Key Tronic Corporation

Good day, and welcome to the Keytronic Corporation fourth quarter and year-end fiscal 2021 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Larson, Chief Financial Officer. Please go ahead, sir.

Good afternoon, everyone. I am Brett Larson, Chief Financial Officer of Keytronic. I'd like to thank everyone for joining us today for our investor conference call. Joining me here in the Spokane Valley headquarters is Craig Gates, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10 , Corley 10 and 8 . Please note that on this call, we will discuss historical, financial, and other statistical information regarding our business and operations. Some of this information is included in today's press release and a recorded version of this call will be available on our website. Today we released our results for the quarter and full year ended July 3rd, 20 of 21. For the fourth quarter of fiscal year 2021, we reported revenue of approximately $132.6 million, up 14% from $116 million in the same period of fiscal year 2020. For the full fiscal year of 2021, total revenue was $518.7 million. the highest annual revenue in the company's history and up 15% from $449.5 million for fiscal year 2020. While demand has remained strong for both new and existing customers, revenue for the fourth quarter and for the full fiscal year 2021 was significantly restrained by issues related to worldwide supply chain, transportation, and with logistics. For the fourth quarter of fiscal year 2021, net income was $200,000 or approximately two cents per share compared to $1.5 million or 14 cents per share the same period of fiscal year 2020. During the fourth quarter of fiscal year 2021, we again incurred additional costs due to supply chain issues causing both factory downtime and overtime expenses, as well as continued but lessening expenses related to COVID-19. In addition, we incurred legal and other professional expenses related to the previously disclosed internal investigation of approximately $1 million in the fourth quarter. You will recall that this internal investigation also resulted in legal and other professional expenses in the third quarter and delayed our reporting of the results of that quarter. Our audit committee, independent legal counsel, and forensic accounting firm conducted an investigation related to a notification from an employee regarding the classification of inventory at our production facility in Minnesota. Although the investigation and management's related review identified improper recording of inventory and related accounting errors, the financial impact did not result in a restatement of audited or unaudited financial statements. However, as we recently reported, we are also taking related remedial actions to correct certain deficiencies in our accounting and and financial control processes. We continue to cooperate with the SEC regarding this matter, which is expected to result in additional expenses in coming periods. Despite the increased expenses related to the pandemic, the global supply chain disruptions, and expenses related to the independent investigation, our annual margins improved in fiscal year 2021. Gross margin was 8.1% an operating margin was 1.8% up from a gross margin of 7.8% and an operating margin of 1.5% for the fiscal year 2020. For the full fiscal year of 2021, operating income was $9.5 million up 40% from the prior year. Net income was 4.3 million or 39 cents per share. compared to 4.8 million or 44 cents per share for the fiscal year 2020. Turning to the balance sheet, we continue to maintain a strong financial position. As a result of supply chain related production delays in the fourth quarter of fiscal 2021, the continued ramp and transfer of new programs, our inventory turns decreased slightly from the prior quarter. In future quarters, we expect to see our net inventory terms increase to be more in line with expected revenue. At the end of the fourth quarter, trade receivables were down $2.6 million from the prior quarter, reflecting the timing of shipments later in the quarter. Our DSOs increased to about 76 days, which reflects both timing of shipments during the quarter and some delays in payments from customers who have also been impacted by the pandemic-related shutdowns and restarts in their respective markets. Overall, our balance sheet has total working capital of $172 million and a current ratio of 2.4 to 1. Nevertheless, we feel it is prudent to preserve cash and expand liquidity where possible. In this light, we expect to increase our credit facility with our existing bank up to 120 up to $120 million of total availability subject to our borrowing base. This should give us more flexibility to potentially ramp up production and to manage potential pandemic-related risk and other risks in coming periods. Total capital expenditures were about $10.6 million for the full fiscal year. While we are keeping a careful eye on expenditures during fiscal year 2022, we plan to continue to invest in our production equipment, SMT equipment, and plastic molding capabilities, as well as make efficiency improvements in our facilities to prepare for growth and add capacity. Despite growing customer demand and backlog, we expect that delays in the supply of key components will continue to significantly limit production and adversely impact operating efficiencies. For the first quarter of fiscal year 2022, we currently expect to report revenue of approximately $125 million to $135 million and earnings of approximately 7 to 12 cents per diluted share. Nevertheless, there's a lot of uncertainty surrounding these current estimates. We're working closely with our customers, key suppliers, and employees to minimize the effects of delays attributable to the continued global pandemic, increased global freight and logistics costs, and limited availability of key components. We also cannot predict the outcome of any regulatory actions related to the subject of the internal investigation. While our facilities in the US, Mexico, China, and Vietnam are currently operating, while following current health guidelines, uncertainty as to the possibility of future temporary closures, customer fluctuations in demands and costs, future supply chain disruptions during the rapidly changing COVID-19 environment, and other potential factors could significantly impact operations in coming periods. In summary, while the supply chain disruptions and the COVID-19 crisis continue to impact our business during the fourth quarter and remain risk in future periods, we are encouraged by our growing backlog as we move into the first quarter of fiscal year 2022 and by our prospects for future growth. The overall financial health of the company appears strong, and we believe that we are increasingly well-positioned to win new EMS programs and to continue to profitably expand our business over the longer term. That's it for me. Craig?

Okay. Thanks, Brett. Despite the stiff headwinds during the past year, including the pandemic, multiple factory shutdowns, worldwide supply chain challenges, We're very pleased with our strong positive momentum. We reported 15% year-over-year growth and record revenue for the year and generated a 40% increase in operating income. We also continue to ramp up new programs and win new business. While the COVID crisis is not behind us, we survived the waves of pandemic challenges over the past year. Along with forced government shutdowns, we work hard to keep our employees safe. implementing a variety of procedures and stopgaps to address COVID-19 and mitigate its spread. We were also impacted by an unprecedented winter storm that shut down a Warris facility for one week during critical times for several new program ramps. During the year, we struggled to get enough labor in our production facilities as production staff were deterred by a variety of factors, including COVID-related unemployment benefits, which at times exceeded payroll in the U.S., endemic fears in Mexico, and government oversight in Asia. Now that we're sufficiently staffed up for production, for the time being anyway, the industry faces persistent worldwide shortages in the supply of key components particularly for electronic parts. These shortages have extended production timing and caused transportation costs to triple. Had it not been for the supply chain issues, we believe burgeoning customer demand would have driven revenue for the year in excess of $700 million. Unfortunately, moving into fiscal 2022, supply chain disruptions have not improved. In the face of all these challenges, We continued winning new customers and ramping new programs, more than offsetting the drop in some programs because of the pandemic. During the year, we won new programs involving audio and video editing systems, indoor air quality, utility meters, warehouse management, security and automation technologies, industrial products, consumer products, medical, exercise equipment, and residential building products. We also continued working with local government agencies to build medical products, assisting in combating the pandemic. We would not have won this many programs without the opportunity to first ramp the programs in our U.S. plants and subsequently transfer to our lower cost plants in Mexico. Recently, we leased two new buildings in our Mexico campus, increasing our capacity to over 1 million square feet in Mexico. Moreover, production at our new Vietnam facility continues to grow, doubling its workforce and generating profits for the year. We expect big things from our Da Nang facility in the future. That said, as we've discussed on previous calls, the pressures on our customer base to lessen their Asian supply concentration remain very powerful. Demand for North American production continues to grow with no foreseeable end to tariffs, increasing Asian production costs, and time to market, and a weakening US dollar. These tailwinds have driven a significant increase in our business, and that increase has been along multiple vectors. Firstly, current customers with programs in Asia outsourced to other providers have awarded some of that business to us. Secondly, current customers with new programs that were in the process of being awarded have eliminated Asia from their selection process and selected Keytronic based on our North American footprint. And thirdly, new customers with both existing and new programs have also selected us based upon our footprint and experience. Another factor in many of our recent wins has been the realization by many companies in our target market that they have lost design control of their products in the process of outsourcing them. Our strength in engineering has proven to be a powerful asset as these companies work to regain design control, and several of the new project wins are due in part to our design services. Yet another factor in many of our recent wins has been our unusually high level of vertical integration. As a customer seeks to recreate an existing supply chain, the risk and effort is multiplied by the number of new suppliers that must be identified, qualified, bid selected, ramped, and managed. We believe Keytronic is unique among our tier two competitors in that we offer a one-stop shop for molding, metals, print circuit boards, assembly, test, and distribution. Additionally, many of our new customers' products require a manufacturing process that is unique to their product. Keytronic has a long history of developing and optimizing such processes as we onboard a new customer. And this development is aided by our vertical integration. Moving into fiscal 2022, significant uncertainty still surrounds the continuing threat of the pandemic and the disruptions to global supply chains for key components. At the same time, we believe that these challenges will continue to force our customers to weigh carefully the degree to which they concentrate their supply chain on any one region and cede their design control to their outsourced partner. The macroeconomic events of the past year have forced many companies to more fully recognize the significant impacts an elongated supply chain can have on both costs and availability, the risks of IP appropriation, and the attractiveness of doing business with an outsource partner who can minimize their risks on all these factors. We structured Keytronic to be the clear answer to the true costs and risks of over-concentrated outsourcing. The advent of trade wars with China and the pandemic and global supply chain disruptions have only served to accelerate the effectiveness of our strategy. Even if these challenges gradually abate, we expect that our market will still have been tilted in our favor. In closing, I want to once again thank our great employees for their dedication during these challenging times. Because of their courage, hard work, and strategic foresight, We expect continued revenue and earnings growth in coming periods. And we continue to invest in new capacity to prepare for long-term growth. Let me assure you also that we will continue to make protecting the health of our employees our highest priority. This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Bill Desoligny with Teton Capital.

I'd like to actually start, since we didn't have a third quarter conference call, to have you discuss the new program that you won in the Q3 that led to adding an additional 145,000 square feet down in Juarez, please.

I'm trying to figure out what I can say about that.

It's a program that's being partially financed moved from China and partially new business. It is based upon response time to customization from that program's customers. And it's the first time in our history that we've done this depth of a Tie in between us and our customer as far as commitments to square feet and commitments to. Equipment that is being built and moved in our facility.

No, I think we also disclose this last time this last quarter that it's highly automated and that with that we're really is truly a partner as Craig said with with this customer.

Thank you. And given the amount of square footage that you're adding, presumably this is rather large in terms of revenue potential. Would you scale for us the revenue kind of as you have in prior quarters for the wins? I'm specifically thinking about this one in the third quarter. My next question will be the three new ones this quarter.

So the third quarter, the big one there, was between $20 and $50 million a year.

And for Q4, all of those were between $5 and $15 million.

And were those for existing or new customers, each of those? And if there was anything interesting about any of them that's unique, go ahead and

Take the opportunity and dive in.

Well, the big one in Q3 was for a different division of an existing customer. And the largest of the wins in Q4 was for an existing customer. Then the other three were new customers. Actually, no, one of the other three was a new division of an existing customer.

Congratulations. And then I'm going to ask you to kind of share a little bit of the behind the scenes of what happened with your revenue guidance. Specifically, in early May, you were guiding the fourth quarter to be $130 to $140 million. And then... I think it was early July, you pulled that back to 120 to 125, and then you ended up doing closer to the 133, which was quite close to the Q3 revenue. Can you help us understand kind of all that you were dealing with behind the scenes?

Sure. It's all basically related to component availability and new program ramps. The Day-to-day life in manufacturing is now sit at your desk and wait for the phone to ring from the supplier who's decided he has to decommit today. And then scramble around and try and find a replacement part. See if you can find those parts in the gray market, in the black market. See if you can find a way to get those parts certified to make sure they're not counterfeit. talk with your customer, see if you can find a way to convince that customer to pay anywhere from 10% to 2,000% purchase price variance to get these parts out of the black or gray market. And then when that one's behind you, wait for the phone to ring again. And basically, I'd say on any given day, we have two or three new decommits from a supplier somewhere around the world or a logistics snafu where parts didn't get on a boat or didn't get offloaded or are stuck in port. So we really don't know from day to day what we're going to be able to build, which causes us to have a really hard time giving you folks an accurate prediction of how much we're going to sell. At the same time, the customers need the parts, need the products, So when we get the parts in the door finally, we end up working a lot of overtime, try to get the products built, and we end up having a lot of people sitting around with nothing to do when the parts don't show up on time. So that's why we can't be more accurate on what we're going to build, when we're going to build it, and how much it's going to cost us to build it.

So that's actually quite helpful and kind of helps frame up what seems like conflicting statements in the press releases of costs due to downtime and costs due to overtime. Those two generally don't go hand in hand. But relative to the most recent guidance of 120 to 125 and then actually doing 133, that's a great surprise. What happened? to allow that positive surprise to take place.

Parts came in that we were thinking were not going to come in. Product got built that we didn't know if we were going to get done by the end of the quarter. Product got shipped that we didn't think was going to get done by the end of the quarter.

And presumably from what you've described, just the opposite could happen at any quarter in the future, so we shouldn't take too much... too much enthusiasm for what was accomplished this quarter then? We should be enthusiastic, but not necessarily imply that it's going to repeat quarter after quarter.

We sit together every morning, talk with our staff, and every day we all have a pretty good idea of which suppliers are in trouble, which shipments are held up, how far lead times are being pushed out. Lead times, for example, for some of the hot components like an integrated circuit that we use in one of our larger product revenue lines is also used in the automotive industry. And when that chip is holding up the shipment of an $80,000 truck versus holding up the shipment of our $800 product, GM and Ford are a lot more willing to pay $150 premium for a $10 chip than our customer is. So as we look over this landscape of logistics and when fabs are coming online and which countries are pulling their people out of the factories or restricting how many people are being allowed to go into the factories, how far lead times are being pushed. Last time we talked with a given supplier, we convinced ourselves over the last probably three weeks that things have stopped getting dramatically worse every day. We are not convinced we've turned a corner and things are getting better but at least we don't think every day is worse than the last. And there's a lot of factors that go into that too, because when this first started, there's always a secondary market for parts that has parts that have ended up in excess for some reason, and brokers are looking to move those parts to somebody at a higher price. And as this first began, that whole market was still pretty full of parts. And as it got worse and worse and worse, that market got drained down to where there is no secondary gray black market to speak of with reputable parts in it. So as a result, I'm not sure the last two or three months was actually failure of manufacturers to keep up as much as it was. We had finally drained the last pool we had of parts. And by we, I mean the entire industry. Well, that's what's confusing us as we try to figure out, is this the worst it's going to get? Is it going to get worse? Have we turned the corner? And as I said, right now, we think we've hit the bottom and are bouncing along the bottom. So whether you should celebrate or be in despair or bank on us beating our projection or banking on us missing it, I can't tell you. I can tell you a lot of people are working really hard and a lot of time and energy and money is being spent to keep our customers as happy as we can, because I can assure you we're going to remember the suppliers that didn't do us right during this time. And I don't want any of our customers to remember us of not doing them right during this time. But that's about all I can give you.

Craig, that's more than I asked for and very helpful. Thank you. So let me just be clear here. You are not experiencing any sort of a demand issue. It is all on the supply front, correct?

We are not. we see the highest demand we have ever seen in the company's history.

And so for this quarter that you've just guided 125 to 135 million this September quarter, what's your current guess of what end customer demand is?

If we could get all the parts we wanted and if all the employees were available to us, we could be doing in excess of $160 million this quarter.

So that's up from, I think, what you've put in prior press releases of $150 million.

Yep.

Well, congratulations on that front. So let me ask one additional question, and I will step back in queue. What's getting in the way of hitting the 10% ROE Let's start with the long term. I think you may have just answered in the short term, but long term, what's going to preclude you from accomplishing that?

I don't know how long all the pandemic and supply issues are going to be. I don't know if you think long term is a quarter or a year or what. Certainly, if we were running $150 million, $160 million in revenue, our profitability and

and everything else that you wanted to measure would be a whole different world of betterness.

Let me actually break my own promise. I said I would just get back in queue and ask an additional question. In the release, you made reference to 700 million or so of demand in the year just completed. Had you been able to satisfy that demand and you did not have the internal investigation costs, what would earnings have looked like?

That's like saying what would happen if I hadn't hit the buoy at four ball. That would require a lot of speculation. Yeah, there's no use really thinking about it. You can just say that the error would point way up and leave it at that.

Yep. All right, that's fair. Thank you very much for taking all my questions.

You bet. Thanks, Bill.

Once again, if you would like to ask a question, please press star 1. We'll take our next question from Sheldon Grobski with Grobski Associates.

Good afternoon, everybody. I have a few quick questions. Have you tallied up how much the – the internal investigation and all related items cost you for the year?

Yes, we have. It's in excess of a million and a half dollars.

Was anybody fired as a result of the investigation?

We have taken remediation, including control design enhancements, maintenance and control, system upgrades, training, just a whole variety of things that we've already publicly disclosed.

Okay. And going to the components problem that you're having, is this primarily emanating from Chinese suppliers or is this across the board around the world?

It's across the board around the world.

Okay.

Thank you.

We'll take our next question from George Melas with MKH Management. Hi. Good morning.

Good afternoon, guys.

Hey, George.

Hey. If you take that $700 million of demand in fiscal 21, how much of that was related to COVID-related products? So what I'm trying to figure out is if you didn't have COVID, With specific programs related to COVID like, you know, like some sort of handheld thermometers and things like that, how much would have been, you know, how much would that 700 been?

That's kind of hard to answer because COVID hurt some customers really badly and helped other customers a lot. And some of the customers that it helped, obviously, we weren't able to get parts. And the question is, would that demand have been there? Would it stay there if COVID goes away? I have a hard time answering that question. I don't. Or the correlation. Yeah, I can't. The causation, I'm not sure I could answer. I think it'd be, my guess would be, and this is just an instinct rather than any type of statistical analysis that I've done on it. I guess it'd be that 700 would probably drop down to 600.

Okay. Okay. That helps a little bit.

A quick question for Brett. How much in your guidance for the September quarter, how much did you bake in for internal investigation fees?

We're expecting somewhere in the neighborhood of $300,000 to $400,000.

Okay.

Again, it's a broad estimate, and that's our best guess at this point.

Okay. Great. Thanks. And with the capacity that you've added, how do you think about what is your revenue capacity right now in your class?

We don't.

Because every new win is a new adventure. So some wins are highly square footage intense and other wins are low square footage intense. So we don't think about it that way.

Okay. In given, you know,

constraints that you have that may be equipment, space, people. When you bid for work, when you choose work that you bid on, is there some kind of emphasis that you have now? Are you trying to bring in a certain kind of business to complement what you have?

I don't think I do. The answer to your question, I'm not sure you're going to appreciate, but the answer is that we look for business that has a strange process in it. So you want me to explain that more or you want to give up on that one?

I think you try to use your design capabilities and add value to that process, right?

Yeah. What percentage of your business has that characteristic? I'd say, hang on, I'm adding. So, at least two-thirds. Okay.

And if you take that two-thirds, Craig, does it have a higher margin? than the rest of the business?

It seems to eventually.

In some cases, it's again, there's so many different customers and so many different situations, I guess it's not fair to say that it seems to. Because sometimes the volume gets so big that the margins get tighter.

Okay. That sounds to me because it seems like if you have a bigger program, the margins would benefit from that.

If you have a bigger program, your customer gets more interest from people around the world, gets a lot of unsolicited bids, and so the competition becomes stiffer.

Okay. Okay. Sometimes. Okay.

It depends on how unique the process is. Right. And that's why you really want these strange processes where you add value when you help design them.

Yep. Takes us out of the commodity contract manufacturing world and puts us into a different space. Okay.

And so, if you look at the wins that you were describing to Bill, Maybe look at your wins in the last 12 months. Have they been the kind of bids or wins that you really wanted? I mean, have they been these big, strange processes where you have certain unique capabilities?

Yes, a lot of them have been. Okay. So now,

I guess it's really difficult to talk about margin given all the supply chain issues. But help us think about what gross margin you are targeting, because you're clearly targeting above 8%. In fiscal 22, or maybe in the back end of 22, what would be your hope for growth margins for the business?

Well, I think our goal has always been to be above a 9% growth margin. That's our long-term goal. Now, to say that we're able to achieve that towards the back of 2022, we're not equipped to be able to give that type of an estimate.

Okay.

You can look at it another way and say if we didn't have to deal with all of the supply chain issues we have right now, that number would be easy to hit.

I mean, if you didn't have the supply chain issues, your gross margin would exceed 9% now.

Right. Yes.

Yeah. Yeah. Are you able internally to quantify how much is, how much, you know, freight is costing you more, how much? I guess you can probably over time and all that stuff. You can do that internal analysis.

Yep.

Yep. Okay. Now, on freight. Your incoming freight is probably in your cost of goods sold and your outgoing freight is in SG&A. Can you talk a little bit about the extra freight?

Yeah, George, let me correct you. Actually, both sides, any freight would be through cost of goods sold.

Okay, okay.

But often, the customer pays freight Usually picked up at our facility. And then they would pay. Great outgoing to their own distribution center of our finished goods.

Yes, so typically we're paying the freight to get components. And raw material to our facilities.

And then back northbound in Mexico up to El Paso for customers for them to pick up.

OK. The big jump there is. Go ahead.

No, you go ahead, Craig.

The big jump there is if you're interested in board, look at how the shipping companies are doing in terms of revenue and profits, and you'll be amazed. A container used to cost somewhere around $3,000 to $4,000 to rent and ship. parts from China to the States, that's now up to 16 to $18,000 per container.

Yeah, yeah.

Amazing.

Yeah.

And that's when you can get one. And that's when you can get somebody to put it on a boat. And that's when you can get somebody to take it off of a boat and load it onto a choo choo train. Yep.

How much freight cost did you have that you were not able to pass along to customers in this quarter?

We really try to recover as much as possible. Many of our manufacturing agreements, in fact, most of them allow us to, for cost reimbursement at the point in time there are cost increases that we can't control. Of course, that is always a battle. I would Just rough guess, I'd say more than half has been reimbursed. And we're seeking for additional reimbursements as we go.

Just to understand what you said, one and a half have been reimbursed. You mean one and a half million?

Sorry, more than 50%.

More than 50%.

More than 50% of our cost increases related to freight have been reimbursed. reimbursed by our customers.

And how much would that 50% be? What would be a number for that?

That'd be difficult to quantify.

Okay. Okay, great. Okay.

And so if your gross margin could be in normal circumstances with your current demand north of 9%, what would be the main factor that would make that difference?

It would be the ability to actually build revenue that we could sell. It would be the ability to build it without a bunch of overtime and downtime. And it would be the ability to pay normal shipping costs. And it would be the ability to not have so many increases coming at us at once that we could efficiently negotiate with our customers and pass along those costs that are actually foreseen in our contracts. But just because it's in the contract doesn't mean you don't have to go negotiate it and prove it.

Okay. And then just one final question for me. I mean, this has been amazing in trying times from an operation perspective. And are you a stronger organization now than 18 months ago because of all that you've had to do? And sort of what have you learned that will help you become even better in the future?

We've gotten a lot better at forecasting. And that understanding how to deal with uncertainty in the supply chain and how to lay off risk. That's why we're anticipating being able to drive inventories down. We've gotten better at moving people around in the factory. We've gotten better at talking with our customers about This is, you know, we have to work on this together. This isn't just a situation where electronic can take the hit. We've gotten better at understanding how to make it clear to somebody who is in crisis because of choices they made years ago to over centralized their outsourcing. That's a tricky conversation to have with a customer. And we've gotten quite a bit better at that because it's been happening so much more.

Okay, great. Interesting. Thank you very much. Yep. Thanks, George.

We'll take our next question from Bill Desalem with Teton Capital.

Thank you. Two additional questions. First of all, what's the backlog at the end of June versus March?

We gave up looking at backlog because our customers do it so many different ways depending on the contract we have.

I don't have that readily available, Bill. It doesn't mean a lot to us just based on timing of when we actually get purchase orders and forecasts and the likes.

So I was under the impression that, say, two years ago, backlog really wasn't that relevant. But as the logistics and supply component issue tightened up, then it did become more representative. Is that now changing? And so when the 10K comes out, we shouldn't focus on that like we would have in the past couple quarters?

We've been pretty clear all along, I think, is we don't want you to focus on backlog.

You, of course, can look at it from a directionally, but definitely not to be able to define how much future growth Keytronic will have.

Great. Okay, thank you. And then secondarily, with the COVID Delta variant starting to pick up, are you seeing any increase in demand from your customers that have products that that would benefit from health emergencies?

No.

We don't see – I'm trying to think about how to answer that, because some of the products that had a massive increase in demand were overforecasted, and are now burning off inventory. So I can't really tell you if that inventory is burning off quicker because Delta has come along or not. We are seeing pretty big whipsaw between where we were six months ago, where we are today, and what's forecast for next quarter on some of those healthcare products. So way high, a sudden drop as everybody thought COVID was over. and inventory should be burned off, and then a pickup again that may be stronger than what it was originally forecast in our Q2, but I can't be certain of that.

Thank you. So these customers that do have healthcare-related products, do they tend to sell them domestically, or are they selling them globally? So if You know, if Indonesia, for example, has a pickup in COVID that becomes real problematic, they just shift sales that direction.

Tends towards being global and it's shiftable, if that's a word, in many cases but not all because sometimes packaging and certain features are specific to a location.

And would it be fair to guess that the shiftable, I like that term, is really between countries that have the economic wherewithal and some of these countries that are less economically vibrant just aren't going to be getting the products?

No, that doesn't seem to be the factor there that drives it. It seems to be more the demand and need for the product.

All right.

Thank you for taking additional questions. You bet. Once again, if you would like to ask a question, please press star 1.

We'll take our next question from George Moss with MKH Management.

Thank you, guys. Just two quick follow-ups. The customer that you got in the third quarter that you were talking about earlier that required a lot of Has that customer ramped up in the fourth quarter?

Nope. We don't expect to have revenue from that customer. I think we've disclosed until latter half of fiscal year 2022.

Okay. So that means for that customer, you have some costs right now, but you have no real revenue. Correct. Okay.

Great. And then just a question about concentration. Do you have more than one 10% customer in this quarter or just one?

Just one.

Just one.

Great. Thank you very much, guys. Thanks, George.

At this time, we have no further questions in queue. Mr. Craig Gates, at this time I will turn the conference back to you for any additional or closing remarks.

All right. Thank you, everybody, for participating in today's conference call. Brett and I look forward to speaking with you again next quarter.

This concludes today's call. Thank you for your participation. You may now disconnect.