Jana Croom: Yes. I was waiting for someone to ask me this question. And as all of you know, balance sheet and cash flow is sort of where I hone in and focus and that’s what drives my dreams at night. If you look at the inventory increase that we saw this year, it was — in Q1, it was 7%, which actually matches our revenue volumes where I am focused now is how does the supply chain, meaning inventory that’s going to show up on our door match against the flux in demand cycle that we’re going to have, right? So oftentimes, inventory because we’re still coming out of the supply chain challenge, we placed those orders 26, 39 weeks ago, and the demand cycle is moving more quickly than the inventory levels that we’re going to receive.
And so in the short run, we’re going to have to work through that with our customers. My expectation, though, is that we are going to over the next three to four quarters, as I’ve been saying consistently, work the inventory levels down in partnership with our customers. What I can say is, as I look at our net debt to trailing 12-month EBITDA below 2x, I would like it to be sort of in that 1.5 to 2 times range. It’s actually not far off from that. PDSOH at 55 days is a thing in the past. And so what does the new normal look like for Kimball, it’s probably somewhere around 75 days, right? So not where it’s sitting at right now, but not what we saw two years ago. And then what does that mean correspondingly from a financing standpoint, what I can tell you is we have a fair amount of dry powder.
You all know that we’re sitting on the sidecar that we exercised last February. So we’ve got plenty of room for additional organic growth, including the CapEx that we need for automation, facility expansions, et cetera. And then it’s the partnership of working the inventory levels down over time. That at the end of the day, just becomes a show-me story, right? So you’re going to listen to me say it, but then every quarter, you’re going to look at it and say, did you have positive operating cash flow, how much was it? And is it trending in the right direction? So what I would say at the end of the day is just over the next three to four quarters, say tuned.
Operator: Thank you. Our next question today comes from Jason Smith from Lake Street. Jason, your line is open, please go ahead.
Jason Smith: Hey guys. Thanks for taking my questions. Just curious, when you look at your backlog, have you seen any issues with decommits or cancellations?
Jana Croom: So, not so much decommits cancellation, much more push out, right? So, as we look at even the $100 million that we’ve seen this year, it’s really about, hey, we’re going to push out. Where we may watch that, again, is the auto market in North America that right-sizes itself coming out of that finished goods inventory and really an evaluation of the growth in adoption rate. That always becomes the negotiation with our customers around the next generation — [Technical Difficulty]
Operator: Apologies, everyone. It appears we’ve lost connection with our speaker, please stand by while we reconnect them. Hi Jason, your line is now open, you may continue.
Jason Smith: Okay. Thanks. And then just to circle back to the auto strike. Just want to confirm that I heard correctly, you have baked in some potential headwinds from this into the new updated guidance?
Jana Croom: We did. Yes.
Jason Smith: Okay. Perfect. That’s it for me. I’ll jump back in the queue. Thanks, guys.
Jana Croom: And apologies for the technological challenges today. Thank you for bearing with us
Operator: Thank you very much. Our next question comes from Anja Soderstrom from Sidoti. Anja, your line is open. Please go ahead.
Anja Soderstrom: Hi. Thank you for taking my questions. Most of them have been addressed already. But I’m just curious in the medical end market, do you see any — how do you — what do you see in terms of overall demand? I know you noticed some of your program wins there, but just in terms of the overall demand from the medical end markets, what do you see?
Ric Phillips: Thanks, Anja. It’s Ric. Yes, great question. And as you saw, as Jana outlined, the change in guidance from a top-line standpoint, it really was an automotive and industrial story. So Medical, of course, as you know and as we shared in our original full year guidance had baked in a $100 million reduction from one customer who is dealing with an FDA consent decree. And therefore, we guided down 10% for the year. That outlook for medical has not changed. So we’re continuing to see wins, good momentum with other customers. We still have high hopes in the long-term for the relationship with that one customer, but overall, we like what we see and our outlook for the year in medical has not changed from what we previously communicated.
Anja Soderstrom: Okay. Thank you. That was all from me.
Operator: Thanks very much. Our next question today comes from Hendi Susanto from Gabelli Funds. Hendi, your line is open. Please go ahead.
Hendi Susanto: Good morning, Ric. Good morning, Jana.
Ric Phillips: Hi, Hendi.
Jana Croom: Hi, Hendi.
Hendi Susanto: Hi, Ric and Jana. With regard to the $50 million reduction in guidance for the automotive, could you share some insight on how that is internal combustion — for us to understand like how much EV exposure – June.
Jana Croom: Andy, I’m going to restate your question just to make sure we heard it because we’re working on [indiscernible] technology here.
Hendi Susanto: Yes.
Jana Croom: What you said was of the $50 million reduction that we saw in automotive kind of we give you a breakdown between EV and combustion engine? Is that?
Hendi Susanto: Yes.
Jana Croom: Okay.
Hendi Susanto: Yes.
Operator: Sorry, Jana continue.
