KTCC - Earnings call transcript Q1 2018

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Operator

Good day and welcome to the Key Tronic Q1 Fiscal 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brett Larsen. Please go ahead, sir.

Brett Larsen

everyone. afternoon, Good Larsen, Brett Officer Key of I Chief Tronic. am Financial to I joining thank us like today call. for conference everyone would investor for our

Gates, in headquarters Executive here Spokane our Craig Officer. me Chief President Joining and the is Valley

or that always, predictions. the during course may that performance. Company's results make or future of remind regarding Actual statements remember might the other we financial I forward-looking would such call, future materially. As only to projections you events statements like are this events differ Please or

For you statistical the call, latest this Please information, regarding information SEC, filed may more X-Ks. factors review and on other our outlined documents with we our business the will in XX-K, specifically has and that risk Quarterly discuss XX-Qs the operations. historical Company note and the financial

is September XXXX. information available will call in our results first included of release for Today, released today's be version recorded and we XX, this the of ended Some a this on website. our press quarter

fiscal year For fiscal $XXX.X in of the period first quarter the same $XXX.X XXXX, we compared to million, total million of XXXX. revenue reported of

During in approximate million due industry-wide drop, the was was XXXX, fiscal electronic few in which delays result shortage Houston flooding components X and the key of an to programs. revenue of an by massive first shipments of a larger impacted quarter unexpected income unrelated affecting

our line facility, expenses. than strove approximately short margins in we we production severance more bottom quarter statutory Juarez revenue The in incurred our production expense adjust unexpected what unanticipated impacted million falls we $X.X the addition, rapidly our could react as requirements. to change and variable In in adversely to the during

the quarter X.X% year fiscal X.X% compared first was in margin XXXX, the gross period fiscal XXXX. of to of same For

from involve ramped a the own. Many production costs to facility programs of of these have ramp In our be new gross with impacted program new some continue to associated which transferring than up wins, previously slower our margins by competitor's adversely ongoing EMS addition, our anticipated.

move into capacity. gross We see improving to production further expect production, gradually full these programs utilizing new existing margins as

For in revenue our to of on the prior XXXX, year by and the the in were margins, roughly XX% decline the margin million expenses or to period X.X% compared we the fiscal pressure reduce our first quarter was XXXX. sudden of levels X.X% compared to Despite fiscal same quarter. operating operating $X.X able

or compared we of first line. As a bottom the per portion of to the revenue fiscal for XXXX Net a the offset of fiscal million impact quarter the miss or for XXXX. $X.X share year to $X.XX income per quarter $X.X million $X.XX year result, was of the first share

during balance strong ramping sheet, of continue first shipments financial and new to as unanticipated a the sudden delays to we Turning in programs position quarter. result maintain the and the a

previous from Our inventory quarter. the X% increased approximately

expect see levels our as net We are levels in revenue to ramps come delays coming eliminated gradually and inventory shipment and periods. continue with in program new line reduced

sales trade $X.X quarter, at and reflects the quarter. improvement the from million receivables $XX.X the of in were collections the end first previous down decline first Our the which in during million quarter,

were DSOs expect will we in quarters. days XX around consolidated Our under remain days that XX our DSOs coming and

the quarter, by million total first reduced $X.X when to the we our During debt compared quarter. prior

Total first full for to the we credit term accelerated to the and rate. loans capital the the for expenditures quarter at Over of XXXX fiscal CapEx approximately $X.X to down more we revolving $X expect longer million. year expect approximate a term, pay million of the were continue and line

recent than a years. investments We continue in our more moderated in molding to plastic capability, and at invest metal, sheet our level SMT, but

these the into production. Christmas quarter our holiday, customer and closures during new of XXXX, customers. revenue programs be and of longstanding most in one to our of consideration, more softness $XXX to of of to million the $XXX factors Moving ramp range will few that quarter have expect we fiscal to week into a our among production continued facilities expect shortened move by we into million. fiscal will second the anticipate of Taking planned XXXX second in the we Due

expected the that in further gross company expect level we the view our ramp as consideration, revenue share tax financial health per against earnings and over to will We is anticipate quarter. This the customer term. that the as overall effective and growth business encouraged the not XX%. our $X.XX of anticipate by it assumes new company prospects continue fundamental revenue to Taking our the rate new over mentioned of term. earnings as for overall to improve to of legal programs a that margin In are earnings. for expand shareholders. strong well believe sequentially the the the expenses Craig? $X.XX summary, offer programs future longer an value from win into profitably percentage first second We quarter, additional and and possessing the EMS we we higher positioned we range range for just defend purported factors The That's me. in we're continue of to we contribute to longer

Craig Gates

Brett. Thanks, Okay.

shortages was flooding industry components. wide first noted, in quarter impacted by electronic revenue historic for key As Houston the of and Brett by unexpectedly the

rapidly programs forward in weakness in shortfall higher are moving the in outpacing the time, longstanding XXXX, we expenses, At new gradually adversely While revenue we of production we variable some from contribute customers. to impacted later demand expect quarter. and adjust to new our fiscal fully programs our the have the margins revenue we remain our and same bottom anticipated than could first profitable line more won

to that strong time, recently competitors, trimming We closing of US was won the our year, all from believe for We Key equipment programs results and are EMS in over from we we continued East, reflects from these new growth now controllers that which two continue After generating revenue new to see monitors. a business in significant the across this begin including competitors two global recall, facility will from locations, involving exercise programs programs growing We just EMS you will appetite built years during XXXX. and products. non-profitable revenue Kentucky facilities. seeing ago. Tronic fiscal established At our HVAC capture same acquired

has as details Additionally, smaller announce signed supplier’s product. a tooling deal of customer be already we surpassed recently a capacity. manufacturer, in consumer and product a are production We but the agreement finalized. funding funded would security -- is some this next quarter to that began manufacturing to at related yet win demand normally far regional This

planned, finalized impact material to guidance have as release a for the will expected our the appropriate. positive quarter, we the If results of and update program proceeds of project the quarter it the if further as details second is within second is beyond. and deal on However remainder the

fiscal strong new we see a to of Moving XXXX, opportunities. further continue business in pipeline to potential

programs While suppliers. there be uncertainty continues to in to to our new continue companies award market,

We moved have revenue time from business us, often customers new to supplier. takes it but to supplier have that several to transfer meaningful

customers As while into margins transferring of will winning as the completes and a the transition the yet facilities not us. quoting, incurred we result, that to the enjoying our new come business expense already

the customer. significantly customer the as North any well a and for cost production Moreover, more positioned potential Tronic for tide correctly impact customers a American a returning overseas is slowdown and risk lowers production, both Mexico total Key of based the base diversified and they forward, of broader one Going by pushing analyze into US.

in of unmatched new continues excellence be size. level of vertical integration, to our comparison competitors boosted by to pipeline manufacturing EMS steady footprint sites and of the our other opportunities business our multi-country Our our of

OEMs in mitigation China, our increasingly uniquely equipped Mexico is facilities located uncertain As Tronic face Key and geopolitical the an offer manufacturing to risk with landscape, US.

second continued customers margins. continuing to ramp our we potential the anticipate many in see and quarter, a into of second improving stronger of XXXX, new pipeline new of new on-boarding half Moving business. strong revenue the the of to growth we up, and By expect fiscal programs several

customers our term, with capacity our to operations long far levels more programs new stronger increased our formal believe concludes answer strengths. beyond customer to we be growth questions. I now will base. opportunities This and pleased we your and revenue of today accommodate and the the continue remain to Over optimistic Brett our their grow diversified about and Overall, a portion presentation. will our potential competitive

Operator

question our We Bill with Capital. first will from take Instructions] Dezellem [Operator Tieton

Bill Dezellem

have as I questions always. group a of

Let's start of with the sizes range announced traditional one, which is of what's the wins? the

Craig Gates

HVAC between The X win XX is equipment XX. XX. and controller is probably between exercise and

Bill Dezellem

ask, I to lead would Craig? wide, low so have to is high and end range mean I what would the end, to that lead the what So

Craig Gates

performance our first on is performance the I Well, number way program guess the incumbent's programs versus there's continued depends of easiest still factors. it he a the on on has. to the visualize it would

Bill Dezellem

you do incumbent does poorly, end extremes does lot that well, low the would be end extreme you up the you're the you at you end. and is the more the poorly do end, at a up and winning So high business incumbent the well, other

Craig Gates

Yes.

Bill Dezellem

detail but as Understood. quite sounds to call new I'm prospective be What about can that not the, a to a about more enough more it that, more customer. bit something that, about tell going talking And listed there's then customer, it, like than you us but program?

Craig Gates

in quite it stage it at. shareholders. go work to that step for their we driving we're and the the that a without this of then bit the is extraordinary invested mention why and with foreshadowing We've the week for and transferring see we've demand along win were the later volumes which material, business. We money today And afraid and any customer not big this are mentioning design already taken currently of at a engineering the come mention

ground what lot not folks less the a the officially release pretty can something with and going it's big you to come there up and we're telling that to we point after the where to it's middle needed we're you press happen, all take but out we more of So we or sure there's tell about. decided that discussion,

Bill Dezellem

number or you it why an you factor is put release. is how of And other you two felt one that's variables those and close two together customer to secondarily, agreement and being in kind are size to potentially I'm that the the are so hearing put and the the discuss compelled official

Craig Gates

Yes.

Bill Dezellem

which the have had base. detail quite you revenue talk and been the the much for were materialized, guidance revenues million anything that higher the issues degree actually would then would in of not to off those degree And would Thank been hurricanes, a too I to or Hope same building the didn't pack December quarter you. nature all that. X related in not of your helpful. to That's which and to have they related customer more that impact, Okay. a components, to just bit about you

Brett Larsen

I can answer that one Bill.

that months, was were large So second the miss was delayed had into one was Houston revenue quarter a process fully quarter. anticipated in in that related One very to our million to shipping so essentially that last by revenue building had two three just unable anticipated some events. slides we quarter’s really Those now first shipments $X we separate quarter. and customer

electronic a trying ship be our bring in as of quarter. the is to in to to some would midst of has and able able the those expedite in build The components get hoping to too in programs. those. still we're for being play tightening to those That some other be customers orders. during The second We're a other on actually couple key demand components delay

that of answer that Does included So $XXX the your are given to have we just those $XXX in million. guidance question? million

Bill Dezellem

It does.

guess make to be back new a relative ordering part following Houston, or is sure this historic are on? at correct going now that what's they And level. just this taking their so that track that’s are shipments customers and or on Is I'm I could to ramping of that

Brett Larsen

a newer It’s actually in ramp. customer that's

now it had have quarter yes, ago. a demand So, that is where would the been anticipated we

Bill Dezellem

situation? this the a does is be this that or seem then kind you into go bit That's we a now that for of that to basis of -- the something Brett. this And you. economic anticipate on forward cycle customer, are a unique helpful, Thank far component this with shortages, dealing

Craig Gates

in widespread seen shortages haven't I since is as this that as XXs, It's I've going to. since the industry. our it's long across projected to been This unique doing last that's widespread

and ends. This and So silicon there were front wafer electronic fabs as a replaced. years based There that of go to worth are ends, going a that capacity lot been the and amount to of of the and a two combinations components decommissioned companies ago lot that. is providers takes what's Internet of of driving demand is build a front year of on because during number were PCs been the were mainly electronics never years is driving there general the among demand with a along a it were there inside that to unsure to that of a semiconductor things, multiple And happen. decommissioned wafer downturn reluctance fabs increase now that they electronics of Meantime, in businesses of of have those result car, car half a have fab. there's

a we this for to have weeks. is continue from have And to shortage have not and to times They are now. year half of start number So lead we projected a suppliers with orders taking a to other suppliers they're year know XX when don't XX again and going from taking orders. who gone

So the it's we see. unique in length that

is lasted and I widespread back, longer. this nine don't how a we many it's be but and know to going that remember shortage this You years more months, ago, had capacitor strange about while

a to finding outboards, just but going they'll requalify it’s work components, having our with with customers there's is component. quite And of the not are that and lot work retesting product this aren’t in across base. engineering with customer that’s industry, replacement work, the to replacement components So procurement replacement, relaying a

Bill Dezellem

off question a switch more to question or asked the because year term going X now that before obligations the I term was or XXX,XXX and long ago one sheet. that's it the long behind I other is so and million step balance I'm obligations and or so. What's to on

Brett Larsen

earlier things. which obligation over the of is consists time A spot match rate deferred the tax two One change closer forwards of discussed classification get liabilities, and that off that long lot forward long hedges as releases piece term liabilities tax just what point is. a that we're deferred in which we've other is burning those term we to the today's of in

Bill Dezellem

final forgetting keep of with the apologize I and I large good prospect. that you. that this bringing luck pieces Thank about in

Operator

[Operator Instructions] JCAM with Investment And we take Sean Divine next Company. our will question from

Unidentified Analyst

Vad and range just operating I on for are actually have and impact the the stepping Is guys hit P&L by would on We've or be This XX-K of to guys Hey. for multiple the of you had Sean. to for out. step get is one, got The few series quarter, questions of here. actually years quarters. the that for you what to appear another, over He was in spoken with hedges kind for multiple a roughly next you going X about million hit quarter? the that so for that upon the income

Brett Larsen

Yes.

our footnotes XX-K, transpire. the As disclosed in in that did

Unidentified Analyst

– So that what was roughly

Brett Larsen

are our Yes. contracts required with Four to contractually bank. settle

Unidentified Analyst

be I’m number So, put which -- for it I do mean, obviously XX-K it an because but appear you you have the quarter, of what, an you without, it’s exact assuming would – in was estimate to somewhere in front

Brett Larsen

X over million. X.X million X.X million. less was It and than Roughly

Unidentified Analyst

becomes the of to have the kind just million out how for to next kind in move spot prices the so of rate that Two set I So be That’s know it’s next for you’ll to or those to hedges break that long and release, get would real it two quarters, to XX-K, numbers, it income and roughly. hit quarters it those quarters, closer for but So X.X the necessarily one. helpful slightly back about operating and or going run that, right? not would is the will another is two assuming on off the to according according XX-K, you’re after correct? did people will not X.X to the closer two press number, positive,

Brett Larsen

and X than about then Yeah. down are just XXX,XXX. less next million, X.X the I believe million two to quarters

Unidentified Analyst

the in is will next got be shortages over, more strategic the Obviously, quarter, mostly next that and yet? current Okay. to to assume in and guided probably little component a were XX you there that you with to supply Obviously, state wide, be, loss impacted there mostly related are when state, to for supply issues it’s nature. appear it’s so the any the said question And the not related this for unique is shortages, shortages industry for it’s you is, going that logical so silicons, you, that one of then anticipate seeing is pricing. last since semiconductor guidance that pressure stuff thing the was have continuation previous you you cycles, any in pricing the or for does a baking to

Craig Gates

haven't We impacts that pricing seen any stuck. have

Unidentified Analyst

seen But -- you've on the delays timing. most

Craig Gates

and times Delays expanding. lead

Unidentified Analyst

no quarter, numbers investors usually other not impacted shareholders? than way, from quo to can obviously continuing could now that some months actually consider have or impact and some at real point having, for other that for next the a going I'm PCB the impact to probably real get obviously that have thing or and player around Houston we names, by they next you just And which just Y real supply positive unexpectedly the fault quarter, not this really of it’s obviously release shortages status situation be now filing, to point at specific Z XX but quasi in expect there keep whenever is is offer -- any that’s larger the like hard you not smaller have the X, about to or something for some obviously, some is written to past we hitting conversation programs takeover years. is going obviously you of suitor, or smaller you in then things some are not strategic shortages, turn other your a unsolicited four winning have you same And the we necessarily the or it’s and and essentially supply to actual number sure but press and your quoted considering alternatives perceive -- the what I the target the for board and CMs on waiting will – it's of had like guys, are is been necessarily

Craig Gates

have We comment no on that.

Unidentified Analyst

the now your I At in of shareholders? a lot you the us not returns factual be I should your point, necessarily are comments, in where that but over movement concur either. and you in any wasn't mean with right can on offer that shareholder, I as the or some we know hesitancy situation of when information to is some this a or positive expecting price some disagree stock expedite for even

Craig Gates

false under called Vad, you name. in a

done your up. We’ll answering we're think hang I questions.

Operator

We’ll Sheldon take Grodsky our Associates. next question with from Grodsky

Sheldon Grodsky

releases. I'm my you calling activities? that couple that seem be is name. doesn't taking it A these real. or -- it own questions. to guys of there can anything it Is about under I seem alternate doesn't mean elements see well reality of to be taking from the just and universe out contracts seriously. market Is The seriously. press to any don't stock serious putting I it are there seem anything of are an

Craig Gates

Yeah.

my subject, say releases press me in have have be to nasdaq.com. let said our we we On lawyer XX.XX, So to read to said and on in found already of nothing three that you can what of I all X.XX, have what addition which say. X.XX

Next question.

talk Sorry. more. I I wish really am. about I it could

Sheldon Grodsky

than previous a would be what the a than haven't don't on is kind quarter out call quarter of in little The that question that I next obviously that half kind getting the said think today that quarter here digits. where first maybe like quarter. I it would good expecting doing the be again was target help like this you bit a probably paraphrasing, probably equity as this second a see might of to breakout results been saying, the the deal to isn’t I you’re expected the volume process, I've new sounds shareholder I seem in I that year, breakout although know, hanging double assume a don't and you’re lot a earlier rather return next expecting and sitting And in long knew deal mean been we the but was the reasonable than to, time. you going after your That a earlier, something quarter it’s you to better or had yet be a we've next and year to year accelerate of setback. you said higher agree the now. in I today with

of that I appear saying So finally about you're rot it -- of the out in? to negative you’ve are been couple to misinterpreting things am come fruition, meaning next quarters of does or about what terms in this getting you're in

Craig Gates

we getting you’ve overarching if in so long an put answer. overarching a Well, so pretty question asked this you’re perspective, all

Sheldon Grodsky

Good.

Craig Gates

That years went year. out purchase. purchase our in almost the million has which turned About ago, That funded is completely. be now largest our customer customer almost two a dropped customer per and was of Ayrshire off revenue $XX then bankrupt revenue to fantastic

with in past, the two replacing XX million that almost been revenue So new customers. we've years, of

been of product, a to pretty just lights shifted. no in management able the that, just million even we've and to been As line XX essentially our that we revenue much fell doing customer out, margin, in one which we’re of we've been mad our It of together terms pretty whatsoever oversight. scramble replace tread to effort able a or down and terms of though much with water run it's one

programs adding we've that and two expense capital years, XX during to scrambling adding to a revenue and year with adding business. So customers half more adding been million mad replace and that in like and

a reason that is adding while our which loan steady and those So state. growth couple a revenue, of fill expensive quarters, we're adding replace keep customers, new a business more and we top point, in at XX we hole what been over soon, been we've there's effort The saying keep to staying up while add I change that by is just market. talking on by, all with we're almost and a we're about in hopefully, to and third the than thought to that our line. is the costs be positive, we've longer we've a going the fundamental customers staying contract a because that while compliance we're left running been manufacturing able of fact half going lot optimistic going year, that that The than that been optimistic show is the reason delayed within that of to bank

XX%, a If CAGR. you years were couple ago, follow XX% about it, of people talking still

look And now, they it's gone to at projected If as be has experienced have we've flat. it their our customers found some but haven’t ourselves you new away, of that business softened. current suppliers,

us has at what we're top term point line of where we're would, the have why three their is we not top softening thought our good So seeing surprised the instead and in line to growth maintain business. we like struggling long that we’re seen customers

customers general, than things on is just is we're water, we're reason kind the start climb in that see that ending in remain you bidding hand like see grow shoreline. million the at our and you'll replacing the economy, unless $XX but we should with staying all see above rather to somewhere above basically that crap steady pipeline of we a that two of that rate customers are that are underneath as to quarters, duck the we loss. So, we next factory a that the in the new turn all the the up But loss the and with we like see crazy swimming new in, see coming optimistic products are

So that's a to question. long answer your

Sheldon Grodsky

have that you say extra lot So of did capacity you you are supply? to a expecting growth, that

Craig Gates

Yeah.

about XX% now. we're running right capacity So at

is revenue in to this dropping above to other business, once starts So realize rate. line that need you you bottom nice breakeven, the at a point the get

we our sense. a was trying random to good a growth pretty got we until lot whole now. have we cooked That XX% more of expenses. XX%, spend where grow to we've into today, lot XX% So I’m capital capacity are that a say capital of than a more don't

we floor that a So replace get about, don't customers, the we've grow, current we've with we there for margin would want higher we our if we that shortsighted the be this why our lot win very be hole will wanted other think us and don't manage space, be cuts now, capital, across could what see dug than people the do once we continue And got business but understand, we to right because make we nice. got talked margins we advantages and to a we And board got customer. to grow customers. we've by we we've be when very, to can't more got

Operator

back Dezellem with Capital. We will Tieton go to Bill

Bill Dezellem

Craig, were may be you you characterize winning was you in years. talking today it months seems marketplace, the about business, years differently three new just versus It in maybe rate your ago. would and you ago what win like XX than were perceived prior

Craig Gates

east, Well, for East the addition three call the resources sure, are that engineering or we Ayrshire the One there's things good. them going to a all on couple is the of the there, acquisition.

is resources having So the to and effect. nice a prospective customer base Tronic really addition East's current engineering the Key of the

quite the in press said release, has well. East we As the grown

up before So a them. their we gone purchased what bit win has quite was from rate it

in the second they either as customers are grow. The are hit Mexico that us East of with a will up number their projections there of China side that is they just or with that starting end if

have we those structure US manufacturing a to So never as based would we them. seen customers, have service didn't

line. So win has and much gone of up, yet us bottom quoting, the stronger made quoting our impact of of so it the programs of that's seen new or terms pretty East. although what's terms third part rate is the grow cool and in so to in the has in top products capacity and East the combination these haven't next of West take the as line then And you out of off that going the the on in happen year our

be their in and revenue a as what believe this just that be For though even get already exercise And it and production even the running, former we take press design equipment example sticky get we go middle engagement long. for that was timing, and though new will our once sticky does, of nice, folks. monitor it But prototyped engagement won't know it'll it coming with get takes the it it the products release, until to is we a we summer. even announced into long it know going the to completed the

Bill Dezellem

continuing down same of today how all that are characterizing path, and in years. type if so of about Has changed that this type of and versus winning you the business kind were bidding prior winning at And how? that on the business you

Craig Gates

business look outsourcing. to we desperate a that classical were better starting a you the we’re two from throw contract being from other away a if -- stayed or if in each is into out manufacturing, is what almost today answered part three that's of OEMs a a the or lot came to all therefore people maturity business almost stolen the and and the There's looks who change that like, question for earned, of word manufacturer. need too until is buying current type CAGR themselves the Two of ago, industry earned analysis, were growth -- and terms you and in ago, years Yeah. being years our of in contract long your business quoting flatten it had up gone and at on has production it in actually, --

a there, people there the and quicker. driver, transfer business competitor, the Today because huge just nobody process from a piece of drove be much very to there's we are business is that's who when that So business earn no the unhappy. long is desperate decision

in takes contract in industry manufacturing look on it forever. to has change in part can change a the it. with the the business taken to goes thing it a type this come previous the that damn it win maturation transfer we of and along to takes the and And that's at answer in question that the time also of So caller's how change time an

Bill Dezellem

turns to this of there to going that existing X simply mind, step I’m market way risky? up the and a start too be you out is die, process, seems always if participate that that in the XX to but are to a or be great of this a the is spectrum end one take new And thing. around there Is that one of in further, if don't maturing companies

Craig Gates

and we business guess, like startups couple to the I -- with be they're year X of X look going participate new a to to ways there's our start-ups. from, pieces Well, of

from and has just and are it about there couple on about oh, can this but I talk don't quarters a ways worked want that to probably when I a while, for say, hope pound now. do So of satisfaction, this talk it now or we'll to we

Operator

further [Operator comments. Mr. will conference I closing Instructions] no any at have this call questions. Gates back to And the we over for time, turn

Craig Gates

have call in look under participating everybody don't assumed day. Thank name. not except Actually, I you Okay. in forward good and you trying of you to conference with again to and today's for Brett Vad. again Thank to thank a call. will the critique. That's again. Vad, bother you speaking rest

Operator

gentleman, your at and this Ladies thank you and for this participation today's you will conclude do call. may We disconnect conference time.

Key Tronic (KTCC) 31 Oct 172018 Q1 Earnings call transcript