Good day everyone. Welcome to the Key Tronic Fourth Quarter Fiscal 2015 Conference. Today's call is being recorded. At this time, I would 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 longstanding customers, we made significant progress from our new programs, expanding our customer base and extending our worldwide capabilities. 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 assembly capabilities, we expect to get an earlier look at new program opportunities. Ayrshire’s PCB customers tend to use Ayrshire’s U.S. plants for low volume or prototype products. And these types of products begin to ramp to high volume, we are ahead of the pack as our competitors are tempt to prepare a quote all lacking experience we have with the product. Second among Ayrshire’s many satisfied customers, we expect to retain more programs with volume, more transitioning to full product notes. In the past, many of Ayrshire’s maturing programs with increasing volumes were lost to competitors with offshore facilities. Now we are very encouraged to see many of these programs remaining with Key Tronic’s. This is because customers seize many advantages associated with simply migrating a maturing program for one of Key Tronic’s sites onshore to another Key Tronic’s 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…

Thanks Craig for the kind introduction. I’d also like to express my thanks to Ron for his many years of leadership and mentoring. We all wish him a happy retirement in the - to his continued contribution as a board member. As always I would like to remind you that during the course of this call we might need projections or other forward looking statements regarding future events where 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 the company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs, and 8-Ks. Please note that on this call we will discuss historical financial and other statistical information regarding our business and operations. Some of this information is included in today's press release 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 a $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’re pleased to see Ayrshire 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…

Okay. Thanks, Brett. We continue to believe our fundamental strategy remain solid from our perspective slowdowns by certain longstanding customers in fiscal 2015 masked the production of several new customers. Moreover we’re very encouraged by the potential of our many new programs being onboarded and the positive impact of our recent acquisitions. Entering fiscal 2016, we’ll continue to win new business as we’ve discussed before, we have three long-term major competitive advantages. First the increasing cost in China are driving demand for more localized production, Mexico to North American end users and China for Asian end users. Among EMS providers, we standalone in the excellence in breadth of our Mexican operations, as more previously outsourced manufacturing business news back from China, we stand to continue to benefit. Second, our unique organizational structure which has been honed over years of experienced in running geographically diverse operations, beyond the level of cost and service we can provide from our Mexico and China based facilities, we offer U.S. based engineering and prototyping with an exceptional level of offshore experience. Our growing portfolio of customers increasingly went offshore cost savings but without the risk of managing offshore relationship schedules, inventory uncertainty or IP loss. Third, we offer a broader range of capabilities in manufacturing footprint when competitors outsized. There is a real - industry which is broadly accepted by CM customers, it addresses the fundamental compatibility of both 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 revenue. Many potential customer programs in our market match the rule of thumb sweet spot of 5% to 15% of our total revenue full production. Yet we are not aware of the providers of our size are offering offshore regional and worldwide manufacturing,…

Thank you [Operator Instructions] we’ll go first to Andrew Huang with B. Riley.

Thanks for taking my question. I’ve couple questions. 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 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’re starting to turn the trend around and head back up beyond their improvement in their overall business we won two new major programs with them in the last couple, I don’t know 4, 6 months so I think the future with him is looking pretty good. Customer B, I think has hit a steady state at a lower level we will see within the next couple months if a new program that we spent a lot of money and time launching with them reforms even half of that is expects 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 builds partially due to production delays with one customer has that problem been fixed and have you included that revenue in the September quarter guidance?

So the revenue was always there and the issue was how much more could we have gotten if we had solve the technical issues associated with the launch so the revenue that we have in the upcoming quarter guidance assumes that we continue to build that the right we’re building and we’ll see what we can do in terms of getting the yield - we need another 5 or 6 points out of the yields to get it where we wanted to be we got some results in the last couple of days, there some experience within running that our pretty hardening so hopefully was 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 may be you could give us a brief update on each of the three?

Well, one is when we talked about it still needs some yields improvements and the other program we had fully ramped, we suffered a bit more in the first month of this quarter and we’re pretty much through the pain of that, the third one is gone off pretty much spectacularly with no issues whatsoever so we’ve gotten about I don’t know 420.

I thought you that. Thanks very much.

[Operator Instructions] We’ll move on to Bill Dezellem with Tieton Capital

Thank you. Group of questions first of all the three programs that you did when, would you give us he typical revenue range as you have in the past for those three programs?

I have $25 million.

For waiting for you say $15 million to $50 million at some point.

Keep asking the point - I would like to point out this juncture build, they only took me 6.5 years as CEO get them to get your name and company name pronounce correctly so I apologize we finally got there.

Well, it shows that good after eventually pay off. And may be that range, you really started to answer the question that I was wondering with the prior question and you got the nice ramps taking place with your new customers or new program 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 mind really grasp where the business goes not just next quarter would you provide a guidance for that but conceptually the remainder of the year so having ask that along with the question may be you understand the kind of concept behind it and can provide some meat around that, please.

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

I would accept a forecast if that would be easier.

Yes. It would be easier but it wouldn’t be good, wouldn’t be good for me to do. So let’s try to do it this way. Existing customer base that we have which has gotten a bit bigger that 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 was the first questionnaire. So that part of it looks pretty good. The outlook that we got from customers that we currency are onboarding looks pretty good and in general I don’t see any significant risk right now based on what our customer is telling us, that can change in a moment as you know in this business. But right now things are pretty [indiscernible].

And that customer that you mentioned earlier is 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, that will either kind of stay bump in a long here or could actually turn favorably for you.

Yes. It’s a good summary.

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

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

Was there anything I just said that seems like that is off base or that missing directionally something?

Come on, Bill.

I figure that right. Let’s jump 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 both that companies, like all this is said hey, we are about to outsource a lot more business and our COO is a long time veteran of contract manufacturing world and he has given us a list of 20 characteristics that only you and one of the person meet, the entire universe of contract manufacturers. And with that, so what’s on the list and the guy went through basically our sales pitch, he said my boss wants to have somebody’s offshore facility but it’s owned and managed onshore, my boss wants to have somebody who has every possible major fabrication and assembly capability in-house rather than having the source of outhouse. My boss wants us to find a contract manufacturer that’s 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 [indiscernible] and he said, I couldn’t call you before because you won over $0.5 billion in revenue. But when you guys buy Ayrshire you just have to sneak in that range or little bit below at close enough that we can allow you to quote and since it’s only two years 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 is going on little bit different in every case. But they’re pretty much along those lines…

That’s really helpful, I would like to circle back to that first example if we could please given that you said began before the transaction even closed, so we’re really one year later, would you bring us the speed as to what has now developed and I realized some of these things can be very slow to develop even when they are moving at what supposed to fast speed but what has actually happened with that perspective situation?

Well 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 we will land. So this will be a long burn but it is going to be a big…

How big?

I don’t know.

But it’s a 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 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 segway to something that I’ve been - we’ve kind of been battling within our minds here is that as you had this bucket of new business develop and as your existing basis now stabilized, how much visibility are you feeling like you have into these new program ramps, it’s sounding as though you have more visibility into the consistency of the future ramps and maybe you have in the future in part because of this one slow burn example that you’re giving but then the large number of other ramps that are taking place. So even if you have some slippage in one, it might have pull on another and net-net you end up with a reasonably consistent level of visibility but how you’re seeing it?

It’s pretty good summary when there is more that are going on, you are not dependent on just one or two that actually happens kind of an ironic and irritating thing that happened in the last quarter, beginning of this quarter is that have gotten more or less calibrated to being disappointed by many of our new customers. So I had held off in buying a couple more S&G lines for whereas because I wasn’t convinced that this stuff that was supposed to happen was actually going to happen as quickly as it was side it was going happen because never has in the past it always takes longer and sure enough of the things came in and came in as fast they’re suppose to we got caught with little bit of [indiscernible] and capacity and or as over the end of last quarter and that actually grow some increases in cost as we had to work their shift then we had to hire extra people. We had to really try to schedule things tightly because we never want to be at 100% capacity in our fabrication departments and we were in fact on the day but we just added two new lines once coming up tomorrow and once becoming up in about a month. So that increasing speed, made the typical of the new Key Tronic or may have just been a blip, I’m not sure but certainly having more ramps to based on a numbers on makes a less way to worry about what’s going to happen one individual ramp.

And then one additional question before I step back if I made please just doing the math without Ayrshire your revenues on the original Key Tronic were up about 15% is that 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 part of amount of ramp that you have to taking place.

Well, sir my name is Craig Gates and my serial number is this and I going to get into trying to talk about forecast for the going out quarter even if you break it down in the different segments.

Okay, I mean actually we’ll come back Ayrshire and so the core Key Tronic or original Key Tronic was up roughly 15 with what about Ayrshire’s as we don’t have that June quarter number, what was their revenue up versus their comparable?

Well, we kindly loss the ability to talk about old Ayrshire and new Ayrshire because we close the [indiscernible] facility and moved programs on - into whereas with moved some programs for more as to some of the Ayrshire facilities and so I’m kindly given and up on trying to track exactly what I would call Ayrshire revenue versus the Ayrshire revenue today there is too much movement.

Yes, Bill its harder and harder try to track those distinctively different revenue streams, we have got even legacy customers that are now being built at Ayrshire locations so really it’s gone - through actions.

Do you have the number of I guess to be the June quarter of 14 Ayrshire’s revenue?

Yes in June.

That was $30 million.

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

Yes.

Yep, this is taken 37 on top of the 30s kind of that - way to think about.

That’s reasonable you got.

Okay and I will do my best to not ask you a question like that in the, in future quarters of this focus on future forecast.

Thank you. Appreciate that.

Alright, thank you both for your time and good luck getting all these ramps put together it’s like were right on the edges coming together.

Hope so. Thank you, Bill.

Thanks Bill.

Thank you.

[Operator Instructions] We’ll take the follow up Andrew Huang with B. Riley.

Thank you. First I guess there are lot of concerns out there on mobile phones in China so I know you don’t have any mobile phone exposure but may be you could elaborate on your China demand exposure?

China demand exposure is very minimal.

Okay, would you say it’s less that 5%.

Sorry about that - Middle West and Illinois answer..

It’s approaching zero. Yes.

Okay. Thank you. 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 are putting stress on our new CFOs.

Just a second, Andrew.

Sure.

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

Okay. Thank you for that percentages.

It was 17%.

Okay. And then I know you’ve put out kind of a 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 ’16 or would you not want to do that.

I don’t think we won’t do that, Andrew, similar to what Craig mentioned, we hate to do a long term forecast, we will put together an update to our investor presentation shortly. We on a long term to reiterate our target is 9% to 10% gross margin.

Great. Okay. How about for the full year, could you comment on expected tax rate and CapEx and depreciation and amortization.

Sure. So again those each individually income tax rate, we’re expecting somewhere around 33% to 35%. We have exhausted our put back into R&D credit. So we are expecting somewhere in the neighborhood of 34% again from tax rate. As far as CapEx we plan to probably compete CapEx that we had in fiscal ’15. We should be somewhere between $8 million, $9 million of overall CapEx. As Craig mentioned some of that is already in the pipeline and two-thirds of that CapEx [indiscernible] to be invested in this first quarter.

I’m sorry two-thirds of the $8 million, $9 million will occur in the September quarter.

That’s correct.

Okay. And depreciation and amortization, please.

Depreciation and amortization is $1.5 million per quarter combined.

Perfect. Thanks very much.

Thanks, 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, [indiscernible] if you are 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 are anticipating?

That’s pretty good question. And the answer is yes, you are 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.

Okay. It’s not a case where you have one or two distinctive events that will lead to that decision as much as it is and amalgamation of multiple smaller events.

Could be. Small events could be a couple of really big ones, equivalent lead time is under 90 days now. We’ve had no problem by new government and we got no problem trying to use the equipment out on the market, so we’re 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’re about to win.

So you are in the fortunate position where you can be reactive and not put yourself behind [indiscernible] basically?

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

Great, that is helpful and then I actually do have one more question that I would 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 reduced that down to about an $8 million revenue range and yet the EPS range widened by a $0.01 and I maybe splitting here but I am curious of the thought process and what some of the swing factors are in that?

Well I think, I would say that that 70% you are over analyzing it and I would say 30% of that is we’re little bit more confident in the revenue number and we’re little bit less confident in how fast we’re going to get this yield if you fix and how well a couple of these ramps are going to go.

Excellent. So well the 70% overanalyzing - understand that yield us little better, I did not appreciate that is coming in. So thank you.

Okay. End of Q&A

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

Okay. Well thanks to everybody for participating in today’s conference call. We look forward to speaking with you again next time got to be a little bit less sweaty and we thank you and have a good day.

And that does conclude today’s conference. Thank you all for joining us.