Good morning, ladies and gentlemen. My name is Angel, and I will be your operator for today's conference call. At this time, I would like to welcome everyone to the Kimball Electronics Third Quarter Fiscal 2020 Financial Results Conference Call. All lines have been placed on listen-only mode to prevent any background noise. After the Kimball speakers' opening remarks, there will be a question-and-answer period, where Kimball will respond to questions from analysts. [Operator Instructions] Today's call May 5, 2020 will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Risk factors that may influence the outcome of the forward-looking statements can be seen in Kimball's annual report on Form 10-K for the year ending June 30, 2019 and other filings with the Securities and Exchange Commission, the SEC and in today's release. The panel for today's call is Don Charron, Chairman of the Board and Chief Executive Officer; and Mike Sergesketter, Vice President and Chief Financial Officer of Campbell Electronics. I would now like to turn today's call over to Don Charron. Mr. Charron you may begin.

Thank you, Angel. Welcome everyone to our third quarter conference call. Our earnings release was issued yesterday afternoon on the results of our third quarter ended March 31, 2020. We have posted a financial summary presentation to accompany this conference call. The presentation can be found on our Investor Relations website within the Events and Presentations tab. Or if you are listening via the webcast, you can follow along by advancing the slides or download them from the Downloads tab on the webcast portal. I will begin by making a few remarks on the overall quarter, and then I will turn it over to Mike for the financial overview. After that, we will answer any questions that you may have. We are pleased with the results we delivered in the third quarter of fiscal year 2020, despite the interruptions and challenges caused by the COVID-19 pandemic. The safety and health of our employees, customers, suppliers and communities are paramount. We are making every effort to keep our facilities safe, following current guidelines suggested by applicable country authorities. Because of the variety of critical medical device assemblies we manufacture around the world, our facilities are classified as essential businesses. And so all are currently operational, but have been affected to varying degrees by COVID-19. We serve a diversified portfolio of markets, geographies and customers. In our third quarter, we experienced a double-digit decline in sales to customers in our medical vertical, which was primarily unrelated to COVID-19. However, we are seeing a significant increase in demand for medical assemblies for the near future, specifically those related to respiratory care and patient monitoring products. We have customers, whose products are essential to the health and safety of people around the globe. We are proud of what we do for the world and…

Thanks, Don. Before I get into my normal discussion on our financial results, I wanted to stress that our financial condition continues to be strong. And we believe we are in a solid position to be able to support the increased demand in the medical market relative to the COVID-19 pandemic and to do our part in helping solve the shortage of critical medical devices necessary to help save lives. Our short-term liquidity available represented as cash and cash equivalents plus the unused amount of our credit facilities totaled $122 million at March 31, 2020. We have the ability to increase the borrowing capacity on our primary credit facility by an additional $75 million upon request subject to consent of the participating lenders, as well as other options to enhance our liquidity. Now regarding our Q3 results, I will be referring to the slide deck Don mentioned, which can be found on our Investor Relations website within the Events and Presentations tab. Or if you're listening via the webcast you can follow along by advancing the slides on the webcast portal. As shown on slide 3, our third quarter net sales were $293.9 million, which was a 6% decrease compared to a very strong third quarter of fiscal year 2019 with net sales of $313.5 million. [Technical Difficulty]

Ladies and gentlemen, please hold.

I'll continue with our sales results. So as shown on slide 3 our third quarter net sales were $293.9 million, which was a 6% decrease compared to a very strong third quarter of fiscal year 2019 with net sales of $313.5 million. The decline in net sales was largely the result of overall lower demand, compared to the prior year, particularly, in the medical vertical, which was primarily unrelated to COVID-19. Foreign exchange rates reduced our consolidated net sales by approximately 1% compared to the third quarter a year ago. Slide 4 represents our net sales mix by vertical market. Comparing our net sales by vertical to the same quarter in the prior year, our automotive vertical was down 2% compared to the same quarter a year ago driven largely by lower demand of existing products including the negative impact to demand from COVID-19, starting in the last part of the quarter, which was partially offset by the ramp-up of certain programs, fully electric vehicles and new product introductions. As Don mentioned, we started to see the COVID -- the impact of COVID-19 on the automotive industry in our third quarter results, although the severity of the impact will not be reflected in our results until our fiscal fourth quarter. Our medical vertical was down 12% in the current quarter compared to the prior year third quarter resulting from lower overall demand that was partially offset by the ramp-up of certain products. We anticipate growth of sales to customers in the medical market in the upcoming quarters as we are currently experiencing a significant increase in demand from medical assemblies, specifically, those related to respiratory care and patient monitoring products as a direct result of the COVID-19 pandemic and related global shortage of respiratory equipment. Our industrial vertical was down…

[Operator Instructions] Thank you. And your first question comes from Anja Soderstrom from Sidoti & Company. Please go ahead.

Yeah. Hi, everyone. Thank you for taking my questions. So if you could first give me some more color on the auto segment. It seems like even though there might be a drop-off among the auto manufacturers you're going to be helped by new program ramps there. Is that correct?

That's correct. So maybe I can -- go ahead Anja.

Yes. And just how -- if there's going to be a more severe slowdown among the -- in the auto industry, how is that going to affect your that new program ramps you think in the next coming quarters?

Yes. So I think as we said in the script Anja, I would start with the fact that at least now we have for North America and Europe a restart date of May 18 and that affects the majority of our customers. And so we basically have been down for the month of April. And yes for basically the first half of May. So -- but we have a restart date. That's the good news and we expect that once the restart happens, it'll take a few weeks for the value chain that supports those OEMs to crank back up to the pre-COVID run rate. But we expect towards the end of Q4 and the month of June and we'll start to approach those pre-COVID-19 run rate. So Q4 to us looks like China at something near pre-COVID-19 run rate, and North America and Europe essentially exiting the quarter somewhere around that level. But of course the lost production essentially equal to happen there.

Okay. That was helpful additional color. And then in the medical segment, it seems like you are helped by the covered related production. But there's weakness in your other production? What are those? And what do you see there in terms of a turnaround?

Yes separate product categories obviously then respiratory care and patient monitoring. We had some of our customers that are supporting the drug delivery device by category that are going through some significant changes in their go-to-market strategy. And so that resulted in a year-over-year change if you will that made up the majority of the shortfall. I think the good news there is that, we expect that go-to-market change will be successful for them and their strategy will be successful. It may take a few quarters for them to get back to the level of business we enjoyed with them. But I think, overall, its good news but it did impact the Q3-to-Q3 comparison because of the change going into effect before this most recent reported quarter.

Okay. So sort of that weakness from that is expected to go on for a couple of more quarters, but we offset them at least partially by the COVID-19 related production?

Yeah. So again, I would say relative to the comments in the script Anja, I would say, we're expecting strong double-digit growth. And as I mentioned the demand for the respiratory care and patient monitoring product is immediate. And so while we're working through capacity and supply chain or component availability issues, we expect the ramp-up of the COVID-19 related business to occur immediately in the quarter we're in and as I mentioned over the next several quarters.

Okay. And then just in terms of overall demand, have you seen like the, sort of, any impact from potential prolonged economic slowdown on your order book?

The demand overall that our customers are relaying onto us has been impacted by the shutdown, so in places where government restricted mobility and availability of workers that clearly has been an impact. It's difficult to determine when those restrictions now as they're being lifted both here in North America and Latin America and also in Europe, how fast we will get back to some run rates that we were at pre-COVID-19. But I will say that, we're starting to see signs of the value change that we're in, where these restrictions are being lifted. Our customers are placing demand on us that's ramping us up fairly quickly to run rates we were at/or near the run rates we were at pre-COVID-19. But definitely I would say in the short-term here with the month of April seeing significant restrictions and shutdowns and other related kinds of interruptions to the normal production flow. Q4 impact certainly will be there, but we're optimistic, cautiously optimistic about how fast the value chain will ramp up once these restrictions are lifted and we get back to work.

Okay. Just overall capacity how -- what would you say you're running at now overall?

That's a really difficult and complicated question to answer, but let me give you my best shot at it. I would say our automotive line literally in North America and Europe were shut down for the month of April and for the first half of May. So the utilization calculation is pretty easy for that six-week period. And then as we ramp-up in those areas growing of automotive lines, we expect them to get back to the utilization run rate, we were at the pre-COVID-19. Our medical line with the increases that have been placed on us, they will run at very high utilization rate. And as Mike mentioned, we've even had to add some capital equipment to meet the demand over the next several quarters. And the good news is, we've been able to utilize some of the capacity freed up on our automotive line to support those ramp-ups. So it's the -- the lower utilization in automotive is not totally at a loss at this point, because we are able to use a portion of that capacity to support the medical -- the increase in the medical demand.

Okay, thank you. And then some other EMS have noted the supply chain challenges. How is that affecting you?

Well, it's a challenge for us as well, especially as the pandemic spread, it took some time but the value chain that includes the component suppliers boosted on the other side of us. They were also impacted with the restrictions and the shutdown. And so -- and just availability of workers even after the restrictions were lifted and people are coming back to work. And so yes it is a challenge. It's been a challenge for us to get to the ramp-up levels, for example, on those medical product increases for respiratory care and patient monitoring. We're making great progress there. Our teams are working really hard. Our supply partners are working really hard, and we're making great progress there. But, that certainly is the challenge here in the short-term. On the automotive side, it was different in that there was a shutdown. And so now we're going back to work, and we're restarting here this week and next week. So, yeah, with a different kind of scenario there we're not necessarily dealing with rapid increases. We're trying to return to run rates we were at, let's say, pre-COVID-19. So I'm not anticipating as many issues there, although our supply base for our automotive customers is global. And every region has responded differently in this pandemic in terms of how they dealt with the restrictions. And I would say, how they're dealing with the restart.

Okay. Thank you. And then in terms of the GES business, I know you have diversified that. But now it seems like semi-cap is coming back. Do you see an improvement there in terms of the GES business, and that's helping the industrial segment? Or...

Yeah. We -- our GES business unit supports both the smart mobile device end-market, the manufacturing market for the smart mobile devices and also as you mentioned, the semiconductor area. And we've been getting some nice traction starting last quarter, which we were surprised that held up in Q4 so far in terms of demand for those machines. We're on schedule to deliver them, as I mentioned in the script. So, we'll see how that develops. And yeah, the semiconductor guys are coming back too. We are seeing some signs of positive momentum forming there. So, we're in a good position to take advantage of that when that demand comes back. And we're looking forward to seeing the quarter here firm up with those machines, we already accepted all these for.

Okay. Thank you. That was all from me.

Thank you, Anja. Have a great day.

[Operator Instructions] And now, I'd like to turn the call back over to Don for closing remarks.

Thank you, Angel. And that brings us to the end of today's call. We appreciate your interest, and look forward to speaking with you on our next call. Thank you and have a great day.

Thank you. That brings us to the end of today's call. We appreciate your interest, and look forward to speaking with you on our next call. At this time, listeners may simply hang up and disconnect from the call. Thank you, and have a nice day.