Key Tronic(US:KTCC)2019-01-30 04:00Financial Data and Key Metrics Changes - For Q2 fiscal year 2019, total revenue was reported at $123 million, representing a 10% increase from the same period in fiscal year 2018 [5] - For the first six months of fiscal year 2019, total revenue reached $250.5 million, up 13% from the same period in fiscal year 2018 [6] - Gross margin improved to 8.0% and operating margin to 2.1%, compared to 7.9% and 1.5% respectively in the same period of fiscal 2018 [7] - Net income for Q2 fiscal year 2019 was $1.6 million, or $0.15 per share, compared to a loss of $200,000, or a loss of $0.02 per share for the same period in fiscal year 2018 [12] Business Line Data and Key Metrics Changes - The increase in revenue was primarily driven by the ramping of new customer programs, despite ongoing industry-wide shortages in key electronic components [6][19] - The company is investing in new production equipment and improved facilities to enhance productivity and reduce costs [9][11] Market Data and Key Metrics Changes - The company experienced a reduction in inventory by approximately $18.7 million, a 16.9% decrease during fiscal year 2019 [13] - Trade receivables increased by $14.8 million year-over-year, with days sales outstanding (DSOs) at about 53 days [14] Company Strategy and Development Direction - The company is focusing on diversifying its global manufacturing base and reducing production costs through investments in new facilities, including a new production facility in Vietnam [11][27] - The evolving tariffs situation is seen as an opportunity to attract new customers to its Mexican-based production [25][26] - The company aims to enhance its competitive position by leveraging its vertical integration and multicountry footprint [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, citing strong revenue and earnings growth, along with new capital investments [18][32] - The company anticipates gradual improvements in gross margin as new customer programs ramp up and component shortages are alleviated [9][32] - Management acknowledged the impact of a large customer forecasting reduced demand due to inventory adjustments, but expects recovery in the fourth quarter [16][68] Other Important Information - The company plans to have approximately $10 million in total capital expenditures during fiscal year 2019, with significant investments in production facilities and equipment [15] - The new facility in Vietnam is expected to be operational by July 2019 and will significantly reduce production costs [28] Q&A Session Summary Question: What is the size of the new customer wins? - The new customer wins range from $5 million to $15 million per year in annual revenue [36] Question: What are the implications for the second-half CapEx? - Approximately $4 million has been spent in the first half, with the majority of CapEx going towards Minnesota space and setting up in Vietnam [48] Question: How does the cost in Vietnam compare to China? - Vietnam is expected to be 10% less expensive than China on average, excluding tariffs [55] Question: What is the impact of component shortages on revenue? - The impact of component shortages is estimated to be about $5 million to $10 million this time around [115] Question: What is the expected ramp-up of new customer programs? - A reasonable estimate for the contribution of new programs is between $3 million to $5 million on a sequential basis [118]