Key Tronic Corporation (KTCC) CEO Craig Gates on Q1 2020 Results - Earnings Call Transcript

Oct. 29, 2019 10:24 PM ETKey Tronic Corporation (KTCC)
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Key Tronic Corporation (NASDAQ:KTCC) Q1 2020 Earnings Conference Call October 29, 2019 5:00 PM ET

Company Participants

Brett Larsen - Executive Vice President, Administration, Chief Financial Officer and Treasurer

Craig Gates - President and Chief Executive Officer

Conference Call Participants

William Dezellem - Tieton Capital Management, LLC

Sheldon Grodsky - Grodsky Associates, Inc.

Michael Hughes - SGF Capital Management, LP

George Melas - MKH Management Company

Operator

Good day, and welcome to the Key Tronic Q1 Fiscal 2020 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brett Larsen. Please go ahead, sir.

Brett Larsen

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 quarter ended September 28, 2019. For the first quarter of fiscal year 2020, we reported total revenue of $105.3 million, sequentially flat compared to the $106 million for the prior quarter, but down from $127.5 million in the first quarter of fiscal year 2019.

Despite strong demand from both new and existing customers, a dramatic increase in the demand for sheet metals caused workload balancing challenges. These constraints which are now largely resolved resulted in production delays and were the primary reasons for the unexpected shortfall in revenue. Despite the revenue shortfall, margin percentages improved when compared with the prior year.

For the first quarter of fiscal year 2020, gross margin was 8.8%, and operating margin was 2.4% compared to 7.5% and 2%, respectively in the same period of fiscal 2019. The improvement in margin percentages was a result of product mix changes having a favorable impact on material costs and some labor efficiencies achieved in production. Despite the lower revenue levels for the first quarter of fiscal year 2020, net income was $1.6 million or $0.14 per share comparable to the same period of fiscal year 2019.

Turning to the balance sheet. We continue to maintain a strong financial position. As a result of the production delays in the first quarter and the continued ramp and transfers of new programs, we did see a sequential increase in our inventory by approximately 17% from the fourth quarter of fiscal year 2019.

In the second quarter of fiscal year 2020, we expect to see our net inventory levels declined and come more in line with revenue levels. At the end of the first quarter, trade receivables were down $2.2 million from a year-ago, and DSOs were about 55 days.

Total capital expenditures in the first quarter of fiscal 2020 were approximately $3.1 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 have approximately $10 million in capital expenditures during the fiscal year 2020.

Moving into the second quarter of fiscal 2020, with the addition of new production capacity, we expect more of our new customer programs to ramp and to move into production. The disruptions and delays experienced in recent quarters have been largely resolved and we expect revenue to increase. Taking these factors into consideration, we expect that the second quarter of fiscal year 2020 will have revenue in the range of $117 million to $122 million.

Our new Vietnam facility successfully began production with the first shipments leaving the new facility in September. For the second quarter of fiscal 2020, we expect to see some drag on gross margin as we continued to invest in enabling and accelerating the successful ramp of our new Vietnam facility. We anticipate earnings in the range of $0.13 to $0.18 per diluted share. This assumes an effective tax rate of approximately 20%.

In summary, while we are disappointed by the disruptions to our revenue in the first quarter, we remain encouraged by our prospects for future growth. The overall financial health of the Company is strong and we believe that we are well positioned to win new EMS programs and continue to profitably expand our business over the longer-term.

That's it for me. Craig?

Craig Gates

Okay. Thanks, Brett. As we've discussed in recent quarters, concerns about the uncertain tariff situation with China continues to have mixed ramifications for us. On the one hand, the tariffs are causing uncertainty and sudden reactions across the EMS market, including our own customers. Additionally, tariffs further complicated supply chain, particularly for our China suppliers, importing product back into the United States.

On the other hand, the big story moving into fiscal 2020 is that as a result of concerns over tariffs and trade tensions between U.S. and China, the number of existing and new customers have accelerated their plans to transition from China facilities to our expanding facilities in U.S., Mexico, and Vietnam. We see this trend as an important and very positive sign 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 quarter, many of our current customers are experiencing a seamless transition of their business out of China operations, facilitated by our centralized command and control. This drastically reduces the risk and time associated with the transfer to our North American sites, and thus allows some leeway to respond to the rapidly changing tariff landscape.

Furthermore, we are seeing that the tariffs on production in China have made our Mexico-based and Vietnam-based production more appealing to potential new customers. Our North American sites have become extremely competitive for U.S.-bound products subject to the new tariffs. This has resulted in increased interest and requests for quotes from prospective customers.

On balance, we're increasingly well positioned for the returning tide of North American-based customers as they appropriately analyze the total cost for overseas production, pushing production into both Mexico and the U.S.

While our marketplace remains very competitive, we continue to win significant new business, both from EMS competitors and existing customers. During the first quarter of fiscal 2020, we won new programs involving electric vehicle charging infrastructure, LED lighting, oil and gas sensors, and flight controls for experimental aircraft.

Our broader and more diversified customer base lowers the potential future impact of the slowdown by any one customer. While we are carefully managing our expenses, we have been preparing for growth in coming periods. During fiscal 2019, we made investments in our facilities, S&T, sheet metal and plastic molding capabilities in Mexico and the U.S. 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 was a decrease in manufacturing and operating expenses of approximately $3 million annually. We also added more contiguous space in the U.S. and production equipment for growth. 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.

Moving into the second quarter, we are ramping our 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 in a 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 are uniquely equipped to offer risk mitigation with our vertical integration and manufacturing facilities located in Mexico, Vietnam and the U.S.

While industrial supply chain shortages and uncertainties about tariffs continue to be a factor, we expect revenue growth in the second quarter and remain optimistic about our opportunities for growth in fiscal 2020 and beyond.

This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Bill Dezellem, Tieton Capital. Please go ahead.

William Dezellem

Thank you. A couple of questions here to start with normal one. What is the value of each of those four wins that you had this quarter in terms of revenues as you'd expect in an annual basis?

Craig Gates

First two should both end up over 10, probably less than 20. Second two are around five each.

William Dezellem

Great. Thank you. And would you please walk through how each of those four new wins was originally identified? And then why the customer in each of those four cases ultimately [drawn it]?

Craig Gates

Okay. The first one, vehicle charging infrastructure equipment came to us through a partnership we have with a large parts distributor who is acting as a financer for customers who are looking for upfront financing, and is acting as kind of like a rep for Key Tronic in matching us up with those customers that they view who have an exciting new product and yes, Key Tronic would not normally be willing to make financial risks on. So that's how we got the first one. And that is these third through that channel or source or playbook, whatever you want to call it.

The second one comes to us from a existing customer who made an acquisition and along with the acquisition we gain some factories that they view as being too expensive, and also a lot of products that they view as being too complex. So Key Tronic has been hired to redesign those products and to then put them in our factories and we're quite a way down the road on doing that at this point.

The oil and gas sensors came to us through our sales network and as did the flight controls. Flight controls is an interesting deal because this is a small business that was purchased by a very large avionics company and they are telling us their strategy is to purchase quite a few small innovative avionics and aircraft control system companies and they are looking for a partner to manage those transitions on an ongoing basis. Right now, we've got another three quotes from that company as they continue on their acquisition path. That's the story on those new pieces of business, Bill.

William Dezellem

Thanks, Craig. I'm going to actually pick up, if I may on your last answer. Why is it that the air traffic – aircraft control company I mean chose you for this one piece of business and what is it that they like about you all that's leading them to, if not explicitly say infer that you're the one who will manufacturer for them going forward?

Craig Gates

I don't know if you're familiar with the experimental aircraft market, but most of the innovation in a private aviation is coming out of that market. If you were to go try and buy a typical production airplane today, it would still have an engine in it that was designed in the 1950s that would still have ignition controls on that engine that were designed in the 1950s.

You would have to pay $40,000 or $50,000 up to $200,000 for avionics for which the engineering and critical components are probably worth about $5,000 or $6,000. And the reason that's all over the case is that in order to get something approved by the FAA, it's horribly expensive and the market won't bear it.

So there is a category of aircraft, experimental aircraft that you don't have to put FAA approved parts on. And that category is showing significant growth in volumes as opposed to the normal private aircraft market, which is basically [Morten].

So this large company that we're working for has realized that if they're going to have revenue growth and volume growth and also has a great way to come to market with innovative solutions, they need to buy up these little guys that are really doing some pretty cool stuff. So if you go up to the Oshkosh airshow, you’ll just see company after company that's got some pretty cool little gizmo or not to gizmo that they're being put on experimental aircraft.

The reason we're a good fit is our vast history of doing small company. I guess that really babysitting, mentoring, called small company mentoring and transferring of a production from their startup facilities into an existing – one of Key Tronic's existing facilities. So that experience along with the cost structure that allows us to do that are what convinced this big new customer that we would be the right guys to hook up with as they had done in this past.

William Dezellem

That's helpful. And then before I step back into the queue, I'm going to ask about the first one that you mentioned, the parts distributor that – this just sounds like the third you said piece of business that they have sent to your direction. Talk a little more about that relationship and the implications of what this could mean for the future for you all? It seems like an innovative channel of sales?

Craig Gates

Okay. Talk more about it. They are a large distributor of parts. They view the startup market and the near startup market as the best place for them to get their foot in the door with what hopefully will turn into a long time customer.

They have limited engineering resources and they have no manufacturing resources. So it's a natural fit between Key Tronic and them to help the startups and near startups as they grow and they have access to a lot of financing and are tolerant of more risks than we are.

And we have access to all of our excellent engineers and our worldwide manufacturing facilities and we're not tolerant of startup inventory risk. So between the two, it's a match made in heaven. So the first two that we did with them, one was a – is still a very big success and the other one was a, I guess you'd call it a failure in terms of the business. But in terms of the business model working to protect Key Tronic from component risk, it worked out exactly as we intended it to.

William Dezellem

Congratulations. It does sound interesting. Thank you. I'll step back in the queue. I do have a couple more questions and I'll come back in for later.

Craig Gates

Okay. Thanks Bill.

Operator

Thank you. Our next question comes from Sheldon Grodsky with Grodsky Associates. Please go ahead, sir.

Sheldon Grodsky

Good afternoon, gentlemen. When did you realize that you were going to have a revenue shortfall and when did you realize that it was not really going to be leading to an earning shortfall?

Craig Gates

This business is pretty tough to figure out what's going to happen in the last two or three weeks of the quarter. And many times we don't know until the final truck crosses the border. So I can't give you an absolute answer on what day we realized that, but it was – we thought we were going to get there towards the end and not until we get done crunching all the numbers. Do we really know for sure when we're going to come out in terms of profit?

Sheldon Grodsky

Well, in any case, normally I would not expect it. You could do what you did to have a revenue shortfall and then a big bulge in your inventories and still come out with reasonable profits for the quarter, very close to what you were forecasting before. So I congratulate you on that.

Craig Gates

Yes. Thank you. I'd hate to say luck because it was a lot of work involved also, but the products that we were able to build were likely some of our more profitable ones. So that was what carried us through.

Sheldon Grodsky

Okay. That's it for me.

Craig Gates

Okay.

Operator

Thank you. Our next question comes from Mike Hughes with SGF Capital. Please go ahead.

Michael Hughes

Good afternoon. Thanks for taking my questions. I think in the first couple of quarters is about $24 million. There's been a $24 million shortfall versus your forecast? Is that revenue lost or just kind of push to the right?

Craig Gates

I'd say its two-thirds of a push to the right and a third lost.

Michael Hughes

Okay. And the third that we lost – I'm sorry go ahead.

Craig Gates

Go ahead and ask your question. I was being employed and anticipating what you're going to ask. Go ahead and ask.

Michael Hughes

The third that was lost, did that go to a competitor or what happened on that front?

Craig Gates

Okay, so I was right. That's what you were going to ask. And the answer is that those were forecast from our customers and they did not get the sales out they were going to get.

Brett Larsen

So in no case we lose a customer, in no case did we lose an order to a competitor. It was that their sales did not come through the way they expected.

Michael Hughes

Okay. And that this is a little bit of an unfair question, but I'll ask it anyway. So I was looking at the last transcript from the last call and on that call, you said the disruptions and delays experienced in the June quarter have been largely resolved? You basically made the same statement today. What did you – do you have increased confidence now versus on the last call that you can hit the revenue range you put out there? Or is it the same level of confidence?

Craig Gates

I'd like to agree with you that that is an unfair question, but I think it's actually very fair. So what happened to us is that we saw a big uptick coming in – to overcome a shortfall. We saw due to our ability to get some electrical and we weren't able to achieve all of that metals production.

We were caught by surprise with the amount of labor that we had to throw at it during the ramp phase. And we were caught by surprise with one of our customer's specs versus reality in terms of building it. So in this quarter, we're done with all that ramp. We're in the midst of just building steadily.

In this quarter, we see a front face towards all the electrical components and in this quarter, we're already pretty far down the road in terms of getting all the POS and forecast that we need to fill it out. So, I'd hate to be embarrassed 3x in a row, but I'm pretty sure this quarter going to be okay.

Michael Hughes

Okay. And then if you look at kind of the midpoint of the guidance you're looking for about I think $15 million in sequential revenue growth, but the earnings number of midpoints up a couple of pennies. So that's a couple hundred thousand dollars, which implies incremental margins of 1% to 2%. I think you referenced maybe some startup costs? Can you quantify that? And then there's that and then how much of it is just mix was really good in the quarter you just reported?

Brett Larsen

I'd say about half of it was due to the mix being really good. As we said, we lucked out in that the products we could bill or better profitable products. But we are investing quite a bit in wrapping the folks in Vietnam and also not being all that efficient going to add product out of China, both to America and Vietnam. So it's probably about a split between the two.

Michael Hughes

Is the Chinese facility losing money at this point? I think you said it was close to breakeven on the last call, thereabouts?

Craig Gates

This last quarter, they were right at breakeven again.

Michael Hughes

Okay. Okay and then one last question for you. I was listening to the call of manufacturer early this morning and they indicated in Vietnam they were experiencing labor shortages and some stresses on distributional logistics just because of the influx of foreign direct investment. Do you have any thoughts on that?

Craig Gates

So far, our experience in Vietnam has been almost dreamlike and its ease of doing business. So the only thing that we've run into so far at – on our bills and material, they are requiring a much more complete descriptions of each part, which sounds like a trivial thing, but when you're looking at hundreds of thousand parts and our need to have extra for each one of our bills and material and every one of those lines, it's not minimal.

But on the other hand, we are ramping products at a time instead of entire factories at a time. So it's going to be manageable. But in terms of getting people, we've had extremely good luck and we're extremely happy with the quality of people that we've been able to hire. And in terms of getting parts, we haven't had an issue yet, but I'm not at all cocky, but I'm just happy.

Michael Hughes

Okay. So do you think the selenium Vietnam will be a drag on earnings the next few quarters? Or at what point does it turn profitable?

Craig Gates

It's probably two to three quarters. When you start something out of scratch as you know, it takes a while, but it's coming along nicely.

Michael Hughes

Okay. Thank you very much.

Craig Gates

You bet.

Operator

And our final question in the queue comes from Bill Dezellem, Tieton Capital. Please go ahead.

William Dezellem

I'd actually like to circle back too much demand, hurting revenues. Can you describe in some detail how that happened and frankly if we run the numbers correctly had you met your revenue expectations. You would have just simply blown the earnings out of the water? Is that a correct way to think about this quarter or would you have had some lower margin products that would have gone through the factory in that case? And so we would not have seen such an extreme on near and each run?

Craig Gates

So it's a ladder at the former. We would not have blown away our earnings. We probably would have done a little bit better. When we had too much demand, we had to pick and choose over what we were going to build versus what our customers wanted us to build. So we had to pick the right product in order to hit our profit numbers.

And at the same time we had pretty delicate balancing act amongst the new customers and existing customers that were new to the ore has metal shop. So it was a complex and sweaty process. But you would be incorrect if you drew the conclusion that just adding the revenue would have blown the profit number sky-high, it would help, but it wouldn't have blown or sky-high.

William Dezellem

Would it have been a correct calculation to use your historic gross margin and apply that to the revenues and could you just said that the current quarter gross margin would have been too high?

Craig Gates

Yes. That's probably the pretty decent model.

Brett Larsen

Yes.

William Dezellem

That's helpful. And then you did mention that you're increasing, metal of capabilities and capacity. Where are you doing that, which geographies?

Craig Gates

It's in more as only.

William Dezellem

And should we anticipate at some point, that you will be adding metal capabilities at places other than whereas or is there some real advantage to keeping it there?

Craig Gates

Now the big advantage is for the U.S. market, stamping, forming, welding and painting those big metal pieces and then shipping them into the States is a wonderful thing versus trying to do it in China and put it on a boat and ship it over here. So putting it in the States wouldn't gain us any shipping savings or any time to market savings. All it would do would get us labor cost increases. So I can't imagine putting it in the States. I don't see any time in the next two years that we would put it in Vietnam. So I think it's pretty much going to be where it's at.

William Dezellem

Great. That's helpful. And you feel as though you have that problem pretty well dialed in now.

Craig Gates

For the current level of business that we have, yes. If we see another couple of big wins, we'll be back to struggling again, but it will be a good struggle.

William Dezellem

Okay. Well let me play off of that because we would like you to have a couple more big wins, maybe even more than a couple. How do you plan for that to alleviate the metal shop being a bottleneck?

Craig Gates

Well, we've done a lot of work on our modeling capabilities as the metal shop got close to capacity. We were used to modeling our capacity with a pretty basic tool, and as we have added customers with widely varying products, we've had to come up with a much better tool that takes into account all the effects of making it pretty simple product one day and the next day making something pretty complex and one product that requires one pass through the powder coat and another product that requires 100 people with masking tape and four passes through you run it through the powder coat line.

So the modeling technique is quite a bit better now, and we should be able to anticipate both people requirements and equipment requirements as we win business, rather than trying to do it on the fly. Again, I'm not sure how much we could have done it on the fly with the rapidity, which the tariffs forced our current and new customers to jump up and say today, we got to move back to Mexico. But if it does happen, we'll be better equipped to deal with the surprise.

William Dezellem

Understood. And then lastly, in your annual letter in the Annual Report, you made reference to efficiencies that you have built into the plant that has led to something in the neighborhood of a $3 million annual cost savings. Is that – I guess two questions. First of all, would you describe in a bit of detail what it is that you have done on that front? And then secondarily, is that part of what you were describing to an earlier questioner as to why your margins were good here this quarter and being able to reduce labor content on some of the products?

Craig Gates

Well it's certainly a fact that Q1 would not have been. I don't think we'd have made half of it if we hadn't had done all the things we did over the last year in terms of profit. We've added equipment, some pretty big expensive capital equipment that's really fast compared to what we have before, both on the SMT side and on the metal side. We've improved our scheduling processes. We’ve done a lot of work on pseudo-automation and process improvement. So that $3 million we talk about is, those are heads that are no longer on the payroll. There's nothing – the team know all about its real deal.

William Dezellem

Great. Thank you, both.

Craig Gates

Yep.

Brett Larsen

Thanks Bill.

Operator

And we do have another question in queue. [Operator Instructions] And our next question comes from George Melas, MKH Management. Please go ahead.

George Melas

Thank you. Hi, guys. Good afternoon. Two quick questions. On the revenue shortfall, can you identify how many customers were impacted by that and in a way, and how do they deal with it on their end? That's the first question. And I have a second one after that.

Craig Gates

Okay. There were three customers that were impacted. It adds more expense to them as they try to move with inventory they have around to other places. It adds expense to us as we pay for air freight or expedited shipping to make it happen over time. We spend a lot of money on over time, trying to make what we did get built.

It hasn't caused any of them to leave us. It's certainly cause a lot more heightened discussions at the top levels of their management teams and ours to make sure that we are trying together to make the best of a situation that neither of us made, but that's how it affects them.

George Melas

Okay. And so these three customers are they all time customers that you've had for a while or some of them or as one of them was a new customer?

Craig Gates

One of them was a new customer that was coming out of China, a China manufacturer. That always represents some pretty rough challenges because their paperwork and processes were not well known. So we were inventing on the fly and we were negotiating specifications on the fly and there were some pretty dramatic changes in both of those as we were trying to ramp. So that's one.

The other one was a current customer who has three suppliers and two of those suppliers were in China, us in another company, and they're in the midst of pulling out of that other company and moving it all to us in Mexico.

So as their production from us didn't meet their requirements, they continued to run the other guy in China longer. And of course they had to pay tariffs longer, so they weren't happy about it. But we're still the best option they have in terms of moving it quickly. And the third one was a current longstanding customer.

George Melas

Okay. Great. Thanks for that. And then OpEx were a bit light, or at least compared to last year, is there a particular factor in there or is that the runway we should expect, Brett?

Brett Larsen

You cut out on the first part of that question, sorry.

George Melas

I'm sorry. It’s about the OpEx. Your SG&A was a bit light. Is there a particular reason for that or is that a new run rate?

Brett Larsen

Hang on. Did you say…

George Melas

I'm sorry. Let me try it again. Your SG&A, your OpEx was a bit light compared to the last couple of years.

Craig Gates

Got it. Yes. I would expect that is a little bit light. I would expect that in future quarters, the percentages will stay fairly constant, the dollars may increase.

George Melas

Okay. What would be a particular reason for the SG&A to be soft this quarter?

Craig Gates

Probably due to the fact that there is not much in bonuses being accrued for commissions and the likes.

George Melas

Okay. Very good.

Brett Larsen

To put it roughly, George, nobody got a bonus and this year we're hoping to get one.

George Melas

Okay. I hope you do too very much. And then sort of your long-term goal of 10% ROI, I guess it's not long-term, it's sort of roughly run rate by the end of this fiscal year. Is that still in sight?

Brett Larsen

Yes.

George Melas

Yep. So this shortfall has no changed any of that.

Brett Larsen

No.

George Melas

Okay. Very good.

Brett Larsen

All right.

George Melas

Thank you.

Brett Larsen

Thank you, George.

Operator

And our last question currently in the queue comes from Mike Hughes, SGF Capital. Please go ahead, sir.

Michael Hughes

Yes, I was trying to bridge the revenue from the just reported quarter to the guide. So you need to grow the revenue by about $15 million. And you previously said that you could capture about two-thirds of that revenue that was pushed out of the $24 million. So that's $16 million. So that alone would get you to the $120 million or will that $16 million be spread over a couple of quarters? How will that dynamic work?

Craig Gates

It's a couple of quarters. It's not all in this quarter.

Brett Larsen

So a slide means it moves into the next quarter doesn't mean that you get that plus – it's a delay. It's a timing delay.

Michael Hughes

Okay. And then on a last quarter's call, you indicated about $3 million in new revenue, would contribute to the growth? Did that happen in the moody just reported quarter and what's the comparable number for the current quarter?

Craig Gates

I don't have that split off the top of my head. Sorry.

Michael Hughes

Okay, last question for you. You also said on the last call that new customer revenue would total about $60 million in the fiscal 2020 plan. Is that still the case?

Brett Larsen

It's actually bigger than that. I just did the analysis for the Board meeting. And it's up to about $75 million in the next 12 months.

Michael Hughes

In this $75 million on the next 12 months, is that a function of the revenue being pushed to the right or just bigger pipeline now?

Brett Larsen

Bigger pipeline.

Michael Hughes

Okay, great. Thank you very much.

Craig Gates

Yep.

Operator

And speakers, there are no more questions currently in the queue.

Craig Gates

Okay. Appreciate everybody's questions. Thanks for joining us on the call. We'll talk to you next quarter.

Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

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