Good morning, ladies and gentlemen. My name is Demetrius, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Campbell Electronics 4th Quarter Fiscal 2020 Financial Results Conference Call. All lines have been placed on listen only mode to prevent any background noise. After the Kimbell speakers' opening remarks, there will be a question and answer period.
Kimbell will respond to questions from analysts. And answer session. Today's call, August 19, 2020 will be recorded may contain forward looking statements as defined under the Private Securities Litigation Reform Act of 1995. Rich factors that may influence the outcome of forward looking statements can be seen in Kemple's annual report on Form 10 K for the year ended June 30, 2019. And in today's release.
The panel for today's call is Don Charron, Chairman of the Board and Chief Executive Officer, and Mike Sergei Skitter, Vice President And Chief Financial Officer of Kimball Electronics I would now like to turn today's call over to Don Charring. Mr. Sherring, you may begin.
Thank you, Demetrius. 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 call, which 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 I will begin by making After that, we will answer any questions that you may have. We are pleased with the operating results we delivered in the fourth quarter of fiscal year 2020 despite the global interruptions and challenges caused by the COVID 19 pandemic.
The health and safety of our employees remains our number one priority. And we continue to face mask, body temperature scanning, social distancing and proper hygiene. Of our 6400 employees around the world, approximately 1% have tested positive for the virus. And in each positive case, Our responses our responses followed our procedures for communication to our employees, contact tracing, self quarantining, testing, and sanitization of the affected work areas. Because of the disciplined response and extraordinary effort of our people around the world, we were able to perform our mission as an essential business And amongst many things, completed the 1st phase of our ramp up to support the significant increase in demand from our medical customers, for their respiratory care Sales from our medical vertical were up 23% compared to the fourth quarter of fiscal year 2019 and up 42% sequentially.
We are currently on and expect this momentum in I feel honored and privileged that our company can play such an important role to help on the recovery of those infected by the virus. In our automotive vertical fourth quarter fiscal year 2020, sales were down 43% year over year, and down 41% sequentially. The decline in sales in our automotive vertical was disappointing, but not a surprise. Given the extensive automotive plant shutdowns in North America and Europe during the months of April May. Fortunately, we were able to redirect machine capacity and manufacturing associates from certain automotive production lines to medical production lines where we were experiencing we are experiencing COVID-nineteen related increases.
This helped us on multiple fronts, including employee morale, as well as capacity utilization. While the automotive industry restart has been slower than expected, we were encouraged to see our June ending run rates start to approach pre COVID-nineteen levels. In addition, we continue to ramp up of several new automotive programs including a large program for an existing customer who supports a vehicle OEM that specializes in fully electric vehicles. We anticipate our overall run rates for our automotive vertical will return to a new normal and when added to the ramp up of these new programs, will return us to pre COVID-nineteen levels by the middle of fiscal year 2021. While we recognized a goodwill impairment charge in the quarter related to our GES reporting unit, We continue to make realized their strongest net sales and operating performance during the quarter since our acquisition of GES in October 2018.
On an adjusted basis, excluding the goodwill impairment and a one time non operating charge related to the net working capital adjustment, on the purchase of GES after the measurement period. GES was accretive to our EPS for the fourth quarter. The impairment charge is an adjustment that does not affect the company's cash position, cash flow from operations or debt covenants. It is important to note that while we continue to gain traction with the new business pipeline for GES, we do have a degree of seasonality in that business. With fiscal fourth quarter being their strongest.
We also remain excited about the role GES is playing in our industry Ford auto strategy as we work to roll out EMTAB, which is a GES developed AI driven manufacturing management software solution in all our global facilities respond to the volatility and demand and the change in mix of our overall business and continue our relentless pursuit to achieve our operating margin and return on invested. Capital goals. We are doubling down on execution across all of our units as we continue to drive Lean Six Sigma project and global supply initiatives to improve yield and throughput to drive improvement in our margins. Margin expansion and capital efficiency will continue to be priorities of focus for us. Our cash conversion days for 2019 and flat when compared to the third quarter of fiscal year 2020.
While the volatility in demand has made it difficult for to achieve our inventory objectives and thus our cash conversion days objectives, we remain committed to our inventory reduction goals and actions. We invested $11,000,000 in capital expenditures in the fourth quarter of fiscal year 2020 The majority of these capital investments work for capacity expansion and to support the launch and ramp up of new programs. There were no shares purchased in the fourth quarter of fiscal year 2020 as a result of the COVID 19 environment our plan has been temporarily suspended until further determination by our board. For fiscal year 2020, a total of $8,800,000 was returned to our share owners by purchasing 623,000 shares of our common stock. Which brings our total to since October 2015 under our board authorized share repurchase program.
And lastly, as I stated earlier, I am so proud of Our strong company culture and core values have and will continue to help us get through this together. Our number one priority continues to be keeping our employees healthy and safe. We will continue to deliver on our promises to our customers And with our strong cash flow and balance sheet, the company is in a solid position and we are committed to build success in the future. Now, I will turn it over to Mike to discuss our fourth quarter results in more detail.
Thanks, Don. During my comments, I will be referring to the slide deck, Don mentioned, which can be found on our Patients 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 4th quarter net sales were $286,200,000, which was a 10% to net sales of $318,600,000 in the prior year fourth quarter. The decline in net sales compared to the prior year was largely the result of the quarter. However, partially offsetting the automotive decline were increases in our medical and industrial verticals.
Also contributing to the decrease in net sales compared to the fourth quarter a year ago. Slide 4 represents our net sales mix by vertical market, Our automotive vertical was down 43% compared to the same quarter a year ago as our 4th quarter results reflect the severe impacts of COVID-nineteen, on current quarter demand in the automotive industry. Our medical vertical was up 23% in the current quarter compared prior year fourth quarter to a new quarterly record of $123,700,000, reflecting a significant increase in demand for medical assemblies, specifically those related to respiratory care and patient monitoring products, as a direct result of the COVID-nineteen pandemic and global shortage of respirator equipment. Our industrial vertical was up 9% from a year ago as GES experienced strong revenue growth with the increase in delivery of test and measurement equipment. GES has increased more than offset declines due to lower demand in aima control products and program exits.
Lastly, our public safety vertical sales were $12,000,000, which were down 26% from the prior year fourth quarter as a result of the continued phase out of certain programs and lower overall demand. Our gross margin in the 4th unchanged from the fourth quarter of last fiscal year. Favorable our medical vertical, along with increased margins for GES were offset by declines across our customer base, most notably the automotive vertical on lower volumes. Additional direct costs incurred as a result of the COVID-nineteen pandemic and higher depreciation fence were largely offset by governmental COVID-nineteen related benefits in certain countries and lower profit sharing bonuses expense. Selling and administrative expenses, slide 6 in the deck were $11,400,000 in the 4th quarter, which were down $1,700,000 in absolute dollars and down 20 basis points compared to the prior year fourth quarter.
The decrease in selling and administrative absolute dollars was driven by reduced incentive compensation costs, warranty travel expenses due to the COVID 19 restrictions and other administrative expenses. This was partially offset by a $1,100,000 increase in the fair value of the supplemental employee retirement plan or SERP liability which accounted for a 30 basis point increase compared to the prior year fourth quarter. Exactly offset by gains or losses recorded on the SERP investments during the quarter, which is recorded in other income and expense net and as a result, has no impact on net income. Operating income for the fourth quarter came in at one point $6,000,000 or 0.6 percent of sales as shown on Slide 7 in the deck. Adjusted operating income was $9,500,000 or 3.3 percent of net sales.
This compares to dollars, both 3 point 19 fourth quarter operating income was adjusted for a $200,000 income recognized related to proceeds received from class action lawsuits of which excludes $7,900,000 impairment charge on anticipated revenues. Our GES forecast was updated to reflect the adjusted anticipated revenues aligning with the current economic environment the fair value of discounted cash flows was lower than our carrying value resulting in the impairment charge. While the contract nature of the GES business limits our future forecast visibility, our team is making good progress on new opportunities to achieve our growth and diversification goals. We continue to be excited and across our target market verticals. This impairment charges an adjustment that does not affect the company's cash position cash flow from operations or debt covenants and is excluded for the non GAAP measures.
Other income expense net was an expense of $2,700,000 in the 4th quarter, which compares to expense of $1,600,000 in the fourth quarter of fiscal year 2019. Other expense net in the current year final networking capital adjustment on the GES acquisition after the end of the measurement period, which was determined through the dispute resolution procedure provided under the terms of the asset purchase set by $1,300,000 in gains on the SERP investments and $600,000 in net foreign currency gains. The effective tax rate for the current year fourth quarter was approximately a negative 18%. The impairment charge had a negative 35 percent impact to the effective tax rate. The effective tax rate was also impacted by favorable mix of earnings in our various tax jurisdictions as well as state and federal R and D tax credits and adjustments.
In the prior year fourth quarter, the effective tax rate was approximately 14% and was favorably impacted by state tax credits and adjustments and federal R and D tax credit adjustments. Slide 8 reflects our adjusted net income trend. Our GAAP net loss in the fourth quarter of fiscal year 2020 came in at $1,300,000, and we had adjusted net income of $8,500,000 after adjusting for the after tax impacts of the GES goodwill impairment charge and the net working capital adjustment. This compares to GAAP net income of $7,500,000 and adjusted net income of $7,400,000 in the fourth quarter of fiscal 2019. The prior year non each.
Loss per share in the current year fourth quarter was $0.05 with adjusted diluted earnings per share of $0.34. These compared to both diluted EPS and adjusted diluted EPS of $0.29 reported for the same quarter last year. Cash and cash equivalents at June 30, 2020 were $65,000,000. Operating cash flow trends are shown on Slide 11. Our cash flow provided by operating activities during the fourth fiscal quarter was $21,500,000 compared to $12,200,000 in the prior a decline in receivables and an increase in accounts payable.
Partially offsetting these was an increase in inventories largely to support the increase in medical order volumes. Our cash conversion days, our CCD was up 4 days for the 3 months ended June 30, 20 20 when compared to the same period in the prior year and flat sequentially to the third quarter of fiscal 2020. Compared to the third quarter of fiscal 2020, an increase in PDSOH, our production days sales on hand, inventory metric was offset by a decrease in days sales outstanding and an increase in accounts payable days. Slide 12 reflects our capital and depreciation trends. Capital investments in the 4th quarter totaled $11,000,000, largely related to manufacturing equipment to increase capacity and support new production awards.
Vorrowings on our credit facilities at June 30, 2020 were $118,000,000, which is down $8,000,000 from June 30, 2019. Our short term liquidity available represented as cash and cash equivalents plus the unused amount of our credit facilities totaled $142,500,000, at June 30, 2020, which includes a $30,000,000 secondary short term credit facility agreement entered into on May 19th 2020, or working capital and general corporate purposes to provide additional domestic liquidity to support the increased demand in medical assemblies attributed to the COVID-nineteen pandemic. In conclusion, our financial condition continues to continue to be able to support the increased demand in the medical market related to the COVID-nineteen pandemic and to do our part in helping helping to solve the shortage of critical medical devices necessary to help save lives. As Don mentioned, we're very proud of the work our teams are doing to support the efforts combat this disease on a global scale. With that, I would like to open up today's call to questions from analysts Demetrius, do we have any analysts with questions in the queue?
Ladies and gentlemen, on your dial tone. And our first question comes from Anja Sodastrom from Sidoti. You may proceed.
Quarter. I mean, it's a challenging backdrop. So, the strength in medical, was that like a pull in from the first half or was it an additional, did you see the demand for that increase in the quarter and it's going to be sustainable at the same level as fourth quarter into the second into the first half of twenty twenty one?
Yes. So the demand itself started to move up really at the COVID-nineteen pandemic had spread and gained, let's say, the pace of spread in the U. S. And Europe. So, really, the 1st phase of the demand was presented to us in the pretty significant demand and you could really look at it in 2 distinct phases.
And so phase 1 In completing phase 1, you saw that increase that we reported here in the fourth quarter of fiscal year 20 20. And the 2nd phase then will, will need to be executed now here in the first quarter of fiscal year 2021. That's about the extent of the visibility that have at this point. So you can expect that we'll give you an update at the end of next quarter on where we're at with the sort of COVID-nineteen related surge. But one important note there is that we have obviously a significant increase in those respiratory care and patient monitoring products, but there has also been, let's say a negative offset or a decrease in sales to customers that actually down in the same period.
So if we put all that together for our medical vertical, we reported a 23% increase in sales for the quarter. If you took out the COVID-nineteen related increases and decreases, the net number would still be growth in the upper, let's say, single digit range So that those are the numbers we'd want you to understand or to know about in terms of how our medical verticals progress into this period of time.
Okay. That was helpful. And you have mentioned before that there's a rather large contract has been kind of postponed that you think is going to offset the surge in the COVID related production 2021. How is that coming along?
Well, we do see primarily program delays right now with our customer base. That's some of the volatility that I mentioned in the webcast script. We're not we're not not seeing the pull ins that we're seeing or the increases in demand are really related to the respiratory care and patient monitoring products that we support, customers that we support for those products. I would say in general, we're seeing more push outs in of the larger programs, whether it be in medical or automotive or elsewhere. And so I we expect that when the pandemic starts to subside that, those programs will then get back on track and we'll again, we'll have better visibility, but that may be a quarter or 2 out at least.
So, Anya, I would say that current run rate levels and focusing on the COVID-nineteen impact is what's on our mind these days.
Okay, understandable. And then for the Automotive segment, Will you be able to sort of catch up in the first half on the lower production in the fourth quarter or how should we think about the cadence there?
Yes, it's hard to get a good view of that. But I think if you if you go back to, if you go back to our quarter end in March 31, which should be our fiscal year 2023rd quarter, that's a pretty good benchmark for us to have in front of us because we feel like that's as good of a pre COVID-nineteen sort of number that we have to look at. And yes, it was obviously a big impact to Q4. The good news is in June, we started to get to that sort of pre COVID-nineteen run rate. So, yeah, we're hoping that the automotive car makers in North America and Europe can get back to their run rates.
We hope that demand is there from consumers or buyers of those cars. And obviously at what we felt this past quarter was not only the shutdown, but it took a little while to crank up reduction again, whether it was the car makers or the Tier 1s or even us as a Tier 2, the whole value chain had to get cranked back up And so, yeah, I think June was encouraging to us because we started to see some of those pre COVID-nineteen run rate start to appear again in June for North America and Europe.
Okay. Thank you. And then on the GS, you mentioned that there's some seasonality there with the 4th quarter being the strongest assume that was the maybe you said it was the fiscal fourth quarter. So how should we think about that going into fiscal 2021? Should we expect it to be a little bit softer?
And what drives that seasonality?
Well, first of all, we're working hard on a diversified growth and diversification strategy, that will diversify the business and eventually flatten out some of that seasonality. But GES primarily today still serves the value chain that supports smart mobile device assembly and semiconductor manufacturing. And so those are the 2 biggest areas And so we our seasonality sort of follows their needs, if you will, in those, in those two areas We are working hard on the growth and diversification strategy. I don't think we would we'll be there by Q4 of fiscal year 2021. So there will be some seasonality still in the business during fiscal year 2021.
At least that's our expectation, but it will be dampened somewhat, I think, with the work we're doing to diversify the business.
Okay. And in terms of the semi cap, has that been, was that a big help in terms of the GS in the fourth quarter? Has that is coming back or?
There's no doubt that there's we see some recovery there that's helping. And also I would say we're doing well in terms of winning projects in the value chain that supports smart mobile device manufacturing.
Okay. And then, the goodwill write down for the GS Can you just explain a little bit why you took that now? And Sure. You're seeing there?
Sure. It was scheduled. The impairment study itself was scheduled for the fourth quarter of fiscal year 2020. We completed the study in the environment with the current projected outlook for the business, we were technically impaired and that's the charge that we took in the quarter But I will say that the strategic assets that we gained in the GES acquisition are very much at work in our business today and they're helping make us a better manufacturing company and opening up new doors for new growth opportunities for us. So we we remain optimistic and about how these assets will continue to add to our capabilities and add to our strategy for becoming an even more multifaceted manufacturing solutions company And of course, with our operating performance in Q4, we were very pleased.
So it's a little bit ironic that we have the 2 non op operating charges in the same quarter. We had our best operating quarter since we've owned the company over the last quarters. But that's, I guess, just adding a little more color to that onion.
Yes. No, that was helpful. Thank you so much. That was all from me. Thank you.
And our next question comes from Mike Morales with WALT. Housing And Company. You may proceed.
Hello, Mike. How are you? Doing well. Thanks. Hey folks, first of all, really great job at a posting the year over year earnings growth despite how significant auto is your business And again, really great job with maneuvering to achieve everything that you have and supporting the medical end markets with everything going on.
Really great to see that.
Thank you.
Hey guys. Longer term, I think if I think back about a year ago, you guys had talked about certain top line targets, margin targets and ROIC target that hovered around the 12.5% level. Can you guys just talk about how you're thinking about the ROIC target that you might have set out a year ago versus how you're thinking about that over the next 12 months? And beyond and getting that up a little bit?
Yes. So, Mike, first of all, those still those remain as our medium term and long term targets, clearly in this whole, during this whole pandemic in this past couple of quarters, we're responding the best we can to the environment we're operating in. But when we look at the fundamentals of the business, We believe those are still the right targets medium and long term. I would say ROIC would be more to the long term side of that with the current capital deployed that we have. We'll need to have some strong recovery in automotive and Yes, we'll work that piece just as hard, but that may be more towards the long term part of that answer and medium term operating income at at 4.5%, which we said last year at this time, are 4.5%.
The fundamentals of the business and the business we're winning and when we look at the anticipated financials of that business, we still think that's the right target. And so, So we're working hard to get there. We were pleased with how the quarter ended up. If you take out those non operating adjustments. We were at 3.3 for the quarter.
You could put back some of that put back that SERP number if you wanted to, that would boost that operating income a little more 30 basis points or or whatever. And so you start to get within shouting distance of that 4.5%, even with automotive being down 43%, So, that gives us a lot of encouragement that we can get there. And so, yes, we're pushing hard to get to the 4.5 medium term, medium term being in the next 4 to 5 quarters. And then longer term, the ROIC number, we feel like is also going to be within our grasp.
Great. That's helpful. And really thinking about fiscal 2021 as you guys head into it, In my mind, it seems like the first half of fiscal twenty twenty one, the world was still going to be focusing on the medical needs and those products are by and large going to drive a lot the growth or revenue generation in the company? Maybe thinking about the second half, is it reasonable to think that auto might start to be a more meaningful contributor, at least from where you guys sit today. So that even if that medical piece does fall up a little bit as we go into the back see or the auto might make some of that up.
Am I thinking about that correctly or?
That's certainly a possibility and one we'd like to have happened, I think obviously that consumer, I mean, the car makers have lost a lot of production time Here in the U S, especially if you take, for example, General Motors lost the production during the GM strike, which it seems like forever ago, but that was just in the December ending quarter of 2019 and then went right into the COVID-nineteen impact lost a lot of production. So they will be eager to ramp up and replenish inventories. And then it'll come down to real consumer demand. Europe seems to start seems to be picking up traction and And China for us kind of return to, pre COVID-nineteen levels, obviously, a lot sooner. So Yes, Mike, our outlook for automotive is, it could get there.
As we said in the script, when we look at our all everything we got on our table, between the contracts we had and where they were running at pre COVID 2019, the new program ramp ups that we've got out ahead of us, When we add those 2 together, yes, I think it's feasible to think that we'd, I mean, get back to the pre COVID-nineteen level by the middle of the fiscal year, And then let's see where the consumer demand takes that number by the end of fiscal year 2021.
Great. Makes sense. But actually for me, you guys mentioned some of the new programs that you're winning maybe just in a broader sense, has any of the work that you guys have been doing in that medical vertical related to COVID, has that started to open up more opportunities to speak with those customers and maybe talk about winning non COVID business in a more normal environment and Has that opened up any conversations that maybe you haven't been able to have in the past or are those conversations happening more frequently? How are you thinking about growth beyond this?
Well, 1st of all, I mean, the short answer is yes. Our response and what we've done for the customers we're supporting is not lost on them. I will say these are customers that are long standing customers of ours, customers who really value us as a partner And so already, we were in very good standing and very good position to win new programs. But with our efforts and what we've done in response of the COVID-nineteen related surge in respiratory care and patient monitoring, Absolutely. It's only improved our position.
And yes, we are in a good position to continue to win business after this pandemic is behind us in these same areas and in others as well. I think from our point of view and what our customer's point of view, the it's interesting to look at which of these which of these respiratory care and patient monitoring products and derivatives of those products will be most important to providing care for infected patients in the pandemic, the focus in the media and elsewhere was really on ventilators It's interesting, as we've had to continue to develop and evolve the care for infected patients, derivatives and other products that are not, let's say, ventilators but breathing assistance products, that evolution has been interesting for us for us to watch and be a part of And of course, we'd love to be the ones that are chosen to produce those products as they come to market.
Great. Thanks for the color folks. Appreciate it and stay safe and well. That's all for me.
Same to you, Mike.
And pardon me, we currently do not have any further questions in queue. I'd like to turn the call back over to Mr. Don Sharon for any closing remarks.
Thank you, Demetrius. Thank you everyone. That brings us to the end of today's call. You.
At this time, listeners may simply hang up to disconnect from the call. Thank you and have a nice day.