Earnings Call Transcript
KEY TRONIC CORP (KTCC)
Earnings Call Transcript - KTCC Q2 2020
Operator, Operator
Good day and welcome to the Q2 Fiscal 2020 Key Tronic Corporation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Larsen. Please go ahead, sir.
Brett Larsen, CFO
Thank you. 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 the 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, 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 quarter ended December 28, 2019. For the second quarter of fiscal year 2020, we reported total revenue of $116.7 million compared to $123 million in the same period of fiscal year 2019. For the first six months of fiscal year 2020, total revenue was $220 million compared to $250.5 million in the same period of fiscal year 2019. However, sequentially we did see a $12 million increase in revenue when compared to the first quarter of fiscal year 2020, and we expect revenue growth to continue into the third quarter. For the second quarter of fiscal year 2020, net income was $0.8 million or $0.08 per share compared to $1.6 million or $0.15 per share for the same period of fiscal year 2019. For the first six months of fiscal year 2020, net income was $2.4 million or $0.22 per share compared to $3.2 million or $0.29 per share for the same period of fiscal year 2019. As previously announced in January, the lower than anticipated earnings for the second quarter of fiscal 2020 were primarily a result of increased factory spending in our Juarez metal fabrication departments. This spending was necessitated by both new and existing customers exiting their manufacturing arrangements in China and ramping their production in Juarez. While the near-term financial impact was significant, the long-term relationship with these customers was strengthened by the performance of the Juarez facility under extreme pressure. Additionally, we incurred unfavorable foreign currency losses related to the unhedged portion of our Mexican labor expenses, as a result of the strengthening Mexican peso over the quarter. We anticipate the unanticipated increase in factory spending adversely impacted our margins. For the second quarter of fiscal year 2020, our gross margin was 7% and our operating margin was 1.3% compared to 8% and 2.1% respectively in the same period of fiscal year 2019. Nevertheless, it is important to note that we have made significant improvements in our operating efficiencies in recent quarters through investments in new equipment. Several of these investments were made in the metals area and the resulting efficiencies, combined with the completion ramps of several new metals programs, lead us to expect our margins to improve in the coming periods. Turning to the balance sheet, we continue to maintain a strong financial position. Despite the production delays in the second quarter and the continued ramp and transfer of the new programs, we did see a sequential reduction in our inventory, including revenue recognition contract assets by $12.2 million or 8.8% from the prior quarter. In the third quarter of fiscal year 2020, we expect to see our net inventory levels continue to come more in line with revenue levels. At the end of the second quarter, trade receivables were up by $3.4 million from the prior period, reflecting the increased revenue and DSOs remained about 54 days. Total capital expenditures in the second quarter of fiscal 2020 were approximately $2.3 million. We continue to invest in our production facilities, SMT equipment and sheet metal and plastic molding capabilities, as well as improvements in our facilities. We plan to make a total of approximately $10 million in capital expenditures during the full fiscal year 2020. Moving into the third quarter of fiscal 2020 with the addition of new production capacity, we expect more of our new customer programs to ramp and move into production. The workload balancing challenges and capacity issues experienced in recent quarters have been largely resolved and we expect revenue to increase. Taking these factors into consideration, we expect that the third quarter of fiscal 2020 will have revenue in the range of $117 million to $121 million. For the third quarter of fiscal 2020, we expect to see some drag on gross margin as we continue to invest in enabling and accelerating the successful ramp of our new Vietnam facility. We anticipate earnings in the range of $0.13 to $0.17 per diluted share. This assumes an effective tax rate of approximately 20%. I would like to note that Key Tronic is working closely with its employees, customers and key suppliers to ascertain delays attributable to the recent outbreak of the coronavirus in China. Potential delays in production and extended trends at times of critical parts could significantly affect results in each of our production facilities. In summary, while we are disappointed by the disruptions to our earnings in the first half of the year, we remain encouraged by our prospects for future growth. Our overall financial health of the company is strong and we believe that we are well positioned to win new EMS programs and to continue to profitably expand our business over the longer term. That's it for me. Craig.
Craig Gates, CEO
Okay, thanks Brett. Moving into the third quarter of fiscal 2020, the issues impeding our production efficiencies in the first half of the year have diminished and we see potential revenue and earnings growth in the coming periods. Furthermore, uncertainty over tariffs and trade tensions between the U.S. and China continues to drive a number of existing and new customers to accelerate their plans to transition from China facilities to our expanding facilities in Mexico and Vietnam. We see this as a very positive trend over the longer term as customers see the increasing advantages of our North American and Vietnam based production. While this transition caused delays in production during the first half of the year, many of our current customers are experiencing a positive transition of their business out of their China facilities facilitated by our centralized command and control. This centralization drastically reduces the risk in time associated with the transfer to our North American and Vietnam sites and this allows some leeway to respond to the rapidly changing political and health landscape. We significantly advanced the efficiencies of our Mexico and U.S. based facilities in recent quarters and we're increasingly well positioned for the returning tide of North American based customers as they appropriately analyze total costs for overseas production and as a result, push production in both Mexico and the U.S. Also, we continue to ramp up our production in Vietnam. While our marketplace remains very competitive, we continue to win significant new businesses, both from EMS competitors and existing customers. During the second quarter of fiscal 2020, we won new programs involving consumer medical devices, WiFi enabled signage and temperature control devices. Our broader and more diversified customer base lowers the potential future impact of a slowdown by any one customer. While we are carefully managing our expenses, we have been preparing for growth in coming periods. During fiscal 2020, we have continued to invest in our facilities, including the expansion of SMT sheet metal and plastic molding capabilities in Mexico and the U.S. With respect to integrated electronics and sheet metal-centric programs, we see very strong growth and few real competitors of our size in North America. We also deployed innovative new manufacturing equipment in each of our facilities, which has improved efficiencies and has made our production less labor intensive. The result of this effort has been decreased manufacturing and operating expenses of approximately $3 million annually. Moving into the third quarter, we are continuing to ramp production in our new 86,000 square foot manufacturing facility in Vietnam to augment our Asian footprint and reduce production costs, as well as provide an additional hedge against uncertainty lingering or future trade war with China. Our steady pipeline of new business opportunities continues to be boosted by our unmatched level of vertical integration, our multi-country footprint and the excellence of our manufacturing sites in comparison to other EMS competitors of our size. As OEMs face an increasingly uncertain geopolitical landscape, we're uniquely equipped to offer risk mitigation with our vertical integration and manufacturing facilities located in Mexico, Vietnam and the U.S. while industry supply-chain shortages, pandemic risks and uncertainties about tariffs continue to be a factor. We expect revenue growth in the third quarter and remain optimistic about our opportunities for growth going forward. This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.
Operator, Operator
And our first question comes from Bill Dezellem with Tieton Capital.
William Dezellem, Analyst
I would like to start with my normal question. You have the three new customers that you referenced, what is the size of those? And would you also share with us the timing at which you're expecting production to ramp for each of the three?
Craig Gates, CEO
The healthcare one is about $15 million annually and should start building that sometime in June. It's pretty hard to get a handle on the second one because it involves new products and new categories. We quoted it at around $5 million in the middle of the volume range. And the third one is about $5 million also.
William Dezellem, Analyst
Let me if I may shift to kind of something that you mentioned there in your remarks relative to the metal shop and reducing your cost. I think I heard that you had installed equipment that would reduce costs by $3 million. And if that's correct, would you talk in some more detail around that?
Craig Gates, CEO
Well, we talked about an overall reduction of $3 million. There was a sizable portion of that in the metal shop. And that equipment included some new laser turret combos that are used for cutting sheet metal. The new machines are very expensive, but they're also very fast. So they cut a lot of labor out by how quickly they can run the lasers through the metal and make your parts.
William Dezellem, Analyst
And would you relate that to the challenges that you had this quarter with the extra cost in the metal shop? I think that was called out and maybe you could actually highlight the size or the magnitude of the extra cost in the metal shop and then what this equipment will or won't do to help that challenge in the future?
Craig Gates, CEO
This is going to be a little bit of a story, so I'm going to have to put it in context for you.
William Dezellem, Analyst
Thank you.
Craig Gates, CEO
We had three big customers in the metal shop, one of which was completely new. One of which was a transfer out of our Chinese facility into Mexico. This is part of a customer's business moving out of China that they had never really built themselves. As we tried to ramp it starting way back in the June/July timeframe, we found that the specifications and requirements were not well understood. So the ramp was delayed as our new customer started to analyze and understand their specifications and their market requirements for their product. And unfortunately, even though production startup was delayed, the requirements for getting the product installed at their customer weren't delayed. So, we got squeezed in between when we could actually start to build and when we had to finish the build. At the same time, we had the customer that was moving part of their business out of China, as well as bringing us new business from our competitor out of China trying to ramp their programs in Mexico.
William Dezellem, Analyst
So, would it have partially offset but not totally? And if I heard you right, you said $1 million to $2 million of extra cost. And if I just to make the math easy for myself and go with $2 million that $0.16 of earnings impact and so that implies you would have done 16 on top of eight or something like $0.24 in the quarter versus the year range of 13 to 18. Is that I am thinking about that right?
Craig Gates, CEO
Well, it seems like that's possible. You took the two rather than the 15. So I'd say it's more like the 15 but yes, maybe.
William Dezellem, Analyst
Okay, so if I take the 15 and we add 12 to eight and end up with somewhere closer to $0.20 versus your $0.13 to $0.18 range?
Craig Gates, CEO
Yes.
William Dezellem, Analyst
So, big impact and what proportion of that extra cost would you have been able to offset with the new equipment had it been fully installed and you had this confluence of events?
Craig Gates, CEO
Probably half.
William Dezellem, Analyst
And then I am curious relative to your customer SkyBell that previously talked about having all of the ring ads over the course of the holiday season. Did they benefit SkyBell their demand in any way that's obvious to you or does that really not apply for some reason?
Craig Gates, CEO
I believe it is applicable. I think that in business schools, they talk about market creation versus a mature market. When you're talking about creating a new market, every product in that market benefits. So, I think that every ring ad benefits the general category of internet doorbells. And certainly, SkyBell demand continues to be strong.
William Dezellem, Analyst
I’ll let someone else ask about SkyBell. I’ll step back in queue and come back.
Operator, Operator
Our next question comes from Mike Hughes with SGF Capital.
Michael Hughes, Analyst
First on China, I think you said in the June quarter, the Chinese facility was responsible for generating about 6% to 7% of your revenue. Where does that stand at this point?
Brett Larsen, CFO
It's down closer to 4% to 5% now.
Michael Hughes, Analyst
Okay, and back in June when it was up 6% to 7% level, I think you said the facility was basically breakeven. Is it losing a little bit of money at this point?
Brett Larsen, CFO
No, it tends to be breakeven.
Michael Hughes, Analyst
And where do you envision that percentage a few quarters from now? Is it going to continue to decline?
Brett Larsen, CFO
We are aggressively looking at new opportunities there to be able to continue to keep the current workforce in China occupied and with enough capacity. Some of the current 5% to 6% that they are building today is being transferred to that norm as we speak.
Michael Hughes, Analyst
And your interest in keeping that facility open is that because you have your purchasing function there?
Brett Larsen, CFO
Yes.
Craig Gates, CEO
Yes.
Michael Hughes, Analyst
So is the purchase function can I think that is wholly independent from actually manufacturing product in the facility or not?
Brett Larsen, CFO
Yes.
Michael Hughes, Analyst
Okay.
Brett Larsen, CFO
In fact, we support all of our global facilities.
Michael Hughes, Analyst
Okay. And then on the Vietnam facility, I think in the September quarter, you had some revenue, did that number ramp sequentially into December?
Brett Larsen, CFO
It did, but not meaningful yet. We need to continue to accelerate and continue to invest in Vietnam.
Michael Hughes, Analyst
What are the main gating factors there?
Craig Gates, CEO
So what's going on right now in Vietnam again, another context for you the product that's coming out of China its going into Vietnam is for one customer. That customer has hundreds of different products and listings. The cool part about that is that customer made the decision nine months ago that they wanted to be our partner, they wanted to pull us into Vietnam. They will be moving the vast majority of their business from China to Vietnam. But it's a process that has to be deliberate as we ramp down the production of those various listings in China and ramp them up in Vietnam. We have to go through and do a call run on each one of those listings. Not only are we hiring people at pace with those call runs, we're also relying upon our customer to do the qualification of that product when we ship it to him and say, here we go here is your first set out of Vietnam. Do they match what you want? So it's an orderly and scheduled process. With this one customer, that's going along at the pace we want. So we're not seeing a big disaster in costs in China nor are we seeing a big disaster in costs in Vietnam with having a mismatch of people in each place. But the speed in which it goes is limited by how fast that we can create the new listings in Vietnam and get them qualified by our customer.
Michael Hughes, Analyst
And it's just the one customer that's producing it that one you're producing for it that plan?
Craig Gates, CEO
Correct.
Michael Hughes, Analyst
And where do you envision that over the next couple of quarters? Are you going to add customers or is this going to be the principal customer for that facility?
Craig Gates, CEO
The intention is that we will be adding customers. There were four tours scheduled over there in the next two months for prospective customers to tour the facility and make their decisions on what they're going to do with their products with what's going on with the virus. Those tours have been delayed. So, we're in a state of kind of suspended animation right now. But the intent for sure is to ramp Vietnam with more customers and certainly the interest has been very high from the day we announced it. We had customers want to tour the empty building. So, I’m confident there will be quite a bit of business and growth in Vietnam it's just going to be on hold until everybody gets done being sick.
Michael Hughes, Analyst
And did that facility put a bit of money in the December quarter?
Brett Larsen, CFO
It did.
Michael Hughes, Analyst
And will that loss be larger in the March quarter?
Brett Larsen, CFO
It will be.
Michael Hughes, Analyst
Materially?
Brett Larsen, CFO
Probably a penny or two worse than it was this last quarter.
Michael Hughes, Analyst
And then I asked this question last quarter, I'll ask it again. I don't know this is, I think the third or fourth quarter in a row where there have been issues. And I think Bill just ran through the math on what the earnings would have been if you hadn't had the issues in Mexico and he came up with about $0.20. And you're saying maybe there's a penny or two in Vietnam this quarter that gets you to $0.18. So, is there more conservatism in the guidance for the current March quarter than you've put in the guidance for the past few quarters?
Craig Gates, CEO
We're feeling sick I haven't just barely squeaked by so I hope there's more conservative. As you say, the last four quarters have been one roadblock after another. We're hoping that doesn't happen, but we've already got the coronavirus staring us in the face that we didn't plan on when we issued the guidance.
Michael Hughes, Analyst
Sure.
Craig Gates, CEO
So, this will be the fifth or another roadblock.
Michael Hughes, Analyst
Right, right and then one last question from me, the $3 million number that you talked about just so I’m clear on that - are you saying kind of starting in the March quarter rather. You'll start to save $750,000 a quarter is that how to think about it or I'm not understanding that correctly?
Craig Gates, CEO
We actually started to save that in the beginning of this current quarter. So October timeframe, but it got swarmed out by our overtime and other expenses. So we're expecting to get some help from that as we look at what happens in Q3 also.
Michael Hughes, Analyst
And I have one last metric that you've provided over the last couple quarters. What's the new customer revenue that's expected to ramp over the next 12 months? Do you have that number handy I think you said it was $75 million last quarter?
Craig Gates, CEO
I didn't recalculate it again because it's gotten bigger and I'm happy about it. So I forgot to calculate it, but it has improved rather than diminished.
Michael Hughes, Analyst
And any success bidding out that business at higher margins yet or is it just the competitive landscape is such that hasn't happened?
Craig Gates, CEO
I would say in general, there is a little bit less pressure and a little bit less of – you know what an EBIT is do you want that?
Michael Hughes, Analyst
No.
Craig Gates, CEO
No, okay. Somewhat like a reserve auction? Yes, they're doing the same thing. So I'd say there's less of an EBIT feel to the marketplace right now as many people are having their CEOs and boards make proclamations that goes something like we will have 25% of our business relocated from China by this time next year. We hear and see a lot of that going on. And that makes it a little bit less of a buyer’s market, and a little bit more of a seller's market. It's not like happy days are here again, and we're all running to the bank, but it is a little different than it was a year ago.
Operator, Operator
And our next question comes from George Melas with MKH Management.
George Melas, Analyst
I have a few questions. Perhaps just sort of a corollary question to one question that was just asked. If you anticipate $75 million of new revenue expected in the next 12 months, do you have a sense of how much revenue is going to flow out of your topline?
Brett Larsen, CFO
We have a sense of it, but we don't talk about it. Because anytime we try to make predictions that are longer than a quarter away well you've seen we can't even make predictions a quarter out with one thing after another. So we stay away from talking about what's going to happen in the next year.
George Melas, Analyst
But can you give us sort of a sense? I mean, do you expect it to be meaningfully less than $75 million or if you look at historically, what is and I know that historically probably is - there is no real historical pattern that - is there sort of an attrition rate that is something that you think is normal for you or your industry?
Craig Gates, CEO
If you look at the history of the company, and the industry, if you try to put averages on attrition rates, it doesn't really do any good because they tend to happen lumpily if that's a word.
George Melas, Analyst
Yes.
Craig Gates, CEO
I can tell you that there have been times when you guys have asked me the question, do we see risks of a big customer leaving or significantly diminishing? And we say yes, we're concerned about a couple. And there have been times when you all have asked me that same question, and I say I don't see anything that's what I would call a significant near in risk. So when we look out right now, we see no big customer who has had a significant competitive risk of leaving us. I do see risks of marketplaces changing and customers failing or succeeding, as some of that $75 million plus is new pieces of business that are young companies. But we can't say for sure what's going to happen with them. But right now, I don't see any big significant piece of business that's at risk of competitive threat.
George Melas, Analyst
Three quick questions regarding numbers - in particular, and Brett, I'll just scale three of them, and then maybe you can answer them. The SG&A was down quite a bit sequentially. And I'm just wondering if - there was any sort of benefits in there or is that's a good runway going forward?
Brett Larsen, CFO
Great, so I think as far as SG&A, it was down slightly sequentially looks like about $150,000. I wouldn't give a lot of credence to that there were no really one-time offsets that went through during the quarter. I would anticipate a slight uptick back to similar levels as we did in the first quarter. Roughly just under 5% or about $5 million, roughly for SG&A.
George Melas, Analyst
Okay.
Brett Larsen, CFO
Interest expense some of that is due to the fact that we were able to decrease the level of inventory that we're carrying during the quarter that of course has a direct relationship on the average amount of debt that we carry. I'm hoping to continue to drive less of our dollars tied up in inventory going forward. But I would expect again that this quarter, we're going to have roughly $0.5 million of interest expense.
George Melas, Analyst
Okay.
Craig Gates, CEO
Now George, you didn't really ask the question, but I kind of I want to say this so everybody at least is on the phone call hears it. We don't know what's going to happen because China is not back from Chinese New Year. So we already see that shipments of parts have been missed boats that should have left the dock and have not left the dock. This could be quite troublesome for everybody in the world including us, because if we can't get one part, we can't build all of the SkyBell’s in the world or whatever else it is we're trying to build. So we're in quite a bit more of a unknown situation today than we normally are during these calls based upon what's going to happen with parts and how fast all of the Chinese suppliers are going to come back online.
George Melas, Analyst
And then just maybe on - Brett on the higher labor costs that you mentioned due to the unhedged portion of your base or exposure. Can you say?
Brett Larsen, CFO
Sure.
George Melas, Analyst
How much that was - I mean, if the peso we going to have these levels does that continue?
Brett Larsen, CFO
So we try to hedge a majority of our Mexican peso risk. It so happens that this last quarter, we had roughly two-thirds of those expenses hedged. So that remaining third, we ended up having to spend more for those Mexican pesos by roughly 4% and ended up having about a $0.02 impact on our earnings. We're looking similarly to this third quarter. The Mexican peso has not really moved from the first of the calendar year. So, I would expect, a drag on earnings of that - roughly $200,000, $250,000 during this quarter.
Operator, Operator
Our next question comes from Bill Dezellem with Tieton Capital.
William Dezellem, Analyst
Brett you mentioned something in your opening remarks that I didn't fully follow. And it sounded like it could have been important, but you made reference to something happening with inventory. I thought you mentioned a $12 million number would you go back and tell us what it was that you said and what the significance is of that?
Brett Larsen, CFO
Sure, sequentially, we're able to reduce the amount of inventory and contract assets by $12.2 million. So contract assets are essentially finished goods that we’re able to recognize the revenue on due to the fact of new revenue recognition standards that were recently passed this last year. If you look at that as just inventory, working capital that Key Tronic has invested in, we really were able to reduce that working capital by $12.2 million or 8.8% during the quarter.
William Dezellem, Analyst
So I'm following the inventory reduction contract asset reduction, but then you mentioned ASC 606 revenue recognition, where does that come into play?
Brett Larsen, CFO
So that is what causes that contract asset. So a contract asset is essentially a future receivable. It really is the amount of inventory that you have still in your possession that you’ve recognized as revenue.
William Dezellem, Analyst
And so if you reduce, and I apologize for being a slow pony here, but if you reduce that contract asset the implication on revenue is what?
Brett Larsen, CFO
It's a decrement to revenue.
William Dezellem, Analyst
So make this easy for me if you would Brett contract assets went down how much sequentially?
Brett Larsen, CFO
$5 million.
William Dezellem, Analyst
So am I understanding correctly that that implies that your revenue was $5 million lower than it otherwise would have been had your contract assets been flat?
Brett Larsen, CFO
Yes, that is correct.
William Dezellem, Analyst
So, hold on here so that means instead of having $117 million revenue, you would have had closer to $122 million revenue?
Brett Larsen, CFO
That is correct.
William Dezellem, Analyst
And is that revenue that we should apply a normal margin to meaning that you would have had earnings that would have been typical of your income statement on that extra $5 million in revenue?
Brett Larsen, CFO
I have to be careful there because essentially we shipped more product than what we built. So you're not going to get the absorption, the manufacturing absorption on that $5 million.
William Dezellem, Analyst
Okay.
Brett Larsen, CFO
Yes. The portion of the typical 3% gross margin, I'd say probably 5% incremental.
William Dezellem, Analyst
So basically if we take 5% of $5 million that’s $250,000 somewhere in that neighborhood. And if we tax affect that and divide by 10.9 million shares, that's another couple of pennies impact on the quarter?
Brett Larsen, CFO
Yes.
William Dezellem, Analyst
And is that something that we're going to need to deal with now going forward or is there something special about the initial implementation of ASC 606 that then kind of evens out here with time?
Brett Larsen, CFO
Unfortunately, that's probably something we're going to have to look at each and every quarter.
William Dezellem, Analyst
Okay.
Brett Larsen, CFO
So it does impact the amount of recognized revenue based on the level of finished goods that you have on hand at the end of the quarter.
William Dezellem, Analyst
Understood, okay and it's only finished goods or does it include WIP?
Brett Larsen, CFO
It does include WIP.
William Dezellem, Analyst
And does it include raw materials?
Brett Larsen, CFO
It does not. So, WIP and finished goods that you have substantially completed before quarter end that you have a customer purchase order for under the new ASC 606 revenue recognition, your record the revenue.
William Dezellem, Analyst
Okay. So you just said that if you had a purchase order for it, you're building inventory, whether it be WIP or finished goods, but you do not have a purchase order, you may have a handshake or some other sort of contractual agreement, but not a purchase order, then it does not come into play?
Brett Larsen, CFO
That is correct.
William Dezellem, Analyst
Okay, I won't debate the wisdom of the accountants here. Let me shift to a new line of questioning if I may relative to the announcement that you had this quarter about being named one of the top 10 metal manufacturers. Have you seen any benefit from that yet where potential new customers are calling you simply because they now know that you're one of the top 10 according to one survey?
Brett Larsen, CFO
No.
William Dezellem, Analyst
So it makes for a nice press release, but no business benefit?
Brett Larsen, CFO
You can’t say you have no business benefit. You just – I can't tell you with 100% certainty that somebody who called us didn't do it because they read it nor can I tell you that they did do it because they read it.
William Dezellem, Analyst
Fair point, okay thank you. And then lastly, one of the earlier questioners talked about the amount of business ramping in the next 12 months. I'd like to go further back into the prospect pipeline, how would you characterize that prospect pipeline today versus one year ago?
Brett Larsen, CFO
I'd say as for my comments on pricing and competitive pressures, the prospect pipeline continues to strengthen, pressures on people to come out of China. The availability of Vietnam are all adding up to improvement in the pipeline along with the additional sales expenses that we started to put in place about a year and a half ago.
William Dezellem, Analyst
Craig, what sort of magnitude are you looking at here in terms of increasing that pipeline?
Craig Gates, CEO
Well, it's pretty hard to say to give you a magnitude number. I've started trying to probability weight all of the open quotes and that number keeps getting bigger. It's probably 20%, 30% bigger than it was a year ago.
William Dezellem, Analyst
Great. Thank you both and good luck with not having the coronavirus cause a hiccup here.
Operator, Operator
Gentlemen, there are no further questions in the queue at this time.
Craig Gates, CEO
Okay. Well, we thank everybody for joining us today and look forward to talking with you next quarter end.
Operator, Operator
This concludes today's call. Thank you for your participation. You may now disconnect.