Good day and welcome to the Third Quarter Fiscal Year 2020 Key Tronic Corporation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Larsen. Please go ahead, sir..

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 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 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 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. I hope all of you and your families are healthy and safe.

And before we start our normal quarterly results review, I would first like to turn sometime over to Craig to talk about the topic on everybody's mind, which is the COVID-19 pandemic and its impact on Key Tronic..

Okay, thanks, Brett. These are unprecedented and challenging times and this pandemic affects all of us. I've been humbled by the [indiscernible] dedication of Key Tronic employees as we work to manage through this crisis. Our first focus at Key Tronic continues to be to ensure as best we can, that our employees and their families stay safe.

Within the constraints of our efforts to keep everyone to keep trying to healthy, we're doing our best to maintain production in all of our facilities. We have been taking and will continue to take precautionary measures to limit the risk. Our most vulnerable in many of our non-manufacturing employees now work for home and travel is restricted.

We have implemented all recommended safety measures in our manufacturing facilities. This includes full-time wearing face masks and face shields, workstation arrangements to provide social distancing, temperature monitoring, enhanced worksite, disinfection, spacing and catheters and break errors, contact management and more.

Last week, we experienced a temporary shutdown affecting our Mexico facilities, but due to successfully petitioning the Mexican government this past weekend, we began reopening our facilities today. We expect to have operations back to near normal by the end of this week.

However, we expect additional challenges with absenteeism, keeping vulnerable employees at home, transportation complexities and disruptions to our supply chain that we will need to manage in the coming days. Some of our suppliers have experienced temporary closures resulting from governmental lockdown and shelter in place orders.

At this stage, we have either been able to work around these temporary disruptions or closures have been resolved. We are managing risks the alternative sourcing, airfreight, product redesigns and alternate component qualifications. We're closely monitoring the status and will use safety stocks as much as possible to ensure minimal interruptions.

At this point in time, we've been able to find solutions for most of these challenges. Regarding customer demand, our portfolio of health care products has seen an unprecedented upside while our gaming customers have seen an unprecedented decrease. So far, the net effect of all the puts and takes has been positive.

Of course, the drastic changes in demand come with our own challenges, and I will discuss more on this later, after Brett reviews its third quarter results.

Brett?.

Thanks, Craig. Today, we released our results for the quarter ended March 28, 2020. For the third quarter of fiscal year 2020, we reported total revenue of $111.5 million, up from $108 million in the same period of fiscal year 2019.

For the first nine months of fiscal year 2020, total revenue was $333.5 million, compared to $358.5 million in the same period of fiscal year 2019.

As previously announced, the lower than anticipated revenue and earnings for the third quarter of fiscal 2020 is primarily a result of disruptions to supply chain in China caused by the COVID-19 crisis, which delayed the arrival of key components. We've seen most of these Chinese suppliers come back online for production in the recent weeks.

Despite the unanticipated revenue shortfall, our margins increased. For the third quarter of fiscal year 2020, gross margin was 8.3% and operating margin was 1.6%, up from gross margin and 6.3% and an operating loss of 11.6% in the same period of fiscal year 2018.

As we discussed previously, we've made significant improvements in our operating efficiencies in recent quarters through investments in new equipment. Several of these investments were made in the metals area, and during the third quarter, these investments began to pay off.

The new equipment combined with the completion and production ramps of several new metal programs, led us to expect our margins to improve in the coming periods.

For the third quarter of fiscal year 2020, net income was 0.9 million or $0.08 per share, up from a net loss of 12 million or a loss of the $1.11 per share for the same period of fiscal year 2019.

For the first nine months of fiscal year 2020, net income was $3.3 million or $0.30 per share, up from a net loss of 8.8 million or a loss of $0.82 per share for the same period of fiscal year 2019.

Note that the earnings in the third quarter of 2020 were impacted -- actually, the note that the earnings in the third quarter of 2020 were impacted by a write-down of 0.6 million of, $600,000 of receivables from a customer that was further negatively impacted by the pandemic, decreasing our reported earnings per share by approximately $0.04 per share.

Excluding the goodwill and intangible write-down during the third quarter of fiscal year 2019, the Company would have been breakeven for the third quarter of fiscal year 2019, our reported net income of 3.1 million or $0.29 per share for the first nine months of fiscal year 2019.

Turning to the balance sheet, we continue to maintain a strong financial position.

As a result of the components shortages and production delays in the third quarter, and the continued ramp and transfers of new programs, we did see a sequential increase in our inventory, including revenue recognition contract assets by $4.5 million or 3.6% from the prior quarter.

In future quarters, we expect to see our net inventory levels be impacted as we respond to dramatic shifts in demand. Although, we have a healthy balance sheet as well as flexibility in available bank debt, we feel it is prudent to preserve cash flow possible.

Should the pandemic continue for an extended period of time? Not just for our own operations, but also in order to be able to support our suppliers as best we can in these extraordinary circumstances.

And that's why we have increased our bank line of credit to $65 million and are pursuing additional debt capacity that should close by the end of this fiscal year to give us more flexibility to ramp up production in the coming months.

At the end of the third quarter, trade receivables were up $7.1 million from the prior period, reflecting that no longer are factoring our receivables due to the increased loan capacity and DSOs increased to about 60 days. Total capital expenditures in the third quarter of fiscal year 2020 were approximately $0.6 million.

We'll continue to invest in production facilities, SMT equipment and sheet metal and plastic molding capabilities, as well as improvements in our facilities just at a slower pace than originally forecasted. We plan to make a total of approximately $7.5 million in capital expenditures during fiscal year 2020.

While there is a significant demand across much of our customer base, we've lost at least 10 days of production during the fourth quarter as we ramp Juarez facilities back up after the temporary closure.

Given the rapidly changing COVID-19 environment, including uncertainty over the possibility of potential facility closures, potential supply chain disruptions and predicting customer demand and associated costs of following healthcare guidelines, we're unable to provide specific guidance for the fourth quarter at this time.

In summary, while the COVID-19 crisis caused disruptions to our supply chain in the third quarter and remains a risk in future periods, we remain encouraged by our prospects for future growth over the longer-term.

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

Craig?.

Okay. Thanks, Brett. Let me first comment on how our business was progressing in the third quarter, before commenting on the current uncertainty in the fourth quarter.

Despite the COVID crisis, our demand for many customers remain strong in third quarter and some customers have even significantly increased their demand, including programs for home consumer products, healthcare and home exercise equipment.

We also have new programs producing personal respirators and we're in discussions with potential programs for ventilator manufacturing, driven by the growing global need for these critical healthcare products. Furthermore, as a result of the pandemic's impact on China production as well as uncertainty of tariffs and trade tension between the U.S.

and China, a growing number of existing and new customers appear to be accelerating their plans to transition from China facilities to our expanding facilities in Mexico, Vietnam and U.S. As we've discussed before, we see it as a very positive trend over the longer-term.

During the third quarter, a number of our customers were experiencing a positive transition of their business out of China facilities, which was facilitated by our centralized command and control.

This centralization drastically reduces the risk and time associated with the transfer to our North American and Vietnam sites and thus allows some leeway to respond to the rapidly changing political and health landscape. While we were carefully managing our expenses, we have been preparing for growth in coming periods.

During fiscal 2020, we have continued to invest in our facilities including expansion of SMT, sheet metal and plastic molding capabilities in Mexico and the U.S. With respect to integrating electronics and sheet metal centric programs, we see very strong growth in few real competitors of our size in North America.

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 has been decreased manufacturing in operating expenses of approximately 3 million annually.

This investment has made us increasingly well-positioned for the returning tide in North American based customers as they appropriately analyze the total costs for overseas production and as a result pushed production back into both Mexico and the States.

Additionally, we are continuing to ramp 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 with respect to COVID-related disruptions to China production as well as lingering of future trade wars with China.

While marketplace remains very competitive, we continue to win significant new business both from EMS, competitors and existing customers. During the third quarter of fiscal 2020, we won new program involving consumer products, personal safety equipment and home exercise equipment.

One of which went fully ramped is anticipated to contribute 100 million in annual revenue and is beginning production in the next few weeks. Our broader and more diversified customer base lowers the potential future impact of a slowdown by any one customer.

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

As OEM space and increasingly uncertain geopolitical landscape, we are uniquely equipped to offer risk mitigation with our vertical integration and manufacturing facilities located in Mexico, Vietnam and the States. While the third quarter was very promising, there was a lot of uncertainty about the fourth quarter.

While we are extremely pleased that our healthcare products are experiencing an unprecedented level of demand, the costs and risks associated with meeting that demand of region.

Additionally, the business opportunities resulting from our new customers come with the normal challenges of drastic ramps, which become far more challenging than normal when they're forced into a COVID-19 environment.

Finally, while we are only slightly exposed to the oil exploration market, that market downturn along with gaming presents inventory and scheduling issues that are more or less business as usual until the effects of COVID-19 are factored into the equation.

Currently, our China facilities appear to be returning to full operation and the supply chain disruptions have been abating. Our facilities in Juarez resuming operations in our facilities in the U.S.

and Vietnam continued to operate normally, with a focus on protecting the health of our employees by adhering to current health guidelines and all facilities. We continue to invest in new capacity and remain optimistic about our long-term opportunities for growth.

Nevertheless, as Brett noted, the rapidly changing COVID environment makes it impossible to provide any clear guidance for the fourth quarter right now. We will try to update you as soon as possible.

In closing, I want to thank all of our great employees for their hard work and dedicate during these challenging times, and for adhering to our strict safety and health guidelines and other recommended precautions during the pandemic. Let me assure you that we will continue to make protecting the health of our employees our highest priority.

I also want to wish you and your family's good health and safe passage during the pandemic. This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions..

[Operator Instructions] And we'll go first to Bill Dezellem with Tieton Capital..

I'll start with my normal first question.

Would you please walkthrough the size of each of the three new customers in the order that you've listed them there in the press release?.

What orders [indiscernible] system?.

Personal and safety equipment consumer..

6 million, 8 million and 100 million..

And let's talk about the 100 million if you would please.

What insights can you share there in terms of why you were chosen? And then also, it seems as though the ramp is happening much sooner than would be typical if it was one here in this quarter and ramping in the next few weeks? Could you talk to those dynamics please?.

We've been in discussions with this new customer for over a year. They chose us for a number of reasons. First of all, the fact that we have metals and assembly in Mexico was key. Second, that we have production in Mexico in the states. We're actually going to be in probably run for the first 9 to 12 months in our current Mississippi facility.

And then as a second generation product comes online, moved down to Mexico, probably. Third, our design capabilities were heavily involved during the cold process. And we actually did a more or less complete redesign of the product during the cold process in order to get the new generation, the cost constraints that we needed to hit.

So, those were the three biggies..

That's helpful, Craig. Thank you. So, the Mississippi facility is where the product is going to start. What would you anticipate? Let's just take the December quarter. What would you anticipate revenues to roughly be, if the ramp schedule goes according to plan? And I recognize that in this environment nothing goes according to plan, it seems..

Yes including the fact that you plan and we answering that question. So, I'm going to say no kind of on that because there are way too many unknowns. I can say it's going to be a very sudden ramp. Other than that I don't want to make any commitments or numbers..

All right, that's fair.

So Craig, why is this customer ramping so quickly compared to others, and maybe it's the obvious answer that with people home, they want to get home exercise equipment on the market quickly, but talk through if you would?.

Well the obvious answers right. They were already running at, I'd say, I don't know two-thirds of that rate. Currently and have demand that they were unable to fulfill. So the ramp is made more urgent by the fact that their market is of course exploded with people stuck at home and not able to go to the gym..

Are they keeping their existing form of production and adding new or are you replacing the current production?.

I'm going to no comment that one too..

Like I said, nothing's going according to plan these days. I planned on you answering that question..

Sorry..

That's all right. No problem. So let me move on, if I may.

What are you seeing in terms of the pace of new customer's making decisions? I guess, I have a lot of different thoughts at what could be happening, but I'd like to hear what you're experiencing?.

I'd say on the whole, a lot of programs that have been hanging fire and suddenly made the decision to come with us. A lot of people that were feeling that you know GR production situation today is kind of risky and we should be looking around.

Have suddenly come to the conclusion that GR production situation is really risky and we need to make a move now before we get tanked. We've had a couple people whose existing manufacturing partners basically shut down and kick them out.

We've had other people whose products just had dramatic increases in demand and that makes the question of should they have a two source stable manufacturers boot. It's clear they need to have it.

So it's kind of a two part answer your question, because everything that we had in the worse that had been quoted once, that we'd seen the people seems to be going faster. But putting new opportunities into the pipeline is going a lot slower, because nobody's making visits and nobody's taking part in the normal sales process.

So to split the answer to your question to stuff that was at least in the funnel is going a lot faster. But there is a lot less new products and new opportunities coming into the funnel than it was before..

So you don't need many new opportunities coming with $100 million piece of business falling in. Let me hit with a couple other questions tied to your answer one. You've mentioned that some of the prospective customers that are coming to you have had their production shut down.

Is that because of governmental regulations, their location, where they were producing, or is that a function of the supplier going out of business and no longer in existence?.

So, at least one way due to a government for shut down in California. Others have been due to supply chain disruptions. And others have been too due to government for shutdowns in foreign countries..

And relative to supply chain disruptions, what shared or would your revenues have been? This quarter had you had normal component availability?.

It's probably about 115, 116 sort of that..

[Operator Instructions] We'll go next to Mike Hughes with SGF Capital..

Back on the $100 million piece of business, can you just talk about the startup costs associated with ramping that will they be higher than your typical project, because it's going to ramp so quickly?.

It's actually, right now looking like it will be lower than our typical fraction. It should be a pretty quick ramp. There isn't any inventing that we have to do, which is normally where the money ends up being spent and it's not hugely labor-intensive. So, all three of those things lead us to believe it should be reasonable rather than outrageous..

And fits within our current capacity..

Yes..

So do you think, it'll have a positive contribution margin in the June quarter?.

Slightly..

Okay.

And given it's a larger piece of business, should we assume the gross margins are a little bit lower than the target that you've talked about historically?.

I'm sure our new customer is listening, and I want them to hear our margins are awful and we've negotiated down to a horrible situation..

Well, how important was price in winning the business?.

Price is very important and forced a significant redesign effort from my design team in order to get to that price..

Okay. And I understand you're not giving guidance at this point, but three weeks ago, you provided a range for the June quarter of $120 million to $130 million.

At that time, did that include this $100 million win?.

No..

Did you say, no?.

I said, no..

Oh, wow. Okay. That's impressive. Next question, the peso I think is moving the right way for you now.

What was the impact and just maybe if you could just talk about your hedging that you have in place?.

Sure. We typically run with about three years worth of hedged futures on hedge contracts against the peso, but we're typically only about 60% hedged. So, the weakness in peso definitely will help us in coming quarters, but the hedges that were in play of course will limit that amount of gain..

I apologize. What would limit the gain? I apologize..

The fact that we already had hedges in place..

Right, right. Thank you.

And then can you just talk about what you've experienced as far as AR collections over just the last few weeks?.

There have been a few customers that have slowed down the payment process. As I mentioned earlier, we did write-off $600,000 in last quarter related to a customer that we've been trying to collect for some time, but other than just a few minor -- a few of our suppliers slowing down their payment process..

Customers..

The customer -- sorry, there hasn't been a whole lot of concerned to-date..

And remind me, what was your experience, 2008, '09 and '10? Did you have much in the way of bad debt?.

No..

Okay.

And then just a question on a vertical exposure, do you have any exposure to automotive or aerospace?.

We have none to automotive. We have none to commercial aerospace, which I'm assuming is your question. We have some and growing to private aerospace and that's actually doing really well right now..

When you say private aerospace, can you just define what that means?.

Yes, private aviation gas line and their assessments..

Okay. I would assume that, that will soften over the next quarters.

Well, what's your exposure there?.

It's limited..

It's limited. Not big. No..

Okay. Okay, all right. So, when you gave the guidance, the midpoint was 125, that excluded the 25 million from the new program, which would take you to about 150.

What are the cyclical pieces of business that you are concerned about that could pull back over the next few quarters? I'm just trying to think out a few quarters what the revenue could look like, and I know you're not giving guidance..

Well, a big portion of that rosy forecast is due to the fact that the healthcare products are really, really strong demand right now. So, if there's and I hope, this is right, if there's a sudden cure to the COVID virus, I would see those beginning to drop again.

I don't think it'll be a sudden drop if it does happen because we've dug such a hole in our customers inventory position that it would take us months to refill their inventories the levels they want them to be at.

We have other customers that aren't in healthcare, aren't in gaming, are in, I guess, you would call it a wildly diverse group of commercial customers that we can't really predict which way they're going to go, which is why we're not giving guidance. So, for example, some of our HVAC guys are cutting guidance right now.

Some of our industrial lighting guys are cutting their guidance. Our server farm guys are cutting gains a little bit and it just goes on and on and on, it's, you can't really make any general conclusions about it, which is why we don't feel we can make any kind of projection..

Okay, so last question for you. And I know this guidance. What you gave out a few weeks ago, the 120 to 130.

The in, putting aside the big $100 million wind, the dialogue with the customers, since you put that number out has been negative on whole where that number would have been potentially lower or is that incorrect?.

Well, I think you kind of play in 20 questions with me like Bill does. I'm not real smart, but I'm smart enough not to answer that one..

And we'll take a follow-up from Bill Dezellem with Tieton Capital..

That might be insulted..

No, that's an honor Bill..

I got it wrong again. So, maybe I'll pick up where we left off. Just to have some fun with this. What's different today than when you did give that Q4 guidance earlier and maybe you just highlighted it with that list of customers that's starting to pull in their forecast with you.

But can you address this, I guess before we're more head on and what's different today?.

What's different today versus two and a half, three weeks ago is mainly that we see a higher degree of variability in all of our customers' forecasts and from quarters that not quarters, but from directions that we didn't expect. So a customer that we thought was pretty rock solid. Suddenly, he's got issues with demand.

And because of all these, 2 million here and 2 million there, pretty soon you're not 125 you're not 130. On the other hand, you got people calling in and saying, I will take everything you could build me and go find the parks. And we don't know if we're going to be able to find parts.

So, it's standard deviation of each revenue forecast out of each customer is increased dramatically over the last three and a half weeks..

Plus, you have the downtime in Mexico, which you did not anticipate?.

Yes..

And how much of the $100 million customer, what level of revenue are you currently anticipating in this quarter?.

In this quarter, very little, we'll just barely be getting them started..

Okay, so that's, that's helpful. And so I'm going to try to uphold my reputation here.

So, if we were to think about broadening the range from that 120 to 130 and add 10 million bucks either side and say 110 to 140, does that put you within the realm of that widened variability that your thinking is possible or is it even beyond that?.

No comment, Bill..

Reputation upheld..

No..

Okay, I do want to actually -- in all seriousness, pick up on something that I think Brett that you had mentioned in your opening remarks and just want to make sure we heard you correctly that you do expect margin improvement in the coming quarters.

Is that what you said? And if so, does that apply to this quarter?.

Yes, there was a reason coming quarters is we definitely see that mid to long-term. It's tough to come up with a finite number for this fourth quarter, just due to all the different risks that we've already talked about..

It's just the issues that Craig and I were just bantering about, are going to affect that favorably or unfavorably?.

Well, as we were just talking about revenue, on the cost side, there's a lot of uncertainty also. We don't know what type of attendants we're going to have in facilities. We don't know what kind of overtime we're going to have to pay to try to catch up for what we've missed during these 10 days down.

We don't know how many buses we're going to have to contract with so that we get every person on a bus six foot away from the next person. Much more airfreight, we're going to have to pay. We don't know what the airfreight guys are going to continue to rate us on. It's up to three times what they were charging for containers before.

It's just everywhere you look the world is kind of unpredictable..

To what degree with these increasing costs? Are those absorbed by your customer? And how much do you need to absorb or is that a negotiation with each customer?.

We'd like to call it a negotiation, because we live in a civilized world, but that's not what it feels like..

And then I guess one additional question, if I may.

The tax rate was a bit lower than what you had originally anticipated what went into that?.

I think it was just basically some troops of the research and development credits that we anticipate for this year. Over the longer term, we're still expecting somewhere between 15% and 20% effective tax rate..

Thank you, both. And congratulations on a pretty solid quarter considering the dynamic situation we're in and we'll look forward to hearing your guidance when you have it. Actually, I do have one additional question. If I may.

The shutdown in Mexico that you did have, is it a correct assumption that it is better that it happened early in the quarter meaning first month of the quarter, and hadn't happened later in the quarter?.

Yes, you're entirely correct..

[Operator Instructions] We'll go next to Mike Hughes with SGF Capital..

Just a few follow up questions for you. Just on the potential of the ventilator program.

It is the complexity of that product an issue or their products right now that you manufacture the just as complex or if not more so?.

The second, it's more a question of demand than it is complexity..

Okay..

If you look at all the press, it's everything that all the politicians have said. And then you read deeper into it and read what Mr. [indiscernible] said nobody went without. You look at the current situation with a hospital sitting empty in many places. As far as we can tell, the shortage of ventilators was more panic than a fact.

And then when you add in there, the fact that the government paid more guys to build another Africa with the number is 50,000, 60,000. I think this was all basically just a political hire..

And then I've read a little bit of the press out of Mexico. Some of the workers don't want to come back, not specific to your facilities, but they're worried about their personal safety. So can you just, when did, is it open back up as of today? Just talk about that issue and that process..

Sure. I guess first of all to frame it properly the closure had nothing to do with our employees being concerned about their safety. It had to do with the state of Chihuahua interpreting a decree, I guess somewhat differently than the other States, which is the same thing that happened in the U.S.

and a lot of discussions about what are the products we made, not whether the products we made were essential, but whether they ended up in Mexico and that was what caused the closure. To-date, we've had to confirm cases out of an employee base of 3,600 people..

In Mexico..

In Mexico. So that the closure wasn't based on any concerns that our employees had, it was based on a decree. Our employees are concerned. We are concerned. We have taken great pains to go above and beyond the recommended safety procedures for manufacturing sites.

We even read some data that says that, the virus half-life on a inanimate surface is dramatically decreased at elevated temperatures. And that break over point is about 76, 77 degrees. So, we turned up the temperature in the factories and we're running them at close to 80. We are working with our employees anytime there's a safety issue that comes up.

We moved to remedy it, and I mean that's about all I can say. It's scary. It's scary everywhere. The numbers in Juarez though compared to New York or another hotspot are small. I think the total number in Juarez is 200 infections right now, a total in a city is about million six to million eight..

Okay. So, it sounds like you've done a very good job there. I wasn't referring to your company. I've just seen some other companies were having issues with worker. So, you do not anticipate any issues as far as staffing that facility. You're saying your workers were well-protected. They didn't have any specific issues, so staffing should not be an issue.

Is that fair?.

Nope. That's not what I said. I do not think that, I can say, I don't anticipate issues..

Okay..

What I said is that, we've taken every possible precaution and then some to help ensure that we don't have issues, but I can't guarantee that we're not going to have issues..

Okay, okay..

A big part of what's happening in Juarez is that the Company had a team from Germany fly in and do some engineering work in the factory floor and half of the cases in Juarez came from that one factory..

Okay..

But again, I can't say that I don't anticipate any issues because just that everything can happen, bad is happening..

I understand..

Alright..

I appreciate the insight.

One last question, how many customers are currently utilizing your facility in China?.

In China, it's probably, 10, up 10..

Is that kind of consistent with the December quarter?.

It's actually grown by a couple. It's been surprising that, there has been, let's say, a fit of logic has been happening amongst our customer base where products that end up being sold in North America are being moved to production in North America.

And products that are being consumed in China are being moved to production in China and our Chinese facility, which I was really worried about a couple of quarters ago is still in the black and actually adding customers. So, we're pretty happy about that..

Okay. That's good to hear.

And then what about, just to close the loop, what about the Vietnam facility that generate more revenue in the March quarter than the December quarter?.

Yes. We continue to ramp the cornerstone customer of that facility, and that is an example of an unfortunate, where I was talking to Bill earlier about the hollowing out of the front of the funnel for new business.

There were, must be six or seven trips to Vietnam with customers plan that were either the last or next to last trip in the sequence of things that happen when you add a customer. And those trips have all been put on hold.

So Vietnam is going to reach a plateau with their cornerstone customer and then sit there for a while until we can resume the normal business travel that you have to have that people add a new facility..

Okay. I'd read that this is not specific to you but I read other manufacturers, staff their manufacturing facilities in Vietnam often with Chinese labor.

Is that the case with your facility?.

No..

And with no further questions in queue, I'd like to turn it back to management for any additional or closing remarks..

Okay, thank you everyone for participating in today's call. Brett and I look forward to speaking with you again in better days. Thank you..

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect..