Iec Electronics (IEC) 12 May 192019 Q2 Earnings call transcript

Greetings and welcome to the IEC Electronics Second Quarter 2019 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to your host, Audra Gavelis, Director of Marketing and Investor Relations. Thank you.

You may begin.

in. calling for you Thank

On the and Jeff President we this and Tom morning, CEO; have Barbato, Schlarbaum, call CFO.

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

Great. And solid quarter $XX.X XXXX. morning, We compared had everyone. year-over-year Thank growth you, and highlighted quarter first second growth to sequentially Audra. X.X% of revenue good a of million, XX.X% of the by as of

more business quarters revenue maturity growth increasing now continued quarter, the consecutive demonstrates revenue, three the of posted With and our line achieved we've ability of the to we believe this results. which deliver top consistent

seeing growth quarter. We are market revenues three of segments the our now squarely in improved all with mode, in

by growth expectations, projects. us exceed continues to awarding customers who, meet based organic, our are be Our to their ability and purely our and programs new on driven

manufacturing electronic to advantage full-service solutions customers us gratifying broad with a provider, it's we and take see of As our offer. relationships expand their the

we industries one the are to up regulated chain We to can systems to long-term programs, customers growth. process also Scaling new supply qualification manufacturer a transfer various our selectively another. from due of requirement strategy be validation lengthy customer in support, especially who aligned partnership quality processes to new continue with and onboard and the

was in In sequential saw book-to-bill X.X:X. the QX during addition, ratio growth continued fiscal we quarter, our backlog second and

with over six booking these ratio customers In revenue with aggregate of In during X.XX:X. more I'm first of the increased is year-over-year half our given quarters, levels, half our them contributed new the last of XX% of million in the terms XXXX book-to-bill booking pleased is greater the XXXX. light over up fiscal XX% revenue first to compared makeup of fiscal of XX our quarter. each quite success than total, than the of awards Overall, $X our bookings,

With signs some recovery quarter, to material a is component improving backlog strong the ongoing While of growth, lower the through continued improvement. range the higher our and produce to bookings our marketplace. of to quarter; end in take in response I able we're some Parts in customers, the advance a and our increased showing component in linearly times which ability we to subsequent sales of global impact minute at from to acknowledge being raw at customers to that be second staffing shortage, key signs were our primarily expected representation shortages and expect produce tariffs, of in want recoverable the seeing diverse to from saw availability are lead related are quarters. we to respect margins which three of elements: levels;

appear that operating be the in related highly quickest have areas regulated versus commercial mainstream sole-sourced to the base components for more the are we However, procure to engineered highly recovering our to applications customer markets.

was As of down XX.X%, respectable last quarter a but of XXXX challenges, second the the in from margins year. result quarter these XX.X% fiscal of second gross in

we've and in we of ramping staff discussed requires up. advance calls, and nature hire train we that previous a As of for life-saving support programs on mission-critical program the particular

base XXXX, new Recruiting, which essential investment business we occasional products half employees systems in large While skilled the personnel of developing various pressure we ensure most perform often forms to and tests. number employee includes automated for to that backlog growing our quarter in and of can XX design assembly manufacturing are tasked margin first training hires translate the second we the complex to the into to is but added impose our XXX an require In a process have steps, of a conversion, alone. fiscal finished highly performance.

programs to for orders. our looking to better are training material new learning the We of labor skilled assess curve. we optimize well solutions to attract and help the as this, employees as predictability continue accelerate being the our to to available convert is creating Related

chain, suppliers mitigate global we And to As they have expect according our and signals, the shortages electronic to see component industry work previous in continue challenge to supply we while discussed regular risks. a future improvements. to with still for the calls, are customers

will shortages variability continue and output. could manufacturing add our However, throughout XXXX some to

demand, complicated Likewise, which our resolved purchase sold our our advance we to capacity customers meet the our second until at for for the manufacturing are the cost in and tariffs certain with to make evaluate materials quoted requirements a customer. process this physical can continue associated received. been we the continue the the quickly practices of quarter, time managing will to and often overhead remediation We've the component of in creative there's of As closely reimbursement tariff the potential to original develop fiscal with cost and tariff pressures becoming programs staffing targets China, the materials that improve normalize material we from saw Therefore, the versus the process, goods help how tax more customer. is months challenges, on that is by delay more our adept an issue the know impact effective affected we implication labor, to and same we time of fact at unfavorable the encounter. these particular to do impact be of we from positioned not origin profitable for increasing mitigate year. working to the material pursuing on customers' this The so and production are we expect raw half we to tariff the recently sure We while in we several the plan growth. believe with

expect However, do longer-term we as said earlier, not been process any effects. has I a established. And

XXXX. fiscal half XXXX, since second As we increased our of the start XX% almost has of already end fiscal backlog the

consistent be by our customer time manufacturing drive scale our profitability pleased sequential to resulting We're to our on with and forward for second opportunities our have manner. capacity three and fiscal the of predictable and now while to to platform being excited continue operational XXXX. growth quarters the focused performance and of our date leverage progress our from relationships the to in same about expectation of a current visibility, revenue, our up presented turnaround XXXX. pivoted successful maintain to revenue and the of strong growth energized through a to delivering we We're new in double-digit expansion look We fiscal half to continuing at proactive remaining delivering growth

I'll to to detail more Tom? our performance. financial provide it quarter Now second Tom turn around over

$XX.X Thanks, was increase Jeff. to the fiscal XXXX And morning, and XX.X% of good compared as XXXX. of million, everyone. Revenue XXXX an the a increase second first X.X% for of quarter quarter quarter fiscal compared to sequential of second

customers decreases million sectors, and market and medical temporary The the customers. of increase industrial of existing XXXX, revenue distribution defense with new our in fiscal primarily on XX% by other Looking at XX%, by from aerospace and we aerospace programs, net at offset programs existing XX%. $X defense and demand quarter of driven second increased saw at demand sector at saw

ramp three existing other of demand programs then with customers, customer. period the a saw We production from million an of programs the two customers quarter-over-quarter by customers. sales the also production flat $X.X medical sector, growth. prior the industrial from same ramp And to increase to new with a ramping $XXX,XXX of various year. million Sales $X.X amounted to increased lower fiscal new were offset new saw due of increases from primarily in which compared sector essentially We to in related by

Gross XXXX administrative of of wage XXXX. $X.X expense XXXX from but second the XX.X% markets other and quarter per several X.X%. and previously have from in the diluted revenue in expenses grown, X.X% at compared customers Gross to second gross gross increased profit quarter issue customers. The quarter diluted in to second XXXX. also second of compared to quarter net increase of to primarily recorded basic for decreased income the or of due XXXX of of fiscal and basic XXXX. million quarter higher the was end demand $X.XX or quarter. by second of mentioned We modest fiscal net quarter share the margin in the compared related compared to $XXX,XXX in as which was to company quarter was when $X.X saw per fiscal increased in approximately was XX.X% in in Selling $X.XX X.X% from margins reduced The second The of the and fiscal the share decreases profit expenses. $X.X $XXX,XXX fiscal million of impact income second of demand XXXX tariff million whose of of

compared to a of and in in months million of fiscal the XXXX an XXXX increase highlights per million to of or months the sector. million to of share XXXX. first of first fiscal which profit fiscal period. onetime the or and six percentage driven but the industrial the million, Now decreased sales of period, prior $X.X months per in to the administrative $X.X compared the of in $X tax in to by fiscal of operational was $X.X benefit in increase in six Growth the improvement basic $XX.X X.X% $X million in $X.X due first XX.X% six $X.XX year or income of primarily increases an Revenue further fiscal and prior a sales $X.X looking of wage net sector Net XX.X% basic months the medical at XXXX was expenses prior increased expenses $X.X fiscal results defense $X.X increase overall the of first compared increased was million share of Gross from the administrative six The million $XX.X period. million in of higher first sector in performance. related the of income expenses. in six same included aerospace million for as XX.X% sales million sales for primarily to XXXX. and and as sales million the our increased fiscal Selling months selling and $X.XX to XX.X%

looking at sheet. balance our Now

balance in million strong with capital remained $XX sheet working stockholders' Our million equity. in $XX.X and

inventory at million September will million, at XX, XXXX, to compared You see March XXXX. up $XX.X XX, that was $XX.X

we prepared In backlog. orders on risks ability we inventory to levels are calls, second with our prior quarter, increased associated ongoing component execute discussed preparing attempted inventory associated the as had to to we've convert As directly the and our mitigate shortage. our the with

of $X.X September increase since in is willingness to customers to see deposits the mitigate customer of a turn which our We our the that, I'll global it With shortage, to help of impact component back Jeff. million XXXX. reflected continue in some

Tom. Great. Thank you,

double-digit believe of half and second balance start and focused growth, achieve our build to the meeting entered to positioned that to We so we remain our well focused the revenue strategic expectations pipeline As sales initiatives: us growth win exceeding and we back leave continue and our and XXXX, strong of we on remaining margin we'll XXXX backlog sheet by driving profitability. fiscal programs. three improved customer strengthening on through performance half current to on fiscal new drive improving sustained our continue

is Our component And a shortages balance shipments. necessary customer to solid. resources we remains challenges as orders counteract the inventory look effectively opportunities the priority to the sheet ongoing convert while management to maintaining for of

growing IEC manufacturing to our partner. establish backlog and result a of ability bookings increased Our preferred a are as direct

We are in a that our we investing and to processes our mission-critical our committed to grow and provider we life-saving serve. people, so of the strategically our as products leadership markets may position technology

with facility, drive We warmer which environment our increased look margins our we to and efficiencies provide well believe investments, an and improved customers finally to these operational our for we to weather With to broken promote profitability. backlog as With assisting regards forward manufacturing new ability sales, us, ground. our will state-of-the-art enhance the convert finally employees. exceptional facility new as we've efficiently

of many working know, business as a process ERP new operations integration Additionally, help you streamline business data platform optimization. our we've improving and towards by to implementing been

company within roll year. to live system last impacts business. to about the larger over half prevent I to solutions we few implemented now risks on it we're enterprise have I'm in excited for the implementation over first progress XXXX quarters. coming operator The of problem strategy the a system to order the out With and a deliberately mitigate the any it the questions. the the we new opportunities the the was first any Over with across that a interconnect our done business. our material of Overall, the expect for call pleased of are short-term that, within business smaller overall in and we to pleased fiscal balance without will went back report hand seeing of the segment weeks, introducing

[Operator the Instructions] NOBLE from your Christian Please of Markets. comes Herbosa state with Our line first question Capital question.

I just a couple. have

saw there debt your sharp else you color position debt about a long-term provide more is with increase, position us on and your a overall? can how what So pretty feel you so little involved

Yes.

that Let me have - Christian. field I'll let Tom question,

over level past increase long-term basically inventory Christian, balance the tied we've of to and tied months. is the nine our So in our revolver debt with seen increased directly the

inventory that inventory finding consuming have right we're So we the continue to to be upcoming help mitigating a focus and over and our focused debt the on with our seeing quarters. down risks the supply our the balance and therefore drive chain between level balance down we levels on inventory drive that

three we Can we sequentially just that started less? to straight levels or And add off. quarters, then leveling increasing some that last - the to saw I also for saw inventory quarter more

other see we'll strong, numbers we're should in are in believe growth So as our and the into the book we even I mode down drive But any direction. look the forward future, don't orders. inventory and I demand, if to customer bookings increases out start that continue be we higher of able to in to back major clearly,

So it's act. a balancing

color. Okay. Great. the Thanks guys for

your to I labor wanted So also ask force. about

run So about new the I full while it guess to spoke in but you'd employees it comments, you've mentioned past, takes a get a your in a rate. to bunch up that

that think a all. it about at of I'm if constraint your bit going a forward and could So now feel you how you workforce wondering represent

So it's an excellent question.

up needs into tomorrow into before, I'm customers from scaling year. And on quarters products not They're it's issue. and to employees not business but were looking to levels I it's so various is at our demand, onboarding continuum. of really out we're meet future next We're meet and we learning curve types coming a skill a And As of the tomorrow's strong and very said needs. predicated only the static the see the today awarded. that

levels lesser Some of some skill. skill, require higher of level

signals And an to to our I Some to to time others position for interim continuing we from are be scale come some our going be because process. in strong of workforce see so than more I customers. think going demand it's this think we're complicated

we're set right be be several we'll but also, I Hope in the them bit. today, position we've over quarters our focused developing So think the of forecasts new a those indicate the next with workforce behind had, really skill But because hiring hires. we'll continue the additions on strong. helps that good signals that little be demand others to

Okay. Yes.

that's from Thanks So for me. your time. all

state line Group. the from comes Maxim question Please Chokshi question. with next Our Nehal your of

on congrats definitely new maintaining year-over-year here. and indeed as a me [ph] will reiterated growth you see $XX-plus lot run rate So great bookings that build you've gives million confidence quarterly of to XX% that that's

that, a year-over-year into guys year-over-year you year, compare for with XX% [indiscernible] prior ago in toughest growth year though, March that quarter, your for did year-over-year the fiscal XX% this being So lap growth this quarter.

continued strong bookings top share well XX% than guidance. churning it compare, increasing you're year-over-year your toughest better seems So line between growth, not the like and yet [ph] the you're lapping

you discuss that can there? So

a think right And you're again it's and great the mark. observation, I on

of engineering chain our a supply oftentimes scaling building of challenges. that's confronted we're the lot the nature initial collaboration that there's of low-rate of the before, As and with clarity transformation we're but and business. growing I away levels we're pivoted a growth quite we in from a I only more Nehal, phase, the maturity yet, the that are it's addressing programs the around developing the we're phases the with have mature at design squarely then we've customers that challenges mode, not or not workforce, now the base production, in And in still as been past, new said just the early this happening

forward. tell still factors I unrealist outlook tighten expectations than But don't go And can today, I [ph] set you we as up I see and greater will, so think, an with strong I obviously outlook all very want we XX%. together, those

And or and established your I we in as specific me future. it quarter stronger greater we see much greater than the guidance. think you ask think maturity, you that could two, question implied you just give have in be give I'll more that. growth acknowledging a But that I'm I to much prospects

Very Okay. good.

be your your didn't your well, You how you your if call. what's this. I'm no, had to your were you conference relative willing wondering had when mention relative you perform discuss when last guess, to call would to did I internal last expectations expectations bookings did - mention you

I I expected that revenue. Yes. I'm our pleased exceed revenue, our think to will we believe, bookings our really to bookings I our And mean increase. continue

backlog drive the cooperation And We see the with forward. the that have the revenue. with investments to I component increased with and scale marketplace, continuing to workforce-scaling some

So that the I my revenue future. continue mean it we to expectations to foreseeable bookings going trend that met bullish were will I'm exceed in that we and

customer Okay main and have the need delta it was sounds relationships of like during going up. you that quarter a that, in of “hey, the raw observed is terms to this discussion cost the materials

quotes Did willing they're not that way any the amount in consideration.” Our or IEC? into follow-on that share to impact orders allocate the did of that take

we embedded but additional be No, if clarify: a raw a really then We the because customers the over to material our customers haven't due time to can product separate advance issues out allows knew fulfillment. for customers, And little our - a these our know separate because same bit a our sometimes really quoted the prepare really they're for from of the nice will, some accounting side stay no. pass-through of. should mentioned then be to of or in and it that but to They can cost. manufacturers it And to with time order. it'd produce find industry we at in their And in you until our tariffs it game it. because comments, remediation, if products we in and top it's added my from as We us And on plans just those all there's there tariff of manufacturers. tariff if world, manufacturers build customer's specifying And - the I on - later is a as of that's fee, an slowdown our China broad for delay fee, don't the the to So accounting. in costs issue. the

for so most that the of hit nature in us And material part a QX. really

a P&L I it have process so better So customers out QX, as and to for the think, into with the reconciliation unfavorable going we'll impact shouldn't quarter-over-quarter. we have look

Very Okay. good.

Thomas, down had you that a statement, or so tariffs Moving about mentioned basis Is basis on year-over-year XX income the basis? gross a at XX.X%. that Q-o-Q impact. points margin

a on basis. That's year-over-year

Okay.

then. of in decline, year-over-year that which balance the the was the to points, was investing so would XXX And you largely workforce proactively basis allocate

issue, Investing in there a workforce the know. was then mix and as you

So early think weren't customers of get that content to if we're this labor some in into because look onboarding you is materials see part to that we the some quarter we in would hadn't of that our cost of volumes particular material phases then mix I higher of shipping of when anticipated, volumes. we at a that anticipated had the than product, the due absorbed higher higher we production. had higher tend investments additionally, fully And new

volumes, You you did higher shipping said. anticipate

Yes, correct.

Okay, for don't believe the of all range, a range at I but margin communicated mentioned gross And also expected the low you you that quarter call. end right. then was March

the willing range give you a quarter? are to upcoming So for

see. Let's

this me way. Let answer it

we of a sort there'll to say think, the band likely what when margins mature understand be. the we with pieces tighter we a get revenue all more outlook well, confidently are Nehal, can more come I that time business, as with as So that within our our moving in

in quarter sales and the QX, us margin-wise. I So had grow look towards that me a continuing through give can for now as revisit get we stick for and if experienced you won't then with we to guidance, specific at and see and we let I moving I QX margin quarters. we but that solid back it QX other that, area now in

A couple helpful. That's more questions. very

loaded year-over-year. that days say more up it if ago? year so, back-end Is why? six the about a than shipments fair So And were DSOs to were

we of think to just the late I it's challenges in that contributes part demand quarter in the of breaking are the And a so late-breaking have that in the in earlier overhead. and not more utilizing fully pushes the the it components we and some then quarter issue. have also quarters, where and get nonlinearity still our component later we happen we're as inefficiencies and quarter, staff production

had So greater of this high and number we demand late-breaking quarter caused shortages just a level a nonlinearity. that of

question, Okay. for Thomas. Great. My final

now, think, what Xerox. you've with to hear improve, given for So you been IEC I - about especially eight months. from big you I'd experiences think your can company love you

Yes. Nehal. That's question, good a

the I obviously could think biggest approve area efficiency. operational we is around

allowing some to continue And come and we we're shortages resolving with I the couple better we've ERP we get of And our with kind implementations. will taken component the the going benefits think about in ERP as from weeks past and data. get the much more step I themselves linear. to excited system the And of become get that us that

within handoffs versus We of lot processes place taking the outside tighter system have we much a have that system. the today of the manual

in two those would areas. I So hone on

comes Mike Walthausen. state your question next line Our from of with Morales question. Please the

train to it time you program, depend essentially? hiring time on that is this the that employee to know to but to takes it of I - and from the remind productivity Can going me takes an guys the

does. it great depends. a depends, It Mike. It's really to Yes. say question, hate but I it

are employees many different decade in We that at different more us have with and skills been and than many have proficient a job some for functions.

proficient people area one that of come some in other And job be be newer proficient functions. may in not but may the in

allows the to in workforce And our efficient be so spikes of it's the are. demand more that diversity where to moving skills

in bring have them the workers ones time can us at the are proficient that the somebody of of demand adept And so so they comes a functions most skill. that that to skills six multiple case, any kind in and production that much but we pretty area, are develop flexibility year the years or can handle And months' fairly an it their in can way. in that take job give in type

that can being specific a point in you the Is done to most training Sure. there seeing you function is that think that area?

I we're the are circuit assembly when of that of is our at. services. that, pointing hiring, core areas think It's the the non-automated electronic our card assembly us for training areas efforts we're its manufacturing

backend so soldering into those a product. hand of assembly, well hand finished we transforming soldering, call of a lot higher are what the end product operations; a as as lot So really intricate

are those So of areas the on two spending we're really skill development. focused our the majority time

Sure.

will any As of you balance past the new a the of where few over see onboarding point think about been the you've employees some do you the that XXXX, months offset of margin to dilutive of me improvement impact margin from going previous that onboarding lot a gross come of you Or in the mix? new question a is think employees? I that. answered Help understand

mix. I don't change think we're expecting in huge a

stay range will be a overall think static fairly, or mix band. in I but the fairly there'll some think variation, I quarter-to-quarter

going deployed. utilizing efficiency become efficient they're to I how as learning the it's improvements the curve the better in think and becomes workforce up more from coming are

some think We're into and get and benefits I and in of Stopping higher we're a not as we get think, with the chain is rhythm inefficient. builds chain two hugely also builds. there, we'll product, starting efficiencies once volume too. well I we starting. the see and supply as and a to maturity And get particular through with stopping one going supply a of

the think in So the and future. then, two hopefully, efficiencies I margin of help those are areas the improve most contribution will that probably

for disclose you turnover as existing on you employees metrics that both new Sure. to employees? well as bring willing be Would

take to under and future some that factor prepared maybe not talk And I'm can to consideration outlook. them question. today, a it's fair we that into but I'll

to bringing resolve you need the the broadly continue you're for the growing? you think the more people just with do to like, growth, about guess, area. availability mean new need if I Rochester then do support And to that me it sounds Sure. How the do IEC. going of is, this one I to how labor especially speaking, it around into keeps state last economy,

look you at some great metropolitan a It's in think, mean, whether are broader rates city. low, question. the Yes. unemployment in major or Rochester you're I indices, I I if whether mean

for the Rochester workforce see required to So we in that that supply than the is we needs believe us, being more market itself sufficient demand future fulfillment. for

developed. So I I we just, skill development the said and It's customers our area. before, a think this technologies very products positioned have well we're in where unique have set phase of as

And needs. enough sufficient so but the available our is the think those to workers pool skills, in Rochester aren't with those meet specific I greater talent readily area

Sure.

the quick So employees the to way speed employees it growth. of enough fair to characterizing support out is just those are that there. all? in The up getting order Is difficulty a

very fair to that it a it's way. characterize Yes,

All right. appreciate for from it. Thank color That's the all me. Jeff you I

questions would As there to for the are I closing management up no the turn further call remarks. like over to queue, back in

we forward That's everyone great. again and everybody formal Appreciate speaking concludes quarter. next Well, calling presentation. our in, look to with

And today's teleconference. this concludes

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