edited transcript of ktcc earnings conference call or presentation 30-apr-19 9:00pm gmt

by:INDUSTRIAL-MAN     2019-09-01
Revenue from 2019 key electronics companies in the third quarter of May 4, 2019 (
Thomson StreetEvents)--
Tuesday, April 30, 2019, at 9:00:00 in the afternoon, the editorial record of the call or presentation of key electronics company earnings
Larsen Electronics Inc.
Craig D. , Executive Vice President, Chief Financial Officer and Treasurer
Gateskey Electronics
Conference call participant Drew Trun George Melas-
KyriaziMKH management company-
President William J.
DezellemTieton Investment Management Co. , Ltd-
Chief information officer and chief compliance officer-------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------
Hello everyone, welcome to the important conference call for fiscal 2019 in the third quarter.
Today\'s meeting is being recorded.
At this time, I want to hand over the meeting to Sir. Brett Larsen.
Sir, please proceed. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [2]--------------------------------------------------------------------------------
Good afternoon, everyone.
I\'m Brett Larsen, chief financial officer of Key Tronic.
Thank you to everyone who attended our investor conference call today.
At the Spokane Valley headquarters, Craig gates, our President and CEO, joined me.
As usual, I would like to remind you that we may make predictions or other predictions during this call
View statements about future events or future financial performance of the company.
Keep in mind that these statements are only predictions.
There may be significant differences in actual events or results.
For more information, you can view the risk factors outlined in the company\'s submission to SEC, especially our latest 10-10-per quarter-Qs and 8-Ks.
Please note that on this call we will discuss historical, financial and other statistical information about our business and operations.
Some of this information is included in today\'s press release and a recorded version of this phone is available on our website.
Today, we released our third-quarter results as of March 30, 2019.
The results are consistent with the initial results announced by the company on April 10, 2019.
In the third quarter of 2019, our total revenue was $0. 108 billion, compared to $108.
The same period for the fiscal year 2018 was 4 million per cent.
As mentioned earlier, our revenue for the third quarter of fiscal 2019 was adversely affected by the reduction in orders for two long-term big customers.
One of the customers needs to lower their inventory in the third quarter, but demand is expected to rebound in the fourth quarter.
Another big customer is managing inventory as it is moving production from a Chinese factory in Key Tronic to a Mexican factory in Key Tronic.
In addition, unexpected delays occurred in the third quarter when starting production for 2 customers.
Despite a sudden decline in third-quarter revenue, our total revenue was $358.
The first nine months of the fiscal year 2019 were 5 million per cent.
We\'re up 9% from $329.
The same period for the fiscal year 2018 was 3 million per cent.
In addition, net profit when excluding writing
Goodwill and intangible assets and severance pay are $3.
4 million for the nine months of the fiscal year 2019, that is, four times the net income of $850,000 for the same period in 2018.
Thanks to the recent strategic investment in improving operational efficiency, we were able to reduce the workforce by about 10%.
This streamlining resulted in a severance pay of $1.
The third quarter of 2019 was 1 million.
In addition, due to accounting requirements, we also wrote-
Our goodwill and intangible assets were reduced by about $12.
The third quarter of 2019 was 5 million.
In the third quarter of 2019, our gross profit margin was 6.
3% compared to 7.
The same period in fiscal 5% was 2018.
As our income levels rebound and cost cuts begin to come to fruition in the fourth quarter, we expect gross profit margins to rise.
The sudden decline in income, the cost of writing --
Deducted from the reputation and intangible assets, severance pay and-
It has a negative impact on our bottom line.
In the third quarter of 2019, the company suffered a net loss of about $12 million, or $1.
A loss of $11 per share, net income of $600,000 or $0.
Fiscal Year 06 Third Quarter 2018 per share.
Due to the third-quarter losses mentioned earlier, this yearto-
The net loss was $8. $8 million or $0.
82 loss per share for the first nine months of the fiscal year 2019, net income of $900,000 or $0.
Fiscal Year 2018 per share.
Excluding the cost of both
In terms of reputation and intangible assets and severance pay, the result will be net income of about $0.
$02 per share, $0.
The third quarter of the fiscal year 2019 and the first nine months were $32 per share.
Turn to balance sheet.
We continue to maintain a strong financial position.
Despite the sudden decline in third quarter revenue, new projects continue to increase, delivery delays, and we are still able--
Our inventory was reduced by about $19.
6 million, 17% less than the third quarter of fiscal 2018.
In the fourth quarter, we expect our net inventory levels to be more consistent with our income levels.
Trade receivables at the end of the third quarter were $4.
8 million days a year ago, DSOs was about 43 days.
Total capital expenditure for the third quarter of fiscal 2019 was approximately $2. 3 million.
We continue to invest in our production facilities, SMT equipment and sheet metal and plastic molding capabilities, as well as improvements in factories in Arkansas, Minnesota and Vietnam.
We plan to spend about $10 million on capital in the 2019 fiscal year.
Entering the fourth quarter of fiscal 2019, in the next few quarters, we expect more growth and production of our new customer projects.
We also expect demand from the two big customers who fell sharply in the third quarter to start recovering in the fourth quarter.
With these factors in mind, we expect revenue in the fourth quarter of fiscal 2019 to be between $0. 112 billion and $0. 117 billion.
In the fourth quarter of fiscal 2019, we also expect revenue to be within $0. 10 to $0. 15 per share.
This assumes a valid tax rate of 20%.
All in all, while we are disappointed by the sudden decline in revenue and earnings in the third quarter, we are still encouraged by the outlook for future growth.
The company\'s overall financial position is good and we believe we have the ability to win new EMS projects and continue to make profits for a longer period of time.
That\'s it for me. Craig? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director3]--------------------------------------------------------------------------------Thanks, Brett.
While we were significantly affected by the unexpected drop in demand from two of our big customers in the third quarter of fiscal 2019, we expect both projects to rebound and contribute significant revenue in the fourth quarter.
At the same time, our new projects are continuing to increase.
We continue to win a lot of new business, and our recent investment in efficiency has enabled us to streamline our operations.
While our market is still very competitive, we continue to win important new businesses from EMS competitors and existing customers, including new projects involving consumer kitchen tools, emergency medical equipment, outdoor LED lighting and paper dispensing products.
Our broader and more diverse customer base reduces the potential future impact of any one customer slowdown.
At the same time, the changing tariff situation continues to have a complex impact on major electronic products.
Tariffs are still a problem for Shanghai customers of major electronic products imported back to the United States.
Many of our existing customers are experiencing a seamless transition from our Shanghai site to our Juarez or domestic site.
This is facilitated by our centralized command and control.
This greatly reduces the risk and time associated with the transfer to our North American website, thus leaving some room for dealing with the rapidly changing tariff environment.
In addition, we believe that the tariffs on Chinese products make our Mexico
More attractive to potential new customers.
Our North American website has become very competitive for the United States. S.
Bound products subject to new tariffs.
This leads to an increase in potential customers\' interest and requirements for quotations.
In general, we are more and more favorable to the ebb tide in North America.
Based on the customer, because they correctly analyzed the total cost of overseas production to push production to Mexico and the United StatesS.
In the third quarter, we continue to build-
Our new 86,000
Foot manufacturing factory in Da port, Vietnam.
We expect that starting production in Vietnam will expand our footprint in Asia, reduce production costs, and provide additional hedging for uncertainty in a long-term or future trade war with China.
We expect the facilities in Vietnam to be put into use by July 2019.
Recently, we have deployed innovative new manufacturing equipment in every factory, which improves efficiency and reduces labor-intensive production.
The result of this effort is a reduction in manufacturing and operating costs of approximately $3 million per year.
While we are carefully managing our expenses, we are investing in facilities, SMT, sheet metal and plastic molding capabilities in Mexico, Vietnam and the United StatesS.
We also added more continuous space in Minnesota and added additional production equipment.
About Integrated Electronics and sheet metal-
Project-centric, we have seen very strong growth in North America with few real competitors.
Our stable channels of new business opportunities continue to be driven by our unparalleled level of vertical integration.
Compared to other EMS competitors of our size, our national footprint and excellence in manufacturing locations.
As OEMs face an increasingly uncertain geopolitical environment, we have unique equipment that can reduce risk through vertical integration and manufacturing facilities located in China, Mexico and the United StatesS.
Soon in Vietnam.
With the continuous improvement of the market environment, the shortage of industry supply chain is still a factor.
However, we expect revenue to grow in the fourth quarter and in fiscal 2019 for the whole year, and we are optimistic about the growth opportunities for some time to come.
This is the end of the official speech. -
The official part of our speech.
Brett and I are happy to answer your question now.
Questions and Answers--------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------(
Operator instructions)
We will answer the first question from Bill dezlem of Teton Capital. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer2]--------------------------------------------------------------------------------
A set of questions.
First of all, I will start with my standards.
What is the scale of these 4 new projects you won? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director3]--------------------------------------------------------------------------------
So if we buy in order, consumers, kitchen tools, 8 emergency medical devices, 9 paper distribution products.
This is very interesting.
This will start at around $3 million.
These people tell us that they have a low prototype of about $3 million.
They do bulk operations with current contract manufacturers, and then as the company grows, they have to replace the company when moving the company overseas.
So we actually report about $3 million a year.
But if it runs the way customers and we expect it to, it should be a little more than that.
Finally, outdoor lighting is about $12 million. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer4]--------------------------------------------------------------------------------
If the customer who distributed the paper worked as expected, what size would it end up? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director5]--------------------------------------------------------------------------------
Between US $10 million and US $20 million. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer6]--------------------------------------------------------------------------------Great.
Then, when it comes to new customers, you do have delays in launching products for several new customers.
Could you please talk about these two questions in as much detail as possible, please? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director7]--------------------------------------------------------------------------------Yes.
The biggest one is worth about $6 million, or about $6 million this quarter.
This is a typical example. all manufacturing of a company is done by CM in China. I want to say more ODM than CM, because our customers don\'t handle it well with their design, the documentation that comes with it, and some of the specifications associated with it.
So when we started making it in Mexico, we had some problems based on the mismatch between the design they thought was being used and the actual design being implemented.
So in q3, this is ultimately an absolute 0.
We plan to spend $6 million.
In this quarter, we are finally launching this product.
So I suspect that in the next quarter, it could be $3 million or $4 million, not the $6 million we would like.
The other one is the brand-
There are no new products designed by Key Tronic.
Unfortunately, as the product began to go public, people found that there was a problem with the firmware and we had to suspend production when our customers discovered and modified their firmware.
As a result, this figure also began to climb in the quarter. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer8]--------------------------------------------------------------------------------
What should be the income?
What do you expect in the fourth quarter? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director9]--------------------------------------------------------------------------------
Should be around $2.
The third quarter was $5 million to $3 million.
We are only now stepping up.
So we want $1 million or $1. 2 million in Q4. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer10]--------------------------------------------------------------------------------Great.
Then let\'s--
Now that we\'re talking about a new business, let\'s go to SkyBell.
Could you please update us there? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director11]--------------------------------------------------------------------------------
Demand for SkyBell remains strong.
In terms of production costs, we did a good job in the factory and matched our predictions.
As far as we know, things are good. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer12]--------------------------------------------------------------------------------
How do we see the future of business? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director13]--------------------------------------------------------------------------------
I don\'t know what to say to you there. We\'re 3 --
At least Level 2 or 3 from the actual demand.
So we have to give up the predictions of others. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer14]--------------------------------------------------------------------------------Great.
If you can, let\'s talk about the operational efficiency you mentioned.
I think this will reduce the cost by about $3 million.
I want to make sure my calculations are correct.
So it\'s about $0.
Earnings per share 20 per year.
Right? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [15]--------------------------------------------------------------------------------Yes.
This is correct. Yes. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director16]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer17]--------------------------------------------------------------------------------
So talk to us about the savings you\'re doing to create $3 million?
Does this include low Amortization after the write-off of intangible assets? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director18]--------------------------------------------------------------------------------No.
Therefore, the impact of quarterly write-off of intangible assets is basically zero.
I think there may be. . . --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [19]--------------------------------------------------------------------------------Yes.
Hundreds of dollars. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director20]--------------------------------------------------------------------------------
Yes, it\'s very small.
Therefore, the main impact is that due to higher operational efficiency, higher equipment operation efficiency, and considerable changes have taken place in the management of the eastern part of the business.
The result is layoffs. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer21]--------------------------------------------------------------------------------
Basically you run the plants better, so you don\'t need so many people.
Is this really the bottom line? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director22]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer23]--------------------------------------------------------------------------------
One more question now.
Vietnam, can you provide us with further updates of the plant?
Once it\'s ready for business in July, do you have customers in line?
After the initial customer who may be ready to move, what is the prognosis lineup like?
Please be more detailed. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director24]--------------------------------------------------------------------------------
So now the factory is in very bud.
This building exists.
We are under construction.
The new site manager is in office.
The new chief engineer is actually coming out of Spokane and will be stationed there for 2 to 3 years.
I think the HR personnel are either on board or very quickly. . . . --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [25]--------------------------------------------------------------------------------
Hired since yesterday--------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director26]--------------------------------------------------------------------------------
Was hired since yesterday.
We see that our prediction of the cost of personnel is correct.
We are becoming less and less concerned about the availability of people.
Overall, the process is carried out in full accordance with the plan.
As you and I have discussed, this is a good thing for Key Tronic.
We have opened factories and closed factories many times in the past 20 years and I forgot the total.
But for us, because we have all the process management in Spokane, it\'s very simple to open a factory and make it run.
So everything went well.
The person who is doing this, Doug Burkhart, our Ops vice president, has done it many times and I don\'t know how many times it used to be.
So I am very relaxed about operational efficiency and progress on rampups and people.
I think we have one of the biggest customers, maybe the top 5, maybe the top 6 will be the main customers of our facility.
So, we have chosen the first list.
The file is ready.
Inventory is constantly increasing to match the inventory where we are going to build.
Once we start in July, or even a year, it will be enough to keep the factory growing and busy for the first 6 to 8 months of its establishment.
Another interesting thing is that we already have some existing customers who have products that we have not developed today, which are built by others in China and future customers, they either go to Vietnam or visit the website in Vietnam, even if we tell them guys, it\'s just a building with only one person sitting in the office.
People will also come and see that this is a new phenomenon for us, and we hope it shows that people are very interested in the choices that Vietnam will bring to us compared with China. --------------------------------------------------------------------------------Operator [27]--------------------------------------------------------------------------------(
Operator instructions)
We will bring our next question to the consultant of Thelen crimson. --------------------------------------------------------------------------------Drew Thelen, [28]--------------------------------------------------------------------------------
Sounds like the pipeline looks good and congrats your ability to re-adjust the cost base.
With this in mind, when do you think you can recover your capital costs and get a 10% return from your equity?
Is it next year, or is it a few years later? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [29]--------------------------------------------------------------------------------
I think the return on investment capital is 10%. -
I think maybe in--
It\'s hard to say, but I will--
We plan to get there in a year. --------------------------------------------------------------------------------Drew Thelen, [30]--------------------------------------------------------------------------------Okay.
This is good news.
One more question.
A few years ago, about three years ago, we talked about it in Area B.
Riley meeting
You say you will digest your acquisition, but you will consider buying back if your stock is the same price.
Obviously, your share price is a little lower than it was three years ago.
Do you have a place to start thinking about stock buybacks?
Are you still looking at the balance sheet? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director31]--------------------------------------------------------------------------------
We still focus on the balance sheet.
Over time, I have become more and more convinced that stock repurchase is not a good idea. --------------------------------------------------------------------------------Drew Thelen, [32]--------------------------------------------------------------------------------Got it.
So no matter how low the price is, we may not see any stock buybacks or insider trading. . . --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director33]--------------------------------------------------------------------------------I can\'t say.
I will not say that this is a clear negation.
But what I want to say is that at this point we tend to wait for them. --------------------------------------------------------------------------------Drew Thelen, [34]--------------------------------------------------------------------------------Okay. Got it.
So, as a shareholder, I think there will obviously be a change in the stock price. There are --
The number of people who focus on value stocks is clearly declining every year, as there is more focus on growth and various other things.
With this in mind, how do you think we can get the stock price back to a better base on the journeyforward basis? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director35]--------------------------------------------------------------------------------
The easy answer is the obvious one, and always the obvious one is to do better.
So, if you want to call it that way, we\'re going to do more road trips because all of this is solidified.
So we plan to do something like this in the next 12 months because we think we have a very great story to tell.
But before we go out and tell the story, we want to have more evidence in the pudding.
I know it\'s a market. inaudible)
There\'s another quarter, but we\'re basically looking at 2-
The journey of the year disappeared from the $90 million project to us.
We are there right now, but we would like some actual evidence before we start blowing the horn. --------------------------------------------------------------------------------Operator [36]--------------------------------------------------------------------------------
We will answer the next question from George Melas at MKH management. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [37]--------------------------------------------------------------------------------
There are two questions.
I am trying to understand the guidance.
I think the initial guidance for this quarter is $0. 12 billion to $0. 125 billion and we did about $0. 108 billion.
Craig, you said there are quite a few projects that have resulted in a loss of revenue, right? the slopes of 2 new customers and 2 big customers are starting to recover.
So I just wanted to get to know your income guidance because in the first half of what you did. . . --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director38]--------------------------------------------------------------------------------Hey, George. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [39]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director40]--------------------------------------------------------------------------------
I think your starting point is wrong.
The initial guidance was $0. 115 billion to $0. 12 billion. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [41]--------------------------------------------------------------------------------Okay. All right.
My model is wrong, okay. Are we --
In a way, when you add these new customers on a regular basis, you tell us how much they should add to Bill\'s question, and it looks like we should have more revenue growth.
So I just wanted to see what was going on.
Are you trimming a small client? Is there --
Did you lose some clients?
I just wanted to figure it out. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [42]--------------------------------------------------------------------------------One thing.
Even with third-quarter mistakes, we still show a 9% increase over the previous fiscal year.
We do have some impact on two long-term big customers reducing demand in the third quarter.
But in the past nine months, we have still grown by 9% over last year.
We should have pulled out in the fourth quarter of last year with a total revenue of 10%. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director43]--------------------------------------------------------------------------------
We did quite a bit of analysis of the data because I don\'t know if you remember it or not, but we talked about the fact before: we are sure that our market is getting more and more tense, A little in the direction of goods --
Type market.
What we\'re seeing is that if you look at the market, our smaller and smaller second tier, third tier people do a really hard job of growing.
I think we are the only ones who really show growth, and the first level does a good job this year.
So if you look at the market as a whole, you will be confused about the following-
The way we judge ourselves
So we grew a lot compared to the market.
If you just look at the actual situation of each of our customers from a micro perspective, you can\'t just take the numbers I gave Bill and add them to our current numbers, and there are two reasons why this is the number that should be next year.
First of all, we always talk about the fact that from the day we get these things, it will take a long time for them to mature.
The third quarter we\'re talking about should be $6 million, probably only half of the fourth quarter, which is a very good example of what we\'re predicting because it\'s already in production.
It\'s a product that we can buy and cut a part of ourselves and say it\'s the way you make it.
This is something that customers want to move very much.
Even then, however, we need half a year to move it.
So I give bill and you guys a lot of numbers and you have to figure it out, it takes 1 to 3 years before they actually reach that number.
So that\'s part of why it\'s not as optimistic as it sounds if you only watch victory.
On the other hand, we did lose some customers.
We have gone through a very important analysis trying to figure out what we have lost, why we have lost, and what we can do without a chance.
So one of the things that happened over and over again is that we started with a smaller client and we helped them succeed, they ended up being acquired by some really big company and we didn\'t have the opportunity to keep them.
So it\'s kind of heartbreaking that these two have happened to us in the last couple of years, because you\'ll see the huge payoff at the end of the story never happened.
We have revised our approach to these small customers and actually asked us to have an exclusive period with them.
The last one I signed was four years.
So if this does happen, we will get quite a reward if the purchaser does decide that we do not want us to build it for them.
So this is one of the painful things, it is also discharged from the bottom of the barrel.
In fact, there is no really important statistical trend that suggests that we should do this to stop losing our customers.
In most cases there seems to be a reason why we can\'t control it.
There have been 1 or 2 of the last 5 years that I wish I could do something different, but 2020 vision is the kind you see in your rearview mirror.
So that\'s two reasons why you can\'t accept Bill\'s number. -
Sorry, it\'s not Bill\'s number, Bill\'s answer is, and put them on current revenue.
I think the third one is that the number we gave you is the number we quoted you.
Then we divide it by 2 and that\'s the number we gave you.
I don\'t know, maybe on average, we should divide it by 3.
About what number I should use, Bill and I had a long debate.
But this is a complete answer.
This is behind the curtain. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [44]--------------------------------------------------------------------------------Okay.
In these two examples, you have smaller customers who are growing and being acquired.
You mentioned two examples in the past few years.
When was that and how much money was taken from the sale? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director45]--------------------------------------------------------------------------------
The last one is the most painful.
I have detailed information on it.
That was two years ago. when we lost it, it was about $25 million a year. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [46]--------------------------------------------------------------------------------
Well, there\'s one this year. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [47]--------------------------------------------------------------------------------
Did you say another one? . . --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director48]--------------------------------------------------------------------------------Yes.
Another is about $15 million a year. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [49]--------------------------------------------------------------------------------Okay.
So these are important numbers. Okay. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director50]--------------------------------------------------------------------------------Yes.
It\'s heartbreaking because we do a lot of work and we help people who are not necessarily as skilled as they should be.
Then we saw it coming out of the door.
As I said, we have changed the way the contract is written.
So far, it actually works.
So we have one that is a little scared to us and it turns out that everything will be fine due to the contract.
You can imagine. . . --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [51]--------------------------------------------------------------------------------
So you were able to implement these exclusivity or these schedules in the contract as you said?
Can you do it? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director52]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [53]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director54]--------------------------------------------------------------------------------
You can imagine the difficulty of pre-discussion, because usually a smaller client does not understand that they are actually not skilled and does not understand how much risk they will have if they do not sign up with us.
So wait until they get into big enough trouble to say, \"Okay guys, now that you understand, we won\'t save you unless there\'s a return at the end of the rainbow.
\"But as we have more examples, it\'s easier to have these seminars with people. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [55]--------------------------------------------------------------------------------Okay.
Then on the balance sheet under working capital, it appears that working capital generated a little cash during the quarter, but this is mainly due to a much lower income.
But there is some growth in your working capital cycle day.
I counted it for 81 days.
What is the goal here?
How is this possible?
Is there a way to reduce this? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [56]--------------------------------------------------------------------------------Yes.
This is mainly inventory.
As we mentioned, inventory, while far below last year\'s level, is still not in line with income.
Some of the reasons are that we fully expect higher revenue in the third quarter, so we can only carry inventory.
It will be an ongoing battle.
I think that\'s why this is driving the cash conversion day for the quarter.
This is exactly what we need to continue to focus on in order to bring our income down to a more stable level. --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [57]--------------------------------------------------------------------------------So what. . . --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director58]--------------------------------------------------------------------------------
You can imagine if you. . . --------------------------------------------------------------------------------George Melas-
Kyriazi, MKH Management, LLC-President [59]--------------------------------------------------------------------------------Continue, Craig. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director60]--------------------------------------------------------------------------------
I just want to say that if you have $6 million for a new customer and $3 million for another customer, it should be built and shipped in the third quarter, you have to put all these parts there. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [61]--------------------------------------------------------------------------------
Because you\'re buying in the lead time is far more than the time of the quarter. --------------------------------------------------------------------------------Operator [62]--------------------------------------------------------------------------------
Let\'s answer the question of Bill dezlem in the capital of Teton. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer63]--------------------------------------------------------------------------------
Actually, I want to go back to the answer you gave to the previous questioner, Brett, on the net 10% Republic of China on capital returns and key.
So when you calculate capital, is it as simple as adding debt and equity? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [64]--------------------------------------------------------------------------------
I\'m more looking at what our stock Weighted average cost of capital is. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer65]--------------------------------------------------------------------------------
So what you really focus on is a 10% return on equity? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [66]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer67]--------------------------------------------------------------------------------Understood. Okay.
So if I look at your stock of about $0. 113 billion and get a 10% return from it, we\'re talking about $13 million, or $10.
8 million shares, $1.
20 or what\'s nearby? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [68]--------------------------------------------------------------------------------
These are great numbers. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer69]--------------------------------------------------------------------------------
These numbers are amazing. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [70]--------------------------------------------------------------------------------
That\'s one of the reasons we gave guidance in just one quarter.
But, thanks to our current backlog, and our direction, and the fact that we are going to integrate Vietnam at that time, we are a year away from hopefully making these types of numbers. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer71]--------------------------------------------------------------------------------Great.
I appreciate it.
Let me go back to the guidance you gave when doing the pre-job in the fourth quarter
Released today.
These numbers are falling a bit.
Could you please talk about the potential motivation that led to this situation? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director72]--------------------------------------------------------------------------------Yes. I just did. Those are --
If you take $3 million, we will miss $1 and $1.
5 million we will miss the other one, you go. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [73]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer74]--------------------------------------------------------------------------------Got it. Okay.
So do you think these are just running at a more comprehensive speed? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director75]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [76]--------------------------------------------------------------------------------Correct. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer77]--------------------------------------------------------------------------------
The final running speed has not changed.
This is only the time when income will fall.
Do I understand correctly? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director78]--------------------------------------------------------------------------------
Of course, this is true for the first POs we got from these two customers.
We are not sure what our run rate will be.
We don\'t know yet, that\'s why we don\'t like projects over a quarter. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer79]--------------------------------------------------------------------------------Understood.
Then relative to $1.
1 million of severance pay, where is the income statement? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [80]--------------------------------------------------------------------------------
This is measured by the cost of selling goods.
So this is one of the drag on the gross profit margin this quarter. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer81]--------------------------------------------------------------------------------
Does it not have one through SG &? --------------------------------------------------------------------------------Brett R.
Key electronics company Larsen
Vice President of Administration, chief financial officer and head of finance [82]--------------------------------------------------------------------------------No. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer83]--------------------------------------------------------------------------------Great.
One more question.
So, when I ask my first set of questions and the other two questioners and the 10% ROE goal, listen to all the good things that you have developed, which leads me to believe, there are many more things happening behind the black curtain than in history.
So in this spirit, what is--
Can you talk about the scale of the new project ramp you are working on today and in the past or are expected to be going on soon?
I don\'t know if it would be better to fix it in dollars or the number of items, but hopefully you will understand the main points I am trying to embrace. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director84]--------------------------------------------------------------------------------
Yes, we try to find a way to answer this question for you.
We can give you a qualitative answer. you may be tired of listening.
But if you look-
I started writing this story a while ago.
If you look at what we think our market is getting harder and harder, it turns out we are right.
They are shrinking if you look at our size and below. We\'re growing.
What we do is change our sales structure, change our quotation process, invest in some new technologies and factories to reduce our cost.
What I\'m talking about is the experiment. -
In the past 18 months, we have just finished the analysis, and this experiment has achieved good results.
So the number of outstanding offers at the moment, the number of business wins that are currently increasing, and the number that is close to the award but has not yet been awarded, all this may be three to four times what we have seen at any time in history.
In terms of how I can answer your questions about new products or projects that are being added by the factory compared to the past.
I\'m not telling you in this way what exactly is going to be new this quarter.
That\'s our problem. -
When we try to do a regression analysis on this, you try to see what you have won.
So, as you and I argue, when the PO is cut, when will I put it there when the first product comes out of the factory, or when they reach the actual number of units we refer.
Well, if you look at what we lost, when it first started to fall, it was a 50% drop when we finally stopped building more for someone.
So I see anything in the literature, anything in other people\'s financial reports and announcements, anything I can see is a standardized way to report to you, the question you want to answer
Apart from exposing everyone who is quoted with us, exposing everyone who is in our handshake business, and exposing everyone in our first PO, I don\'t know what to do. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer85]--------------------------------------------------------------------------------
Craig, if I didn\'t hear it wrong, quote, the wins that are being added, a handshake or a win close to a win, these are three to four times higher than in history? --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director86]--------------------------------------------------------------------------------Yes. --------------------------------------------------------------------------------William J.
Dezellem, Teton Investment Management Co. , Ltd-
Chief information officer, chief compliance officer87]--------------------------------------------------------------------------------
Well, this is very helpful.
We look forward to it becoming $1.
Annual income of 20. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director88]--------------------------------------------------------------------------------So do we. --------------------------------------------------------------------------------Operator [89]--------------------------------------------------------------------------------
We have no further questions at this time.
I will move it back to management as a closing note. --------------------------------------------------------------------------------Craig D.
Key electronics company-Gates
President, CEO and director90]--------------------------------------------------------------------------------Okay.
We appreciate your call.
Thank you for listening to us and looking forward to talking to you next time.
Have a good day. --------------------------------------------------------------------------------Operator [91]--------------------------------------------------------------------------------
Thank you, ladies and gentlemen.
This concludes today\'s meeting.
You can disconnect now.
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