KTCC - Earnings call transcript Q3 2024

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Operator

Good day, and welcome to the Third Quarter Fiscal 2024 Key Tronic Corporation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Larsen. Please go ahead.

Brett Larsen

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

me Executive Spokane our Joining Finance and our our is of in Gates, Controller. Craig Vice Valley President President and Officer headquarters Chief Corporate Tony Voorhees, and here

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

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

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

was third $X For that of Fiscal offline winter took Fiscal reported $XXX.X in of and Year approximately revenue facilities period $XXX.X Mississippi XXXX, for events the compared of Arkansas million for to XXXX.Revenue due the the to total weeks. million million XXXX of approximately we Fiscal in third constrained weather quarter by same quarter severe Key Tronic's two

same different XXXX. a to months of compared revenue for In in $XXX.X of total demand Fiscal our programs in million addition, XXXX, was Mexico.For $XXX.X of we a saw first the Fiscal number produced the nine softening period million

margins an impacted events. combination the quarter unusual our and were profitability significantly Fiscal by For third of of XXXX,

in recognized severance which million reduction we the The that be per quarter, incurred for in third could quarter. Mexico. of share employees severance limited by workforce or we expense the as $X.XX over were costs late the $X.X XXX costs incurred First, reduced our diluted approximately payroll

Relative U.S. impacted rose by $X.X X%, a approximately by and the by of the the to adversely interest be to the resulted continued peso. high diluted contribution share.Furthermore, increasing expense costs and or peso temporary strengthening dollar, continued Mexican margin the loss also We expenses weather labor U.S. our by $X.XX facility million in of to share. due diluted or $X.XX severe of approximately closures $X per million the per

third $X.X net of factors, same X.X% XXXX.Our Fiscal per of these result loss period for XXXX $X.XX gross or the of Year net XXXX. compared and loss gross a per period to XXXX same margin of Fiscal third and share for was income a was million Fiscal of compared in operating Fiscal of with of margin to As the share million the operating an the margin quarter our $X of or X.X% X.X% margin of for quarter $X.XX X.X%

earnings by today. months, release, component ratio For million same of the in Year or third approximately covenants agreement loss for by financial rate quarter same noted inventory of to for increased $XX quarter ago. reducing the Fiscal in fixed These increased a charge first covenant XXXX, a of concerted we sheet. by the relief coverage we our asset-based as time the We're to we requires facility of than current availability net drive state advancing on Fiscal a agreement of $X.XX the $XXX,XXX the of in new next maturity revolving reductions. and amendment to At the to basis for our XX% parts line date same with in year by period effort XXX or today's to the of continue inventory end of the inventory executing reflect with drive our from points the credit interest compared our the demand historical become differently to revenue. XXXX.As lender the September provide the XX amendment and in Fiscal still more We supply per periods. the roughly ended share million improvements per to was our will that chain This our $X.XX $X.X see income nine share net of also time, pleased levels months cured balance inventory breach the XXXX.Turning of the levels XXXX worldwide primarily or third

planning material our have our and revamped customers material modified resource algorithms. improved and sourcing Our forecasting methodologies, significantly we have

result, future continue we reduced a more the supply also third million ago. cost we our quarter, overall accounts be for chain, a we obligations year better leasing a equipped amount the to manage inventory as in and payable, by disruptions combined debt $XX.X from of As should even effectively.During

Total quarter to to of X.X:X delays ago. chain improvement accounts a strong notations.For our particularly customer XX program around Fiscal Vietnam new and compared and reflects Our capacity; same compared $X.X opportunities. customers of selectively improvements relative facilities from total CapEx expect the on X.X year and believe our to eye we our equipment efficiency capital Fiscal to with expenditures, collections the a million.While SMT to receivable certain continue and XX of of which we and respect XXXX, we year despite continuing $X million make we're current add the fourth capabilities, production a quarter XXXX, well some at year molding to seeing most for for days U.S. to backlog as invest plastic prepare were issues. expenditures disruptions to be for we're ratio equipment, our was as among growth rebound customers utilize a supply keeping in customers in ago, third days capital quarter a At from DSOs was increased in third plan the legacy time, careful leasing

$XXX million the $XXX to of Fiscal quarter fourth range to of revenue expect the report For XXXX, we million. in

rebound incur facilities.In of sales the levels amongst fourth our $XXX,XXX the we late we reduce The Vietnam, strong programs and quarter, expense decision additional efficiency payback million a ramp new moving under period be expected half of of Juarez additional fourth in new the XXXX to into expect existing expect XXXX, prompted continue muted to approximately per pre-COVID for these overhead quarter and in all and combined production headcount potential and customers the net in Mexico diluted strengthened a business. of to in continued While be pressure from to share.In operations us improvements, the to we Mexico facilities, of to Mexico-based the fourth the our have our to $X Taking quarter. this to a our in factors is reductions considering continued $X.XX pipeline severance income growth U.S. into expect Fiscal these in Fiscal year. $X.XX -- we range of consideration, peso

longer to we well Craig. continue positioned increasingly that expand it new profitably for to the we believe and me, are programs Over win to term, our business.That's

Craig D. Gates

Okay. Thanks, Brent.

taking we half flavor operating not At same to restructured reflecting to quarters, demand the and steps we to products periods, XXXX, recover Mexico see sheet. our pleased is $XX workforce expected us site on also with we support in efficiencies focus overall lower coming improvements significant our headcount different the reduce in requirements will to number to inventory with our the migrate are our improvements of and service do other volume needing operating During and to million high sales production our volume In made balance increase anticipate our to won the necessary higher loan programs, improvements which Mexico-based in latter expect programs other due time, to from than on of is content, to sites.We're levels Juarez softening for Fiscal manufacturing, recently to coming annually. higher due more while a the efficiencies. save being the

winning geopolitical trend these our widely new audio a time, services.Over the energy on we million strategies. China-based and the they tensions nearshore not outsourcing dependent problems their and only continue drive continued onshore investment to logistics $X to involving traditional telecommunications to consumer believe overly their China-U.S. contract product $X $X increasingly onshoring account, the the decision sourcing long-term around become programs of are manufacturing $XX have manufacturers pipeline that examine expand new or and million continued logistics management around During contract a realize smart million We more customers strong design strategy. and in of in manufacturing. becoming but to to in OEMs underscores towards is account business accepted for up also Global in as quarter, production million dual base, account.The around account, customer

Mexican border. same seeing peso clearly time, wages, and As opportunities growth, a particularly opportunities trend a continued of sustained the strong we At U.S.-Mexican those in see defined. increases result, are along we the Mexican are becoming and more for

our Mexican bringing needs, Mexico will of cost and they of they flexibility whose our motion plants the to sites it China U.S. it remain facilities to ease in has service base become decreasing and answer. between small endeavor Mexico ultimate that a we we geographic from requirements of long-standing, who changes these the cost, struggled customers [communications.]Meanwhile, to cost also that are that our adapted flexibility, production reconfiguring Mexican calculus our to a clear are engineering businesses provider. lower can a for China.For had due their model become more challenging location high-quality communications, those the engineering enjoy one has selecting customers with be China flexibility, different There, those sites. are As support, back probably support U.S. level that customers they commodity but differential for of have believe in means the limited production of Therefore, choose

has XX% In in from represented our the the XX%. increased U.S. XXXX, production of production XX months, U.S. past the about Over facilities approximately QX total of revenue revenue.

to major growth.While take a number facility role facility are China the revenue, years, fact remains in migration our from Vietnam Vietnam manufacturers, China-based have their many Vietnam. expect customers contributor to has our in must actively China. manufacturing our their a to modest and China risk the our potential steps many mitigation overall be components growth we of of our slowed, coming facility that to with play sourced evaluating companies continues While In decided be to growing a

similar ongoing to our risky including global facilities find on complex, a the Many chain set of capabilities painting, design group capturing is competitors specific basis. invest manufacturer an and entire a serves knowledge, customer from Our the also is will to sticky.We the to extremely wide in corporation manufacturing leave contract design of design, component a metal each providers Tronic, into Key remains our one-stop and to injection the wins multi-shot molding, challenges We completed make construction Chinese as together of and us knowledge believe integration portion in which The and large managing and process extremely value of vertical production, continue PCB their design much procurement a design predicated size.As this business. a a supply and equipment. we on less chain. expansive increasingly our to combination footprint be believe our range Shanghai, automated [gobbling] a of important transition high-volume expected looking our operation proven to our and shop plastic medium-sized effective which and in for group the are will forming, program of complicated coding, Key limited result, have the we services. business program's the that broad And and once deep ramped of makes gas the well as Tronic's it test apart of manufacturing assembly assembly, expertise in assist below

active increase metrics contract returning Vietnam customers drive the as including trend China/U.S. as to of to favorable prospective North supply have our new we the of continue with a manufacturing advantage see take well logistics facilities.We to improvement fact, will In political We the tensions heightened we of chains concerns with capabilities quotes number America in provide. across problems, continue one-stop significant to and onboarded global expanding shop customers. most associated believe about of the development business the

strong factors operating fourth succeed term.As and strong continue recent pace profitability While Board. potential the the growth temporarily our our we're Officer of long improvement pipeline into potential will of our dampen a quarter, member of and U.S. growth our Moreover, in we I in we Brett of to facilities and increases, the Chief the remain the June, interest while combinations wage disrupted higher the in remain very to a will as Executive fourth seeing a of expect our over that growth Vietnam. business rates third Mexico, move and the while the enforcement discussed, rebalance in efficiencies, our across for profitable new will we've with quarter me Fiscal profitability quarter. previously encouraged We progress manufacturing and by and President end XXXX at

that to It to presentation. outstanding concludes continue been Tronic Tony become Additionally, to Tony want I'll new our our last Tony my has honor I quarterly Financial and lead questions. and full their to sincere formal your be success. I my I their pleased thanks to Brett, our Key deep Officer. heights.This express Brett, team customers to to commitment and portion a want for my I and to be confidence Chief answer great our shareholders, XXth and team, investor Since of to express with dedication will vendors. outstanding this conference will this gratitude and employees call, the our will have take

Operator

(Operator you. Capital. comes from Dezellem with question first the Instructions.) of Bill Thank line The Titan

William Dezellem

question, Craig, management.] the did the my What one? size that preempted you was first miss I but of [energy

Craig D. Gates

it was up like $XX Bill, you. That parting million. to was to gift

William Dezellem

what, important interesting. I whether they these Okay. have was that through -- and them, highlight competitive maybe new customers? existing advantage That's appreciate anything, or highlight each And you about that excellent. gift. whether the aspects wins are please the they're all What else Would do unique customers parting to walk these or something you of was if

Craig D. Gates

Thank you.

welcome. You're

almost customer ago in the it's because had requirement two and to The they needed salt outsourcing this they they -- edict This high-end us because Mexico. an is test. helping their customer. a first role that years in for And an spray new us one to increase our coating significantly metal came a played interesting significant capability upgrade very withstanding one is a have

opened, our that we and we then, floodgates after than So, have to the in able changes awards spray to were process, quotes of a chemistry more salt have painting handle. number since and they our been us giving And long-term pass test. can and

story was hung were end, folks rainbow but end in success nice technical gold two-year and the the a the of never long-standing pot program. of telling been that the a there, going that's it's was us, very the So we our really sure to at be customer in

William Dezellem

one you? giving of is many And this up so, $XX is they program? single programs to this that Or a the are million

Craig D. Gates

many It's already more than more one program, and to come. there are

William Dezellem

helpful. the other And That's three?

Craig D. Gates

much audio The they new of a new Key programs and new run other other are pretty for mill are Tronic. the just customers standard The was terms This program, in of is in-house three reasons chose why Tronic. Key a right? consumer today. The two customer

William Dezellem

that, opening a the press of maybe the And referenced release for may, all pull That's then to jumping and remarks, us, you demand helpful. Brett, if I would that softening please? then, referenced you in your in possibly, to turned together that that's even has rebound,

Craig D. Gates

we it people, But and And we've expect. a two A to of we're drawn year continue high a last is spotty. COVID to demand or of inventory throughput levels and signals are what was what months, we point that for their had ago our lot the COVID-driven we the have false three large found normal down and concerned cut them have customers A -- that orders of available products at customers you massive have in the their parts wasn't had hangover. them rate. make discussed this, as would is to build that that The too the forecast and a hangover. did rebounding them there for building just it's seen as much scattered somewhat couple of And became COVID those this they us inventory and a built I we're down that really widespread. or

used of So we've circumstances. that's slight then governing think as talked softening really I muted -- the that's set to we and a the word. return, overall what a return It's about

William Dezellem

so, through inventory, just overall way more decent just and you experiencing? that if view, demand if same your reasonably is it excess standpoint, And your that, strong, of the out call from to demand. to that -- a inventory? you've I'll look at to demand, from continues it, of we worked that So, exclude we're with fair you're some look now what sense continuing were were end economic we an Is volatility,

Craig D. Gates

Yes.

William Dezellem

we this maybe it Great. And the about jump came so severance, I have that is I would may. recall, then let expected me Severance late pointed quarter, was that? the to if in if to call, Because last happen the I you sooner. Why on out. talked as something, and

Craig D. Gates

people lives the have to absolutely with you it and for people's of with sure some many doing quite affect be you're you been right time, doing these and want when you're the people. Well, us right thing

to done us we caring we it to and and thought it done, little a be it So, done that than a confident are longer done. but needed took what have get we professional manner in

William Dezellem

the And than a you more there is different layoffs. than little layoffs be have that a falls historical here? or getting had workers reading this, Craig, past just in demand to line I'm bit off. different into laid and vibe something I off Am are where discussed this over sounds

Craig D. Gates

past [C] to it. think, there's average flowered the That bit put makeup the [prude,] a little to more I in lot but America change get year, actually, a way because is, Mexico. the layoffs in are view a in versus of Mexico been to the at I customers is it represent the how in we months year, it about versus be prepared interested in versus change significant Vietnam. There's a more simpler we and a in strategic China who think six way my discussed We these remarks, tried

every as It's what's significant a so making this up wanted are But now people folks the happened to by portion So, who to management clear do edict, be the is is being that but are not we're that the in that China in this Juarez. average. customer. interested allowed not take are a of

were to mainly China driven or flexibility and lack of in out, willing business the engineers they week lack in their get China, ability a moving by in orders the those in send in the accept X.X either -- factory to English headed So do lack of we're in short versus ability and lack and to of of China the their going here ability were people were parts cost, months, than term, to rather mix. into

that become to too risky. all that are they have So, they -- get.Those lowest in being it's used told to all price possible ready we're lot or those for endure people return of could the a

not to something to are China, You out. figure going go else

of up they our So, door, with and when plant advantages pay enjoy they the cost we to was but were because end to all the people. And a Juarez willing disadvantages shock want Mexico sticker and the that Juarez little to out knocking for those different we're in configured that go China, nearshore had be set I on the people of were who they to has proposing just a of our didn't ones offer. set saw more Mexico they our knew all listed, plant couldn't live to

our to available majority make people up those So of used share. market the

our who not in being share want other fence on Now or the there. allowed the side people majority of China market to the made be average to is up go by are available the on of

material our willing have folks overhead the but over managers, levels, scheduling of provide the factory on in customers. years the Mexico, of for we're to set the handlers, the that up by all cost, the those plant in people new engineers, worked So we technicians, program in at to this the and a that quality for be who paid overhead, service means built the U.S.-based all not people that

for Tronic. it win exactly the up and this of positions payoff last available six as in folks represents And of type new those is the we've Mexico Mexican employees made so laws wage seen layoff, which this significant customer those severance requires big to of strategically folks are the the the that of layoff, of history.So nowhere never The folks facility structure happened but And market. a compete in are before months and in that Key you're a majority long-term that has category. breed right, normal very near our

much than it different that's That's longer was And it than So took than the sensing higher why why normal. normal. you're was normal. why that's severance that

William Dezellem

insightful. Thank you, Craig. That's really

higher And is that cost so, not these -- you'll your because saying? is what are permanently your standard line these production lowered with workers than rates, back bring being you're structure

Craig D. Gates

Yes.

William Dezellem

ought not somehow the it the you'll the the sounds like affect more and do that capacity noodling hours up whether and running interpretation Is time Craig, to of correct to That or me layoffs, -- not? little but I'm whatever. a less necessarily restructuring have facility? lines of customer with a to in down also different or have less something essentially the they And Does flexibility. over

Craig D. Gates

in we longer customers the And groomed is. you described. no a number It very that who of fact, fit model small just have into

had product being line line shut change result So, you will have to waiting have more it swopping bunch have engineers you up only time some line did should. in folks workers milling you around and handlers of to because not who you it out a way inevitably, workers time and process every and over, it perfectly, over, made with for a so, line quality there the to part it couldn't or are down material less the come some

customer up into volume called run going freaking and low-quality parts be a more more slapping news, something want is it's to that bang-bang, a and every in of much high just going than is to don't to So, turn XX switch it's out. minutes because I it over say together, lot the but

William Dezellem

go I'm And helpful. -- then ahead. That's sorry,

Craig D. Gates

in pay that are of they been even the people type level get migrating the work service to willing more of back to past. is That because have states to than

William Dezellem

Fascinating.

happened of would the shutdown, have the the And earnings we're Okay. looking weather is winter then you? had weather intended and had you exclude then not surprised one at and lastly, the $X.XX event we severance that if what then

Craig D. Gates

Yes.

William Dezellem

I'll you these the given questions And have others you. thank Well, XX last ask all Great. let to you ask additional maybe questions. But calls. even calls the for time conference Okay. thank over me on

So, more in working thank we Brett, And the with you. Appreciate to look future. it. you forward

Craig D. Gates

Bill. you, Thank

You're than welcome, we've insightful more your and also. appreciated questions

Operator

next line from Poole Capital. the with Bricoleur comes of question (Operator Bob Our Instructions.)

Robert Poole

I'd to So, apologize made. comments in the and like some I'm think to -- they to and to because needs advance ask tough I need and be some make going be, comments I hope questions tough

but forum. usually I -- So do a apologize in pretty advance is because this friendly

this so Brett, So presents guidance like of of first companies, presenting puritanical that. and things that the the for financial out after a of there's totally all, you pass financial way in have I bit. making being this -- want and one else any wage that about hundreds little How to I way like severance heaven and things presentation. and for present with and forth feel your don't without special you severance. forward? so only results the your do think results you discussed your protest you to adjustments does going who sort is Nobody a And your you're follow results line I do of that I

Craig D. Gates

are comments noted. Your

Next.

Robert Poole

Okay.

So, I'll understand, you the guidance hard tell very why. is to and

severance. $XXX to million quarter in of You're loss $X.X included from basically the revenue, projecting and fourth Mexican you $XXX,XXX had flat quarter million the a on of QX, if third revenues that

the not should quarter. that exist in fourth So,

in million should there out quarter labor. $XX the or year quarter. not be in per million That taking You're Mexican a fourth $X.X

year expenses peso, the be same level, taken probably peso I quarter. is into -- significant be seems if stays would in quarter. Taking this the bring likely flat Mexico. think hasn't that far to That should else XXX If around your there to a bank be a wasn't million of assuming which it on, -- operating bring a the $XXX,XXX the account -- the the million $X.X going pretty it something $X.X probably to been your impact in better of increase so -- that's about income quarter, out half impact X% spread of fourth in the or should $X,XXX,XXX. you've

to you share. [XXXX], That's So that $X.XX brings to your roughly income pretax million that from brings keeps $X.X on tax shares. XX.X X.X to interest in income rate a after-tax X.X, million XX%

share.If $X to talking fourth a out, You're $X.XX about Brett gave a share. that take million I that if $X.XX new to the the in that to I information more gets quarter, for make in about $X.XX adjustment you the $XXX,XXX severance

So, what am missing? the told that quarter What you the is negative $X.XX? to I for haven't that $X.XX accounts and fourth between us difference $X.XX in

Brett Larsen

lot a all agree know don't let I I know that's you will that of your moving I Bob, pieces. with that of adjustments.

Robert Poole

Take them where please, wrong. on then, Brett. I'm Tell me

Brett Larsen

the No, the to million, that not quarters. over the here. that's argument That in let that It's will you're immediate. an that $XX ramping But anticipating of it. get I'm is of not I structure going know $XXX,XXX peso ensuring accurate. cost recovery worth you not is not four And also I'm

think, fourth events likely that no quarter those, results. projection So, additional material both of I are of included are calculated in and incorrectly

Robert Poole

$XX all the you're million, So, of savings why a it not can million you these explain why if quarter? $X.X terminated is year -- in and the is people, you why

Brett Larsen

we're $XXX,XXX Because have to done of severances. not have not million not $X done to -- that we with it's as fully still fourth mentioned occur today. even of We quarter. in severance been the Those

months to amount. that, would six fully take recover mentioned also that that up to We severance

not in we're paying to that just severance, able to quarter, of net what fourth the that's say accurate. expenses of So, recovering $X.X we're be in million

Robert Poole

about -- quarter, in back, months, six you going And million. $X.X let's paid you that's if so million $X.X Brett, that's in you're to you if $X.X Brett. say get pay far. actually, So that go severance million, That another million back a $X

Brett Larsen

it Again, --

Robert Poole

Brett. I'm working numbers, with your

not making stuff it's I'm like up. So, this

Brett Larsen

Bob, $X.XX, year, -- a thousand few hundred we $X.XX our dollars were and a we're talking

Robert Poole

That's about $X -- that's million. over

Brett Larsen

still in severance quarter process. is That fourth

Robert Poole

Right.

to so out $X.XX. I've yes, to the So taken get that

Brett Larsen

I I don't your disagree -- tax with rate. effective well as

I think and a you recalculate third of coming need to in loss off go quarter. back that, particularly

Robert Poole

us told guidance your in You --

Brett Larsen

XX%. likely --

Robert Poole

-- Is the Yes. what that

because XX%, update you your business So, outlook to Brett. it's at need

guys you got bad. to it's So, I'm I together, working with get your mean, really numbers. this

Okay.

Next question.

a the have for revenues decline quarter, sort to account those? You're really, better lost sort question, of revenues. fact been million business of business midpoint. you $X and but and at if to X% it's getting should comments strong talking your quarter. backlog kind $XXX that another of of backlog about you asked reconcile reconcile yet How back, that for last revenues hard you the coming projecting about you're now having million a the do X% strong And Bill XXX this in

Brett Larsen

were muted. words I used think the I

Robert Poole

muted That's that's benefit. that not negative. That's muted Well, -- decline.

Brett Larsen

is you Well, said, of we're intend representation what semantics unpleasant, the said, you with a true we argue Bob, of becoming giving belief you of as don't I this our going new and to we're forward. of customer a representation the backlog true you as have representation the we revenue giving pipeline a new we true quotes. you with and of well We're giving have,

that. that's So

Operator

you. Thank

from question with line Your Melas George next of comes MKH the Management.

George Melas

you. Thank

the in after much Just that? And, a expect Craig, savings? you million you in the quarter question how and get million the a layoffs And severance. $XX to in savings. and about do June expect mentioned do When you in the quarters $XX

Craig D. Gates

should into a as we're we're per July, of portion quarter right it seeing August, And it. we in be we most the get to of quarter. September, So, get going now,

George Melas

Okay.

that by mean -- full So, that million? rate does run full you the $XX the of September, have

Craig D. Gates

Yes. correct. that's Yes,

George Melas

in helpful. the Okay. how (inaudible)? roughly That's much is Great. And getting

Craig D. Gates

million $X.X between million. roughly is $X and It

George Melas

is but [nuance], everybody XX, as because is are established why going that? go you is? what the to And March of it haven't -- that that you let Okay. you Is

Craig D. Gates

is That correct.

George Melas

some different that As certain to Mexico customers do Then that you customers reducing project, that you a expectations, fewer good. how still sort have the for capability of I we have that? the to are there going you asking. almost it's in if at look new have Okay. -- Bill these in kind actually was Do have it manage question people are have a to having handle from customers, And a the bifurcated of to expectations. customers your you and a set service U.S.? like expectations? Mexico, legacy the Mexico, what to relates migrating I the of Very mean

Craig D. Gates

moving that we're specifically would at ability factory is by handle factory decides like provide for. to to time. whatever What pay that customer the That's Yes. to they happened loaded any we're that And a anything was services to to from a with perceptive question. is loaded a customer moving any the customer very overall that

and in it, the but day, this maybe we're going to go not have you Mexico, it for pay to support you if to ought you're to want want do And if much it's forth to you to existing add and you're willing labor. somewhere least your to looking pay else. base almost probably at then the states. costs need at and over to and to specifically is about And nine for found When it sense to you you're it, makes with levels the you so, this facility it talked and entire you want it able have is So, we when control switch or price, for be in new be to move think to going impossible, more us facilities. buttering call you're what peanut back if and customers the

And our one so, have of facilities have -- customers states. seen in to to who their move decided production the our we some

George Melas

From Juarez the to U.S.? to Mexico, Juarez from

Craig D. Gates

large Yes. amount, a Not but some.

George Melas

Yes, I that nine were the -- just plant really design about or I'm run differentiation commodity-oriented. if And sticky, then expectations jobs Well, fact we of difference difficult Okay. like it real and different it. you how much and in of pretty new reading into the facilities were customers. that in the among They're sort confused just these that. sort Maybe maybe a with too that customers I'm is seems love but not not. way

Craig D. Gates

and a key portion thinking. a we're it's of it our really because very question, on I sure strategic it's good to make perfectly want No, clear

Okay.

of make capabilities design in we dodgy has the designs with poorly ability to products talked Spokane. in product that products designs designed and those about and Tronic difficult come that folks difficult transferred, processes So, to design a Juarez. staff engineering didn't out just manage of that that come out the Those Key or those sticky. The we

a provide baby's dodgy want So, your a customer peanut that on that yes, we we of baby upfront, when we if say, ugly, ugly. lower a dirt this this our that would we to but means us going that you building and transfer cut other But support. to are wants not realize without butter be a And product engineering levels has kind call your to to to to now process, that ability of have you suppliers product quotes service level, quote with factory than don't from floor give you're that you succeed quote our happy are a in design services. engineering a

price this to design to is we're what go else to you're either going hoping for agree going to change that to to higher we're or have with going you help than or going have our you're somewhere be have to So, product. the

little that's it's a since of with it.And secondly, have within want at know -- that's in that the how insight helps that to but we So miniature creating cost said, this control level don't much factories. factories already if doing a then practice service, we bit yes, customers you, of have we're lot of easier I

because have say, we're right, factory one put they're we for going on just and support little overall whenever time not department this or for whole problem department, the a product we two big full So, this factory to the only customer to They're can the that this paying salary be inside people a all on building company going for this customer this supporting comes a is it. on up.

And a What product control our provide to it a for strategic we the it. high onto everybody. a ability supplier of much cost it's low lost ability overall want across So, of got service out a to intent ourselves is people calculate an easier when market who change rather haven't those to easier we cost and basically smeared and the much than Juarez. the customer being laser-pointed for cost to service as you've high-service

few kind you niche, it's to things you cost. have of low I like of the be from was be if one school So, took away can't business

by defining clearly now the going we out customer to that we if going virtue or to sense? by this. not have cost of cost you're to be design the make this, Juarez it's want low are niche of levels So, service ability, Does if to upfront that

George Melas

thing It It's sense. an manage. does make interesting to

that. related me ask question that's to Let here a

So, (inaudible) different before? conversation than was it mean is the [or] have that that that does new

Craig D. Gates

Yes.

George Melas

you're you but from for like them, and that, alternatives before. almost they choose proposing that It's didn't can do

Craig D. Gates

quickly, weeks product, quick to that the to a response cost figure opportunity can't removing find that to a do takes it it while them quotes in quote. we And you didn't to have capability given it's have to recalculate on want almost a with here get to if human our going could because much low cost pressure way of do from come if needs are to you're customer what your you it structure a to of Juarez low-service weird two they product, say, add, new very, didn't right a trying low And that quote. peanut-buttered have time enough. cost and if very come easier service.So, the of all customer, to is to do to that time trying a overhead then that, on a three if what on hard be want try convince low-cost, you you subtract. actually want And It's even formula. We every active you people out and your price be you that can't should you're if the to if cost, new up have XX give now ability we to

George Melas

will at [don't Okay. still where Juarez, mostly small they but the now a think low very cost customers. do need customers The are you is high] And They group, growth your if a that's in the you come? service niche. look

Craig D. Gates

the as peso Part customers not the the struggled in how being It's to forced we're board revelation we're forced market raise mix. to okay, of we across realized on peso were true. out this is on wage was part customers in a being customers, keep a that And we going we and as the those these by we wage of low and that's problems, revelation could wait of now. No, our on, were service the a minute, to prices figure that bolt. the rates face different that and

George Melas

Got it.

look some we China. guess way, years question. surprise, forced to Okay. peso a it few bit this the wage said, more By you guys Super had if a rates operating and a you the in by people of as interesting. little have I you, of demand and upon back I would accelerated a the quickly by the ago, the but then were as was come who

Craig D. Gates

in the doing years are what should that's now. four different in that is a the spoke question what the one five all goes last if general procurement those and and has as as what Trump five that and embarrassing accelerating knows now them answer The supply sure was to thinking? than chain why ago, anywhere in you with dramatically happened got thinking, not we result And is of answer ago, say where back and OEM why you added XXX% for in and call, asking building this, and it be and the China. operating It years every we it be of we the China and years were Board beginning dramatically four you so to have I a are what of physical That we and ago. COVID market why years ago, but events agent actually were gradual to in them, four China? changed changing would tariffs all of be And you doing would be? years the years Their almost together, fashion are asked, were states the but political the were doing five they not and that I'm end to CEOs bunch together we're They COVID we're would economic be of we that's are China. used and public to a single and

George Melas

to Okay. that? new a is From or strategy of higher. -- to is impair gross more to questions. maybe a think and perspective, Is then couple a sort of does I possibility, idea that back the even margin a that still actually or X% get Great. gross maybe try margin And

Craig D. Gates

the strategy the it more I to hindrance the think don't I impairs a ability possibility. a faster still help and rather build think people to it's is less think that. with than I

George Melas

Okay.

I'm much and have Okay. your many Great. And happy you're about everything, luck very presentations. not your We'll of Brett more that. away, for Tony, thank for you And, going for answers. everything. Craig, with so time, best

Craig D. Gates

It's George. knowing been Thanks, good you.

Operator

Titan comes Your Bill question with next the Capital. of Dezellem line from

William Dezellem

I market. -- to structuring that default, Juarez actually is larger have I more secondarily, of be your of correctly? a a one more all Craig, that to that by in U.S. that follow-up been more much more hear it's know by be in lower a said Number the market? cost, And I then obvious yourselves along, relative a way. you're potential that but that touch you structuring maybe to remarks I a up your high opening believe, did maybe something to any also maybe way, in way expanding one, obvious

Craig D. Gates

The [iService] results the I is price. that more to Juarez quoting past. were at what lower used in to market don't through think obvious they than They a the to be have a facilities are available changes any being to to change us. result the U.S.-based be and in bigger in that they been than and changes a bids structured flow

William Dezellem

have that? you on a Do quantification

Craig D. Gates

No.

William Dezellem

please. And then additional one question,

the course You what mentioned of of XX couple you we years? quotes today. that seen over How the have does compare have to last would

Craig D. Gates

much higher. It's

William Dezellem

or factor X%? five, of a two By or

Craig D. Gates

probably maybe the when close we there in XX or it's had are factor a no, to Oh, -- funnel. XX of times

William Dezellem

to So, this is quadruple, at at least before? maybe were double, not accustomed you if running what

Craig D. Gates

Yes.

William Dezellem

look Great. at $XX of few the I million and a Well, those congratulations, forward up mark. more to to

Craig D. Gates

too. Us,

William Dezellem

retirement. your Enjoy

Operator

question-and-answer today's will the any to for concludes or remarks. back call Gates Craig now closing This Thanks. I additional turn session.

Craig D. Gates

to Adios. in Okay. Brett I everyone, with Thank telling call. forward today's you speak when speaking you I'll for next and conference say participating for quarter. look they you,

Operator

call. you today's for participation. Thank concludes This your

You disconnect. now may

Key Tronic (KTCC) 7 May 242024 Q3 Earnings call transcript