What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2025-02-06 · 94 added, 70 removed, 172 unchanged (49% of the section changed)

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The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “likely,” “future,” “may,” “should,” “would,” “could,” “will,” “can,” “potentially,” and similar expressions.

These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies, availability or cost of raw materials and components, foreign exchange fluctuations, and our ability to convert new business opportunities into customers and revenue.

These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies, availability or cost of raw materials and components, tariffs and other trade barriers, foreign exchange 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 Kimball Electronics are contained in our Annual Report on Form 10-K for the year ended June 30, 2024.

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We provide electronics manufacturing services (“EMS”), including engineering and supply chain support, to customers in the automotive, medical, and industrial end markets.

Our core competency is producing durable electronics, and we further offer contract manufacturing services for non-electronic components, medical disposables, drug delivery solutions, and precision molded plastics.

Our core competency is producing durable electronics.

We further offer contract manufacturing organization (“CMO”) solutions which include operations such as precision molded plastics, complete device assembly, and cold chain management, which support the production of medical disposables and selected drug delivery devices such as auto-injectors.

Our manufacturing services, including engineering and supply chain support, utilize common production and support capabilities globally.

We are well recognized by our customers and the industry for our excellent quality, reliability, and innovative service.

CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide, has previously recognized us four times for achieving the Highest Overall Customer Rating in their Service Excellence Awards, and most recently, we received Highest Customer Ratings in seven service categories in 2024.

CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide, has recognized us for the past 13 consecutive years for rankings in Highest Overall Customer Ratings in their Service Excellence Awards.

Most recently, we were recognized by our customers for highest ratings in service excellence in seven categories:

dependability/timely delivery, manufacturing quality, responsiveness, technology, value for the price, flexibility, and overall satisfaction.

The contract manufacturing services industry is very competitive.

As a mid-sized player, we can expect to be challenged by the agility and flexibility of the smaller, regional players, and we can expect to be challenged by the scale and price competitiveness of the larger, global players.

We enjoy a unique market position between these extremes which allows us to compete with the larger scale players for high-volume projects, but also maintain our competitive position in the generally lower volume durable electronics market space.

We enjoy a unique market position between these extremes which allows us to compete with the larger scale players for high-volume projects, but also maintain our competitive position in the generally

lower volume durable electronics market space.

We expect to continue to effectively operate in this market space;

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The Worldwide Manufacturing Services Market - 2024 Edition , a comprehensive study on the worldwide EMS market published by New Venture Research (“NVR”), provided worldwide forecast trends through 2028.

NVR projects the worldwide

assembly market for electronics products to grow at a compound annual growth rate (“CAGR”) of 4.6% over the next five years, with the EMS industry projected to grow at a CAGR of 4.6%.

NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate (“CAGR”) of 4.6% over the next five years, with the EMS industry projected to grow at a CAGR of 4.6%.

We continue to monitor the current economic and industry conditions for uncertainties that may pose a threat to our future growth or cause disruption in business strategy, execution, and timing in the markets in which we compete.

Net sales in the second quarter of the current fiscal year decreased 15% compared to the prior fiscal year second quarter, most significantly in our medical and industrial end market verticals.

The decrease in sales to customers in the medical markets were largely driven by adjacent impacts with our major medical customer with the FDA recall and the wind down of other programs.

Net sales in the third quarter of the current fiscal year decreased 12% compared to the prior fiscal year third quarter, most significantly in our automotive and industrial end market verticals.

The decrease in sales to customers in the automotive markets were largely driven by the loss of a major automotive program that was unrelated to Kimball.

The increase in sales to customers in the medical markets were favorably impacted by $24M in non-recurring consignment inventory sales to a customer for completed programs.

The decrease in sales to customers in the industrial market were related to the sale of GES and declines in smart metering and public safety.

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We have a strong focus on cost control balanced with managing the future growth prospects of our business.

We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through our recently completed capacity expansions.

We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through entering into a lease on a new facility for our Indianapolis operations, and our recently completed capacity expansions.

Managing working capital in conjunction with fluctuating demand levels is likewise key.

In addition, a long-standing component of our profit-sharing incentive bonus plan is its link to our financial performance, which results in varying amounts of compensation expense as profits change.

To support our renewed strategic focus, we completed the divestiture of our GES business on July 31, 2024 and undertook restructuring efforts beginning in fiscal year 2024 to align our cost structure with reduced end-market demand levels.

We completed the divestiture of our GES business on July 31, 2024 and undertook restructuring efforts beginning in fiscal year 2024 to align our cost structure with reduced end-market demand levels.

In addition, on November 4, 2024, the Company announced that its Board of Directors has approved a plan to cease operations at our Tampa facility, expected to be completed by the end of the fiscal year.

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Production activities on existing customer programs will be transferred out of Tampa, with the majority of the work going to our plants in North America, primarily our newly expanded facility in Mexico and Jasper.

We continue to maintain a strong balance sheet, which included a current ratio of 2.3, a debt-to-equity ratio of 0.4, and Share Owners’ equity of $537 million at December 31, 2024.

We continue to maintain a strong balance sheet, which included a current ratio of 2.1, a debt-to-equity ratio of 0.3, and Share Owners’ equity of $548 million at March 31, 2025.

Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.

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While variation in the size of program awards makes it difficult to directly correlate this data to our sales trends, we believe it does provide useful information regarding our customer loyalty and new business growth.

Six Months Ended

Nine Months Ended

Customer Service Years 2025 2024

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Selling and Administrative Expenses 13.2 3.6 % 16.8 3.9 % (22) %

Other General Income — — % (0.9) (0.2) % 100 %

Restructuring Expense 2.0 0.5 % 1.6 0.4 % 25 %

Operating Income 8.2 2.3 % 16.6 3.9 % (50) %

Goodwill Impairment — — % 5.8 1.4 % (100) %

Asset Impairment (Gain on Disposal)

— — % 16.6 3.9 % (100) %

Operating Income (Loss)

11.7 3.1 % (6.4) (1.5) % 282 %

Other Income (Expense) (4.6) (6.4)

Provision (Benefit) for Income Taxes

Net Income $ 3.4 $ 8.3 (59) %

3.3 (6.7) 150 %

Net Income (Loss)

$ 3.8 $ (6.1) 163 %

Diluted Earnings per Share $ 0.15 $ (0.24) 163 %

Open Orders $ 642 $ 831 (23) %

For the Six Months Ended

For the Nine Months Ended

(Amounts in Millions, Except for Per Share Data) 2025 as a % of Net Sales 2024 as a % of Net Sales % Change

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Selling and Administrative Expenses 37.1 3.4 % 50.7 4.0 % (27) %

Other General Income — — % (0.9) (0.1) % 100 %

Restructuring Expense 9.0 0.8 % 1.6 0.1 % 456 %

Gain on Disposal (1.3) (0.2) % — — % — %

Goodwill Impairment — — % 5.8 0.5 % (100) %

Asset Impairment (Gain on Disposal) (1.3) (0.1) % 16.6 1.3 % (108) %

Operating Income 29.1 2.6 % 29.7 2.3 % (2) %

Other Income (Expense) (15.6) (17.9)

Provision for Income Taxes (0.2) 5.4 (104) %

Provision (Benefit) for Income Taxes

3.1 (1.2) 352 %

Net Income $ 10.4 $ 13.0 (20) %

Diluted Earnings per Share $ 0.41 $ 0.51 (20) %

Net Sales by Vertical Market Three Months Ended Six Months Ended

December 31 December 31

Net Sales by Vertical Market Three Months Ended Nine Months Ended

March 31 March 31

(Amounts in Millions) 2025 2024 % Change 2025 2024 % Change

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Total Net Sales $ 374.6 $ 425.0 (12) % $ 1,106.3 $ 1,284.4 (14) %

Second quarter fiscal year 2025 consolidated net sales decreased 15% compared to the second quarter of fiscal year 2024, and the year-to-date fiscal year 2025 consolidated net sales also decreased 15% compared to the year-to-date period of fiscal year 2024.

The impact from foreign currency fluctuations on net sales was less than 1% in the current quarter compared to the second quarter and year-to-date period of fiscal year 2024.

Third quarter fiscal year 2025 consolidated net sales decreased 12% compared to the third quarter of fiscal year 2024, and the year-to-date fiscal year 2025 consolidated net sales also decreased 14% compared to the year-to-date period of fiscal year 2024.

Foreign currency fluctuations had an unfavorable 1% impact on net sales in the current quarter compared to the third quarter of fiscal year 2024, and the impact was less than 1% in the current year-to-date period compared to the year-to-date period of fiscal year 2024.

The non-recurring consignment sale discussed below had a favorable impact on consolidated net sales of 6% and 2% in the current year third quarter and year-to-date period, respectively.

By end market vertical, our market verticals fluctuated as follows:

• In the automotive end market vertical, for both the quarter over quarter and year-to-date periods, improvement in demand in China helped to partially offset lower demand in North America and Europe and the loss of a major automotive program that was unrelated to Kimball.

• In the medical end market vertical, for both the quarter over quarter and year-to-date periods, the decrease was driven by adjacent impacts with our major medical customer with the FDA recall and the wind down of other programs.

• In the industrial end market vertical, the sale of GES accounts for approximately one-third of the decline quarter over quarter and in the year-to-date period.

The remaining declines are in our smart metering programs, where our customers are experiencing continued market share declines from commoditization, and moderate declines in climate controls and public safety.

Sales to Nexteer Automotive, ZF, and HL Mando accounted for the following portions of our net sales:

Three Months Ended Six Months Ended

December 31 December 31

• Sales to the medical end market vertical, for both the quarter over quarter and year-to-date periods, were favorably impacted by $24M in non-recurring consignment inventory sales to a customer for completed programs, which had a favorable impact on sales to the medical end market vertical of 22% in the current year third quarter and 7% in the current year-to-date period.

Excluding these sales, the decrease was driven by adjacent impacts with our major medical customer with the FDA recall and the wind down of other programs.

• In the industrial end market vertical, the sale of GES accounts for approximately one-third of the decline quarter over quarter and approximately half of the decline in the year-to-date period.

We also experienced declines in our smart metering programs, where our customers are experiencing continued market share declines from commoditization, and declines in public safety.

Sales to Nexteer Automotive, Philips, ZF, and HL Mando accounted for the following portions of our net sales:

Three Months Ended Nine Months Ended

March 31 March 31

2025 2024 2025 2024

Nexteer Automotive 19% 16% 19% 16%

Philips 15% * * *

ZF * 12% 11% 12%

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* amount is less than 10% of total

Gross profit as a percent of net sales in the second quarter of fiscal year 2025 declined when compared to the second quarter of fiscal year 2024 as well as in the first half of the fiscal year as we experienced lost absorption on lower revenue.

Selling and administrative expenses decreased both as a percent of net sales and in absolute dollars in the second quarter of fiscal year 2025 when compared to the second quarter of fiscal year 2024 as well as in the first half of the fiscal year, driven by cost reduction efforts, the classification of factoring fees, and decreased profit-sharing bonus expense and stock compensation expense driven by the decline in financial results.

In the second quarter, the update of bonus and stock compensation performance metrics resulted in a substantial reduction to cumulative expense recorded.

Both the second quarter and first half of fiscal year 2024 included a $2.0 million allowance for credit losses, which also contributed to the declines year over year.

In the three and six months ended December 31, 2024, we recorded pre-tax restructuring expense of $4.7 million and $7.0 million, respectively, for employee-related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels and incurred costs related to the Tampa closure in the second quarter.

Gross profit as a percent of net sales in the third quarter of fiscal year 2025 declined when compared to the third quarter of fiscal year 2024 as well as in the first nine months of the fiscal year as we experienced lost absorption on lower revenue.

The third quarter decline as a percent of sales was also partially driven by gross profit dilution from the non-recurring consignment inventory sale.

Selling and administrative expenses decreased both as a percent of net sales and in absolute dollars in the third quarter of fiscal year 2025 when compared to the third quarter of fiscal year 2024 as well as in the first nine months of the fiscal year, driven by cost reduction efforts, the classification of factoring fees, and the benefit from lower allowance for credit losses.

Selling and administrative expenses for the first nine months of fiscal year 2025 also experienced lower profit-sharing bonus expense and stock compensation expense driven by the decline in financial results.

In the three and nine months ended March 31, 2025, we recorded pre-tax restructuring expense of $2.0 million and $9.0 million, respectively, for employee-related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels and incurred costs related to the Tampa closure in the second quarter.

In the three and nine months ended March 31, 2024, we recorded pre-tax restructuring expense of $1.6 million for employee-related costs for cost structure alignment.

We completed the divestiture of GES on July 31, 2024 and recorded a gain on disposal of $1.3 million during the first quarter of fiscal year 2025.

See Note 3 - Sale of GES of Notes to Condensed Consolidated Financial Statements for more information.

In the three and nine months ended March 31, 2024, we recorded pre-tax goodwill impairment charges of $5.8 million and pre-tax asset impairment charges of $16.6 million when we made the decision to divest GES and classified the disposal group as held for sale in the third quarter of fiscal year 2024.

Other Income (Expense) consisted of the following:

Three Months Ended Six Months Ended

December 31 December 31

Three Months Ended Nine Months Ended

March 31 March 31

(Amounts in Thousands) 2025 2024 2025 2024

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Other income (expense), net $ (4,562) $ (6,322) $ (15,549) $ (17,935)

Interest expense has decreased in the three and six months ended December 31, 2024 compared to the three and six months ended December 31, 2023 due to lower borrowings on credit facilities and lower interest rates.

Interest expense has decreased in the three and nine months ended March 31, 2025 compared to the three and nine months ended March 31, 2024 due to lower borrowings on credit facilities and lower interest rates.

Foreign currency/derivative gains (losses) result from net foreign currency exchange rate movements during the periods.

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Prior to fiscal year 2025, factoring fees were recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.

Our provision (benefit) for income taxes for the six months ended December 31, 2024 and December 31, 2023 was $(0.2) million, or (3.6)% of income before taxes on income, and $5.4 million, or 22.2% of income before taxes on income,

respectively.

The tax benefit in the six months ended December 31, 2024 is primarily the result of the valuation allowance reversal recorded in the second quarter associated with the expected capital gains from the sale of the Tampa property.

Open orders were down 33% as of December 31, 2024 compared to December 31, 2023.

The decrease in open orders from December 31, 2023 is primarily driven by reduced orders due to cancellation of a major automotive program, other automotive customer demand reductions, and medical customer demand reductions.

Our provision (benefit) for income taxes for the nine months ended March 31, 2025 and March 31, 2024 was $3.1 million, or 23.0% of income before taxes on income, and $(1.2) million, or (10.5)% of income before taxes on income, respectively.

The tax benefit in the nine months ended March 31, 2024 was lower than normal primarily due to the sale of GES in that year.

Open orders were down 23% as of March 31, 2025 compared to March 31, 2024.

The decrease in open orders from March 31, 2024 is primarily driven by reduced orders due to cancellation of a major automotive program, other automotive customer demand reductions, and industrial customer demand reductions.

Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business.

Our open orders depend on the lead times from our customers, which have reduced since December 31, 2023 when parts were more constrained, which also contributed to the decline in open orders.

Our open orders depend on the lead times from our customers, which have reduced since March 31, 2024 when parts were more constrained, which also contributed to the decline in open orders.

Liquidity and Capital Resources

Working capital at December 31, 2024 was $397.6 million compared to working capital of $471.7 million at June 30, 2024.

The current ratio was 2.3 at both December 31, 2024 and June 30, 2024.

The debt-to-equity ratio was 0.4 at December 31, 2024 and 0.5 at June 30, 2024.

Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, some of which are uncommitted, totaled $280.3 million at December 31, 2024 and $220.1 million at June 30, 2024.

Working capital at March 31, 2025 was $376.3 million compared to working capital of $471.7 million at June 30, 2024.

The current ratio was 2.1 at March 31, 2025 and 2.3 June 30, 2024.

The debt-to-equity ratio was 0.3 at March 31, 2025 and 0.5 at June 30, 2024.

Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, some of which are uncommitted, totaled $304.6 million at March 31, 2025 and $220.1 million at June 30, 2024.

Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding (“DSO”) plus Contract Asset Days (“CAD”) plus Production Days Supply on Hand (“PDSOH”) less Accounts Payable Days (“APD”) and less Advances from Customers Days (“ACD”).

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Three Months Ended

December 31, 2024 September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Days Sales Outstanding 58 65 59

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We expect our CCD metrics to improve as we align our working capital with the lower sales levels.

The following table reflects the major categories of cash flows for the first six months of fiscal years 2025 and 2024.

Six Months Ended

The following table reflects the major categories of cash flows for the first nine months of fiscal years 2025 and 2024.

Nine Months Ended

(Amounts in Millions) 2025 2024

Net cash provided by (used for) operating activities $ 74.9 $ (17.9)

Net cash provided by operating activities $ 105.9 $ 24.7

Net cash used for investing activities $ (5.2) $ (37.7)

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Cash Flows from Operating Activities

Net cash provided by operating activities for the first six months of fiscal year 2025 was driven by net income adjusted for non-cash items and changes in operating assets and liabilities.

Net cash used by operating activities for the first six months of the prior year was driven by changes in operating assets and liabilities, partially offset by net income adjusted for non-cash item.

Net income adjusted for non-cash items provided cash of $28.1 million in the first six months of fiscal year 2025, while changes in operating assets and liabilities provided $46.8 million of cash in the first six months of fiscal year 2025, largely due to a decrease of accounts receivable, which provided cash of $45.5 million, and a decrease of inventory, which provided cash of $28.0 million.

Net cash provided by operating activities for the first nine months of fiscal year 2025 was driven by net income adjusted for non-cash items and changes in operating assets and liabilities.

Net cash provided by operating activities for the first nine months of the prior year was driven by net income adjusted for non-cash items, partially offset by changes in operating assets and liabilities.

Net income adjusted for non-cash items provided cash of $40.0 million in the first nine months of fiscal year 2025, while changes in operating assets and liabilities provided $65.9 million of cash in the first nine months of fiscal year 2025, largely due

to a decrease of accounts receivable, which provided cash of $32.5 million, and a decrease of inventory, which provided cash of $39.9 million.

Partially offsetting cash provided by accounts receivable and inventory was a decrease in accrued expenses and taxes payable, which used cash of $19.7 million primarily driven by timing of profit-sharing incentive bonus and income tax payments.

The cash used of $59.0 million from changes in operating assets and liabilities in the first six months of fiscal year 2024, is largely due to a decrease in accounts payable, which used cash of $42.5 million primarily driven by decreased inventory purchases due to lower sales, and a decrease in accrued expenses and taxes payable, which used $9.3 million primarily driven by timing of income tax and profit-sharing incentive bonus payments.

Net income adjusted for non-cash items provided cash of $60.0 million in the first nine months of fiscal year 2024.

Partially offsetting this was cash used of $35.3 million from changes in operating assets and liabilities in the first nine months of fiscal year 2024, largely due to a decrease in accounts payable, which used cash of $71.2 million driven by decreased inventory purchases due to lower sales, and a decrease in accrued expenses and taxes payable, which used $11.5 million primarily driven by timing of income tax and profit-sharing incentive bonus payments.

Partially offsetting cash used by accounts payable and accrued expenses and taxes payable was an increase in advances from customers, which provided cash of $32.2 million.

Partially offsetting the cash used from changes in operating assets and liabilities in the first six months of fiscal year 2024 was net income adjusted for non-cash items which provided cash of $41.1 million.

Cash Flows from Investing Activities

Net cash used by investing activities of $1.2 million in the first six months of fiscal year 2025 was largely due to capital investments of $20.0 million primarily to support new business awards and replacement of older machinery and equipment, partially offset by the $18.5 million of proceeds from the sale of GES.

Net cash used by investing activities of $5.2 million in the first nine months of fiscal year 2025 was largely due to capital investments of $24.0 million primarily to support new business awards and replacement of older machinery and equipment, partially offset by the $18.5 million of proceeds from the sale of GES.

See Note 3 - Sale of GES of Notes to Consolidated Financial Statements for more information on the divestiture of GES.

Net cash used for investing activities in the first six months of fiscal year 2024 included $24.5 million cash used for capital investments.

Net cash used for investing activities in the first nine months of fiscal year 2024 included $37.9 million cash used for capital investments.

The capital investments were primarily to support new business awards, facility expansions, and replacement of older machinery and equipment.

Cash Flows from Financing Activities

For the first six months of fiscal year 2025, net cash used for financing activities of $97.3 million resulted largely from net payments on our credit facilities of $89.8 million.

For the first six months of fiscal year 2024, net cash provided by financing activities of $38.9 million resulted largely from net borrowings on our credit facilities of $40.3 million.

For the first nine months of fiscal year 2025, net cash used for financing activities of $126.6 million resulted largely from net payments on our credit facilities of $116.1 million.

For the first nine months of fiscal year 2024, net cash provided by financing activities of $36.6 million resulted largely from net borrowings on our credit facilities of $38.2 million primarily for working capital purposes and capital expenditures.

Credit Facilities

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The Company terminated its 364-day multi-currency revolving credit facility (the “secondary credit facility”), which previously allowed for borrowings up to $100 million and had a maturity date of January 3, 2025.

We were in compliance with the financial covenants of the primary credit facility during the period ended December 31, 2024.

We were in compliance with the financial covenants of the primary credit facility during the period ended March 31, 2025.

Through the amendment of the primary credit facility, including adding a $100 million term loan borrowing, we were able to maintain our same total borrowing capacity even with the termination of the secondary credit facility.

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These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses.

As of December 31, 2024, we maintained foreign credit facilities at our Thailand operation, our China operation, our Netherlands subsidiary, and our Poland operation.

As of March 31, 2025, we maintained foreign credit facilities at our Thailand operation, our China operation, our Netherlands subsidiary, and our Poland operation.

See Note 8 - Credit Facilities of Notes to Consolidated Financial Statements for more information on our credit facilities, including the terms of the credit facilities such as interest, commitment fees, and debt covenants.

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These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers’ failure to pay.

Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables.

In the six months ended December 31, 2024 and 2023, we sold, without recourse, $169.0 million and $198.9 million of accounts receivable, respectively.

Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have

surrendered control over the transferred receivables.

In the nine months ended March 31, 2025 and 2024, we sold, without recourse, $236.2 million and $317.0 million of accounts receivable, respectively.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for more information regarding the factoring arrangements.

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We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities, will be sufficient to meet our working capital and other operating needs for at least the next 12 months.

The unused borrowings in USD equivalent under all of our credit facilities totaled $226.4 million at December 31, 2024.

The unused borrowings in USD equivalent under all of our credit facilities totaled $253.2 million at March 31, 2025.

Additionally, accounts receivable factoring arrangements could provide flexible access to cash as needed.

We expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company.

At December 31, 2024, our capital expenditure commitments were approximately $17 million, consisting primarily of capital related to new program wins.

At March 31, 2025, our capital expenditure commitments were approximately $17 million, consisting primarily of capital related to new program wins.

We anticipate our available liquidity will be sufficient to fund these capital expenditures.

In March 2025, we executed a lease for a facility in Indiana to expand our medical CMO footprint, but the term for the lease has not yet commenced.

The new lease is expected to commence in the fourth quarter of the current fiscal year, with an initial lease term of ten years and annual base rent of $1.8 million, increasing 3% each year.

We expect to continue our restructuring efforts, including the closure of our Tampa facility.

We expect these restructuring efforts to be predominantly cash expenditures to be incurred over the remainder of fiscal year 2025.

We estimate additional pre-tax restructuring charges between $5 million to $6 million, including $4 million to $5 million for Tampa exit costs.

We estimate additional pre-tax restructuring charges between $3 million to $4.5 million.

Once Tampa’s operations have ceased, we expect to sell the building and land, with the proceeds from the sale anticipated to exceed the exit costs.

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In turn, material authorization agreements with customers cover a portion of the exposure for material that we must purchase prior to having a firm order.

At December 31, 2024, our foreign operations held cash totaling $46.1 million.

At March 31, 2025, our foreign operations held cash totaling $47.4 million.

Most of our accumulated unremitted foreign earnings have been invested in active non-U.S.

business operations, and it is not anticipated such earnings will be remitted to the United States.

business operations.

The Company continually evaluates its global cash needs.

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Determination of the amount of any potential future unrecognized deferred tax liability on such unremitted earnings is not practicable and is recorded in the period when any foreign earnings are determined to be no longer permanently reinvested.

During fiscal year 2025, the Company changed its indefinite reinvestment assertion for our subsidiary in China, and has recorded a deferred tax liability on their earnings for the applicable withholding taxes.

The Company continues to assert permanent reinvestment of foreign earnings in all other foreign jurisdictions as well as for earnings prior to fiscal year 2025 for China.

The Company’s Repurchase Plan allows the repurchase of up to $120 million of our common stock.

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The Company expects to finance the purchases with existing liquidity.

The Company has repurchased $97.7 million of common stock under the Repurchase Plan through December 31, 2024.

The Company has repurchased $100.7 million of common stock under the Repurchase Plan through March 31, 2025.

Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, unsuccessful integration of acquisitions and new operations, global health emergencies, and the related uncertainties around the financial impact, and other unforeseen circumstances.

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Additional cautionary statements regarding our risk factors are contained in our Annual Report on Form 10-K for the year ended June 30, 2024.

During the second quarter of fiscal year 2025, no level 1 or level 2 financial instruments were affected by a lack of market liquidity.

During the third quarter of fiscal year 2025, no level 1 or level 2 financial instruments were affected by a lack of market liquidity.

For level 1 financial assets, readily available market pricing was used to value the financial instruments.

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Off-Balance Sheet Arrangements

As of December 31, 2024, we do not have any material off-balance sheet arrangements.

As of March 31, 2025, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis