Good morning, ladies and gentlemen. My name is Mel and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball Electronics Fourth Quarter Fiscal Conference Call 2019. [Operator Instructions] Today’s call August 1, 2019 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 forward-looking statements can be seen in Kimball’s annual report on Form 10-K for the year ended June 30, 2018 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 Kimball Electronics. I would now like to turn today’s call over to Don Charron. Mr. Charron, you may begin.

Thank you, Mel and welcome everyone, to our fourth quarter conference call. Our earnings release was issued yesterday afternoon on the results of our fourth quarter and fiscal year ended June 30, 2019. 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 delivered record sales in our fourth quarter fiscal year 2019, and the full fiscal year 2019 was another record-breaking year for our company as we achieved double-digit sales growth for the fourth time in the past 5 years. Since fiscal year 2015, our first year as a stand-alone public company, our net sales have increased 44%. We are extremely pleased with the success that we have had with the organic growth of our business even while experiencing softness in select markets. We recognize that there is still work to do to achieve our profitability goals. As new programs ramp up to projected run-rates and we drive improvements in the GES operations, we expect to realize leverage from our sales growth. With the dedication and commitment of our associates around the world, we will continue our relentless pursuit to create greater value for our shareowners. Strong double-digit growth in three of our four end-market verticals helped to set a new quarterly record for the fourth quarter of fiscal year 2019. New program launches and ramp-ups more…

Thanks, Don. During my comments, 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 fourth quarter net sales were a new quarterly record of $318.6 million, which was a 15% increase compared to net sales of $276.8 million in the prior year fourth quarter. Adversely affecting our net sales for the quarter were foreign exchange rates, which reduced our net sales 3% during the fourth quarter a year ago. However, partially offsetting the impact of foreign currency rates were sales resulting from the GES acquisition, which added 2% to our consolidated net sales in the quarter. Slide 4 represents our net sales mix by vertical market. Three of our 4 end market verticals experienced double-digit growth over the prior year quarter. Our automotive vertical was up 12% compared to the same quarter a year ago as higher demand in North America, largely from new program introductions and, to a lesser extent, Europe, more than offset lower demand in China. Our medical vertical was up 16% in the current quarter compared to the prior year fourth quarter to a new quarterly record of over $100 million. The year-over-year increase was primarily related to strong demand for existing programs. Our industrial vertical was up 20% from a year ago as a result of additional revenue associated with the current year GES acquisition, new program introductions and an increase in demand for climate control products. Lastly, our public safety vertical was up slightly from the prior year fourth quarter. Our gross margin in the fourth quarter, reflected on Slide 5, was 7.3%,…

[Operator Instructions] We have the first question from Mr. Mike Morales of Walthausen & Co. you may ask your question.

Good morning Mike and Don. Thanks for taking my question. Thinking about gross margins a little bit, you called out some headwinds from GES, some from a mix shift. Can you qualitatively help me think about those buckets as it relates to being a headwind to gross margins in the quarter? And what was the biggest impact?

Yes. Certainly, the GES performance was a significant portion of the decline in gross margin. But I would also say we saw at least a similar-sized decline in gross margin caused by the other headwinds that we mentioned in terms of increases in labor and benefit cost and a shift in mix.

So in thinking about GES, if I think back to the second quarter, I think the commentary around then was that the second quarter of our fiscal ‘19 was kind of a trough for GES and then expectations for the fourth quarter would be stronger. I know the semi end markets have been weak. Has your expectation changed on GES heading into 2020 at all?

Well, we know that all of this in terms of these end markets isn’t new to us. These aren’t end markets that we’ve traditionally played in. And again, it’s – we’re not the primary drivers for the acquisition. The technology and what the capabilities of GES would bring to our business ambitions is why we drove the acquisition. Clearly, we were expecting from a seasonality standpoint, looking at GES’ historic results, we were entering into what has traditionally been stronger season for them, speaking about the June ending quarter, for example. The cyclicality part of their business, we’re still studying. And yes, the semiconductor end market vertical and the smart mobile device assembly areas have been the areas that they have traditionally served. And those are both down right now and what we would expect they will cycle back eventually. I don’t know that we have an accurate prediction on when they would cycle back. But just I will say as good news is they remain solidly positioned with some really key customers in the Bay Area and their pipeline looks really good in terms of the opportunities there. What we have been experiencing is really more related to push-outs and delays in some of those programs that they are actively working in. So we’re excited about what is to come, but we are also watching and learning as we go through this down cycle for them in these core markets they serve.

Sure, sure. That color was helpful. Thinking about the mix shift, is that – would I be accurate in saying that that’s primarily in the auto from the mature Chinese programs to the ramping U.S. programs in auto?

That’s a good – the significant majority of it, yes, we – and the impacts of the utilization within the footprint. So China, obviously, we’ve been talking about for the last 4 quarters in terms of the downturn in the automotive end market demand there. And we’ve been offsetting it with primarily new program ramp-ups in North America, which we knew were coming, and we’re excited about our progress there. But as we’ve explained in the past during these calls, we’re most challenged during the start-up, ramp-up phase of these programs and the majority of the programs that we were producing in China where in, what we would call, a fairly mature state.

Sure, sure. So I guess, directionally speaking, as these U.S. programs ramp, would it be fair to think about them comparable to potentially better margins than the Chinese programs that you had?

Comparable.

Okay. And then last for me, as you see it today, the commentary on the component availability was helpful. Would it be fair to characterize the environment as no longer a headwind, maybe not a tailwind at this point on the availability but at least no longer a headwind as you look into fiscal ‘20?

Yes, we would say that. We’re seeing improvement in several component categories. Now we also had been working through some inflationary pressure on some of those same components that were hard to get. I would say that those headwinds have not subsided, but we look forward to the, let’s say, prices of some of those components that we did see inflation on during the past, let’s say, 4 or 5 quarters. As a result of availability, we would expect that to subside in this period coming up over the next, let’s say, 4 to 6 quarters, but we’ll see. There’s a lot of factors that depend on whether or not we’ll go back to, let’s say, pre-shortage pricing on some of these component categories.

Sure. Thank you guys for the color. I appreciate it.

Thanks Mike

Thank you.

[Operator Instructions] No further question at this time. Please go ahead, Mr. Charron.

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. Thank you, and have a great day.

At this time, listeners may simply hang up to disconnect from the call. Thank you, and have a nice day.