Kimball Electronics, Inc. (NASDAQ:KE) Q2 2023 Earnings Convention Name February 9, 2023 10:00 AM ET
Firm Representatives
Don Charron – Chairman, Chief Govt Officer
Jana Croom – Chief Monetary Officer
Ric Phillips – Incoming Chief Govt Officer
Andrew Regrut – Vice President of Investor Relations
Convention Name Contributors
Anja Soderstrom – Sidoti
Jaeson Schmidt – Lake Road Capital
Mac Furst – Singular Analysis
Operator
Good morning, women and gents. Welcome to Kimball Electronics, Second Quarter Fiscal 2023 Earnings Convention Name. My title is Day by day and I will be the facilitator for right this moment’s name. All traces have been positioned in a listen-only mode to forestall any background noise.
After the completion of the ready remarks from the Kimball Electronics management crew there will likely be question-and-answer interval. [Operator Instructions]. Right this moment’s name, February 7, 2023 is being recorded. A replay of the decision will likely be out there on the Investor Relations web page of the Kimball Electronics web site.
At the moment, I want to cross the convention over to Andrew Regrut, Vice President of Investor Relations. Mr. Regrut, you might start.
Andrew Regrut
Thanks, and good morning, everybody. Welcome to our second quarter convention name. With me right here right this moment is Don Charron our Chairman and CEO; Jana Croom, Chief Monetary Officer; and incoming Chief Govt Officer, Ric Phillips.
We issued a press launch yesterday afternoon with our outcomes for the second quarter of fiscal 2023. To accompany right this moment’s name, a presentation has been posted to the Investor Relations web page of our firm web site.
Earlier than we get began, I would prefer to remind you that we are going to be making forward-looking statements that contain danger and uncertainty and are topic to our Protected Harbor provisions as acknowledged in our press launch and SEC filings, and that precise outcomes can differ materially from the forward-looking statements. All commentary right this moment is concentrated on adjusted non-GAAP outcomes. Reconciliations of GAAP to non-GAAP quantities can be found in our press launch.
This morning Don will begin the decision with a couple of opening feedback, Jana will evaluate the monetary outcomes for the quarter and steerage for fiscal 2023, and Don and Ric will full our ready remarks earlier than taking your questions.
I’ll now flip the decision over to Don.
Don Charron
Thanks, Andy, and good morning everybody. Let me start by welcoming Ric to the Kimball Electronics household and congratulating him on his new position. Ric, we’re thrilled to have you ever as a member of the crew and really feel very lucky that an govt along with your pedigree, depth of expertise and monitor report of success will likely be main our firm. Recognizing that you do not formally begin till March first, we additionally respect you taking day trip of your schedule to hitch us right this moment. I do know you are excited to say a couple of phrases, and I am going to flip the decision over in a second after we evaluate Q2 outcomes, which have been excellent.
For the fourth consecutive quarter, internet gross sales have been at an all-time excessive for the corporate, and working margin expanded each sequentially and in comparison with the identical interval final yr. Our crew continues to ramp-up manufacturing on new and present applications, leverage our facility expansions in Thailand and Mexico, and start to work down the backlog of open orders, ensuing from pandemic-related international provide chain disruptions and part shortages.
We count on enchancment in gross sales and margin to proceed for the stability of the yr, as a part of a stair-stepped fiscal 2023, and we’re elevating our outlook for full yr gross sales and count on working margin to be within the mid-to-upper finish of the steerage vary.
Web gross sales in Q2 have been $437 million, a 39% improve in comparison with the identical interval final yr and eight% higher than Q1, which was beforehand our greatest quarter. Whereas general situations within the international provide chain proceed to enhance, the restoration has been gradual, with solely modest will increase within the availability of the excessive grade elements wanted for the functions we help.
A really tough estimate counsel internet gross sales in Q2 have been constrained roughly 10% from half shortages, so there was further upside within the quarter that we couldn’t notice. Just like Q1, all three vertical markets reported strong double digit will increase, with two of them posting all-time finest.
Web gross sales within the automotive vertical, our largest enterprise have been $200 million, a report excessive. This represents a 44% improve in comparison with Q2 final yr, and 46% of complete firm gross sales within the quarter. There’s additionally an 8% sequential step up from Q1, with the expansion fueled by the following technology digital breaking system in Reynosa, a latest launch. That is our largest automotive program and is featured on a number of the hottest pickup vans and SUVs in North America.
We proceed to see glorious alternatives on this vertical as our manufacturing capabilities align with trade development from the electrification of autos. Options similar to automated driver help, lane departure warning and self-parking can be found on right this moment’s hottest vehicles and vans, and we count on extra performance to be added as client adoption will increase.
Increasingly performance resides within the steering modules that we manufacture and over 70% of our work in automotive is in digital energy steering, with three main market main prospects, who collectively present steering programs to the automotive makers of most of the hottest manufacturers on this planet. Important development in content material is coming from these prospects, and we’re strategically positioned to profit.
It is very important notice, it’s primarily the identical steering structure to show the wheels of a automobile, no matter whether or not it’s powered by a motor, an inner combustion engine or a hybrid of the 2. The steering functions we help are largely agnostic. Because of this, our development isn’t depending on the kind of automobile produce, which is vital because the trade continues to transition to electrical autos.
Second, as further performance is hosted within the Digital Management Unit or ECU, our common promoting worth will increase. This has been the case over the past decade, and we count on it to proceed with new functions. Additionally, the bodily measurement and house devoted to the ECU inside the automobile is tight. So including performance will increase the complexity of assemblies, additionally aligning with what we do effectively.
This enterprise, our automotive enterprise, is sticky. The automotive trade is extremely regulated, requiring certifications, stringent validation protocols and thoroughly monitor change administration programs. Choosing the precise associate and the worth chain is essential and sometimes requires excessive ranges of funding and program life cycles that may span eight to 10 years in size. Consequently, program awards are continuously single sourced.
Lastly, it is very important stress that our development in automotive isn’t solely tied to seasonally adjusted charges of car manufacturing world wide. It’s also pushed by the rise in digital content material being added on a per-vehicle foundation.
Turning now to the medical vertical market, internet gross sales have been $125 million, a 39% improve in comparison with Q2 of final yr and 29% of complete firm gross sales. That is the third consecutive quarter for the enterprise to publish positive factors, effectively in extra of 30% versus the identical interval within the prior yr, and it’s a 9% step up in gross sales from Q1.
We’re very proud to have served prospects within the medical trade for over 20 years, with functions supporting sleep and respiratory care, picture guided remedy, in vitro diagnostics, drug supply programs, automated exterior defibrillators and affected person monitoring tools.
Future development inside the trade is anticipated to be fueled by macro mega developments, together with an growing old inhabitants, growing entry to reasonably priced care and lowering machine sizes, linked drug supply programs. We’re strategically positioned to help this development. Our present manufacturing capabilities prolong past electronics and printed circuit board assemblies and consists of, however isn’t restricted to operations involving precision injection molded plastics, full machine meeting for drug supply programs and sterilization and coal chain administration.
Whereas printed circuit board assemblies are vital, there’s a number of worth advert past them. The essence of our technique is to develop the medical enterprise at a quicker tempo, and broaden to extra facets of the manufacturing resolution. Our branding marketing campaign of Kimball Medical Options highlights this full service of capabilities, in order that prospects acknowledge that our providing expands past digital.
Web gross sales within the industrial vertical market totaled $105 million, a 27% improve over the recasted second quarter of final yr and 24% of complete firm gross sales. This consequence was additionally an all-time finest for the corporate. As a reminder, public security is now included on this vertical.
A big a part of the economic enterprise, which we name inexperienced & clear is in local weather management, and we’re effectively positioned inside the worth chain of all main manufacturers for well-known heating and cooling merchandise. Additionally, for the previous couple of years we’ve got been constructing out a cluster in good metering. It began in Europe and we now have an excellent grouping of consumers with merchandise that promote higher consumption of water, gasoline and electrical energy by elevating client consciousness.
So in abstract, one other excellent quarter of economic outcomes with report setting gross sales, enhancing margins and momentum that may construct all through fiscal 2023. In November, we have been additionally honored by CIRCUITS ASSEMBLY for reaching the very best general buyer scores in seven classes of service excellence. The awards are based mostly solely on direct buyer enter, and a sign of excellent achievement. I would prefer to congratulate and thank our associates world wide for as soon as once more receiving this prestigious recognition.
I am going to now flip the decision over to Jana to offer extra element on the monetary outcomes for Q2 and our steerage for the complete yr. Jana.
Jana Croom
Thanks, Don, and good morning, everybody. As Don highlighted, internet gross sales within the second quarter have been $437 million, a 39% improve over Q2 final yr and an all-time report excessive for the corporate. Overseas alternate negatively impacted gross sales by 5%, so as soon as once more this quarter the year-over-year development would have exceeded 40% at historic charges.
The expansion margin price in Q2 was 7.8%, a 120 foundation level enchancment in comparison with the second quarter of fiscal 2022, with our report gross sales quantity driving working leverage versus a yr in the past, when manufacturing was extra considerably constrained by half shortages.
Adjusted promoting and administrative bills have been $16.4 million in comparison with $13.5 million in Q2 final yr, with the rise coming from added assets to help our vital development, wage inflation and accounts receivable consider charges. When measured as a proportion of internet gross sales, nonetheless, adjusted promoting and administrative bills have been 3.7%, a 50 foundation level enchancment in comparison with Q2 a yr in the past.
Adjusted working earnings for the second quarter was $17.8 million, or 4.1% of internet gross sales, which compares to final yr’s Q2 adjusted outcomes of $7.3 million, or 2.3% of internet gross sales. Different earnings and expense was an expense of $3.3 million in comparison with expense of $200,000 within the second quarter of final yr. With larger curiosity expense primarily accounting for the rise, an end result of elevated debt ranges and right this moment’s rate of interest setting.
The efficient tax price in Q2 was 24.5% versus 23.7% within the second quarter of fiscal 2022. Adjusted internet earnings within the second quarter of fiscal 2023 was $11 million or $0.44 per diluted share, in comparison with adjusted internet earnings in Q2 final yr, a $5.1 million or $0.20 per diluted share.
Now, turning to the stability sheet. Money and money equivalents at December 31, 2022 have been $26.3 million. Money move utilized by working actions within the quarter was $11.7 million, and money conversion days have been 103 days up from 81 days within the second quarter of final yr, and 99 days in Q1.
As soon as once more this quarter, our money move and CCD outcomes have been pushed by working capital will increase to compensate for part half shortages, in addition to our new product introductions as evidenced by our strong high line development. We proceed to see significant development throughout our geographies and count on our stock to normalize relative to larger ranges of income additional time.
Stock ended the quarter at $487.5 million, up $183 million from a yr in the past, and $38 million from final quarter. As Don famous earlier, we’re persevering with to see enchancment within the international provide chain, however we’re nonetheless buying supplies not impacted by half shortages upfront in order that we will fulfill buyer orders as soon as the elements in brief provide are acquired.
From a development perspective, our facility expansions in Thailand and Mexico proceed to ramp up manufacturing, contributing meaningfully to high line development. It is very important spotlight that the rise in stock can be closely concentrated at these two services to help the upper quantity and growing capability utilization.
We proceed to deal with turning stock quicker, measure his manufacturing day, gross sales available or PDSOH. Capital expenditures within the second quarter have been $22.7 million, centered on finishing the power growth in Poland, including tools in Mexico and capital wanted for brand new productions throughout our total footprint. Borrowings on our credit score facility at December 31 have been $273.5 million, in comparison with $103 million a yr in the past and $232.5 million on the finish of final quarter.
Our brief time period liquidity out there, represented as money and money equivalents, plus the unused quantity of our credit score facility totaled $79.8 million at December 31, 2022. On February 3, 2023 we entered right into a $50 million brief time period credit score facility to offer further home liquidity to help further tools and dealing capital wants and coordination with our Mexico facility growth, in addition to supporting different buyer growths.
There have been no shares repurchased within the second quarter of fiscal 2023. Since October 2015 underneath our Board Licensed share repurchase program, a complete of $88.8 million has been returned to our shareholders, by buying $5.8 million of widespread inventory. We have now $11.2 million remaining on the repurchase program.
As Don famous earlier, we’re elevating our steerage for internet gross sales in fiscal 2023 and count on full yr outcomes to be within the vary of $1.7 billion to $1.8 billion, a 26% to 33% improve year-over-year. As a reminder, the unique steerage for internet gross sales was a variety of $1.6 billion to $1.7 billion. Working margin is anticipated to be within the mid to higher finish of the vary of 4.6% to five.2% and capital expenditures are estimated to be within the vary of $80 million to $100 million.
So with that, I’ll now flip the decision over to Don and Ric.
Don Charron
Thanks, Jana. As beforehand introduced, I will likely be retiring on the finish of February, so this will likely be my final earnings convention name and webcast as Chairman and CEO of Kimball Electronics. Whereas I’m planning on standing within the Jasper space for the foreseeable future and remaining a significant share proprietor of the corporate, there will likely be a clear switch of accountability and authority to Ric as CEO, and Bob Phillippy, as our non-Govt Chairperson on March 1.
It’s with immense gratitude and satisfaction that I say farewell, and thanks. I have been very lucky all through my profession and I am assured our international enterprise, our distinctive management crew, the Board of Administrators and Ric, together with his monitor report of success and inspirational management will construct on our legacy of award successful service to prospects, the communities the place we function and our shareholders. In my 24 years with the corporate, I’ve by no means been extra enthusiastic about the way forward for Kimball Electronics.
I would now like to show the decision over to Ric and invite him to say a couple of phrases. Ric.
Ric Phillips
Thanks, Don. Let me begin by congratulating you in your retirement. Right this moment actually marks the top of an period for the corporate and your legacy is spectacular, highlighted by numerous achievements and a robust firm tradition centered on long run relationships. I really feel very lucky and humbled to be getting into the position of CEO, and I can’t inform you how excited I’m to hitch the Kimball Electronics household.
The corporate has a wealthy historical past of excellence and is positioned for development with close to report ranges of open order backlog, new program wins and elevated capability ensuing from the latest facility expansions.
The $2 billion annual income milestone is within the planning horizon, and I’m assured the corporate won’t solely attain it, however develop effectively past. I would prefer to thanks, Don, the management crew and the Board of the Administrators for this chance. I sit up for leveraging my expertise in cultural management and long run worth creation to work intently with the Kimball Electronics crew in writing the following chapter of our successes.
Within the close to time period I will likely be touring to lots of our services world wide to spend time with our folks and to get totally up to the mark on the enterprise. I sit up for assembly and dealing with all of you.
I might now prefer to ask Day by day to open the traces for questions.
Query-and-Reply Session
Operator
[Operator Instructions]. Our first query right this moment comes from the road of Anja Soderstrom from Sidoti. Please go forward. Your line is now open.
Anja Soderstrom
Hello! And thanks for taking my query. So first, congratulations Don the retirement. And Ric, welcome onboard!
Don Charron
Thanks.
Anja Soderstrom
By way of the expansion price, it looks like you might have some impression within the second quarter, some provide chain challenges. How ought to we take into consideration that for the second half? Do you see issues enhancing there? Was there one thing that was further powerful for the second quarter or what do you see when it comes to provide chain and the way she would take into consideration the gross margin for the second half?
Don Charron
Sure, so we undoubtedly proceed to see gradual enchancment, and we count on the identical for Q3 and This autumn. Clearly, we have been constrained, nonetheless as I acknowledged in – earlier in my feedback, and it was roughly for about 10% that’s a extremely tough estimate, however nonetheless constrained. However we have a look at the incremental sequential development from Q1 to Q2 and we’re inspired by that. So a $31 million step up general, and yeah, we all know we have to make a few steps identical to it within the second half of our yr, to get to the run price that our prospects want us to be at.
So, trying forward on the half shortages and our expectation of continued gradual enchancment, we predict we’ll see that gradual enchancment and it’s going to end in two extra good steps within the second half of the yr when it comes to our income.
Anja Soderstrom
Okay, thanks. And, concerning the 5% headwind on the income from foreign money impression. How did that impression your EPS?
Don Charron
Effectively, we don’t get to that degree of element. It is a little bit extra difficult to get to the impression on the earnings per share and even the working margin for that matter. Clearly, a 5% impression on the topline, you already know when it comes to the greenback power within the interval. As we’ve mentioned up to now, usually when the greenback will get stronger, it is a bit extra of a headwind for us, simply general, and when at weekends, it turns into extra of a tailwind for us. However it’s actually onerous to get to a precise quantity, and we definitely would not wish to offer you any form of false sense or precision.
Anja Soderstrom
Okay, thanks. After which simply when it comes to the top marks, the auto you had a report quarter. How a lot of that’s form of backlog and the way a lot is that pushed by the brand new ramps of the brand new applications and the way ought to we take into consideration that development within the coming quarters?
Don Charron
Yeah, effectively, you already know the excellent news is, the larger half now could be the true development from new applications. We talked about – I discussed, in my feedback, the following technology breaking program, one of many largest applications the businesses ever been awarded, that program was not in our income, the identical quarter a yr in the past. So you know the way onerous we’ve been working to get to the purpose to ramp up that program. In order that was vital new advert of enterprise coming from a brand new program.
We nonetheless have some catch up, we nonetheless have some backlog that we’re catching up on general, however the larger portion of what we see now on this quarter and forward of us is definitely ramping up new applications.
Anja Soderstrom
Okay. And simply in discussions along with your purchasers and given the form of recessionary setting, how do you see their selections cycles. Have they modified that? Do you see the outsourcing growing or?
Don Charron
Effectively, definitely they – all of our purchasers stay dedicated to the outsourcing mannequin, and in some circumstances even from pre-pandemic to now, it is even elevated when it comes to how a lot they wish to outsource. I believe our execution throughout the previous couple of years, throughout this pandemic has gained a number of belief within the partnerships we’ve got, they usually’ve been prepared to present us much more enterprise.
By way of how they to illustrate, form of outsource to a number of companions. A few of our accounts, as you already know are very massive, and so their very own danger mitigation methods have them bringing on different companions moreover Kimball to satisfy their wants, however – you already know so we’ve got a chance to realize extra share of their pockets or their spend simply by efficiency, and I believe that is one thing that is actually helped us right here, popping out of the out of the pandemic.
By way of what our prospects are seeing, clearly we turned up the robustness on our gross sales and operations planning, simply to make it possible for we perceive how they see 2023 calendar yr forming up for his or her enterprise, and that is a key a part of how we then set our enterprise, not solely capability, however how we drive demand onto our suppliers, and I might say that there’s some warning that is factoring into the up to date forecast that we’re getting from our prospects, I believe it’s prudent. However on the identical time, I believe they’re taking a look at their enterprise, and 2023 and they’re planning development. They’re planning development for us and they’re planning development for themselves.
Anja Soderstrom
Okay, thanks. That was all from me.
Don Charron
Thanks, Anja.
Operator
Thanks. The subsequent query right this moment comes from the road of Jaeson Schmidt from Lake Road Capital. Please go forward, your line is now open.
Jaeson Schmidt
Hey, guys! Thanks for taking my questions. And I additionally wish to cross alongside my congrats to you Don on the information and the perfect needs on the following chapter.
Don Charron
Thanks. I respect it.
Jaeson Schmidt
Yeah, undoubtedly, I wish to form of follow-up on form of your feedback simply now. I imply, you guys clearly are feeling extra assured in fiscal ’23, however are you able to assist us form of acknowledge that confidence with the macro, which appears to have gotten tougher? Are you simply seeing such broad base power or is it a pair applications or prospects which can be actually supplying you with that confidence?
Don Charron
Yeah, I might say, you already know sure to all of the above. We too are cautiously optimistic, realizing and seeing what is going on on on this planet when it comes to forecasted financial development. I do suppose that you already know there is a pent up demand image. It is most likely extra distinctive for us as an organization and for the top market verticals we service. Loads of that has to do with the truth that the elements that go into the stuff we construct for our prospects aren’t the identical elements that go into cell telephones and computer systems.
And so whereas these elements have totally recovered, for essentially the most half, you already know a number of the excessive grade materials we use and excessive grade elements we use are nonetheless lagging provide to demand. So we do have a – that form of pent-up demand form of piece of it, {couples} with once more – we received a number of internet applications which can be ramping up, that offers us quite a lot of optimism.
The shoppers that we serve, they’ve a long run horizon, however on the identical time they’ve fairly good visibility, brief time period when it comes to what their wants are going to be. They’re capable of lay out their 4, 5, six quarter working plan and what they see growing of their finish markets, they usually share that with us. Each month, we’re updating to our gross sales and operations planning processes.
We’re updating these calls for, and so popping out with a rise in our steerage for the highest line is after a reasonably thorough evaluate of that demand profile being positioned upon us. It is after a really thorough evaluate of part availability and the way we see our success and the ramp ups of a few of these applications, and so yeah, general we’re cautiously optimistic. We’re taking a look at what is going on on round us on this planet, however we’re not alone. Our prospects enter is admittedly large when it comes to how we see the long run.
Jaeson Schmidt
Okay, that is useful. And I assume simply based mostly on that, you guys have not been seeing any vital points from decommits or cancellations.
Don Charron
On the by-side Jaeson, is that the place your query is aimed?
Jaeson Schmidt
Yeah.
Don Charron
Let me get the reply on either side. On both facet, we see some softening and we issue that in on the client facet when it comes to demand enter, they placed on us. And you already know sure, we nonetheless have shortages as I discussed earlier that constrained our output in Q2. However it’s enhancing and I might say our suppliers are doing a greater job of getting their arms round their backlog and being extra constant of their restoration plans. So general that is once we say we see the setting persevering with to enhance, albeit regularly it is enhancing, all of these areas are enhancing with it.
Jaeson Schmidt
Okay, after which simply the final one for me, and I am going to soar again into queue. Jana simply following up in your feedback on stock, ought to we then count on present ranges that begin to be labored down this quarter or will they continue to be elevated right here within the close to phrases?
Jana Croom
So my anticipation is that it is going to take two quarters to work down the extent of stock, after which you are going to begin to see a normalized degree proper when it comes to absolute {dollars} and higher returns. And a part of that as Don alluded to is simply the timing of that ultimate part coming by, and our capacity to ship. In order he mentioned, it is undoubtedly getting higher, and it is persevering with to get higher. My expectation is for fiscal yr in 2023.
Don Charron
Possibly to construct on that additionally, Jaeson, you already know when you suppose again and I believe you have been following us at the very least that lengthy and extra that six quarters now, that we have had, we have been on this form of part scarcity state of affairs, that is actually hampered our capacity to not solely ship what our prospects need us to ship, however to execute on a few of our personal operational plans.
And so that you now that looks like a very long time. It appears even longer to us and our groups how lengthy we have been working these shortages, and nevertheless it’s bought our full consideration when it comes to having this stock peak in {dollars}, begin to work down from there. Days ought to get significantly better with our expectations of what is going to ship in Q3 and This autumn. It is bought our full consideration, and our groups are engaged on it, and we do count on as Jana mentioned, you already know to see some enchancment over the following few quarters.
Jana Croom
And Jaeson, I do not suppose our expertise is simply too terribly completely different from our friends. I believe we’re all carrying larger than regular stock days. Some whether it is buyer directed. Loads of it for us is new product introductions, proper build up and anticipation of, which is, what you’d count on given our expansions in Thailand and Mexico, after which we’ll simply proceed to work the backlog down as that final golden screw comes by.
Jaeson Schmidt
No, that is smart. I respect the colour guys. Thanks loads.
Don Charron
Thanks Jaeson.
Jana Croom
Thanks Jaeson.
Operator
Thanks. The subsequent query right this moment comes from the road of Hendi Susanto from Gabelli Funds. Please go forward, your line is now open.
Unidentified Analyst
Good morning, and thanks for taking my query. That is Reno [ph] on behalf of Hendi right this moment, and congratulations on a robust unlucky retirement Don. I assume my third query is in your development margins, so there’s, moreover a provide chain, there’s headwinds of ramping up for the extension and ramping up new applications. So would you have the ability to share extra colour on how this headwind will subside. Do you continue to count on gross margins to return to its regular vary exiting June fiscal yr ’23?
Don Charron
Sure, we do. As we take the following two steps and if the stair stepped, fiscal yr ’23 that we’ve got, you already know we do count on gross margins to get again to the place they have been, and that 9% and a little bit north 9% that is our expectation. Particularly as we get to the final step within the stair step plan. So, when you have a look at, when you do the mathematics on the up to date steerage, we’ve got to have one other couple of $30 million 1 / 4 steps. So 430 to 460 to 490, nonetheless you do the spherical off within the math, that is what we bought to do, and as we try this, it should drive higher utilization, higher absorption, and we count on at the moment, we’ll see gross margins that, or at historic ranges, if you’ll, 9% a little bit north of 9%.
Unidentified Analyst
Thanks, fairly useful. After which simply my second query, you doubled manufacturing capability in Mexico and Thailand. Do you might have a milestone goal of when the brand new capability addition will likely be totally utilized?
Don Charron
As Ric talked about in his feedback, you already know we will see the $2 billion in annual gross sales now in our planning horizon. You realize as we get to that $2 billion quantity, we’ll be taking a look at the place else is our footprint bulging if you’ll. We have now a fairly good thought based mostly on the awarded enterprise we’ve got proper now, however we’ll dial that in a little bit tighter.
We even have the Poland growth coming on-line this summer season. So, we’re effectively place the place we should be, however we do have some crops which have accomplished very effectively when it comes to successful new enterprise and approaching additionally full capability.
So onerous to place a precise quantity to it when it comes to the consolidated annual quantity that places us at our capability. It form of relies upon the place it leads to our footprint. However I might say within the subsequent two to a few yr plan. We’ll be taking a look at additional footprint expansions to fulfill the wants we’ve got from a capability standpoint for the expansion that we see that lies forward.
Unidentified Analyst
All proper, thanks, and that is it for my query. Thanks.
Don Charron
Thanks. Say hello to Hendi.
Unidentified Analyst
Yeah, I’ll.
Don Charron
Okay.
Operator
Thanks. [Operator Instructions]. And subsequent query right this moment comes from the road of Mac Furst from Singular Analysis. Please go forward, your line is now opening.
Mac Furst
That is Mac of Singular Analysis. To begin with, congratulations on the quarter, glorious! Congrats to Don and congratulations to Ric.
Don Charron
Thanks.
Mac Furst
Are you able to present a little bit bit extra colour on the part scarcity that has been occurring for fairly some time? When do you suppose it will – the state of affairs will enhance? Are you able to remark possibly on the area the place you are for the most important drawback? Are you able to possibly touch upon the kind of elements that you just’re combating acquiring?
Don Charron
Sure, so possibly beginning with the automotive grade elements, which generally have a wholly completely different manufacturing half quantity than any of their form of related elements which can be served in different functions, client, pc, communications kind merchandise. So there, two elements actually are taking place and it is the primary is the capability constraint itself. The second is, that the expertise form of vary of these elements is a bit behind the vanguard, possibly seven years to 10 years in some circumstances. So once I mentioned what we purchase, and what we construct into our merchandise for our prospects may be very completely different than what’s in a pc or a cellphone.
These merchandise usually have the vanguard expertise integrated into their designs. In these lengthy lived product life cycles of automotive, medical and industrial, you already know they – the elements are usually off that trailing edge as I mentioned, by possibly as a lot as seven to 10 years.
It’s troublesome for these part producers to make capability selections. When so as to add capability, when do they suppose they’re going to work it off? They’ve all been burned up to now by including an excessive amount of capability within the flawed expertise vary. In order that they’re cautious about that, and we’re very conscious of that. And so we work very intently with our prospects on what we see is the lifetime of these elements, and when designs want to vary, and so on.
That is ongoing work that hasn’t modified, however coming again to when can we see it getting higher? You realize, once more, we noticed some gradual enchancment in Q1, extra gradual enchancment in Q2. We count on the identical in Q3 and This autumn and our expectations is by the point we conclude with This autumn, we’re speaking loads much less about half shortages and the constraints. That is our view anyway, and we’re watching it very fastidiously, and our individuals are watching it very fastidiously, we’re engaged on it day by day.
Mac Furst
All proper, thanks very a lot. Thanks.
Operator
Thanks. [Operator Instructions]. There are not any further questions ready right now, so I would prefer to cross the convention again over to Don Charron for any closing remarks. Please go forward.
Don Charron
Thanks. Thanks everybody for becoming a member of the decision right this moment. I want you all the perfect and we’ll sit up for speaking to you on our subsequent name. Take care.
