KTCC - Earnings call transcript Q3 2018

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Operator

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

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

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

the period For to the continued fiscal in total reported Most million $XXX.X million, we same of to XXXX, $XXX.X fiscal our revenue new compared XXXX. of programs quarter of third of though during components from impacted quarter third steadily fiscal revenue new customer. key of large adversely one ramp productivity and and was by XXXX, in the shortages delays industry-wide overall electronic unexpected

$XXX.X fiscal revenue For $XXX.X the fiscal of the of first period million, XXXX. compared to was months our total XXXX, in same nine million

and margin period respectively quarter same X.X%, third in XXXX, For the X% fiscal and margin of fiscal X.X% XXXX. of was X.X% gross compared to was operating the

reducing margin impacted coupled the continued of Juarez severance Gross to be approximately costs during shortages impacted was headcounts the these also to production gross has Our our with of quarter component involve facility volumes. ramp-up operation. costs to of $XXX,XXX get our with associated exacerbated within programs with ongoing with adversely by associated which a from EMS full own, taken Many length time new transferring it to competitor's production program has wins. our new margin the

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

We existing production require capacity also fit content. less continue programs will and expect new to into that equipment labor

result a in the cost we coming will quarters. be total approximately Mexico in streamlining and by expect investments efforts, reduced of the As capital X%

Our we sourced competitive supporting China programs. be option facility continues profitable, be programs that to facilities current to expect we provides Fayetteville, to In U.S. these leased are domestic our growth for Asia see coming profitable and a proving and replace the months. future locally Moreover, current in location increasingly of newer a in Arkansas locations. will support facility in further investing gradually in growth, are the manufacturing

In our leasing footprint addition, by operations. we space increased current facility our to Oakdale, contiguous additional in have Minnesota

approximately per income had the quarter the of XXXX, quarter net share For $X.XX of of we to million third XXXX. $X.XX $X compared share million third fiscal for or or $X.X per

by severance approximately the earnings third diluted For with streamlining in fiscal connection $X.XX binding the in expenses per related arbitration expected the of to reduced Mexico facilities hearing the and Company's XXXX, quarter expenses a share. our

net share per fiscal XXXX. or million of fiscal for the the nine to period compared income year year of months share, million $X.X XXXX, For per $X.XX $X.XX $X.X first same or was

the the As earlier tax expense previously discussed, for resulted in million a that year-to-date reform XXXX calendar discrete U.S. net tax $X.X year. fiscal from year income includes mainly

sheet, a continue position. Turning to to strong we balance financial the maintain

the third up our approximately quarter previous the shortages, from ramping were programs X% As inventory due end delays previous and our the component a of from shipments quarter also result and X% at to increased trade of quarter. new in receivables the

former paid inventory customer. recall quarters the We included of third from quarter. a ruling have that recent approximately during of hearing matter the to purchased receivables arbitrator's fourth inventory $XX and the fiscal in million XXXX completed levels concerning the quarter will expect our just receive binding and arbitration You due receivables this and and during

addition for carrying arbitration, costs are the due certain issue also we and In but be pursuing other from reimbursement former fees the customer. in cancellation already to at believed the to inventory contractually expensed

results unknown We expensed matter outcomes have of or material not any incurred. have and effect more inventory and gains could result expect net to which flows. cash as line of we component new on to ramps gradually and program of disposition any accrued arbitration, the position, revenue are continue costs one-time operations, levels in for financial of this and this a with losses delays a coming consolidated as come ultimate in levels loss. related the our gain are or claim, see periods. Irrespective in Legal The the the increasing are could outcome being addressed

total days We XX coming payables we our quarter. around our expect DSOs remain consolidated prior debt during the to million $X.X carefully quarter, by in to compared reduced quarters. the third By managing

third to term, expect Over the and and expenditures longer XXXX we continue the to for CapEx credit. full revolving expect through pay down fiscal $X of approximately Total term were the quarter the of now to million. fiscal line million loan year approximate we $X

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

of large move our the and quarter ramp of fourth programs consumer including today. production, for new announced XXXX, program devices expect into security to the customer into more Moving we fiscal potentially

renewed growth these of to $XXX two our we $XXX Taking that sequential fiscal consideration, million million. addition, demand of increased forecast customers. see revenue In of long-standing the revenue range will fourth with the quarter from largest anticipate factors in into we XXXX have

the In renewed This anticipate the $X.XX share. growth rate growth range of per revenue sequential $X.XX and for we of earnings. diluted quarter, fourth to with an prospects the tax summary, earnings earnings by effective encouraged During assumes we're in in future XX%.

continue that forward our expand health the positioned business we in believe and new is me, resolution That's we look to it for to Company to well longer also profitably are overall and over arbitration. Craig. financial win the the We term. The EMS programs of strong

Craig D. Gates

of doorbell expect were [Indiscernible] manufacturing that global is pipeline a for in and few help profitable total leverage to to pleased see business. announce new doorbell We our of Key leader projected patented and home the a expertise also more customer that and product partner could products new to views accelerate our to expected to demand improves plans very manufacturing line to long-term We as Tronic over strategic potential neighborhood accessories. distribution Technologies, video important increase video SkyBell began SkyBell in safety. availability quarters, technology SkyBell expanding continue fulfil today fully to XX% Once This us strong in relationship of its important our expand an introduction Wi-Fi or Wi-Fi new channels. to SkyBell become is we to contribute revenue. ramped of growth. the base next capabilities its

of strong Tronic managing sheet years production reflects on we we see continued Mexico returning for analyze our customers investments ago. U.S. East] products SMT, planned with pushing value production, from Mexico metal North At well-positioned that and facilities. making which for growth over tide U.S. to American enable correctly These We as expected investments cost. is production are highly having in the last time, the efficient our believe and recall of we for Tronic overseas As a expenses, into significant and call, the we growing lower future while they [ph], carefully appetite same domestic this molding discussed will are in total the U.S.-built results the you are based Key capabilities plastic both labor both acquired [Key cost and two was the

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

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

in the to to profitable in their a your efficiently concludes fourth are new renewed optimistic U.S. of are competitive expanding with presentation. strengths. will about highly increasing enhancing content portion demand, are spite future we Two and continued to longstanding be preparation I growth and answer quarter, be significant In our we sequential into continue This invest facilities, to Overall, growth, in the customers pipeline and questions. our our our strong and Mexico facilities. significantly new and expect continue ramp, of now more and forecast productive we equipment we less our pleased potential supply-chain in have labor processes formal new and our programs we opportunities issues, for Brett earnings. of revenue growth our business. Moving

Operator

with Instructions] We'll Tieton question take Management. Matt from our Capital Dhane [Operator first

Matthew Dhane

just was are additional is win, significant waiting quickly In products. referenced are and there and color these the I up, SkyBell SkyBell's to how in add there that, if discussing press around impact you some to folks. release channels the ramp that you potential you could sell the channels that curious they could how

Craig D. Gates

The purchased SkyBell and as you Amazon. know with was product by Ring Ring, competes

So, their the from worst and to buying competitor. product retailers world most in not the a want be do vicious

sales from impact looks development to the very positive. that So, on SkyBell's be

Matthew Dhane

Craig? really real primarily the product So it's the through focus that's with this retail thing, channel,

Craig D. Gates

up. that's are home large very controls that channels and are companies. existing security just opening Fortune new home The XXX the type channels and No, more

Matthew Dhane

Okay.

for current have be existing so, manufacturing is they then ago? long what And success product purchased having Ring it that you'd Ring initially or I billion guess since $X was more in for, Amazon their customers, and that's channels, of expectations not

Craig D. Gates

already number, the channels. Actually some was of but has remember seen big. it SkyBell those in don't I success

looks it pretty So, probable.

Matthew Dhane

win for and of that we Where to wanted financial the of I on there ramifications that? That's like Mexico. see great. the when folks. results. process in excited and a facilities sounds in I'm also at the do to very start you the really It are great touch seeing you streamlining Mexico

Craig D. Gates

during now where headcounts. So, reduce the of third That number were to is our quarter a severance able we occurred complete.

to expecting that fourth quarter. of moving are now our the into benefits We reap

Matthew Dhane

if with that's see Gross and you curious plus a the color place you increase generate could, past add I margin, you your wanted believe X% six also just was a the pieces next within a that in to if for year, about ask or to talked help that could? if the question within revenue. the some in in here around expectation months reasonable revenue base that now I a that goal or have around Okay. if still I

Craig D. Gates

think itself don't as in that provided capacity market. now, components up in has supply-chain that as starts to place with far I the goal. The pieces the a electronic changed are that more [indiscernible]

is the structure have cost X% With place, in we and think that achievable. still customers have I the we now

Matthew Dhane

about see of care taking within itself? challenges that's you electronic the component talking And component changes facilitate and do taking the that may place manufacturers creating, shortages the that

Craig D. Gates

it's off probably widely and resistors The that, to before there no competitors the should sooner and the a that kind into integrated still running run they acknowledged and now it's of. timeline like strong the it's next get are of XX can't that shifting. so the worse It EMS going the The of better. passive, months issues very capacitors, looks within pretty out started amongst with consensus circuit gets than but out spread is better pretty simple it world it higher more components and get like virus believe of, never is a actually things you end all

Matthew Dhane

and as I up you good and appreciate with the luck gentleman, shortages best SkyBell. help, Interesting. all the the ramp

Operator

Melas with next to Management. George go We'll MKH

George Melas

[indiscernible]? and follow on question cost can your pass line [indiscernible] components is how the shortages, that imagine regarding you the affecting [indiscernible] you on up the margin really a your on the previous productivity. some through of on gross impact higher of revenue component I Just

Craig D. Gates

of gets It's George. insidious. everywhere, kind It

when no on getting can pass to many But all, So, any cases more for our price [indiscernible] in market condition. takes threat we drive away it's certainly our that opportunities have That's widely cost easier in negotiated pretty reductions to variance, PPV, acknowledged along prices customers. a It's first of tough down. it negotiations. as purchase it's we

committed not parts us are and warning you lucky the zero to ship that give they same time, will have of suppliers prices to So manufacturers ship hold steady. that. At

XXX people, of shipment up of capacitors for Monday worth afternoon line the XXX Tuesday show on doesn't to be people, there entire show was and Monday an supposed or have can we that up. So, a

except then for build you And or inventory week there So, six have gets everybody one all the product. products month capacitor. months, you've part for for one got parts when stands no and you impacted else around getting paid or a because can't maybe making a your except everything finally,

So, and of that capital level. drives cost our capital requirements

a it So, has broad pretty effect.

George Melas

us Is of what there process to it [Indiscernible] of some of of Okay. and can color history deal. took [indiscernible] was took sort probably why it that [indiscernible]? how any you, is longer it you the about sort because give that that way you close than and long thought sort

Craig D. Gates

around contract lack than uglier. another an component contract And manufacturer, even It's complex you the handoff another, of is worse one never a between midst business much it's by the from pretty to when ongoing transfer you it's a And current complicated, handoff shortage, that's manufacturer the materials. to of in piece when of massive one manufacturer pretty.

So, the incredibly product remains strong. demand that we the see for

parts been with that we didn't have were reasonably announce and the had build that actually we securing issues guaranteeing to it. the started supply-chain and could we want project Our get to confident until

that's it. going today it delays to were announce the we thought the been we So from of majority announce we did when to when

George Melas

a that on of just okay, great. deal [indiscernible], case, you And quarter? the of bit it, closed can Got give a size the the you during in range us

Craig D. Gates

Yes.

order X, [ph], and are it the big. in which listed, XX, in X] they let's call So, very X, [X,

George Melas

then to be do way, levels X [XX, to [indiscernible] months, question these months? is just and XX XX it how expect And X, it is of you [Indiscernible] a in my going X] to get [ph], long

Craig D. Gates

once are the nowhere we then to the the seems end SkyBell It to one is second Actually probably that the two two months full production near everything rate say all figured first the get now two the supply-chain In but And and this then going out. this like hope we are actually quarter. the case, by producing years forever. last are six today. last in take for once lapping it be of at should we we see

George Melas

[Indiscernible]

Craig D. Gates

you. hear couldn't I

You kind garbled, George. of

George Melas

I'm sorry. [indiscernible] I past? to what How think compared come those in have seen accelerated the we

Craig D. Gates

last competitors not in of what I which the integration capabilities metal believe of bid. X a our in probably is kind theory allowed at is most but below towel pretty the quickly, didn't is There fact, where it the a the and capabilities priced good four happened prices what quality. were significant bid that I five we us customers, service those X.X job same would time in providing competitors programs our that shop impose to what a months, continue have this that that And they they increases do I has years a – think years or could they happened And were seen to competitors pretty number our try a providing of and at instead X.X price below poor is our Mexico to could to happen to expected tried and of compete have to for throw and product. on just

And in longer When to coming so, it's us. demand sea-tide used split, now It's be switched kind those split. no to a customers to mainly all us. of have the

through the downturn had of an didn't The that over three past kind we and lived couple our so their other five thing is short upside And meet never product seen in teams big in customers of of they capacity. through actually in and customers, terms and really a to to that see been been of blip [indiscernible] upside unexpected consistent have a unable had they and their managing years, have blip. business, of cycles that those understand supply chains now demand, value a the

to $X or ship now performance way, somewhere or on $XX before product where really so, along by $X,XXX $X a unable compared $XX $X,XXX a that exciting it being that it's And insignificant they was or their when to product. once moving saved is

have quicker happening may. normal, programs it's things theory hope much it that my to So, and than right of our of couple and make some that combined a keeps that is I these

George Melas

to you've one last you the are provide been for these and years all two [indiscernible]. [indiscernible] [indiscernible] an It's that suggesting interesting integrated really working because

Craig D. Gates

hiring get but Yes, too it's six and were sheet laser we shop are and we as today easy off to months buying fast looking and metal encouraged can else. in our at [indiscernible] as ago laying more everything people we

us on right it the So, turned has I'm way. thinking

George Melas

luck. Good Okay.

Operator

Capital from question follow-up a Tieton take Dhane Management. We'll with Matt

Matthew Dhane

I facilities. or circle say I another about around question U.S. ask did a should question and want to your back

heard the sounded some and I and call, to you prospects You quite so of the covered an the have it the the some details for was but I and have more time, revenues about driving I outsiders, starts on on in facilities U.S. optimistic color hoping what's benefit as just how forth? more obvious a and capacity until to us bit having little with long expansions know

Craig D. Gates

just from that driving and was running think they and have is phase their they customers and I being right the looking today. at on now if where with going is probably months you the are what's an out-square obvious see facility bombarded facility are Minneapolis you benefit Programs capacity that's the in see where get six full full. they to space was won the visits and expansion. East maybe continually Particularly before [indiscernible] to Minneapolis were like product our go, customer floor ramp

So, almost is in market, size that that driven and that Minneapolis strong. like a It's for looks area has it really them that doubling market expansion. in

up and to was a continue poorly new we win really of to continuing yet that of and dilapidated showed were a So, their customers retained to more. there old Fayetteville, Arkansas out and had facility the with win customers majority programs old they facility move very the and equipment

point very talked also facility to that out they programs more by win and on new almost and moving have field the to going number the OEM reacted of the final, have into more have reps ability quoting sales, focusing have that we we we that more so that as be years is three onboard, on earlier business the have processes commoditized have doubled XX%, and and lot of past going believe and had The force their we positive a effect our we almost become and above put won. positive, a to already this at them what a a increased our So, new fact effort more we by had beyond about is to over very sales we manpower.

and better and creating times at that are a up the we sling we more to are So, getting get we plate. do

Matthew Dhane

opportunities hear. those weighted there have pipeline pipeline there. than good domestic opportunities you past heavily really That's great to you said that well? spoke you a of out then Are about, more And as is to the the in that

Craig D. Gates

definitely. and I we of we Eastern the and a bought to in were by pricing Ayrshire, bit far the was of are be half where continuing a Certainly eye to the year little as they facility division driven U.S.-based we after guys before past would available Juarez say the Ayrshire, new year probably business. bought out seduced took could there off for pipeline and our as a drive ball, kind the

So, half ago, fruits and too. that a we as seeing and year that a almost years corrected two probably the ago, we're of

we more we that U.S. the XX, used And when that in their guys old industries that years a Juarez and brought So, into or the sales certain resulted RFQs in in guys I understand ago. the guys mean who and more sales when better are in the the I more ties we now we capabilities bring better they six five selling and to over we not a record have China of have new guys have old, East more actually – guy industry-specific time sales it's job used Spokane. have compared traditional the as having and necessarily to are and not to. better say on the just understand period on then lot It's a the here long-term doing employees, than we're capabilities East the

Matthew Dhane

really appreciate that's and the time. helpful I Great,

Operator

Melas Let's with take a George follow-up Management. MKH from

George Melas

goes will, fiscal year? balance way, sheet, Quick follow-up at arbitration sheet the if it the of think could the your balance [indiscernible] end which what look like the on I Brett, this

Brett R. Larsen

customer I is million. know over is that former $XX disclosed that we the amount total have Predominantly inventory. from owed this that just

Craig D. Gates

owed. That's total amount the That's [indiscernible]. not the of amount total

Brett R. Larsen

arbitration. $XX to have approximately this of books got the million inventory we So on related

Craig D. Gates

It fees is could $XX perhaps that expenses storage we were the but believe due awarded that more go be way quite really and than And it there like and if we other would bit cancellation have get hope, and nice a to interest already we more things expensed. we too. the than in million,

Brett R. Larsen

we George, inventory So, back get with intent hope that to and of that mind, in my a turns four is year.

Craig D. Gates

goal. the That's

Brett R. Larsen

to It's there. get going to take us a while

George Melas

reducing would course get Okay. to of for arbitration it that What besides there ruling? take inventory

Brett R. Larsen

to well Craig think as mentioned, balance components I effects some bringing the on the what added as in as of in of the well inventory electronic production shortages has ramps. for early as inventory also sheet

George Melas

great. Okay,

Okay, Thank you. very good.

Operator

Capital. with to go BML next We'll Landry Eric

Eric Landry

You X, run wins annual a the a during quoting? rate four an you're a X, is mentioned a X, XX, quarter, and that that

Craig D. Gates

Yes.

Eric Landry

you quarter? Okay. these And XX. just Are that the that one quoted you different X, quarter think prior then was than I quoted one those was this

Craig D. Gates

talk we Yes, have we a we the occurred any have have time, signed hard the a we contract have are production only we we we the beginning but we POs, considering are quarter. those we say, that signed to every have around what quarter POs, can't signed as always have wins handshake down win, try a We get and contract, and about within have agreement, goddamn table we contract, a parts. to we sit have

anything. figure out but don't double-count So, we hard win it's to

tell can I it. double never count we that So you,

Eric Landry

are POs, So is that are? these what these

Craig D. Gates

and contract, These already PO PO, are, these has in contract production started. from range negotiation,

Eric Landry

contract before the so Okay, PO a is [indiscernible]? it or come

Craig D. Gates

this of. thing it every wonderful is can business The happens think you about which way

Eric Landry

if Okay, you. approaching is math my somewhere in of correct it's you All about couple got million the just past correct? business so over here, new perhaps right, quarters, talked I $XXX

Craig D. Gates

disappointed customers have us. told They That's what before. have us the

Eric Landry

forward? Any you reason to they will believe disappoint going

Craig D. Gates

History would suggest.

Eric Landry

Okay, great. you. Thank

Operator

like back to any Gates to Craig the remarks. closing or for additional would no over queue, in with turn questions And the further I call

Craig D. Gates

I call. look good next for and quarter. a Okay. have conference everybody again forward with Brett Thanks speaking you to participating today's Thanks day. again in and

Operator

participation. This does for thank conclude today's conference. your you We

disconnect. now may You

Key Tronic (KTCC) 1 May 182018 Q3 Earnings call transcript