blog

Key Tronic Ranked 11th Fastest-Growing Public Company by Puget Sound Business

Fri, 14 Jun 2013 14:18:46 -0700

Key Tronic Ranked 11th Fastest-Growing Public Company by Puget Sound Business Journal (June 7-13, 2013 issue)

Key Tronic Ranked 11th Fastest-Growing Public Company
by Puget Sound Business Journal (June 7-13, 2013 issue)

Craig Gates and Ron Klawitter discuss KeyTronicEMS with Business Talks

Tue, 11 Jun 2013 09:57:26 -0700

Listen to Craig and Ron on Business Talks - Craig and Ron speak with Business Talks
Audio from the June 5, 2013 broadcast

(From the Business Talks website)
Key Tronic grew from its 1969 founding into the world’s top keyboard manufacturer within ten years. While you may still think of them as a keyboard maker, times have changed: Within three years of winning its first contract for electronic manufacturing services, in 1998 from Qualcomm, Key Tronic’s electronic manufacturing revenue surpassed its keyboard manufacturing revenue.

Fast forward to 2013: Electronic manufacturing now represents 98% of company revenue. (Using a little research and an iPhone calculator, Business Talks projects Key Tronic’s revenue for the current fiscal year will be approximately $350 million. We’ll have to ask Craig and Ron if that’s right.)

Key Tronic is headquartered in Spokane, where it employs more than 200 people. It owns manufacturing facilities in China and Mexico. Last week Key Tronic announced plans to acquire Mexican sheet metal firm Sabre Manufacturing, for $5.1 million. Key Tronic today is strongly positioned to offer expert electronic manufacturing services to a variety of underserved markets and market segments.

Craig and Ron have both been with the firm for about 20 years, so they’ve been a part KeytronicEMS’s reinvention. We’re delighted to have them join the program.

Forbes America's Best Small Companies

Thu, 31 Jan 2013 00:00:00 -0800

KeyTronic on the Forbes America's Best Small Companies List

Circuits Assembly 2009 EMS Company of the Year

Sat, 01 Jan 2011 00:00:00 -0800

KeyTronicEMS EMS Company of the Year

Tuesday, 01 December 2009

Written by Mike Buetow

How a maker of branded computer peripherals became our EMS Company of the Year.

December 2003. That’s the last quarter KeyTronicEMS failed to turn a profit.

For those counting at home, that’s 23 straight quarters of positive earnings. An enviable track record, considering the vast majority of the world’s EMS companies have been plagued with the manufacturing version of the H1N1 virus during the past 12 months.

Through the four quarters ended in September, KeyTronicEMS managed net income of $178 million and net profits of $1 million. While most of the Tier 1 to 3 companies saw revenues fall 20% or more during that period, KeyTronicEMS’s were down just 14%. Those figures are not going to blow over anyone at, say, its Washington state neighbor Microsoft, but for the EMS industry, they show remarkable financial consistency. Moreover, the company is carrying no debt, having paid down all outstanding loans during its past fiscal year.

KeyTronicEMS is an interesting blend. Founded in 1969, it’s been an ODM since before the term existed. After a near-death experience as it watched the average selling prices of its core keyboard products fall off the cliff, it today ranks as the top performer among Tier 3 electronics manufacturing services providers (EMS companies with annual sales of $100 million to $400 million).

One sign of a well-built company is its ability to withstand changes in top management. KeyTronicEMS is undergoing just such a change now. The management team is transitioning to the next generation, as longtime president and CEO Jack Oehlke stepped down in April. He has been succeeded by Craig Gates, previously the company’s executive vice president and general manager, who has experience in engineering, marketing and sales in his 15-year tenure at KeyTronicEMS.

Surrounding Gates is a surfeit of experience, starting with CFO Ron Klawitter, who started with KeyTronicEMS in 1992; vice president of worldwide operations Douglas G. Burkhardt, whose tenure dates to May 1989; and vice president of engineering and quality Lawrence Bostwick, who joined the company in February 2006. (Gates and Oehlke’s relationship actually dates to Honeywell’s Microswitch division, where they worked together before joining KeyTronics.) Oehlke remains on the board of directors, however, and three other directors have been with the company since before the 2001-03 downturn. It’s an experienced group.

Markets served range from computer and industrial printers, telecommunications (satellite units, tracking devices and data transmission gear), and automotive and medical (diagnostic devices and sensors). It has a foot in the consumer market as well.

KeyTronicEMS has a staff of about 2,000 workers at five plants around the world, two each in the US and Mexico, and one in China. The primary domestic manufacturing site is a 140,000 sq. ft. building in Spokane, WA, which doubles as its headquarters. (It also has a 150,000 sq. ft. distribution center in El Paso, TX.) In Shanghai, it boasts a 63,000 sq. ft. high-volume SMT plant. Its largest sites reside in Mexico: the 375,000 sq. ft. Juarez campus, which houses four buildings and where some 85% of production takes place, and the 240,000 sq. ft. Reynosa facility.

KeyTronicEMS’s model marries ODM and EMS work, and the company was one of the first (and few) companies to successfully expand from original design and product development to contract assembly. The company’s genesis lies as reportedly the first independent supplier to make a PC keyboard for heavy-duty office use, and KeyTronicEMS has been granted almost 40 patents in high-end computer peripherals, specifically keyboards and mice. But keyboards now are a small fraction of its overall sales – less than $2 million a quarter. Yet the company persists because, as Gates says, it makes money.
“We look at it every year and it comes up profitable, so we keep doing it.”

In making the transition, in 1998, from an OEM to an EMS, KeyTronicEMS has beaten the odds. Many notable OEMs tried – and failed – to develop contract assembly units. Likewise, many EMS companies bought – and then shuttered – OEM operations. In fact, Gates calls the migration “a desperation move.” At the time, a turnaround group ran KeyTronicEMS. Its focus, recalls Gates, “was to be the last keyboard company standing.” However, PC keyboard ASPs were beginning to plunge (and have since fallen from about $60 to close to $3). “It was pretty clear it was not a business you wanted to be in,” he says.

It was the threat of that abyss that led then-CEO Oehlke, Klawitter and Gates to go into EMS. In hindsight, it seemed a natural move. Recalls Gates: “We knew we had a number of strengths: facilities in the US, China, and Mexico. We were vertically integrated; we had plastic moldings and PCBs. We knew how to get product from one spot to another. It was an overt decision.”

Still, the company eased into EMS. “One of the first contract programs was manufacturing a control panel for HP printers,” Gates says. “It looked like a keyboard – it had LEDs and components – but it wasn’t. We went from there to printers and other things. We were lucky or hardworking enough or smart enough to stay ahead of the decline in keyboards.”

Every company seeks success over the long haul, of course. Now in its sixth year of consecutive quarterly profitability, KeyTronicEMS sees itself as owning certain attributes unique to EMS companies in its size range. For starters, the geographical reach. With plants in China, Mexico and the US, it covers a lot of territory that few firms below Tier 2 can equal. Also, the three plants operate as if they were one. All three sites have identical equipment sets and processes. All production planning is performed from Spokane.

Although the program managers all reside in the Spokane plant, they command much greater responsibility than many of their peers. (Gates calls them “mini CEOs.”) Being grouped together, and in proximity to engineering, permits greater cohesion for loading and other decisions. KeyTronicEMS sees this as a meaningful way to appeal to its US customer base, allowing them to communicate in US time zones and with native English speakers, without long and frequent trips across borders or oceans. For their part, PMs directly reap the rewards when their business with a customer grows, giving them additional incentive to please.

“When volume expands, [our customers] don’t have to speak Spanish and go every week to Mexico and preside over a lot of intramural debates between facilities,” explains Gates. “We ensure the procedures are exactly the same in each place. [Customers] don’t really need to re-qualify the programs in each place.”

No losing quarters. The 2008-09 downturn affected everyone. That KeyTronicEMS managed to remain profitable throughout is remarkable. It lays credit not at the feet of any special oracle, but rather the experience of its management and its laser-like attention to the balance sheet. “I don’t think we saw it coming any earlier than anyone else,” says Gates. “We have a very scarred management team that has been through a transition few have made, going from OEM to CM. Those ups and downs taught us you have to have a very tightly managed balance sheet. When that downturn hit, we weren’t strung out for cash. Same thing on the inventory side. We have learned not to have a lot of cash tied up in inventory.” Indeed, as of the June quarter, its cash conversion cycle was 74 days, and inventory days were 69. Both figures compare favorably with Tier 2 averages, and easily best Tier 3 competitors.

Unlike most large EMS firms that react to downturns by taking large restructuring charges and inventory write-downs, leading to some horrific quarterly figures, KeyTronicEMS operates under the simple principle that it will not lose money, ever. Doing so, the company believes, makes customers squeamish and reverberates for months. “Even a quarter’s loss makes our customers nervous. It slows the sales process, and it makes them concerned there may be more problems coming,” Gates asserts.

“Our balance sheet, inventory and cost structure – all three are managed in a way that we hope we never have to lose money because we can be aggressive on all three levels. We also do a complete re-budget every quarter. I think that’s unique in our industry.”

Interestingly, Gates also credits years of ramping programs up and down. This background gave the company the chops to move product and people as needed, and in real time.

From a performance standpoint, KeyTronicEMS’s metrics are straightforward. One is 12% return on invested capital. Another is to beat its peer group’s revenue growth rate. When it misses on those goals, employees see it in their paychecks.

KeyTronicEMS has reached the $200 million annual revenue threshold almost on the strength of just 10 customers, all of which it has supplied since 1998. In that time, it has lost, according to Gates, “maybe two of any size, and both were by our choice.”

Adds CFO Klawitter, “Two or three years ago, the bulk of our business was from nine or 10 customers. The other 18 came over the last two years.” In fact, just before the recession, KeyTronicEMS was scoring several new customer wins, and points to its success there – 40% of its revenue in the past quarter came from customers of fewer than 18 months – as playing a major role in its near-term results.

Its target customer program is in the range of $5 million to $30 million, too small to interest most Tier 1 firms. Yet KeyTronicEMS leverages its footprint, which includes a group in China that does most of its materials procurement, and vertical integration, which includes generous plastic molding capacity, with a responsiveness characteristic of Tier 3 firms. “We are of the size that we jump for our customers. If they were with a Tier 1, the customer wouldn’t get that kind of a jump,” Gates says.

“A lot of EMS companies’ costs are about the same. The differentiators come down to trust: Can the customer get the product when they need it to keep themselves in business? The people who understand that that is the core of a business relationship, those are the customers we want. Those who move every six months haven’t stopped to think about how much that costs them and us.”

Soft side. Every 18 months, all PMs, accounting, engineers and sales staff are trained on KeyTronicEMS’s EVA (Economic Value Added) philosophy, which looks at investments in plant space, equipment, working capital, and other operations, and reiterates the need for returns on investment. But in speaking with Gates and Klawitter, it is clear KeyTronicEMS is no Wall Street bank. Management keeps tight reigns on operations at all sites, often via video conferencing. Business reviews are conducted quarterly with the entire company, and management meets daily with all PMs and support functions, covering every program. “It makes it very easy to communicate how we are doing and tell our folks how their individual actions are going to affect their paycheck,” Gates says.

For a company that relies so much on understanding and quantifying its business, KeyTronicEMS reveals a certain touchy-feely side. Take its program managers. Before assigning a PM to an account, management considers their skill set and how it fits with the customer’s need. “There are some program managers who are former engineers and pretty much ‘0s and 1s,’ ” says Gates. “If you match them up with a customer who stresses more ‘feelings,’ it’s not a good match. It’s organic process, but key in making this work. The tight management and flatness of the organization and level of detail senior staff is exposed to on a daily basis is unique to our business and seems core to our success.”

Gates himself seems genetically predisposed to the term “we.” Almost insistently during the course of an interview with Circuits Assembly, he spread credit among his colleagues. The subtle gesture adds credibility to his comments, like when he says, “We are all involved in details. We have no patience for creeping functionalism. A number of us came from big organizations, and where you go wrong is when you think the function is more important than the organization. And we always remember where the money comes from. What really matters is how we treat our customers and how we work together to make money.”

For its unique but systematic approach to the electronics manufacturing services rollercoaster, and its stellar performance in all types of business environments, KeyTronicEMS is Circuits Assembly’s 2009 EMS Company of the Year.

Mike Buetow is editor-in-chief of Circuits Assembly

KeyTronicEMS Journal of Business

Thu, 04 Nov 2010 10:37:57 -0700

Key Tronic predicts record annual sales Spokane company racks up 53 percent growth in revenue, strong earnings in quarter

By Richard Ripley
Of the Journal of Business

Key Tronic Corp., of Spokane, says it expects to achieve record revenue in its 2011 fiscal year after announcing its highest-ever quarterly revenue in its fiscal first quarter, ended Oct. 2.

The company, an electronic manufacturing services concern with facilities in the U.S., Mexico, and China, also says it's continuing to maintain strong operating efficiencies, with a gross margin of 9 percent in the quarter, up from 6 percent in the year-earlier quarter.

Craig Gates, Key Tronic's president and CEO, says the company's strong growth in quarterly revenue and earnings were driven by production ramp-ups of new products for new and longstanding customers.

"We achieved the highest quarterly revenue in Key Tronic's history and continued to significantly increase our profitability over the same quarter of the prior year, despite approximately $3.5 million in production delays due to continued industrywide shortages in the global supply chain," Gates says.

For its first quarter, Key Tronic reported net income of $1.7 million, or 17 cents a diluted share, compared with $300,000, or 3 cents a diluted share, in the year-earlier period.

Revenue, meanwhile, shot up to $63.3 million from $41.3 million, for a jump of 53 percent.

"During the first quarter of fiscal 2011, we continued to diversify our revenue base by winning new (manufacturing) programs involving electric motor controller components and innovative display devices," Gates says. "We anticipate strong growth in the second half of fiscal 2011 and expect record revenue for the year."

The company's engineering and global logistics capabilities and cost-effective production position it well to continue to capture market share and capitalize on opportunities, he says. The company said it expects to report record revenue again for its second quarter in the range of $61 million to $64 million, with earnings in the range of 17 cents to 20 cents a diluted share.

For all of fiscal 2011, it projects revenue of $270 million to $280 million and earnings of 75 cents to 80 cents a diluted share, it says.

It cautions, however, that its forecasts might be hurt by continuing shortages of parts in the supply chain.

It says that according to a report in Manufacturing Market Insider, the electronic manufacturing services market should grow by 7 percent to 12 percent annually in the coming years after declining by about 15 percent during 2009 because of the recession.

Last Friday, the company's stock traded at $6.41 a share, near its 52-week high of $6.86 a share. Its 52-week low was $2.25.

The company says it also provides materials management, manufacturing, and assembly services, in-house testing, and worldwide distribution from its facilities.

KeyTronicEMS Journal of Business

Fri, 27 Aug 2010 14:08:03 -0700

Key Tronic adds space, prospers Spokane-based company beefs up offshore, renews lease, hires people here

By Richard Ripley
Of the Journal of Business

Key Tronic Corp., the Spokane Valley provider of electronic manufacturing services, has bought a building adjacent to its manufacturing facilities in Mexico, has leased a building near its manufacturing operation in China, and has renewed for another 10 years its lease on its building here and has taken additional space there.

In addition to increasing its manufacturing capacity offshore, the company has hired more than 20 workers here in the last few months, and in the last year has added a total of close to 30 people here, giving it nearly 200 Spokane-area employees, says Ron Klawitter, the company's chief financial officer.

"We're doing real well," Klawitter says. "We had a very good quarter."

Last week, the company reported its highest ever quarterly revenue, of $61.9 million, in its fiscal fourth quarter ended July 3. It also reported net income for the quarter of $2.3 million, or 22 cents a diluted share, up from $300,000, or 3 cents a share, in the year-earlier period.

The company says that for its full 2010 fiscal year, it had total revenue of $199.6 million, up 8 percent from fiscal 2009, and it earned net income of $8.7 million, or 85 cents a share.

"This past year was our second-best year for profits," says Klawitter. Net income was up from $1.1 million, or 11 cents a diluted share, the year earlier.

After paying off all $12 million of its bank debt, Key Tronic borrowed $1 million on the last day of its fiscal year to buy, at a total cost of a little more than $2 million, the 114,500-square-foot building in Juarez, Mexico, across the street from four buildings there where it has 370,000 square feet of space.

The company, which employs some 2,000 workers in Juarez already, bought the structure to accommodate some of the new business it has brought in, including assembly of a medical device used in doctor's offices, Klawitter says. He declines to elaborate on the device.

"It's a pretty good indicator of our growth," he says of the added space. "Even during the recession, when most companies were hurting, we paid off all of our bank debt. It's helped us win business from some of our competitors."

When the downturn hit, the company that placed the order for the medical device "got very concerned that our competition was weak financially" and decided to move the making of the device, along with the necessary equipment, to Key Tronic, Klawitter says. "They think that we were a better long-term bet" to remain in operation, he says.

Key Tronic currently is doing prototype work in Spokane on the product, and while it will add workers in Mexico to accommodate the making of the device, it doesn't know yet how many, he says.

In Shanghai, China, the company leased 50,000 square feet of space across the street from the 90,000 square feet of space it has there, Klawitter says.

"We had quite a few new customers who wanted to have their products built in China," he says. The company will do electronic assembly there for industrial products.

Key Tronic had been looking for a new location so it could expand in China, Klawitter says. "The landlord didn't want to lose us as a tenant, so he made the space available to us."

Key Tronic likely will invest between $200,000 and $300,000 to put in utilities, air-conditioning, and offices and set up the assembly line in the new building, he says. "In China, it's a lot less expensive to lease a building than to buy it," he adds. The company already employs about 300 workers there, and while it will add some employees to handle the new business, it's unsure how many new workers it will need, Klawitter says.

At its Spokane Valley headquarters, the company took an additional about 12,000 square feet of space as it renewed its lease for another 10 years, Klawitter says. He says the building is the same one where Key Tronic was located when founder Lew Zirkle took the company public years ago. Key Tronic also has 36,000 square feet of space in the Spokane Business & Industrial Park, where it makes plastic injection molding tools.

At its main building, the company has its new-product introduction facility and some assembly capacity for making printed circuit boards, and the assembly operation had pretty much taken over space that the company had used for its cafeteria, Klawitter says.

In its earnings release last week, the company said it expects to report revenue in the range of $58 million to $61 million, and earnings in the range of 17 cents to 20 cents a share, in its fiscal 2011 first quarter, which will end about Sept. 30. It added that its forecast could be affected by continuing supply chain issues as the world's electronic parts supply ramps up to meet demand.

"We're very pleased with our strong growth in revenue and earnings for fiscal 2010, driven by increased demand from both new and longstanding customers," says Craig Gates, the company's president and CEO. "We began the year in the depths of the global recession and ended with the highest quarterly revenue in Key Tronic's history. We've remained profitable for 26 consecutive quarters and significantly increased our profitability in fiscal 2010 compared to recent years."

The company has controlled costs, maintained strong operating efficiencies, and improved its new-product introduction processes as it has grown, he says.

Gates also says that recent forecasts predict double-digit growth for the electronic manufacturing services market in coming years. "With our unique combination of world-class engineering, global logistics, and cost-effective production, we're increasingly well positioned to continue to capture market share and capitalize on emerging opportunities."