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IEHC Shareholder/Stockholder Letter Transcript:

2024 Annual Report
www.iehcorp.com


C ERTIFIED ISO 9001:2015
140 58 T H STREET 8 E
B ROOKLYN NY 11220
www.iehcorp.com
December 13, 2024
To Our Shareholders, Employees and Friends,
After a long and tumultuous few years, I am pleased and grateful to once again be writing a President   s
Letter to accompany our Annual Report. The challenges of the last few years     the grounding of the
Boeing 737Max, a once   in   a   century pandemic, supply chain difficulties, stark changes in defense
spending     tested this company   s finances in a way we hadn   t experienced since the end of the Cold
War. Against this backdrop and exacerbating our difficulties, was our inability to reconcile our inventory
accounting as we migrated from one Customer Relationship Management (CRM) system to another,
impeding our ability to file our financial statements for three years. All of these hardships have been
well   documented and shared in prior notices, so I will not rehash them here. Needless to say, adversity
is a great teacher, and from these hard times we learned valuable lessons, both strategic and
operational. More on that below.
In the meantime, worth noting is how far we have come from the nadir of 2021   2023, when our
revenue, net income and earnings per share all sharply declined. Since then, improvements in the
primary markets we serve have driven our recovery. In defense, geopolitical events have powered
increases in spending both in the US and abroad, from which IEH has only begun to benefit. As our
largest market and still the best fit for our Hyperboloid connectors, this bodes extremely well for our
short and long   term growth. Legacy programs that have employed our parts continue to be purchased
and deployed, and more recent programs that have only begun to move out of the development phase
are being brought into service. All the while, our ruggedized, highly reliable interconnects continue to
be specified by engineers who understand the importance of durability and dependability in mission   
critical applications.
Our second   largest market, commercial aerospace, continues to recover from COVID   induced lows, but
haltingly. This is largely due to the ongoing issues of our largest end user, Boeing. Our last fiscal year
witnessed a significant uptick in orders and contracts for the parts we sell to Boeing suppliers in support
of the 737Max and other jets, but their well   documented quality issues has led to FAA   induced
production caps, and following a prolonged labor strike, that recovery to pre   COVID levels has been
delayed. Boeing   s order book for this jet is still incredibly strong, and they will get these issues sorted
out (they   re too big to fail), so long term we will realize pre   COVID levels of revenue for this platform,
and beyond. We   ll just have to wait a bit longer for that to materialize. In the meantime, demand for
parts we supply to Boeing   s main rival Airbus continue to increase, buttressing our revenue growth.

C ERTIFIED ISO 9001:2015
140 58 T H STREET 8 E
B ROOKLYN NY 11220
www.iehcorp.com
Which brings me to the hard strategic lesson we learned over the last few years, one that I have
discussed in prior communications. When it comes to markets served, just as you don   t want all of your
eggs in one basket, you don   t want all of them in two baskets either. For much of the last 40+ years, IEH
has essentially been a    two   basket    company in that regard. Our genesis as a printed circuit board (PCB)
connector manufacturer employing the Hyperboloid contact was a military   specification qualification,
or    mil   spec   , which allowed us to sell our high   density Hyperboloid PCB connectors under military part
numbers to defense contractors. From there we branched off into commercial aerospace, a natural
progression as many of our customers serve both markets, and the demands of both are similarly
rigorous. Indeed, to this day, we have the exact same parts, sold to the same customers, employed in
both markets. For the most part that has served us well for the last few decades (with the exception of
the early 90   s, but that   s a story for another time). However, when the 737Max grounding and COVID
brought the commercial aerospace supply chain to a grinding halt, followed by significant changes in
defense spending due to the conclusion of the    war on terror    and pivot to a new    great power   
conflict, significantly affecting military programs we supported, the vulnerability of our two   basket
strategy was laid bare. The lesson is we need to accelerate our efforts to diversify our customer base
beyond these two legacy markets.
The first target market in support of these diversification efforts is medical. IEH has won business and
design   ins with a handful of medical device manufacturers, but we have not pursued this market as
aggressively as we can. Medical devices are a natural fit for our products, because like military and
commercial aerospace, it is one of the few markets where the reliability and durability of the product is
paramount and price, while not inconsequential, is a secondary concern.
Space, and the commercialization of space launches, satellites and exploration, is another natural fit for
IEH. These companies often look to commercial aerospace and defense supply chains for component
manufacturers, as the strict material and performance requirements overlap with requirements for
space applications. With an aerospace pedigree, and having established a foothold in this industry with
some of the larger, well   known names, we continue to enjoy higher revenue and more design
opportunities. As this nascent market continues to grow, we will grow alongside it.
Industrial applications offer promise as well, although perhaps to a lesser degree. Some of our high   
power products, whether it   s hybrid connectors, power contacts or custom designs, are being
considered for high   profile, high   volume applications, and we anticipate noteworthy penetration in this
market as well.

C ERTIFIED ISO 9001:2015
140 58 T H STREET 8 E
B ROOKLYN NY 11220
www.iehcorp.com
I know that I have discussed in prior letters the desire to diversify the markets we serve, and the
potential they represent, but due to the events of the last few years, that    desire    is now more of a
   requirement.    It is imperative that we add urgency to our efforts to penetrate other markets, so they
comprise a larger share of our overall revenue, protecting our top and bottom lines from any additional
future downturns in our legacy markets. To that end, we have significantly increased our marketing
budget and hired a new firm, are refocusing our sales force, making Search Engine Optimization (SEO)
and visual changes to our website, and are undergoing new branding efforts. This will be coupled by
additional R&D efforts into potential new products specifically geared towards the aforementioned
industries, and possibly M&A activity, to diversify not just our markets, but our product mix as well.
All of these efforts are longer term by nature. In the meantime, we have other lessons learned from
these past few years, and these are operational rather than strategic. Simply put, we have to better
manage our shop. In prior years, our sales   driven growth obscured our operational deficiencies,
particularly in regards to cost management. We were not nearly as rigorous as we could have been in
controlling inventory, employee headcount, overtime, material purchases, and service fees. This was all
manageable when we were experiencing double   digit year   over   year growth, but as our business
suffered a sharp downturn starting in 2021, these deficiencies surfaced, amplifying our margin
contraction. I credit our new Chief Financial Officer, Subrata Purkayastha, with bringing a much more
cost   conscious approach to all of these inputs, and holding both me and our senior staff to account.
Indeed, the last 1   2 years at IEH has witnessed a cultural sea   change in cost   consciousness, and we are a
much better company for it. Selling, General and Administrative (SG&A) costs, which ballooned during
COVID, have stabilized, our labor force is considerably leaner, and we continue to closely watch raw
material inventory, to ensure it tracks sales but remains as low as possible. Margins remain lower than
historical levels due to inflationary pressures, but more aggressive price increases in recent months will
serve to offset these higher costs.
We have also been very well   served by recent additions to our board of directors. They bring
backgrounds in manufacturing, operations and the perspective of the small   cap investor to the table,
and their extensive networks have proved similarly valuable. Moving forward, I anticipate continued
contributions from our current board, and future additions as well.
While all of these initiatives and pivots will support our long   term growth, we continue to enjoy the
recovery trajectory of the last few quarters. As noted, our top and bottom lines have significantly
improved in the last 12   18 months. Our past fiscal year witnessed revenue increases in each successive
quarter, our first and second quarter revenues this fiscal year were over 50% higher than the same
quarters of fiscal year 2024, and our third quarter results will likely show similar improvements. Our
margins have also increased quarter over quarter, our cash has been growing, and our earnings per



 12/5/2024 Letter Continued (Full PDF)