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Edited Transcript of IEC earnings conference call or presentation 7-Aug-19 2:00pm GMT

Q3 2019 IEC Electronics Corp Earnings Call

NEWARK Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of IEC Electronics Corp earnings conference call or presentation Wednesday, August 7, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Audra Gavelis

IEC Electronics Corp. - Director of Marketing & IR

* Jeffrey T. Schlarbaum

IEC Electronics Corp. - President, CEO & Director

* Thomas L. Barbato

IEC Electronics Corp. - CFO & Senior VP

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Conference Call Participants

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* Aman Raj Gulani

B. Riley FBR, Inc., Research Division - Associate Analyst

* Joichi Sakai

Singular Research, LLC - Equity Research Analyst

* Nehal Sushil Chokshi

Maxim Group LLC, Research Division - MD

* Shawn Boyd

Next Mark Capital, LLC - Founder & Portfolio Manager

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Presentation

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Operator [1]

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Greetings and welcome to the IEC Electronics Third Quarter 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Audra Gavelis, Director of Marketing and IR. Please go ahead, ma'am.

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Audra Gavelis, IEC Electronics Corp. - Director of Marketing & IR [2]

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Thank you for calling in. On the call this morning, we have Jeff Schlarbaum, President and CEO; and Tom Barbato, CFO.

Before we get started, I would like to take a moment to read the safe harbor statement. This conference call contains certain statements that are or may be deemed to be forward-looking statements. These forward-looking statements such as when the company describes what it believes, expects or anticipates will occur and other similar statements include, but are not limited to, statements regarding future sales, backlog and operating results, future prospects, strategic initiatives, turnaround efforts, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect the company's current expectations concerning future results and events. The ultimate accuracy of these forward-looking statements is dependent upon a number of risks and uncertainties that may cause the company's actual results or performance to be different than as expressed or implied by these statements. Specific risks and uncertainties include, but are not limited to those set forth in the company's earnings release issued immediately before this call and in the company's most recent annual report on Form 10-K, our quarterly reports on Form 10-Q and our other reports filed with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or correct any of the forward-looking statements made during this call, whether as a result of new information, future events or otherwise, except as required by law.

I will now turn the call over to Jeff Schlarbaum. Please go ahead, Jeff.

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [3]

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Thank you, Audra, and good morning, everyone. Our third quarter results represent a breakthrough quarter for IEC. When I rejoined the company in 2015, we immediately began restructuring our operations to reestablish customer confidence and reengineering our go-to-market strategy to broaden our sales funnel. We also established an internal quarterly revenue goal of $40 million. Now 4 years later, we are pleased to have surpassed that goal by delivering fiscal third quarter revenue of $40.3 million, which represents a 35% increase compared to last year's fiscal third quarter and an 8% sequential improvement compared to the second quarter of fiscal 2019. This quarter represents our fourth consecutive quarter of revenue growth, with all 3 market segments showing improved revenue. We also experienced improved profitability, achieving overall gross margins of 13.9%. So our fiscal 2019 third quarter was a very solid quarter for IEC. Our strong growth rate has been fueled by the addition of new programs and projects from existing customers, which is a direct reflection of and reward for our proven ability to meet and exceed customer expectations.

In addition, we continue to onboard and ramp up brand-new customers with revenue contribution from these new customers in the quarter totaling more than 10% of sales. We continue to enhance our reputation as a reliable, full-service electronic manufacturing provider for high-complexity programs in highly regulated markets, and we're pleased that our customers recognize the value of our integrated offerings.

Increasingly, we are seeing customers choose to expand their partnerships with IEC across the broad portfolio of vertical solutions we can provide to their supply chain. Not only are we growing our share of business with customers committing greater portions of their outsourcing to IEC, some of these commitments are now representing multiyear awards, demonstrating our customers' growing confidence in our strategic partnerships. An example of this is the recent $50 million award we announced in May 2019 from a top aerospace and defense customer. While we have supported all the circuit card assemblies for this particular program in the past, this award will utilize a broader array of our vertical services, representing a cradle-to-grave solution, including advanced order fulfillment and aftermarket services, including spares, repairs and upgrades. In addition, the award represents multiyear demand, which we estimate will start to fully ramp up beginning in the first quarter of calendar 2020, signifying this customer's continued commitment to fostering an ongoing partnership with IEC.

On a related note, we had a very strong bookings quarter with a book-to-bill ratio of 2.5:1, which totaled more than $100 million in the quarter for the first time in our history and includes this multiyear award as well as many other customer commitments. Interestingly, if we were to back out the demand beyond the first year for this $50 million award, our book-to-bill for the third quarter would still have been nearly 1.8:1. Since the close of fiscal 2018, backlog has grown by more than 60%, representing total order commitments in excess of $200 million. We are pleased to see our continued booking strength with bookings for the first 9 months of fiscal 2019 up almost 45% compared to the first 9 months of fiscal 2018.

It's important to note that the composition of our backlog has improved to include a higher portion of longer-term contracts, reflecting the true trust these customers have in us as a partner, while also providing us with longer-term visibility. While previously, less than 10% of our backlog was deliverable beyond 1 year, now greater than 30% of our backlog represents demand deliverable more than 1 year out, which illustrates we're not only building our backlog for 2020, but for 2021 and beyond.

As bookings continue to grow and in support of the high-complexity programs we are part of, we've continued to invest in scaling our workforce to ensure that we have highly skilled staff in place to efficiently convert backlog to production. Our ability to effectively support the lifesaving, mission-critical programs we work on require that we have the trained staff in place well in advance of a particular program ramping up. While automation plays an important role in our manufacturing process, the human element remains the most integral part of the high-level assembly and testing processes that go into the completion of the final product. Corresponding with the growth of our bookings and backlog, to date, we've onboarded over 160 new employees since the start of fiscal 2019, including over 50 new hires in our fiscal third quarter.

Another important element that continues to affect our ability to convert backlog to production is the ongoing global component shortages we've discussed previously. While components used in the consumer sector are seeing recovery with improved availability of parts and shorter lead times, we continue to see tightness in the supply chain for the highly engineered sole-source components we acquire on behalf of our customer base operating in highly regulated markets. As we work through the ongoing shortages, we've become more efficient in managing the associated challenges. We have taken on additional inventory in an effort to mitigate risk. And we will continue to navigate the situation so we'll remain prepared to meet our ongoing customer commitments.

Strengthening our vertically integrated capabilities is also a priority and an exciting development for our analysis and testing laboratory. Following the close of the fiscal third quarter, we announced that the lab has expanded its services to the Defense Logistics Agency, also known as the DLA, as a suitably equipped laboratory as a part of the agency's Qualified Testing Supplier List, or QTSL.

Our lab has always served as a unique on-site solution for our customers, whether for use in root cause analysis or counterfeit component detection to mitigate risk. With its expanded service, we can now provide a seamless upstream testing service, which in the past we had to outsource to third-party suppliers. We believe we can now capture that same business in-house as well as compete for this business, which is regularly outsized -- outsourced by OEM defense contractors, many of the ones we already service today. We are pleased to have received this qualification, which enables us to serve more customers and programs with state-of-the-art testing for counterfeits and other issues and expanding our ability to minimize supply chain risk for the lifesaving and mission-critical products we support. As we move into the final quarter of fiscal 2019, we're energized by our expanding customer relationships. In a relatively short period of time, we've changed the landscape of our company, reinvigorating customer confidence and solidifying our leadership position as a reliable and efficient manufacturing partner for high-complexity programs. With our backlog and visibility today, we remain confident in our expectation of achieving revenue growth in excess of 25% in fiscal 2019.

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

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Thomas L. Barbato, IEC Electronics Corp. - CFO & Senior VP [4]

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Thanks, Jeff, and good morning, everyone. Revenue for the third quarter of fiscal 2019 was $40.3 million, an increase of 35.4% as compared to the second (sic) [third] quarter of fiscal 2018 and a sequential increase of 8% compared to second quarter of fiscal '19.

Looking at our market sectors in the third quarter of fiscal 2019, we saw revenue distribution of aerospace and defense at 61%, medical at 22% and industrial at 17%. The aerospace and defense sector saw a net increase of $7.6 million, primarily driven by ramping of production for certain customers and increases in customer demand. The increases in the quarter were partially offset by decreases of $0.5 million related to certain contracts ending. Sales in the medical sector increased $1.9 million, primarily related to 3 new programs ramping with existing customers and $0.5 million revenue increase from a customer where material constraints removed in the quarter. The increases were partially offset by reductions in demand from certain customers that amounted to approximately $0.5 million. We expect the medical sector to begin to stabilize with the current forecast we are seeing from our customers. Industrial sector sales increased by $1 million, primarily due to production ramp of new programs with 2 customers.

Gross profit for the third quarter of fiscal 2019 was $5.6 million compared to gross profit of $3.4 million in the third quarter of fiscal 2018. Gross margin of 13.9% in the third quarter of fiscal 2019 increased as compared to gross margins of 11.3% in the third quarter of fiscal 2018.

Selling and administrative expenses increased $900,000, but came down as a percentage of revenue to 9.2% as compared to the third quarter of fiscal 2018, which was 10.3% of sales. The increase in expense was primarily due to higher wage and related expenses. The company recorded net income of $1.2 million in the third quarter of fiscal 2019 or $0.12 per basic and $0.11 per diluted share compared to net income of $0.2 million or $0.02 per basic and diluted share in the third quarter of fiscal 2018.

Now looking at the results for the 9 months of fiscal 2019. Revenue increased 36.7% to $113.1 million compared to $82.7 million in the same period -- same fiscal period. Growth was primarily driven by an increase in sales in the aerospace and defense sector of $16.3 million, an increase in the medical sector of $7.8 million and an increase of $6.3 million in the industrial sector.

Gross profit increased $5.6 million from 11.7% of sales in the first 9 months of fiscal 2018 to 13.5% of sales for the first 9 months of fiscal 2019. Selling and administrative expenses increased $1.9 million and decreased as a percentage of sales to 9.2% in the first 9 months of fiscal 2019 compared to $8.5 million or 10.3% of sales in the prior fiscal period. The increase in selling and administrative expenses was primarily due to higher wage and related expenses.

Net income for the first 9 months of fiscal 2019 was $3 million or $0.28 per basic and diluted share as compared to net income of $1.3 million or $0.12 per basic and diluted share. Excluding a $0.10 onetime tax benefit during the first 9 months of fiscal 2018, net income was $0.02 per basic and diluted share.

Now looking at our balance sheet. Our balance sheet remains strong with $36 million in working capital and $29.3 million in stockholders' equity. You'll see that inventory at June 28, 2019, was 4.9 -- $44.9 million, up compared to $34.1 million at September 30, 2018. As we've discussed on prior calls, our inventory levels are directly associated with our ability to convert our backlog. In the third quarter, we had increased inventory as we prepared to execute orders and attempted to mitigate the risks associated with the ongoing component shortages. In addition, we have seen ongoing commitments from our customers in the form of customer deposits. Hence, keeping approximately 20% of our inventory consistently covered. In addition, on July 28 -- or July 8, 2019, the company entered into the ninth amendment to our credit facility and increased the revolving credit commitment to $35 million.

With that, I'll turn it back to Jeff.

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [5]

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Great. Thank you, Tom. At the start of fiscal 2019, we reaffirmed our 3 strategic initiatives: driving sustained growth, strengthening our balance sheet and improving profitability. We believe our results to date demonstrate that we're making good progress executing these initiatives, creating a predictable and consistently performing organization. We've reinvigorated customer confidence, and we are expanding our relationships to include new programs of longer duration. Our ability to meet -- reliably meet and exceed customer expectations has opened up new opportunities for IEC, strengthening our sales pipeline and backlog, and we're committed to ensuring that we have the resources in place in terms of people, processes, materials and technology to continue to efficiently convert customer orders to shipment.

During the third quarter, we celebrated the groundbreaking of our new state-of-the-art facility in Newark, and we expect to be on track to move in during the summer of 2020. We expect that this new facility will enhance our operational capabilities and will also provide a leading-edge environment for our customers and employees.

Finally, as discussed on our last call, we began implementing a new ERP platform to help scale our systems to support our ongoing growth. We first transitioned the system within our interconnect solutions business unit, limiting the launch in this way to reduce risk and to mitigate any short-term material impact on the overall business. I'm pleased to report the first part of this system was implemented in May of 2019 and has been running smoothly every since. We expect to further roll out this across the company in the upcoming quarters. We're pleased with our progress to date in fiscal 2019 and believe we are well positioned to attract new opportunities and awards that will drive continued growth and profitability as we close out the fiscal year.

With that, I will now turn the call back over to the operator for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Aman Gulani, B. Riley FBR.

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Aman Raj Gulani, B. Riley FBR, Inc., Research Division - Associate Analyst [2]

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Congratulations on a solid quarter. So my first question is, is any part of your business impacted by the grounding or rate cut of the Boeing 737 MAX?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [3]

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Zero. No, we don't have any commercial aerospace. It's all defense related.

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Aman Raj Gulani, B. Riley FBR, Inc., Research Division - Associate Analyst [4]

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Got it. Okay. And then just looking at that DLA contract or that win, have you started testing for that opportunity already?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [5]

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So we have obviously achieved the certification. We have a major aerospace and defense customer who has also approved the transition of the testing to our in-house lab versus using a third party. And we expect that the ramp-up of that testing will begin most likely towards the latter half of the current quarter of Q4, but may slip into the first fiscal quarter next -- of our upcoming year. So it's very, very close, Aman. So it's just a matter of getting it ramped up and transitioning some of the testing over.

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Aman Raj Gulani, B. Riley FBR, Inc., Research Division - Associate Analyst [6]

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Okay. And I know you said you were sort of outsourcing your testing previously. I mean just based on that, like how much do you think like the opportunity is on an annual basis?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [7]

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So it's a great question. We -- there's a whole host of different types of testing that's performed. So at the most basic level, you can start with passive the components, the discrete components like resistors and capacitors, but then scale it all the way up to very active components like memory and CPUs. So we're starting at the passive level, capacitors and resistors. And over the course of time, as we expand the capability, we'll be able to climb the ladder. So it's hard for me to sense, with so new, to really get a handle on the revenue generation potential in the foreseeable future. But I guess after like the first quarter or 2 as we get the testing underway, it will be much more visible to us, but it's millions of dollars. So it's not like it's a trivial amount. It's just a matter of how quickly we can come up the curve.

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Aman Raj Gulani, B. Riley FBR, Inc., Research Division - Associate Analyst [8]

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Got it. Okay. Yes, that makes sense. Last question for me. Are you seeing any weakness in any particular end market you may serve?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [9]

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Currently, it's pretty steady across the spectrum. We are seeing the greatest amount of strength, obviously, in the aerospace and defense sector. I think in the broader macro market, if you look at the major A&D primes, they're doing quite well with very strong backlogs and earnings performance. So naturally, we're seeing very strong demand there. But it's holding steady in the other 2 sectors as well. We're not really seeing much softness.

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Operator [10]

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The next question is from Nehal Chokshi, Maxim Group.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [11]

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Congrats on that phenomenal $100 million bookings quarter. That's really awesome. And thank you for that additional color regarding if you back out product deliveries that are beyond 12 months, book to bill is at 1.8:1. I just want to be clear that that's for all contracts signed? Or was that for -- specific to that aerospace and defense $50 million contract further backing out? Can you provide any...

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [12]

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Yes, it's a good clarification. The backing out of demand was really related to specifically that particular award. We -- since it's a significant magnitude, I want to give a little bit more color that had we just received that program award, but for a year's time horizon, we still would have delivered a 1.8:1 book-to-bill. So it was just isolated to that program backing that out.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [13]

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Okay, understood. And then, so you're now talking about at least 25% year-over-year growth in fiscal year '19, which is a nice bump up from at least 20% year-over-year growth previously that you were willing to commit to. But you now only have 1 quarter left. And so you're now effectively providing explicit September quarter guidance with that updated fiscal year guidance. And that equates to a worst-case scenario of $33.5 million for the September quarter or down 17% Q-to-Q. So one, my presumption is that this represents the worst-case scenario and doesn't actually reflect the low probability outcome as far as this lower limit. Is that correct?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [14]

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I'm glad you bring it up, Nehal. That's correct. And let me just provide some clarification there. We have publicly been talking about double-digit growth quarter-over-quarter as we have these earnings calls and as it is related to our year-over-year sales expectation. And to your point, our growing confidence inspired us to provide greater guidance, and we easily see in excess of 25%. We could have gone on the record as saying more. But look, we have this $40 million revenue target for some time. And because of the scaling of the workforce, the component challenges, we didn't want to be too optimistic, I guess, about eclipsing that level and levels beyond until we saw it ourselves and then now just having a few more quarters under our belt, but we're certainly bullish. We have the demand. Obviously, our backlog continues to grow. And we believe that we'll continue to see sequential growth. That's candidly where we see ourselves at. But at this new unprecedented level for us, it's one in a row, right? So we got to demonstrate that we can do this consistently for me to have greater confidence that I can go on the record to say where I think it's going to be in the future. So hopefully, that helps a bit.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [15]

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Yes, yes, that does help. I guess, and you did describe what would need to happen for this lower probability outcome to transpire, which would be, a, you might have some disruption with respect to the ramp in the workforce that you had, and then obviously, the component shortages potentially picking up and the mitigation factors that you've put in place not being enough to mitigate that. That's the risk that you're trying to protect against basically?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [16]

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Exactly, yes. That's well said.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [17]

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Okay. All right. On the flip side, what would need to happen for the low probability outcome of a Q-o-Q growth to transpire?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [18]

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I think just more of what happened in Q3, which is we broke free of a number of the supply chain challenges that had confronted us in the prior quarters. And so continued success there. And then, obviously, with some of these newer programs continuing to gain traction, climbing the skill level with our workforce to produce these newer programs at higher levels, which we were successful in doing in Q3. So it's not a mystery for us what it's going to take. And it's not a matter of if but when. But again, it's our first quarter, and I want to sort of take it one step at a time.

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Operator [19]

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We have a question from Chris Sakai, Singular Research.

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Joichi Sakai, Singular Research, LLC - Equity Research Analyst [20]

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My question, I guess, is with regard to the backlog. I wanted to know, is there a -- do you have a target level? And is there a point when the backlog could get too big?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [21]

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That's a great question. Obviously, the backlog represents order commitments from our customers. So as it relates to the backlog becoming too big, we introduced this particular earnings call, this notion that our customers are now booking out beyond 12 months of demand. So I think as that continues to evolve, growing backlog levels that go out multi-years presents a lot of security and confidence and visibility for us that we're not chasing our next new order. So I don't think that the backlog level growing -- we don't envision there is a backlog level today that we could achieve that is unhealthy because I think as long as we continue to book out orders beyond a year and in multi-years, that's great for us and our ability to manage the business.

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Joichi Sakai, Singular Research, LLC - Equity Research Analyst [22]

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Okay. I just also had a question. You mentioned that you had a lot of new hires this year. How much of that -- was there -- how much -- was there costs related to that for training? And will those costs be reduced in the future?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [23]

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Yes, that's a fair point. So clearly, there's a cost to recruit and onboard and train new employees. And to the extent that we continue to grow, we'll continue to recruit, onboard and train future employees. But obviously, there will be efficiencies that we gain as the new employee skills continue to improve over time. So I think the magnitude of how many future hires we might hire versus what we've done in the past, there could be some potential reduction in onboarding, training and recruiting expenses. But it's hard for me to say right now because the backlog continues to grow, and we're going to continue to scale to support the demand we have.

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Operator [24]

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The next question is from Shawn Boyd, Next Mark Capital.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [25]

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Congrats on the quarter. You guys hear me okay?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [26]

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Yes, we can hear you great. Thanks.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [27]

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Great. Several of my questions have been asked, but I do want to get into just a couple. On the inventory, anything in there about customers trying to front-run tariffs? Or is it more just as you guys try to manage through the component issues and as you scale up for new programs?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [28]

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It's really the latter. And it's absolutely the latter. When we look at the demand from our customers, it's become more of an art form versus a science on selecting the time in which we're going to bring in all of the material required to convert a particular job. Some of these parts, as we go out and do the initial procurements, can have lead times that extend out 26 weeks or more. So you are already talking of over 6 months. And yet, we've collaborated with our customers in trying to select scheduling targets where we can achieve improved lead time, but it's -- again, it's more of an art form than it is a science. So in this past quarter, we found ourselves bringing in a significant number of parts that we weren't able to clear the last couple to convert them into finished products. So we have them here, and as we clear those remaining parts, we'll be able to convert them into product and deliver for our customers. But they really appreciate our willingness and flexibility to do that versus setting the lead time out 6 months and having delayed, which then puts them at risk of missing their end customer deliverables. So it's really just a collaboration between the 2 of us, which has resulted in some increased upward pressure on the inventory levels.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [29]

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All right. Great. And that coverage level of basically having 20 -- the customer deposits covering 20% of the inventory. Any -- are you getting any pushback on that? Is there -- I'm guessing that's just kind of the way we roll right now, given the way the market is and what you're having to deal with. But do we expect that to change at all as we go forward? What's your view on that coverage there?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [30]

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Yes. I mean it's -- first and foremost, it demonstrates that there's real strong positive collaboration between us and our customers. And in many cases, where they want to mitigate future risk and with the uncertainty of when all the parts can be cleared, they're willing to make a financial commitment to say, "Hey, IEC, we'll give you air cover financially to just go get all the parts now, even if it's only 95% of them, and the last 5% are going to be 6 months from now. At least, we mitigate the risk of the other 95% of the parts not being available when we need them." So I think it just shows that our customers are continuing to support the collaboration efforts and are willing to put economic commitments behind it. So I think that's sort of the current state of the business until the component shortages improve significantly. We won't have to entertain these types of arrangements, but until the marketplace improves, our customers want to mitigate the risk and they're willing to make the financial commitment to do so, which we appreciate.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [31]

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Got it. Got it. And so just in terms of the gross margin, I think on the last call -- on the last earnings call, you had indicated you expected to see that recover, and true enough, here we are recovering quite well. Do you still anticipate seeing that kind of something back to that Q1 level? Or maybe just frankly, it's not that far from the 13.9%. And maybe if you can give us any color on how that backlog looks in terms of your gross margin as we go into next year?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [32]

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Yes. So fair points, and we believe that when you look at -- you referenced Q1 margins, you look at where we were with the Q3 margins, they're not significantly different, but they're slightly better than Q1. I mean those -- that's a margin range we're comfortable with. The factors that are hard to predict are the mix issues, so some projects are more profitable than others based on the mix. Obviously, ongoing expenses associated with bringing up our -- scaling our workforce, but I think that's a margin range we're comfortable in. And as we get a few more of these quarters where we've consistently eclipsed the $40 million mark, I'll be more confident in giving you some longer-range gross margin projections.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [33]

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Okay. And also on -- in response to an earlier question regarding the strength in those orders and giving you the visibility to now talk about revenue growth in excess of 25%, but you also -- and you had hit this $40 million quarter, you'd also hope to grow that sequentially. So -- and that -- from a seasonality perspective, that all makes sense in September. I don't want to push too hard, but I do want to point out that given the company's growth that you've really entered in the last couple of years, and especially this year, you were down in December after that, you were up again. So is your order really strong enough that we could see that again this year?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [34]

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Great question, and I appreciate you pushing this a little bit further. And of course, I've always kind of held my ground and wanted to let things unfold as we really are building an entirely new business today versus what it was in the past. But no, I don't think that's an unreasonable expectation that we can't see continued sequential growth. So I guess I just would leave it at that for now.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [35]

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Yes. Okay. And just last question for me is kind of longer term. We're a year or 2 years into a great expansion here. Now that we're at this $40 million a quarter level, what are you building the business for? In other words, can you run this at a 10%, 15%, 20% growth rate going forward? What's your kind of target growth rate now?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [36]

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So I think I'll just use your words in terms of can we grow at those rates that you just articulated, and we believe the answer is yes. We believe the answer is absolutely yes. We're investing heavily in systems. We're heavily investing in workforce expansion. Infrastructure, we have a new building that's under construction. So that's all with an eye to grow at very solid growth rates that are ahead of our peer group and our competitors. So that's how we're designing the company and that's our focus. So that's we -- we're going to continue to pledge our efforts to achieving. So I think what you articulated in the beginning of your question is where we're headed.

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Shawn Boyd, Next Mark Capital, LLC - Founder & Portfolio Manager [37]

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Very good. And just last question for me, Jack or Jeff. At the -- as you go into the Newark facility next summer, can you just remind us how we should think about the revenue -- what's this whole revenue capacity of the company once you've made that move?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [38]

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So that would be giving you sort of guidance for next year's revenue, and I'm not prepared to do that today. But when you think about our strategy, we'd like to occupy this new building and capitalize on the process improvement and efficiencies with a new layout, so by -- therefore transitioning much of the work that's in our current facility that we have today. So it's really an investment in continued capturing of efficiencies and then building the foundation to scale the business beyond it. I'm not prepared to tell you today what I think the revenue is going to be when we're there. But let things unfold, but we envision continued sequential growth. So better times ahead, we assume, but can't predict quite what the revenue levels are going to be at that time. So we'll continue to give you updates as we go.

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Operator [39]

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We have a follow-on question from Nehal Chokshi, Maxim Group.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [40]

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How should we think about the working capital accounts for the September quarter?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [41]

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Tom, you want to try to take that and if any clarifications from Nehal or not?

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Thomas L. Barbato, IEC Electronics Corp. - CFO & Senior VP [42]

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Yes. I mean I think the goal is we would see similar levels. We believe that we're kind of positioned with where we are with our current inventory levels to start consuming inventory versus building inventory in the quarter. But there are so many dependencies on that, right? So -- but I think you should think about it in terms of similar levels with an opportunity to improve slightly on where we are at. So...

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [43]

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Yes. And I would just say, Nehal, that it's kind of like that the revenue threshold that we just achieved first time and it was sort of overdue, but sort of long in the making. I think we've been building inventory because the demand keeps increasing. But at some point, we see our conversion rate improving and the supply chain cooperating, so we're able to draw it down. And whether that happens next quarter, we -- certainly as we look into 2020, we see us being able to take advantage of that and improving the working capital.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [44]

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Okay. And when you say similar, you're talking about on a Q-o-Q basis, correct?

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Thomas L. Barbato, IEC Electronics Corp. - CFO & Senior VP [45]

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That's correct. Yes.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [46]

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Okay. Which would then be up year-over-year. And I think if I look at past historical seasonality, it's typically been down Q-o-Q. And so the typical free cash flow generation that you get in the fiscal fourth quarter may not come to fruition because of the need to support the growth in the tight component issues, especially the sole-source items, correct?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [47]

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Yes. I think that's a fair way to look at it. And I think we have opportunity to do better, but we got to deliver on that first. So I think that's a fair expectation for now.

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Nehal Sushil Chokshi, Maxim Group LLC, Research Division - MD [48]

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Okay. And you probably did say this, but I didn't capture it. So I'm going to ask it again. When do you expect the tightness on the sole-source components to start to loosen up?

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [49]

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Well, that is a great question, Nehal, and one I wish I had an answer to, but I don't. The interesting thing, and you follow this closer than we do, but for a lot of the consumer goods, whether you're looking at the 5G rollout with smartphones or you're looking at the automobile electronics or you're looking at the cloud storage with server capacity, a lot of the mainstream components we've seen from the supply base improve lead times. Sadly, we don't procure many of those. Most of the packet sizes and component types are in these highly -- high-reliability applications. And so they're not the volume products that the manufacturers are producing. So we've seen continued improvements. So there's no doubt that we've seen continued improvement. When it improves for the package types and component styles that we're manufacturing completely, I still don't know, but we do see kind of quarter-over-quarter modest improvements. So I think we'll just continue to see modest improvements over the course of time. It's the best I got for now.

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Operator [50]

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There are no further questions at this time. I would like to turn the floor back over to management for closing remarks.

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Jeffrey T. Schlarbaum, IEC Electronics Corp. - President, CEO & Director [51]

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Great. Well, thank you, everyone, for calling in today. We appreciate it, and we also look forward to speaking with everyone again next quarter. Thank you.

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Operator [52]

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This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.