Good day, and welcome to the fourth quarter fiscal 2024 Key Tronic Corporation conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tony Voorhees. Please go ahead, sir. Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today on our investor conference call. Joining me here in our Spokane Valley headquarters is Brett Larsen, 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. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our investor relations website. In addition, the slides, together with the recorded version of this call, will be available on the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the investor relations section of our website. For the fourth quarter of fiscal year 2024, we reported total revenue of $126.7 million, compared to $162.6 million in the same period of fiscal year 2023. For the full year of fiscal 2024, total revenue was $559.4 million, compared to $588.1 million for the fiscal year 2023. Also, previously disclosed, a cybersecurity incident caused disruptions and limited access to portions of our business applications, supporting operations and corporate functions at our Mexico and U.S. sites during the fourth quarter of fiscal 2024. During the disruption, we were unable to fulfill approximately $15 million of revenue during the fourth quarter of fiscal year 2024. Most of these orders are recoverable and are expected to be fulfilled in fiscal year 2025. During the cyber disruption, we continued to pay wages in accordance with statutory requirements. We also deployed new IT-related infrastructure and engaged cybersecurity experts to remediate the incident. As a result, we incurred additional expenses of approximately $2.3 million. Partially offsetting the additional cybersecurity-related expenses was a favorable weakening of the Mexican peso late in the period, decreasing expenses by approximately $600,000. We also had an insurance gain relating to a previously disclosed weather event in our Arkansas facility in the amount of approximately $700,000 during the fourth quarter of fiscal year 2024. Despite the business disruption event, we improved our gross margin during Q4, primarily reflecting our workforce reductions in Mexico during the prior quarter and the weakening of the Mexican peso. Our gross margin was 9%, and our operating margin was 2.2% for the fourth quarter of fiscal year 2024, compared to a gross margin of 8.5% and an operating margin of 2.6% in the same period of fiscal year 2023. Our net income was breakeven for the fourth quarter of fiscal year 2024, compared to net income of $1.1 million or $0.10 per share for the same period of fiscal year 2023. For the full year of fiscal year 2024, the net loss was approximately $800,000 or a net loss of $0.07 per share, compared to net income of $5.2 million or $0.47 per share for fiscal year 2023. Excluding adjustments for certain income and expenses to measure our core results, adjusted net income was $1.1 million or $0.10 per share for the fourth quarter of fiscal year 2024, compared to just adjusted net income of $1 million or $0.09 per share for the same period of the fiscal year 2023. For the full year of fiscal year 2024, adjusted net income was $3.4 million or $0.31 per share, compared to $2.2 million or $0.20 per share for fiscal year 2023. For more information on these non-GAAP measures, see the non-GAAP financial measures description and reconciliations in our earnings release.... Turning to the balance sheet. We ended the fourth quarter of fiscal year 2024 by reducing inventory by approximately $29 million, or 21%, from the same time a year ago. These improvements in inventory levels primarily reflect increased component availability and our concerted effort to drive inventory reductions. We're pleased to see our inventory levels continue to become more in line with our current revenue. At the same time, the state of the worldwide supply chain still requires that we drive demand for parts differently than in historical periods. Our customers have revamped their forecasting methodologies, and we have significantly modified and improved our materials resource planning algorithms. As a result, we should be better equipped for future disruptions in the supply chain, even as we continue to manage inventory more cost effectively. During the third quarter, we also reduced our total liabilities by a combined amount of $56.1 million from a year ago. Our current ratio was 2.8 to 1, up from 2.3 a year ago. At the same time, accounts receivable DSOs was at 98 days, compared to 85 days a year ago, which we believe reflects the back-end-loaded nature of the quarter, caused by the cyber event. Total capital expenditures were about $1.2 million for the fourth quarter of fiscal year 2024, and $5.2 million for the full year. While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities. Utilizing leasing facilities, as well as make efficiency improvements to prepare for growth and add capacity, particularly in our U.S. and Vietnam locations. For the first quarter of fiscal year 2025, we're seeing a rebound among our legacy customers relative to our fourth quarter. For the first quarter of fiscal 2025, we expect to report revenue in the range of $140 million-$150 million. Moving into fiscal 2025, we are pleased to continue to see our new programs ramping, cost efficiency improvements from our recent overhead reductions taking hold, and a significant weakening of the Mexican peso. Taking all these factors into consideration, we expect net income in the range of $0.10-$0.20 per diluted share. We expect to see growth in our U.S. and Vietnam production. We have a strong pipeline of potential new business, and we are focused on improving our balance sheet. Over the longer term, we believe that we are increasingly well positioned to win new programs and profitably expand our business. That's it for me. Brett? Thanks, Tony. Fiscal 2024 got off to a very promising start, though we faced some challenging headwinds. During the first half of the year, our revenue grew by 12% year-over-year, driven by increased production in our U.S. and Vietnam-based facilities. Despite the strong top-line growth, our margins and profitability were negatively impacted by increased labor costs, unfavorable foreign currency exchange rates in Mexico, and higher interest rates. During the second half of fiscal 2024, we faced major disruptions to our business, including severe winter weather events that took our facilities in Mississippi and Arkansas offline for approximately 2 weeks in the third quarter. And then the cybersecurity event that interrupted our operations and corporate functions in Mexico and the U.S. during our most recent fourth quarter. Together, these events disrupted production for approximately 6 weeks during the year. Despite these disruptions, we took the necessary steps to reduce our workforce in Mexico, which is expected to save more than $10 million annually in labor costs. In coming quarters, we expect sales from Mexico-based production to recover due to recently won new programs, but we do not anticipate needing to increase our headcount in coming periods. Moving into fiscal year 2025, we're very pleased to see overall improvements in our operating efficiencies, as well as reduced inventory levels and other improvements made on the balance sheet. During the year, we continued to expand our customer base, winning new programs involving security equipment, sporting goods, environmental solutions, security products, military aerospace, industrial control systems, energy management, telecommunications, consumer audio, industrial manufacturing, industrial moving equipment, industrial storage, medical devices, and consumer air filtration products. The strong pipeline of potential new business underscores the continued trend towards onshoring in a dual source and a dual sourcing of contract manufacturing. Global logistics problems and the China-U.S. geopolitical tension may continue to drive OEMs to reexamine their traditional outsourcing strategies. We believe these customers increasingly realize that they have become overly dependent on their China-based contract manufacturers, for not only product, but also for design and logistics services. Over time, the decision to onshore or nearshore production is becoming more and more widely accepted as a smart long-term strategy. As a result, we see opportunities for growth, and those opportunities are becoming more clearly defined. At the same time, we are seeing a sustained trend of continued wage increases in Mexico. And as it has become clear that these changes in the base cost of Mexico, Mexican production are long-standing, we are right sizing our operations in order to remain cost competitive. It has also become clear that customers nearshoring from China may have a different calculus for selecting a geographic location for business. For those customers who struggle with China production due to their flexibility requirements, we believe our U.S. sites offer the ultimate in flexibility, engineering support, and ease of communications. Over the past 12 months, revenue from our U.S. production facilities has increased approximately 7%. In the fourth quarter of 2024, production in the U.S. represented 29% of total revenue, up from 25% a year ago. Meanwhile, for those customers whose requirements had adapted to the China model of limited flexibility, challenging communications, and less engineering support, we expect their Mexico facilities remain the answer. Therefore, we are reconfiguring our Mexico sites to endeavor to be a lower cost and provide more commodity-level service while still maintaining high quality. While our Vietnam facility continues to be a modest contributor to our overall revenue, a growing number of potential customers are actively evaluating a migration of their China-based manufacturing to our facility in Vietnam. In coming years, we expect our Vietnam facility to play a major role in our growth. While China growth has slowed and many companies have decided to take risk mitigation steps with their China manufacturers, the fact remains that many components must still be sourced from China. Our procurement group in Shanghai, which serves the entire corporation, remains important for managing China's component supply chain on an ongoing basis. Additionally, our China production facility continues to be profitable and has found recent success in winning new programs with Chinese OEMs. The combination of our global footprint and our expansive design capabilities is proving to be extremely effective in capturing new business. Many of our large and medium-sized manufacturing program wins are predicated on Key Tronic's deep and broad design services. Once we have completed a design and ramped it into production, we believe our knowledge of a program's specific design challenges makes that business extremely sticky. We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, blow, gas assist, multi-shot, as well as PCB assembly, metal forming, painting and coating, complex high volume automated assembly, and the design, construction, and operation of complicated test equipment. We believe this expertise will increasingly set us apart from our competitors of similar size. We believe that the global logistics problems, China-U.S. political tensions, and the heightened concerns about supply chains will continue to drive the favorable trend of contract manufacturing, returning to North America, as well as our expanding Vietnam facilities. We continue to see improvement across the metrics associated with business development, including a significant increase in the number of active quotes with prospective customers. While the unfortunate combination of factors temporarily disrupted our growth and profitability in the second half of fiscal 2024, we move into fiscal 2025 with a strong pipeline of potential new business, and we're seeing significant improvements in our operating efficiencies and also a weakening peso. Moreover, we will continue to rebalance our manufacturing across our facilities in Mexico, the U.S., and Vietnam. We remain very encouraged by our progress and the potential for profitable growth over the long term. In closing, I want to emphasize the execution of our strategy was only made possible by our investments in plants and equipment, but even more so, the skills, local knowledge, and talents of our people. I want to thank our exceptional employees for their dedication and hard work during this past year, and our shareholders for their continued support. This concludes the formal presentation. Tony and I will now be pleased to answer your questions. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to assemble the queue. We'll take our first question from Bill Dezellem with Tieton Capital Management. Please go ahead. Thank you. Brett, would you please start by sharing with us what proportion of the $10 million of annual savings, or what, roughly $0.70 per year, how much of that will be achieved in fiscal 2025? Through the fiscal year 2025, most of it, if not all of it, Bill. We're expecting that, those cost savings to occur in the year. Some did fall into the Q4. How about just the piece that falls into fiscal 25? You know, I would say the majority of it fell into our fourth quarter, since most of that severance occurred during our 3rd quarter. There was some limited amount, but the majority of it was felt in our 4th quarter. Okay. That is helpful. And so that explains why we see revenues down pretty meaningfully, but gross margin increasing completely counter to what we would normally expect. Absolutely. Okay, well, congratulations. That's fantastic. And the restructuring activities, I think that you mentioned on the last conference call that there may be more that needed to be done. And I wasn't sure if that was all incorporated in this savings, if that additional activity took place in Q4, or if there is additional cost savings that you anticipate that could develop in the remainder of this year, in fiscal 25. So, Bill, I think to that end, I think we're continuing looking at our operating efficiencies. There is some potential of additional restructuring in fiscal 2025. It's been great to see, even after the reductions in force, there really has not been any concerns, issues, problems, delays in our production. So we're continuing to look to see is there some additional restructuring that could be done during fiscal 2025. We're really not doing that right out of the gate just because we're, you know, because of the cyber event, we're on all cylinders trying to get through some of our orders backlog. But I could foresee possibly some restructuring to occur during the year. Great. That is, that is helpful. And then, I do want to make sure I, I have you touch on the 4 new wins this quarter. What is the, what is the size of each of those and, and what interesting, stories, might happen with, with each of them? Yeah. One is within our Arkansas facility. It's a fairly large program for Arkansas. It's predominantly electronics. That one is roughly about a $15 million win. The other large one was a metals, predominantly metals fabrication, which will go down into our Mexico facility. And then the two others were also for Mexico, roughly between $5 million and $10 million each. The metal fab is how much? Sorry. That too is about $15 million. So 2 $15 million dollar wins this quarter? Yeah. Good quarter. Congratulations. That's fantastic. Do you foresee any of these ramping either more or less slowly than the typical wins? Out of the gate, they all look great. You know, there can be some delays. We don't, you know, our, my expectation is that by this time next year, they'll be fully ramped. Okay. That's, that's helpful. And then I, I did want to key in on the medical device win. Sometimes medical devices have special requirements, whether it be clean room certifications, et cetera, et cetera. Is there anything around that idea to this specific win? And, and the spirit of this question is to understand if this could be the beginning of, of a, a new category for you. Bill, we've always had some medical production. You know, we're extremely interested in pursuing that industry. This was a good win for us. I don't think it's any more complex than what we built today. We are certified in two of our locations to manufacturing of medical devices. You know, this one isn't much more, as mentioned, isn't any more complex than what we're building today. Thank you, Brett. I'll hop in back in queue and, congratulations on making it through the cyber incident. So, such a short window. Thanks, Bill. As a reminder, if you would like to ask a question at this time, please press star one, and we will pause for just a moment. We will go back to Bill Dezellem with Tieton Capital Management. Please go ahead. Okay. I'm, I'm happy to ask more here. So, in the release, one thing, that I was surprised to read, Brett, was that, Vietnam is being used for lower production. I would have thought that would have been your lowest cost facility, and therefore, for those who can have the longer lead time, that, that they would, that you'd find some much bigger, runs potentially coming there. Did I misread what you were trying to communicate, or am I, some learning I need to do here? No, that really is our intent of Vietnam is to be our lowest cost facility. I think to your point, they need to have some ability to have increased transportation time. You know, there are a few smaller programs in Vietnam, but longer term, my expectation is that as that grows, those will really be more higher volume, less mixed type products that are better suited for our lowest cost site. Did that answer it, Paul, Bill? It did. Thank you. And then let's jump to the cyber incident for a moment. The $2.3 million cost, where did that fall within the P&L? Predominantly in cost of goods. So, I would say two-thirds of it is in cost of goods, one-third of it is in G&A. So, the outside advisory firm falls into the general administrative, the operating expenses, whereas the required wages that we paid to keep workers was captured in cost of goods. Understood. And then I think that you referenced in the release that you would anticipate that the $15 million of revenues that you believe that you missed out on, that those will be recaptured over the course of fiscal 2025. Is that correct, or should you be able to recapture the vast majority of that here in the first fiscal quarter? No, it's gonna take us more than just a quarter to get caught up. So granted, those specific orders will be made up in the first quarter, but then there's a delay possibly of things that our customer wanted in the first quarter. So, to get completely caught up on that $15 million of lost orders, it may take us the better part of a year. Okay, so, where I was hoping to go with that was that $15 million, you add that to what you just did in the quarter, and that puts you already to the low end of your guidance. You have legacy customers that are showing some signs of rebounding. You have new business ramping. It disappeared, like there may have been some conservatism built into to the numbers. And, and I suppose to some degree, that still stands a little bit, but maybe not to the full $15 million magnitude, as I was thinking. Yeah, that, that's accurate. One nitpicky question, if I may. There was a restructuring cost reversal that was, if I read it correctly, severance expense reversal of $223,000. Are we reading that right? What led to that reversal? It's not often that we see that. Sure. No, that is correct. That was a reversal of expected severance expense. So, due to the cyber event and then also to the recovery of some of our legacy customers in Mexico, planned reductions in force of a few of our people did not occur. So, that is actually a recovery to the income statement. So, included in the fourth quarter is, you know, that rough $200,000 worth of benefit because we didn't go through severance that was anticipated. Okay, that's helpful. And then one additional question. So, talking about the legacy customers rebounding, provide a little more detail and perspective on that. And the spirit of this question, of course, is if you look in the last couple of weeks, there's been an awful lot of question marks about the economy, at least in the popular press. Would love to get your view of what you're seeing from your customers and what your sense is of their end demand and, you know, that whole phenomenon. So, as much perspective and color that you can provide, we'll take all of it. Yeah, at a real high level, Bill, we saw some retraction of our legacy customers' forecast. You know, it began to occur late 2023, and then I would say probably the first 3 or 4 months of this calendar year. We're now seeing some increased demand from many of our customers, just, you know... We're actually seeing some demand that's coming back from maybe a dip that occurred earlier in the calendar year. You know, I think I definitely see that our customers are far more - they have far more concerted focus on those forecasts in making sure that they aren't over inventoried. So, I think there is a little more ebbs and flows. At a really high level, we're feeling far more confident that there really is some strong demand, some returning demand from those legacy customers in the forecast that we're seeing from them. You know, there are definitely peaks and valleys, but I think for the most part, our anticipation is that we'll get back to 2023 levels in the next six months. With these lower costs, that's gonna create some pretty meaningful flow to the bottom line. Absolutely. Well, thank you again, and congratulations again. Look forward to, look forward to seeing that develop. Thanks, Bill. We will take our next question from George Melas with MKH Management. Please go ahead. Thank you. Good afternoon, guys. Brett, congratulations on your first call as CEO. Tony, very nice meeting you on the phone. Good to meet you as well. Just to follow up, a follow-up on Bill's question regarding the cybersecurity expenses. So, if we take those out from cost of sale, gross margin then was actually well above 9%. And I was looking back at my model, and the last two quarters where you had a gross margin above 9% was in June 2014 and June 2022. So, basically, over the last 10 years, you've had two quarters over 9%. And here you are at 9%, including significant amount of extra costs. So, where, where does gross margin go from here, Brett and Tony? George, that's a great... That's a great question. Our expectation is that, you know, we want to continue to keep that gross margin to the 9%-10% level. It is great to see some significant improvement. You know, as you mentioned, we haven't seen this for upwards of 10 years. You know, the, the weakened peso definitely helped, but I think as well, the, the reduction in force that, that we did was, was critical in getting us back to the, the profitability that, that, that really, that we're, we're seeking. You know, where it goes from here, I'd love to be able to have a crystal ball and be able to understand what the peso is gonna do and, you know, what are we going to be able to continue to take advantage of as far as operating efficiencies. But I think our goal is to continue to drive that gross margin above 9%, the 9%-10%. That really is what we will be seeking going forward. Okay. But I mean, if we take out some of the costs that you, you know, related to the cybersecurity event from the cost of sales, and we're talking about revenue of just $126 million, we seem that to be that 10 or even slightly above. So, it seems like you're well positioned for fiscal 2025 and beyond. Yeah. Right now, right now, I would agree, George. It looks like we're well positioned to have a good year with that increased margin. You know, I'd caution, you know, I'm also hoping to be able to include some incentive compensation, which is not in there today. Okay. That's not gonna change it materially. There will be some additional costs as we become more profitable. Yeah. Yeah. Great. Maybe talking just about this incentive, comp, you had a small reversal in the June quarter. Does that mean that there was basically almost no incentive comp for the entire fiscal year of 2024? Yeah. So, our stock compensation expense has been a stock appreciation right. That may change a bit in the future. But yeah, there's very limited, very little stock comp that's run through our most recent fiscal year. Okay, great. Makes sense. Maybe talking about the SG&A, it has usually hovered around $6-$6.5 million. Is that how you see it in the future, or how do you think about it? Well, our SG&A, SG&A, this last quarter did include roughly about $500,000 of cyber expense. So, you know, would have been just over that. But again, that doesn't include any incentive compensation, which I'm hoping to be able to pay this year. That, you know. So, that may grow a little bit. We are seeing, you know, across the board to be able to retain good talent, that there have been some labor increases. Yeah. I would, you know, that 6.5 seems light to me. Okay. And then maybe a question, I guess I'm asking questions about the numbers. What about the interest expense? That seemed pretty high this quarter, it seemed. Yeah. We, with the most recent amendment with Bank of America, our, our costing did go up. Yeah. You know, we'll be anxiously awaiting what the Fed does over the next few months and few quarters. That'll step down with the Fed funds rate as soon as changes are made. But we're also actively trying to pay down that debt because it is very costly. Great. Okay. And, Brett, you've been at Key Tronic for quite some time, for a long time, so, but, but there's a change in leadership going on, right? With Craig sort of stepping down. He's still gonna be involved, but any particular thoughts about the next year or two, or sort of certain things that you see? I like just the press release and having the adjusted net income. I think it's very helpful, so, I want to commend you for that. Any- Good. Anything, any change you think to any desire you have and that you may wanna communicate with us? No, I appreciate that. I think, George, I think, the succession was a plan that was done over a number of years. And I think one of Craig's greatest legacies is the staff that he created. I am not anticipating any big changes in leadership anytime soon. Tony's been well prepped to become probably a better CFO than I ever was. But I think our strategy going forward is going to be far more on profitability. You know, to ensure that. And that's more on an economic value add basis of how much capital is required to make that much profit, and is it a good fit for Keytronic? You know, I think that'll definitely be our focus going forward. You know, we're headed in the right direction, but we've got a lot of work still to do. Great. Okay. We'll be part of the journey. Thanks a lot. Thanks, George.