Welcome to the Key Tronic Third Quarter Fiscal 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brett Larsen. Please go ahead.

Good afternoon, everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here in our Spokane Valley headquarters is Craig Gates, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-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. Today, we released our results for the third quarter fiscal year 2017. For the quarter ended April 1, 2017, we reported total revenue of $113.6 million compared to $118.4 million in the same period of the fiscal year 2016. For the first 9 months of fiscal year 2017, total revenue was $349.3 million compared to $361.1 million in the same period of fiscal year 2016. We have seen a slowdown in end customer demand from a few customers that has impacted our business in the first 9 months of fiscal 2017. This slowdown is partially being offset by our new programs that continue to ramp as we continue to diversify our customer base. For the third quarter of fiscal 2017, gross margin was 8% and operating margin was 1.6% compared to 8.4% and 2.3%, respectively, in the…

Okay. Thanks, Brett. As Brett mentioned, we're continuing to see softness this year among a few of our long-standing customers. Nevertheless, we're encouraged that our new programs continue to ramp, partially offsetting the slowdown in demand. At the same time, we continue to capture significant new business from competitors, including established programs that will begin generating revenue in fiscal 2018. We recently won two new programs involving electronic scheduling devices and pool controllers. Moving into the fourth quarter, we continue to see a strong pipeline of potential new business and our programs continue to ramp. Going forward, our broader and more diversified customer base significantly lowers the potential risk and impact of a slowdown by any one customer. Moreover, the returning tide of North American-based customers correctly analyzing the total cost for overseas production continues to help our production in both Mexico and the U.S. Our steady pipeline of new business continues to be boosted by our level of vertical integration, our multi-country footprint and the excellence of our manufacturing sites. We see increasing portion of our new business coming from OEM customers who have become dissatisfied with their Tier 1 EMS providers. These OEMs are coming to the realization that the mismatch in the size of their business, typically $5 million to $40 million and the size of their Tier 1 provider creates insurmountable issues which include the lack of responsiveness, flexibility and account support. As we discussed last quarter, this trend of our gaining more business from OEMs that are leaving Tier 1 EMS suppliers has both negative and positive implications for our business. On the negative end of the spectrum, the decision process is usually slow and risky for our prospective customer. These customers have typically been engaged with the Tier 1 for some time. As a…

[Operator Instructions]. And we'll take our first question from Bill Dezellem from Tieton Capital Management.

A group of questions. First of all, let's start with the size of the new program wins that you had, please.

$5 million to $10 million, Bill.

Okay. Well, that's not quite as interesting as last quarter's answer.

Sorry.

Me, too. So last quarter, one of the programs, I think, you had mentioned was closer to $50 million in terms of its potential. What's the update on that program?

The customer was out here 2 weeks ago, had a very good meeting. They are expecting their first PO. I wouldn't call it the first. It will be the second PO which will be for rollout in a limited region. So we've done a couple installations. Now it will be the rollout for a limited region and then the next one should be the biggie.

And that limited region you are anticipating, does that production schedule -- will look like what? And then what's the time frame for the full-on commercial?

Well, we think the rollout for the limited region will help to -- and after that, I'd be hard-pressed to tell you how soon they're going to decide on the whole thing.

And Q2 being the December quarter?

Yes.

Okay. All right. Let's shift, if we could. You, in your last quarter call and in this quarter, referenced this new business from your EMS competitors. Talk a little bit about the ramp that you have seen from business you have won from competitors or whether that's still in process and has not ramped because they're -- they've dug their claws into it and are holding on to the business.

Well, we have four right now that are in various stages between almost-signed contract to aggressive ramp. And we continue to confirm our thoughts on this. The sales base takes forever. Getting the contract signed is a glacial pace. And then once we move into production ramp, that goes completely upside down and it's much faster than a normal ramp that we used to think of as normal.

And how many of those types of wins do you have that have now begun production?

One.

All right. That's helpful. And then, gosh, it was probably a year ago or so, you all had mentioned that when Kentucky was closed, that that would probably add $0.02 a quarter to EPS. And now that Kentucky is in the rearview mirror, are you feeling like that's still the correct number? Or did that move up or down?

No, that's...

That's about right.

That's about what we're saving now on a quarterly basis.

Great. And then one additional question. Brett, would you please repeat your comments relative to the currency impact that impacted the March quarter?

It actually was year-to-date. So what we've disclosed is -- on the script was that fiscal 2017, for the first 9 months, was adversely impacted by realized losses from the settlement of those foreign currency contracts to the amount of $4 million or $0.37 per share compared to $2.9 million or $0.26 per share last year.

Or an incremental $0.11 negative.

That is correct.

And thought of another way or said another way, your earnings would have been $0.37 higher had you not done any hedging for this year.

That's correct.

And I presume that's largely a function of the election and the commentary that's been somewhat negative towards Mexico that has led to their currency decline and that's why you have these negative impact from your hedging. And had you not been hedged, you just would have benefited from the lower peso.

Yes. I don't want to speculate on why the Mexican peso has weakened, definitely attribute it to many of those facts. But yes, substantial weakness in the peso, we were unable to realize that due to the foreign currency contracts that were already established.

Right. And I'm not trying to direct you one way or another here. True curiosity. Does the experience in the last couple of years alter your thinking at all relative to how you hedge?

No. Our intent is to hedge based on forecasting manufacturing costs in foreign locations. We quote based on having those hedges in place. So no, still standard practice. And we've been very effective in the past. It's unfortunate right now that we're unable to profit from the weakened peso, but at the same point, we're now entering into forwards at a much better rate recently than what we have in the past.

And that's a great segue to my next question before I step out of the queue which is, is there a particular quarter or time frame when -- that we might see a step function change in that currency impact and the hedging impact and see it be beneficial or just much less negative?

Over the next 18 months, you'll see a gradual reduction of those forward currency losses if the spot rate were to stay the same as it is today.

Right. And if the spot rate were to see an appreciation of the peso, in that case, you would then see a benefit happen much more quickly?

Actually, no. We're contracted into a forward rate, so you'd actually see an additional transactional loss if the Mexican peso were to weaken.

And an improvement in your financial position if the peso were to appreciate.

Correct.

[Operator Instructions]. We'll take our next question from Sheldon Grodsky from Grodsky Associates.

It's another disappointing quarter in terms of the bottom line which is what the world really looks at. But hopefully, we'll get out of this slump. I guess the ForEx and the customers have combined to create some disappointment here. Let me ask a question on revenues. You mentioned the ramp-up and you mentioned obvious things. How much bigger do you think the business is going to be 2 years from now in terms of revenues?

I would not be at all willing to forecast that at this point and we never have been. Too many things go right and too many things go wrong. You take a guess at it.

I thought I heard you say somewhere in the presentation that you expect revenues to pick up appreciably in the not-too-distant future. Did I hear that wrong?

We said that we expect revenues to improve. We didn't talk about some number that we'd be willing to give 2 years out.

How about 1 year?

We can't.

How about 1 year?

No, we don't do that based upon policy. There's too many things, too many moving pieces.

Okay. Well, this has been a kind of slow-looking ramp-up as all this ramping up -- the revenues haven't been ramping up. That's just part of the disappointment that we've all been through here. Okay, I'll let somebody else take the floor.

[Operator Instructions] And it appears there are no more telephone questions.

Okay. Thanks, everyone, for participating in today's conference call. Brett and I look forward to speaking with you again. Thanks and have a good day.