Key Tronic Corp (KTCC) 2015 Q4 法說會逐字稿

Good day, everyone. Welcome to the Key Tronic fourth-quarter fiscal 2015 conference. Today's call is being recorded.

At this time, I'd like to turn the conference over to Mr. Craig Gates, President and CEO. Please go ahead, Sir.

Good afternoon, everyone, I'm Craig Gates, President and Chief Executive Officer of Key Tronic. I'd like to thank everyone for joining us today for our investor conference call. Joining me here in our Spokane Valley headquarters is Brett Larsen, our new Chief Financial Officer.

Today we released our results for the fourth-quarter and fiscal year 2015. During the year, despite slowdowns by some long-standing customers, we made significant progress ramping up new programs, expanding our customer base, and extending our worldwide capabilities. The major event of the year was our acquisition and successful integration of Ayrshire Electronics.

We see it as a one-plus-one-equals-three combination, which continues to make significant contributions to our progress in several ways. First, by acquiring Ayrshire's printed circuit and assembly capabilities, we expect to get an earlier look at new program opportunities. Ayrshire's PCB customers tend to use Ayrshire's US plants for low-volume or prototype products. When these types of product begin to ramp to high-volume, we are ahead of the pack, as our competitors attempt to prepare a quote while lacking experience we have with the product.

Second, among Ayrshire's many satisfied customers, we expect to retain more programs with growing volume or transitioning to full product builds. In the past, many of Ayrshire's maturing programs with increasing volumes were lost the competitors with offshore facilities. Now we are very encouraged to see many of these programs remain with Key Tronic. This is because customers see the many advantages associated with simply migrating a maturing program from one of Key Tronic's sites onshore to another Key Tronic site offshore.

Third, the combination has given us much more diverse and stronger foundation for growth. Ayrshire built an extensive and superb list of very loyal customers. Largely because of the acquisition, our total annual revenue has increased 42% to $434 million, and our total number of customers more than doubled in fiscal 2015. Our top five customers represented approximately 42% of our total annual revenue at the end of fiscal year 2015, compared to about 62% a year ago.

Our broader and more diversified customer base significantly lowers the potential risk and impact of a slowdown by any one customer. At the same time, we have continued to extend our customer portfolio across an even wider range of industries, including new programs in the fourth-quarter involving home-building products, material handling systems, and mining equipment. Looking ahead, we continue to see a robust pipeline of potential new business.

Throughout the year, our revenue and earnings were impacted by declining orders from certain long-standing customers, while our new programs continued to ramp up. Moreover, we are also managing the challenge of our success in the short-term. We have many new programs in the process of onboarding, and several more are nearing the end of the design phase and moving towards the production stage.

Getting all this new business up and running does impact our expense line in advance of revenue. In the fourth quarter, however, we saw a moderation in the decline of the long-standing programs, and expect to see continued sequential improvement in our operating efficiencies in the first quarter.

Entering fiscal 2016, as our new programs move into production and ramp up, we expect to see increasing revenue in earnings. As you know, we recently announced the appointment of Brett as our new Chief Financial Officer. He replaced Ron Klawitter, who is retiring after serving with Key Tronic since 1992. On behalf of the entire Company, we want to thank Ron for his many years of outstanding service, and for his key role in helping guide us through our transition from an OEM to a leading provider of electronic manufacturing services. We are very pleased that he will continue to serve on the Board of Directors.

We are most fortunate to have someone of Brett's ability and knowledge of the Company to replace Ron. He has worked at Key Tronic for 10 years, and has most recently served as our Vice President of Finance and Controller since February 2010. Previously, he also served as a Chief Financial Officer of a multinational heavy equipment company, and has held various manager and supervisory roles with large accounting firms.

Now I'd like to turn the call over to Brett to review our financial performance. Then I'll come back to discuss our strategy going forward. Brett?

Thanks, Craig, for the kind introduction. I'd also like to express my deep thanks to Ron for his many years of leadership and mentoring. We all wish him a happy retirement and look forward to his continued contributions as a Board member.

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 on the -- that the Company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs and 8-Ks.

Please note on this call, we will discuss the 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.

For the quarter and year ended June 27, 2015, our results were in line with our previous guidance. For the fourth quarter of our fiscal year 2015, we reported total revenue of $120.4 million, up 67% from $72.1 million in the same period of fiscal year 2014. Results for the fourth quarter of fiscal year 2015 included approximately $37 million in revenue from Ayrshire Electronics, which was acquired on September 3, 2014.

For the full fiscal year of 2015, total revenue was $434 million, up 42% from $305.4 million for fiscal year 2014. As Craig said, we are pleased to see Ayrshire's operations and the continued ramp of new programs contributing to our growth.

For the fourth quarter of fiscal year 2015, gross margin was 9%, comparable to the same period of fiscal year 2014. For the full year of fiscal year 2015, gross margin was 8% and operating margin was 2%, compared to 9% and 3%, respectively, for the fiscal year 2014. Over the longer term, we expect our gross margin to gradually improve and move into the 9% to 10% range.

Our total operating expenses were $7.1 million in the fourth quarter of fiscal 2015, up 61% from the same period last year, but only 3% sequentially from the prior quarter. The year-over-year increase primarily reflects the addition of Ayrshire's operations and our preparations for growth in coming periods.

For the fourth quarter of fiscal year 2015, our operating margin was 3%, comparable to the same period of fiscal year 2014. For the full year of fiscal 2015, our increased operating expenses and slightly lower gross margins in our targeted -- target range, resulted in an operating margin of around 2% compared to 3% in fiscal 2014. Over the longer term, we expect increasing operating margin and profitability.

Net income for the fourth quarter of fiscal year 2015 was $2.3 million or $0.21 per diluted share, up from $1.4 million or $0.12 per diluted share for the same period of fiscal year 2014. Results for the fourth quarter of fiscal year 2015 included tax credits for research and development activities of approximately $500,000 or $0.04 per diluted share. For the full fiscal year of 2015, net income was $4.3 million or $0.38 per diluted share, compared to $7.6 million or $0.67 per diluted share for the same period of fiscal year 2014.

Turning to the balance sheet, we have continued to maintain a strong financial position. Our inventory was $91.6 million, up $13.6 million from the previous quarter, reflecting our preparations for growth in coming periods and some production delays in one new program. In coming periods, we expect our inventory levels to decline.

Our trade receivables were $72.9 million at the end of fourth quarter, up $3.2 million from the previous quarter. Our consolidated days sales outstanding remains steady at about 50 days. And we would expect that our DSOs will remain at this level.

You will recall that we completed the acquisition of Ayrshire in the first quarter using about $5 million from cash on-hand, $35 million from a new term loan, and $9 million from our line of credit to fund the purchase price. During the fourth quarter, we reduced the balance in our line of credit and term loan by $1.1 million combined, despite the significant use of working capital for inventory.

In the first quarter, we expect to draw additional cash for working capital from our line of credit, which we recently extended to a $45 million capacity. Over the long-term, however, we expect to continue to pay down both the line of credit and the term loan.

Our capital expenditures for the fourth quarter of fiscal 2015 were approximately $1.7 million, as we continue to expand our sheet-metal fabrication, plastic injection molding, and electrical assembly capabilities. For the fiscal year, our CapEx was $8.8 million.

Moving into the first quarter of fiscal 2016, we anticipate more of our new customer programs moving into production and ramping up. Taking these factors into consideration, we anticipate that the first quarter of fiscal 2016 will have a revenue in the range of $122 million to $130 million. We expect our gross margin to be on our historic target of around 9% in the first quarter. We also expect some increases in operating expenses.

Taking these factors into consideration, we expect earnings in the range of $0.17 to $0.24 per share for the first quarter. This expected earnings range assumes an effective tax rate of 35%.

In summary, we expect to see continued revenue and earnings growth in the first quarter. Overall, the financial health of the Company is excellent, and we believe that we are well-positioned to continue to profitably expand our business over the longer term.

That's it for me. Craig?

Okay. Thanks, Brett. We continue to believe our fundamental strategy remains sound. From our perspective, slowdowns by a certain long -- large, long-standing customers in fiscal 2015 masked the production ramps of several new customers. Moreover, we are very encouraged by the potential of our many new programs being onboarded, and the positive impact of our recent acquisitions.

Entering fiscal 2016, we continue to win new business. As we've discussed before, we have three long-term major competitive advantages. First, the increasing costs in China are driving demand for more localized production; Mexico for North American end-users, and China for Asian end-users. Among EMS providers, we stand alone in the excellence and breadth of our Mexican operations. As more previously outsourced manufacturing business moves back from China, we stand to continue to benefit.

Second, our unique organizational structure, which has been honed over years of experience in running geographically-diverse operations. Beyond the level of cost and service we can provide from our Mexico and China-based facilities, we offer US-based engineering and prototyping with an exceptional level of offshore experience. Our growing portfolio of customers increasingly want offshore cost savings, but without the risks of managing offshore relationships, schedules, inventory uncertainty or IP loss.

Third, we offer a broader range of capabilities and manufacturing footprint than competitors our size. There is a rule of thumb in our industry, which is broadly accepted by CM customers. It addresses the fundamental compatibility of a proposed customer CM matchup, and states that the customer's revenue with the CM should be between 5% to 15% of the CM's total program revenues.

Many potential customer programs in our market match the rule of thumb sweet spot of 5% to 15% of our total revenue at full production, yet we are not aware of EMS providers of our size offering offshore regional and low-volume manufacturing, mechanical and electrical engineering, plastic molding, sheet-metal fabrication, US-based program management and testing and development, and optimized global logistics and purchasing.

In order to get our comprehensive level of capabilities, the next size CM option for a customer in our sweet spot is a multibillion-dollar contract manufacturer. Choosing that option, in violation of the rule of thumb, means the customer's program commands a very small portion of the CM provider's total revenue and attention.

Our advantageous size to capabilities matchup has powered us for years. And we continue to carefully and deliberately enhance it over time; or, as a summary, China assembly, Spokane program management, Juarez molding, El Paso logistics, or SPCA, Suarez metal acquisition, Ayrshire's regional and low-volume PCA acquisition, mechanical design, electrical design, test engineering, Spokane tool design and fabrication, Juarez product repair services, China purchasing. These ingredients have been added to our powerful and unique mix via homegrown expansion and, more recently, via acquisitions.

Furthermore, our size to capabilities mix makes our customer relationships much more sticky. As we work with our customers in transferring existing product to our facilities or in designing, prototyping and ramping new product for them, multiple functions within the customer's organization discover the breadth of our capabilities. As a result, our companies become deeply and profoundly entwined. In many cases, we become the virtual VP of Operations for the customer.

Over the longer term, the EMS market is expected to see steady growth, while periodic fluctuations in large customer demand, mix changes in our program portfolio, and costs associated with onboarding new programs, will continue to be part of our business. We believe our sustained focus on controlling costs, augmenting production processes, and enhancing our capabilities will result in increasing competitive advantage.

We see more of our new customer programs moving into production and ramping up, and our pipeline of new business opportunities looks increasingly robust. As we get the integration of Ayrshire successfully behind us, we believe Key Tronic is increasingly well-positioned to grow profitably, capture market share, and capitalize on emerging opportunities.

I want to take this opportunity to express my gratitude to our employees for their dedication and hard work during this past year, to our valued customers who continue to honor us with their trust, and to our shareholders for your continuing support.

This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.

(Operator Instructions). Andrew Wong, B. Riley.

Thanks for taking my question. I have a couple questions. So, I think over the past year, you've been negatively impacted by a significant decline with two major customers. So I was wondering if you could give us an update on where we are with each of those two customers? And then the likelihood of further downside from either one of them?

Well, if I talk about customer number A -- letter A, their decline has stopped, and we believe they are starting to turn the trend around and head back up. Beyond their improvement in their overall business, we've won two new major programs with them within the last couple -- I don't know, four to six months. So, I think the future with them is looking pretty good.

Customer B, I think, has hit a steady-state at a lower level. We will see within the next couple of months if the new program, that we've spent a lot of money and time launching with them, performs even half as good as they expect, things will be much brighter on that front, too. So that's all I can tell you about those two customers.

Okay. And then I think in your prepared remarks, you talked about inventory build partially due to production delays with one customer. Has that problem been fixed? And have you included that revenue in the September quarter guidance?

Well, the revenue was always there. The issue was, how much more could we have gotten if we had solved the technical issues associated with the launch? So, the revenue that we have in the upcoming quarter guidance assumes that we continue to build at the rate we are building. And we will see what we can do in terms of getting the yield up.

We need another 5 or 6 points out of the yield to get it where we want it to be. We got some results in the last couple of days, some experiments we've been running that are pretty heartening. So, hopefully, those will continue to hold through.

Okay. And I'll ask one more then get back in the queue. I think, last quarter, you talked about three different programs ramping in Mexico. Maybe you could give us a brief update on each of the three?

Well, the one is -- the one we talked about that still needs some yield improvements; the other program we got fully ramped. We suffered a bit more in the first month of this quarter. And we are pretty much through the pain of that. The third one has gone off pretty much spectacularly with no issues whatsoever. So we are batting about, I don't know, 0.420.

That's not too bad. (laughter) Thanks very much.

(Operator Instructions). Bill Dezellem, Tieton Capital.

A group of questions. First of all, the three programs that you did win, would you give us the typical revenue range, as you have in the past, for those three programs?

$5 million to $25 million.

We are waiting for you to say $15 million to $50 million at some point here, Craig. (laughter)

Keep asking and I will. I would like to point out at this juncture, Bill, it only took me 6.5 years as CEO to get them to get your name and company name pronounced correctly. So, I apologize; we finally got there.

Well, it shows that good efforts eventually pay off. (laughter) And maybe in that vein, you really started to answer the question that I was pondering with the prior questioner. And you've got the nice ramps taking place with your new customers or new programs. But if you look at the rest of the business -- not just the two largest that have given you trouble, but the rest of the business in aggregate -- how are you viewing that?

And I'm trying to, in my mind, really grasp where the business goes -- not just next quarter; because you provided guidance for that -- but conceptually, the remainder of the year? So having asked that long-winded question, maybe you understand kind of the concept behind it and can provide some meat around that, please.

Well, I understand the concept behind it, so what I've got to try to do is give you a concept without giving a forecast.

I would accept a forecast, if that would be easier.

That would be easier, but it wouldn't be good. It would be a good forecast, but it wouldn't be good for me to do it. So, let's try to do it this way. The existing customer base that we have -- which has gotten quite a bit bigger with the acquisition -- looks to be healthy. I don't know of any place where there are significant stresses on customer relationships, and I don't see any forecasts from current customers that are showing any big problems.

So I think the base is pretty solid, other than the one guy I talked about with the first questioner. So that part of it looks pretty good. The outlook that we got from the customers that we currently are onboarding looks pretty good. And in general, I don't see any significant risk right now, based on what our customers are telling us. That can change in a moment, as you know, in this business. But right now things are pretty dang encouraging.

And that customer that you mentioned earlier that you put the qualifier in, if we heard you correctly, that customer, you believe the revenues have flattened. And depending on what happens with a new product that they are introducing, they will either kind of stay bumping along here, or could actually turn favorably for you.

Yes, that's a good summary.

Okay. I just want to make sure that we are characterizing that right. So if the base business is solid at this point, and you continue to ramp new customers, it sounds like -- and I think we kind of talked about this on the last call -- you are really feeling like you have some sequential revenue and earnings growth for the foreseeable future. And I'm not trying to make that into an official forecast, but just conceptually, that's how it appears right now.

Well, anything I say turns into a forecast, so I don't know how to answer that other than we are feeling pretty good about the future.

Was there anything that I just said that seems like it is on base or that I'm missing directionally something?

Come on, Bill. (laughter)

I figured I'd try. Let's jump to Ayrshire. The concept that you mentioned both in the prepared remarks and in the press release, I believe, about those Ayrshire customers awarding you new business, would you talk a little more around that? And maybe give us some examples that would highlight the success there?

Sure. So one of the customers, before we had actually consummated the deal with Ayrshire, was a customer of both companies. And not a large customer, but a reasonably large customer of both companies. They called us and said, hey, we are about to outsource a lot more business. And our COO is a long-time veteran of the contract manufacturing world. And he's given us a list of 20 characteristics that only you and one other person meet out of the entire universe of contract manufacturers.

And we said, so what's on the list? And the guy went through basically our sales pitch. He said my boss wants to have somebody who has offshore facilities but is owned and managed onshore. My boss wants to have somebody who has every possible major fabrication and assembly capability in-house, rather than having to source it out of house. My boss wants us to find a contract manufacturer that is over $0.5 billion, but under $2 billion, so we can match up with the rule of thumb.

And he just went down the list, and it was just, yes, Key Tronic, yes, Key Tronic, yes, Key Tronic. And he said I couldn't call you before, because you weren't over $0.5 billion in revenue. But when you guys buy Ayrshire, you're just going to sneak in that range or a little bit below it, close enough, that we can allow you to quote. And since there's only two of you that even match, I feel pretty confident you will get a chunk of this business.

And that has indeed turned out to be the case. So, that's a pretty good example of one that happened even before we closed the deal. And the details of all the one-plus-one-equals-three stuff that is going on are a little bit different in every case. But they're pretty much along those lines.

Or the other, I guess, predominant example would be a customer who's got a new product that he's had built -- well, I'll take an example. Customer is building it in Corinth, Mississippi. Brand-new product, doing pretty well, but some huge contracts for them on the horizon that were going to demand some significant price decreases on high-volume/low-mix examples of that product.

In order to keep that business, Corinth by itself, and Ayrshire by themselves, would have had to lost money on the business to be competitive. But with Juarez in our bag of capabilities, we were able to quote on the high-volume business, and won it and transitioned it, and it's already up and running in Mexico and ramping very quickly.

If we had been just quoting it from the outside looking in without any of the benefit we had from Corinth, knowing how to build it, knowing what it cost to build it, knowing its foibles so that we knew where to take exceptions to the quote, like our competitors had to more or less shoot in the dark, we would not have won that business or we may not have won that business. And it certainly wouldn't have gone as quickly as it did.

So those are, I think, basically the two predominant examples of what's going on with one-plus-one-equals-three. Either our new size makes us eligible for programs we wouldn't have got a look at, or the contacts and experience that Ayrshire had, or has, have allowed us to leapfrog what our competitors can quote or provide, as that business gets bigger.

That's really helpful. I'd like to circle back to that first example, if we could, please. Given that that you said began before the transaction even closed, so we are really one year later. Would you bring us up to speed as to what has now developed? And I realize some of these things could be very slow to develop even when they are moving at what is supposed to be a fast speed. But what has actually happened with that prospective situation?

Well, we are just about to go into production with the first piece of business out of that. And then over the next two years, program after program after program, will land. So this will be a long burn, but it's going to be a big burn.

How big, Craig?

I don't know. Big.

But it's the sort of thing that will add some consistency to the revenue ramp going forward?

Yes. It's an underlying percentage gain every quarter that seems to be something we can count on instead of having to go dig a new one out from under a rock. As long as we perform on each program, they will keep giving them to us.

And actually, that's a great segue to something that I've been -- we've kind of been battling with in our minds here, is that as you had this bucket of new business develop, and as your existing base is now stabilized, I mean, how much visibility are you feeling like you have into these new program ramps?

It is sounding as though you have more visibility into the consistency of the future ramps than maybe you have in the future, in part because of this one slow burn example, as you're giving. But then the large number of other ramps that are taking place -- so even if you have some slippage in one, you might have a pulling on another. And net-net, you end up with a reasonably consistent level of visibility. But talk to me about how you are seeing it.

Well, I think that's a pretty good summary. When there's more that are going on, you're not dependent on just one or two to actually happen.

Kind of an ironic and irritating thing that happened in the last quarter and beginning of this quarter is that I had gotten more or less calibrated to being disappointed by many of our new customers. So, I had held off in buying a couple more SMT lines for Juarez, because I wasn't convinced that this stuff that was supposed to happen was actually going to happen as quickly as it was said it was going to happen, because it never has in the past. It always takes longer.

And sure enough, enough of the things came in, and came in as fast as they were supposed to, that we got caught with a little bit of shortage in capacity in Juarez over the end of last quarter. And that actually drove some increases in cost, as we had to work third shift and we had to hire extra people. And we had a really try to schedule things tightly, because we never want to be at 100% capacity in our fabrication departments, and we were.

In fact, we are today. But we just added two new lines. One is coming up tomorrow and one should be coming up in about a month. So, that increase in speed may be typical of the new Key Tronic, or it may have just been a blip, I'm not sure. But certainly having more ramps to base our numbers on makes it less sweaty to worry about what's going to happen to one individual ramp.

And then one additional question before I step back, if I may, please. Just doing the math, without Ayrshire, your revenues on the original Key Tronic were up about 15%. Is that a reasonable number to be thinking about on a go-forward basis? Or should we be thinking about skewing that some different direction because of this large amount of ramp that you have taking place?

Well, Sir, my name is Craig Gates, and my serial number is this. (laughter) I'm not going to get into trying to talk about forecasts for the going-out quarters even if you break it down into different segments.

All right. (laughter) Okay. I mean, actually we'll come back to Ayrshire then. And to the core Key Tronic, or original Key Tronic, was up roughly [15] with -- what about Ayrshire, since we don't have that June quarter number? What was their revenue up versus their comparables?

Well, we've kind of lost the ability to talk about old Ayrshire and new Ayrshire, because we've closed the Reynosa facility and moved programs out of Reynosa into Juarez. We've moved some programs from Juarez to some of the Ayrshire facilities. And so, I've kind of given up on trying to track exactly what do I call that Ayrshire revenue versus that Ayrshire revenue today. There's too much movement.

Yes, Bill. It's harder and harder to try to track those distinctively different revenue streams. They've got even legacy customers that are now being built at Ayrshire locations. So really, it's going in both directions.

Do you have the number of -- I guess it would be the June quarter of 2014 Ayrshire's revenue?

Yes I do. That was $30 million.

Okay. So, they were up somewhere in the over 20% range, if we assume that $37 million was roughly about what they did this quarter?

Yes, yes.

Just taking $37 million on top of the $30 million is kind of -- a healthier way to think about it?

That's reasonable. You bet.

Okay. And I will do my best to not ask you a question like that in future quarters. I'll just simply focus on future forecasts.

Thank you. Appreciate that.

All right. Thank you both for your time. And good luck getting all these ramps put together. It looks like we are right on the edge of coming together.

Hope so. Thank you, Bill.

Thanks, Bill.

(Operator Instructions). Andrew Wong, B. Riley.

First, I guess there are a lot of concerns out there on mobile phones in China. So I know you don't have any mobile phone exposure, but maybe you could elaborate on your China demand exposure?

Our China demand exposure is very minimal.

Okay. Would you say it's less than (laughter) [5%]?

Sorry about that. That was kind of a Midwestern Illinois answer. (laughter) I'll be a little more West Coast for you. (laughter) It's approaching zero.

Yes. Okay. Thank you. I know for your annual results, you typically give the sales by end market. Do you have that ready yet? Or is it a little early?

No, we don't have that ready. We only do that to make you guys happy. It means almost nothing to us. It's all about customer rather than market-by-market.

Okay. And then do you have 10% customers for the full year?

10% customers for the full year -- hang on. You're putting stress on our new CFO. He's (laughter) --

Just a second, Andrew.

Sure.

So for the fiscal year, we have only one customer in excess of 10%.

Okay. (multiple speakers) Can you say what that percentage is?

It's 17%.

Okay. Okay. And then I know you've put out kind of long-term targets for gross margin in the range of 9% to 11%, and then operating margins in the range of 4% to 7%. But I'm just curious -- are you able to give us a target exiting fiscal 2016? Or would you not want to do that?

I don't think -- well, we don't do that, Andrew. Similar to what Craig mentioned, we hate to do a long time forecast. We will put together an update to our investor presentation shortly. We -- in the long-term, to reiterate, our target is 9% to 10% gross margin.

Right. Okay. How about for the full year, can you comment on an expected tax rate and CapEx and depreciation and amortization?

Sure. So, taking those each individually, income tax rate, we are expecting somewhere around 33% to 35%. We have exhausted (technical difficulty) put back into R&D credit, so we are expecting somewhere in the neighborhood of 34%, income tax rate. As far as CapEx, we plan to probably repeat the CapEx that we had in fiscal 2015. We should be somewhere between $8 million and $9 million of overall CapEx. As Craig mentioned, some of that is already in the pipeline, and two-thirds of that CapEx is actually slated to be invested in this first quarter.

Oh, I'm sorry -- two-thirds of the $8 million to $9 million will occur in the September quarter?

That's correct.

Okay. And depreciation and amortization, please?

Depreciation and amortization is about $1.5 million per quarter combined.

Perfect. Thanks very much.

hanks, Andrew.

And gentlemen, at this time -- actually we do have a follow-up from Bill. Please go ahead, Bill.

Thank you very much. I actually want to follow up on that last point about CapEx and having two-thirds of it occurring this quarter. Is that in preparation for not just the issues you talked about kind of retrospective that you're trying to play catch-up, but also for the anticipated ramp? And to what degree could you find yourself out two or three quarters and need more CapEx because the ramps are moving along faster than what you're anticipating?

That's a pretty good question, and the answer is, yes, you're right. So, we could easily see ourselves having to double that CapEx if we get a number of new programs landing as they possibly could.

And when do you feel like you will know and have more clarity on that issue?

As we go. I never know.

It's not a case where you have one or two distinctive events that will lead to that decision as much as it is an amalgamation of multiple smaller events?

Could be smaller events, could be a couple of really big ones. Equipment lead-time is under 90 days now. We've had no problem buying new equipment. And we've had no problem finding used equipment out on the market. So, we are not getting very worried about trying to figure out when we need to buy equipment very much before we actually win the piece of business that we are about to win.

So you are in the fortunate position where you can be reactive, and not put yourself behind the eight ball, basically?

Yes. As long as I follow my rule -- which I broke -- which is never get more than about 65% capacity in either of the fab departments, then we are in good shape.

Great. That's helpful. And I actually do have one more question that I'd like to throw out just to help understand this September quarter and your guidance. Last quarter, meaning the June quarter, you had roughly a $10 million revenue range with your guidance. And this quarter, you've reduced that down to about an $8 million revenue range. And yet the EPS range widened by a penny. And I may be splitting hairs, but I am curious kind of the thought process and what some of the swing factors are in that.

Well, I think I would say that that 70% you're overanalyzing it. And I'd say 30% of that is we are a little bit more confident in the revenue number, and we are a little less confident in how fast we are going to get this yield issue fixed, and then how well a couple of these ramps are going to go.

Excellent. Well, the 70% overanalyzing helps me understand that yield issue a little better. I did not appreciate that just coming in, so thank you.

Yes.

And gentlemen, at this time, I will turn the conference back to you all for closing remarks.

Okay. Well, thanks to everybody for participating in today's conference call. Brett and I look forward to speaking with you again. Next time Brett will be a little less sweaty. And we thank you. And have a good day.

Thanks.

Good bye.

And again, that does conclude today's conference. Thank you all for joining us.