Craig Gates: Yes, it’s — we — as you know, we’ve been doing this for a while now and we used to have probably five, six years ago, we’d sit around and agonize over four or five big quotes that we had to land one of them in order to replace the leaks out of the revenue bucket and maybe grow. And now we’ve got four pages of single-line quote opportunities that are all of them have passed our screening process, all of them are real opportunities, and it’s just — it’s hard to even fathom as you — for somebody like me that’s been through what we were going through four, five years ago, but it’s really fun.
Bill Dezellem: Great. Thank you very much. I’ll give someone else an opportunity.
Operator: Our next question comes from Sheldon Grodsky with Grodsky Associates. Please go ahead.
Sheldon Grodsky: Well, good afternoon, everyone. First question I’m going to ask is the Arkansas facility, is it fully up and running, or is it still being repaired or what’s the status?
Craig Gates: It’s probably 90% up and running, and that’s a bit more down to the weather than it is anything else. We just had the last machine arrive today in the snowstorm and everybody’s home, but the General Manager and the VP are out there driving forklift trucks and getting it off of the trailer.
Sheldon Grodsky: Okay. Well…
Brett Larsen:
Craig Gates: But, yes, it’s — like I say, it’s 90% and they had a good couple of weeks, last two weeks, and so we’d expect that to continue to ramp.
Sheldon Grodsky: Okay. And as far as the insurance situation, there may be more money coming in from that as things get determined, or do you expect it to be neutral from here?
Craig Gates: No, I think there’s going to be some more coming in. Our insurance policy was well written and the company has been very forthright and honorable, which has been a — in the world we live in today, it was a very pleasant surprise. They’ve been good people.
Sheldon Grodsky: So, anyway — yes, I’m sorry.
Craig Gates: So, the cool thing about that is that the equipment that we have replaced was aged, but the policy was for replacement. And as we said in the narrative, just to put some flesh on those bones, the stuff we got in there now is five times as fast. And so, that has a very massive impact on capacity and cost out of that Arkansas facility.
Sheldon Grodsky: Okay. Now I don’t know how to phrase this question, but based on what you’re saying, you’re seeing probably at least in the short or medium term more demand than you can actually meet in a relatively short period of time. Are we looking forward to a major growth cycle for Key Tronic as far as you can tell?
Craig Gates: Just from a macro sense of what’s happening in the world and as I’ve gone through the various metrics that we analyze and I think are relevant, it certainly seems as if we should be looking at a very nice growth rate for us going forward.
Sheldon Grodsky: Well, I’ve been following your company for a long time and it always seems that something gets in the way of getting to the bottom-line. So, I just keep on hoping every quarter that we’re finally going to break out of that and get some real sense of what potential you can do here. So, I wish you good luck and that the world hasn’t been an easy place to operate. So, let’s hope it gets a little bit easier for you and you are able to pick the right contracts, et cetera. I’ll let someone else take the floor with question.
Craig Gates: Okay. Thank you.
Brett Larsen: Thank you.
Operator: Our next question comes from George Melas with MKH Management. Please go ahead.
George Melas: Thank you. Hi, Craig. Hi, Brett.
Craig Gates: Hey, George.
George Melas: Sort of I want to follow-up on the two previous callers. And sort of want to sort of look into the future, and I think you’re saying that quoting is very strong, that has an impact on pricing, on business terms, you can choose your customers better. But then, I guess you have to make some kind of balance between growth and margins. And I’m wondering how you think about that. I’m always thinking about margins and where could those margins go. And is there sort of an idea that maybe the idea would be to grow X percent in order to reach 9% margins or 9.5% margin? Can you sort of elaborate on that? I don’t know if it makes sense, but maybe I’d love to have a discussion on that.
Craig Gates: Well, what I was trying to say, I’ll just try to do a better job of explaining is that five, six years ago, actually from the time we became a contract manufacturer until about a year ago, we were ahead of our time in predicting that what’s happening now is going to happen. And so, very much so at the beginning of our contract manufacturing days, it lessened over time. And then, no commentary on the goodness or badness of Trump, but certainly the Trump Presidency sped up the realization of what we already knew was going to happen and then COVID accelerated it even further. So that’s — the difference between now and the old days, let’s call it before the pre-realization that overseas is risky, so the difference now is that we would be sitting in a room, doing the final negotiations with the customer and the customer would say, “Well, we’re close to a deal, but you need to drop your margin by a 0.5 point because you’re higher than these other guys.” And we would be sitting there sweating bullets trying not to show the fact that we desperately needed that deal to happen.
And so, we would act as good as we could act and they would see through us or not see through us depending on how perceptive they were and how good we were acting on that day. And we would get driven down to where our margins were. At the point where — it was basically at this point, we don’t care anymore. If we lose this business even though we really want it, we’re going to have to walk away. And today, the situation is quite a bit different. When our prospective customers starts down the road of — this is just like buying a used car, it’s a very predictable and prescribed interchange between buyer and seller. But when they start down the road of, you’re too high or we need you to hold inventory for a year or we need payable terms of 360 days and then maybe we’ll pay you, we can just say, yes, no thanks.
We’re not interested, and walk away. And it’s hard for me to tell you George what that’s going to do to gross margin, but I can for sure tell you it’s going to make it better. And we don’t have any hard and fast rule that says that, well, anything under 9% we’re walking because as we’re analyzing a piece of business, there’s not only the margin, there’s also the potential for growth, there’s the behavioral patterns that we see exhibited by the customer as we go through quoting and negotiating, there is the attractiveness of the business from an operational standpoint. So, there’s a gob of factors that we’re considering as we’re negotiating. But we’re negotiating from a position of strength rather than a position of semi desperation that we have to win this deal.
