KTCC - Earnings call transcript Q4 2024

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Operator

Good day, and welcome to the Fourth 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 Anthony Voorhees. Please go ahead, sir.

Anthony Voorhees

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

me Executive Spokane our Joining our is in Larsen, Brett Valley President Officer. headquarters Chief and here

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

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 information in included release. today's this of Some press

call, discussion. our webcast found During Relations that also with The the website. slides will on link this slides the be can be viewed Investor and reference accompany we our can

the addition, be section recorded website. slides this Investor our of of In on the the available call Relations will together with version

certain financial also discuss non-GAAP will measures call. on We this

in information posted press non-GAAP about Reconciliations provided and the release, directly our Additional comparable Relations are measures which measures most is section Investor to GAAP the to of these today's website.

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

our XXXX. revenue U.S. operations the compared limited at was full and cybersecurity and quarter Also, sites million portions caused $XXX.X a total supporting the and our for of fiscal fourth to year $XXX.X incident XXXX, access applications functions the XXXX. disclosed fiscal during For Mexico of previously year of corporate million to fiscal business disruptions

expected of to fulfill are During the of are be quarter year revenue XXXX. Most $XX approximately during fulfilled year we recoverable fiscal XXXX. of and fourth orders to in the were these fiscal million disruption, unable

statutory continued requirements. to accordance pay cyber wages with in disruption, During we the

also the engage and experts cybersecurity remediate new We deployed to incident. IP-related infrastructure

offsetting decreasing additional As the $XXX,XXX. expenses cybersecurity-related a incurred period, result, was expenses we Mexican Partially favorable of in expenses approximately a peso the late by approximately $X.X the additional million. of weakening

We Arkansas gross and also the amount the of primarily event in margin approximately $XXX,XXX QX, relating weather event, previously XXXX. the peso. our to weakening workforce of in reductions the a during disruption gain disclosed quarter fourth our during facility had Despite in an the quarter year of we the business prior Mexican fiscal reflecting our improved Mexico insurance during

X.X% was X.X% XXXX. year operating of the same a margin fourth was X% an and fiscal period of XXXX the year in quarter our of and for margin gross margin of Our operating to gross margin X.X% fiscal compared

$X.X for Our net compared of period share net was the same fourth year XXXX income income or quarter per fiscal to of the $X.XX fiscal breakeven of for million XXXX. year

full a per year year million fiscal compared the $XXX,XXX XXXX, loss of net $X.X the of net share approximately year or share per XXXX. net For loss to of $X.XX fiscal $X.XX for income was or

our measure the adjusted $X.XX expenses income XXXX. $X of income results, certain quarter the net core year $X.X share Excluding adjustments or or fiscal per share net to fourth year period compared to million for of income per XXXX million and fiscal for of was $X.XX adjusted the same

was year $X.X per fiscal for $X.XX to per share of million year $X.X or or XXXX, $X.XX million compared full adjusted the fiscal For year income net XXXX. share

our and information reconciliations non-GAAP financial these in measures, non-GAAP see descriptions For more measures, release. earnings the on

our ago. time inventory our supply approximately levels levels we to with drive concerted see still state $XX demand a chain component inventory the from current million become availability reflect drive the sheet. by the requires same continue pleased more primarily periods. inventory parts time, to ended of in inventory our for the worldwide Turning fiscal improvements balance same line to increased than historical reductions. XX% in that the revenue. At in the fourth We're reducing These the year and quarter XXXX We of year effort or by to differently

and Our significantly customers have modified revamped algorithms. resource our their materials forecasting improved we methodologies have planning and

more equipped result, disruptions a we should for to As we in supply manage as be continue chain better the future even effectively. inventory cost

reduced third $XX.X combined also of liabilities amount ago. from year quarter, total million the a we a by During our

the At reflects back-end from expenditures the which million same the for of XX ago, X.X Total loaded believe for at accounts and fiscal up time, million we current DSOs compared full a $X.X ratio year. the Our quarter a days fourth to ago. was $X.X by year the receivable the was days XXXX quarter nature X.X:X, year cyber capital event. caused of were about year XX

well for a prepare we're to production leasing we our add as capacity, molding improvements efficiency selectively in equipment While particularly locations. U.S. equipment, plastic keeping to careful invest capital as and growth on in capabilities, utilizing expenditures, to eye make plan continue and our and facilities SMT Vietnam

a For legacy we're year rebound quarter seeing fiscal customers the quarter. relative our of to among XXXX, first our fourth

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

Moving XXXX. into fiscal

hold diluted ramping. these taking improvements Taking overhead the per of We recent Cost a pleased we to to $X.XX reductions income all $X.XX the expect weakening share. our are consideration, from continue efficiency into see and to range significant of net peso. in programs factors Mexican new our

see and production. We Vietnam expect in U.S. growth to our

We are improving business, have of balance pipeline our on new potential focused sheet. a and strong we

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

Brett Larsen

start, XXXX to Fiscal promising we off faced headwinds. though a got very some Anthony. challenging Thanks,

rates. driven Vietnam-based year, strong interest higher currency exchange by the Mexico costs, margins revenue grew by our labor in U.S. of increased the year-over-year, growth, were half XX% first our impacted line the top in and by Despite During negatively unfavorable and profitability production our increased rates and facilities. foreign

to to facilities and in to offline Despite annually we in our we we disruptions, during our that recently took is during our Arkansas, X the steps events second workforce and save in Mexico interrupted we due the took won from costs. coming the more functions approximately which of labor headcount approximately winter our to expect and for to new these Mexico-based U.S. most weeks year. in And then Mexico, fourth million corporate programs, expected X quarter. Together, necessary fiscal event weeks the Mississippi the increase quarter. our disruptions cybersecurity coming do operations disrupted needing weather production half anticipate these to events including for reduce During the that faced recent In third severe than our $XX in major XXXX, business, not sales but production recover quarters, in periods.

to improvements see as in Moving year our balance reduced as levels other and the well fiscal very efficiencies XXXX. operating into on pleased sheet. improvements inventory overall We're made

security continued expand storage, source of continued moving industrial The pipeline environmental products. aerospace, new also overly these programs equipment, only medical product and or continue China-based for more tension winning audio, manufacturers time, base, nearshore management, dual industrial trend they more telecommunications, business for as dual problems and sporting contract traditional systems, involving strategy. underscores filtration logistics a in consumer devices decision customers not air production a long-term equipment, sourcing we to the becoming manufacturing. design security year, have customer solutions, the products, military drive widely to manufacturing, onshoring their realize consumer on become and China-U.S. to new our the During contract and industrial strong Over that goods, towards industrial dependent the OEMs We may potential of control increasingly accepted to smart but outsourcing services. reexamine is geopolitical onshore their Global believe and logistics a strategies. energy

those are as of these a near-shoring the opportunities same competitive. of increases Mexico. for becoming more became result, different growth, also we for geographic has Mexican has in operations business. it are wage cost we it a for clear As time, seeing changes At also customers calculus the long-standing, clearly a It clear our -- become opportunities selecting are in that to been from continued And sustained production and a China cost become in we has may have base see are remain that trend order location rightsizing defined.

China those their U.S. production believe ultimate engineering due flexibility, sites in support struggle with to our flexibility offer and customers communications. requirements, we the who For of ease

still our from adapted customers whose facilities increased maintaining lower support, provide Over model reconfiguring communications remain our production quality. fourth the has challenging we endeavor in of from revenue to production more and a year we U.S. answer. for Mexico to be total U.S. X%. In revenue, ago. Meanwhile, to the months, sites expect our limited China quarter represented XX% had the and less while XX those are XX% Therefore, a facilities requirements past approximately service of flexibility, commodity-level cost Mexico XXXX, the the of engineering high up that

be continues play in of China-based our modest major years, a contributor a facility revenue, our facility we are our manufacturing While migration Vietnam to potential growing a our In of coming expect evaluating to a in our number their actively customers Vietnam. facility Vietnam to to overall growth. role

with While China manufacturers, remains growth has China. be sourced the decided their to that components companies fact risk mitigation many from China take still have must slowed steps and many

basis. which Our the remains supply chain procurement managing entire serves Shanghai, China component in important ongoing for an the corporation group on

on program knowledge are design with Chinese found be And China large into of new design we a our proving in The have be combination OEMs. our design global we makes to our business. manufacturing and predicated and sticky. of and business Many profitable services. Additionally, Tronic's has and medium-sized recent that production to production, footprint design wins program specific extremely in challenges facility our success deep programs it ramped Key and effective our believe completed new extremely capabilities is once of broad winning expansive the capturing continues

size. us of competitors logistics similar metal to design, of gas of expertise and the China-U.S. also about manufacturing multi-shot, wide heightened problems, and this We apart contract process assemblies, plastic will as chains well increasingly as supply continue complex, concerns North assembly, Vietnam returning in tensions drive injection as favorable construction manufacturing operation believe set coating as that expanding and political including and our global the knowledge, well the to of believe America trend test complicated molding high-volume integration blow, range vertical forming, invest our painting the equipment. to automated We facilities. PCB assist continue a and We will from

of across associated increase development, business We number with prospective in the significant including customers. continue to a improvement see metrics active quotes with the

dedication half While seeing the fiscal improvements new concludes U.S. XXXX, and the the the formal and to shareholders year, disrupted in peso. emphasize efficiencies knowledge our long-term. and employees in growth of for the but We was and thank second want possible be unfortunate encouraged significant rebalance combination business, investments of of answer closing, fiscal your I by a our our of this our progress pipeline we and Moreover, our manufacturing now also for remain of factors continued people. the hard to and skills, even execution with the more their move we're local for over potential operating strong our presentation. very during across Vietnam. want continue a XXXX, only our potential in temporarily into Mexico, Tony past will and and so, profitability the In will profitable This facilities made our by to growth and plants weakening we in their and I pleased exceptional equipment, to questions. I and work our talent our strategy support.

Operator

moment [Operator Instructions]. from Tieton assemble We'll the to just with a for question Capital. our queue. Dezellem first pause take We'll Bill

William Dezellem

annual $X.XX us in roughly you of or 'XX. with Brett, sharing how would proportion million that by per what, what savings much be achieved the of start of year. please will And fiscal $XX

Brett Larsen

expecting fiscal if cost occur of not those the in We're of year. XXXX, all the it, year savings most to Through -- Bill. it, that

William Dezellem

did that the the how QX. some into just And you fall falls about -- and into test Are 'XX? fiscal

Brett Larsen

the but I was that fourth during There into was quarter. severance of third limited felt since most the our quarter of occurred majority our say fell of majority some it fourth it in our would amount, quarter.

William Dezellem

helpful. Okay. That is

why that explains so revenues but meaningfully, down we increasing firmly completely counter And to gross we see pretty what margin would expect?

Brett Larsen

Absolutely.

William Dezellem

is the to that be restructuring additional all sure done. that And if congratulations. on mentioned was Well, needed if wasn't may last fantastic. or in of That's that that you conference call there think develop savings, in in you additional that took the I be QX the this place And more there savings activity remainder that year? activities, I that could incorporated if Okay. the cost anticipate

Brett Larsen

are in see we in continuing end, concerns, No, reductions Yes. not at to I restructuring looking in to think XXXX. delays our really problems, potential been has There production. force, fiscal great our even after that efficiencies. there some It's I is any the think operating issues, been additional

see, done to the foresee we're could But -- gate during is year. additional We're get out because of backlog. not So, occur really fiscal that be continuing the to all look some through just right our we're of 'XX. orders to trying during to cyber we're restructuring event, I of doing cylinders could because there restructuring some some the on possibly that

William Dezellem

happen those? Great. That of each have do each you What might X is wins with want them? on is of helpful. I what size I of quarter. new And sure to touch then the stories this make interesting And

Brett Larsen

roughly program million large One is It's is our about Arkansas That for predominantly Arkansas. $XX Yes. within electronics. It's one win. a fairly facility.

metals The And million X fabrication, then was for other a predominantly our between also go which Mexico one others facility. each. the million Mexico, will $X and metals into $XX -- large roughly were down

William Dezellem

the how And is fab much? metal

Brett Larsen

Sorry. That too million. is about $XX

William Dezellem

The two wins million this quarter. $XX

Brett Larsen

Yes. Good quarter.

William Dezellem

you less than slowly That's the any fantastic. typical of And see Congratulations. foresee these more -- either ramping or wins? do

Brett Larsen

they'll great. gate, expectation My be year, Out delays. There some be all is that time this of they the by fully look ramped. can next

William Dezellem

Okay. then win. device That's to did key medical in I on helpful. want the And

the have around a this is certifications, requirements, win, beginning this idea this room, special there if category Sometimes could the it medical and devices of Is et be you. question cetera. to be for et understand whether new of clean specific spirit to cetera, that anything

Brett Larsen

in build had a we any it's good we've We're what always that don't industry. I complex pursuing win some Bill, interested medical This extremely production. was today. than us. for think more

complex X in -- medical today. certified more are more as locations we're building of than isn't our to any mentioned, isn't what We of devices. much one manufacturing This

William Dezellem

making back queue congratulations in you, and hop Thank Brett, through and in cyber I'll the on it incident.

window. So, such a short

Operator

Dezellem we with back go to Bill And will Instructions]. [Operator Tieton Capital.

William Dezellem

ask happy here. to I'm Okay. more

So, thing have much for used in release, who facility. that would to bigger coming was learning some they that thought would being read I lower those I have trying here? potentially misread I have I time communicate? that the I production, lowest longer you lead your runs that if the some And can been Brett what cost is need therefore, there. do -- were you one find to surprised Did for was Or have Vietnam would that to

Brett Larsen

No. That our is Vietnam intent our cost really is of to be lowest facility.

to I think expectation but are really to few increased less a for answer products that There higher site. will mix type those your that it, in lowest point, cost Vietnam, my more programs they as Bill? our need grows, to have transportation Did volume, longer-term, smaller some be suited that have ability are better time. is

William Dezellem

The And within the that cyber cost, did. let's a $X.X for fall It then where did jump to the moment. incident P&L? billion

Brett Larsen

Predominantly cost goods. in of

is it goods, in of X/X G&A. So, is I of of it say in X/X would cost

the So, to workers that operating cost the whereas keep goods. the expenses, wages outside captured we -- advisory paid of general in firm the required was falls into

William Dezellem

vast then fiscal majority you able the that that million referenced fiscal the And the Or revenues in be Understood. release you out to the that in you of should $XX you you on, quarter? that will that missed recapture of the that here Is of 'XX. you would those that correct? be believe that recaptured course over first think anticipate

Brett Larsen

more No, quarter it's a going than to caught take get to us just up.

orders customer delay first things the there's made in first quarter. then a wanted be but possibly of the specific those that granted So, up our quarter, will then in

$XX part the up of take may to So, us completely orders. that better lost million of year. the It caught on get

William Dezellem

Okay.

that did I was end guidance. where you with to low hoping what you you already that puts go $XX that the that add million, was to and So, of just in quarter, your the to

You have some of are signs rebounding. showing legacy customers that

I the suppose the You little have that was may I there not numbers. bit, full a new degree, have It stands but And maybe business built ramping. into conservatism thinking. some magnitude million disappeared as $XX been to still to some like

Brett Larsen

accurate. That's Yes.

William Dezellem

was I And severance Are that we led often restructuring that? to reading cost of if There I not what it that reversal that's reversal then that reversal was, we a $XXX,XXX. nitpicky if right? correctly, And see question, expense read may. one that

Brett Larsen

expected That is Sure. was expense. a No, that correct. reversal severance of

cyber then did the some to and not our event of in reductions due So, few in recovery to also of customers of the our people legacy occur. Mexico, of planned force a

income to statement. actually the recovery is that the So,

So, quarter we included severance fourth anticipated. was through rough of benefit the didn't is $XXX,XXX that that in go worth because

William Dezellem

That's And Okay. question. then additional helpful. one

detail love at rebounding. you're last Provide question of and customers the lot view full legacy And question, end sense couple is and look the marks the in popular perspective demand you seeing little this least awful So, is a to press. course, customers of that. been your phenomenon. that in the your what of there's and of economy, that their weeks, more if talking an about spirit about of on get Would of what your from the

So, color it. take we'll provide, as all and perspective of that can you much

Brett Larsen

many customers have Yes. focus then customers. real We're calendar in probably actually that began I see some our of they the forecasts customers' far inventoried. level, X late Bill, would are of sure a earlier It At And more making over they legacy increased we aren't months now far some on dip year. that occurred back demand maybe more concerted definitely that's the calendar -- coming in seeing those this year. from that to seeing forecast. X of or high a first some saw our say, We're our I occur XXXX. demand retraction from

some demand legacy seeing in most a are some XXXX at that more in really strong ebbs the is So, returning demand, feeling forecast for a flows. them. from those think levels that there confident the level, customers peaks high definitely we'll we're I but back that far But get and part, think months. more we're our there and from valleys, to There really little is X the anticipation I next is

William Dezellem

some And to increase with meaningful these costs, line. going to bottom pretty that's lower flow the

Brett Larsen

Absolutely.

William Dezellem

again. Thank seeing you again, develop. forward and Look to that congratulations

Operator

George next Management. with MKH our take question We'll from Melas

George Melas

on afternoon, CEO. nice as your Thank very Brett, congratulations on guys. call Good you And meeting you. first the phone. Tony,

Just question expenses. the regarding a cybersecurity Bill's follow-up on

was X well above was June I a was So, if gross model from June above had sales, where you quarters in margin we last my gross take out margin and the of those And back cost X%. at actually that XXXX in looking XXXX. X%

So, basically, X you've a quarters and cost. X%, here, significant at X%, over had the last extra XX amount years, including of you over are

gross where So, go here, did margin Brett? from

Brett Larsen

it's that's -- George, question. a great

Our expectation some to to we improvement. that to XX% It keep the significant is continue to want level. gross margin is great see that X% to

able continue will to our what be take above XX%. But is But you really operating X%, reduction I understand have from Where what to really we far As margin definitely think is peso years. do efficiencies. of seeking we are as seeking. mentioned, in continue that goal a going it we're in what able peso gross this to back I'd the the that forward. to X% That for the advantage to of be be be to to here, that think The I is haven't as we and helped. love able drive force seen did was what's going to well, us goes upwards to that XX critical weakened profitability the ball getting to we to and going crystal as

George Melas

trying the out we to of slightly costs And the of revenue to talking cyber -- about related I if million. of cost take above. see event I'm do just security But sales. and to Okay. somewhat you just the we if we're some $XXX be math, that We that the mean,

positioned it fiscal seems beyond? 'XX So, for like you're and well

Brett Larsen

will not become well also able materially. Right include a is be I not with margin. costs hoping positioned going Yes. additional There more would some be some looks we're to that in change good to agree, have I'm to It's now, George, like compensation, it it there year profitable. increased we incentive which today. as to

George Melas

a Yes. about talk Yes. little Maybe incentive call. bit Great. this

small fiscal You reversal 'XX? no mean the that June entire a incentive the had for quarter. in Does year comps basically there almost that was

Brett Larsen

Yes.

comp bit our very has appreciation the our little in that's most stock a So, through change stock compensation fiscal run there's future. That may a rights. recent limited, expense yes, But year. been very stock

George Melas

in Maybe usually Makes around the about think $X.X how and Or million, about you it? hovered Great. you Okay. how sense. $X SG&A, that it talking is the million, do future? see

Brett Larsen

about our last SG&A expense. million cyber this roughly quarter of include Well, $X.X did

that. compensation, incentive just So, again, pay But be this doesn't to I'm we would been include which that year. have hoping over to any able

a grow So, that little bit. may

able We have are been to across the But labor good board be seeing to increases. talent. retain some there

X.X -- wouldn't seems light that to I me. So,

George Melas

high a -- Okay. And then it seems? interest about about the maybe a seem guess numbers. quarter I What asking that I'm question this expense, question pretty the

Brett Larsen

Yes.

That With the the be few our down over what America, most few as and with costly. awaiting But recent to very amendment also made. costing because it actively with anxiously fund pay debt is next we're as quarters. Bank Fed We'll trying up. that step go the Fed the are soon changes grade did down months will of does

George Melas

but release He's going sort communicate may going the some Key to, or net X year there is and for of desire you press get in thoughts and leadership the think next a change still want having But long a for like any helpful. or sort it's just Any that of to you I down. with see. that the And I Brett, Tronic involved. certain very think on, you at us? time, income, things stepping have adjusted you've to quite about with any particular change Craig time been right, you

Brett Larsen

that. I No, appreciate

probably succession going that going I that be think well in to But and greatest years. required anytime ensure profitability, big ever is think Tony that And I to Key CFO good of make fit a changes on become one a much basis created. leadership been more legacy strategy a any was plan I the profit the George, capital an that than far how much better to on has was. -- over that's is more of value-add it Craig's prepped our is a think economic of Tronic. to I for forward I and done is he was soon. not think, am number staff anticipating I

I definitely a think forward. focus in will we've still do. be our work that we're direction, going And headed right got lot of but the to

Operator

it And additional remarks. the this are Instructions]. I [Operator there turn back questions closing Larsen, conference appears time. will Mr. further at no any to you or for

Brett Larsen

Thank you next again Tony look for to call. conference you I to Thanks. and participating in today's forward speaking quarter. again

Operator

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

You may now disconnect.

Key Tronic (KTCC) 13 Aug 242024 Q4 Earnings call transcript