With a strong funnel of new business, our capital allocation strategy is focused on organic growth, which will likely include additional global expansions in the future, combined with investments in automation and efficiency. We are winning together the Kimball way and I’m excited about what lies ahead for our company. Ellen, I would now like to open the lines for questions. Do we have any analysts with questions in the queue?
Q – Mike Crawford: Thank you. In Mexico, where are you on cost absorption? I know there is some margin expansion opportunity there. So if you could explain the answer in terms of capacity utilization, revenue march potential that would be very helpful.
Jana Croom: Hey. Good morning, Mike.
Mike Crawford: Good morning.
Jana Croom: So, a lot of what you’re seeing in Q1 in terms of the favorable impact that we’ve seen 4.4% OI margin versus the last year 3.3% is really Mexico coming into its own from a cost absorption and leverage perspective, offset by the fact that we just brought Poland on. So the challenge of the timing of growing the facilities is that you’ve got one that’s sort of hitting where you need it to be from a margin perspective offset by one that you just got off the ground. Mexico is tracking in line with where we expect it to track from both our revenue and an OI margin perspective. Although, as we look at the outcome for FY 2024, it is going to be slightly impacted by what we’re seeing come through in terms of our expectation from the North American auto market. But you can — what you can expect is that we’re going to manage the costs, particularly direct labor and indirect labor, appropriately as we navigate through it for the short run.
Mike Crawford: Okay. Thanks, Jana. And you kind of segue into the second part of my question was, how is Poland ramping up since the groundbreaking this summer — well, at the opening?
Jana Croom: Yes. I will — candidly, the industrial market in Europe has been choppier than what we anticipated originally as it relates to the European market in Poland. But the funnel is still strong. And so in short-term, the absorption of Poland is not going to be as strong over the course of this fiscal year as we had hoped. But again, we’re going to control cost, we’re going to control the labor market, and we’re not going to over-index on it, but we do have a strong funnel of continued growth there. And so what is becoming now is a balancing act between what our customers are telling us in the short run, right? So 9,120, 300 days versus all of the NPIs that we know are coming in FY 2025 that we’ve got to get ready for and so it’s conversations with customers to make sure we’re not going to push out and then we can balance our labor and material needs against that.
Mike Crawford: Okay. Thank you. And just one last one from me. I know you mentioned technology advancement in SUVs and pickups in North America, but how would you frame the impact of the UAW strike in one region of your global automotive vertical end market as affecting your overall automotive business and supply chain, and when that could potentially normalize?
Jana Croom: Yes. So the UAW strike itself had very, very minimal impact on our top line, right? In terms of this plant shutdown, there was a disruption, therefore, it impacted our supply chain, minimal. What we are seeing in conversations with our customers is the strike caused the OEMs and thus the Tier 1s to reevaluate the supply chain, finished goods inventory levels, expectations for sales over the course of the year. And so it’s the ripple effect of that that we are still evaluating. It’s sort of, hey, don’t let a good tragedy go to waste as everyone’s looking at what they’ve got, and evaluating what the needs are for the next three to six months as they work through it, and see where it shakes out, which is why it feels like it’s a temporal issue. So short-term, next couple of quarters as they work through it and then back to the levels that we had previously anticipated when we gave guidance at Q4.
Mike Crawford: All right, great. Thank you very much.
Ric Phillips: Mike, it’s Ric. Just maybe one thing to emphasize that Jana had mentioned a little bit earlier, we are really committed, not just in Mexico and Poland, but globally, to making sure as we see these demand signals, which we’re sharing with you that we are adjusting our direct and indirect labor as quickly as possible in order to protect those margins. So that’s a key priority for us right now in the short-term softening.
Mike Crawford: Okay. Thank you very much.
Operator: Thank you. Our next question today comes from Derek Soderberg from Cantor Fitzgerald. Derek, your line is open. Please proceed with your question.
Derek Soderberg: Yeah, good morning. Thanks for taking the questions. On the revenue guidance, what was the biggest change this quarter? I know, you guys mentioned macro weakening, some effects of the strike in automotive. But what was the biggest driver of the lower guide? Was it that automotive piece? Can you just help maybe quantify the change in guidance by segment, but particularly automotive? And then I’ve got a follow-up.
Jana Croom: Yeah. So I will tell you, it’s pretty evenly split between automotive and industrial. In industrial, it’s primarily Europe, although we did see softening in North America as well. So if I had to gauge it for you, I’d probably say 65/35 there. And the automotive market in North America, it’s spread across all of our plants that service the auto market. And it really is just as we evaluate the SUV and pickup truck market for EV, and this is something that we’ve talked about before, the technology related to the battery and the life that you need, the towing capability that you need in that market. It feels like consumers are pressing pause, or that’s what we’re hearing from our customers in terms of the adoption rate there. We’re monitoring it carefully with our customers.
Derek Soderberg: Got it. That’s helpful.
Jana Croom: Go ahead.
Derek Soderberg: No, go ahead, Jana.
Jana Croom: As we’re saying then it’s the finished goods inventory from the UAW strike. What we don’t want to do is have to come back to you with lower guidance again. So we try to be very thoughtful about the full year and what it might entail.
Derek Soderberg: Got it. And then just quickly on that, on the automotive piece. I think Ric mentioned there’s sort of a small impact on October and maybe in the next quarter or two, you’re going to see a little bit more pronounced impact — is the expectation that things sort of normalize by Q4 of fiscal 2024? Is that kind of the time line to expect? Can you just maybe again kind of lay out the impact of the strike and demand on the automotive business and how we should think about that as we move through fiscal 2024.
Ric Phillips: Sure. I think that’s probably a pretty good estimate, Derek. Again, we’re being cautious. The impact, as you mentioned thus far has been minimal for us. But we really want to watch this environment and see what the next steps are in terms of how the Tier 1s and the OEMs respond and sort of get back to normal. But we definitely view this as short term for sure. And I think the estimate that you gave is probably consistent with what we would expect from a timing standpoint.
Q – Derek Soderberg: Got it. And if I could just squeeze one more in. Jana, congrats on another quarter of positive cash flow — with guidance and NOI margin and then sort of unchanged CapEx. Curious how you expect cash levels to move throughout the year. Is the expectation that you’re going to have to tap the credit facility further, can you just talk a bit about cash burn and sort of your expectations for fiscal 2024? Thanks.
