Key Tronic Corporation Stock price
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $23.24m | Revenue (TTM) = $386.67m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $128.87m | Revenue (TTM) = $386.67m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net Margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Key Tronic Corporation Stock Analysis
Analyst Opinions
7 Analysts have issued a Key Tronic Corporation forecast:
Analyst Opinions
7 Analysts have issued a Key Tronic Corporation forecast:
Key Tronic Corporation Events
Past Events
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AUG
27
Q4 2026 Earnings Call
about one month ago
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MAY
5
Q3 2026 Earnings Call
5 months ago
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FEB
3
Q2 2026 Earnings Call
8 months ago
|
|
NOV
4
Q1 2026 Earnings Call
11 months ago
|
StocksGuide Free
Key Tronic Corporation — Q4 2026 Earnings Call
1. Management Discussion
You're holding for today's conference. We are still many additional participants and the call should begin shortly. Thank you for your patience and please continue to stand by. Please stand by. Good day and welcome to the Keytronic FY2026 Q4 Investor Call. Today's conference is being recorded. After the presentation, we will begin the question and answer period. At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead.
Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Keytronic. I'd like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington headquarters is Brett Larson, 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 and quarterly 10-Qs.
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. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and a link can be found on our Investor Relations website. In addition, the slides together with a recorded version of this call will be available in the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures are provided in today's press release, which is posted in the investor relations section of our website.
For the fourth quarter of fiscal year 2026, we reported total revenue of $102 million, compared to $89.6 million in the prior quarter and $110.5 million in the same period of fiscal 2025. THE 14% SEQUENTIAL INCREASE IN REVENUE IN THE FOURTH QUARTER OF FISCAL YEAR 2026 WAS DRIVEN BY STRONG DEMAND FROM BOTH LEGACY AND NEW PROGRAMS. NOTABLY, REVENUE FROM OUR VIETNAM-BASED PRODUCTION MORE THAN DOUBLED SEQUENTIALLY, DRIVEN BY MEDALS DEVICE AND consumer products programs. While customer demand rebounded significantly in the fourth quarter of fiscal year 2026, our production was constrained by tightening credit availability and liquidity pressures across the global supply chain. These constraints have affected the entire electronics manufacturing services industry as suppliers, customers, and manufacturers navigate ongoing macroeconomic uncertainty. While not immune to these challenges, our operational discipline, strength in manufacturing footprint, and longstanding customer relationships have positioned us ahead of our competitors. As a result, we continue to win new business and gain market share in several target markets, exhibited by over $60 million in new program awards in the fourth quarter of fiscal 2026.
Supply chain financing constraints forced us to delay approximately 10 million of shipments during the quarter, but underlying customer demand remains strong. are actively working with our customers and suppliers while evaluating additional sources of capital to propel growth and alleviate these constraints in future periods. For the full fiscal 2026, our total revenue was $386.7 million compared to $467.9 million in fiscal 2025. largely reflecting during the first three quarters of the year, reduced demand from certain legacy and end-of-life programs, as well as uncertain global economic conditions. Moving into fiscal 2027, we are experiencing increased activity from both legacy customers and new program wins, along with a stronger new sales funnel activity, leading us to expect revenue growth in coming quarters of fiscal 2027. Gross margin was 7.8% in the fourth quarter of fiscal 2026, up from 6.2% in the same period of fiscal 2025. Adjusted gross margin was 8.3% for the fourth quarter of fiscal year 2026, up from 6.2% in the same period of fiscal year 2025. Our gross margin improvements in the fourth quarter of fiscal 2026, despite the aforementioned challenges, demonstrated the operating efficiencies gained from our cost-cutting initiatives over the past two years. These margin gains highlight our resilience, commitment, and success. success in improving operating efficiency.
Operating margin was negative 3.6% in the fourth quarter of fiscal 2026, down from negative 2.1% in the same period of fiscal 2025. The operating margin for the fourth quarter of fiscal 2026 was adversely impacted by an $8.4 million write-off of long-term receivables for distressed customers, along with the related legal costs incurred in pursuing recovery, partially offset by benefit from a $5.3 $3 million insurance recovery related to a roof replacement in our Mississippi-based facility. In line with our long-term strategic plan, we continue to prepare for anticipated long-term growth by executing our nearshoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and capabilities. During the quarter, we completed our wind down of our manufacturing operations in China, shifting more production to our expanding facilities in the US and Vietnam. The China wind down is expected to save approximately $4 million in fiscal 2027. As top line growth returns, we anticipate margins to be strengthened by the improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new programs opportunities.
As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. Our net loss was $34.3 million, or $3.16 per share, for the fourth quarter of fiscal 2026, compared to a net loss of $3.9 million, or $0.36 per share, for the same period of fiscal 2025. During the fourth quarter of fiscal 2026, we recorded a $28.4 million non-cash charge to establish a valuation allowance against certain deferred tax assets. The accounting adjustment was driven primarily by the cumulative loss of U.S. taxable income over the last four years. While management remains confident in our expected return to profitability and the future expected utilization of certain tax benefits, the valuation allowance was based on the relative weighting of historical results. The adjustment has no impact on cash flows, debt covenant compliance, or our underlying operating performance. Additionally, as discussed earlier, approximately $8.4 million of distressed customer-related long-term receivables were written off. in connection with customers that are no longer contributing program revenues.
The reduction in revenue during fiscal 2026 also had a significant impact on our bottom line. For the full year, 2026, our net loss was $47.8 million or $4.41 per share compared to a net loss of $8.3 million or $0.77 per share for fiscal 2025. Our adjusted net loss for 2026 was $2.9 million or $0.26 per diluted share, compared to an adjusted net loss of $3.8 million or $0.35 per diluted share for the same period of fiscal 2025. For the full fiscal year, 2026, our adjusted net loss was $3.7 million, or $0.34 per diluted share, compared to adjusted net loss of $5 million, or $0.47 per diluted share, for fiscal 2025. Our focus on operating discipline continues to support a strong balance sheet. Our inventory at the end of fiscal 2026 is down 1.5 million, or 2% from a year ago. Our current ratio was 2.1 to 1 compared to 2.6 to 1 a year ago.
At the same time, our accounts receivable DSOs were at 75 days compared to 86 days a year ago, reflecting stronger collection on receivables. Capital expenditures in the fourth quarter of fiscal 2026 were $2.7 million, and total capital expenditures for the full year were approximately $6.4 million. reflecting our investments in new innovative production equipment and automation. While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities, utilize leasing facilities, and make efficiency improvements to prepare for growth and added capacity. As we move into fiscal 2027, we expect global economic uncertainty and volatile trade policies. Nevertheless, we are increasingly encouraged by the demand trends we're seeing as we enter the first quarter. We believe our customers are adjusting to the volatility as the new normal. Activity with several long-standing customers is improving, new programs are ramping, and our expanded U.S. and Vietnam capacity is generating increased customer interest.
Our improved operating efficiency makes us more competitive, resulting in a stronger pipeline of potential new business, and we remain focused on further improving our profitability. Our production backlog has grown, and we believe that we are increasingly well-positioned to win new programs and profitably expand our business. Due to uncertainty of timing of new product ramps in light of continued macroeconomic uncertainty, we are not providing forward-looking guidance for the first quarter of fiscal 2027.
me Brett thanks Tony over the past year we have taken decisive actions to strengthen keytronics competitive position and create a more efficient global manufacturing footprint we successfully exited manufacturing operations in China right-sized our Mexico facility and expanded production capacity in both the United States and Vietnam These initiatives have improved our cost structure, enhanced supply chain flexibility, and enabled us to provide customers with attractive manufacturing options. ongoing macroeconomic and geopolitical uncertainties. Our improved operating efficiency has made us more competitive and we expect our revenue to gradually begin to rebound and see a return to profitability in fiscal year 2027. As part of the long-term strategy to improve competitiveness and better align our manufacturing footprint with evolving customer needs, we completed the wind-down of our China manufacturing operations and successfully transferred production programs to Vietnam. This action reflects both the increasing cost pressure associated with China-based manufacturing and the ongoing geopolitical and tariff uncertainties affecting global supply chains. We expect these initiatives to generate approximately $4 million in annualized savings during fiscal 2027. Importantly, we will maintain a focused sourcing organization still within China to support local procurement activities and ensure access to critical components. We've also undertaken a significant transformation of our Mexico operations.
Over the past 27 months, we have reduced head count by approximately 40%. streamlined production processes, increased automation, and improved operating efficiencies. These actions have enhanced our cost competitiveness while preserving the strategic advantages of our Juarez campus, which continues to offer customers an attractive tariff mitigation solution under the current USMCA framework. The benefit of these actions are now becoming evident in the marketplace. As our cost structure has improved, we have seen a meaningful increase in customer engagement, quoting activity, and new business opportunities. In particular, our Mexico operations have recently experienced a notable increase in customer visit and qualification audits. reflecting growing confidence in our capabilities and competitiveness. At a time when many EMS providers continue to face liquidity and capital constraints, our strength in financial position and more competitive manufacturing footprint are enabling us to capture market share. compete for a broader range of programs. We are encouraged by the progress we have made in expanding our manufacturing capabilities in both the United States and Vietnam.
These investments are a direct response to evolving customer requirements and position Keytronic to capitalize on long-term industry trends towards supply chain diversification, risk mitigation and operational resilience. As many of you, as many of you will recall, we've opened our new technology and research and development center in Arkansas during the first quarter of fiscal 2026. This investment strengthens our ability to provide customers with enhanced engineering support, faster collaboration, increased manufacturing flexibility through a US-based solution. Customer interest in our Arkansas operations continue to grow, and we expect the facility to deliver double-digit revenue growth during fiscal 2027 as new programs ramp and existing customers expand their engagement with us. In Vietnam, we completed a significant capacity expansion during fiscal 2026, doubling our manufacturing footprint to support anticipated growth in medical device and other high-value programs. Vietnam has emerged as an increasingly important part of our global manufacturing strategy. providing customers with a highly competitive combination of quality costs and a regional supply chain. As Tony mentioned, revenues from our Vietnam operations have more than doubled sequentially during the fourth quarter. primarily by strong demand and medical device and consumer focused programs.
We believe Vietnam will be a major contributor to our future growth and an increasingly important differentiator in the marketplace. During the fourth quarter of fiscal 2026, approximately half of our manufacturing activity was generated from our U.S. and Vietnam facilities. both of which have substantial available capacity to support future customer wins. These investments have created a more balanced and resilient manufacturing network that provides customers with attractive alternatives as they assess and then reassess global sourcing strategies. In an environment where geopolitical tension, tariff uncertainty, and supply chain risk continue to influence decision makers, we believe Keytronic is exceptionally well positioned to benefit from customers seeking to near shore production, diversify manufacturing locations, and reduce overall supply chain risk. Most importantly, these investments are already translating into increased customer engagement, expanding quoting activity, and new program opportunities. Combined with the significant cost reduction and efficiency initiatives implemented across our global operations, we believe our enhanced manufacturing footprint is enabling us to gain market share and compete more effectively for larger and more strategic programs. We remain confident that these actions have established a strong foundation for sustainable growth and improved profitability in the years ahead.
During fiscal 2026, we won new programs in medical devices, industrial equipment, automotive, pest control, construction, data centers, and power management. Our improved operating efficiency has also made us more competitive, increasing our sales pipeline, particularly in such steady growth sectors. as utilities and data center equipment. During the fourth quarter of fiscal 2026 alone, We secured more than $60 million in new program awards. These wins reflect increasing customer recognition of Keytronics' ability to deliver high-quality manufacturing solutions with a globally competitive cost structure. In an environment when liquidity and capital constraints are affecting much of the EMS industry, Customers are increasingly seeking financially stable, operationally disciplined partners capable of supporting long-term growth. Many of these new programs feature innovative partnership models that provide a more balanced approach to ramp up capital requirements. allowing customers to participate in the upfront investment while enabling Keytronic to accelerate growth and improve returns on invested capital. Our strong pipeline of potential new business also underscores the continued trend towards onshoring and a dual sourcing of contract manufacturing.
As we look beyond the significant transformative initiatives and the operational improvements implemented over the past few years, we believe Keytronic is emerging as a stronger, more competitive company with several distinct advantages that position us for well-sustained growth. The combination of our optimized global manufacturing footprint, robust engineering capabilities, and vertically integrated manufacturing expertise continues to resonate with both existing and prospective customers and is increasingly translating into new business opportunities. First, we have significantly enhanced the flexibility, competitiveness, and resilience of our global manufacturing network. Through these actions, we have taken to optimize operations in China and Mexico while expanding capacity in the U.S. and Vietnam. We now offer customers a broader range of manufacturing solutions aligned with evolving supply chain strategies. As geopolitical tensions, trade policy uncertainty, and tariff considerations continue to influence sourcing decisions, we believe that OEMs will increase Increasingly seek manufacturing partners capable of providing geographic flexibility, supply chain resilience, and cost-effective production alternatives. Our investments over the past several years have positioned us exceptionally well to capitalize on these trends.
Second, our engineering and design services remain one of the most powerful differentiators in our business model. Many of the programs we win begin long before production, with customers engaging our engineering teams to help develop, optimize, and prepare products for manufacturing. Once a person, our deep understanding of the product, manufacturing processes, and customer requirements creates a substantial value and fosters long-term customer relationships. As a result, these programs tend to be highly durable and generate opportunities for future expansion. Given the increasing complexity of many of these products we support, we continue to invest in expanding the capabilities of our engineering organization and expect our design service business to remain an important driver of future growth. Third, we continue to differentiate ourselves through the broad range of vertically integrated manufacturing capabilities. decades of process expertise. These capabilities span advanced plastic technologies including injection, blow, gas assist, and multi-shot molding. as well as printed circuit board assembly, metal fabrication, painting and coating, automated high volume assembly, and the design, construction, and operation sophisticated test systems.
By providing customers with a highly integrated manufacturing solution under one roof, we help reduce supply chain complexity, lower total landed costs, improve quality, and accelerate the time to market. We believe this combination of technical expertise and manufacturing breadth remains difficult to replicate and will continue to distinguish Keytronic from many of our customers. Most importantly, these competitive advantages are becoming increasingly meaningful in today's EMS market. While many providers continue to face liquidity constraints, limited capital availability, and operational challenges, Keytronic has strengthened its competitive position through disciplined execution, strategic investment, and operational transformation. As customer demand continues to shift towards partners that can provide engineering expertise, managing manufacturing flexibility and global supply chain solutions, we believe we are well positioned to capture additional market share, secure new strategic programs, and drive profitable long-term growth for our shareholders. While the global market uncertainties have created some delays to new product launches for us, our suppliers, and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America. as well as to our expanding Vietnam facilities. We're expecting revenue growth in the coming quarters from both legacy customers and new programs launching in the US, Mexico and Vietnam.
Significant improvements in our operating efficiencies are creating a stronger pipeline of potential new business. Over the long term, we remain encouraged by our cost reductions made over the past two years to become more market competitive. increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations from our design engineering. All of these initiatives have increased our potential for profitable growth. In closing, I want to emphasize that this was a challenging year for our industry and for Keytronic. In these circumstances, the execution of our strategy was only made possible by our investments in plants and equipment. even more so because of the skills, local knowledge, and talents of our people. I want to thank our exceptional employees for their dedication and hard work during this transformational year. This concludes the formal portion of our presentation and Tony and I will now be pleased to answer your questions.
Thank you. If you would like to signal with questions, please press star 1 on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. And the first question comes from Matt Dean with Titan Capital Management.
2. Question Answer
Great, thank you. I wanted to start out covering the 60 million on your business wins that you had in the fourth quarter here. It looks like it was among three different customers. Was curious, what is the size of the largest wind as well as the smallest wind or each of the three winds? And then what additional details can you tell us around those winds?.
Yes, I'd be happy to do that, Matt. The first one, the data center program, is with an existing customer. That's a substantial win for a Mexico location. That'll be 40 to $45 million per year increase in production in our Mexico facility. The next is a construction support product that came out of our design and engineering group now has reached commercialization and going into production. That'll be that'll actually start out of our Spokane office and migrate to our technology center in Arkansas in fiscal 2027. That's about a probably a five to 10. million opportunity.
Last is the industrial power management market. That too is a new customer for us. And that is scheduled to be built in Arkansas as well. And that's going to be about a $15 million program when fully ramped.
Great. I should have also asked timing of these wins. When do you expect each of the three to contribute real revenues? If you could cover that too, that'd be helpful, Chris.
substantial revenue in our in our second quarter of fiscal 2027. I think the construction will be a little bit of a slower burn. Probably have a couple of million dollars in the first six months of fiscal year 2027. And then the power management, I would say. will be fully ramped by our third, possibly the start of our fourth quarter of fiscal 2027.
Okay, that's great. I appreciate that additional help there. You also referenced a strong pipeline of opportunities. Unlike Mexico, you're seeing a lot of activities there. I was just hoping you could add a little bit more color there and sort of reference how the pipeline is today compared to how it was maybe a year ago. ago just try to i guess give a give us a better sense of how much of a step up you are seeing.
Yes, we mentioned repeatedly within the script is that we're really seeing. increasing sales opportunities. And it's a mix of new programs, like for example, this construction equipment that is, that it's a new market entrance, We're actually seeing a lot as well of changes within the EMS to where we're gaining some market share on some of our competition. We're seeing that that sales funnel, I would say is improved drastically from where we were a year ago. We set out to really become far more market competitive in our costing structure. and really have seen success from that. And so far, it's resulting in far more customer visits, qualifications, and now...
a ramp in actual program wins. OK, I appreciate that. One other thing I did want to cover before I turn the floor over, you referenced both in your script as well as in the press release that you have an innovative partnership model that you're starting to introduce and sounds like a number of customers are signing on to. I was hoping to get a little bit more color on that. It sounds like there's some capital contributions.
for customers and or just yes what what exactly can you add some more details around that what you're doing and and why it's it's gaining the traction it is you bet matt i think you know you look at you look at where we're at is i think there is a tightening in the capital structure we are seeing some tightening within the supply chain Some of our commercial terms have tightened. I would also say that some of the advance rates that we're seeing even from our lending partners have also tightened a bit. With that, coupled with wanting to grow the business, We really are liquidity constrained. So we are actually working with our customers many of who have ample capital Then it's just a negotiation with them of whether, you know, the discount that we can provide is accretive to their cost of capital. And can we collectively come to a better arrangement whereby they may front end some working capital, maybe they help provide some of the tooling of production equipment on the front end of a ramp, which is often, particularly for contract manufacturing, very front end loaded. We mentioned about, what was it, Tony, about 18 months ago, this new consigned model down in Mississippi. That has fared well. We are looking at quoting some potential other consigned opportunities, but also working with some of our longstanding customers of, hey, if we collectively share some of the working capital constraints and work through those together, is there a better solution that we can work collectively than forcing us as the contract manufacturer to basically front-end load that capital until that program can run?.
Okay. I appreciate that help and that insight. Yes, no, all the best, guys. Appreciate the help.
Thanks, Matt. And our next question will come from Sheldon Grodzki with Grodzki Associates.
Good afternoon, gentlemen. I for one am a bit disappointed here. paragraph you guys mentioned that you're actively working with your customers while evaluating additional sources of capital to support growth. I don't know if you've already touched upon that in your last answer, but what additional sources of capital are you looking at?.
Yes, we did to some degree the former question. We asked on how we're working with our customers to help provide some of that capital. You know, is capital really cash? You know, what is, what's some addition of liquidity that we can put into the company as we expect double-digit growth into fiscal 2027? You know, we're actively, as mentioned, working with our customers to help share that capital load. We're also working with various financing activities. You know, is there some additional unencumbered assets that we can use as collateral? for debt structure and those types of things. As we look at the future, that really is a constraint of ours is being able to procure parts on time in a increasingly difficult situation.
supply chain. What do you have that is unencumbered at this point?.
All of our foreign assets. All the foreign assets? So anything domestically? Most of our domestic would be tied up, I think, in our current lending group. Tony, is there anything in the U.S.? I'm unclear. Yes, there's not much in the U.S., but there is ample opportunity to receive some type of benefit from those foreign assets. So we're looking at opportunities there.
there as well. Thank you. And as a reminder, if you would like to signal with questions, please press star 1. Again, star 1 if you would like to signal with questions. The next question comes from George Melis with MKH Management.
Thank you. Hi, Brett. Hi, Tony. Hey, George. Just to say thank you. Tony, I just want to make sure I get my adjusted numbers correct. I see your adjusted EBIT if I adjust it for the AR write-off, the insurance recovery and the restructuring was roughly flat, break even. Is that roughly right?.
Our adjusted, yes, it's pretty close. Our adjusted figures, not just EBITDA, we're looking at our adjusted gross margin and our adjusted net income was about a $2.7 million loss. Okay, okay. So I think adding in some of those EBITDA figures, you could get there pretty quickly.
Okay, I'll do that. Brett, what does that mean, the supply chain financing constraint that you encountered? I don't, can you provide a little bit of color on that?.
Yes, no, that's a good question, George. You know, what we're seeing in the market is that suppliers are cracking down on the number of days that they'll extend to us in payables. Um, you know, I, we're, we're, we're seeing that, um, There's far less flexibility within the market. And on an incredibly capital-intensive market, industry, any tweak of that dial has considerable pressure on us to make sure that we can look out and get the parts that we need on time in order to fulfill increased customer demand. You know, if you look at our DPOs, they definitely have dropped year over year. Some of our custom parts that we get in Asia, we used to get terms on. now being forced to pay in advance to even some of our domestic supply where there's some capital constraint. And they're requiring that we adhere to their credit terms.
And oftentimes, even those credit terms.
are reducing from what they were historically. OK, great. I understand now. And that $10 million in delayed shipment, is that products that you have almost finished and you're missing some parts and you can't ship them?.
Is that sort of capture that? It is, it is. You know, it's not lost revenue. It shifts into a future quarter, but I would also say in this quarter, we have more customer demand than what we're going going to be able to execute to based on based on liquidity constraints. Hence now we are looking to be a little more creative and possibly capital sharing with a few of our strategic customers in order to continue on the path that we expect of incremental sales growth quarter over quarter.
Okay. So they may be talking about that, talking about your Mississippi customer who, as you said several times and again on this call, is on a different model, more consignment model. I think there were some delays in production or in ramp. Has some of those delays been or constraints been lifted? And how is that going? It's hard for you to talk about one particular customer, but maybe give us a bit of a sense.
Yes, for that particular Mississippi customer, I would say that it's now, it's no longer supply chain delays, it's no longer ramp. It's now the actual market demand is down a bit for that particular customer. We'll see what happens in coming quarters, but. You know it's it's it. recent months, the demand for that product we build on their behalf just out in the market has seen some softening. Okay. But through that, George, I think we have learned that we can be successful as well on a consigned type program. It was new for us. It was a bit of a test in the water for something that large. And actually became a a a great program for our facility down in Mississippi that had the excess capacity.
So we will likely pursue other opportunities as they come. You know, it's not a solution for all potential customers. They need to have a robust supply chain capability within their own organization. and that doesn't exist for every customer, but there's some opportunity there.
Okay, great. With the restructuring and the changes that you've done in the last year or two, are you going after, are you signing customers? QUALITATEDLY DIFFERENT. I MEAN, IS THE WORK THAT YOU HAVE HISTORICALLY BEEN VERY, VERY STRONG IN BEING ABLE TO DESIGN AND THEN PRODUCE, ADDING A LOT OF VALUE AT THE END OF the get-go on the design stuff are you still very much focused on those kind of customers or are you able to have a broader range of targets right now.
George, I would say more broader range. You know, I think our design and engineering services group still is a differentiator for us. And we'll continue to do that. And a couple of our largest customers were developed from that type of a relationship. We're not just focused on that. There's other existing product strategies streams that we're seeing that we're actually taking from competitors. We're growing in some market share of existing programs.
You know, and with a more robust sales funnel, you also turn the filter a little tighter of what actually ends up being you know you know, being what we accept. So I also think that qualitatively, we can be a little more, you know, cautious on making sure that that's a good customer for us on the longer term.
Okay. And the data center customer that you referenced in relationship to the first question, was that a win from another EMS provider?.
I would say that's both that they're seeing increased demand, but I also know that they have multiple sources and that we're seeing an increase in the market share of even that business we have with them.
Okay. And then just maybe one final question for me. You talk about a $4 million saving as you exit China manufacturing. Is that versus a fiscal 26 number, or is that versus a run rate for the June quarter?.
I would say that's representative of the run rate for the first three quarters of fiscal 26. The ramp down of China started The, you know, the latter part of Q3 first part of Q4, it took us a quarter to close.
Okay. And so were there any China related costs in China manufacturing related costs.
in the June quarter other than restructuring? Very little, Tony. Yes, there was a little bit, George. And that is provided in that non-GAAP table. We excluded those. And we expect, again, probably a few more just as we finalize everything in China. You know, getting out of China can be challenging. There's a lot of red tape to get out of there with regards to getting the materials gone, the equipment, putting the facilities in, back in order and and we saw the little bit of work to do there so there might be a few additional costs in future quarter and I would George I would say total revenue for.
China production in Q4 was minimal. It might have been a million or two of just wrapping up the final program.
Yes, that's correct. We were actually done manufacturing in China in period 11.
Yes. In when? When did you say that, Tony? That was May, May of this year. May, okay.
Okay, great. Okay, thanks very much for taking my questions.
And the next question comes from Ben Castle. actually that car no longer has a question it looks like and.
We do not have any further questions. I'll go ahead and hand the call back over to you. Great. Thank you again for participating in today's conference call.
Tony and I look forward to speaking to you again next quarter. Thank you. Thank you. And that does conclude the question and answer session. That does conclude today's conference. We do thank you for your participation and have an excellent day.
This live transcript is auto-generated without human intervention or review.
[Call has ended.]
Key Tronic Corporation — Q3 2026 Earnings Call
1. Management Discussion
Good day, and welcome to the Key Tronic's Fiscal Year 2026 Third Quarter Investor Call. Today's conference is being recorded. After the presentation, we will begin the question-and-answer period. At this time, I would like to turn the call over to Tony Voorhees. Please go ahead.
Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington headquarters is Brett Larsen, 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 of 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 and quarterly 10-Qs. 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. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our Investor Relations website. In addition, the slides, together with the recorded version of this call, will be available on the Investor Relations section of our website.
We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the Investor Relations section of our website.
For the third quarter of fiscal year 2026, we reported total revenue of $89.6 million, compared to $112.0 million in the same period of fiscal year 2025. Year-over-year revenue for the third quarter of fiscal year 2026 continued to be adversely impacted by reduced demand from a legacy customer and an end-of-life program. Additionally, we also faced temporary challenges during the quarter related to winter storm Fern in the Southern U.S., customer design delays on a new program with a legacy customer, and delays in receiving allocated components on a separate new program. For the first 9 months of fiscal year 2026, our total revenue was $284.6 million, compared to $357.4 million in the same period of fiscal year 2025.
Despite these short-term impacts, we are already seeing activity improve, with demand returning from several legacy customers and multiple new programs continue to launch and ramp, driving expected revenue growth for the fourth quarter. Importantly, even with lower revenue in the third quarter of fiscal year 2026, we delivered an improvement in gross margin compared to the prior year period. This demonstrates the operating efficiencies gained from our cost-cutting initiatives during the past 2 years. Gross margin was 8.0% and operating margin was negative 0.3% in the third quarter of fiscal year 2026, up from 7.7% and negative 0.4%, respectively, in the same period of fiscal year 2025.
Excluding the charges related to the China closure, which we will discuss in a moment, the adjusted gross margin was 8.5% for the third quarter of fiscal year 2026, up from 8.4% in the same period of fiscal year 2025. These results demonstrate that our business today is structurally more efficient and better positioned to generate margin as volume returns. In line with our long-term strategic plan, we continue to prepare for anticipated long-term growth by executing our nearshoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and capabilities.
During the quarter, we continued to wind down manufacturing operations in China, shifting more production to our expanding facilities in the U.S. and Vietnam. The China winddown is expected to be completed by the end of the current fiscal year and anticipated to save approximately $1.2 million per quarter following completion. As top line growth returns, we anticipate margins to be strengthened by the improvements in our operating efficiencies and the positive impact of our strategic cost-savings initiatives. We also believe the recent cost-savings initiatives have made us more competitive when quoting new program opportunities. As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. The reduction in revenue had a significant impact on our bottom line.
The net loss was $2.6 million, or $0.24 per share, for the third quarter of fiscal year 2026, compared to a net loss of $0.6 million, or $0.06 per share, for the same period of fiscal year 2025. For the first 9 months of fiscal year 2026, the net loss was $13.5 million, or $1.24 per share, compared to net loss of $4.4 million, or $0.41 per share, for the same period of fiscal year 2025. Our adjusted net loss was $2.8 million, or $0.26 per share, for the third quarter of fiscal year 2026, compared to adjusted net income of $0.1 million, or $0.01 per share, for the same period of fiscal year 2025. For the first 9 months of fiscal year 2026, our adjusted net loss was $3.9 million, or $0.36 per share, compared to adjusted net loss of $1.2 million, or $0.11 per share, for the same period of fiscal year 2025.
Our focus on operating discipline continues to support a strong balance sheet. Our inventory for the third quarter of fiscal 2026 is down $13.5 million, or 14.0% from a year ago. Our current ratio was 2.1:1 compared to 2.7:1 from a year ago. At the same time, accounts receivable DSOs were at 85 days, compared to 92 days a year ago, reflecting stronger collection on receivables. Year-to-date cash flow provided by operations for the first 9 months of fiscal year 2026 was approximately $10.0 million, as compared to $10.1 million for the same period of fiscal year 2025. Our continuing ability to generate cash from operations has allowed us to reduce debt year-over-year by approximately $14.3 million and helps position us well as demand accelerates and new programs ramp. Capital expenditures in the third quarter were minimal, while year-to-date total capital expenditures through the third quarter were approximately $3.7 million. We expect CapEx for the full year to be around $5 million to $8 million, largely spent on new innovative production equipment and automation.
While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities, utilize leasing facilities, and make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies. Nevertheless, we are increasingly encouraged by the demand trends we're seeing as we enter the fourth quarter. Activity with several longstanding customers is improving, new programs are ramping, and our expanded U.S. and Vietnam capacity is generating increased customer interest. Our improved operating efficiency makes us more competitive, resulting in a stronger pipeline of potential new business, and we remain focused on further improving our profitability.
Our production backlog has grown, and we believe that we are increasingly well positioned to win new programs and profitably expand our business. Due to the uncertainty of timing of new product ramps in light of continued macroeconomic uncertainty, we are not providing forward-looking guidance in the fourth quarter of fiscal year 2026.
That's it for me. Brett?
Thanks, Tony. Despite reduced demand from certain longstanding customers and the delays in production caused by winter storm Fern in the third quarter, we're encouraged by the improvements in our operating efficiencies and by the gradual rebound in demand from several longstanding customers and the continued growth of new programs that we're seeing in the fourth quarter. We continue to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth as we cease manufacturing operations in China, continue to right-size our Mexico facility, and build out new production capacity in the U.S. and Vietnam. Our improved operating efficiency has made us more competitive, and we expect our revenue to gradually begin to rebound and see a return to profitability in the fourth quarter of fiscal 2026.
As part of our long-term strategy and in recognition of the continuing geopolitical tensions, tariff uncertainties, and increasing costs associated with China-based production, we are winding down our facilities there and transferring programs to Vietnam. We anticipate savings generated from the shutdown to approximate $1.2 million per quarter once fully executed. As part of our global sourcing strategy, we will, however, continue to operate in China with a small team focused on sourcing critical components locally.
Over the past 24 months, we have also reduced our total head count by approximately 42% in Mexico and have begun transferring some programs from Mexico to the U.S. and Vietnam. Our Mexico facility continues to offer a unique solution for tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies, and invested in automation to be more cost-competitive in the market.
Due to the successful cost reduction and streamlining production processes, we have recently seen an increase in the quoting volume and probability of landing new programs manufactured in our Mexican facilities. We've also seen an influx of new customer visits and audits of our Juarez campus as of late that demonstrates we are competitive for a growing variety of quoting opportunities. Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term.
We are very excited about the recent investments made in the U.S. and Vietnam to build out capacity and new capabilities to meet evolving customer demand. You will recall that we opened our new technology and resource and development location in Arkansas during the first quarter of fiscal 2026. Our U.S.-based production provides customers with outstanding flexibility, engineering support, and ease of communications.
We expect double-digit growth in our facility in Arkansas during the upcoming fiscal year. You will also recall that we have recently doubled our manufacturing capacity in Vietnam that now has the capability to support anticipated future medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that was associated with China in the past. In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate that these new facilities in the U.S. and Vietnam will enable us to benefit from customer demand for rebalancing their contract manufacturing and mitigate the severe impact and uncertainty surrounding the tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our U.S. and Vietnam facilities.
These initiatives reflect the longstanding customer trends, both to nearshore as well as derisk the potential adverse impact of tariff increases and geopolitical tensions. During the third quarter of fiscal 2026, we won new programs in automotive technology, industrial tooling, pest control, and industrial power management. Our improved operating efficiency has also made us more competitive, increasing our sales pipeline, particularly in such steady growth sectors as utilities and data center equipment. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and dual sourcing of contract manufacturing.
In light of the significant transitions and streamlining initiatives we've made in the past 2 years, it's worth reviewing our key competitive advantages going forward. The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business. First, we've enhanced our cost and tariff efficiency and the flexibility of our global manufacturing footprint. We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsource strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart, long-term strategy.
Second, many of our manufacturing program wins are predicated upon Key Tronic's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program-specific design challenges make that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters.
Third, we continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection blow, gas assist, multishot, as well as PCB assembly, metal forming, painting and coating, complex high-volume automated assembly, and the design, construction, and operation of complicated test equipment. We believe this expertise will increasingly set us apart from our competitors of a similar size.
While the global market uncertainties have created some delays to new product launches for us, our suppliers and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America as well as to our expanding Vietnam facilities. We're expecting revenue growth in the coming quarters from new programs launching in the U.S., Mexico, and Vietnam. Significant improvements in our operating efficiencies are creating a stronger pipeline of potential new business. Over the long term, we remain very encouraged by our cost reductions made over the past 2 years to become more market-competitive, our increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations of our design engineering. All these initiatives have increased our potential for profitable growth.
This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions.
[Operator Instructions] And we will take our first question from Matt Dhane with Tieton Capital Management.
2. Question Answer
I did want to ask, you referenced you had 4 wins in your press release. Just wanted to get a sense of the size of each of those wins, as well as where they're going to be -- where the manufacturing is going to be taking place, and then also expected timing of the ramps of those.
You bet. Happy to do that, Matt. So I think the first one, that automotive technology, that's about a $3 million to $5 million program that's slated to start in Juarez in fiscal '27. My expectation is we'll probably start ramping that in the second quarter. Next is the industrial tooling. This one is a bit unique. It was a design program that we started here in Spokane. Now they're wanting us to actually start building some low-volume production. So we're actually going to do that in our downstairs facility here in Spokane temporarily while we ramp that. Currently, it has about an order of about $3 million, but we're expecting that to grow. Ramp on that is immediate.
Third is pest control. That's a $2.5 million opportunity incremental to some other business of an existing customer down in Juarez, Mexico. And then the last -- fourth is the industrial power management. That's an $8 million to $10 million opportunity that will start towards the end of the calendar quarter, so again, second quarter of fiscal '27 in our Springdale, Arkansas facility.
One other question I did have. So obviously, tariffs has been a key conversation point here for a while. You talked about your pipeline building. What role is tariffs playing today in conversations with prospective customers? And yes, just help me understand all that, if you could.
Yes. There's quite a bit of moving parts -- continue to be moving parts with -- related to tariffs. I think we're well situated now that we have an increased capacity to build product in Vietnam. The fact that USMCA is still in -- still a mitigation opportunity as well in Mexico and those that want to nearshore in the U.S. So I think we're seeing a hesitancy to make a decision or to award us a program. Some of that hesitancy is coming to close, and we're actually seeing the actual awarded opportunities begin to pile up.
So I think this hesitancy and uncertainty for so long of awarding a program and elongating that sales cycle now begins to -- I think, people are becoming okay with the fact that there's going to be continued uncertainty, and we're actually seeing stocking levels decrease in certain key new opportunities and legacy customers. So I think it's a change in the market of, 'I'll wait and see what tariffs do,' to now, 'it's a complete, open -- continued changing in and out because of the required response -- or the required stockouts and reducing inventories, they're going to need to make a decision. And so, I'm making that in light of the uncertainty. That's a long-winded answer to, I think we anticipate some wins that we've been waiting for, for quite some time.
[Operator Instructions] And we will take our next question from George Melas with MKH Management.
Nice to hear a consistent story about increased capability -- in the number and capability of design engineers. Can you elaborate a little bit on that? And is that still very much -- is design complexity very much one of the focus of your sales opportunities?
Yes. As we spoke before, George, part of our strategy is to continue to grow that design capability. So we're continuing to recruit and hire new design engineers. We have found it incredibly important for us to continue down that path. If you get into a customer relationship where you're providing design capabilities to them, not only is that business very sticky, you're also helping them design the product to be a good fit to your own production equipment and capabilities within your own factory.
So we're going to continue down that road. What's kind of fun to see is this is the first design project that we're actually building within our Spokane facility with the engineers themselves. This is a little new to us. We've done this many years back. But my expectation is that this may become a bit more of the norm, as we take over the design responsibility to bring a new product to market. And maybe they use our engineers to put the first series or set of products together.
That sounds good. Can you also give us a bit of an update on the data processing customer in Mississippi? I think that's a potentially very, very significant project, but I think it was always expected to ramp rather slowly or progressively. Can you update us on that?
You bet, George. So that customer down in Mississippi continues to be flat quarter-over-quarter, so quarter 2 to quarter 3 is flat. Our hope is that, that will continue to ramp over time. But to date, it's been relatively flat over the last 2 quarters. There's not any real growth that we see in Q4, but maybe in fiscal '27. That's the consign program, I think, that we spoke about at length a couple of quarters ago. But it still continues to be a very good program for us. It's just -- it's been fairly flat last 2 quarters.
And at what level it is now in terms of what you think it could be? Is it at 1/4 of its potential? Or how would you characterize it compared to what the potential expectation is?
That's a difficult one to quantify. I think we're probably 50% of what our initial expectation was. But I think this is very market sensitive and based off of where we're at today, again, that's a tough one. I wish I had a crystal ball, George, but we're definitely not where we thought its capacity was, but it's a complete unknown at this point.
And I'd just add to that, George, that this customer has a number of SKUs that we could build. And we've actually built a few different SKUs for them already. So we're ready to take on more when it becomes available to us.
Yes. The relationship is just very market sensitive.
And maybe just one clarification. You guys mentioned in your prepared remarks that you can see a return to profitability in the fourth quarter. So basically, it means next quarter.
Yes.
What kind of revenue level do you need in order to hit that target?
Yes, I don't know that we're yet giving guidance. Tony mentioned that there still is quite a bit of uncertainty in some ramps and the things that are going on. So I don't know that we want to quantify our revenue. Our expectation is definitely that there's going to be revenue growth Q4 sequentially from Q3. And we still feel strongly that we'll be in the black bottom line. In future quarters, we'll readdress that. But at this point, I'd rather not give guidance.
Okay. And then just a quick question. In the last quarter, you mentioned potential savings from China from stopping the -- closing the manufacturing operations there. And you also mentioned $1.5 million of savings related to the reduction in force in Mexico. Is that something that you've started to benefit from that has started to hit the bottom line? Or do we really see that in the fourth quarter or in fiscal '27?
Yes. Thanks, George, for that question. So in China, specifically, we have completed our manufacturing operations there. So now we have a bit additional work to do just to get other materials and equipment out of China that we want to send to one of our other locations or sell it. So we do have a bit of work to do there. We completed that production in April, so just not that long ago. So we should start to see those employees severanced now, and we'll start to see improvements related to the $1.2 million that we mentioned in the script, probably in later this quarter.
Yes. So I think the full $1.2 million won't be until Q1. But there is some incremental savings in this quarter, Q4, that we will see.
And with regard to the Juarez, Mexico question, we have completed that severance. We are seeing some revenue growth down there in our Mexico operations. So we didn't complete 100% of that severance, as we will need some of those employees as we're seeing some revenue growth there in that facility.
[Operator Instructions] And at this time, we have no further questions. I would now like to turn the call back to Brett Larsen.
Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you.
This does conclude today's call. Thank you for your participation. You may now disconnect.
Key Tronic Corporation — Q2 2026 Earnings Call
1. Management Discussion
Good day, and welcome to the Key Tronic FY 2026 Q2 investor call. Today's conference is being recorded. [Operator Instructions]
At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead.
Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I'd like to thank everyone for joining us today for our investor conference call.
Joining me here at our Spokane, Washington headquarters is Brett Larsen, 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 and quarterly 10-Qs.
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.
During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our Investor Relations website. In addition, the slides, together with the recorded version of this call will be available on the Investor Relations section of our website.
We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the Investor Relations section of our website.
For the second quarter of fiscal year 2026, we reported total revenue of $96.3 million compared to $113.9 million in the same period of fiscal 2025. Revenue for the second quarter of fiscal 2026 was adversely impacted by reduced demand from a long-standing customer and the transition of an end-of-the-life program. However, this impact was partially offset by new program wins and an increase in demand from other long-standing customers.
As in other recent quarters, we believe customers continue to face uncertainties in the global economy and volatile trade policies. In addition, we continued ramping the consigned materials program that was previously announced.
For the first 6 months of fiscal 2026, our total revenue was $195.1 million compared to $245.4 million in the same period of fiscal 2025. In line with our long-term strategic plan, we proactively advanced our near-shoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and operational capabilities.
During the second quarter of fiscal 2026, we initiated a wind down of our manufacturing operations at our China-based facility. Designed to better align organizational structure and resources with our strategic initiatives, including filling the capacity recently created in Vietnam. We expect to complete this wind down in our fourth quarter, at which point we anticipate saving approximately $1.2 million per quarter.
We also continue to further reduce our workforce in Mexico as we intend to have that facility focused on higher volume manufacturing. Once these reductions are fully implemented during our third quarter, we would expect to save approximately $1.5 million per quarter moving forward. These strategic initiatives resulted in charges for severance, inventory write-offs and other related expenses of approximately $10.5 million for the quarter, which had a significant adverse impact on our margins.
Gross margin was 0.6% and operating margin was negative 10.7% in the second quarter of fiscal 2026 compared to 6.8% and negative 1.0%, respectively, in the same period of fiscal 2025. Excluding the charges related to the China closure and the Mexico workforce reductions, the adjusted gross margin was 7.9% for the second quarter of fiscal year 2026.
As top line growth returns, we anticipate margins to be strengthened by improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new program opportunities.
As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity and a more streamlined supply chain, all contributing to stronger financial performance.
The wind down of China production, severance charges and the reduction in revenue had a significant impact on our bottom line. Our net loss was $8.6 million or $0.79 per share for the second quarter of fiscal 2026 compared to a net loss of $4.9 million or $0.46 per share for the same period of fiscal 2025.
For the first 6 months of fiscal 2026, the net loss was $10.9 million or $1 per share compared to $3.8 million or $0.35 per share for the same period of fiscal 2025. Our adjusted net income was breakeven or $0.00 per share for the second quarter of fiscal 2026 compared to adjusted net loss of $4.1 million or $0.38 per share for the same period of fiscal 2025.
For the first 6 months of fiscal 2026, the adjusted net loss was $1.1 million or $0.10 per share compared to an adjusted net loss of $1.3 million or $0.12 per share for the same period of fiscal 2025.
Turning to the balance sheet. Our inventory for the second quarter of fiscal 2026 is down $12.3 million or by 12% from a year ago. Our current ratio was 2.0:1 compared to 2.8:1 from a year ago. At the same time, accounts receivable DSOs were at 77 days compared to 99 days a year ago, reflecting stronger collection on receivables.
Total cash flow provided by operations for the second quarter of fiscal 2026 was approximately $6.3 million as compared to $1.3 million in the same period of fiscal 2025. Our continuing ability to generate cash from operations has allowed us to reduce our debt year-over-year by approximately $13.4 million.
In the second quarter, capital expenditures were approximately $3.3 million, bringing year-to-date total capital expenditures through the second quarter to approximately $6.5 million. We expect CapEx for the full year to be around $8 million to $10 million, largely spent on new innovative production equipment and automation.
While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment and plastic molding capabilities, utilize leasing facilities and make efficiency improvements to prepare for growth and add capacity.
As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies. Nevertheless, we are pleased to continue to see our new programs gradually ramping and our cost and efficiency improvements from our recent overhead reductions taking hold.
We also expect to see growth in our U.S. and Vietnam production, have a strong pipeline of potential new business and remain focused on improving our profitability. Over the longer term, we believe that we are increasingly well positioned to win new programs and profitably expand our business. Due to the uncertainty of timing of new product ramps in light of the continued macroeconomic uncertainty, we are not providing forward-looking guidance in the third quarter of fiscal 2026. That's it for me. Brett?
Thanks, Tony. During the second quarter of fiscal 2026, we continue to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth. We are excited about the significant investments made to our U.S. and Vietnam locations.
During the quarter, we witnessed the increasing number of customer program starts in Springdale, Arkansas, started a new production line in Corinth, Mississippi in support of a growing consignment customer, and we shipped our first batch of medical products from Da Nang, Vietnam.
Due to ongoing geopolitical tensions and tariff uncertainties, we began to execute our long-term strategy to wind down manufacturing operations at our China facility and continue to rightsize our Mexico facility. Demand from a specific long-standing customer has declined in recent periods, but we believe that recently won programs more than offset the loss in revenue in future quarters.
Moreover, the continued market uncertainty and shifts of tariffs have unfortunately impacted the timing and launch of new programs, but those programs continue to slowly proceed. We are doing our best to work with suppliers and with our customers on options for manufacturing their products from different locations in mitigating the impact of tariffs.
Our changes made to our manufacturing footprint and cost reductions have enabled us to offer improved mitigation options, particularly when our customers consider the varying implications of current and future potential tariffs. As part of our long-term strategy and in recognition of the continuing geopolitical tensions, tariff uncertainties and increasing costs associated with China-based productions, we have begun winding down our facilities there and transferring several programs to Vietnam.
As part of our global sourcing strategy, we will continue to operate in China with a small team focused on sourcing critical components locally. Over the past 18 months, we have also reduced our total headcount by approximately 40% in Mexico and have begun transferring some of the programs from Mexico to the U.S. and Vietnam.
Our Mexico facility continues to offer a unique solution for tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies and invested in automation in order to be more cost competitive in the market.
Due to the successful cost reductions and streamlining production processes, we have recently seen an increase in the quoting volume and probability of landing new programs manufactured within our Mexico facilities. We've also seen an influx of new customer visits and audits of our Juarez campus as of late that demonstrates we are competitive for a growing variety of quoting opportunities. Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term.
We are very excited about the recent investments made in the U.S. and Vietnam to build out capacity and new capabilities to meet evolving customer demand. You will recall that, we opened our new technology and research and development location in Arkansas during the first quarter of fiscal 2026.
Our U.S.-based production provides customers with outstanding flexibility, engineering support and ease of communication. We expect double-digit growth in our facility in Arkansas during the latter half of this fiscal year.
You will also recall that we have recently doubled our manufacturing capacity in Vietnam that now has the capability to support medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that had been associated with China in the past. In coming years, we expect our Vietnam facility to play a major role in our growth.
We anticipate these new facilities in the U.S. and Vietnam will enable us to benefit from customer demand for rebalancing contract manufacturing and mitigate the severe impact and uncertainty surrounding the tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our U.S. and Vietnam facilities. These initiatives reflect both the long-standing customer trend to nearshore as well as derisk the potential adverse impact of tariff increase and geopolitical tensions.
During the second quarter of fiscal 2026, we won new programs in automotive technology, pest control and industrial equipment. As already noted, we continue to ramp our recently announced manufacturing services contract with a data processing OEM that consigns its materials to our Corinth, Mississippi manufacturing facility.
As we discussed, the consigned material model is new for us at this scale, and if successful, will considerably improve our profitability in coming quarters. It has the potential to grow to over $25 million in annual revenue, roughly the equivalent of $100 million turnkey program. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and the dual sourcing of contract manufacturing.
We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsource strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart long-term strategy.
We believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities. The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business.
Many of our manufacturing program wins are predicated upon Key Tronic's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program-specific design challenges makes that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters.
We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, flow, gas assist, multi-shot as well as PCB assembly, metal forming, painting and coating, complex high-volume automated assembly and the design, construction and operation of complicated test equipment.
We believe that this expertise will increasingly set us apart from our competitors of a similar size. While the global market uncertainties have created some delays to new product launches for us, our suppliers and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America, as well to our expanding Vietnam facilities.
We are expecting revenue growth in the coming quarters from new programs launching in the U.S., Mexico and Vietnam. We move forward with a strong pipeline of potential new business, and we are anticipating significant improvements in our operating efficiencies.
Over the long term, we remain very encouraged by our cost reductions made over the past 2 years to become more price competitive. Our increasing cash flow generated from operations enhanced global manufacturing footprint and the innovations from our design engineering. All of these initiatives have increased our potential for profitable growth.
This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions.
[Operator Instructions] And our first question will come from Matt Dhane with Tieton Capital Managemen.
2. Question Answer
Great. I was hoping to delve a little bit more. You referenced earlier in the call that -- can you hear me?
Yes, we can, Matt.
Okay. I'm sorry. I thought maybe someone was saying they could not hear me. So, I wanted to circle back around like I was saying, the increased demand from existing customers. I was hoping to get a little bit more color how significant that is? Is it across a wide variety of customers? And what do you sense is driving that increased demand?
Yes. I would say that the large part, it's predominantly 2 specific long-standing customers. One is product maturation, just the fact that there's a need for a refresh of this particular design. That had a rough order of magnitude, probably about a $20 million hit to our overall quarter revenue. I think the next was essentially an end-of-life program. They're looking at replacing it down the road, but that one too is roughly about a $7 million reduction from last year's fiscal. Of course, offsetting that, those large decreases in revenue are some of the ramping new programs.
Okay. So, you're not really seeing a ramp from existing customers that the ramp is really coming from new programs then. Is that -- am I hearing you correct then?
Yes, Matt, we do have a few customers that we're seeing some increased demand on. I would say it's around a half dozen that are kind of impacting that increase from long-standing customers.
Okay. Okay. No, that's helpful. And then you also in the press release referenced the 3 new programs that you won. I was just hoping to get a size, rough size estimate of each and the timing of the ramp and then also where you're going to be manufacturing each of those?
Sure. I think the first, we'll start with the automotive. That one will be manufactured down in Mexico. That will -- rough order could be up to $5 million when fully ramped. I think the pest control, I think that one is actually in our U.S. facility in Vietnam, and that could be up to $2 million. And then the industrial equipment is also in our U.S. location, $2 million to $5 million.
Okay. No, that's helpful. And then final question I'd like to ask. You folks have referenced in the past and again on this call today that you have a number of tariff mitigation strategies. I don't think I've ever actually delved in and tried to better understand when you say that, what are you actually doing behind the scenes? And what can you do to help us understand better what you're doing there?
Yes. I mean that really gets to the core of our strategy, our long-term strategy to essentially have a lower-cost Asian facility that could eventually replace our China facility. One of the biggest reasons we're winding down China is now that we've ramped Vietnam. We feel confident in the new technology and the new production equipment that we now have online. It really is ready now to essentially resolve the China to U.S. tariff situation and then also some of the geopolitical tension that we have. That's one piece.
The other piece is that we offer either a U.S.-made opportunity for those that would require that but we also still offer the production down in Mexico that currently, you still can take advantage of the USMCA agreement that allows you to build things down in Mexico and bring it back up into the U.S. and even consume it in the U.S. under that agreement and avoid certain tariffs as well. It's a complex algorithm that really we help our customers with coming up with the best solution.
A lot of that is dependent on how much labor is required, what -- where the components are currently being supplied, where could they be supplied from, possibly using some more North American-centric suppliers that we have. And then basically coming up with various price points of a total cost to our customer and saying, here's where we think it's advantageous to build your product. We feel confident based on our locations and footprint that we can offer a suite of different answers to our customers that really could mitigate tariffs regardless of where they end up.
Okay. Okay. And so, whenever a prospective customer is coming to you looking to have you quote a new product or program, do you usually go back to them? And if they're really agnostic where it comes from, do you go back to them and offer them pricing if we were to build it in Vietnam, this will be your price, U.S. price and then a Mexico price? Do they really have the full choice in spectrum? And is that really how you approach it oftentimes?
It really is. And that -- I think that's one of the unique things that we can offer as Key Tronic is we can easily quote from all 3 of those locations that you provided and offer our customer, this is what the lead time that would be required. Here's what your price is. Here's what -- here's the pros and cons from building in each of those locations and really offer that to our customer to ultimately make that decision of where they want the product built.
[Operator Instructions] And our next question will come from George Melas with MKH Management.
Just want to review a little bit the gross margin. On an adjusted basis, it's roughly -- it's 7.9%, which is better than a year ago, but it's down a bit sequentially. And I'm just trying to see if there is anything unusual in the quarter in the gross margin, something positive like the high level of tooling or engineering services or maybe something negative with some disruptions and the transition of the end-of-life program or other things like that?
Yes. Just to mention a few, and I'm sure Tony will fill in as well, but I think some of the negative or some of the headwind we had during the quarter was we still are transferring programs from Mississippi up into Arkansas, the new facility. And of course, with that comes some additional costs.
I'd also mention that in our second quarter, as always, we really lose out on a week of production just due to the holidays. particularly -- in particular, our Mexican facility was closed for a full week. And then, of course, our domestic sites are closed for at least half a week over Christmas. So, you lose some production time, but that helps explain some of the sequential drop in the adjusted gross margin. We really need volume. And looking forward, prospectively is in order to really increase our gross margin prospectively, we need to drive sales volume and utilize some of the excess capacity that we have in each of our sites. Tony, anything you'd add?
There was just -- to add to that, there were some slight mix changes that negatively impacted gross margin quarter-over-quarter potentially.
And mix changes, Tony, do you mean different programs or different locations?
Primarily just different programs, yes.
Okay. Okay. Maybe another question on sort of you guys reiterating the expectation to be net income breakeven in the June quarter, so just 2 quarters away. And with interest expense sort of remaining, let's say, $2.3 million or in that range, you need -- and if we think of OpEx, normalized OpEx at roughly $7.4 million, you need roughly $10.7 million in my basic calculation of gross profit. And that implies both revenue growth and margin expansion. I think some of the margin expansion will come from the consignment program in Mississippi. But can you comment on that and how you think that you're able to both grow revenue and margin?
Yes. I think we would stick with that same expectation. We still anticipate achieving somewhere breakeven by the end of the fiscal year. We mentioned a bit about that consignment program that continues to ramp nicely. It's definitely not to the level of revenue that we expect it to be exiting this quarter or even in the fourth quarter. There's more growth there that is required. But as we mentioned earlier, I think with that consignment program as large as it is, you will also see some uptick in the gross margin percentage. So, you'll see both -- our expectation is some additional revenue, but then also improvement in the gross margin percentage.
Okay. Any -- just a follow-up on that, Brett. Any particular reason for the program sort of ramping up maybe slower than you expected because it seems like it's a very important program for you guys.
No. We expected that it would be a slow growth. Some of that required some additional equipment. We were able to procure that. It had some lead time to it. We actually ended up installing some of that over the Christmas holiday. And then unfortunately, in Mississippi this quarter, they got hit with some bad ice storm. So, we are recovering from that. I think that will have a slight impact to the -- into our third quarter, but won't disrupt the momentum of growing that consignment model. It just may delay it by a week or 2 as we get through this ice storm. But we fully anticipated that, that would be a slow role to be -- to get to its peak.
Okay. Okay. And then just to try to understand, in Mexico, you expect growth in Mexico going forward. So does that mean that Mexico has hit sort of a bottom and that you restructured Mexico into, let's say, a lower service, but full capability, but maybe slightly lower service but low-cost operation. How would you characterize that?
George, I think I would -- I kind of like what we mentioned is that we have found that we were not market competitive. We needed to increase our efficiency. We needed to invest in some automation. We really needed to be far more competitive in our pricing down in Mexico. I hope that we're at a bottom. I can't -- I don't have a crystal ball. But my expectation based off of just the recent history, just the recent visits that we've had down in Mexico and some of the quoting opportunities that we've been down selected to take it to the next round.
I feel like we're more competitive in Mexico than we were. So yes, over the longer term, we're still expecting Mexico to grow. We don't have anticipated additional reductions in headcount other than those that we've already accrued for in our second quarter. But as you know, things change. We are looking forward to the review of the USMCA that is to occur midyear this year and hoping that most, if not all of that continues as part of a trilateral agreement between us, Mexico and Canada. But things do change. And -- but for now, yes, we -- based on the volume of quotes and the recent visits by potential customers, our expectation is that Mexico will grow.
Okay. Great. And then just one quick final question for Tony. You mentioned the $1.2 million savings per quarter once the ramp down or the wind down of the China manufacturing operation is completed. That $1.2 million, is that the impact on, on cost of sales? Is it the impact on the EBIT line? What -- how does that $1.2 million flow through the P&L?
Well, yes, it's a good question, George. So that $1.2 million really is kind of taking into consideration the entire wind down of the manufacturing portion of our China operations. So, it's across the board. It's up in COGS as well as certain SG&A as well and OpEx. So, as we see -- and we expect to have that done by our fiscal year-end. So, at which point is when we'd see that $1.2 million begin to take full effect in our results.
I would say the bulk of it is in cost of goods. But to Tony's point, there is also some OpEx that will be reduced based off of that wind down.
Okay. And that $1.2 million in savings, what would be the impact on the EBIT line?
I would take the $1.2 million.
But if you have some COGS, wouldn't there be some revenue attached to the COGS that -- so the $1.2 million is a net number basically?
It is. Sorry. Yes, it is. Sorry. We know now what you're asking. Sorry about that, George.
I just had to ask 3 times because I couldn't find the way to do it. I'm not surprised by that.
No.
Okay. Great. Great. Thanks for your hard work. It seems like you're really doing a lot of stuff to make the operation better.
[Operator Instructions] And that does conclude the question-and-answer session. I'll now turn the conference back over to Brett Larsen for closing remarks.
Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you.
Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Key Tronic Corporation — Q1 2026 Earnings Call
1. Management Discussion
Good day, and welcome to the Key Tronic First Quarter Fiscal Year '26 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Tony Voorhees. Please go ahead.
Good afternoon, everyone. I am Tony Voorhees, 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 Corinth, Mississippi facility is Brett Larsen, 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 and quarterly 10-Qs. Please note, 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. During this call, we will also reference slides that accompany our discussion.
The slides can be viewed with the webcast, and the link can be found on our Investor Relations website. In addition, the slides, together with a recorded version of this call will be available on the Investor Relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the Investor Relations section of our website. For the first quarter of fiscal 2026, we reported total revenue of $98.8 million compared to $131.6 million in the same period of fiscal year 2025.
Revenue for the first quarter of fiscal year 2026 was adversely impacted by reductions in demand from one long-standing customer and delays in new program launches as our customers face continued uncertainties in the global economy. In addition, the consigned materials program that was announced last quarter has begun to ramp. As this large program grows, reported revenue is expected to be lower compared to traditional turnkey programs, while our gross margin is projected to improve. Our gross margin was 8.4% in the first quarter of fiscal year 2026 compared to 6.2% in the previous quarter and 10.1% in the same period of fiscal year 2025. The sequential quarterly increase in gross margin was primarily related to operational efficiencies gained from the reductions in workforce. The year-over-year decreases in gross margin in the first quarter of fiscal 2026 largely reflects reduced revenue as well as inventory and accounts receivable reserves of approximately $1.6 million due to a customer bankruptcy.
Our operating margin for the first quarter of fiscal year 2026 was a negative 0.6%, down from 3.4% for the same period of fiscal year 2025. As top line growth returns, we expect margins to be strengthened by improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new program opportunities. As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity and a more streamlined supply chain, all contributing to stronger financial performance. Our net loss was $2.3 million or $0.21 per share for the first quarter of fiscal year 2026 compared to net income of $1.1 million or $0.10 per share for the same period of fiscal year 2025.
As mentioned previously, the change in earnings was largely due to the reduction in revenue when compared to last year's results. Our adjusted net loss was $1.1 million or $0.10 per share for the first quarter of fiscal year 2026 compared to adjusted net income of $2.8 million or $0.26 per share for the same period of fiscal year 2025. See non-GAAP financial measures in the earnings release for additional information about adjusted net loss and adjusted net loss per share. Turning to the balance sheet. Our inventory for the first quarter of fiscal 2026 remained largely unchanged from the same time a year ago. Our recent strategic initiatives were designed to better align our inventory with our current revenue. While many of our customers have revamped their forecasting methodologies, we have made significant enhancements to our materials resource planning algorithms. As a result, we are now more prepared to address potential future disruptions in the supply chain and more able to respond effectively to evolving tariff implications as we continue to manage inventory more cost effectively.
For the first quarter of fiscal 2026, we reduced our total liabilities by a combined amount of $21.8 million or 9% from a year ago. Our current ratio was 2.4:1 compared to 2.6:1 from a year ago. At the same time, accounts receivable DSOs were at 81 days compared to 92 days a year ago, reflecting stronger collection on receivables. Total cash flow provided by operations for the first quarter of fiscal year 2026 was approximately $7.6 million as compared to $9.9 million for the same period of fiscal year 2025. Our continuing ability to generate cash from operations has allowed us to reduce our debt year-over-year by approximately $12 million. Total capital expenditures in the first quarter of fiscal 2026 are about $3.2 million, and we expect CapEx for the full year to be around $8 million, largely spent on new innovative production equipment and automation.
While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment and plastic molding capabilities, utilize leasing facilities as well as make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal year 2026, we are pleased to continue to see our new programs gradually ramping and our cost and efficiency improvements from our recent overhead reductions are paying off. We expect to see growth in our U.S. and Vietnam production, have a strong pipeline of potential new business and remain focused on improving our profitability. Over the longer term, we believe that we are increasingly well positioned to win new programs and profitably expand our business. Due to the uncertainty of timing of new products ramping, we are not providing forward-looking guidance in the second quarter of fiscal year 2026. That's it for me. Brett?
Thanks, Tony. Moving into fiscal 2026, the uncertainty surrounding global tariffs and the macroeconomic outlook continued to delay new program ramps for many of our customers. To provide our customers with options to manage these uncertainties and to remain cost competitive, we have continued to build up new production capacity in the U.S. and Vietnam and have rightsized our Mexico facility. Demand from certain long-standing customers has reduced total revenues when compared to last year's first quarter results. Moreover, the continued market uncertainty and shifts of tariffs have unfortunately impacted new program launches across all of our facilities.
We're doing our best to work with suppliers and with our customers on options for manufacturing their products from different locations in mitigating the impact of tariffs. Our changes made to our manufacturing footprint and cost reductions enable us to offer improved mitigation options, particularly when our customers consider the varying implications of current and future potential tariffs. We're moving full speed ahead with adding capacity in key regions. During the first quarter of fiscal 2026, we opened our new technology and research and development location in Arkansas. We're delighted to be enhancing our operations in a region where we have maintained a long-standing presence and a strong team and can benefit from a business-friendly environment. Our U.S.-based production provides customers with outstanding flexibility, engineering support and ease of communications. We expect double-digit growth in our facility in Arkansas during the latter half of this fiscal year.
In Vietnam, we have doubled our manufacturing capacity in Vietnam and now has the capability to support anticipated future medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that was associated with China in the past. In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate that these new facilities in the U.S. and Vietnam will enable us to benefit from customer demand for rebalancing their contract manufacturing and to mitigate the impact and uncertainty surrounding tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our U.S. and Vietnam facilities. These initiatives reflect both the long-standing customer trends to nearshore as well as derisk the potential adverse impact of tariff increases and geopolitical tensions. Our Mexico facility offers a unique solution for tariff mitigation under the existing USMCA tariff agreement.
Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies and invested in automation in order to be more cost competitive in the market. Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. During the first quarter of fiscal 2026, we won new programs in medical technology and industrial equipment. In addition, we got underway with the recently announced manufacturing services contract with a data processing OEM that will consign its materials to our Corinth, Mississippi manufacturing facility. As we discussed, the consigned materials model is new for us at this scale, and if successful, will considerably improve our profitability in coming quarters. It has the potential to ramp significantly during fiscal year 2026 and is estimated to grow to over $20 million in annual revenue.
Despite the many uncertainties and disruptions in our global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and the dual source of contract manufacturing. We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsourcing strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart long-term strategy. We believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities. The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business.
Many of our new manufacturing program wins are predicated upon Key Tronic's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of the program specific design challenges makes that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters. We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection [indiscernible] assist, multi-shot as well as PCB assembly, metal forming, painting and coating, complex high-volume automated assembly and the design, construction and operation of complicated test equipment. We believe this expertise will increasingly set us apart from our competitors of a similar size. While the global market uncertainties have created some delays to new product launches for us, our suppliers and our customers, we believe geopolitical tensions and heightened concerns about tariff and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America as well to our expanding Vietnam facilities.
We are expecting revenue growth in the coming quarters from new programs launching in the U.S., Mexico and Vietnam. We move forward with a strong pipeline of potential new business, and we're seeing significant improvements in our operating efficiencies. Over the long term, we remain very encouraged by our cost reductions made over the past 2 years to become more market competitive, our increasing cash flow generated from operations, enhanced global manufacturing footprint and the innovations from our design engineering. All of these initiatives have increased our potential for profitable growth. This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions.
[Operator Instructions] And we will take our first question from Bill Dezellem with Tieton Capital.
2. Question Answer
Let's just start with the 2 wins this quarter. What was the size of each of those, please?
Sure, Bill. Just to clarify, there was actually 1 medical and 2 industrial. The medical was roughly about $5 million in size. And the 2 industrial combined is probably around $6 million.
All right. And you referenced in your opening remarks the medical capabilities, medical production capabilities in Vietnam. Does this particular product belong in Vietnam? Or will it be produced somewhere else?
So our intent is that later this fiscal year to be actually up in production for some medical device over in Vietnam. We've recently received certification to do that, and our customer actually visited the site just last week and has given us the go ahead.
And this specific customer or one another medical customer?
This specific customer. And I think with the introduction of one, our anticipation is that, that facility will continue to show well, and we're expecting continued interest from others.
Right. Okay. That's helpful. And you referenced the manufacturing services contract. As you -- I guess, let's start with the level of revenues that you experienced this quarter. You said it was the first quarter where you had some revenue there.
Yes. It had just started. So I'm assuming you're talking about the -- the consigned program that we referenced.
That's right.
Yes. The consigned program down here in Corinth, and Tony and I are actually down in Corinth today visiting and checking in on that program and seeing it launch and ramp. And in our first quarter, there was roughly just over $1 million of actual revenue. That will grow sequentially over the next few quarters and our expectation it could exceed $20 million on an annual basis.
Great. That's helpful. And then as you referenced in your opening remarks, if it's successful, the $20 million or more, what are the swing factors that will make that contract more successful or less successful?
I think from our perspective, Bill, a consigned program, it takes a special customer that has its own supply chain capabilities and has the ability to provide the components on a timely basis and has the capital to do so. In this specific instance, all of those are true. And I think with the consigned model, the amount of margin will increase because you're not including the cost of the materials. So on 2 fronts, both our reported margin percent is expected to go up. And then also the amount of working capital required for that revenue is minimal other than local ancillary supplies and, of course, labor.
Great. So essentially, you are really billing for use of the facility, labor and your profit and not for the inventory component, which historically is a very large portion of your revenue?
It is. It is.
Okay. That's helpful. And so ultimately, this model's success or failure is a function of your customers' ability to manage the inventory. It's really on their shoulders rather than anything tied to Key Tronic and your activities other than what would be normal for any other manufacturing contract?
Yes. This one is a bit different in that respect. And of course, there's communication and correspondence between us and them of specific components that are required, but ultimate delivery of that will be dependent on their supply chain rather than our own group going out and buying from specific suppliers.
Right. Okay. And thinking out loud, do I remember correctly that 80% of the bill of materials ends up being inventory as opposed to labor or overhead expense?
That's a bit high. I would say it's closer to about 60% to 70%, Bill, is material on a typical turnkey program.
Okay. Appreciate that. And then over the last several quarters, you all have talked about a utility product program. It's not for a utility, but your customer would be selling to a utility. What's the update on that product's success with their customer -- and customers and your ramp of that business?
Sure. That's a good question, Bill. In our first quarter, we had anticipated to have some production revenue from that particular customer. It was delayed by about 1.5 months, but fortunately, we're seeing that ramp nicely in our second quarter.
And then you have also talked about a consumer product that I think that the -- your customer had some challenges. It was -- could have been a very large program had they been able to be successful with the retailers that they were going into. What's the update on that? Or is there an update?
No update at this point. We are seeing some softness in some of our long-standing customers, in particular, consumer products. I can't recall the specific one you're mentioning, but we are seeing some reductions in demand from some consumer products that we are building today.
So the one I'm specifically referring to, I believe you all announced -- made an announcement about it. It could have been that large.
Okay.
That's not resonating what that one might be.
No, I'm sorry, Bill.
Okay. No problem. And then relative to one additional question here, and then I'll turn it over. Relative to Mexico, you have been rightsizing that for some period of time. Where are you at in that process?
We will continue to monitor that. We have excess capacity in Mexico, but we also have a very strong sales pipeline that we're expecting to drop in, in the latter half of this fiscal year into Mexico. If that doesn't transpire, we'll need to make some additional cost reductions, but I don't anticipate in our second quarter to make any big severance or headcount reductions in Mexico. We do have capacity. I feel like we are now market competitive in our cost structure, and we're seeing the benefits from that in an increased amount of activity and interest down in that site.
So basically, you -- the excess capacity that you have, you believe you will be able to fill or start to utilize in a meaningful way in the second half of this fiscal year. If that does not happen, then you'll have to take another bite at the apple.
Absolutely. Yes, well said.
And if it does happen and you are able to use that capacity, then would I be mistaken to think that, that will have a meaningfully favorable benefit to net income and should be something that we shareholders are quite enthusiastic about?
Yes. If that comes to fruition, as we've discussed before, there's an earnings multiple once your fixed costs are covered. And yes, that would be a meaningful improvement in the overall profitability.
And we will take our next question from Sheldon Grodsky with Grodsky Associates.
[Audio Gap] quarter after quarter here, but let me ask a couple of questions here. First of all, is your facility in Vietnam primarily to serve the North American market or to serve the Asian market?
It's both.
Any sense as to how much is going to Asia and how much to the U.S.?
Broad brush, I would say 2/3 Asia, 1/3 North America at this point.
Okay. And what kind of tariffs are you facing on your Vietnam imports?
It's -- what is it, Tony? 20% or 30%.
Yes.
And that -- Sheldon, that's actually covered by our customers would be paying that to import that into the U.S. We'd be selling that to them in Vietnam.
Okay. And what sort of tariffs -- but what is the actual tariff situation in Mexico? I know there have been a lot of moving targets, and I've come to the conclusion that I know nothing on the subject of tariffs and where the tariffs, and I have a feeling we're getting a lot of misinformation on the subject. But are most of your products exempt under NAFTA too? Or are you being heavily tariffed there? Or what's that story?
Yes. I think you bring up a good topic Sheldon, is our Juarez, Mexico facility does provide a level of tariff mitigation. So if there is enough product change, if there's a tariff shift, oftentimes, you can take advantage of the USMCA and be able to provide manufactured product without incurring a tariff. Of course, there's nuances in that depending on if it has metal from a foreign source. And I don't even -- I'm not even going to pretend to know that I know all the details. But for the most part, yes, we are able to mitigate most tariffs by production of an assembly down in Mexico.
Okay. So I've been trying to figure out where it's bad and where it [ isn't ], but your customers seem to be put off completely anyway. It seems like we're going into a manufacturing depression with the tariffs that was supposed to give us a manufacturing new beginning here. So.
What we're finding is there's a lot of paralysis. There's a lot of intent, a lot of verbal discussion of transfers of manufacturing, but I think the unknown and the fluidity of duties and tariffs, I think, have put many of those on a -- let's wait and see.
Okay. You mentioned also in the presentation that you had a customer bankruptcy that cost you some money. Is this a big customer, long-standing customer? Or someone who came briefly and managed to go belly up?
It was about a 3- or 4-year customer relationship. We did get stuck with some inventory and receivables, unfortunate. But yes, that was not a significant customer by any means, but it did stay in writing off the $1.6 million this quarter.
And we will take our next question from George Melas with MKH Management.
A follow-up on the last question. You had gross margins of $8.4 million this quarter. And in dollar terms, it was $8.3 million. If we add back the $1.6 million, which was the reserve that you took, you also had some severance of $1.2 million in the quarter. How did those flow through the P&L?
Yes. So the severance definitely goes through COGS. So that would have an impact to your gross margin. The $1.6 million write-off for the bankruptcy was segregated into 2 amounts. $600,000 of that went through cost of goods to write off the inventory and roughly $1 million went through SG&A as writing off the receivable.
Got it. Okay. So let me just quickly adjust this in my model. So I would say your adjusted gross margin was roughly 10.2%. It goes from 8.4% to 10.2% if you add back the [indiscernible] and the $600,000 for the inventory write-off.
Yes.
So trying to find some good things in the release, that's a pretty good gross margin for you guys, especially at that revenue level and especially given that the consignment material model hasn't really sort of contributed much. As you said, it was just roughly $1 million in revenue. So help us understand why that margin is as robust as it is.
I think there's 2 things there, George. One is, of course, the continued reduction in our overall costs. I think that is -- that's -- we're demonstrating that. And even if you look at the gross margin sequentially from Q4 to Q1, it's improved. One item to talk about in Q1 is there was quite a bit of NRE revenue, which is essentially revenue we charge our customer upfront for tooling, for line set up, for engineering services, that was fairly high. And I think that helped bring up the gross margin in the first quarter. So can we continue to replicate a 10% gross margin? It would take more revenue going forward.
Okay. Because the tooling revenue, the line set up, the engineering -- I can see how engineering services, you would charge more than a normal average gross margin. But we do the same for tooling and line set up then.
We do. We do. It just so happens with a couple of large programs we're ramping, we were able to book the profits associated with that during our first quarter.
Okay. Can you give us roughly in the order of magnitude of how much that was?
An estimate, I think, between $1 million and $1.5 million.
Of revenue?
Of profit.
Of gross profit. Okay. So it was meaningful. The consignment materials program, if it ramps up to $20 million and with the math that you gave, Bill, it's sort of equivalent to a $60 million program for one of your regular programs, right?
That is correct.
Okay. So that would make it probably your largest customer or one of your top 3 customers?
Yes, it would.
Okay. And what is your assessment so far of how the program is ramping up?
We are actually down in Corinth real time and watching that ramp and excited to see where it's headed. We are definitely not on a $20 million run rate yet, but that's our goal to get there by the end of the fiscal year, and we are busily trying to add some additional capacity down here in order to achieve that.
Okay. So as you see the program ramp as you expected, the entire program production would be in Mississippi?
At this point, yes, there is some possibility of some dual sharing of that program across a couple of sites. But at this point, we're expecting that to be in our Mississippi.
Okay. Great. And then I was quite -- a quick question on SG&A. SG&A was sort of flattish year-over-year despite a meaningful revenue drop. And is that how one should model SG&A going forward? Or is there something I'm missing maybe?
I don't expect any big changes in SG&A with additional revenue. I do know that we had the $1 million of write-off associated with the bankruptcy that went through there in Q1. But I think we'll largely be close to that dollar amount moving forward.
And so that dollar amount includes the $1 million write-off or.
With some -- there will be some increases. As we return to profitability, I think there will be some -- our intent is to have some bonuses and different things that go into that G&A going forward, which there's not now. So I would expect it to be roughly about what it was in Q1.
Okay. Great. And then you mentioned sort of you have -- you expect to return to profitability by the end of this fiscal year. So it's just a few quarters away. And what needs to happen in order to achieve that? And maybe what kind of revenue do you need to achieve and of course, you have the different kinds of revenue. You have the regular revenue, the consigned material program revenue. But can you give us some color on what needs to happen?
Yes. I think we were able to demonstrate -- if you take Q4 to Q1, even on less revenue, we were able to generate some additional profitability and actually some improvement. Our expectation to get back to profitability is that we'll need to continue to ramp this consigned program. We'll also need to continue down the ramp of the utility provided metering system that is ramping nicely this quarter. And we'll need to add some additional revenue down in Mexico. If we're able to do those 3 things, we'll be able to achieve those goals.
Okay. Can you give us roughly a revenue target that you need to achieve to.
I don't think we can at this point, particularly with the complexity of now a fairly large consigned program.
Right, right. So if you have those 3 major factors that you need to achieve, the consignment program has started and it's ramping. The utility program is ramping. So it's really about executing on that, but also having some additional sales in order to fill up the Mexico plant.
Correct.
Okay. Great. And just one quick question on the balance sheet. The AR seems to have been -- came down drastic meaningfully and the inventory was roughly flattish. So I was really happy about one and disappointed in the other. Can you talk a little bit about the reduction in AR and also about whether -- where you see inventory going?
You bet. So definitely a reduction of $16 million in AR sequentially. Some of that is obviously driven by reduction in revenue quarter-over-quarter, but a lot of that is largely due to favorable collections by our AR group. So we've seen some significant improvements there. In addition to that, like Brett mentioned, we did write off some AR. So that's primarily the result of the reduction in trade receivables there. The inventory, like Brett mentioned, we have 2 one which is consigned, but we have another large program that is material heavy. So the reason we didn't see inventory continue to go down quarter-over-quarter is largely due to us bringing in inventory to support a couple of other programs that we're currently ramping.
Okay. And one of those programs you're ramping, Tony, is the one that you referred to as the utility program.
That is correct, yes.
And we will take our next question from Bill Dezellem with Tieton Capital.
I have a couple of follow-ups. First of all, you all haven't talked a lot about the Mississippi facility in the past. Why is it that this customer chose this facility and the advantages that it brings for them?
Yes, that's a good point, Bill. I think in the past, there's been some fairly flat revenue in Mississippi, some long-standing customers of many years. I think there's a lot of history here down in Mississippi. This particular consigned program, I think, for us strategically was best suited down here, one, because of the labor that's available locally. And then two, I think we are looking to transfer some of those existing programs that have been in Mississippi up into Arkansas into that new Springdale facility we discussed because it's a better fit from a technological standpoint. That leaves the capacity and the labor available for this consigned program down here in [ Corinth ]. It will take some additional capital, but I think we're well on the way proving that this is the right location for that.
Great. And then I understand that you're not providing official guidance. But when you look out at the variables, directionally, are you thinking that revs will be up or down in Q2 versus Q1?
I think in Q2, there won't be any meaningful change.
That's helpful. Okay. And one additional question relative to the -- this general delays that you referenced with new programs. I think it was in the press release. Is it your sense that, that is nearly 100% tied to tariffs and the uncertainty with that? Or is it a broader uncertainty in the overall market or a broader cautiousness? What's your view there?
Yes, [indiscernible] would be my view, Bill, is I think it's both. I think not only are they concerned about the uncertainty of specific tariffs, but I think there also is some uncertainty of consumer demand and how good -- how healthy is the economy. And I think everybody is extra cautious right now, I think, in making any big changes.
And we will take our next question from Sheldon Grodsky with Grodsky Associates.
This is a tricky question to ask, but if I remember correctly, you guys got a new bank relationship sometime in the last year. And as far as I can remember there haven't been too many good things happening since you signed on with them. How is your relationship with your bank lender?
I would state that actually our relationship with our bank is extremely solid and healthy. We meet with them on a quarterly basis, while our income or our actual net income has not met what we had hoped, we are generating cash, and we're actually paying down debt. And there's actually more available on our revolver now than there was a year ago.
[Operator Instructions] And at this time, we have no further questions. I'd now like to turn the call back to Mr. Larsen for any additional or closing remarks.
We'd like to thank you for attending or listening today's conference. Tony and I look forward to talking with you in next quarter.
Thank you. And this does conclude today's call. Thank you for your participation. You may now disconnect.
Financial data from Key Tronic Corporation
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 387 387 |
17%
17%
100%
|
|
| - Direct Costs | 363 363 |
16%
16%
94%
|
|
| Gross Profit | 24 24 |
34%
34%
6%
|
|
| - Selling and Administrative Expenses | 37 37 |
38%
38%
9%
|
|
| - Research and Development Expense | 8.01 8.01 |
13%
13%
2%
|
|
| EBITDA | - - |
-
-
|
|
| - Depreciation and Amortization | - - |
-
-
|
|
| EBIT (Operating Income) EBIT | -21 -21 |
3,769%
3,769%
-5%
|
|
| Net Profit | -48 -48 |
474%
474%
-12%
|
|
In millions USD.
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Key Tronic Corporation Stock News
Company Profile
Key Tronic Corp. engages in the provision of electronics manufacturing services. Its services include electronic and mechanical engineering, assembly, sourcing and procurement, logistics, and new product testing. The company was founded by Lewis G. Zirkle in 1969 and is headquartered in Spokane Valley, WA.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Larsen |
| Employees | 3,539 |
| Founded | 1969 |
| Website | www.keytronic.com |
