Earnings call transcript: Strattec Security’s Q4 2025 earnings beat expectations

Strattec Security Corporation reported a remarkable earnings beat for Q4 2025, with earnings per share (EPS) of $2.01, significantly surpassing the forecasted $0.91. Revenue also exceeded expectations, reaching $152 million against a forecast of $142.01 million. Following the announcement, Strattec’s stock saw a premarket rise of 4.83%, reaching $79, despite a prior close of $75.36. With a market capitalization of $304 million, the company maintains a "GREAT" financial health score according to InvestingPro analysis, which offers 12 additional investment insights for this stock.

Key Takeaways

• Strattec’s Q4 earnings per share more than doubled the forecast.
• Revenue grew by 6% year-over-year, beating expectations by 7.03%.
• The company’s gross margin expanded by 370 basis points to 16.7%.
• Stock price increased 4.83% in premarket trading after the earnings release.
• Strattec is focusing on digital key fob products and reducing switch product line emphasis.

Company Performance

Strattec Security Corporation delivered strong financial results in Q4 2025, with revenue growth of 6% and a significant improvement in gross margin. The company’s strategic focus on digital key fob and power access products appears to be paying off, as they shift away from the saturated switch product market. Despite a challenging automotive sector, Strattec’s operational efficiencies and product innovations have positioned it favorably against competitors like Continental and Denzo.

Financial Highlights

• Revenue: $152 million, up 6% year-over-year
• EPS: $2.01, significantly higher than the $0.91 forecast
• Gross margin: 16.7%, a 370 basis point increase
• EBITDA margin: 8.5% for Q4, 7.7% for the full year
• Operating cash flow: $30 million for Q4, a 55% improvement

Earnings vs. Forecast

Strattec’s Q4 EPS of $2.01 represented a 120.88% surprise over the forecasted $0.91. This substantial beat underscores the company’s effective cost management and revenue growth strategies. The revenue surprise of 7.03% further highlights Strattec’s ability to exceed market expectations, contrasting with the company’s historical performance, which has seen more modest earnings surprises.

Market Reaction

Following the earnings announcement, Strattec’s stock rose by 4.83% in premarket trading, reaching $79. This movement reflects investor confidence in the company’s robust earnings performance and strategic direction. Despite a recent 52-week high of $82.8, the stock remains strong, indicating a positive market sentiment amidst broader automotive industry challenges. The stock has delivered an impressive year-to-date return of 82.91%, significantly outperforming the market. InvestingPro subscribers can access detailed analysis of similar high-momentum stocks and their growth potential.

Outlook & Guidance

Looking ahead, Strattec anticipates flattish revenue for fiscal 2026, with a focus on achieving long-term gross margins of 18-20% and EBITDA margins in the low teens. The company aims to expand its customer base within the automotive sector, leveraging its innovations in digital key fob technology. Despite a projected decline in North American automotive production, Strattec remains optimistic about its pricing strategies and operational improvements.

Executive Commentary

"We are excited about the future for Strattec and expect that over the long term we can continue to drive a growing stronger margin profile business with greater predictability and earnings power," stated Jennifer Slater, CEO. CFO Matthew Polly added, "We believe the business over the longer term and with sufficient volume is capable of achieving gross margins in the 18% to 20% range."

Risks and Challenges

• Potential decline in North American automotive production by 5-6%.
• Market saturation in certain product lines, such as switches.
• Macroeconomic pressures impacting consumer demand.
• Supply chain disruptions affecting production and delivery schedules.
• Inventory increases, projected to rise by approximately $5 million.

Q&A

During the earnings call, analysts inquired about Strattec’s transformation process and product line optimization. The company’s leadership emphasized the early stages of this transformation and the potential for broader customer engagement within the automotive sector. Additionally, discussions centered around ongoing VAT recovery efforts and the strategic focus on digital innovations.

Full transcript - Strattec Security Corporation (STRT) Q4 2025:

Conference Operator: Greetings, and welcome to the StratTech Security Corporation Fourth Quarter Fiscal Year twenty twenty five Financial Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deb Pawlowski, Investor Relations for StratTech.

Thank you. You may begin.

Deb Pawlowski, Investor Relations, StratTech Security Corporation: Thank you, and good morning, everyone. We greatly appreciate you joining us for StratTech’s fourth quarter and fiscal twenty five year end financial results conference call. Joining me on the call this morning are Jennifer Slater, President and CEO, and Matthew Polly, Vice President and Chief Financial Officer. Jen and Matt will review our financial results, the progress being made to transform StratTech and our expectations for fiscal twenty twenty six. You can find a copy of the press release and the slides that accompany our conversation today on the Investor Relations section of the company’s website.

If you are reviewing these slides, please turn to slide two for the Safe Harbor statement. As you are aware, we may make some forward looking statements on this call during the formal discussion as well as during the Q and A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today’s call. These risks and uncertainties and other factors are discussed in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website as well.

I want to also point out that during today’s call, we will discuss some non GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. So with that, if you would please turn to Slide three, I will turn it over to Jen to begin. Jen?

Jennifer Slater, President and CEO, StratTech Security Corporation: Thank you, Deb, and welcome, everyone. We ended fiscal twenty twenty five on a strong note with solid sales growth, expanded margins, strong cash generation and a much better business from where we were at the beginning of the fiscal year when I joined the company as CEO. Our success was the result of our team whom I want to thank for their energy, perseverance and hard work. We covered a lot of ground and underwent significant change in fiscal twenty twenty five. We have a refreshed and energized executive team.

We added critical talent throughout the organization and continue to do so. We simplified our operations and reduced headcount by 15%. We implemented an operating cadence and created communication channels that had not existed in the organization before. We also began the work to reshape our product portfolio and we advanced our plans to modernize operations. These efforts were clearly demonstrated in our financial results, which I will now touch on for the quarter and the year.

We delivered very strong cash generation as we generated $30,000,000 in cash from operations for the quarter and $71,000,000 for the fiscal year. In addition to achieving stronger cash earnings, we improved our working capital velocity and benefited from some onetime opportunities to unlock value from the balance sheet that Matt will discuss later. Revenue grew 6% in the quarter and 5% for the year. Higher sales and favorable foreign currency exchange combined with the initial benefits from our restructuring efforts helped to drive three seventy basis points of gross margin expansion for the quarter as well as two eighty basis points of margin improvement for the year. Fourth quarter EBITDA margin of 8.5% also demonstrated our continued progress through the year, but was up against a tough comparator in the prior year that benefited from a onetime engineering cost recovery of $4,800,000 Our efforts resulted in an EBITDA margin expansion of two twenty basis points for the year to 7.7%.

Please turn to Slide four. Our priorities for fiscal twenty twenty five were to create shareholder value, which we believe our transformation actions to date have accomplished across key focus areas of the business. This is demonstrated by the significant progress we have made to improve our underlying operations, unlock working capital and build a strong team. As we move into fiscal year twenty twenty six, we will continue to focus on these same priorities. While we did unlock most of the low hanging fruit, we still believe we have opportunity to improve our margin profile.

We are also focusing on leveraging our product expertise in key areas of the business such as digital key and power access to expand our customer base and facilitate growth. Our healthy balance sheet will help us weather any weakening market condition and continue to invest in the growth of the business and create value for our shareholders. If you will turn to Slide five, you can see that there were a number of drivers to sales growth in both the quarter and the year. The fourth quarter benefited from our strategic pricing initiatives as well as higher demand. Throughout the year, we have had the advantage of several new program launches as well as being well positioned on better selling platforms.

We are expecting our growth from new vehicle launches to moderate as we are in between significant launch cycles with our existing customers. Due to the long cycle nature of our business, we are actively working today to be included on model year ’29 and ’30 platforms. We are also working to broaden our reach to a larger customer set than we have addressed historically. We are excited about the future for StratTech and expect that over the long term we can continue to drive a growing stronger margin profile business with greater predictability and earnings power. Let me now turn it over to Matt.

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Thanks, Jen, and good morning, everyone. Let’s begin with Slide six. Fourth quarter gross profit increased to $25,400,000 and gross margin expanded by three seventy basis points to 16.7%. Gross profit improvement was the result of a $3,000,000 benefit from a stronger U. S.

Dollar, strategic pricing actions, dollars 1,700,000.0 in tooling gains, higher production volumes and $1,300,000 of restructuring savings. These gains more than offset $1,600,000 of net tariff expenses stemming from recent changes in U. S. Trade policy and higher labor costs in Mexico, albeit on a lower headcount. Based on the currently enacted tariff rates, we estimate that the annual cost increase is between 5,000,000 to $7,000,000 before any mitigation efforts.

However, we have taken steps to change our logistic routes, review our supply chain and implement price increases or tariff recoveries from customers. Our tariff mitigation efforts have continued after our fiscal year end. And as of today, we have line of sight to recover the majority of the cost, but the recovery of tariff costs will lag the associated expenses. For the full fiscal year, gross margin improved by two eighty basis points, reflecting these same drivers: pricing actions, cost optimization and FX, partially offset by elevated labor costs in Mexico and ongoing tariff headwinds. Turning to Slide seven.

Selling, administration administrative and engineering expenses, or SAE, was $16,900,000 Prior year SAE benefited from 4,800,000 of onetime engineering recoveries that makes the year over year comparison difficult. What’s important to take away is that we are holding our SAE steady at about 11% of sales. The absolute spend reflects deliberate investments in our transformation initiatives as well as a 2,200,000 increase related to incentive compensation and bonus expense that were the result of strong financial performance for the year. For the fiscal year, our SAE included $6,700,000 of incremental incentive compensation costs given our financial performance, dollars 1,000,000 in additional executive transition costs and $1,000,000 of business transformation costs. Let’s move to Slide eight, where we summarize our profitability.

Net income attributable to StratTech for the quarter on both a GAAP and an adjusted basis declined primarily due to the prior year’s engineering recovery benefit that I mentioned earlier and the increase in bonus provision this year on improved performance. Adjusted EBITDA was $13,000,000 representing an adjusted EBITDA margin of 8.5%. Our results reflect the team’s commitment to delivering sustainable margin improvement. Let me point out that over the long term, we believe the business model would suggest a low teen EBITDA margin. Now turning to Slide nine, which highlights our cash flow, balance sheet and capital priorities.

Operating cash flow was strong for the quarter at $30,200,000 a 55% improvement over the same period last year. This reflects higher cash earnings, disciplined working capital management, the collection of about $5,000,000 of historical VAT balances in Mexico and the benefit of timing on receivables. During the quarter, we also had an $11,000,000 reduction in inventory levels, partially attributable to reduced in transit inventory. While this benefited working capital, I should point out that we will need to increase some inventory to maintain timely deliveries to our customers. For the year, operating cash flow reached $71,700,000 a record for the company.

We had the onetime opportunities captured during the year that I mentioned earlier, which makes repeating this performance a challenge until we gain more scale. Year to date, capital expenditures totaled $7,200,000 consistent with our focus on new product programs, productivity enhancements and IT infrastructure upgrades. This resulted in free cash flow for the year of $64,500,000 We ended the year with a very healthy cash position of $84,600,000 We also have approximately $52,000,000 available under our revolving credit facilities. Our capital priorities in the near term are to create organic growth through investment in our commercial initiatives, drive operational improvements through modernization and continue new product innovation. We are also being conservative with our cash through these uncertain times, including moderated market conditions.

Over the longer term, once we’ve established a greater amount of predictability in the business, we’ll be in a better position to consider shareholder distributions as well as M and A. If you turn to Slide 10, I’ll outline in general our expectations for fiscal twenty twenty six, given our perspective on our end markets as we know it today. As most of you are aware, we are a very long cycle business, and the work we are doing today, as Jen mentioned, will be apparent in our in model years 2029 and beyond. In the meantime, our sales will generally follow North American OEM production volumes, given that we will lap several key launches that we benefited from in fiscal twenty twenty five. Current third party industry projections estimate that North American automotive production for our fiscal twenty twenty six will be lower by about 5% to 6%, with softness more prevalent in the second half of the fiscal year.

We expect that we will still benefit from our recent pricing actions, especially in the first half of the year. We believe the business over the longer term and with sufficient volume is capable of achieving gross margins in the 18% to 20% range. Until then, we will continue to focus on what we can control with margins, productivity, working capital and cash generation. As I mentioned earlier, we had a very robust year from a cash generation that was boosted by several opportunities. For 2026 and beyond, we expect to continue to generate solid cash from operations, but at a more normalized rate.

In summary, we are pleased with our solid financial progress and the momentum we are building through our strategic execution. With that, operator, we’re ready to open the line for questions.

Conference Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of John Franzreb with Sidoti. Please proceed with your question.

John Franzreb, Analyst, Sidoti: Good morning, everybody, and congratulations on another great quarter.

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Good morning, John. Good morning, John.

John Franzreb, Analyst, Sidoti: I’d like to start with the transformation process, Jen. I’m curious, how far along do you think you are on it? And how long do you think it will take before you’re satisfied with the majority of it being completed?

Jennifer Slater, President and CEO, StratTech Security Corporation: Thanks for the question, John. I would say we’re still in the early innings of the transformation. We did have the opportunity this past fiscal year to address a lot of the low hanging fruit. And now as we focus on further transformation items they’ll be more longer term in nature than what we were able to see in fiscal year twenty five.

John Franzreb, Analyst, Sidoti: Okay. And when I look at that slide on page four, I was wondering, does that mean you’re considering exiting or divesting product lines? Is that a possibility in that process?

Jennifer Slater, President and CEO, StratTech Security Corporation: I think it’s I can give one example. We had some products really our switch product line. And when we look at that market, there’s less and less switches in the vehicle today. It’s already a crowded market. We have other areas of our business like our power access products and our digital key fobs that we feel we have a lot of opportunity.

So we’re still supporting our customers that we have in production, but we’re really refocusing our engineering efforts around those products that we feel have more growth and provide more value to our customers.

John Franzreb, Analyst, Sidoti: I guess the other side of that question on the same slide is the larger customer set. I assume that means outside the automotive market. Can you give some examples of how you any hits yet or what you’d be looking at?

Jennifer Slater, President and CEO, StratTech Security Corporation: Yes, it doesn’t necessarily mean outside of the automotive market, John. If you look at our customer concentration, we’ve been pretty concentrated around some of the larger North American customers. So we feel we have opportunity within automotive. And then the second layer of that is if you think about transportation, heavy vehicle, off road, there’s opportunity for us there too. But our priority really is to continue to start within automotive.

John Franzreb, Analyst, Sidoti: Okay. Thanks for clarifying that for me. And I guess one last question, I’ll get back into queue. On the gross margins, two great quarters of above 16%. I believe Matt said the long term target is in the 18% to 20% range.

What should we think about in fiscal twenty twenty six as kind of a sustainable range for gross margin?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Yes, John, this is Matt. I think we finished the year at 15% gross margin for the fiscal year. We provided a little bit of a view on what we see forward basis on Slide 10, but revenues will be down to flattish, in fiscal twenty twenty six. So we do have the tailwinds in the first half of twenty twenty six around the pricing that we implemented in January, which is about 8,000,000 and some of the restructuring actions. But on the flip side, we also have, incremental costs around, Mexico labor inflation, which we’ll see in the back half of the year.

John Franzreb, Analyst, Sidoti: I guess, Matt, I’m curious. This might be too soon to ask this question, but do you have a sense of what the incremental decremental margins of the company are going to look like after some of these actions are completed?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Yes. We generally see incremental, decremental margins in kind of the 25% to 30% range.

Conference Operator: Our next question comes from the line of Brian Sponheimer with Gabelli. Please proceed with your question.

Brian Sponheimer, Analyst, Gabelli: Hi, good morning everyone and congratulations.

Jennifer Slater, President and CEO, StratTech Security Corporation: Good morning, Brian.

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Hey, Brian.

Brian Sponheimer, Analyst, Gabelli: Couple of questions on the balance sheet and then just a couple on operations and product. So mentioned that you want to invest organically, invest in new products, but it’s $21 a share, dollars 22 a share, and $21.5 a share in cash. To what extent are you willing to hold that substantial amount of cash? Basically, what’s your cushion given the uncertain times? Then what is in excess of what you would consider to be the appropriate cushion for this business and then how you would think about the excess cash on the balance sheet?

Jennifer Slater, President and CEO, StratTech Security Corporation: Yeah, thanks for the question, Brian. And Matt and I were expecting to get this question. Really where we are right now, the good thing is that we’re not worried day to day about liquidity, which is really helping us focus on driving the improvement in the underlying business. There’s a lot of uncertainty still in North America production and as you heard Matt say, we really are following what those productions what North America production schedule is. So when we have this market uncertainty, we feel very comfortable that we’ve got the cash that we have to help us continue to focus on the transformation of the business.

So I think as we think about it, we really look to make sure that we’ve got stability in the underlying business, continuing to focus on the transformation and then get through a little bit more certainty on what’s going to happen in the market before we can get to a point where we’re thinking about what is that cash cushion and how do we want to allocate longer term shareholder value.

Brian Sponheimer, Analyst, Gabelli: Okay, understood. You mentioned investing in new products with digital key fob as an area for growth. I’m curious how you see that digital key fob balancing with potentially the secular decline of more of the physical key fob business that you’ve had, and whether it’s kind of a net neutral for the overall business, and whether there’s any sort of subscription revenue that could come from a digital key fob product.

Jennifer Slater, President and CEO, StratTech Security Corporation: Yeah. We’ve done a lot of third party market studies on what does it look like for a digital key fob longer term. And we still see that there is both a consumer drive and a customer drive to have the physical key fob, which helps us get our confidence around having a digital key fob that’s connecting to the car and the phone for the consumer. As far as subscription services, a lot of the customers are holding that opportunity. So I think it’s premature, Brian, with where we are in our product development to think about where we have further subscription opportunity.

But obviously that’s something we’ll continue to understand as we work with our customers and see what their needs are for themselves and the consumers.

Brian Sponheimer, Analyst, Gabelli: Okay, great. And last one for me. You talked about next year being more of a flattish year, but you were to take $2 in earnings for the quarter in what traditionally hasn’t been you traditionally haven’t been the most seasonal of businesses, but obviously you extrapolate that out to $7.5.08 dollars a share. How much do you think the performance of this $2 a share earnings is repeatable? And how much potentially were some more one time items that you think we shouldn’t be considering if we’re thinking about an earnings number for 2026, 2027?

Jennifer Slater, President and CEO, StratTech Security Corporation: I think I’m just going to frame that a little bit with the market again, Brian, because I think as we talked about, it will be connected to where the North America production market is. And if you were to look at third party projections earlier in this calendar year versus later in the calendar production levels dropped 10% to what they were projecting earlier from a third party standpoint. I’ll let Matt add on from his perspective.

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Yes, it really comes down to volume. I think we’ve done a good job over the past year of the things that we can control. So we’ve been more aggressive on pushing pricing where we have the opportunity and also on the cost takeout, which is what you see kind of in the back half of the year. We’ll balance that with some of the inflationary pressures that we see on a go forward basis as well as kind of the headwinds from volume and some of the investments we still need to make in the business.

Brian Sponheimer, Analyst, Gabelli: Understood. Well, clearly, you’re on an excellent track, we look forward to seeing what’s ahead.

Jennifer Slater, President and CEO, StratTech Security Corporation: Thanks so much, Brian.

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Thank you.

Conference Operator: Our next question comes from the line of Dennis Ganell with Ryderabad Capital. Please proceed with your question.

Dennis Ganell, Analyst, Ryderabad Capital: Yes. Good morning, Jen and Matt, congratulations on a great quarter and a great finish to the year. Just a couple of quick things. To follow-up on the margin question, to get to that low teens EBITDA margin potential, is that just volume growth? Or will that take, how do I want to put it, kind of like the new programs that you’re targeting in the, say, 2930 model year, in terms of achieving that kind of margin improvement?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Yes. So the margin improvement really comes at the gross margin line. And I think it’s there’s kind of three drivers there that will help us get to those longer term margins. So first off, it’s pricing. So we’ve demonstrated the ability to get price.

I think we’ll continue to drive pricing where we command, a premium. The second piece is around volume, which is the new model year launches. And then the third is really around operational improvements. And so there’s a funnel of continuous improvement ideas, around both the four wall costs as well as supply chain. And we’ve added two new leaders to help us there, in identifying kind of the opportunity set.

And then longer term, there’s obviously kind of structural changes we could make around our footprint and, on a go forward basis.

Jennifer Slater, President and CEO, StratTech Security Corporation: Yes. And I think I would just add on to that. Matt touched on the two new leaders. So we’ve recently added a Vice President of Operations. He’s hit the ground running and helping us, as Matt said, look at our four wall costs and making sure that we’re implementing standard operating procedures and understanding what the opportunity is on that side of the business.

We also added supply chain talent for us to look at logistics and our overall supply chain. And as we talked about our low hanging fruit that we addressed last year, we’ve done some cost efficiency opportunities, but we haven’t really looked at that longer term structural changes.

Dennis Ganell, Analyst, Ryderabad Capital: Got it. Great. Thank you. Just a couple other quick things. So obviously, great year in terms of cash flow and benefiting from some onetime items.

So Matt, when you said that you expect free cash flow to return to more normalized levels, again, I feel like you guys have changed the business a lot. So what do you see as normalized levels? Is that kind of 20,000,000 to $30,000,000 free cash flow per year? Or how do we think about that?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Yes. So I’d reference our results in 2025. We delivered $71,000,000 of cash from operations. I’d say about half of that is kind of the normal, and the other half was kind of recovery of some preproduction balances, which we reduced by about 50% during the year, and then also a $25,000,000 reduction in working capital, which I’d categorize that as kind of low hanging fruit. So I’m encouraged by the efforts the team has made around our working capital.

At the beginning of the year, it was roughly 22% of our sales. And at the end of the year here, it’s a little over 16%. We’ve stated kind of our longer term target around primary working capital, that being receivables, inventory and payables is 15%. We’ve made a nice move here, in the fiscal year.

Dennis Ganell, Analyst, Ryderabad Capital: Excellent. Excellent. Just one other little thing. So on the VAT recovery, nice to hear that we collected $5,000,000 during the year. It’s still pretty elevated relative to where it was a few years ago.

I kind of remember something under $10,000,000 Is that I don’t know. Do you expect that to come down? Or is that kind of will it kind of will that receivable kind of stay in that kind of 19,000,000 to $20,000,000 level?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: That’s one of the opportunities we have on a go forward basis, to leverage our balance sheet. We collected, $5,000,000 in the quarter. It’s about 50% of the balance that we were trying to collect from 2023. And then obviously, there’s some for 2024 that we need to collect as well. So, that’s an opportunity for us on a go forward basis.

Dennis Ganell, Analyst, Ryderabad Capital: Got it. Great. Hey, thanks a lot and really nice job and look forward to tracking you guys going forward.

Jennifer Slater, President and CEO, StratTech Security Corporation: Thank you so much.

Conference Operator: Our next question is a follow-up from John Franzreb with Sidoti. Please proceed with your question.

John Franzreb, Analyst, Sidoti: Yes. I was just curious about the comments on inventory. Matt, you alluded to it was a temporary drawdown. How much does that have to go back up to be in equilibrium with your demand profile? Can you kind of frame that for us?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: Yes. So I think our inventory turns at the end of the year were just over seven. And so yes, was a temporary reduction. We’d expect it to go up here, in 2026 just from an on time delivery with our customers. But our inventory at the end of the year was roughly about $65,000,000 I’d probably put it in the $5,000,000 ish range of we’d be more comfortable with another $5,000,000 of inventory.

Obviously, we’re going through the process to understand on a part level basis kind of make to stock, make to order and what’s the right levels of inventory by item.

Jennifer Slater, President and CEO, StratTech Security Corporation: I think I would add on to that, the two leaders we just added to the team are going to also help us make sure we’ve got the right of inventory in the right places to serve our customers.

John Franzreb, Analyst, Sidoti: And since you brought that up, Jen, I’m just curious, how much more personnel do you need to add to your team? Or do you think you have the proper people around you to execute what you’re looking for on a go forward basis?

Jennifer Slater, President and CEO, StratTech Security Corporation: Yes. Think Matt and I are comfortable with the levels of investment that we have on a percent revenue basis. We’ve investment in place. But as a whole, I feel good with what we have, John. Continue to address the organization where we need to add capability, but it doesn’t necessarily relate to always incremental investment.

John Franzreb, Analyst, Sidoti: Okay. And one last question. I’m just curious where you stand on selling the Milwaukee facility, any kind of update there?

Jennifer Slater, President and CEO, StratTech Security Corporation: Yes. So again kind of with our cash position we’re not in a hurry to exit the building. We want to make sure that we’ve got the right opportunity for our operations and our headquarter and getting it at the right price. So we’re still in the process, John, but there’s no new update.

John Franzreb, Analyst, Sidoti: Okay. All right. Thanks and congrats again.

Jennifer Slater, President and CEO, StratTech Security Corporation: Thanks John.

Conference Operator: Our next question comes from the line of Mario Gabelli with Gabelli and Company. Please proceed with your question.

Mario Gabelli, Analyst, Gabelli and Company: Hi. Thank you for taking the question. Just a couple of dots. Currency, how hedged are you? And is your cash strictly in US banks or still some in the Can you give me a better number?

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: It’s over 70% of it in The U. S.

Mario Gabelli, Analyst, Gabelli and Company: Yeah, right. So that means 30% is not. But the currency moves sometimes have impacts on your quarters. And second question is tax bill that was just passed. When you’re doing R and D on your digital, is that expensed or is that what else benefits in terms of any other elements?

John Franzreb, Analyst, Sidoti: So the tax bill

Matthew Polly, Vice President and Chief Financial Officer, StratTech Security Corporation: will benefit us from our cash tax savings going forward. We have about a $10,000,000 deferred tax asset that we’ll realize because we don’t need to defer those R and D expenses from a tax standpoint on an annual basis. That’s probably the biggest benefit is on the R and D side.

Mario Gabelli, Analyst, Gabelli and Company: All right, that’s great. Thank you. And I have a few more, but I’ll get those through Brian and others. But one strategic, just to kind of go back to the question of your FOB business of FOBs. Let’s assume there’s 300,000,000 vehicles on the roads in The United States and another 1,400,000,000 around the world.

How much DNA do you have on the FOBs in The U. S. And who’s your competitor? Just refresh us.

Jennifer Slater, President and CEO, StratTech Security Corporation: Yes. Again, Mario, traditionally we’ve served North America big three customers. So our focus has been there. Our competitors in that space are Continental, Denzo and Hoof.

Mario Gabelli, Analyst, Gabelli and Company: Any discussions of taking over their DNA so to speak of their base given all of the challenges that are taking place in tariff movements?

Jennifer Slater, President and CEO, StratTech Security Corporation: Yeah, we’re continually looking at where we can provide value if it’s new incremental for us or if it’s opportunity with our footprint for our customers.

Mario Gabelli, Analyst, Gabelli and Company: And this is a question from us, know, how do I get recurring revenues on an ongoing basis from subscriptions? This is like direct or direct to consumer. Right now, most of your channels are distributed. I walk into a Ford dealer for my lost car key and I’m paying X dollars. How easy is it to look at, given that channel of distribution, going to a direct to consumer type bypassing the Ford dealerships?

Jennifer Slater, President and CEO, StratTech Security Corporation: We do have some aftermarket business today. 7% of our revenue is through aftermarket and some of that is dealer direct, some of that is through distributors. This is something that we are focusing on but it’s a little we’re still in kind of the early stages of understanding where we would have further opportunity there. Thanks

Mario Gabelli, Analyst, Gabelli and Company: for the update, Jen. And obviously, the only reason you asked that it has an impact on the multiple some of the AI parts of the world would pay for your stock earnings. Look forward to continuing to congratulate you on all your accomplishments and take care.

Jennifer Slater, President and CEO, StratTech Security Corporation: Thank you, Mario.

Conference Operator: Thank you. We have no further phone questions at this time. Ms. Pawlowski, I’d like to turn the floor back to you for web question. Thanks,

Deb Pawlowski, Investor Relations, StratTech Security Corporation: Christine. And I did have one question from one of our investors who congratulated Strathec on a nice quarter and year and wanted to know if we have any thoughts to share at present on possible new product offerings or new revenue opportunities over the next three to five years?

Jennifer Slater, President and CEO, StratTech Security Corporation: Yes. Thanks for the question. We’re pretty comfortable with the products that we have and understanding that we think we have continued opportunity to expand our customer set within our current product portfolio and that’s where our focus is around our power access business and our digital key and addressing the customers we have today but also expanding into new customers.

Deb Pawlowski, Investor Relations, StratTech Security Corporation: Excellent. So everyone, thank you very much for joining us today. This concludes our call. I will point out that we will be at the Midwest IDEAS Conference on the September 26, and also participating in well, actually, take that back. So maybe we can see you at the Ideas Conference.

Thank you very much. Have a great day.

Conference Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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