Good day, and welcome to the Key Tronic Fourth Quarter and Year End Conference Call for Fiscal 2019. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Larsen. Please go ahead, sir..

Thank you. Good afternoon, everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here in our Spokane Valley headquarters is Craig Gates, our President and Chief Executive Officer.

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

For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs and 8-Ks. Please note that on this call, we'll discuss historical, financial and other statistical information regarding our business and operations.

Some of this information is included in today's press release, and a recorded version of this call will be available on our website. Today, we released our results for the fourth quarter and year ended June 29, 2019. The results were in line with our announcement of preliminary results on July 24, 2019.

For the fourth quarter of fiscal year 2019, we reported total revenue of $105.6 million compared to $117 million in the same period of fiscal year 2018. As previously reported, our revenue in the fourth quarter of fiscal 2019 was adversely impacted by disruption in deliveries of a critical component from the supplier in China.

Delays in the ramp of a new program due to customer driven design changes and temporary reductions in customer demand due to concerns of our tariffs and trade tension between the US and Mexico.

Moving into our first quarter of fiscal year 2020, the disruption and delays experienced in the fourth quarter have been largely resolved and we expect revenue to increase. Despite the unanticipated declines in revenue in the second half of the year, total revenue for the full year increased by 4% from the prior year.

Total revenue was $464 million for the full fiscal year 2019 compared to $446 million in fiscal year 2018. For the fourth quarter of fiscal year 2019, our gross margin was 7.9% compared to 8% in the same period of fiscal 2018. The reduction is related to the decrease in revenue.

However, due to the strategic investments and increased operational efficiencies in recent periods, we were able to reduce our work flows by over 10% from a year ago which allowed us to maintain similar gross margin percentages including with $11 million less in revenue.

We expect to see improving gross margin as our revenue levels rebound in the first quarter. Despite the adverse impact on our bottom line caused by the sudden decline in revenue in the fourth quarter of fiscal year 2019, we remain profitable.

We had net income of $800,000 or $0.08 per share compared to a loss of $2.2 million or a loss of $0.20 per share for the same period of fiscal 2018. For the full fiscal year 2019, our net loss was $8 million or $0.74 per share which includes an impairment of goodwill and intangibles of $12.5 million reported during the third quarter of fiscal 2019.

This is compared to a net loss of $1.3 million or $0.12 per share for the fiscal year 2018 which was adversely impacted by an arbitration loss of $4.5 million.

Excluding the one-time write-off of goodwill and intangibles for the severance charges that occurred in Q3, the results for the full year of fiscal 2019 would have been a reported net income of $3.9 million or $0.36 per share.

This compares to net income of $2.5 million or $0.23 per share for the full fiscal year 2018, when excluding the one-time arbitration loss in the fourth quarter of fiscal 2018. Turning to the balance sheet, we continue to maintain a strong financial position.

As a result of the production delays in the fourth quarter and the continued ramp of new programs, we did see a sequential increase in our inventory by approximately 5% from the third quarter of fiscal 2019. However, from a year ago, our inventory levels have declined by $9.9 million or 9%.

In the first quarter, we expect to see our net inventory levels come even more in line with revenue levels. At the end of the fourth quarter, trade receivables were down $11.8 million from a year ago and DSOs were about 47 days.

Total capital expenditures in the fourth quarter in full fiscal year 2019 were approximately $2.6 million and $8.4 million respectively. We continue to invest in our production facilities, SMT equipment and sheet metal and plastic molding capabilities as well as improvements in our facilities.

We plan to have approximately $10 million of capital expenditures during fiscal year 2020. Moving into the first quarter of fiscal 2020, we expect more of our new customer programs to ramp and to move into production. The disruptions and delays experienced in the third and fourth quarters have largely been resolved and we expect revenue to increase.

Taking these factors into consideration, we expect that the first quarter of fiscal 2020 will have revenue in the range of $115 million to $120 million. For the first quarter of fiscal 2020, we also anticipate earnings in the range of $0.12 to $0.17 per diluted share this assumes an effective tax rate of 20%.

In summary, while we are disappointed in the disruptions to our revenue and earnings during the second half of the year, we remain encouraged by our prospects for future growth.

The overall financial health of the company is strong and we believe that we are well positioned to win new EMS programs and to continue to profitably expand our business over the longer term. That's it for me.

Craig?.

Thanks, Brett. Well, we got off to a great start in the first half of fiscal 2019 growing revenue at 13.4% year-over-year; the second half of the year was very challenging. We faced unanticipated disruptions and deliveries of critical components from China.

Delays in the ramp of a new program due to customer design changes and temporary reductions in customer demand due to industry-wide concerns over tariffs and trade tensions. Nevertheless, we see these issues largely resolved and we enter fiscal year 2020 with improved expectations.

While concerns about a trade war with Mexico have abated, the evolving tariff situation with China continues to have mixed ramifications for Key Tronic. On one hand, the tariffs are causing uncertainty and sudden reactions across EMS market including our own customers.

Additionally, tariffs further complicate the supply chain particularly for China suppliers importing product back into the United States. On the other hand, many of our current customers are experiencing a seamless transition of their business out of our China facilities to our Mexico, Vietnam or domestic U.S.

sites facilitated by our centralized command and control. This drastically reduces the risk and time associated with a transfer to our North American sites and thus allows some leeway to respond to the rapidly changing tariff landscape.

Furthermore, we believe the tariffs on production in China have made our Mexico based and Vietnamese production more appealing to potential new customers. Also our North American sites have become extremely competitive for U.S. bound products subject to the new tariffs.

This has resulted in increased interest and request for quotes from prospective customers. On balance, we’re increasingly well positioned for the returning tide of North American based customers as they appropriately analyze the total cost for overseas production pushing production into both Mexico and the U.S.

In the face of these challenges, we saw many Tier-2 EMS competitors shrink significantly last year. And yet, even with our disappointing second half, we grew modestly for the year.

Moreover, large Tier-1 EMS players are shedding small accounts which they view as under $20 million revenue per year and we've begun to see an increase in quoting interest for many of these accounts. While our marketplace remains very competitive, we continue to win significant new business both from EMS competitors and existing customers.

During the past year, our strategic additions of new salespeople, our intensified focus on aerospace and military programs and more reporting activity in general resulted in over 20 new customers and over $60 million revenue in our 2020 fiscal plan.

We want a wide range of new programs involving smart security, architectural LED lighting, power metering, smart grid and wireless power solutions, emergency medical equipment, paper dispensing products, industrial cleaning equipment, express delivery services, industrial monitoring systems, industrial motion control products and fire protection systems.

Our broader and more diversified customer base lowers the potential future impact of the slowdown by any one customer. While we are carefully managing our expenses, we have been preparing for growth in coming periods. During fiscal 2019, we made investments in our facilities, SMT, sheet metal and plastic molding capabilities in Mexico and U.S.

We also deployed innovative new manufacturing equipment in each of our facilities which has improved efficiencies and has made our production less labor-intensive. The result of this effort is decreased manufacturing and operating expenses of approximately $3 million annually. We also added more contiguous space in the U.S.

and production equipment for growth. With respect to integrated electronics and sheet metal centric programs, we see very strong growth and few real competitors of our size in North America.

Moving into the first quarter, we have commenced production in our new 86,000 square foot manufacturing facility in Vietnam to augment our Asian footprint and reduce production costs as well as provide an additional hedge against uncertainty and in lingering our future trade war with China.

Our steady pipeline of new business opportunities continues to be boosted by our unmatched level of vertical integration, our multi country footprint and the excellence of our manufacturing sites in comparison to other EMS competitors of our size.

As OEMs face an increasingly uncertain geopolitical landscape, we're uniquely equipped to offer risk mitigation with our vertical integration and manufacturing facilities located in China, Mexico, Vietnam and the States.

While industrial supply chain shortages and uncertainties about tariffs continue to be a factor, we expect revenue growth in the first quarter. We're optimistic about our opportunities for growth in fiscal 2020 and beyond.

In closing, I want to take this opportunity to express my gratitude to our employees for their dedication and hard work during this past year to our valued customers who continue to honor us with their trust and to our shareholders for your continuing support. This concludes the formal portion of our presentation.

Brett and I will now be pleased to answer your questions..

Thank you. [Operator Instructions] The first question will come from Bill Dezellem with Tieton Capital. Please go ahead with your question sir..

Thank you. It's Tieton Capital and Craig would you please repeat one thing you said in your opening remarks. I heard something about a certain number of new customers I think and a certain level of new revenues are in your fiscal 2020 plan.

Would you please repeat that?.

Yes. It's actually more than 20 new customers and more than $60 million in new revenue in the 2020 fiscal plan..

And then, let me start with the five new wins that you announced here this quarter.

First of all, what's the dollar amount of each of those please, but then just as importantly would you talk about each of those wins and what it is that you're doing and as much detail as you can and how you won those pieces of business please?.

First, the amount none of them is under 5 and none of them are over 20. So they seem to all be kind of clustering around that kind of sweet spot for Key Tronic. We want them in various ways. Let's see, one of them is from an existing customer and -.

And just for ease of following along, can we start with as you have listed in the press release with the smart security?.

Yes. So that is a new customer that is exiting their China facility and moving to Juarez. Second one is, architectural LED lighting that is a current customer who just completed an acquisition and has decided that we will be the people in the building, actually redesigning that product for them and building it, the redesign has already started.

Third one, power meters and smart grid and also the next one wireless power solutions, both of those are at the smaller end of the scale. Both of those are new customers who came through our direct sales team..

And how about timing of these converting to the plant and starting revenue? Can you walk through each of those?.

It's again a mixed bag. The smart security product is actually going quite nicely and they would like to be fully transferred before Christmas and that's one of the larger the programs. The second one, the architectural LED lighting is as I said, going to be redesigned by us.

So I'd say that's probably going to begin ramping in the third quarter and the last two are both basically PCBs in a box and should go kind of a mellow pace again also sometime in a second, beginning a third fiscal not calendar quarter..

And then, relative to the Vietnam facility, you said you are producing there. It's rare that a plant starts up as smoothly as this one has seemed to -- and I won't ask my next question relative to that.

Let's talk about how are your prospective customers now interacting with you that you actually have a live working facility that you can take them to and they can see, feel and touch?.

Yes. Everybody is, I shouldn't say that not everybody, but we've got a number of existing customers who have their business split between us and people who are China centric, who are either in the act of touring or shortly will be touring Vietnam.

We have a number of new customers that I think having Vietnam as an option played a big part in winning them, even though they're going to end up in Juarez. The fact that we can quote the three, actually four regions with just the push of a button now is very powerful during the sales process..

And have you had any new customers that you have won that are intending on going into Vietnam?.

Yes, but not immediately..

I have another group of questions, shall I go back in queue or you want me to keep going?.

Go ahead and keep going..

Let's jump then to SkyBell please.

Would you give us an update of what's happening with that business?.

I don't know how much I can say about that Bill, because it's not my business. As far as our side of it, demand continues to be strong and production kinks have been worked out and we think the latest supply disruption is behind us. So that's probably about all I can say about it..

The implication then is that the supply disruption you referenced in the press release was them?.

That's an implication..

Fair enough. Let's shift to the question that I suspect is, just a point of ignorance here. But, can you talk about how the U.S., Mexico tariff tensions how that impacted the fourth quarter from an outsider's perspective that all happened very quickly.

So talk about how that impacted your quarter please?.

Specifically, we had a customer who we were just about to ramp in China and they had made the decision to put us on hold and move it to Mexico. And then, when the whole Mexico thing came up, they more or less froze in the headlights and couldn't figure out what to do.

So in the end that delay cost us that revenue for Q4 that's not going to be starting in Q1..

That's helpful and then you I think you may have referenced this in your remarks, but there have been some rumors of that Plexus and maybe Flextronics are both kicking out customers that are $20 million or less in revenue.

Is that what you were referring to in your opening remarks and if so, I would assume given the size of those organizations there are a lot of customers that are floating around out there looking for a new contract manufacturer?.

Well, I'm certainly not in contact with the management at either of those companies. We have been told by a number of prospective customers that that's a situation they faced with those two manufacturers. Again, I can't confirm or deny it. But certainly, if that is what's happening there are a lot of prospects for us in that class.

This seems to be somewhat cyclical phenomena. We went through this probably, I can't remember how many years ago and picked up a number of nice accounts as a result. And then, things swung back the other way and now the pendulum seems to be going back to the big guys who are only interested in big business.

So I'm not sure, but we hadn't heard this for years and now suddenly we picked up on it in a couple of different places..

So this has happened in the past and you did win business from it in the past?.

Yes..

And presumably, you're a much better position to quote and win business today than you were several years ago?.

Yes. .

Let me jump to another question here. And maybe it all ties in to everything that you've been saying, but we went back and looked at just the number of new program wins that you've referenced in your press releases and tallied that up on the trailing four quarters. So at the end of fiscal 2017, you had 9 new wins at fiscal year.

Fiscal 2018 you had 12 new wins and then this last year fiscal 2019, you had 15 new wins. So that number is just steadily working upward. I would like to think that is indicating momentum in the business.

Would you concur with that or do you just consider this random chance?.

That's probably one of the few times you and I agree on the weight of such statistics. Those are very, very good numbers and indicate a sea change in our ability to win new business. It's not random..

Excellent, thank you. And then, one final question that I suspected is also not random and Brett you mentioned, I believe a couple of the components, but I'm going to ask you to go back and redress it.

Your gross margin held virtually flat in the fourth quarter versus the fourth quarter of last year despite the revenue pressure and it was actually up versus the first quarter even when adjusting for the restructuring charge that float through the cost of goods and I think that was on $2.5 million less revenue and still margin was up.

Would you talk to this please and congratulations on being able to pull that off..

Well, as we've mentioned before Bill is that, we went through a real deep look at our workforce, looked at also the equipment sets that we were using and we found some opportunities to really drop our cost. As reflected in the actual gross margin percentage that you stated, we did.

We were able to reduce our workforce year-over-year by over 10% which allowed us to maintain that similar gross margin as we did last year on $11 million more in revenue..

Congratulations and thank you both..

You bet..

The next question will come from [Indiscernible] Asset Management. Please go ahead with your question..

Yes, good afternoon Craig and Brett.

Did you mention what the backlog is at June 30 or the present backlog?.

We have not disclosed that. We struggle that that backlog number really is not indicative of how strong the quarter is going to be. So much of backlog is the timing, but when we actually receive purchase orders, but we definitely do see an increase in demand hence, fairly significant increase in revenue quarter-over-quarter that we're guiding to..

Okay. In the Q or the previous Q, you had $151 million and that's why I was wondering what it might be.

What is in it?.

Yes. We do disclose that in the 10-Q. That is correct..

What capacity are you in Vietnam and Mexico and all your other locations and what percentage are you able to increase sales from these different locations?.

That's a pretty long-winded answer. I'm sorry you asked it because here you go. Vietnam with the current customer who's going to be the anchor customer for that site is going to be close to 85% loaded with the equipment there right now. We have the rights to another building next door.

So we have the capacity to expand there without a lot of costs, but as installed this one customer is going to do a firm nice job of making this thing close to full. In Juarez to answer your question, you need to get your head around the fact that there's a million square feet down there and there's really quite a few different factories on campus.

So right now, the metal shop which does all the metal fabrication and powder coating and assembly, the metal shop is full. There's been a really strong group of people wanting to come out of China into Mexico and our metals area is one of the few around for programs of the size that we're interested and they are interested in us.

So that shop is almost completely full. The SMT shop is about 60% full. Plastics are about 55% full. And assembly is about 80% full. So those are the different factories or areas that exist down in Juarez..

Yes, I'm sorry. Yes. .

I told you, it would be a long one. Arkansas is probably equipment-wise 50% full but people wise it's probably 85% full. [Indiscernible] has got almost a 100% capacity expansion available in space because that's an empty building that we get from the state almost for free.

But their equipment is running about 75% full and Minnesota is right now bursting at the seams. Very shortly they will move into their added on area and then there will be about 70% full. And then, I think that's it, isn't it. That's it..

Well that sounds good.

Now, the 85% customer they are present customer and are you able to sort of give a generalization of what 85% would produce in sales or anything or some kind of range or something?.

They are a current customer. They are right now almost completely in our Chinese facility and they'll be moving almost completely out of the Chinese facility into the Vietnamese facility and I don't want to give you a revenue number because they might not like that..

I understand that. That sounds very reasonable and so you're in a lot better shape now then six months ago. You have visibility. You have the ability to improve your sales and profits.

And have we given any thought to the potential of the 10% additional tariff that's being talked about for September? Is there any more people in China that this would produce more people that might come out of China to some of your other business as that sort of given any requests for quotes or anything in that regard?.

Sure. I've kind of come to view these threats of tariffs as people talked about they've learned that they're going to die. There's kind of disbelief then there's bargaining and then there's acceptance and then there's sadness or whatever those are that order of events are we've seen people go through those stages with the first round of tariffs.

And right now in the second round, I'd say people are in the acceptance and beginning to plan for them actually happening and so it is creating more quotes. It will create more business coming to us. So it's for Key Tronic probably net, net. It's a good thing even though it's certainly an awful thing for our guys in China..

And as far as your inventory being in an appropriate way if more business comes in, you'll increase inventory or is it structured for the more business that the inventory that you presently have?.

The reason it's a little bit too high is because, it was a shock last quarter and a half that we didn't ship what we had planned to ship. So the parts were there. We were unable to ship them.

So we would expect if the revenues stayed at the level we're at, we're projecting to be at this quarter that the inventory would go down some and then as we add new business and new programs the inventory is going to go up ratio metrically with that..

That's good and do we see as far as us getting parts from some other place, we have everything in plan to produce whatever we think we're going to get going forward without any problems?.

What I would like to say that's a 100% sure thing but certainly with what's going on today not 100% sure. As far as I see right now, there's nothing that is terrifying right now. But, I certainly wouldn't say we're sleeping easy with what's going on between Trump and his fellow leaders..

I just want to give you a piece of history. It's my recollection is when Key Tronic first started, they were dealing with just telephones and it's a whole new world because I remember, it was a long time ago when I was involved, but no more telephones..

Well, when I started in 94, a keyboard was selling for 112 bucks and by 98 it was 10 bucks..

Yes. This is progress I guess. Alright, thank you very much. Hope you achieve your goals. Thank you..

Bye..

Thank you. The next question will come from Drew Thelen with Crimson Advisors. Please go ahead with your question..

Thank you very much. On the last call, Brett had mentioned that we're about a year out from getting a 10% type of ROE.

We're 9, I guess we’re now nine months out from that point, are we still on target to do something like a 10% ROE by the end of the next fiscal year?.

Yes..

Great that's all I got. Thank you so much..

Thank you..

Thank you for the question. The next question will come from Sheldon Grodsky with Grodsky Associates Inc. Please go ahead with your question..

Good afternoon everybody and that was a very nice simple answer of the 10% ROE for this year. My question is more a delayed response.

I don't recall if we ever discussed it in the last quarter, but what was the write-off of goodwill? Was that Ayrshire and however you pronounce it and why do you have to write it off?.

We mentioned a bit of this in last quarter’s call that really was related to the calculated share price of Key Tronic or basically our market cap was considerably less than our book value.

So through Generally Accepted Accounting Principles, you are forced then to value your company and figure out whether there would have been impairment to that intangible.

At that point in time, we went through that calculation and found that it was a close call and went ahead and decided to write-off the intangibles and it was largely related to the acquisition of Ayrshire. Now the results and the actual profitability of those entities that were acquired during the Ayrshire acquisition are faring well.

During the third quarter we did go ahead and write-off those intangibles..

So this is specifically required when you're selling it less than book value?.

That is correct..

Thank you for the question. The next question will come from George Melas with MKH Management. Please go ahead with your question..

I have a question and I'm just trying to understand how to think about you say that customer is added in fiscal 2019.

Can you guys hear me?.

Yes..

Customers are added in fiscal 2019 should sort of contributing roughly $60 million to the revenue plan for this coming year, for fiscal 2020. There's roughly 15 of them. How do we think about that? It seems like $4 million per customer is a small number.

I understand some of them will take some time to ramp, but can you help me understand sort of how to think about that?.

Yes. You've kind of answered your own question there George is, we said in the fiscal year so that's between now and the end of June. We have to get all these customers in the factory up and running and most of them will not be anywhere near their eventual mature run rate. So that 60 million if you --.

So the logical follow-up is at run rate, how much you accept those customers to be?.

Yes. That's a logical question. We've had quite a number of discussions with this, how do we wait when a customer tells us what the business is worth and when it's going to happen. But my best estimate of that 60 at full maturity is probably about a 110 million..

So if you have the discussion there because you have right now roughly 460 million in this fiscal year. You have coming in fiscal 2020, you have some fiscal 8 million customers that continue to ramp, you have the fiscal 2019.

So if we think of customers that are fully ramped and I'm creating maybe somewhat artificial categories but I guess it's helpful conceptually. But if you think of customers that are fully ramp and those who are also ramping that probably are 18 and 19.

How do we think about that because if you add that much new customers, it seems like it would drive meaningful growth unless there is a meaningful attrition which I don't think is the case. I mean, I'm sure there is some regular attrition but you guys are doing a good job then you don't have abnormal attrition.

So if you take the customers that are fully ramped what kind of degradation in revenue do you expect in fiscal 2020? I guess if you do your budget, if you look at customers on a fully ramp, those are ramping from 18, those are ramping from 19, what are those different buckets?.

We've done a lot of work to try to figure out how to predict, how much leakage we're going to have out of the bottom of the bucket. Easy ways that's alright, you haven't been thinking about it as much as we have. We've gone back and looked at history, eight years worth of history and what we see is not really, a statistically valid rate of leakage.

What we see instead are individual events that appear to be not really all that predictable or something that we could have mitigated. So for example, one of our largest customers was almost bankrupt and got bought by the world's largest competitor. That was a major hit to the company and you probably know which one I'm talking about.

Another one of our customers was growing rapidly and we had done quite a bit of work to help them grow and they were bought by Amazon and we were on the street within weeks. It just goes like that where you look at the things that have really affected us and it's not like a customer got mad or was wooed away by another EMS competitor.

It's all these kind of strange one-off occurrences that nevertheless continue to happen at a substantial rate. So you can't just take the new business and add it on to what we have.

So if you look at today's bucket of customers there are a couple of big ones in there whose products are running at really nice high rates and the question is how long before their markets get saturated and even though we are working on new designs with those customers to get them into new markets, will those new designs be raging the successes like this current design is.

So it's really impossible for me to tell you that we've gone back and looked over eight years and the average rate per year is this much loss and this enter deviation on that rate is why and so therefore you could expect between an upper limit and a lower limit of this so you could plan on $40 million of leakage out the bottom of the bucket.

I can't do that for you. I'm sorry. I wish I could..

Appreciate the explanation. The issues that you have with the two customers in the market order and those guys have had in the two quarters and those two big buckets of issues pretty much behind you.

I think in the March quarter there were two customers, an event [Indiscernible] reduce production the other one was sort of add build inventory previously as they were shifting from China to Mexico.

Are these issues kind of behind you?.

The excess inventory has been burnt up in both of those customers. One of them is right now in a pricing battle with a couple, it’s big sales points. So these tariffs are having different effects on different people. So we are still kind of waiting around to see who is going to win that steer down but the inventory has been burnt up.

But right now the forecast only show an improvement compared to what we did in the last quarter. They're not up to where we hoped they would be. And the other one is actually being limited by us right now at our ability to make metal parts to respond to all the demand we have in our metal shop..

And then, just a question of the investment I mean, there was really an elaborate question to the capacity that you have available in the different plant. So where is most of the investment going in because it's a fairly substantial CapEx investment in fiscal 2020.

Where's most of that going?.

Well that's going to help us with our capacity constraints and sheet metal, but it's also going into fully outfitting the new Vietnam facility..

Thank you very much..

Thank you for the question. The next question will come from Mike Hughes with SGF Capital Management, LP. Please go ahead with your question..

Thanks for taking my questions.

First, I don't think you typically talk about your end market mix, but can you at a high level give us a mix between maybe consumer industrial comp or what other categories that you think about internally?.

We don't even do that. A good mix of all the above, we are definitely not concentrated in any one of those..

If you have any you can pull it out that'd be helpful. But, my second question just what have you seen with your customers demand forecasts over the last few months? I assume you receive updates on a weekly or at least monthly basis.

What's happened on that front?.

It's been a mixed bag. I have a hard time to even draw any conclusions from it. I'd say the best I can do for you is that we've seen the consumer kind of smooth off a little bit and drop a little bit and we've seen industrial actually increased forecast is an industrial. So we're having a hard time drawing any conclusions from that..

When you look at those forecasts how do they compare the behavior now versus let's say six months or a year ago, is it softer or more choppy?.

I'd say it's more choppy and there's less exuberance..

And what percentage of your revenue at this point is generated out of the plant in China?.

It’s probably 6% or 7%..

Which is consistent with the square footage there out of the total company-wide number.

So what is the capacity utilization of that plant, did you run through that and did I miss it when you were through the utilization numbers?.

I missed it, good catch it's probably under 50% right now..

So at what point would that facility start losing money or is it already?.

It's getting close to worrisome that's for sure. We've got a couple of wins that are going to go in there that are for China market that will help and we'll see what happens from there. I think a point of clarity to that people don't understand and they don't have any reason to.

But, we have a very large purchasing contingent over there and is really directly linked to the manufacturing site itself because they buy a lot of the parts for the U.S., New Mexico and soon the Vietnamese plants. So no matter what happens to the manufacturing there's a lot of folks there that will remain as basically IPO..

And then, what percent of your revenue do you think is ultimately sold into Chinese end markets? I know you had the one customer you called out last quarter, the quarter before but do you have a handle on that number? I would assume it's no higher than 6% or 7% unless you have Mexican and American capacity that's exporting there..

No. It's less than that. Considerably less than that. I'd say a point or two..

And then, on the write off, was there any amortization that was reduced as a result of the write-off that would have helped the gross profit margin this quarter or the SG&A number?.

Yes. It's about a $100,000..

So it's not material..

No..

On the $60 million in new business what are the gross margins look like on that business, is it better or comparable to your existing book of business?.

I'd say it's comparable. Maybe a little bit better actually. Yes..

It seems like you have the wind against your back just with the demand for the capacity in Mexico and the United States.

So how does pricing look today versus maybe a year, 18 months ago?.

I'd say pricing is a little bit less frantic than it was. The supply for electronics has certainly gotten a lot less tight than it was a problematic and I think that people are being driven to move because of tariff situations or being psyched out of a big Tier-1 or in general a little less price sensitive than people that are not in that situation..

And then, the ramp in revenue from the June quarter to the forecast for September at the midpoint is roughly $12 million.

How much of that would be from new customers?.

Probably only, let's see about 3 million..

So 3 million, so the other nine is that normal seasonality or is it some of this business that was kind of pushed from the June quarter into the September quarter?.

Some of it was a push. Some of it was returning demand for the two customers that George asked about..

Some of it also now building programs that are in their current ramp stage that we've had revenue in the past..

And then, two last questions for you. Do you have customer concentration statistics? I know at one point you had a very large customer. I think maybe they're entirely done now.

What's your largest customer and then maybe your top ten what percent of revenue they are?.

I told our top five is just over 30%..

And then, did you address the latest the 10% tariff as far as that impacting your business your cogs on a go-forward basis? Did that impact anything that you're purchasing?.

It hasn't really had that big of an effect, if there's unavoidable tariffs we're fairly successful in getting the customers to pay for that..

Thank you very much..

Yes..

Thank you. The final questions will come from Bill Dezellem with Tieton Capital. Please go ahead..

I actually do want to, just one point of clarification by my calculation 10% return on equity would be a dollar plus a share. So really what you would be on track for is $0.25 or more of earnings in the fourth quarter, a year from now.

Is that am I reading the leaves correctly here and doing the math right?.

Yes..

Thank you again..

Thanks Bill..

Thank you. There are no further questions at this time. I'll turn it back to the speakers..

Well, thank you everybody for participating in today's call. Right now I look forward to talking with you next quarter. Goodbye..

Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect your line..