To Our Share Owners

Fiscal year 2022 was a good year for our company. While the world continued to experience unprecedented events and circumstances, we embraced an everchanging global landscape with commitment and resolve, engaging in customer collaboration at levels even higher than our award-winning norm. Our strong customer partnerships produced several business wins, along with expansions of existing programs, that have us Poised for Growth as we look forward.

It is hard to believe the pandemic is now in its third year, and it seems we all are adjusting to a “new normal” way of living, working, and interacting with one another. Global supply chain issues have persisted, making it challenging to obtain materials needed to support strong customer demand, and resulted in the bifurcated year we expected. Throughout this crisis, we remained committed to retaining our highly skilled workforce, and when conditions improved, our business responded in the third and fourth quarters with record top-line results, and operating margin in excess of 5%. In total, consolidated net sales in fiscal year 2022 were $1.35 billion, an all-time high for our company, with all four of the end market verticals we serve contributing to the growth.

Automotive

Automotive was the best performing vertical market in fiscal year 2022, with net sales exceeding $582 million. This is our largest business, representing 43% of total company sales, with strength in electronic power steering, automated driver assistance, and electronic braking—including redundant braking systems in self-driving applications. We expect the robust growth to continue with the industry megatrend we call the “electricfication” of vehicles, with electronic content being added at an increasing rate. More than ever, cars and trucks have advanced technologies and expanded operating systems that require stringent production standards, and compliance with industryregulated certifications, that align very well with our core manufacturing competencies. These applications and architectures are largely the same for both electric and internal combustion engines, although we see the rapid adoption of Electric Vehicles (EV), the expansion of autonomous driving, and vehicles with increasing connectivity, as additional areas of upside where our chassis control expertise can be a differentiator. With the average age of cars and trucks now at an all-time high, we expect strong consumer demand to continue as replacement purchases increase.

Medical

Net sales in the Medical vertical market were $392 million, or 29% of total company sales. This was an encouraging result considering the impact the pandemic had on the Medical industry, with a significant decline in elective procedures during the crisis. Our success was driven by support in applications involving sleep therapy and respiratory care, image guided therapy, in vitro diagnostics, drug delivery systems, AED, and patient monitoring equipment.

Similar to Automotive, our Strategic Plan for the Medical vertical market suggests longterm, organic growth potential resulting from industry megatrends. The aging population, increasing access and affordability to healthcare, decreasing medical device sizes, and connected drug delivery systems align very well with our manufacturing expertise. Our new business development team is focused on this growth potential with a heavy lean toward Medical. In addition, the recent launch of Kimball Medical Solutions highlights our package of value as a multifaceted manufacturing solutions provider.

We also believe, given the fragmentation in the industry, that Medical could be an area for inorganic growth, particularly if we can obtain access to new customers, technologies, or geographies through an acquisition, joint venture, or partnership.

Industrial & Public Safety

Our business supporting the Industrial vertical market, which we frequently call “green & clean”, also had a good year with improving top-line trends, after prolonged pandemic-related disruptions. Net sales in Industrial were $308 million, and 23% of the total company sales. This performance was primarily driven by products for climate control. With consumer trends raising the awareness on consumption of natural resources, and an objective of increasing conservation, we expect these applications to produce a longer-term growth opportunity, particularly as the popularity and adoption increases with consumers in the U.S.

Public Safety is our smallest business with net sales in fiscal year 2022 totaling $50 million. We see a synergistic opportunity in the future to combine this business with Industrial for operating and reporting purposes.

In fiscal year 2022, we also executed a capital deployment strategy that included investing in future growth with expansions at multiple facilities, including our facilities in Thailand, Mexico, and Poland. We returned cash to Share Owners in the form of stock repurchases, and we supported our customers with strategic inventory builds to mitigate parts shortages, even though the increases adversely impacted certain financial metrics, including cash flow, cash conversion days, and return on invested capital. We fully expect improvement in these areas as conditions normalize in the global supply chain.

Our Strategic Plan outlines a path for robust top-line growth, profit improvement, and cash generation with a diversification objective where each vertical market, that is Automotive, Medical, and Industrial & Public Safety, represents one-third of the total company. Success in each is critical toward achieving the double-digit sales increase in our guidance for fiscal year 2023, and our longer-term target of $2 billion in annual revenue.

The Path to $2 Billion in Annual Revenue

We are uniquely positioned, and qualified, to capitalize on these growth opportunities within the vertical markets, particularly as macro headwinds subside. Our proven expertise, and end-to-end partnership, in the design, manufacture, and testing of electronic assemblies requiring the highest level of quality and reliability is critical to our customers, and our global footprint aligns with their geographic preferences and requirements. We strive to be a supplier of choice with our customer-centric focus, which when combined with our technical capabilities, frequently results in single source contracts with “sticky” relationships that can last years, if not decades. In fiscal year 2022, approximately 80% of our revenue came from customers we’ve done business with for over 10 years, and we have been recognized by them with numerous service excellence awards. We were also honored to be part of Forbes’ America’s Best Small Companies this past fiscal year. It’s extremely gratifying, and humbling, to receive the distinction of being one of the best, not only in our industry, but in all of corporate America.

To support our customers’ growth, we have been expanding manufacturing facilities in three regions of the world—Asia, North America, and Europe. As an Economic Value Added (EVA) or services company, we are incented to ensure that these investments increase Share Owner value with returns in excess of our weighted average cost of capital by a targeted amount. The facility expansions will add 370,000 square feet to our footprint, representing a 38% increase in capacity. We generate approximately $1 million of sales volume per 1,000 square feet, so the expansions are meaningful in the path to $2 billion.

Thailand

Our facility in Thailand opened in the year 2000 and has grown to $152 million in net sales in fiscal year 2022. A high percentage of the products produced there are exported, with concentration in the Medical vertical market. The expansion, which was completed in February 2022, doubled our footprint with capabilities that include inhouse calibration, failure analysis, a clean room, and tooling shop.

Mexico

We have been in Mexico for 50 years and operate our largest facilities there. In fiscal year 2022, net sales totaled $317 million, with a focus on the Automotive and Industrial vertical markets. Our expansion, which was completed in August 2022, doubled the footprint in Reynosa, with a second building added approximately one mile from the original location. The two facilities will operate as a single entity and will share leadership in key positions.

Poland

Our third facility expansion is in Poznan, Poland, which is located in the western portion of the country approximately 240 kilometers from Berlin. Similar to Thailand and Mexico, additional capacity is needed for programs with new and existing customers, in this case customers located in Europe. In fiscal year 2022, our facility in Poland recorded $234 million of net sales, and the expansion will add approximately 40% to its production square footage. Construction is expected to be complete in fiscal year 2024.

With a backlog of open orders exceeding $1 billion as of June 30, 2022, an all-time high for the Company, we have our sights set on the path to $2 billion in annual revenue. It took our company 57 years to reach $1 billion in sales, and I am confident the second billion will be achieved in a fraction of that time.

Our Corporate Culture

I frequently hear from customers, and those familiar with the industry, that our team is a differentiator in the market place, and a competitive advantage when compared to peers. Our leadership believes you win with people, and we have worked very hard to develop a corporate culture that attracts, develops, and retains, the best and brightest talent available.

Our global organization shares common goals and is united by always wanting to “do the right thing” as reflected in our Guiding Principles:

• Our customer is our business.
• Our people are the Company.
• The environment is our home.
• Profits are the ultimate measure.

Our Guiding Principles recognize the benefits of a diverse workforce, an inclusive and collaborative work environment, and a corporate atmosphere that fosters mutual respect, individual dignity, and a sense of family and good humor. Each year, we survey our employees to gauge how well we live up to our principles and where we need to improve. I’m proud to report the response to the Guiding Principles survey for fiscal year 2022 was our best result in eight years as a public company, with a score of 8.32 out of 10. We view these high employee satisfaction scores as a measure of our team’s sense of purpose and belonging. The constructive feedback from the survey will be leveraged so that our employees can be a better version of themselves, while pursuing productive and fulfilling careers with the Company.

Once again this past year, we published an Environmental, Social, and Governance (ESG) report which highlights our enhanced transparency regarding our policies, statements, and goals in human rights, supply chain transparency, occupational health and safety, diversity and inclusion, progress on environmental stewardship, and good governance. Each of our facilities around the world strives to help protect the environment and help make their communities a great place to live, while the leadership team is held accountable for developing and implementing policies and practices which improve our overall corporate responsibility. The Board also plays an active role, with a commitment to good corporate governance. We hope these reports provide insightful information on our initiatives, progress, and future plans, and increase your appreciation for the overall quality of our company.

And finally this past fiscal year, we surveyed investors and analysts to gain insight on their perceptions of Kimball Electronics. The feedback was consistent with our company being well regarded among the investment community, and our scores were comfortably higher than “normative data” for small-cap companies. We also validated that our relative small size, and general lack of awareness by investors, is an area of opportunity and will be a focus of future investor outreach initiatives.

We are focused on continuing to deliver on our promises to our customers, employees, Share Owners, and communities as we execute strategies to drive profitable growth and value creation. Our strong company culture serves as the cornerstone of our strategic plan and the foundation of the organization. After 24 years with the Company, I have never been more proud to be a member of the Kimball Electronics family, and I thank you for your support. We invite you to stay informed by visiting our website at www.kimballelectronics.com as we continue to build lasting relationships and global success.

For more detailed insights into the past year, we encourage you to read the following Form 10-K.

Donald D. Charron
Chairman and Chief Executive Officer