Keytronic Corporation (KTCC), a leading contract manufacturer, has announced its fourth-quarter fiscal year 2024 results, showing a decrease in total revenue to $126.7 million from $162.6 million in the same quarter of the previous year.
This decline is attributed to a cybersecurity incident that resulted in $15 million of unfulfilled revenue. Despite this setback, the company improved its gross margin to 9% and operating margin to 2.2%. Keytronic also reported a break-even net income for the quarter and a net loss of $800,000 for the full year.
Looking ahead, the company expects to fulfill most of the delayed orders in fiscal year 2025 and projects revenue in the range of $140 million to $150 million for Q1 of FY2025. Keytronic is focusing on growth opportunities in onshoring and near-shoring, efficiency improvements, and is poised to maintain a strong gross margin in the upcoming fiscal year.
Key Takeaways
- Q4 revenue dropped to $126.7 million from $162.6 million year-over-year.
- Cybersecurity incident led to $15 million in unfulfilled orders, expected to be recaptured in FY2025.
- Gross margin improved to 9%, operating margin reached 2.2%.
- Break-even net income for Q4; $800,000 net loss for FY2024.
- Anticipated Q1 FY2025 revenue between $140 million and $150 million.
- Company to focus on onshoring and near-shoring opportunities for growth.
- Investment in production equipment and efficiency improvements planned for U.S. and Vietnam facilities.
- Strong pipeline of potential new business, including four new wins.
Company Outlook
- Keytronic aims to maintain a gross margin of 9% to 10%.
- Expects net income between $0.10 and $0.20 per diluted share for FY2025.
- Plans to rebalance manufacturing across Mexico, the U.S., and Vietnam facilities.
Bearish Highlights
- Cybersecurity incident caused significant disruptions and financial impact.
- Full-year net loss reported at approximately $800,000.
Bullish Highlights
- Improved gross and operating margins despite revenue challenges.
- Strong demand from legacy customers expected to return to 2023 levels within six months.
- New business wins and growth opportunities in various industries, including medical devices.
Misses
- Q4 revenue fell short due to cybersecurity incident.
- Full-year net loss reflects the impact of incident-related expenses.
Q&A Highlights
- CEO Brett Larsen emphasized increased demand from legacy customers.
- The weakened peso and workforce reduction contributed to profitability.
- Company plans to pay down debt despite high interest expenses.
- No significant leadership changes anticipated; focus on profitability and economic value-add.
In conclusion, Keytronic is navigating through a challenging period marked by a cybersecurity incident but remains optimistic about its growth prospects and operational improvements in fiscal year 2025. The company is strategically investing in its facilities and capabilities to leverage the trend of onshoring and near-shoring, which could lead to a robust pipeline of new business. With plans to maintain its margins and pay down debt, Keytronic is positioned to potentially strengthen its financial standing in the coming year.
InvestingPro Insights
Keytronic Corporation (KTCC) has faced a challenging fiscal year, as reflected in the company's recent financial results. To provide a more nuanced perspective on Keytronic's performance and outlook, here are some insights based on real-time data and InvestingPro Tips.
InvestingPro Data highlights the company's Price / Book multiple at 0.32, suggesting that the company's stock is trading at a low valuation relative to its book value as of the last twelve months ending Q3 2024. This could be of interest to value investors looking for potential bargains. Additionally, Keytronic's revenue for the same period stood at $596.32 million, with a year-over-year growth of 8.08%, indicating some resilience in the company's revenue streams despite recent setbacks.
Keytronic's P/E Ratio, however, is notably high at 185.42, which may raise questions about the stock's valuation when compared to its earnings. On the other hand, the company's gross profit margin has improved, sitting at 7.48% for the last twelve months as of Q3 2024, which aligns with the reported increase in gross margin in the article.
InvestingPro Tips point out that Keytronic has a high shareholder yield and that its liquid assets exceed short-term obligations, which is reassuring for investors concerned about the company's liquidity and ability to generate returns for shareholders. It's also worth noting that Keytronic has been profitable over the last twelve months, indicating a potential turnaround from the net loss reported for FY2024.
For readers interested in a deeper dive into Keytronic's financial health and potential investment opportunities, InvestingPro offers additional tips, with a total of 9 tips available on the platform (https://www.investing.com/pro/KTCC). These tips can provide further guidance on aspects such as revenue valuation multiples, free cash flow yield, and the company's earnings multiple.
In conclusion, while Keytronic has experienced a difficult year marked by a cybersecurity incident and a resultant dip in revenue, the company's improving margins and strategic focus on growth opportunities suggest a path to recovery. The insights from InvestingPro highlight both concerns and potential areas of strength for Keytronic as it moves forward in the fiscal year 2025.
Full transcript - Key Tronic Corporation (KTCC) Q4 2024:
Operator: Welcome to the Fourth Quarter Fiscal 2024 Keytronic Corporation. [Operator Instructions]. At this time I would like to turn the conference over to Tony Voorhees. Please go ahead, sir.
Tony Voorhees: Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Keytronic. I would like to thank everyone for joining us today on our investor conference call. Joining me here in our Spokane Valley Headquarters is Brett Larsen, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents that company has filed with the SEC specifically our latest 10k, quarterly 10 Q's and 8-K's. Please note that on this call, we will discuss historical financial and other statistical information regarding our business and operations. Some of this information is included in today's press release. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our Investor Relations website. In addition, the slides, together with the recorded version of this call, will be available on the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call, additional information about these non-GAAP measures and reconciliations to the most directly comparable, comparable GAAP measures are provided in today's press release, which is posted to the investor relations section of our website. For the fourth quarter of fiscal year 2024 we reported total revenue of $126.7 million compared to $162.6 million in the same period of fiscal year 2023. For the full year of fiscal 2024 total revenue was $559.4 million compared to $588.1 million for the fiscal year 2023. Also previously disclosed a cyber security incident caused disruptions and limited access to portions of our business applications, supporting operations and corporate functions at our Mexico and U.S. sites during the fourth quarter of fiscal 2024 During the disruption, we were unable to fulfill approximately $15 million of revenue during the fourth quarter of fiscal year 2024. Most of these orders are recoverable and are expected to be fulfilled in fiscal year 2025. During the cyber disruption, we continued to pay wages in accordance with statutory requirements. We also deployed new IT related infrastructure and engaged cyber security experts to remediate the incident. As a result, we incurred additional expenses of approximately $2.3 million, partially offsetting the additional cyber security related expenses was a favorable weakening of the Mexican peso late in the period decreasing expenses by approximately $600,000. We also had an insurance gain relating to a previously disclosed weather event in our Arkansas facility in the amount of approximately $700,000 during the fourth quarter of fiscal year 2024. Despite the business disruption event, we improved our gross margin during Q4 primarily reflecting our workforce reductions in Mexico during the prior quarter and the weakening of the Mexican peso, our gross margin was 9% and our operating margin was 2.2% for the fourth quarter of fiscal year 2024 compared to a gross margin of 8.5% and an operating margin of 2.6% in the same period of fiscal year 2023. Our net income was break even for the fourth quarter of fiscal year 2024 compared to net income of $1.1 million or $0.10 per share for the same period of fiscal year 2023. For the full year of fiscal year 2024 the net loss was approximately $800,000 or a net loss of $0.07 per share, compared to net income of $5.2 million or $0.47 cents per share for fiscal year 2023. Excluding adjustments for certain income and expenses to measure our core results, adjusted net income was $1.1 million or $0.10 cents per share for the fourth quarter of fiscal year 2024 compared to adjusted net income of $1 million or $0.09 per share for the same period of the fiscal year 2023. For the full year of fiscal year, 2024 adjusted net income was $3.4 million or $0.31 per share, compared to $2.2 million or $0.20 cents per share for fiscal year 2023. For more information on these non-GAAP measures, see the non-GAAP financial measures description and reconciliations in our earnings release. Turning to the balance sheet, we ended the fourth quarter of fiscal year 2024 by reducing inventory by approximately $29 million or 21% from the same time a year ago. These improvements in inventory levels primarily reflect increased component availability and our concerted effort to drive inventory reductions. We're pleased to see our inventory levels continue to become more in line with our current revenue. At the same time, the state of the worldwide supply chain still requires that we drive demand for parts differently than in historical periods. Our customers have revamped their forecasting methodologies, and we have significantly modified and improved our materials, resource planning algorithms. As a result, we should be better equipped for future disruptions in the supply chain, even as we continue to manage inventory more cost effectively. During the third quarter, we also reduced our total liabilities by a combined amount of $56.1 million from a year ago. Our current ratio was 2.8 to one up from 2.3 a year ago. At the same time, accounts receivable, DSOs was at 98 days, compared to 85 days a year ago, which we believe reflects the back end loaded nature of the quarter caused by the cyber event. Total capital expenditures were about $1.2 million for the fourth quarter of fiscal year, 2024, and $5.2 million for the full year. While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment and plastic molding capabilities, utilizing leasing facilities as well as make efficiency improvements to prepare for gross and add capacity, particularly in our U.S. and Vietnam locations. For the first quarter of fiscal year 2025 we're seeing a rebound among our legacy customers relative to our fourth quarter. For the first quarter of fiscal 2025 we expect to report revenue in the range of $140 million to $150 million. Moving into fiscal 2025 we are pleased to continue to see our new programs ramping cost efficiency improvements from our recent overhead reductions taking hold, and a significant weakening of the Mexican peso. Taking all these factors into consideration, we expect net income in the range of $0.10 to $0.20 cents per diluted share. We expect to see growth in our U.S. and Vietnam production, we have a strong pipeline of potential new business, and we are focused on improving our balance sheet. Over the longer term we believe that we are increasingly well positioned to win new programs and profitably expand our business. That's it for me. Brett?
Brett Larsen: Thanks, Tony. Fiscal 2024 got off to a very promising start, though we faced some challenging headwinds. During the first half of the year, our revenue grew by 12% year over year, driven by increased production in our U.S. and Vietnam based facilities. Despite the strong top line growth, our margins and profitability were negatively impacted by increased labor costs, unfavorable foreign currency exchange rates in Mexico and higher interest rates. During the second half of fiscal 2024 we faced major disruptions to our business, including severe winter weather events that took our facilities in Mississippi and Arkansas offline for approximately two weeks in the third quarter, and then the cybersecurity event that interrupted our operations and corporate functions in Mexico and the U.S. during our most recent fourth quarter. Together, these events disrupted production for approximately six weeks during the year. Despite these disruptions, we took the necessary steps to reduce our workforce in Mexico, which is expected to save more than 10 million annually in labor costs. In coming quarters, we expect sales from Mexico based production to recover due to recently one new programs, but we do not anticipate needing to increase our head count in coming periods. Moving into fiscal year 2025 we're very pleased to see overall improvements in our operating efficiencies, as well as reduced inventory levels and other improvements made on the balance sheet. During the year, we continue to expand our customer base, winning new programs involving security equipment, sporting goods, environmental solutions, security products, military, aerospace, industrial control systems, energy management, telecommunications, consumer, audio industrial manufacturing, industrial moving equipment, industrial storage, medical devices and consumer air filtration products. The strong pipeline of potential new business underscores the continued trend towards onshoring in a dual source and a dual sourcing of contract manufacturing, global logistics problems and the China-U.S., geopolitical tension may continue to drive OEMs to re-examine their traditional outsourcing strategies. We believe these customers increasingly realize that they have become overly dependent on their China based contract manufacturers for not only product, but also for design and logistics services. Over time, the decision to onshore or near shore production is becoming more and more widely accepted as a smart long term strategy. As a result, we see opportunities for growth, and those opportunities are becoming more clearly defined. At the same time, we are seeing a sustained trend of continued wage increases in Mexico, and it as it has become clear, that these changes in the base cost of Mexican production are long standing. We are right sizing our operations in order to remain cost competitive. It has also been become clear that customers near shoring from China may have a different calculus for selecting a geographic location for business. For those customers who struggle with China production due to their flexibility requirements, we believe our U.S. sites offer the ultimate in flexibility, engineering support and ease of communications. Over the past 12 months, revenue from our U.S. production facilities has increased approximately 7%. In the fourth quarter of 2024 production in the U.S. represented 29% of total revenue, up from 25% a year ago. Meanwhile, for those, for those customers whose requirements had adapted to the China model of limited flexibility, challenging communication and less engineering support, we expect there are Mexico facilities remain the answer. Therefore, we are reconfiguring our Mexico sites to endeavor to be a lower cost and provide more commodity level service while still maintaining high quality. While our Vietnam facility continues to be a modest contributor to our overall revenue, a growing number of potential customers are actively evaluating a migration of their China based manufacturing to our facility in Vietnam. In coming years, we expect our Vietnam facility to play a major role in our growth. While China growth has slowed, and many companies have decided to take risk mitigation steps with their China manufacturers. The fact remains that many components must still be sourced from China. Our procurement group in Shanghai, which serves the entire corporation, remains important for managing the China component supply chain on an ongoing basis. Additionally, our China production facility continues to be profitable and has found recent success in winning new programs with Chinese OEMs. The combination of our global footprint and our expansive design capabilities is proving to be extremely effective in capturing new business. Many of our large and medium sized manufacturing program wins are predicated on Keytronic’s, deep and broad design services, and once we have completed a design and ramped it into production, we believe our knowledge of a program specific design challenges, makes that business extremely sticky. We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, blow gas assist multi-shot as well as PCB assembly, metal forming, painting and coding complex high volume automated assembly and the design construction and operation of complicated test equipment. We believe this expertise, will increasingly set us apart from our competitors of similar size. We believe that the global logistics problems China, U.S., political tensions and the heightened concerns about supply chains will continue to drive the favorable trend of contract manufacturing returning to North America, as well as our expanding Vietnam facilities, we continue to see improvement across the metrics associated with business development, including a significant increase in the number of active quotes with prospective customers. While the unfortunate combination of factors temporarily disrupted our growth and profitability. In the second half of fiscal 2024. We move into fiscal 2025 with a strong pipeline of potential new business, and we're seeing significant improvements in our operating efficiencies and also a weakening peso. Moreover, we will continue to rebalance our manufacturing across our facilities in Mexico, the U.S. and Vietnam. We remain very encouraged by our progress and the potential for profitable growth over the long term. In closing, I want to emphasize the execution of our strategy was only made possible by our investments in plants and equipment, but even more so, the skills, local knowledge and talents of our people. I want to thank our exceptional employees for their dedication and hard work during this past year, and our shareholders for their continued support. This concludes the formal presentation, Tony and I will now be pleased to answer your questions.
Operator: [Operator Instructions]. They will take our first question from Bill Dezellem with Titan Capital.
Bill Dezellem: Brett, would you please start by sharing with us what proportion of the $10 million of annual savings, or what, roughly $0.70 cents per year. How much of that will be achieved in fiscal ’25?
Brett Larsen: Through the fiscal year 2025 most of it, if not all of it, Bill, we're expecting that those cost savings to occur in the year.
Bill Dezellem: And some did fall into the Q4 -- how about just falls into fiscal ’25?
Brett Larsen: I would say the majority of it fell into our fourth quarter since most of that severance occurred during our third quarter, there was some limited amount but the majority of it was felt in our fourth quarter.
Bill Dezellem: Okay, that is helpful and so that explains why we see revenues down pretty meaningfully, but gross margin increasing completely counter to what we would normally expect.
Brett Larsen: Absolutely.
Bill Dezellem: Okay. Well, congratulations, that's fantastic. And the restructuring activities, I think that you mentioned on the last conference call that there may be more that need to be done and I wasn't sure if that was all incorporated in this savings, if that additional activity took place in Q4 or if there is additional cost savings that you anticipate that could develop in the remainder of this year.
Brett Larsen: If so. Bill, I think to that end, I think we're continuing, looking at our operating efficiencies, there is some potential of additional restructuring in fiscal 2025, it's been great to see, even after the reductions in force, there really has not been any concerns, issues, problems, delays in our production. So we're continuing to look, to see is there some additional restructuring that could be done during fiscal ’25. We're really not doing that right out of the gate, just because of the cyber event. We're on all cylinders trying to get through some of our orders backlog, but, but I could foresee possibly some restructuring to occur during the year.
Bill Dezellem: Great. That is helpful. And then I do want to make sure I have you touch on the four new wins this quarter. What is the size of each of those and quite interesting stories might happen with each event?
Brett Larsen: Yeah, one is within our Arkansas facility. It's a fairly large program for Arkansas, it's predominant electronics. That one is roughly about $15 million win. The other large one was a metals, predominantly metals fabrication, which will go down into our Mexico facility and then the two others were also for Mexico, roughly between $5 million and $10 million each.
Bill Dezellem: And the metal fab is how much?
Brett Larsen: Sorry. That too is about $15 million.
Bill Dezellem: The two $15 million wins this quarter.
Brett Larsen: Yes. Good quarter.
Bill Dezellem: Congratulations. That's fantastic. And do you see -- foresee any of these ramping either more or less slowly than the typical wins?
Brett Larsen: Out of the gate, they all look great. There can be some delays. My expectation is that by this time next year, they'll be fully ramped.
Bill Dezellem: Okay. That's helpful. And then I did want to key in on the medical device win. Sometimes medical devices have special requirements, whether it be clean room, certifications, et cetera, et cetera. Is there anything around that idea to this specific win, and the spirit of this question is to understand if this could be the beginning of a new category for you.
Brett Larsen: Bill, we've always had some medical production. We're extremely interested in pursuing that industry. This was a good win for us. I don't think it's any more complex than what we build today. We are certified in 2 of our locations to manufacturing of medical devices. This one isn't much more -- as mentioned, isn't any more complex than what we're building today.
Bill Dezellem: Thank you, Brett, and I'll hop in back in queue and congratulations on making it through the cyber incident. So, such a short window.
Operator: [Operator Instructions]. And we will go back to Bill Dezellem with Tieton Capital.
Bill Dezellem: Okay. I'm happy to ask more here. So, in the release, one thing that I was surprised to read Brett was that Vietnam is being used for lower production, I would have thought that would have been your lowest cost facility. And therefore, for those who can have the longer lead time that they would -- that you find some much bigger runs potentially coming there. Did I misread what you were trying to communicate? Or if I have some learning I need to do here?
Brett Larsen: No. That really is our intent of Vietnam is to be our lowest cost facility. I think to your point, they need to have some ability to have increased transportation time. There are a few smaller programs in Vietnam, but longer-term, my expectation is as that grows, those will really be more higher volume, less mix type products that are better suited for our lowest cost site. Did that answer it, Bill?
Bill Dezellem: It did. And then let's jump to the cyber incident for a moment. The $2.3 billion cost, where did that fall within the P&L?
Brett Larsen: Predominantly in cost of goods. So, I would say 2/3 of it is in cost of goods, 1/3 of it is in G&A. So, the outside advisory firm falls into the general -- the operating expenses, whereas the required wages that we paid to keep workers was captured in cost of goods.
Bill Dezellem: Understood. And then you think that you referenced in the release that you would anticipate that the $15 million of revenues that you believe that you missed out on, that those will be recaptured over the course of fiscal '25. Is that correct? Or should you be able to recapture the vast majority of that here in the first fiscal quarter?
Brett Larsen: No, it's going to take us more than just a quarter to get caught up. So, granted those specific orders will be made up in the first quarter, but then there's a delay possibly of things that our customer wanted then in the first quarter. So, to get completely caught up on that $15 million of lost orders. It may take us the better part of the year.
Bill Dezellem: Okay. So, where I was hoping to go with that was that $15 million, you add that to what you just did in the quarter, and that puts you already to the low end of your guidance. You have legacy customers that are showing some signs of rebounding. You have new business ramping. It disappeared like there may have been some conservatism built into the numbers. And I suppose to some degree, that still stands a little bit, but maybe not to the full $15 million magnitude as I was thinking.
Brett Larsen: Yes. That's accurate.
Bill Dezellem: And then one nitpicky question, if I may. There was a restructuring cost reversal that was, if I read it correctly, severance expense reversal of $223,000. Are we reading that right? And what led to that reversal that's not often that we see that?
Brett Larsen: Sure. No, that is correct. That was a reversal of expected severance expense. So, due to the cyber event and then also to the recovery of some of our legacy customers in Mexico, planned reductions in force of a few of our people did not occur. So, that is actually the recovery to the income statement. So, included in the fourth quarter is that rough $200,000 worth of benefit because we didn't go through severance that was anticipated.
Bill Dezellem: Okay. That's helpful. And then one additional question. So, talking about the legacy customers rebounding. Provide a little more detail and perspective on that. And the spirit of this question, of course, is that if you look in the last couple of weeks, there's been an awful lot of question marks about the economy, at least in the popular press. Would love to get your view of what you're seeing from your customers and what your sense is of their end demand and that full phenomenon. So, as much perspective and color that you can provide, we'll take all of it.
Brett Larsen: Yes. At a real high level, Bill, we saw some retraction of our legacy customers' forecast. It began to occur late 2023. And then I would say, probably the first 3 or 4 months of this calendar year. We're now seeing some increased demand from many of our customers. We're actually seeing some demand that's coming back from maybe a dip that occurred earlier in the calendar year. I definitely see that our customers are far more -- they have far more concerted focus on those forecasts in making sure that they aren't over inventoried. So, I think there is a little more ebbs and flows. But at a really high level, we're feeling far more confident that there really is some strong demand, some returning demand from those legacy customers in the forecast that we're seeing from them. There are definitely peaks and valleys, but I think for the most part, our anticipation is that we'll get back to 2023 levels in the next 6 months.
Bill Dezellem: And with these lower costs, that's going to increase some pretty meaningful flow to the bottom line.
Brett Larsen: Absolutely.
Bill Dezellem: Thank you again, and congratulations again. Look forward to seeing that develop.
Operator: We'll take our next question from George Melas with MKH Management.
George Melas: Thank you. Good afternoon, guys. Brett, congratulations on your first call as CEO. And Tony, very nice meeting you on the phone. Just a follow-up on Bill's question regarding the cybersecurity expenses. So, if we take those out from cost of sales, gross margin that was actually well above 9%. And I was looking back at my model in the last 2 quarters where you had a gross margin above 9% was in June 2014 and June 2022. So, basically, over the last 10 years, you've had two quarters over 9%, and here, you are at 9%, including a significant amount of extra cost. So, where did gross margin go from here, Brett?
Brett Larsen: George, that's -- it's a great question. Our expectation is that we want to continue to keep that gross margin to the 9% to 10% level. It is great to see some significant improvement. As you mentioned, we haven't seen this for upwards of 10 years. The weakened peso definitely helped. But I think as well, the reduction in force that we did was what's critical in getting us back to the profitability that really that we're seeking. Where it goes from here, I'd love to be able to have a crystal ball and be able to understand what the peso is going to do and what are we going to be able to continue to take advantage of as far as operating efficiencies. But I think our goal is to continue to drive that gross margin above 9%, the 9% to 10%. That really is what we will be seeking going forward.
George Melas: Okay. But I mean, if we -- I'm just trying to do the math, if we take out some of the costs that you related to the cyber security event and the cost of sales. And we're talking about revenue of just $126 million. We see that to be somewhat slightly above. So, it seems like you're well positioned for fiscal '25 and beyond?
Brett Larsen: Yes. Right now, I would agree, George, it looks like we're well positioned to have a good year with that increased margin. I'm also hoping to be able to include some incentive compensation, which is not in there today. It's not going to change it materially. There will be some additional costs as we become more profitable.
George Melas: Yes. Yes. Great. Maybe talk a little bit about this incentive call. You had a small reversal in the June quarter. Does that mean that there was basically almost no incentive comps for the entire fiscal year '24?
Brett Larsen: Yes. So, our stock compensation expense has been a stock appreciation rights. That may change a bit in the future. But yes, there's very limited, very little stock comp that's run through our most recent fiscal year.
George Melas: Okay. Great. Makes sense. Maybe talking about the SG&A, and usually hovered around $6 million, $6.5 million, is that how you see it in the future? Or how do you think about it?
Brett Larsen: Well, our SG&A this last quarter did include roughly about $0.5 million of cyber expense. So, we would have been just over that. But again, that doesn't include any incentive compensation, which I'm hoping to be able to pay this year. So, that may grow a little bit. We are seeing across the board to be able to retain good talent. But there have been some labor increases. So, I wouldn't -- that 6.5 seems light to me.
George Melas: Okay. And then maybe a question -- I guess I'm asking a question about the numbers. What about the interest expense, that seem pretty high this quarter it seems?
Brett Larsen: Yes. With the most recent amendment with Bank of America (NYSE:BAC), our costing did go up. We'll be anxiously awaiting what the Fed does over the next few months and few quarters. That will step down with the Fed fund grade as soon as changes are made. But we're also actively trying to pay down that debt because it is very costly.
George Melas: And Brett, you've been at Key Tronic for quite some time for a long time, but there is a change in leadership going on, right, with Craig sort of stepping down. He's still going to get involved. But any particular thoughts about the next year or 2 or sort of certain things that you see. I like just the press release and having the adjusted net income, I think it's very helpful. Any change you think to, any desire you have and that you may want to communicate with us?
Brett Larsen: No, I appreciate that. I think, George, I think the succession was a plan that was done over a number of years. And I think one of Craig's greatest legacy is the staff that he created. I am not anticipating any big changes in leadership anytime soon. Tony has been well prepped to become probably a better CFO than I ever was. But I think our strategy going forward is going to be far more on profitability, to ensure that -- and that's more on an economic value-add basis of how much capital is required to make that much profit and is it a good fit for Key Tronic. I think that will definitely be our focus going forward. And we're headed in the right direction, but we've got a lot of work still to do.
Operator: [Operator Instructions]. And it appears there are no further questions at this time. Mr. Larsen, I will turn the conference back to you for any additional or closing remarks.
Brett Larsen: Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thanks.
Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
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