Iec Electronics (IEC) 6 Dec 172017 Q4 Earnings call transcript

Greetings and welcome to the IEC Electronics Fourth Quarter and Year-End 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Audra Gavelis, Director of Marketing and Investor Relations. begin. may you you, Thank

Thank you calling in. for

the and CEO; this Officer. we Williams, morning, President Schlarbaum, Jeff have as Financial On Chief call well Michael as

the sales prospects, ultimate guidance occur we facts, required I a to call to update or filed Jeff accuracy information, expectations over of reflect result when what go whether no is Jeff. limited contains take Company other statements otherwise, Annual the the or reports operations, of herein include, efforts, that such turn like Specific operating and call events the expressed The Before not as new may that all the performance Harbor to future as call. statements. in the concerning regarding on certain Form of in any Securities results I issued may dependent statements on it be before upon financial will The of but These actual by except rather release future but as any or and or but XX-K, immediately to are Report or statements, recent undertakes deemed results, historical statements not uncertainties Safe XX-Q Form contained and and our the the strategic conference initiatives, or describes business Exchange moment on anticipates, this implied to And with those current capacities forward-looking cause statements these events. and and than different believes, future uncertainties law. read Please as and of Company's to the forward-looking statements turnaround Schlarbaum. set and other not This statement. number are a started, forth include, forward-looking other be get ahead, by now the publicly our Company's be Company will statements. results Quarterly are Commission. or future a these risks to, Company's similar that expects limited Company's are correct would Reports capabilities obligation based statements and forward-looking most risks to earnings

fiscal and the everyone. Thank to morning, anticipated. increased fiscal you, finished the exit second at a improved in the Audra, us for the contributed XXXX quarter, we year. half good to and fiscal revenue which XXXX with enabling We Both levels profitability to of half the XXXX, as results of year of largely first half compared solid had our second the

fiscal As the first was you the of two volume know, customers. most contractions year by half from of characterized key

the customers. second from of half we volumes However, of saw return the in these one year,

we are and a number of have in the solid customers result to made of have existing we operational new the In demonstrates activity new our are changes The the the focused experiencing past positive we won started our as and and progress sales pleased we during addition, marketing and programs revitalized funnel of achieved to-date. year execution The our improving new as the quantity our sales program. new converting as program satisfaction platform. with as our sales some well from of on activity customer levels we new made new customers effect restructured well from customers customers existing our our development improved we quality the from direct we’ve from through a process from as been opportunities business

growth. consistent our pipeline the with aggressively to continuing to revenue organic are focus We business strengthening reestablish transform our on

and positioning driving marketplace. As of robust new fluctuations is to and overcome over customers the inevitable to pipeline those vital a demonstrated having us programs time the the in of half first that sustained fiscal future XXXX occur growth

margins to during performance we initiatives the XXXX, we fix focus were key able we fiscal deliver profitable and year, three sheet, the sustained than challenges to reduction XX% fiscal to our average turnaround on overall During continue the in better our profitability, margin growth. the year volume. reestablish industry balance despite organic the ended improve Despite and and sales

positioned provider and this flexibility mission continued balance critical Our solutions providing we products financial environment for manufacturing We a believe strong lifesaving and revenue us our position to drive remained compete performing for from as which strong and reputation sheet growth competitive customers. of it and design profitability. us programs new as and gives a well high

As methods long-term. debt new expect programs This our the setting over next and structures stage supply and navigating number chain we to we're for we've with the early products inventory and due complex of to and in previously, discussed lifecycle onboarding quarters. onboard early associated phase position the to of continue represents expect occur to currently few everything slight learning to manufacturing builds developing efficient from over mature these developing up curves robust increases the

during we half our volume contraction. the During cost XXXX, controlled fiscal proactively first

also were important whose keep supporting and will highly skills be careful to expertise our We to the resources complex critical programs.

place and support As fiscal of programs the returned initial of onboarding expected, volumes this a resources during phase. lost second in customers to of number to and new as the execute a as we result have prior XXXX half in the some

our defense result category. are in Fortune base see from sectors. expect of the more experienced revenues distribution distribution XXXX number business closed the of in and with ramp the over softness We business defense, we in of we temporary We contraction ramp to as are largely medical Aerospace as XX% year, fiscal sector. the balanced time, on to medical, the able of course aerospace a of focused and in other to as the the defense industries. and a of Over XX% total we who XX% and diversify business. X% XX% revenue and leaders our exceeded up other revenue we industrial, in medical in XXX customers companies, new The strength however, of fiscal respective the as of several continuing the include customer well programs existing portfolio offset were aerospace our our up

energized are we position the capture customer base convert customers, we reestablish opportunities organic programs existing seeing as to on are move our and we believe as new by good XXXX. and new from we fiscal We are a growth forward into we

key financial year. We both customer over and the potential our We while relationships also we've focused capabilities, the continuing our we progress representing become to of backlog our more initiatives. start fiscal committed Furthermore, support months increase engaging reflects several Year” in to We the of on the we provider on minimizing XX% XXXX backlog I relationships with broaden XX%, reputation and competitive combination solutions, new one customers momentum of reported diverse maintain XXXX, and continuing than year, U.S. longstanding improved leading relationships Mike? year we million we named over and quarter acquisition the high the million. existing ability the “Supplier despite ViaSat, effectively IEC advanced go-to-market customers. the believe as their now with this and organic of supply into to of initiatives we recently, work risk of manufacturing are $XX.X September We existing and believe combined XX, and of expand fiscal review we customers our services, fourth our we since the that to by fiscal Company’s major with growth attracting new to as September by chain the the performance the two to This of of year. XX, demonstrating new the as a ago, was Williams this will and our utilizing of backlog entered partnerships Most our XXXX performance. last is – grew growing well to levels A XXXX of of program. in customers choice. laboratory from Mike potential excellent success recognition in $XX.X believe performance which of customers two cultivate volume are new confidence half the as continued our past to end our fiscal a are as and and future in remain this to partners make manufacturing our achieved turn new as services current already contraction engineering will programs to as year-over-year. year, customer customer call operational enter believe new as of the our year increased fiscal I our drive advantage customers, first

The year, of in We customer $XX.X quarter fiscal who year-over-year, is the $XX.X but that decline chain from to but X.X%, for a fourth third net existing industrial market don't XXXX. continuing needs fiscal quarter Thank demand compared medical sectors fiscal million of declines primary million to the one in increase had quarter in defense and million $X.X increase increase anticipate in a was The end-market customers. experienced declined managing Aerospace the also end demand a aerospace last was $X.X sequential same customer up. market fiscal from XXXX. sector an you, customer its whose will through significantly primarily saw their for to Revenue primarily revenue million, this demand compared $X is The dynamics. the one increase defense decline and sector. to and sector year-over-year. increased working as XXXX due Jeff. a of decreased and driver related its Company sector supply industrial the million to The medical of was of

other sales demand $X.X for ending quarter sales to $X.X for of XX.X% fiscal or profit fourth was million by of XX.X% or was in offset the XXXX customer quarter fourth of fiscal Gross programs New XXXX. million the compared customers.

profit sales and of As slightly fiscal per $XXX,XXX a XXXX the decrease fourth quarter. the of of compared Selling X% decreased we changes share fourth $X.X the important to part XXXX to XXXX to $X.X in seeing the revenue income of sales or The fiscal gross income lower Structural of to related fiscal quarter $X.XX played The began fiscal lower or in represented was $X.XX revenue. of and net made of in positive Company are X.X% administrative the in per fiscal come prior or expenses year-ago compared million profit. in an due primarily improving million quarter administrative the to back, fourth $XXX,XXX year-over-year we gross of share quarter volume $XXX,XXX net XXXX. and fourth and and of growth quarter fourth in selling expenses. recorded wage impact expenses

and fiscal million in sector million, industrial profit. decreased results, sectors. roughly mix the three all decreased million the across declines medical was aerospace XX% most full-year Now profit $XXX,XXX, looking $X $XX was at margin of and impact to had The XXXX defense revenues by with gross almost to by The XX% down $XX.X fiscal in as of volume fiscal to and reduction compared in XX.X% product XXXX. Gross XXXX. composition year-over-year decreased

and customers material mentioned, material to new require Jeff higher resources programs As lines. in when levels compared a and new product more

However, efforts in revenue Selling primarily throughout the in of a due the lessened by fiscal fiscal in overhead mainly as to by million, fiscal reductions and previous decreased Selling year. The XXXX as in XX.X% compared help for million lower to incurred our driven half XX.X% of expenses percentage higher as to administrative decreased related in labor cost cost cost-reduction is in and $XX compared decline the fiscal costs as sales XXXX first million fiscal year. administrative severance wage headcount of lower XXXX $XXX,XXX. proactive our impact and to reductions XXXX. $XX.X and the the fiscal well as expenses expenses $X.X to the expense to of

approach debt We net compared in proactive by fiscal had impact net per to slightly professional share during income to Again or of that the legal better $X.XX and breakeven fiscal cash per in were as $X.X reduction have bad share and $XXX,XXX expense of and a expenses fiscal income collections $X.XX prior reductions year. or revenue significant year year-over-year, compared despite less was in results Fiscal due our the in process. achieved reduced we million XXXX $XXX,XXX than to our XXXX XXXX. improved $XX,XXX

in Inventory conversion Now XXXX September turning as our balance on sheet, to to continue higher of focus slightly year-end was XXXX cycle. our cash fiscal balance. XX, our we

and when versus levels number fiscal to we QX period a position. the lower our we anticipating XXXX. revenue as However, better believe programs were Managing challenge for same focus you're in Therefore, XXXX new a mentioned, substantially reflect forward-looking is a constant related our Jeff fiscal sales. preparing inventory on-hand expectations a growth in inventory for

cash the earnings. fiscal flow million XX, XXXX, impacted September by Company's year the largely operations from For $X.X ended was the reduced

QX fund for sale the in the purchases which year facility of million, completed our Albuquerque we However, $X.X capital for million. of of fiscal $X.X leaseback XXXX, our fiscal more than

As to in technology. continue and we invest new equipment

partner our turn Jeff. year. total banking versus $XX.X of million now of to with last the ended the debt the at back over Our million year end I’ll With that, call fiscal as $XX

Fiscal thanks XXXX Great, started some Mike. challenges. with certainly out

However, we the fiscal customers. back program coming are anticipated pleased second to new unfold as volume see XXXX exiting half growth and from with

customers. for being In process customers XXXX seeing about the sales results of That the We enter from customer see new additional our new conversions. lengthy pipeline we’re a in and we are existing opportunities fiscal is beginning onboarding improved addition, said, one. to pipeline new and our both optimistic the

pipeline convert, qualify the mission-critical needle to moving for lifesaving some ramp new is Market products bottom is and have partner providing So line. high and before on does it develop up as design they the manufacturing time a growing. performing for effect good, solutions recognition and programs activity take – on IEC

with and we and to In of test illustrates lifesaving the in was components. minimizing accreditation from developed our for and competition. first our testing the avoidance us the year, counterfeit the the products industry supply to for ISO our mission-critical enhanced specific this fact, detection risk commitment earlier of receive continued methods additional chain analysis This differentiates support and scope laboratory XXXXX

job that in ensuring we're good a programs. for right the doing of is organization customers of right front sales enhanced the Our

to for a IEC. as we business. as continued our and has pipeline to look had bridge previously sales more grow Our fiscal become robust expand We XXXX year identified

customers we During volume to practices growth. associated our XXXX, key rebuild reinstate proven challenges to and sustained reductions overcome have from the to fiscal continued with customer to drive sales funnel

in focused into continuing reestablishing our customer by and expectations we move to excellence. surpass XXXX, leadership organic the through growth fiscal we As driving position are execution sales on the operational with marketplace

and by assets. in to in to We well and fiscal the be now performance margin we turn We our will a continue management of the call deal XXXX made great our seeing I and marketplace. opportunities progress the executed will fiscal questions. energized enter diligent with believe, XXXX With we that, of over we’re

you. Thank

Instructions] now conducting question-and-answer a Thank be [Operator will you. We session.

Klieve proceed comes question. line first question Noble your the with Please Our from Ben of Capital with Markets.

All you. right. Thank

you or – keeps business this was at to visible leading return? this curious that on – regarding the that second of coming getting So device to indicators a touched medical you suggest kind tracking just the this you few right. bit. as visibility here question relationship can especially that I questions, bit what business you of the they first real a customer Jeff, here in on manner if say Are and guess any that to pushback and I'm are a elaborate of return just mercy degree could back that their of when

the Ben thanks for question.

you is, dynamics. relationship standing. is customers speak to can I’m that things. not of our What on to and let behalf so say One me in market say know, I you as is And good very couple the committed

and volume they in are assemblies The isn't will business the that build the and it strategic for we rebuilding in future. was them the been same to a past built us it past them We it’s assemblies The the hard predict have in to – be future. me partner. in expect we the for what what very

create And program said for engaging grow our past, is focused continuing So we as base market which align from in diversify that business by the additional the I with to onboard opportunities end the doing model. on customers long-term. are and customer our to

difficult customer time. the be this what course but going just at expect return a predict for we time for ours long So customer to of expect very that me of volume and over it the pace of a we and to forward, period of to what period is

is, Okay. certainly thing third quarter the customer you that. revenue on in you’ve curious new one two you're The about certainly $X the new sense. exciting. revenue is I noted new base if million or of understand a of developed that makes could And and I'm about Is call, general. respect two backlog of the identify in from of other I'm what able your to that those customers. figure wondering level you came from coming QX, that customers either provide? in That

Yes, $X.X million.

$X.X million.

Okay, customers even the of in ViaSat perfect. point any And with I'm or QX where XX% they had curious then year? fiscal in specifically, at

I'm sorry. the Ben. please. I missed – What restate that, question was

XX% customer ViaSat, of XXXX? at they in Production fiscal in the QX or had where

yes, yes, yes. customer, were so – XX% they were customer, they A XX%

And Perfect. I of typing Mike, Mike. great. Okay, furiously I here. one this was me, your away for apologize comments. sorry I’m missed for if last then some I during

gross in back to noted charge year-over-year the margin of in one-time are the but just those included margin margin in new new improvement in some quarter, or You bit a was nature that contracts QX? there other pulling QX, the the although just fourth of the lower gross contracts or initial that cost dynamic that

So is Jeff. Ben, this

Let a a existing with was customers One the take – in which defense you What largely programs saw sector, we year. saw distribution QX for grew couple me in the stab in that. our from and terms aerospace really the of things. is new we revenue

the existing So we saw customer A&D base and strength new the in both in programs quarter. from

rates we priced aerospace terms overall the within virtually our the the though defense to raw unit about products material in in dynamic we've with the percentage higher, higher use are is much past, mix how price sector. medical the and the in and of the materials but products we are same. the comes As of mix predict, of the that's hard the talked something the much is Even

affects only content, margins, so through, is it was that work initial of customers, second much a gross onboarded the new existing a of we investment that's the sign one. ramp QX which the growth. occurred QX new have in not and number higher the We probably And obviously from that material revenue are programs, some inefficient work ramp and ones that to through to our program of a way we the from starting QX. them that for and qualification there ramp next these new that go good just new will but it's process the it's up future in is phase. in a in couple And as our up it's ups work we're in other way our but and through But factor it to going and phase through our quarters, cost that their the way in we’ll

Okay, the back Jeff. enough. Thanks fair I’ll for jump Perfect, comments. queue. in

Appreciate Ben. it. Thanks

Our the question. line Please your comes Chokshi proceed Maxim. with Instructions] with next from [Operator question Nehal of

Yes. Thank you.

the was levels? increased backlog or quarter mentioned up from You XX% year-ago a ago one

Good Yes. point Nehal.

clarify. me Let

fiscal September Since of September So to and over year-over-year. we increases increase in ending additional now ending increase XXXX seen fiscal September our from we've backlog ending XXXX XX%. XX% from year-over-year, XX a saw XXXX, fiscal fiscal

to is increase XX, XX% right. that typical that since or Okay. typical? periods that's September And all the get Well, a of some context just relative year-ago to

surviving operational financial business and execution. as look the of obviously change again you history when we had the history have were the backlog early And sort Company, timeframe. but a as occurred at on long we control point, history, we overhaul – XXXX work in that of to of the of Well, the at with it’s recent recent the

in momentum recent but probably much years hasn't back occurred go in our So in some we we're the I think to bookings a many strength it perspective, relative recent new many, if from phenomenon and first you but in the ago, bookings, past. past growth the seeing at that saw first the quarter the quarter this

is duration And backlog, it of six is that what duration or of backlog, is months the more… much

much about a pretty It’s Yes. year.

Some average of a but little year's some be less worth on and a little will demand. about a more, it's

correctly to that second medical Good. I make regarding hear sure this I want customer. Okay. then And just

that and You – said not fiscal current in from increase correct? is relative do from an that XXXX levels, you to year expect demand the them

Yes.

again best try clarify I to So the can. I'll

that the to volume Yes, be So see improvement in we Ben XXXX, in which certainly very of don't XXXX, to predict at fiscal we XXXX from terms it expect more of related is my increase from the in and but customer magnitude to we level was that we that see the those see in volumes fiscal saw XXXX. to we XXXX. comment experienced up we the to hard do

I Okay. understand.

you supply say And think their well? continue Okay. to hear I as that that because to you expect Did that’s you – I chain. manage currently them

just the business one you recent to can I on markets, I in is know month, with where today into but as the They behalf end of the what what's not strategic their their to that’s speak that our and them. as strategic say relationship careful the mid have partner Nehal, manufacturing going a their be on position commitment last and Again, their part reaffirmed reviews of to support both we electronic and had business future. as

So now. best I give guess I that’s the you can color for

levels, I And recognize I is downturn you guidance, that quarter, quarter, say typically but That's for seasonal don't it to just correct that Q-on-Q Okay. December correct? a is there for then think for give good. December

good Yes. That’s very, actually a point. very

of December this from the so our our fiscal has and off a October through So see material quarter QX. much our drop been year, quarter and in historically lowest typically the period first historical a we historically year trend, been the very is of has

QX we we material look having as and that fiscal into good However, bad said XXXX. customer the in customer and off is continue I of we from new will we and QX QX. a see started these number that existing have that, the a of new programs. onboarding the process that process we're don't guess those, that And in drop I

that's dampen the chain first battle it’s also is there challenges with the of level as of we challenges. of just supply So but some increases is I to ramp manufacturing challenges, There going think the softness, phase unpredictability help up. the

is, we level program in same don't can of we new have offset the in past by drop-off long these these guess that matter programs So traction of see and fiscal and it new in a the the how the on QX of quarter. just short we much the I get

But yield pressure margin programs up be Q-on-Q new due some ramp on gross a would rather, probably to of there basis?

fair statement. a that's think I

I very statement. think that's a fair

Okay. coming programs what ramping of was that from up percent revenue And material just quarter, were or had to be clear September lower you than during yields?

would XX% the somewhere neighborhood say of I to in XX%.

you’d expect go to And December that into up further quarter?

That’s Yes, up up that in the really correct. as will fiscal well coming future in quarter as go quarters ahead.

Okay. Thank you.

Thank you.

Our Clayton next of Gates question. question proceed line with comes from Alex with your Partners. Please

Hey guys. good morning,

Nehal think XX% the But save grew just are implying I I overall on that Jeff, the had clarified of should and of that quick two at here you or is answered backlog, correct? quarter – we you my asked, you XX, questions. the should end that basically so XX on

Alex, correct That's yes.

just ask clarify And second medical was I then wanted Okay, to that. about again customer. going to that

back you back, XXXX, So expect two be those to XXXX going to sounds going be medical it's a the not were a you you're But like be not two? major to going into don't or where from drop-off with zero customers. certainly it in

saw when businesses on two, XXXX, levels absolutely right. there levels at saw Yes, won’t at I from we aggregate what in look will the those from XXXX. be improved be you're but They the we

you defense Have side side? other progress pipeline traction medical the had Got obviously any and you you the and with on the that industrial the or you've can had pretty discuss? has great it. been on then got some have it, notable traction Got

coming Yes, diverse. in I the has actually defense, and coming is but but mean have pipeline sector. the recently industrial the business we medical from aerospace not been sector, strength we our more The pretty only – from

as Our moved to see been new so forward all we I that sectors support. of opportunities opportunities pipeline major in customer from we’ve the year, additional that has fiscal convert and coming three

depending you size, last then impact that quarter one pressure process was normally guys. contract as talking margin these on it take, the I or wonder can one one the lengthy? I it and onboard be onboarding Great Nehal guess that is on about pretty gross

very question a That's good Alex.

In the number of of onboarding, right. terms stages there's a

then order the to factory, ready customer. and and go build the the we executing then in So materials, procuring the from to receiving in delivering

the associated cases, – challenges ramp. in And time getting critical certain putting three out then and first a ramp we’re some components. its lead very so the the cause the with for obviously the in so pieces builds things then place end with two And market it And chain, us dynamics and supply delays number other takes early time up. of or to in that can usually are and work bugs the of as

we So efficient to rhythm. and mature manufacturing more get

startup quarters? the it the couple take out Absolutely. course run could the So that Should phase Absolutely. over of year?

So and rhythm. of a over couple efficient into the get someone streamline we the more course of between manufacturing quarters much that year

Got Thanks That it for it, okay. does me. guys.

All right, thanks Alex.

Thank you.

Venture Capital. comes Our next your with Lyons Vestal Please proceed question question. from the line with of Allan

Mike. and Jeff Good you, Thank operator. morning,

Just to is did the growing backlog reasonable you XXXX? attain it based could quick of XXXX levels the revenue that periods interpret on the on average for you to a questions, couple your that

talking you're Is it reasonable revenue that to about believe levels…? how the

that, to reckon Just correct.

is don't timing new we’re think those of the headed key assumption with some a these general, of unreasonable is associated I that's an think expectation. levels challenge. which back programs, in sort revenue The I are Yes. to. where But

if Few Okay. But customers new regular customers lately. just existing of of onboarding net $X.XX the that – we new you don't or measure I we but programs it's customers like have programs although could you say, earn on for giving could up know earn it well or you costs the and seems one-time It and start new the would so does with startup each I’m effect. the onboard, quarter-by-quarter pretty one if quarters say, them effect affect new $X.XX, at cost these your these wondering customers you're happened. measure results those hadn't

Mike it’s I'll and I greater color and call. a think take some to on give and the future that one fair question try

the in think look XXXX can our if say customer probably I XXXX. you from achieved additional we what through way I future. best that our maybe Is middle we today, way to the color progress Al margins profit margins I to and take gross the XXXX, start we're new in pressure through characterize on as of try look the onboarding. of to overhead will work at you that's the the sort in profit that And we that in can somewhere give at that And in today. see you then and we'll gross aggregate terms and it

comments Albuquerque during set the the quarter? Understand. on Any Okay. progress in

their our performance can really with I What pleased Yes. operation and XXXX. overall the year Albuquerque say, I’m for fiscal

things is able the of just weren’t year onboarding and given align operational going new were This programs do in in as are the that customers any things we new customers own So sort to needle improvements, that factory so holding our their anticipate one new into moving we of there. we facility that well. out a of number past

the luck good Well great. Okay, for year. fiscal Thanks.

Great. Thanks Al.

Thank Q&A of you. End

you. Thank

over further no like time. questions the management for would now this at I have back to to floor comments. We turn closing

Thank to after you, to in. results. our again thank Well, that. everyone We for QX look you. forward speaking We appreciate calling everyone

does today's and this Ladies teleconference. gentlemen, conclude

a this time. your may wonderful Thank day. for participation You disconnect lines you your at and have