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Key Tronic Corp (NASDAQ:KTCC) Q4 2019 Results Earnings Conference Call August 7, 2019 5:00 PM ET
Key Tronic Corp（纳斯达克股票代码：[KTCC]）2019年第四季度业绩收益电话会议2019年8月7日美国东部时间下午5:00
Brett Larsen - EVP, Administration, CFO & Treasurer
Craig Gates - President, CEO & Director
- Brett Larsen - 执行副总裁，行政，首席财务官和财务主管
- Craig Gates - 总裁，首席执行官兼董事
William Dezellem - Tieton Capital Management
Drew Thelen - Crimson Advisors
Sheldon Grodsky - Grodsky Associates Inc.
George Melas - MKH Management Company
Michael Hughes - SGF Capital Management, LP.
- William Dezellem - Tieton Capital Management
- Drew Thelen - Crimson Advisors
- Sheldon Grodsky - Grodsky Associates Inc.
- George Melas - MKH管理公司
- Michael Hughes - SGF Capital Management，LP。
Good day, and welcome to the Key Tronic Fourth Quarter and Year End Conference Call for Fiscal 2019. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Larsen. Please go ahead, sir.
美好的一天，欢迎参加2019财年的Key Tronic第四季度和年终会议电话会议。今天的会议正在进行中。 这时，我想把会议转交给Brett Larsen。 请继续，先生。
Thank you. Good afternoon, everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here in our Spokane Valley headquarters is Craig Gates, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially.
For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs and 8-Ks. Please note that on this call, we'll discuss historical, financial and other statistical information regarding our business and operations. Some of this information is included in today's press release, and a recorded version of this call will be available on our website.
Today, we released our results for the fourth quarter and year ended June 29, 2019. The results were in line with our announcement of preliminary results on July 24, 2019. For the fourth quarter of fiscal year 2019, we reported total revenue of $105.6 million compared to $117 million in the same period of fiscal year 2018.
As previously reported, our revenue in the fourth quarter of fiscal 2019 was adversely impacted by disruption in deliveries of a critical component from the supplier in China. Delays in the ramp of a new program due to customer driven design changes and temporary reductions in customer demand due to concerns of our tariffs and trade tension between the US and Mexico.
Moving into our first quarter of fiscal year 2020, the disruption and delays experienced in the fourth quarter have been largely resolved and we expect revenue to increase. Despite the unanticipated declines in revenue in the second half of the year, total revenue for the full year increased by 4% from the prior year.
Total revenue was $464 million for the full fiscal year 2019 compared to $446 million in fiscal year 2018. For the fourth quarter of fiscal year 2019, our gross margin was 7.9% compared to 8% in the same period of fiscal 2018. The reduction is related to the decrease in revenue. However, due to the strategic investments and increased operational efficiencies in recent periods, we were able to reduce our work flows by over 10% from a year ago which allowed us to maintain similar gross margin percentages including with $11 million less in revenue.
We expect to see improving gross margin as our revenue levels rebound in the first quarter. Despite the adverse impact on our bottom line caused by the sudden decline in revenue in the fourth quarter of fiscal year 2019, we remain profitable. We had net income of $800,000 or $0.08 per share compared to a loss of $2.2 million or a loss of $0.20 per share for the same period of fiscal 2018.
谢谢。大家下午好。我是Key Tronic的首席财务官Brett Larsen。我要感谢大家今天加入我们的投资者电话会议。在我们的斯波坎谷总部加入我的是我们的总裁兼首席执行官克雷格盖茨。与往常一样，我想提醒您，在本次电话会议期间，我们可能会对未来事件或公司未来的财务业绩做出预测或其他前瞻性陈述。请记住，这些陈述只是预测。实际事件或结果可能会有重大差异。
For the full fiscal year 2019, our net loss was $8 million or $0.74 per share which includes an impairment of goodwill and intangibles of $12.5 million reported during the third quarter of fiscal 2019. This is compared to a net loss of $1.3 million or $0.12 per share for the fiscal year 2018 which was adversely impacted by an arbitration loss of $4.5 million.
Excluding the one-time write-off of goodwill and intangibles for the severance charges that occurred in Q3, the results for the full year of fiscal 2019 would have been a reported net income of $3.9 million or $0.36 per share. This compares to net income of $2.5 million or $0.23 per share for the full fiscal year 2018, when excluding the one-time arbitration loss in the fourth quarter of fiscal 2018.
Turning to the balance sheet, we continue to maintain a strong financial position. As a result of the production delays in the fourth quarter and the continued ramp of new programs, we did see a sequential increase in our inventory by approximately 5% from the third quarter of fiscal 2019. However, from a year ago, our inventory levels have declined by $9.9 million or 9%. In the first quarter, we expect to see our net inventory levels come even more in line with revenue levels. At the end of the fourth quarter, trade receivables were down $11.8 million from a year ago and DSOs were about 47 days.
Total capital expenditures in the fourth quarter in full fiscal year 2019 were approximately $2.6 million and $8.4 million respectively. We continue to invest in our production facilities, SMT equipment and sheet metal and plastic molding capabilities as well as improvements in our facilities. We plan to have approximately $10 million of capital expenditures during fiscal year 2020.
Moving into the first quarter of fiscal 2020, we expect more of our new customer programs to ramp and to move into production. The disruptions and delays experienced in the third and fourth quarters have largely been resolved and we expect revenue to increase. Taking these factors into consideration, we expect that the first quarter of fiscal 2020 will have revenue in the range of $115 million to $120 million. For the first quarter of fiscal 2020, we also anticipate earnings in the range of $0.12 to $0.17 per diluted share this assumes an effective tax rate of 20%.
In summary, while we are disappointed in the disruptions to our revenue and earnings during the second half of the year, we remain encouraged by our prospects for future growth. The overall financial health of the company is strong and we believe that we are well positioned to win new EMS programs and to continue to profitably expand our business over the longer term.
That's it for me. Craig?
Thanks, Brett. Well, we got off to a great start in the first half of fiscal 2019 growing revenue at 13.4% year-over-year; the second half of the year was very challenging. We faced unanticipated disruptions and deliveries of critical components from China. Delays in the ramp of a new program due to customer design changes and temporary reductions in customer demand due to industry-wide concerns over tariffs and trade tensions.
Nevertheless, we see these issues largely resolved and we enter fiscal year 2020 with improved expectations. While concerns about a trade war with Mexico have abated, the evolving tariff situation with China continues to have mixed ramifications for Key Tronic. On one hand, the tariffs are causing uncertainty and sudden reactions across EMS market including our own customers.
Additionally, tariffs further complicate the supply chain particularly for China suppliers importing product back into the United States. On the other hand, many of our current customers are experiencing a seamless transition of their business out of our China facilities to our Mexico, Vietnam or domestic U.S. sites facilitated by our centralized command and control. This drastically reduces the risk and time associated with a transfer to our North American sites and thus allows some leeway to respond to the rapidly changing tariff landscape.
Furthermore, we believe the tariffs on production in China have made our Mexico based and Vietnamese production more appealing to potential new customers. Also our North American sites have become extremely competitive for U.S. bound products subject to the new tariffs. This has resulted in increased interest and request for quotes from prospective customers.
On balance, we’re increasingly well positioned for the returning tide of North American based customers as they appropriately analyze the total cost for overseas production pushing production into both Mexico and the U.S. In the face of these challenges, we saw many Tier-2 EMS competitors shrink significantly last year. And yet, even with our disappointing second half, we grew modestly for the year.
Moreover, large Tier-1 EMS players are shedding small accounts which they view as under $20 million revenue per year and we've begun to see an increase in quoting interest for many of these accounts. While our marketplace remains very competitive, we continue to win significant new business both from EMS competitors and existing customers. During the past year, our strategic additions of new salespeople, our intensified focus on aerospace and military programs and more reporting activity in general resulted in over 20 new customers and over $60 million revenue in our 2020 fiscal plan.
We want a wide range of new programs involving smart security, architectural LED lighting, power metering, smart grid and wireless power solutions, emergency medical equipment, paper dispensing products, industrial cleaning equipment, express delivery services, industrial monitoring systems, industrial motion control products and fire protection systems. Our broader and more diversified customer base lowers the potential future impact of the slowdown by any one customer.
While we are carefully managing our expenses, we have been preparing for growth in coming periods. During fiscal 2019, we made investments in our facilities, SMT, sheet metal and plastic molding capabilities in Mexico and U.S. We also deployed innovative new manufacturing equipment in each of our facilities which has improved efficiencies and has made our production less labor-intensive. The result of this effort is decreased manufacturing and operating expenses of approximately $3 million annually.
We also added more contiguous space in the U.S. and production equipment for growth. With respect to integrated electronics and sheet metal centric programs, we see very strong growth and few real competitors of our size in North America.
Moving into the first quarter, we have commenced production in our new 86,000 square foot manufacturing facility in Vietnam to augment our Asian footprint and reduce production costs as well as provide an additional hedge against uncertainty and in lingering our future trade war with China. Our steady pipeline of new business opportunities continues to be boosted by our unmatched level of vertical integration, our multi country footprint and the excellence of our manufacturing sites in comparison to other EMS competitors of our size.
As OEMs face an increasingly uncertain geopolitical landscape, we're uniquely equipped to offer risk mitigation with our vertical integration and manufacturing facilities located in China, Mexico, Vietnam and the States. While industrial supply chain shortages and uncertainties about tariffs continue to be a factor, we expect revenue growth in the first quarter. We're optimistic about our opportunities for growth in fiscal 2020 and beyond.
In closing, I want to take this opportunity to express my gratitude to our employees for their dedication and hard work during this past year to our valued customers who continue to honor us with their trust and to our shareholders for your continuing support.
This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.
Thank you. [Operator Instructions] The first question will come from Bill Dezellem with Tieton Capital. Please go ahead with your question sir.
谢谢。 [操作员说明]第一个问题将来自Bill Dezellem和Tieton Capital。 先生，请继续问你的问题。
Thank you. It's Tieton Capital and Craig would you please repeat one thing you said in your opening remarks. I heard something about a certain number of new customers I think and a certain level of new revenues are in your fiscal 2020 plan. Would you please repeat that?
谢谢。 这是Tieton Capital和Craig，请你在开场白中重复一句话。 我听说过我认为有一定数量的新客户，并且您的2020财年计划中有一定程度的新收入。 请问你可以再说一遍吗？
Yes. It's actually more than 20 new customers and more than $60 million in new revenue in the 2020 fiscal plan.
And then, let me start with the five new wins that you announced here this quarter. First of all, what's the dollar amount of each of those please, but then just as importantly would you talk about each of those wins and what it is that you're doing and as much detail as you can and how you won those pieces of business please?
然后，让我先谈谈你在本季度宣布的五项新胜利。 首先，每个人的美元金额是多少，但同样重要的是你会谈论每一个胜利，你正在做什么，尽可能详细，以及你如何赢得这些 生意好吗？
First, the amount none of them is under 5 and none of them are over 20. So they seem to all be kind of clustering around that kind of sweet spot for Key Tronic. We want them in various ways. Let's see, one of them is from an existing customer and -
首先，它们的数量都不到5，而且它们都没有超过20个。所以它们似乎都集中在Key Tronic的那种最佳位置。 我们以各种方式想要它们。 让我们看看，其中一个来自现有客户 -
And just for ease of following along, can we start with as you have listed in the press release with the smart security?
Yes. So that is a new customer that is exiting their China facility and moving to Juarez. Second one is, architectural LED lighting that is a current customer who just completed an acquisition and has decided that we will be the people in the building, actually redesigning that product for them and building it, the redesign has already started. Third one, power meters and smart grid and also the next one wireless power solutions, both of those are at the smaller end of the scale. Both of those are new customers who came through our direct sales team.
是。 因此，这是一个新的客户，正在退出他们的中国工厂并搬到华雷斯。 第二个是，建筑LED照明是刚刚完成收购的当前客户，并且已经决定我们将成为建筑物中的人，实际上为他们重新设计该产品并进行构建，重新设计已经开始。 第三，功率计和智能电网以及下一个无线电源解决方案，这两者都处于规模较小的一端。 这两个都是通过我们的直销团队来的新客户。
And how about timing of these converting to the plant and starting revenue? Can you walk through each of those?
It's again a mixed bag. The smart security product is actually going quite nicely and they would like to be fully transferred before Christmas and that's one of the larger the programs. The second one, the architectural LED lighting is as I said, going to be redesigned by us. So I'd say that's probably going to begin ramping in the third quarter and the last two are both basically PCBs in a box and should go kind of a mellow pace again also sometime in a second, beginning a third fiscal not calendar quarter.
这又是一个混合包。 智能安全产品实际上非常好，他们希望在圣诞节之前完全转移，这是程序中较大的一个。 第二个，正如我所说，建筑LED照明将由我们重新设计。 所以我说这可能会在第三季度开始增加，最后两个基本上都是PCB，并且应该在一秒钟的某个时间再次变得柔和，开始第三个财政而不是日历季度。
And then, relative to the Vietnam facility, you said you are producing there. It's rare that a plant starts up as smoothly as this one has seemed to -- and I won't ask my next question relative to that. Let's talk about how are your prospective customers now interacting with you that you actually have a live working facility that you can take them to and they can see, feel and touch?
然后，相对于越南设施，你说你在那里生产。 很少有植物像这样的植物一样平稳地开始 - 我不会问我的下一个问题。 让我们来谈谈您的潜在客户现在如何与您互动，您实际上有一个可以带他们去的实时工作设施，他们可以看到，感受和触摸？
Yes. Everybody is, I shouldn't say that not everybody, but we've got a number of existing customers who have their business split between us and people who are China centric, who are either in the act of touring or shortly will be touring Vietnam. We have a number of new customers that I think having Vietnam as an option played a big part in winning them, even though they're going to end up in Juarez. The fact that we can quote the three, actually four regions with just the push of a button now is very powerful during the sales process.
是。 每个人都是，我不应该说不是每个人，但我们有一些现有的客户，他们的业务分裂在我们和以中国为中心的人之间，他们要么正在巡回演出，要么不久将在越南巡回演出。 我们有一些新客户，我认为越南作为一个选项在赢得他们方面发挥了重要作用，即使他们最终将在华雷斯。 事实上，我们只需按一下按钮即可引用三个区域，实际上是四个区域，现在在销售过程中非常强大。
And have you had any new customers that you have won that are intending on going into Vietnam?
Yes, but not immediately.
I have another group of questions, shall I go back in queue or you want me to keep going?
Go ahead and keep going.
Let's jump then to SkyBell please. Would you give us an update of what's happening with that business?
I don't know how much I can say about that Bill, because it's not my business. As far as our side of it, demand continues to be strong and production kinks have been worked out and we think the latest supply disruption is behind us. So that's probably about all I can say about it.
我不知道我能说多少钱，因为这不是我的事。 就我们而言，需求仍然强劲，生产问题已经解决，我们认为最新的供应中断已经过去。 所以这可能就是我所能说的一切。
The implication then is that the supply disruption you referenced in the press release was them?
That's an implication.
Fair enough. Let's shift to the question that I suspect is, just a point of ignorance here. But, can you talk about how the U.S., Mexico tariff tensions how that impacted the fourth quarter from an outsider's perspective that all happened very quickly. So talk about how that impacted your quarter please?
很公平。 让我们转向我怀疑的问题，这里只是一个无知的点。 但是，你能否谈谈美国，墨西哥关税紧张如何影响第四季度从局外人的角度来看，这一切都发生得很快。 那么请谈谈这对你的季度有何影响？
Specifically, we had a customer who we were just about to ramp in China and they had made the decision to put us on hold and move it to Mexico. And then, when the whole Mexico thing came up, they more or less froze in the headlights and couldn't figure out what to do. So in the end that delay cost us that revenue for Q4 that's not going to be starting in Q1.
具体来说，我们有一个客户，我们正准备在中国崛起，他们已决定暂停我们并将其转移到墨西哥。 然后，当整个墨西哥的事情出现时，它们或多或少地在前灯中冻结，无法弄清楚该怎么做。 所以最终这种延迟使我们第四季度的收入不会在第一季度开始。
That's helpful and then you I think you may have referenced this in your remarks, but there have been some rumors of that Plexus and maybe Flextronics are both kicking out customers that are $20 million or less in revenue. Is that what you were referring to in your opening remarks and if so, I would assume given the size of those organizations there are a lot of customers that are floating around out there looking for a new contract manufacturer?
Well, I'm certainly not in contact with the management at either of those companies. We have been told by a number of prospective customers that that's a situation they faced with those two manufacturers. Again, I can't confirm or deny it. But certainly, if that is what's happening there are a lot of prospects for us in that class. This seems to be somewhat cyclical phenomena.
We went through this probably, I can't remember how many years ago and picked up a number of nice accounts as a result. And then, things swung back the other way and now the pendulum seems to be going back to the big guys who are only interested in big business. So I'm not sure, but we hadn't heard this for years and now suddenly we picked up on it in a couple of different places.
好吧，我当然没有与这两家公司的管理层联系过。 许多潜在客户告诉我们，这是他们面对这两家制造商的情况。 再说一次，我无法证实或否认它。 但当然，如果这就是正在发生的事情，那么我们在该课程中有很多前景。 这似乎是一些有点周期性的现象。
我们可能经历过这种情况，我记不清多少年前因此获得了一些不错的账户。 然后，事情又转向另一个方向，现在钟摆似乎又回到了那些只对大企业感兴趣的大家伙。 所以我不确定，但多年来我们都没有听过这个，现在我们突然在几个不同的地方接听了它。
So this has happened in the past and you did win business from it in the past?
And presumably, you're a much better position to quote and win business today than you were several years ago?
Let me jump to another question here. And maybe it all ties in to everything that you've been saying, but we went back and looked at just the number of new program wins that you've referenced in your press releases and tallied that up on the trailing four quarters. So at the end of fiscal 2017, you had 9 new wins at fiscal year. Fiscal 2018 you had 12 new wins and then this last year fiscal 2019, you had 15 new wins. So that number is just steadily working upward. I would like to think that is indicating momentum in the business. Would you concur with that or do you just consider this random chance?
让我跳到另一个问题。 也许这一切都与你所说的所有内容联系在一起，但我们回过头来看看你在新闻稿中引用的新项目获胜次数，并在过去的四个季度中对其进行了统计。 因此，在2017财年末，您在财政年度获得了9次新的胜利。 2018财年你有12个新的胜利，然后是去年的2019财年，你有15个新的胜利。 所以这个数字正稳步上升。 我想这表明业务势头良好。 你会同意这一点，还是只考虑这个随机机会？
That's probably one of the few times you and I agree on the weight of such statistics. Those are very, very good numbers and indicate a sea change in our ability to win new business. It's not random.
这可能是你和我同意这些统计数据权重的几次之一。 这些都是非常非常好的数字，表明我们赢得新业务的能力发生了翻天覆地的变化。 这不是随机的。
Excellent, thank you. And then, one final question that I suspected is also not random and Brett you mentioned, I believe a couple of the components, but I'm going to ask you to go back and redress it. Your gross margin held virtually flat in the fourth quarter versus the fourth quarter of last year despite the revenue pressure and it was actually up versus the first quarter even when adjusting for the restructuring charge that float through the cost of goods and I think that was on $2.5 million less revenue and still margin was up. Would you talk to this please and congratulations on being able to pull that off.
非常好，谢谢。 然后，我怀疑的最后一个问题也不是随机的，而你提到的Brett，我相信其中的几个组件，但我会要求你回去纠正它。 尽管存在收入压力，但第四季度的毛利率与去年第四季度相比几乎持平，即使在调整重新调整费用的情况下实际上与第一季度相比也是如此，我认为 收入减少250万美元，利润率仍在上升。 请你谈谈这个，并祝贺能够解决这个问题。
Well, as we've mentioned before Bill is that, we went through a real deep look at our workforce, looked at also the equipment sets that we were using and we found some opportunities to really drop our cost. As reflected in the actual gross margin percentage that you stated, we did. We were able to reduce our workforce year-over-year by over 10% which allowed us to maintain that similar gross margin as we did last year on $11 million more in revenue.
好吧，正如我们在比尔之前提到的那样，我们对我们的员工进行了真正的深入研究，同时查看了我们正在使用的设备组合，我们发现了一些真正降低成本的机会。 正如您所说的实际毛利率百分比所示，我们做到了。 我们能够将员工人数同比减少10％以上，这使我们能够保持与去年相比增加1100万美元收入的类似毛利率。
Congratulations and thank you both.
The next question will come from [Indiscernible] Asset Management. Please go ahead with your question.
Yes, good afternoon Craig and Brett. Did you mention what the backlog is at June 30 or the present backlog?
We have not disclosed that. We struggle that that backlog number really is not indicative of how strong the quarter is going to be. So much of backlog is the timing, but when we actually receive purchase orders, but we definitely do see an increase in demand hence, fairly significant increase in revenue quarter-over-quarter that we're guiding to.
我们还没有透露。 我们认为积压数字并不能说明该季度的强劲程度。 积压的大部分时间都是时间，但是当我们实际收到采购订单时，我们确实看到了需求的增加，因此我们引导的收入比上一季度有相当大的增长。
Okay. In the Q or the previous Q, you had $151 million and that's why I was wondering what it might be. What is in it?
好的。 在Q或之前的Q中，你有1.51亿美元，这就是我想知道它可能是什么的原因。 里边啥啊？
Yes. We do disclose that in the 10-Q. That is correct.
是。 我们确实在10-Q中披露了这一点。 那是正确的。
What capacity are you in Vietnam and Mexico and all your other locations and what percentage are you able to increase sales from these different locations?
That's a pretty long-winded answer. I'm sorry you asked it because here you go. Vietnam with the current customer who's going to be the anchor customer for that site is going to be close to 85% loaded with the equipment there right now. We have the rights to another building next door. So we have the capacity to expand there without a lot of costs, but as installed this one customer is going to do a firm nice job of making this thing close to full.
In Juarez to answer your question, you need to get your head around the fact that there's a million square feet down there and there's really quite a few different factories on campus. So right now, the metal shop which does all the metal fabrication and powder coating and assembly, the metal shop is full. There's been a really strong group of people wanting to come out of China into Mexico and our metals area is one of the few around for programs of the size that we're interested and they are interested in us. So that shop is almost completely full. The SMT shop is about 60% full. Plastics are about 55% full. And assembly is about 80% full. So those are the different factories or areas that exist down in Juarez.
Yes, I'm sorry. Yes.
I told you, it would be a long one. Arkansas is probably equipment-wise 50% full but people wise it's probably 85% full. [Indiscernible] has got almost a 100% capacity expansion available in space because that's an empty building that we get from the state almost for free. But their equipment is running about 75% full and Minnesota is right now bursting at the seams. Very shortly they will move into their added on area and then there will be about 70% full. And then, I think that's it, isn't it. That's it.
我告诉过你，这将是一个漫长的过程。 阿肯色州可能装备50％满员，但人们明智的可能是85％满员。 [Indiscernible]在太空中的容量扩展几乎达到了100％，因为这是一座空地，我们几乎可以免费从该州获得。 但是他们的设备运行大约75％，明尼苏达州现在正在爆裂。 很快，他们将进入他们增加的区域，然后将有大约70％的满。 然后，我认为就是这样，不是吗。 而已。
Well that sounds good. Now, the 85% customer they are present customer and are you able to sort of give a generalization of what 85% would produce in sales or anything or some kind of range or something?
They are a current customer. They are right now almost completely in our Chinese facility and they'll be moving almost completely out of the Chinese facility into the Vietnamese facility and I don't want to give you a revenue number because they might not like that.
I understand that. That sounds very reasonable and so you're in a lot better shape now then six months ago. You have visibility. You have the ability to improve your sales and profits. And have we given any thought to the potential of the 10% additional tariff that's being talked about for September? Is there any more people in China that this would produce more people that might come out of China to some of your other business as that sort of given any requests for quotes or anything in that regard?
我明白那个。 这听起来非常合理，所以现在六个月前你的状态好多了。 你有可见性。 您有能力提高销售额和利润。 我们是否考虑过9月份谈到的10％额外关税的可能性？ 在中国是否还有更多的人会产生更多可能来自中国的人到你的其他业务，因为这种情况会引起任何报价或任何相关的要求？
Sure. I've kind of come to view these threats of tariffs as people talked about they've learned that they're going to die. There's kind of disbelief then there's bargaining and then there's acceptance and then there's sadness or whatever those are that order of events are we've seen people go through those stages with the first round of tariffs. And right now in the second round, I'd say people are in the acceptance and beginning to plan for them actually happening and so it is creating more quotes. It will create more business coming to us. So it's for Key Tronic probably net, net. It's a good thing even though it's certainly an awful thing for our guys in China.
当然。 当人们谈到他们已经知道他们将会死亡时，我有点看到这些关税的威胁。 有一种不相信然后是讨价还价然后有接受，然后有悲伤或者那些事件的顺序是我们看到人们通过第一轮关税经历这些阶段。 而现在在第二轮，我会说人们正在接受并开始计划他们实际发生的事情，所以它创造了更多的报价。 它将为我们带来更多业务。 所以这对于Key Tronic来说可能是net，net。 这对我们在中国的人来说无疑是件好事。
And as far as your inventory being in an appropriate way if more business comes in, you'll increase inventory or is it structured for the more business that the inventory that you presently have?
The reason it's a little bit too high is because, it was a shock last quarter and a half that we didn't ship what we had planned to ship. So the parts were there. We were unable to ship them. So we would expect if the revenues stayed at the level we're at, we're projecting to be at this quarter that the inventory would go down some and then as we add new business and new programs the inventory is going to go up ratio metrically with that.
它有点太高的原因是因为，上一季度的一半，我们没有按照我们计划发货的方式发货。 部件就在那里。 我们无法发货。 因此我们预计如果收入保持在我们所处的水平，我们预计在本季度库存会下降一些然后随着我们添加新业务和新计划，库存将会增加比例 与此相关的。
That's good and do we see as far as us getting parts from some other place, we have everything in plan to produce whatever we think we're going to get going forward without any problems?
What I would like to say that's a 100% sure thing but certainly with what's going on today not 100% sure. As far as I see right now, there's nothing that is terrifying right now. But, I certainly wouldn't say we're sleeping easy with what's going on between Trump and his fellow leaders.
我想说的是100％肯定的事情，但肯定会对今天发生的事情不是100％肯定。 就我现在看来，现在没什么可怕的。 但是，我当然不会说特朗普和他的领导人之间正在发生什么事情。
I just want to give you a piece of history. It's my recollection is when Key Tronic first started, they were dealing with just telephones and it's a whole new world because I remember, it was a long time ago when I was involved, but no more telephones.
我只是想给你一段历史。 这是我的回忆，当Key Tronic刚开始时，他们只处理电话，这是一个全新的世界，因为我记得，很久以前我参与其中，但没有更多的电话。
Well, when I started in 94, a keyboard was selling for 112 bucks and by 98 it was 10 bucks.
Yes. This is progress I guess. Alright, thank you very much. Hope you achieve your goals. Thank you.
是。 我猜这是进步。 好的，非常感谢你。 希望你实现自己的目标。 谢谢。
Thank you. The next question will come from Drew Thelen with Crimson Advisors. Please go ahead with your question.
回到你将要在某些SG＆A中做出的削减。 所以我想，这有几个快速的部分。 我的意思是这听起来像是你的收购评估的一部分随着时间的推移，并可能有太多的高端人员。 所以我想，我很好奇这部分的两个部分。 一，你怎么认为这会改变你的收购方式，你一直在努力保留一些资深人士，当你经历这些转变时，如果你需要很多东西，你可能会对你作为收购者的吸引力做些什么呢？ 高级人员，你买不同的公司？...
Thank you very much. On the last call, Brett had mentioned that we're about a year out from getting a 10% type of ROE. We're 9, I guess we’re now nine months out from that point, are we still on target to do something like a 10% ROE by the end of the next fiscal year?
非常感谢你。 在最后一次电话会议上，Brett提到我们距离获得10％的净资产收益率还有一年的时间。 我们9岁，我想我们现在距离那个月还有9个月，我们是否仍有目标在下一财年结束时做10％ROE？
Great that's all I got. Thank you so much.
Thank you for the question. The next question will come from Sheldon Grodsky with Grodsky Associates Inc. Please go ahead with your question.
感谢你的提问。 接下来的问题将来自Sheldon Grodsky和Grodsky Associates Inc.。请继续提出您的问题。
Good afternoon everybody and that was a very nice simple answer of the 10% ROE for this year. My question is more a delayed response. I don't recall if we ever discussed it in the last quarter, but what was the write-off of goodwill? Was that Ayrshire and however you pronounce it and why do you have to write it off?
大家下午好，这是今年10％净资产收益率的一个非常好的简单答案。 我的问题更多是延迟回应。 我不记得我们是否曾在上一季度进行过讨论，但是商誉的注销是什么？ 那是艾尔郡，但你发音了，为什么要把它写下来？
We mentioned a bit of this in last quarter’s call that really was related to the calculated share price of Key Tronic or basically our market cap was considerably less than our book value. So through Generally Accepted Accounting Principles, you are forced then to value your company and figure out whether there would have been impairment to that intangible. At that point in time, we went through that calculation and found that it was a close call and went ahead and decided to write-off the intangibles and it was largely related to the acquisition of Ayrshire. Now the results and the actual profitability of those entities that were acquired during the Ayrshire acquisition are faring well. During the third quarter we did go ahead and write-off those intangibles.
我们在上个季度的电话会议中提到了一点，这与Key Tronic的计算股价有关，或者基本上我们的市值大大低于我们的账面价值。 因此，通过公认会计原则，您不得不重视您的公司，并弄清楚该无形资产是否会受到损害。 在那个时间点，我们经历了这个计算，发现它是一个紧密的电话并继续并决定注销无形资产，这主要与收购艾尔郡有关。 现在，在收购艾尔郡期间获得的那些实体的结果和实际盈利能力都很好。 在第三季度，我们确实开始注销那些无形资产。
So this is specifically required when you're selling it less than book value?
That is correct.
Thank you for the question. The next question will come from George Melas with MKH Management. Please go ahead with your question.
感谢你的提问。 接下来的问题将来自George Melas和MKH Management。 请继续你的问题。
I have a question and I'm just trying to understand how to think about you say that customer is added in fiscal 2019. Can you guys hear me?
Customers are added in fiscal 2019 should sort of contributing roughly $60 million to the revenue plan for this coming year, for fiscal 2020. There's roughly 15 of them. How do we think about that? It seems like $4 million per customer is a small number. I understand some of them will take some time to ramp, but can you help me understand sort of how to think about that?
2019财年增加的客户应该为2020财年的收入计划贡献大约6000万美元。其中大约有15个。 我们怎么想这个？ 似乎每个客户400万美元是一个小数字。 我知道他们中的一些人会花一些时间来提升，但是你能帮助我理解如何思考这个问题吗？
Yes. You've kind of answered your own question there George is, we said in the fiscal year so that's between now and the end of June. We have to get all these customers in the factory up and running and most of them will not be anywhere near their eventual mature run rate. So that 60 million if you --
是。 你有点回答乔治的问题，我们在财政年度说这是从现在到六月底。 我们必须让所有这些客户在工厂中运行并且大部分客户都不会接近最终的成熟运行率。 所以，如果你 - 那6000万 -
So the logical follow-up is at run rate, how much you accept those customers to be?
Yes. That's a logical question. We've had quite a number of discussions with this, how do we wait when a customer tells us what the business is worth and when it's going to happen. But my best estimate of that 60 at full maturity is probably about a 110 million.
是。 这是一个合乎逻辑的问题。 我们已经与此进行了大量讨论，当客户告诉我们业务的价值以及何时会发生时，我们如何等待。 但我对60岁时完全成熟的最佳估计可能是大约1.1亿。
So if you have the discussion there because you have right now roughly 460 million in this fiscal year. You have coming in fiscal 2020, you have some fiscal 8 million customers that continue to ramp, you have the fiscal 2019. So if we think of customers that are fully ramped and I'm creating maybe somewhat artificial categories but I guess it's helpful conceptually. But if you think of customers that are fully ramp and those who are also ramping that probably are 18 and 19.
How do we think about that because if you add that much new customers, it seems like it would drive meaningful growth unless there is a meaningful attrition which I don't think is the case. I mean, I'm sure there is some regular attrition but you guys are doing a good job then you don't have abnormal attrition. So if you take the customers that are fully ramped what kind of degradation in revenue do you expect in fiscal 2020?
I guess if you do your budget, if you look at customers on a fully ramp, those are ramping from 18, those are ramping from 19, what are those different buckets?
We've done a lot of work to try to figure out how to predict, how much leakage we're going to have out of the bottom of the bucket. Easy ways that's alright, you haven't been thinking about it as much as we have. We've gone back and looked at history, eight years worth of history and what we see is not really, a statistically valid rate of leakage. What we see instead are individual events that appear to be not really all that predictable or something that we could have mitigated.
So for example, one of our largest customers was almost bankrupt and got bought by the world's largest competitor. That was a major hit to the company and you probably know which one I'm talking about. Another one of our customers was growing rapidly and we had done quite a bit of work to help them grow and they were bought by Amazon and we were on the street within weeks. It just goes like that where you look at the things that have really affected us and it's not like a customer got mad or was wooed away by another EMS competitor. It's all these kind of strange one-off occurrences that nevertheless continue to happen at a substantial rate. So you can't just take the new business and add it on to what we have.
So if you look at today's bucket of customers there are a couple of big ones in there whose products are running at really nice high rates and the question is how long before their markets get saturated and even though we are working on new designs with those customers to get them into new markets, will those new designs be raging the successes like this current design is. So it's really impossible for me to tell you that we've gone back and looked over eight years and the average rate per year is this much loss and this enter deviation on that rate is why and so therefore you could expect between an upper limit and a lower limit of this so you could plan on $40 million of leakage out the bottom of the bucket. I can't do that for you. I'm sorry. I wish I could.
Appreciate the explanation. The issues that you have with the two customers in the market order and those guys have had in the two quarters and those two big buckets of issues pretty much behind you. I think in the March quarter there were two customers, an event [Indiscernible] reduce production the other one was sort of add build inventory previously as they were shifting from China to Mexico. Are these issues kind of behind you?
感谢解释。 你和市场订单中的两个客户以及那些人在两个季度中遇到的问题以及那两大问题几乎落后于你。 我认为在3月季度有两个客户，一个事件[Indiscernible]减少生产，另一个是在他们从中国转移到墨西哥之前增加建筑库存。 这些问题有点落伍吗？
The excess inventory has been burnt up in both of those customers. One of them is right now in a pricing battle with a couple, it’s big sales points. So these tariffs are having different effects on different people. So we are still kind of waiting around to see who is going to win that steer down but the inventory has been burnt up. But right now the forecast only show an improvement compared to what we did in the last quarter. They're not up to where we hoped they would be. And the other one is actually being limited by us right now at our ability to make metal parts to respond to all the demand we have in our metal shop.
多余的库存已经在这两个客户中烧毁。 其中一个正在与一对夫妇进行定价战，这是一个很大的销售点。 所以这些关税对不同的人有不同的影响。 因此，我们仍然有点等待，看看谁将赢得罢工，但库存已被烧毁。 但目前预测仅显示与上一季度相比有所改善。 他们没有达到我们希望的水平。 而另一个实际上是由我们现在限制我们制造金属零件以满足我们在金属车间的所有需求的能力。
And then, just a question of the investment I mean, there was really an elaborate question to the capacity that you have available in the different plant. So where is most of the investment going in because it's a fairly substantial CapEx investment in fiscal 2020. Where's most of that going?
Well that's going to help us with our capacity constraints and sheet metal, but it's also going into fully outfitting the new Vietnam facility.
Thank you very much.
Thank you for the question. The next question will come from Mike Hughes with SGF Capital Management, LP. Please go ahead with your question.
感谢你的提问。 接下来的问题将来自Mike Hughes和SGF Capital Management，LP。 请继续你的问题。
Thanks for taking my questions. First, I don't think you typically talk about your end market mix, but can you at a high level give us a mix between maybe consumer industrial comp or what other categories that you think about internally?
We don't even do that. A good mix of all the above, we are definitely not concentrated in any one of those.
If you have any you can pull it out that'd be helpful. But, my second question just what have you seen with your customers demand forecasts over the last few months? I assume you receive updates on a weekly or at least monthly basis. What's happened on that front?
如果你有任何你可以把它拉出来，这将是有帮助的。 但是，我的第二个问题是您在过去几个月中对您的客户所看到的需求预测？ 我假设您每周或至少每月都会收到更新。 在那方面发生了什么？
It's been a mixed bag. I have a hard time to even draw any conclusions from it. I'd say the best I can do for you is that we've seen the consumer kind of smooth off a little bit and drop a little bit and we've seen industrial actually increased forecast is an industrial. So we're having a hard time drawing any conclusions from that.
这是一个混合包。 我很难从中得出任何结论。 我说我能为你做的最好的事情就是我们已经看到消费者有点平稳而且有点下降而且我们已经看到工业实际上增加的预测是一个工业。 所以我们很难从中得出任何结论。
When you look at those forecasts how do they compare the behavior now versus let's say six months or a year ago, is it softer or more choppy?
I'd say it's more choppy and there's less exuberance.
And what percentage of your revenue at this point is generated out of the plant in China?
It’s probably 6% or 7%.
Which is consistent with the square footage there out of the total company-wide number. So what is the capacity utilization of that plant, did you run through that and did I miss it when you were through the utilization numbers?
I missed it, good catch it's probably under 50% right now.
So at what point would that facility start losing money or is it already?
It's getting close to worrisome that's for sure. We've got a couple of wins that are going to go in there that are for China market that will help and we'll see what happens from there. I think a point of clarity to that people don't understand and they don't have any reason to. But, we have a very large purchasing contingent over there and is really directly linked to the manufacturing site itself because they buy a lot of the parts for the U.S., New Mexico and soon the Vietnamese plants. So no matter what happens to the manufacturing there's a lot of folks there that will remain as basically IPO.
它已经接近令人担忧的是肯定的。 我们已经获得了一些有利于中国市场的胜利，这将有助于我们看到从那里发生的事情。 我认为人们不理解这一点是清楚的，他们没有任何理由。 但是，我们在那里有一个非常庞大的采购队伍，并且与制造场地本身直接相关，因为他们为美国，新墨西哥和越南工厂购买了很多零件。 因此，无论制造业发生了什么，那里的很多人仍将基本上仍然是IPO。
And then, what percent of your revenue do you think is ultimately sold into Chinese end markets? I know you had the one customer you called out last quarter, the quarter before but do you have a handle on that number? I would assume it's no higher than 6% or 7% unless you have Mexican and American capacity that's exporting there.
那么，您认为您的收入中有多少最终会被出售到中国终端市场？ 我知道你有一个客户，你在上个季度，也就是前一个季度召集过的，但是你有这个号码吗？ 我认为它不会高于6％或7％，除非你有墨西哥和美国的出口能力。
No. It's less than that. Considerably less than that. I'd say a point or two.
不，它不是那么的。 远不如此。 我会说一两点。
And then, on the write off, was there any amortization that was reduced as a result of the write-off that would have helped the gross profit margin this quarter or the SG&A number?
Yes. It's about a $100,000.
So it's not material.
On the $60 million in new business what are the gross margins look like on that business, is it better or comparable to your existing book of business?
I'd say it's comparable. Maybe a little bit better actually. Yes.
我会说它具有可比性。 也许实际上好一点。 是。
It seems like you have the wind against your back just with the demand for the capacity in Mexico and the United States. So how does pricing look today versus maybe a year, 18 months ago?
I'd say pricing is a little bit less frantic than it was. The supply for electronics has certainly gotten a lot less tight than it was a problematic and I think that people are being driven to move because of tariff situations or being psyched out of a big Tier-1 or in general a little less price sensitive than people that are not in that situation.
我认为定价比现在少一点疯狂。 电子产品的供应肯定比没有问题严重得多，而且我认为人们因为关税情况而被迫开动，或者被大型一级方式所困扰，或者一般来说价格比人们的价格低一些 那不是那种情况。
And then, the ramp in revenue from the June quarter to the forecast for September at the midpoint is roughly $12 million. How much of that would be from new customers?
Probably only, let's see about 3 million.
So 3 million, so the other nine is that normal seasonality or is it some of this business that was kind of pushed from the June quarter into the September quarter?
Some of it was a push. Some of it was returning demand for the two customers that George asked about.
Some of it also now building programs that are in their current ramp stage that we've had revenue in the past.
And then, two last questions for you. Do you have customer concentration statistics? I know at one point you had a very large customer. I think maybe they're entirely done now. What's your largest customer and then maybe your top ten what percent of revenue they are?
然后，最后两个问题给你。 您有客户集中统计数据吗？ 我知道你有一个非常大的客户。 我想也许他们现在完全完成了。 您最大的客户是什么，然后可能是您的前十名，他们的收入百分比是多少？
I told our top five is just over 30%.
And then, did you address the latest the 10% tariff as far as that impacting your business your cogs on a go-forward basis? Did that impact anything that you're purchasing?
It hasn't really had that big of an effect, if there's unavoidable tariffs we're fairly successful in getting the customers to pay for that.
Thank you very much.
Thank you. The final questions will come from Bill Dezellem with Tieton Capital. Please go ahead.
谢谢。 最后的问题将来自Bill Dezellem和Tieton Capital。 请继续。
I actually do want to, just one point of clarification by my calculation 10% return on equity would be a dollar plus a share. So really what you would be on track for is $0.25 or more of earnings in the fourth quarter, a year from now. Is that am I reading the leaves correctly here and doing the math right?
我实际上是这么想的，只是通过我的计算澄清了一点，10％的股本回报率将是一美元加一股。 因此，从现在起一年后的第四季度，您的实际收益将达到0.25美元或更多。 这是我在这里正确阅读树叶并正确算数吗？
Thank you again.
Thank you. There are no further questions at this time. I'll turn it back to the speakers.
谢谢。 目前没有其他问题。 我会把它转回扬声器。
Well, thank you everybody for participating in today's call. Right now I look forward to talking with you next quarter. Goodbye.
好的，谢谢大家参加今天的电话会议。 现在我期待下个季度与你交谈。 再见。
Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect your line.
谢谢。 女士们，先生们，今天的活动结束了。 您现在可以断开线路了。
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