Q4 2021 Key Tronic Corp Earnings Call
[music].
Good day and welcome to the key Tronic Corporation fourth quarter and year end fiscal 2021conference call Today's conference is being recorded.
At this time I would like to turn the conference over to Brett Larsen Chief Financial Officer. Please go ahead Sir.
Good afternoon, everyone I am Brett Larsen Chief Financial Officer of key Tronic.
I'd like to thank everyone for joining us today for our Investor Conference call.
Joining me here in the 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.
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 will 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 quarter and full year ended July <unk> 'twenty or 'twenty 1.
For the fourth quarter of fiscal year 2021, we reported revenue of approximately $132.6 million up 14% from $116 million in the same period of fiscal year 2020.
For the full fiscal year of 2021 total revenue was $518.7 million the highest annual revenue in the company's history and up 15% from 449, and a half a million dollars for fiscal year 2020.
While demand has remained strong for both new and existing customers revenue for the fourth quarter and for the full fiscal year 2021 was significant significantly restrained by issues related to worldwide supply chain transportation and logistics.
Yes.
For the fourth quarter of fiscal year 2021, net income was $200000 were approximately <unk> <unk> per share compared to $1.5 million or <unk> 14 per share the same period of fiscal year 2020.
During the fourth quarter of fiscal year 2021, we again incurred additional costs due to supply chain issues, causing both factory downtime and overtime expenses as well as continued but lessened any lessening expenses related to COVID-19.
In addition, we incurred legal and other professional expenses related to the previously disclosed internal investigation of approximately $1 million in the fourth quarter.
You will recall that this internal investigation also resulted in legal and other professional expenses in the third quarter and delayed our reporting of the results of that quarter.
Our audit committee independent legal counsel and forensic accounting firm.
Conducted an investigation related to a notification from an employee regarding the classification of inventory at our production facility in Minnesota.
Although the investigation and management related review identified improper recording of inventory and related accounting errors. The financial impact did not result in a restatement of audited unaudited.
Unaudited financial statements.
However, as we recently.
Recently reported we are also taking related remedial actions to correct certain deficiencies in our accounting and financial control processes.
We continue to cooperate with the SEC regarding this matter, which is expected to result in additional expenses in coming periods.
Despite the increased expenses related to the pandemic, the global supply chain disruptions and expenses related to the independent investigation.
Our annual margins improved in fiscal year 2021.
Gross margin was 8.1% and operating margin was 1.8% up from a gross margin of 7.8% and an operating margin of 1.5 per cent for the fiscal year 2020.
For the full fiscal year of 2021 operating income was $9.5 million up 40% from the prior year.
Net income was $4.3 million or <unk> 39 per share compared to $4.8 million or 44 cents per share for the fiscal year 2020.
Turning to the balance sheet, we continue to maintain a strong financial position.
As a result of supply chain related production delays in the fourth quarter of fiscal 2021, the continued ramp and transfer of new programs, our inventory turns decreased slightly from the prior quarter.
In future quarters, we expect to see our net inventory terms increase to be more in line with expected revenue.
At the end of the fourth quarter trade receivables were down $2.6 million from the prior quarter, reflecting the timing of shipments later in the quarter.
Our dsos increased to about 76 days, which reflects both timing of shipments during the quarter and some delays in payments from customers, who have also been impacted by the pandemic related shutdowns and restarts in their respective markets.
Overall, our balance sheet has total working capital of $172 million and a current ratio of 2.4 to 1.
Nevertheless, we feel it is prudent to preserve cash and expand liquidity where possible.
In this line, we expect to increase our credit facility with our existing bank up to 120.
Up to $120 million of total availability subject to our borrowing base.
This should give us more flexibility to potentially ramp up production and to manage potential pandemic related risk and other risks in coming periods.
Total capital expenditures were about $10.6 million for the full fiscal year.
While we are keeping a careful eye on expenditures during fiscal year 2022, we plan to continue to invest in our production equipment S. M key equipment and plastic molding capabilities as well as make efficiency improvements in our facilities to prepare for growth and add capacity.
<unk>.
Despite growing customer demand and backlog, we expect that delays in the supply of key components will continue to significantly limit production and adversely impact operating efficiencies.
For the first quarter of fiscal year 2022, we currently expect to report revenue of approximately 125 million to $135 million and earnings of approximately 7% to 12 cents per diluted share.
Nevertheless, there's a lot of uncertainty surrounding these current estimates.
We're working closely with our customers key some key suppliers and employees to minimize the effects of delays attributable to the continued global pandemic increased global freight and logistics costs and limited availability of key components.
We also cannot predict the outcome of any regulatory actions related to the subject of the internal investigation.
While our facilities in the U S, Mexico, China and Vietnam are currently operating.
Bill following current health guidelines uncertainty as to the possibility of future temporary closures customer fluctuations in demands and cos future supply chain disruptions during the rapidly changing COVID-19 environment and other potential factors could significantly impact.
Operations in coming periods.
In summary, while the supply chain disruptions in the COVID-19 crisis continue to impact our business during the fourth quarter and remain risks in future periods. We are encouraged by our growing backlog as we move into the first quarter of fiscal year 2022 and by our prospects.
For future growth.
The overall financial health of the company appears strong and we believe that we are increasingly well positioned to win new EMS programs and to continue to profitably expand our business over the longer term.
Is it from me Craig.
Okay. Thanks, Brett.
Despite the stiff headwinds during the past year <unk>.
Including the pandemic multiple factory shutdowns worldwide supply chain challenges, we're very pleased with our strong positive momentum.
We reported 15% year over year growth and record revenue for the year and generated a 40% increase in operating income.
We also continued to ramp up new programs and win new business.
The Covid crisis is not behind US we survived the waves of the pandemic challenges over the past year.
Along with force government shutdowns, we worked hard to keep our employees safe implementing a variety of procedures and stopped gaps to address COVID-19 and mitigated spread.
We were also impacted by an unprecedented winter storm that shut down a warehouse facility for 1 week during critical times for several new program ramps.
During the year, we struggled to get enough labor in our production facilities as production staff, we're deterred by a variety of factors, including Covid related unemployment benefits, which at times exceeded payroll in the U S.
Endemic fears in Mexico, and government oversight in Asia.
Although we're sufficiently stepped up production.
Time being anyway industry faces persistent worldwide shortages in the supply of key components.
Particularly for electronic parts.
These shortages have extended production timing and costs transportation costs a triple.
And it not been for the supply chain issues, we believe burgeoning customer demand would've driven revenue per year in excess of $700 million.
Unfortunately, moving into fiscal 'twenty 'twenty 2.
Fly chain disruptions have not improved.
In the face of all these challenges, we continued winning new customers and ramping new programs.
More than offsetting the drop in some programs because of the pandemic.
During the year, we won new programs involving audio and video editing systems.
Indoor air quality utility meters warehouse management security and automation technologies industrial products consumer products medical exercise equipment and residential building products.
We also continued working with local government agencies to build medical products assisting in combating the pandemic.
We would not have won this mini programs without the opportunity to first ramp the programs in our U S plants and subsequently transferred to our lower cost plants in Mexico.
Recently, we leased 2 new buildings in our Mexico campus, increasing our capacity to over 1 million square feet in Mexico.
Moreover, production at our new Vietnam facility continues to grow doubling its workforce and generating profits for the year.
We expect big things from our denying facility in the future.
That said as we've discussed on previous calls the pressures on our customer base to lessen their Asian supply concentration I mean very powerful.
Demand from North American production continues to grow with no foreseeable end to tariffs, increasing Asian production costs and time to market.
In a weakening U S dollar.
These tail winds have driven a significant increase in our business.
Net increase has been along multiple vectors.
Firstly current customers with program programs in Asia outsourced to other providers have awarded some of that business to us.
Secondly, current customers with new programs that were in the process of being awarded have eliminate Asia from their selection process and selected key tronic based on our North American footprint.
And thirdly, new customers with both existing and new programs have also selected us based upon our footprint and experience.
Another factor in many of our recent wins has been the realisation by many companies in our target market that they have lost design controls that have products in the process of outsourcing them.
Our strength in engineering has proven to be a powerful asset as these companies work to regain design control and.
And several of the new project wins are due in part to our design services.
And another factor in many of our recent wins has been an unusually high level of vertical integration.
As a customer seeks to recreate an existing supply chain.
The risk and effort is multiplied by the number of new suppliers that must be identified qualified bid selected ramped and managed we believe key tronic is unique among our tier 2 competitors in that we offer a 1 stop shop for molding metals printed circuit boards Assembly test and distribution.
Additionally, <unk>.
Many of our new customers products require a manufacturing process. It is unique to their product key tronic has a long history of developing and optimizing such processes as we onboard a new customer.
And this development is aided by our vertical integration.
Moving into fiscal 'twenty 'twenty 2.
Significant uncertainty still surrounds the continuing threat of the pandemic.
And the disruptions to global supply chain for key components.
At the same time, we believe that these challenges will continue to force our customers to wait carefully the degree to which they concentrate their supply chain on any 1 region.
And see their design control to their outsource partner.
The macroeconomic events the past year force many companies to more fully recognize the significant impacts and elongated supply chain could have on both cost and availability.
The risks of IP appropriation and the attractiveness of doing business with an outsource partner, who can minimize their risks on all of these factors.
Restructured key tronic to be the clear answer to the true cost and risk of over concentrated outsourcing.
The advent of trade wars, with China, and the pandemic and global supply chain disruptions have only served to accelerate the effectiveness of our strategy.
Even if these challenges gradually abate, we expect that our market will still had been tilted in our favor.
In closing I want.
Want to once again, thank our great employees for their dedication during these challenging times.
Because of their courage hard work and strategic foresight, we expect continued revenue and earnings growth in coming periods.
And we continue to invest in new capacity to prepare for long term growth.
Let me share you also that we will continue to make protecting the health of our employees our highest priority.
This concludes the formal portion of our presentation, Brett and I will now be pleased to answer your questions.
Thank you if you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad.
If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star 1 to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Yeah.
Okay.
Yes.
Our first question comes from Bill doesn't Leung with Teton capital.
And if I could actually start to since we didn't have a third quarter conference call.
Have you discussed the new program that you won in Q3 that led to adding.
And additional 145000 square.
Square feet down in that whereas place.
I'm trying to figure out what I can say about that it's a program that's.
Being partially.
Move from China and partially.
As a business.
It is based upon.
Response time.
2 customization from that programs customers.
Okay.
First time in our history, what we ball.
With the death of a.
Hi in between us and our customer as far as commitments to square feet and commitments to.
Equipment that is being built and moved into our facility.
Well I think we also disclosed this last time this last quarter that it's highly automated and net.
With that we're really is truly a partner as Craig said with with this customer.
Thank you and gift giving me.
The amount of square footage that you're adding presumably this is is rather large.
In terms of a revenue potential would you would you scale force the revenue kind of as you have in prior quarters for the for the wind.
And specifically thinking about this 1 in the third quarter and my next question will be the 3 new ones this quarter.
So the third quarter the big 1 there was between 20 and $50 million a year.
And for Q4.
All of those were between 5 and $15 million.
And were those for for existing or new customers each of those in and if there was anything interesting about any of them.
The unique go ahead and.
Take the opportunity and dive in.
Well the.
Big 1 in Q3 was for a different division of an existing customer.
Yeah.
And.
The largest of the.
Wins in Q4 was for an existing customer.
Then the other 3 were new customers.
Actually health 1 of the other 3 was a new division of an existing customer.
Congratulations.
And then.
I'm going to ask you to kind of share a little bit of the behind the scenes of what happened with your revenue guidance specifically right. In early May you were guiding the fourth quarter to be 130 to 140 million and then Oh well. The I think it was early July.
That back to 120 to 125, and then you ended up doing closer to the $1.33, which was quite close to the to the Q3 revenue.
And you are can you help us understand kind of all that you were dealing with behind the scenes.
Sure, it's all basically related to component availability and new program ramps.
E.
Hey to day life.
Manufacturing is now sitting at your desk.
And wait for the phone to ring from a supplier who has decided he has to decommit today.
And then scramble around and try and find.
<unk> a replacement part see if you can find those parts in the gray market and the black market.
If you can find a way to get those parts certified to make sure they're not counterfeit.
Talk with your customers see if you can find a way to.
Convince that customer to pay anywhere from 10% to 2000 per se purchase price variance to get these parts out of the black or gray market.
And then when that 1 is behind you.
Wait for the phone ring again in a basically I'd say.
Any given day would have 2 or 3 new decommit from a supplier somewhere around the world.
Or a logistics snafu.
Where parts Didnt get on a boat or didn't get offloaded, our second floor.
So we really don't know from day to day.
What we're gonna be able to build which causes us to have a really hard time, giving you folks an accurate prediction of how much we're going to sell.
At the same time.
The customers need the parts need the products. So when we get the parts in the door. Finally, we ended up working a lot of overtime.
Try to get the products built and.
And we end up having a lot of people sitting around with nothing to do when the parks don't show up on time.
So.
That's that's why we can't be more accurate on what we're going to build but we're going to build it and how much it's going to cost is to deal with.
So that's actually quite helpful and that kind of help frame up the what seemed like conflicting statements in the press release cost.
Cost due to downtime and cost to do that over time those 2 generally don't don't go hand in hand.
But relative to the most recent guidance of $1.20 to $1.25, and then actually doing $1.33.
That's a great surprise, what happened to allow that to that positive surprise to take place.
<unk> came in that we were thinking we're not going to come in product got built that we didn't know if we're getting it done by the end of the quarter.
Alright got shifts that we didn't think was going to get done by the end of the quarter.
And presumably from what you've described just the opposite could happen at any quarter in the future. So we we shouldn't take too much share.
Too much enthusiasm.
For what what was accomplished in this quarter that does that.
Hey, alright, there should be enthusiastic, but not necessarily imply that that is going to repeat quarter after quarter.
We said.
Together every morning.
Talk with.
Our staff.
And every day we.
All have a pretty good idea of.
Which suppliers are in trouble with shipments are held up.
How far lead times are being pushed out.
Lead times for for example for.
Some of the hot components like our integrated circuit that we use in 1 of our larger product.
Revenue wise.
It's also used in the automotive industry.
And.
When that chip is holding up the shipment of an $80000 trucks versus holding up the shipment of our 800 dollar product.
GM or Ford or a lot more willing to pay $150 premium for $10 Chip then our customer is.
So as we look over this landscape of logistics and.
When fabs are coming on line and which countries are pulling their people out of the factories or restricting how many people are being allowed to go into the factories.
How far lead times are being pushed last time, we talked with a given supplier.
We've convinced ourselves over the last probably.
Only 3 weeks.
That things have stopped getting dramatically worse every day.
We are not convinced.
We've turned a corner and things are getting better.
At least we don't think.
Every day is worse than the last.
And there's a lot of factors that go into that too because.
When this first started.
There's always a secondary market for parts.
That has.
Parts that have ended up in excess for some reason and brokers are looking to move those parts to somebody at a higher price.
And as this first began that whole market was still pretty full of parts.
It hasn't got worse, and worse and worse that mark you'd get drained down to where there is no.
Secondary gray black market to.
To speak of with reputable.
In it so as a result.
I'm not sure the last 2 or 3 months was actually.
Failure of manufacturers to keep up as much as it was.
We had finally drained the last pool, we had of parts and by we I mean the entire industry.
Well, that's what's confusing us as we try to figure out.
Is this the worst it's going to get is it going to get worse and we turned the corner.
And as I said right now we think we've hit the bottom and are bouncing along the bottom.
So whether you should celebrate or be in despair or bank got us, beating our projections are banking on us missing it.
I can't tell you I can tell you a lot of people are working really hard.
And a lot of time energy money is being spent.
Keep our customers as happy as we can because I can assure you we're going to remember the suppliers that didn't do it right.
During this time and I don't want any of our customers to remember us if not doing them right. During this time.
But that's about all I can give you.
Great. That's that's more than I ask for and very helpful. Thank you. So let me.
Just be clear here you are not experiencing any sort of a demand issue. It is all on <unk>. It is all on the supply front correct.
We are we see the highest demand we have ever seen in the company's history.
And so for this quarter are that you've just guided 125 to 135 million This September quarter.
What's your current gas avoid end customer demand is.
Yes, yes.
If we could get all the parts we wanted.
And if.
All of the employees were available to us.
We could be doing in excess of $160 million this quarter.
So that's up from I think what you've put in prior press releases of $150 million.
Okay.
Oh, congratulations on that front. So so let me ask 1 additional question and I will step back from Q.
What's getting in the way of hitting that 10% Roe.
Let's start with the long term I think you may have just answered in the short term, but long term what are what's going to preclude you from accomplishing that.
Well I don't know how long all of the pandemic and supply issues are going to be I don't know.
Think long term is a quarter or a year or what.
Certainly if we were running at 150 items and $60 million in revenue or profitability.
And everything else that you wanted to measure it would be a whole different world that better than us.
Yeah.
Let me let me actually.
Break my own promised I said I would just get back in queue and ask an additional question in the release you made reference to a 700 million.
Or so up demand in.
In the end of year, just completed had you been able to satisfy that demand.
And you did not have the internal investigation costs.
What would earnings have have looked like.
That's like saying what would happen if I hadn't hit to book for ball.
Okay.
<unk>.
There is nothing would require a lot of speculative theres no news really thinking about it.
You can just say that the Arrowood point way up and leave it at that.
Alright, that's fair. Thank you very much for taking all my questions.
You bet. Thanks Bill.
Okay.
Once again, if you'd like to ask a question. Please press star 1.
We'll take our next question from Sheldon Grodsky with Grodsky Associates.
Good afternoon everybody.
A few quick questions.
Have you.
How much.
Our internal investigation.
Related items.
Sure.
Yes, we have we've it's it's in excess of a million and half dollars.
Oh, well as anybody.
Results of the investigation.
We have taken remediation.
Including.
Control design enhancements.
Maintenance event control system upgrades training, just a whole variety of things that we've already publicly disclosed.
Okay.
And going to the.
Components problem.
Primarily emanating from Chinese suppliers.
Across the board around the world.
Across the board around the world.
Okay. Thank you.
Yes.
We'll take our next question from George Melas with M KH management.
Yeah.
Hi, good morning, good afternoon guys.
Hey, George.
Okay.
If you think that $700 million of demand in fiscal 'twenty, 1 how much of that was related to COVID-19 related products.
So what I'm trying to figure out is if you didn't have COVID-19.
With specific programs related to Covid like.
Like some sort of handheld thermometers and things like that.
Much would have been you know how much would that be.
That's kind of hard to answer because COVID-19 hurt some customers really badly and helped other customers a lot.
And some of the customers that it helped obviously, we weren't able to get parts.
And the question is.
Would that demand has been there.
Would it stay there if COVID-19 goes away.
I have a hard time answering that question I don't want the correlation to I can't the causation I'm not sure I can answer I think it would be.
My guess would be and this is just a.
This is just a.
An instinct rather than any type of.
Statistical analysis that I've done on it.
I guess it'd be that 700, it probably dropped down to.
600.
Okay.
That helps a little day.
A quick question for Brett.
Much.
In your guidance for the September quarter, how much did you bake in for criminal investigation.
Yeah.
We're expecting somewhere in the neighborhood of 3 to $400000.
Okay.
And then again.
Broad estimate and.
That's our best guess at this point.
Okay great.
Great.
Thanks.
And in Q.
Uh huh.
How do you think about what is your revenue capacity.
Mike.
Got it.
We don't.
Because every new every new win is a new adventure. So some wins are highly square footage.
Intense and other wins or low square footage intense so.
We don't think about it that way.
Okay.
In <unk> given.
You know.
The constraints that you have that maybe equipment space.
Yes.
When you bid for work when you choose work that you bid on is there I'm kind of emphasis that you have now.
Are you wanting to bring a certain kind of business to complement what you have.
Sure.
I don't think.
The answer to your question I'm not sure you're going to appreciate but the answer is that.
We look for business that has a strange.
Process in it.
So.
You won't be explained that more you're willing to give up on that 1.
And that thing is try to use your design capabilities and add value through that process right.
Yeah.
What percentage of your business.
Curious Dave.
I'd say.
Hang on.
Adding.
So at least 2 thirds.
Okay.
And if you take that 2 third.
Craig does it have a higher margin.
Then the rest of the business.
It seems too.
Eventually.
In some cases, it's again, there's there's so many different customers in so many different situations I guess I guess, it's not fair to say that it seems too.
Because sometimes the volume get so big that the margins get tighter.
Okay.
That sounds good.
To me because it looks like if you have a bigger program to margins would benefit from that.
If you have a bigger program your customer.
It gets more interest from.
People around the world gets a lot of unsolicited bids.
And so the.
The competition become stiffer.
Okay.
Okay.
Sometimes.
Okay. It depends it depends on how unique the process is.
Right and that's why you really weren't any strange price.
These were you add value when you helped us out.
Yep takes us out of the commodity contract manufacturing world and puts us into a different space.
Okay, and so if you look at the wins that you were describing to bill.
Do you look at your wings in the line well mine.
Half day being the kind of.
Bids are wins that you really wanted.
Have they been these day range.
Grange plant.
Certain union capability.
Yes, a lot of them have been.
Okay.
So now.
I guess, it's really difficult to talk about margin given all the.
Supply chain issue.
But help us think about what gross margin.
We're targeting because you're clearly targeting above 8%.
Yeah.
Hum.
In fiscal 'twenty, 2 or maybe in the back end of 'twenty.
What would be really cool for margins for the business.
Well I think our goal has always been to be.
Above a 9% gross margin that's our long term goals now to say that we are able to achieve that towards the back of 2022.
We're just not we're not equipped to be able to give that type of an estimate.
Okay.
You can look at it another way and say if we didn't have to.
Deal with all of the supply chain issues, we have right now that number it would be easy to hit.
Meaning you don't have any supply chain.
Gross margin would exceed 9% now.
Right yes.
Yeah Yeah.
Are you able internally to quantify.
How much is.
How much.
Wait is costing you more how much I guess you can from.
Over time, and all that stuff you can do that internal analysis.
Yep.
Yes.
Okay now on freight you incoming freight is probably new cost of goods sold an outgoing freight is in SG&A.
Can you talk a little bit about.
Thanks.
Yeah, George Let me, let me, let me correct you actually both both sides any freight would be through cost of goods sold.
Okay. Okay.
But often the customer pays freight usually picked up at our facility.
And then they would pay.
Great outgoing to their own distribution center of our finished goods. Yes. So typically we are paying the freight to get components.
And raw material to our facilities.
And then back north bound in Mexico up to El Paso for our customers for them to pick up.
Okay.
The big jump there is.
Go ahead.
No you go ahead Greg.
Hey, Jeff There is a if you if you're interested in board look at how the shipping companies are doing in terms of revenue and profit and.
You'll be amazed.
Our container used to cost somewhere around 3 to $4000 too.
Ras and ship parts from China to the states, that's now up to 16 to $18000 per container.
Yeah Yeah.
Okay.
Amazing Yeah.
And that's when you can get 1 and that's when you can get somebody to put it on a boat and that's when you can get somebody who can take it off of a boat and loaded onto a teacher training.
Yeah.
How much freight costs do you have that you would not able to pass along to customers from this.
We really try to recover as much as possible many of our manufacturing agreements in fact, most of them allow us to.
For cost reimbursement at the point in time, there are cost increases that we can't control.
Of course that is all always a battle.
I would just rough guess I would say.
More than half has been reimbursed.
And we're seeking for additional reimbursements as we go.
Just to understand what you said, 1 and a half.
In the universe, I mean, $1.5 million.
Sorry, more than 50 per cent.
More than 50 per phone.
More than 50% of our cost increases related to freight have been reimbursed by our customers.
And how much would that 50%.
It would be a number.
That would be difficult to quantify.
Okay.
Okay great.
Okay.
<unk>.
So if your gross margin could be in normal circumstances.
Demand north of 9% what would be the main factor that would make that difference.
It would be the ability to actually build.
Revenue that we could.
So it would be the ability to build it without a bunch of overtime and downtime.
And it would be the ability to.
A normal shipping costs.
And it would be the ability.
To not have so many increases coming at us at once that we can efficiently, yes negotiate with our customers.
And pass along those costs that are actually.
Foreseen in our contracts.
But just because it's in the contract doesn't mean, you don't have to go negotiated and prove it.
Okay and then just 1 final question for me I mean this has been.
Trying times for from an operations perspective.
And.
Are you a stronger organization now than 18 months ago, because of all that you've had to do with sort of what have you learned that.
Help you become even better in the future.
We've gotten a lot better at.
Forecasting.
And that understanding.
How to deal with uncertainty.
In the supply chain and how to lay off risk that's why we're.
Anticipating being able to drive inventories down.
We got better at.
Moving people around in the factory.
We've gotten better at talking with our customers about.
This is <unk>.
So we have to work on this together this isn't just a situation where.
Key tronic can take the hit.
We've gotten better at understanding.
How to.
Make it clear to somebody who is.
In crisis.
Because of choices they made years ago.
2 over centralized there.
Outsourcing.
That's a tricky conversation to have with the customer.
And we've got quite a bit better at that because it's been happening so much more.
Okay very interesting.
Thank you very much.
Thanks George.
Okay.
We'll take our next question from Bill Desert Lemons with Teton capital.
Thank you 2 additional questions first of all what's the backlog at the end of June and versus March.
We we gave up looking at backlog because our customers do at so many different ways, depending on the contract we have.
I don't have that readily available mill. It doesn't mean a lot to us just based on timing of when we actually get purchase orders and forecast and the likes.
So I was under the impression that say 2 years ago backlog really wasn't that relevant but as as the logistics and supply.
Supplier component issue tightened up.
And it did become more representative is that does that now changing.
And so when the 10-K comes out we shouldn't focus on that are like we would've been the past couple of quarters.
We've been pretty clear all along I think as we don't want you to focus on backlog you of course can look at it from a directionally you know.
Directionally, but definitely not.
To be able to define how much future growth key tronic will have.
Great. Okay. Thank you and then secondarily with the.
Covid Delta variant starting to pick up are you seeing any increase in demand from your customers that have a.
That have products.
That would that would benefit from a health emergency.
No.
We.
We don't see.
I'm trying to think about how to answer that because.
Some of the products that had a massive increase in demand.
We're over forecasted.
And.
Now burning off inventory.
So I can't really tell you if that inventories burning off quicker because delta has come along or not we are see.
Pretty big Whipsaw between where we were 6 months ago, where were at a day and whats forecast for next quarter.
On some of those healthcare products, so way high.
Sudden drop as everybody thought COVID-19 was over.
And inventories should be burned off.
And then.
Pick up again.
May be stronger than what it was originally forecast in our Q2, but I can't be.
Certain of that.
Alright, thank you.
So these customers who do have health care related products do they tend to sell them domestically or are they selling them globally.
If Indonesia for example has a has a pickup in COVID-19 that becomes real problematic Hay day shift to shift sales that direction.
Hence towards being global.
And.
It's shiftable, that's or in many cases, but not all because sometimes packaging and certain features are specific to the location.
And would it be fair to guess that that the shift the ball I like that term is really between countries that have the economic wherewithal and some of these countries that are less economically vibrant share start to aren't going to be getting into products.
No that doesn't seem to be the.
The factor there that drives that it seems to be more the demand and need for the product.
Alright, Thank you for taking the additional questions.
You bet.
Once again, if you would like to ask a question. Please press star 1.
We'll take our next question from George Melas with M KH management.
Thank you guys. Just 2 quick follow ups the customer that you got in the third quarter that you were talking about earlier that required a lot of new square footage has that customer ramps up in the fourth quarter.
No.
We don't expect to have revenue from that test from I think we've disclosed until latter half of fiscal year 2022.
Okay.
So what that means for that customer you have some costs right now, but you have no real rapid yet.
Correct.
Okay.
Great and then just a question about concentration.
You have more than 110% customer in this quarter.
Or do you not want.
Yes, 1 so just 1.
Great. Thank you very much guys. Thanks.
Thanks George.
At this time, we have no further questions in queue. Mr. Craig Gates at this time I will turn the conference back to you for any additional or closing remarks.
Alright.
Thank you everybody for participating in today's conference call.
Brett and I look forward to speaking with you again next quarter.
This concludes today's call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Okay.
Sure.
Okay.
Yeah.
Okay.
[music].
Okay.
Yes.
Okay.
Okay.
[music].
Yes.
[music].
Revenue.
Okay.
Okay.
Okay.
Yes.
[music].
Sure.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
Right.
[music].
Great.
[music].
No.
Okay.
Okay.
Yeah.
Okay.
[music].