford (B. Riley Securities): Would the Indianapolis work be with emerging Medical customers?
  Response: Yes, the CMO facility in Indianapolis would likely serve new customers and expanded opportunities, not Philips.

• Question from Michael Crawford (B. Riley Securities): What are the value-added CMO applications driving fastest-growing parts?
  Response: Expected applications include single-use surgical instruments, drug delivery devices like auto-injectors, and plastic injection molding.

• Question from Derek Soderberg (Cantor Fitzgerald): How should we think about Automotive growth for Q3 and Q4?
  Response: Automotive is expected to be flat to slightly up in Q3 as the impact of a transferred program is anniversaried, with Europe rebounding.

• Question from Derek Soderberg (Cantor Fitzgerald): Comment on win rates across the business.
  Response: Win rates are consistent and competitive; strengths in customer relationships and capabilities support success, with potential for larger lift-and-shift and CMO programs.

• Question from Anja Soderstrom (Sidoti): How will the new facility impact margins?
  Response: In the near term, the new facility will drag margins due to depreciation and operational costs, but CMO space has long-term accretive margin potential.

• Question from Anja Soderstrom (Sidoti): How do you see cash cycle days playing out?
  Response: Cash conversion days are expected to decrease in Q3 from the Q2 level of 91 days, remaining a key focus.

• Question from Maxwell Michaelis (Lake Street Capital Markets): Provide more color on the EPP and second steering design opportunities.
  Response: The EPP program is about two-thirds the size of the old braking program but strategically exciting; second steering columns and ADAS present future growth opportunities.

• Question from Maxwell Michaelis (Lake Street Capital Markets): What sub-verticals are you targeting for acquisitions in Medical?
  Response: In vitro diagnostics and cardiology are of particular interest for expansion through acquisitions.

Contradiction Point 1

Automotive Segment Outlook and Growth Expectations

Conflicting signals on the bottoming and near-term growth prospects for the Automotive segment.

What is the outlook for Automotive growth in Q3 and Q4 amid softness in China and North America? - Derek Soderberg (Cantor Fitzgerald)

2026Q2: Q3 Automotive sales are expected to be flat to slightly up as the company finally anniversaries the end of the EV100 program. - [Jana Croom](CFO)

What is the current run rate of high-visibility, long-standing customer revenue in Automotive, and is the segment bottoming with flattish performance expected? - Derek Soderberg (Cantor Fitzgerald & Co.)

2026Q1: It is hard to define a clear bottom. Top automotive customers anticipate challenges in the overall market over the next few years due to factors like tariffs and economic pressures. - [Richard Phillips](CEO)

Contradiction Point 2

CMO/Medical Growth Strategy and Customer Focus

M&A and expansion strategy shifts from broad medical CMO focus to targeting specific new sub-verticals and customers.

In Medical acquisitions (e.g., auto-injectors, sleep therapy, drug delivery), which other sub-verticals are you targeting? - Maxwell Michaelis (Lake Street Capital Markets)

2026Q2: The company is interested in expanding into areas like in vitro diagnostics and cardiology through acquisitions, especially if it means expanding relationships with existing customers or adding new customers... - [Andrew Regrut](CFO)

What is the focus of potential acquisitions in the medical space—expanding existing platforms or entering new markets? - Maxwell Michaelis (Lake Street Capital Markets, LLC)

2026Q1: M&A focus is on the medical CMO space. Opportunities could involve new technologies, customers, or geographies that extend Kimball's differentiated capabilities... - [Richard Phillips](CEO)

Contradiction Point 3

Gross Margin Impact of Facility Transition

Conflicting statements on whether the facility move will improve or negatively impact gross margins.

How will the new facility affect margins during its ramp-up? - Anja Soderstrom (Sidoti & Company)

2026Q2: In the near term (next 6-9 months), it will be a drag on margins due to depreciation and operating expenses from running two facilities during the transition. - [Richard Phillips](CFO) & [Jana Croom](CFO)

How will Tampa facility closure and relocation affect future gross margins? - Anja Soderstrom (Sidoti & Company)

2025Q3: The move to the new Indianapolis facility will have a small gross margin impact. The company is navigating price sensitivity from tariffs while trying to hold margins. - [Steve Korn](COO), [Jana Croom](CFO)

Contradiction Point 4

Strategic Focus of the Indianapolis Facility

Contradiction on whether the new facility is primarily for expanding Medical CMO business or also includes other verticals.

Is the new Indianapolis facility focused on emerging medical customers instead of Philips? - Michael Crawford (B. Riley Securities)

2026Q2: The CMO facility is intended for new customers and expanded opportunities, not for Philips... Medical growth in Q2 was balanced across North America, Europe, and Asia. - [Jana Croom](CFO)

How does the Indianapolis facility move impact the company's approach to inorganic growth in the Medical segment? - Derek Soderberg (Cantor Fitzgerald)

2025Q3: The move was driven by the need to grow the Medical CMO business; the existing facility couldn't accommodate new large medical business. - [Ric Phillips](CEO)

Contradiction Point 5

Revenue Capacity of the Indianapolis Facility

Inconsistent statements on the facility's potential revenue capacity.

What are the capacity and ramp-up expectations at the new Indianapolis facility? - Michael Crawford (B. Riley Securities)

2026Q2: While the exact revenue potential isn't set yet, it represents a substantial growth opportunity for the company, suitable for large programs being quoted. - [Jana Croom](CFO)

When will the new Indianapolis facility be ready and what is its potential revenue capacity? - Michael Roy Crawford (B. Riley Securities)

2025Q4: The 300,000 sq ft facility can handle hundreds of millions of dollars in business, with potential exceeding $0.5 billion. - [Richard Phillips](CEO) and [Jana Croom](CFO)