Financial Performance - Key Tronic reported net sales of $98.8 million for Q1 fiscal 2026, a decrease of 24.9% from $131.6 million in Q1 fiscal 2025[104]. - The decline in net sales was primarily due to a reduction in demand of approximately $23 million from two longstanding customers and $7 million from delays in new program launches[118]. - Gross margin improved to 8.4% in Q1 fiscal 2026 from 6.2% in the previous quarter, but decreased from 10.1% in the same period of fiscal 2025[105]. - The company experienced a net loss of $2.3 million or $(0.21) per diluted share in Q1 fiscal 2026, compared to net income of $1.1 million or $0.10 per diluted share in Q1 fiscal 2025[108]. - For the three months ended September 27, 2025, the GAAP net loss was $2.255 million compared to a net income of $1.124 million for the same period in 2024[127]. - Adjusted net loss for the same period was $1.109 million, with an adjusted net loss per share of $0.10, down from an adjusted net income of $2.799 million and $0.26 per share in the prior year[127]. Cash Flow and Capital Expenditures - Total cash provided by operating activities was $7.6 million for the three months ended September 27, 2025[110]. - Net cash provided by operating activities was $7.6 million for the three months ended September 27, 2025, compared to $9.9 million for the same period in 2024[129]. - Cash used in investing activities increased to $3.2 million in the latest quarter from $0.4 million in the prior year, primarily for purchasing equipment[133]. - Cash used in financing activities was $4.7 million for the three months ended September 27, 2025, a decrease from $7.8 million in the same period of the previous year[135]. - The company expects capital expenditures to be approximately $8-$10 million for the fiscal year, with funding from internal resources and credit facilities[134]. - The company anticipates that projected cash from operations and available funds will be sufficient to meet working and fixed capital requirements for at least the next 12 months[137]. Customer and Market Dynamics - The concentration of net sales from the top three customers decreased to 30.4% in Q1 fiscal 2026 from 37.5% in the same period of the prior fiscal year[106]. - The order backlog decreased to approximately $139.9 million as of September 27, 2025, down from $210.8 million a year earlier, attributed to softening demand[128]. - Key Tronic anticipates that a new consigned materials program could grow to potentially exceed $20 million in annual revenue during fiscal 2026[118]. Operational Challenges - The company is restructuring its Juarez facility to focus on higher volume manufacturing, with significant headcount reductions already implemented[109]. - The company experienced financial impacts in Q1 of fiscal 2026 due to inventory and receivable write-offs linked to a customer bankruptcy[155]. - The company relies on a limited number of suppliers for critical components, and supply shortages have been observed in certain electronic components, potentially affecting operations[157]. - Changes in customer production timing and demand schedules complicate production scheduling and resource allocation, potentially leading to excess inventory[166]. Regulatory and Compliance Issues - The effective income tax rate increased to 32.9% for Q1 fiscal 2026 from 4.8% in Q1 fiscal 2025, primarily due to federal research and development tax credits[124]. - The company is subject to various environmental regulations, and non-compliance could lead to significant expenses and operational disruptions[168]. - The company has restrictive covenants with financial institutions, including minimum earnings requirements, which have not always been met, potentially leading to unfavorable amendments to credit arrangements[180]. - The company is subject to increased legal, financial, and accounting costs due to compliance with the Sarbanes-Oxley Act and the Dodd-Frank Act, which may impact its results of operations[199]. Financial Risks - The company is exposed to interest rate risk, particularly under its revolving line of credit and term loans, which could adversely affect its financial condition if significant changes occur[184]. - Fluctuations in foreign currency exchange rates, particularly involving the Mexican Peso, Chinese RMB, and Vietnamese Dong, could significantly impact operating costs and financial results[160]. - Increased energy prices, particularly petroleum-based components, could raise raw material and transportation costs, impacting profitability[173]. - The company has identified material weaknesses in its internal controls over financial reporting, which could impact its ability to report financial results accurately and timely[188]. - The company completed a remediation plan to address identified material weaknesses, but there is no assurance that similar issues will not arise in the future[189]. Cybersecurity and Legal Matters - The company has faced cybersecurity incidents, including unauthorized access to IT systems, which materially affected financial condition and operations in Q4 of fiscal year 2024[175]. - The company incurred significant expenses related to legal, accounting, and other professional services due to an internal investigation into accounting irregularities, which could continue to affect its financial condition[193]. Debt and Financing - The company has outstanding borrowings of $64.5 million under its asset-based senior secured revolving credit facility, $3.33 million under its asset-based secured line of credit facility, and $9.6 million on its equipment financing facilities as of September 27, 2025[204]. - The company has entered into a Credit Facility of up to $115 million, maturing on December 3, 2029, to support its financing needs[136]. - The company may face complications with acquisitions that could require additional equity or debt financing, potentially affecting its credit ratings[202]. Stock Performance - The company's stock price has been volatile, subject to fluctuations due to various factors, including its thinly traded nature and variations in quarterly operating results[186].

Core View - Key Tronic Corporation's shares have declined significantly, losing 12.2% since the first quarter of fiscal 2026 results, compared to a 1.3% decline in the S&P 500 index during the same period [1] - The company reported a substantial revenue drop of 24.9% year-over-year, leading to a net loss, contrasting with a profit in the previous year [2][3] Financial Performance - Revenues for the first quarter of fiscal 2026 were $98.8 million, down from $131.6 million a year ago [2] - The net loss was $2.3 million, or 21 cents per share, compared to a net income of $1.1 million, or 10 cents per share, in the prior-year quarter [2] - On a non-GAAP basis, the adjusted net loss was $1.1 million, or 10 cents per share, versus an adjusted profit of $2.8 million, or 26 cents per share, a year earlier [3] - Gross margin decreased to 8.4% from 10.1% a year earlier but improved from 6.2% in the prior quarter [4] - Operating margin turned negative at (0.6%), down from 3.4% last year [5] - Cash flow from operations was $7.6 million, down from $9.9 million in the same period last year [6] Operational Insights - Management noted that the decline in earnings was primarily due to weaker customer demand, delays in program launches, and a significant customer's bankruptcy, which led to a $1.6 million provision [10] - The company is expanding its manufacturing presence in the U.S. and Vietnam while rightsizing operations in Mexico to address ongoing uncertainties [7] - Key Tronic secured new programs in medical technology and industrial equipment, indicating diversification across end markets [8] Future Outlook - Management expects a gradual improvement in operating efficiency and a return to profitability by the end of fiscal 2026, contingent on the ramp-up of new programs [8][12] - Revenue growth for the second quarter is projected to remain unchanged sequentially, but ongoing efficiency initiatives are expected to bolster margins [13] - The company anticipates benefiting from the global shift toward nearshoring and supply-chain diversification [13] Strategic Developments - Key Tronic opened a new manufacturing facility in Springdale, AR, aimed at enhancing its U.S. footprint and technological capabilities [14] - In Vietnam, the company doubled its manufacturing capacity and obtained certification to produce medical devices, with initial production expected later in the fiscal year [14] - These expansions are part of a strategy to strengthen tariff mitigation and capture growing demand for localized manufacturing [15]

Key Tronic (NasdaqGM:KTCC) Q1 2026 Earnings Call November 04, 2025 05:00 PM ET Speaker5Good day, and welcome to the Key Tronic first quarter fiscal year 2026 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.Speaker0Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for ...

Core Insights - Key Tronic Corporation reported total revenue of $98.8 million for the first quarter of fiscal year 2026, a decrease from $131.6 million in the same period of fiscal year 2025, primarily due to reduced demand from a longstanding customer and delays in new program launches [2][6] - The company achieved a gross margin of 8.4% in the first quarter of fiscal year 2026, up from 6.2% in the previous quarter, but down from 10.1% in the same period of fiscal year 2025, attributed to operational efficiencies and a customer bankruptcy impacting revenue [5][6] - Key Tronic continues to expand its manufacturing capabilities in the US and Vietnam, including a new facility in Springdale, Arkansas, as part of its near-shoring and tariff mitigation strategies [3][7] Financial Performance - Total cash flow from operations for the first quarter of fiscal year 2026 was approximately $7.6 million, down from $9.9 million in the same period of fiscal year 2025, enabling the company to reduce its debt by approximately $12.0 million year-over-year [4] - The net loss for the first quarter of fiscal year 2026 was $(2.3) million or $(0.21) per share, compared to net income of $1.1 million or $0.10 per share for the same period of fiscal year 2025 [6][16] - Adjusted net loss for the first quarter of fiscal year 2026 was $(1.1) million or $(0.10) per share, compared to adjusted net income of $2.8 million or $0.26 per share for the same period of fiscal year 2025 [6][21] Business Outlook - The company will not issue revenue or earnings guidance for the second quarter of fiscal year 2026 due to uncertainties surrounding new program ramps and potential tariffs [9] - Key Tronic anticipates long-term growth driven by the diversity and flexibility of its strategic locations and capabilities, with expectations of approximately half of its manufacturing occurring in the US and Vietnam by the end of fiscal 2026 [3][7] - New program wins in medical technology and industrial equipment were reported, with expectations for gradual improvements in operating efficiencies as revenue rebounds [8]

FOR IMMEDIATE RELEASE KEY TRONIC CORPORATION ANNOUNCES RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 2026 Sequential Quarterly Increase in Gross Margins; Continued Program Wins; Positive Cash Flow from Operations Spokane Valley, WA— November 4, 2025 — Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended September 27, 2025. For the first quarter of fiscal year 2026, Key Tronic reported total revenue of $98.8 million, co ...

[PART I](index=4&type=section&id=PART%20I) Provides an overview of Key Tronic's contract manufacturing business, strategies, global operations, and related factors [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Key Tronic, a contract manufacturer, offers integrated engineering and production services, expanding capacity in the US and Vietnam to meet demand and mitigate tariffs [Background](index=4&type=section&id=Background) [Our Industry and Strategy](index=4&type=section&id=Our%20Industry%20and%20Strategy) [Customers and Marketing](index=5&type=section&id=Customers%20and%20Marketing) [Manufacturing](index=5&type=section&id=Manufacturing) [Research, Development, and Engineering](index=6&type=section&id=Research%2C%20Development%2C%20and%20Engineering) [Competition](index=6&type=section&id=Competition) [Trademarks](index=6&type=section&id=Trademarks) [Employees](index=6&type=section&id=Employees) [Backlog](index=6&type=section&id=Backlog) [Foreign Markets](index=6&type=section&id=Foreign%20Markets) [Governmental Regulation](index=6&type=section&id=Governmental%20Regulation) [Information about Our Executive Officers](index=7&type=section&id=Information%20about%20Our%20Executive%20Officers) [Available Information](index=8&type=section&id=Available%20Information) - Key Tronic shifted from keyboard manufacturing to contract manufacturing, leveraging strengths in design, engineering, and global production capabilities[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) - The company plans to significantly increase production capacity in its Arkansas and Vietnam facilities to benefit from growing customer demand for rebalancing contract manufacturing and mitigate tariff impacts[17](index=17&type=chunk) - Order backlog decreased from **$249.6 million** in June 2024 to **$159.1 million** in June 2025, but is not necessarily indicative of future sales due to potential cancellations or rescheduling[33](index=33&type=chunk) Customer Concentration (Percentage of Total Net Sales) | Customer | 2025 | 2024 | | :--------- | :--- | :--- | | Top 5 Customers | 48% | 34% | | Customer A | 25% | 20% | Full-time Employees | Date | Employees | | :--------- | :-------- | | June 28, 2025 | 3,539 | | June 29, 2024 | 4,122 | [Item 1A. Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) Key Tronic faces operational, financial, and cybersecurity risks from foreign operations, customer concentration, supply chain, and internal control issues [RISKS RELATED TO OUR BUSINESS AND STRATEGY](index=9&type=section&id=RISKS%20RELATED%20TO%20OUR%20BUSINESS%20AND%20STRATEGY) [TECHNOLOGY RISKS](index=13&type=section&id=TECHNOLOGY%20RISKS) [RISKS RELATED TO CAPITAL AND FINANCING](index=14&type=section&id=RISKS%20RELATED%20TO%20CAPITAL%20AND%20FINANCING) [RISKS RELATED TO OUR CONTROLS AND PROCEDURES AND THE INTERNAL INVESTIGATION](index=15&type=section&id=RISKS%20RELATED%20TO%20OUR%20CONTROLS%20AND%20PROCEDURES%20AND%20THE%20INTERNAL%20INVESTIGATION) [LEGAL AND ACCOUNTING RISKS](index=16&type=section&id=LEGAL%20AND%20ACCOUNTING%20RISKS) [GENERAL RISKS](index=17&type=section&id=GENERAL%20RISKS) - Operations in Mexico, China, and Vietnam are subject to risks including political/economic instability, tariffs, regulatory changes, and potential loss of tax incentives[48](index=48&type=chunk)[52](index=52&type=chunk) - Quarterly results can fluctuate due to volatile customer demand, timing of new programs, and fixed operating expenses, exacerbated by macroeconomic conditions like inflation and supply chain disruptions[50](index=50&type=chunk)[51](index=51&type=chunk)[56](index=56&type=chunk) - A significant portion of sales comes from a small number of customers (**48% from top five in FY2025**), and the loss or reduction of orders from these customers could materially harm the business[59](index=59&type=chunk)[60](index=60&type=chunk) - The company has experienced and expects to continue experiencing cyberattacks, including a previously disclosed incident in Q4 FY2024 that materially impacted financial condition and results of operations[79](index=79&type=chunk)[80](index=80&type=chunk) - The company has previously identified and remediated material weaknesses in internal control over financial reporting related to revenue recognition and new accounting standards, with ongoing risks of recurrence[90](index=90&type=chunk)[91](index=91&type=chunk) [Item 1B. Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[105](index=105&type=chunk) [Item 1C. Cybersecurity](index=17&type=section&id=Item%201C.%20Cybersecurity) Key Tronic manages cybersecurity risks via NIST CSF, Board oversight, and management, acknowledging past material impacts from incidents [Risk Management and Strategy](index=17&type=section&id=Risk%20Management%20and%20Strategy) [Governance](index=18&type=section&id=Governance) - Key Tronic's cybersecurity processes are based on the NIST CSF, including third-party monitoring and mandatory employee training[105](index=105&type=chunk) - The Board of Directors oversees risk management, with the Audit Committee specifically responsible for cybersecurity threat oversight, receiving regular updates from management[107](index=107&type=chunk) - Risks from cybersecurity threats, including a previously disclosed incident, have materially affected the company's results of operations and financial condition[107](index=107&type=chunk) [Item 2. Properties](index=19&type=section&id=Item%202.%20Properties) Key Tronic operates over 2.19 million sq ft of ISO-certified manufacturing and sales facilities across four countries Operating Facilities by Location and Square Footage | Location | Approx. Sq. Ft. | Type of Interest | | :------------------------ | :-------------- | :--------------- | | Total USA | 1,059,540 | Leased | | Total Mexico | 899,000 | Mixed (Owned/Leased) | | Total China | 103,000 | Leased | | Total Vietnam | 133,000 | Leased | | **Grand Total** | **2,194,540** | | - All facilities are ISO 9001:2015 and CTPAT certified, with specific sites holding additional certifications like IATF 16949 (automotive), ISO 13485:2016 (medical devices), AS9100D (aviation, space, defense), and ISO 14001:2015 (environmental)[112](index=112&type=chunk)[118](index=118&type=chunk) [Item 3. Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings) Management anticipates no material adverse effect from ordinary course lawsuits on financial position, results, or cash flow - The company is party to certain lawsuits or claims in the ordinary course of business[113](index=113&type=chunk) - Management does not believe these proceedings, individually or in aggregate, will have a material adverse effect on financial position, results of operations, or cash flow[113](index=113&type=chunk) [Item 4. Mine Safety Disclosures](index=20&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Key Tronic Corporation - Not Applicable[114](index=114&type=chunk) [PART II](index=21&type=section&id=PART%20II) Details Key Tronic's market for common equity, financial performance, market risks, and financial statements [Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Key Tronic's common stock trades on NASDAQ, with 532 shareholders, and dividend payments are restricted by credit agreements [Market Information](index=21&type=section&id=Market%20Information) [Holders and Dividends](index=21&type=section&id=Holders%20and%20Dividends) [Performance Graph](index=21&type=section&id=Performance%20Graph) - Common stock is traded on the NASDAQ Global Market under the symbol 'KTCC'[115](index=115&type=chunk) - As of June 28, 2025, there were **532 shareholders** of common stock[116](index=116&type=chunk) - The company is restricted from declaring or paying dividends without Bank of Montreal's prior written consent and does not anticipate paying dividends in the foreseeable future[116](index=116&type=chunk) Common Stock High and Low Sales Prices | Quarter | 2025 High | 2025 Low | 2024 High | 2024 Low | | :-------------- | :-------- | :------- | :-------- | :------- | | First Quarter | $6.00 | $3.70 | $6.24 | $4.32 | | Second Quarter | $6.03 | $3.99 | $4.50 | $3.72 | | Third Quarter | $4.28 | $2.56 | $5.14 | $4.04 | | Fourth Quarter | $3.13 | $2.26 | $4.85 | $3.69 | [Item 6: [RESERVED]](index=21&type=section&id=Item%206%3A%20%5BRESERVED%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Key Tronic's FY2025 net sales decreased 17.5% to $467.9 million, resulting in an $8.3 million net loss, despite improved gross margin [Overview](index=22&type=section&id=Overview) [Executive Summary](index=22&type=section&id=Executive%20Summary) [RESULTS OF OPERATIONS (Comparison of the Fiscal Year Ended June 28, 2025 with the Fiscal Year Ended June 29, 2024)](index=23&type=section&id=RESULTS%20OF%20OPERATIONS) [Net Sales](index=23&type=section&id=Net%20Sales) [Cost of Sales](index=24&type=section&id=Cost%20of%20Sales) [Gross Profit](index=24&type=section&id=Gross%20Profit) [Research, Development and Engineering](index=24&type=section&id=Research%2C%20Development%20and%20Engineering) [Selling, General and Administrative](index=24&type=section&id=Selling%2C%20General%20and%20Administrative) [Interest Expense](index=25&type=section&id=Interest%20Expense) [Income Tax Provision](index=25&type=section&id=Income%20Tax%20Provision) [Non-GAAP Financial Measures](index=25&type=section&id=Non-GAAP%20Financial%20Measures) [International Subsidiaries](index=26&type=section&id=International%20Subsidiaries) [RESULTS OF OPERATIONS (Comparison of the Fiscal Year Ended June 29, 2024 with the Fiscal Year Ended July 1, 2023)](index=26&type=section&id=RESULTS%20OF%20OPERATIONS%20%28Comparison%20of%20the%20Fiscal%20Year%20Ended%20June%2029%2C%202024%20with%20the%20Fiscal%20Year%20Ended%20July%201%2C%202023%29) [Capital Resources and Liquidity](index=26&type=section&id=Capital%20Resources%20and%20Liquidity) [Operating Cash Flow](index=26&type=section&id=Operating%20Cash%20Flow) [Investing Cash Flow](index=26&type=section&id=Investing%20Cash%20Flow) [Financing Cash Flow](index=27&type=section&id=Financing%20Cash%20Flow) [Off-Balance Sheet Arrangements and Contractual Obligations](index=27&type=section&id=Off-Balance%20Sheet%20Arrangements%20and%20Contractual%20Obligations) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) [Revenue](index=28&type=section&id=Revenue) [Inactive, Obsolete, and Surplus Inventory Valuation](index=28&type=section&id=Inactive%2C%20Obsolete%2C%20and%20Surplus%20Inventory%20Valuation) [Allowance for Credit Losses](index=29&type=section&id=Allowance%20for%20Credit%20Losses) [Income Taxes](index=29&type=section&id=Income%20Taxes) [New and Future Accounting Pronouncements](index=29&type=section&id=New%20and%20Future%20Accounting%20Pronouncements) - Net sales decreased by **$99.1 million**, with approximately **$48 million** attributed to reduced scrap and component sales from end-of-life programs in FY2024, alongside global economic disruptions and tariff-related delays in new programs[123](index=123&type=chunk)[133](index=133&type=chunk) - The company secured new programs in pest control, personal protection, air purification, automotive, medical technology, and utilities inspection equipment, including a large data processing OEM contract expected to exceed **$20 million** in annual revenue[122](index=122&type=chunk) - Headcount was reduced by approximately **600 employees** in FY2025 to align costs with demand and boost automation, improving competitiveness for new program bids[124](index=124&type=chunk) Key Financial Highlights (FY2025 vs. FY2024) | Metric | FY2025 (in thousands) | FY2024 (in thousands) | Change ($) | Change (%) | | :---------------------------------- | :-------------------- | :-------------------- | :--------- | :--------- | | Net Sales | $467,871 | $566,942 | $(99,071) | -17.5% | | Gross Profit | $36,427 | $39,879 | $(3,452) | -8.7% | | Gross Profit % of Net Sales | 7.8% | 7.0% | +0.8 pts | | | Operating Income | $562 | $6,758 | $(6,196) | -91.7% | | Operating Income % of Net Sales | 0.1% | 1.2% | -1.1 pts | | | Net Loss | $(8,318) | $(2,787) | $(5,531) | +198.5% | | Net Loss Per Share (Diluted) | $(0.77) | $(0.26) | $(0.51) | +196.2% | Revenue by Industry Sector (Percentage of Total Revenue) | Industry | FY2025 | FY2024 | | :----------- | :----- | :----- | | Industrial | 52% | 46% | | Consumer | 38% | 45% | | Communication | 6% | 4% | | Medical | 3% | 3% | | Gaming | — | 1% | | Transportation | 1% | 1% | | **Total** | **100%** | **100%** | Adjusted Net Loss (Non-GAAP) | Metric | FY2025 (in thousands) | FY2024 (in thousands) | | :---------------------------------- | :-------------------- | :-------------------- | | GAAP net loss | $(8,318) | $(2,787) | | Cybersecurity expenses | — | $2,340 | | Severance expenses | $2,908 | $1,743 | | Gain on insurance proceeds (net of losses) | — | $(431) | | Stock-based compensation expense | $218 | $(444) | | Write-off of unamortized loan fees | $1,012 | — | | Income tax effect of non-GAAP adjustments | $(828) | $(642) | | **Adjusted net loss** | **$(5,008)** | **$(221)** | | **Adjusted net loss per share — Diluted** | **$(0.47)** | **$(0.02)** | [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=30&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Key Tronic faces interest rate risk on debt and foreign currency exchange risk, using Mexican Peso forward contracts for hedging [Interest Rate Risk](index=30&type=section&id=Interest%20Rate%20Risk) [Foreign Currency Exchange Risk](index=30&type=section&id=Foreign%20Currency%20Exchange%20Risk) - The company is exposed to interest rate risk from its asset-based senior secured revolving credit facility and line of credit, which fluctuate with SOFR and Iterbancaria de Equilibrio Interest Rate, respectively[173](index=173&type=chunk) - Foreign currency exchange risk arises from operations in Mexico, China, and Vietnam, with transactions in Mexican Peso, Chinese Renminbi, and Vietnamese Dong[175](index=175&type=chunk) - Key Tronic uses Mexican Peso forward contracts to hedge foreign currency fluctuations, with **$12.9 million** in outstanding contracts as of June 28, 2025[175](index=175&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=31&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Key Tronic's audited financial statements, including an unqualified auditor's opinion and a critical audit matter on revenue recognition estimates [Report of Independent Registered Public Accounting Firm](index=31&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) [Critical Audit Matter](index=31&type=section&id=Critical%20Audit%20Matter) [Consolidated Balance Sheets](index=33&type=section&id=Consolidated%20Balance%20Sheets) [Consolidated Statements of Operations](index=34&type=section&id=Consolidated%20Statements%20of%20Operations) [Consolidated Statements of Comprehensive Loss](index=35&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) [Consolidated Statements of Cash Flows](index=36&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) [Consolidated Statements of Shareholders' Equity](index=37&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS](index=38&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [1. Significant Accounting Policies](index=38&type=section&id=1.%20Significant%20Accounting%20Policies) [2. Inventories](index=42&type=section&id=2.%20Inventories) [3. Property, Plant and Equipment](index=42&type=section&id=3.%20Property%2C%20Plant%20and%20Equipment) [4. Long-Term Debt](index=43&type=section&id=4.%20Long-Term%20Debt) [5. Income Taxes](index=45&type=section&id=5.%20Income%20Taxes) [6. Earnings Per Share](index=49&type=section&id=6.%20Earnings%20Per%20Share) [7. Stock-Based Compensation and Benefit Plans](index=49&type=section&id=7.%20Stock-Based%20Compensation%20and%20Benefit%20Plans) [Stock Appreciation Rights](index=49&type=section&id=Stock%20Appreciation%20Rights) [Restricted Stock Units](index=50&type=section&id=Restricted%20Stock%20Units) [8. Commitments and Contingencies](index=50&type=section&id=8.%20Commitments%20and%20Contingencies) [Litigation and Other Matters](index=50&type=section&id=Litigation%20and%20Other%20Matters) [Warranties](index=50&type=section&id=Warranties) [Leases](index=51&type=section&id=Leases) [Internal Investigation](index=51&type=section&id=Internal%20Investigation) [Indemnification Rights](index=51&type=section&id=Indemnification%20Rights) [9. Derivative Financial Instruments](index=51&type=section&id=9.%20Derivative%20Financial%20Instruments) [10. Fair Value Measurements](index=52&type=section&id=10.%20Fair%20Value%20Measurements) [11. Segment Information and Enterprise-Wide Disclosures](index=53&type=section&id=11.%20Segment%20Information%20and%20Enterprise-Wide%20Disclosures) [Products and Services](index=53&type=section&id=Products%20and%20Services) [Geographic Areas](index=53&type=section&id=Geographic%20Areas) [Significant Customers](index=54&type=section&id=Significant%20Customers) [Significant Segment Measures](index=54&type=section&id=Significant%20Segment%20Measures) [12. Revenue](index=54&type=section&id=12.%20Revenue) [Revenue Recognition](index=54&type=section&id=Revenue%20Recognition) [Contract Balances](index=55&type=section&id=Contract%20Balances) [Disaggregation of Revenue](index=56&type=section&id=Disaggregation%20of%20Revenue) [13. Leases](index=56&type=section&id=13.%20Leases) - Baker Tilly US, LLP issued an unqualified opinion on the consolidated financial statements for the years ended June 28, 2025, and June 29, 2024[177](index=177&type=chunk) - A critical audit matter involved auditing revenue recognized over time on manufacturing contracts, specifically management's estimates for total estimated costs at completion of performance obligations[182](index=182&type=chunk)[183](index=183&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Metric | June 28, 2025 | June 29, 2024 | | :-------------------------- | :------------ | :------------ | | Total Current Assets | $234,173 | $288,399 | | Total Assets | $315,874 | $355,343 | | Total Current Liabilities | $91,991 | $104,176 | | Total Liabilities | $198,740 | $231,353 | | Total Shareholders' Equity | $117,134 | $123,990 | Consolidated Statements of Operations Highlights (in thousands) | Metric | FY2025 | FY2024 | | :---------------------------------- | :------- | :------- | | Net sales | $467,871 | $566,942 | | Gross profit | $36,427 | $39,879 | | Operating income | $562 | $6,758 | | Loss before income taxes | $(11,961) | $(5,187) | | Net loss | $(8,318) | $(2,787) | | Net loss per share — Basic | $(0.77) | $(0.26) | Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | FY2025 | FY2024 | | :---------------------------------- | :------- | :------- | | Cash provided by operating activities | $18,929 | $13,776 | | Cash used in investing activities | $(4,199) | $(2,108) | | Cash used in financing activities | $(18,098) | $(10,519) | | Net increase (decrease) in cash | $(3,368) | $1,149 | | Cash and cash equivalents, end of period | $1,384 | $4,752 | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=57&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Key Tronic reported no changes in or disagreements with accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[309](index=309&type=chunk) [Item 9A. Controls and Procedures](index=58&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management assessed disclosure controls and internal control over financial reporting as effective, having remediated prior material weaknesses [Evaluation of Disclosure Controls and Procedures](index=58&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) [Management's Report on Internal Control over Financial Reporting](index=58&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) [Remediation Update](index=58&type=section&id=Remediation%20Update) [Changes in Internal Control over Financial Reporting](index=60&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - As of June 28, 2025, the company's disclosure controls and procedures were deemed effective[311](index=311&type=chunk) - Management concluded that internal control over financial reporting was effective as of June 28, 2025, based on the COSO framework[314](index=314&type=chunk) - Material weaknesses identified as of June 29, 2024, related to revenue recognition for material price variances and the adoption of new accounting standards, have been remediated during fiscal year 2025[315](index=315&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk) - Remediation actions included training, enhanced closing process documentation, and hiring technical accounting finance staff[320](index=320&type=chunk) [Item 9B. Other Information](index=61&type=section&id=Item%209B.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in FY2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during fiscal year 2025[321](index=321&type=chunk) [Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](index=61&type=section&id=Item%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to Key Tronic Corporation - Not applicable[322](index=322&type=chunk) [PART III](index=61&type=section&id=PART%20III) Covers Key Tronic's corporate governance, executive compensation, security ownership, related party transactions, and accounting fees [Item 10. Directors, Executive Officers and Corporate Governance](index=61&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement and Item 1 of Part 1[324](index=324&type=chunk)[325](index=325&type=chunk) - The Board of Directors has adopted a written Code of Conduct applicable to directors and employees, available on the company's website[327](index=327&type=chunk) [Item 11. Executive Compensation](index=61&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2025 Proxy Statement - Executive compensation information is incorporated by reference from the 2025 Proxy Statement[328](index=328&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=61&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and equity compensation plan information is incorporated by reference from the 2025 Proxy Statement - Security ownership and equity compensation plan information is incorporated by reference from the 2025 Proxy Statement[329](index=329&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related person transactions and director independence is incorporated by reference from the 2025 Proxy Statement - Information on related person transactions and director independence is incorporated by reference from the 2025 Proxy Statement[330](index=330&type=chunk) [Item 14. Principal Accounting Fees and Services](index=62&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Principal accounting fees and services information is incorporated by reference from the 2025 Proxy Statement - Principal accounting fees and services information is incorporated by reference from the 2025 Proxy Statement[331](index=331&type=chunk) - Baker Tilly US, LLP is the independent registered public accounting firm[331](index=331&type=chunk) [PART IV](index=62&type=section&id=PART%20IV) Details Key Tronic's financial statements, exhibits, and the absence of a Form 10-K summary [Item 15. Exhibits and Financial Statement Schedule](index=62&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedule) This section lists financial statements and a detailed schedule of exhibits, including corporate governance and loan agreements [FINANCIAL STATEMENTS](index=62&type=section&id=FINANCIAL%20STATEMENTS) [EXHIBITS](index=63&type=section&id=EXHIBITS) - The section includes a list of financial statements and a detailed schedule of exhibits[333](index=333&type=chunk)[334](index=334&type=chunk) - Exhibits cover corporate governance documents, compensation plans, employment contracts, and various loan and security agreements[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk) - XBRL interactive data files are included, with specific taxonomy extension documents[336](index=336&type=chunk) [Item 16. Form 10-K Summary](index=66&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K Summary was provided - No Form 10-K Summary was provided[337](index=337&type=chunk) [SIGNATURES](index=67&type=section&id=SIGNATURES) Official declarations and attestations by Key Tronic Corporation's executive officers and directors [Signatures](index=67&type=section&id=Signatures) The report was signed by Key Tronic's President/CEO and EVP/CFO/Treasurer, along with Directors, on September 16, 2025 - The report was signed by Brett R. Larsen (President and CEO) and Anthony G. Voorhees (EVP, CFO, and Treasurer) on September 16, 2025[339](index=339&type=chunk)

Core Insights - Key Tronic Corporation has opened a new manufacturing facility in Springdale, Arkansas, marking a significant milestone in its operational growth and commitment to innovation [1][2][3] - The new facility represents an investment of over $28 million and is expected to create more than 400 jobs over the next five years, increasing the company's U.S. production capacity by approximately 40% [3][4] Company Overview - Key Tronic has a history of over 55 years in manufacturing, with roots in Arkansas dating back to the 1980s [2][5] - The company provides electronic manufacturing services and has facilities in the United States, Mexico, China, and Vietnam, serving leading original equipment manufacturers [5] Facility Details - The new facility is located at 601 W. Apple Blossom Avenue in Springdale and spans 300,000 square feet [3] - It will serve as a hub for advanced manufacturing, process optimization, and workforce development, offering skill-building opportunities for employees [2][3] Economic Impact - The opening of the facility is expected to enhance support for customers and employees, contributing to the local economy and workforce development initiatives in Arkansas [4] - State officials and community leaders have expressed strong support for Key Tronic's investment, highlighting its alignment with Arkansas's mission to attract technology-focused employers [4]

Core Insights - Key Tronic Corporation's shares increased by 5.3% following the release of its fourth-quarter fiscal 2025 results, outperforming the S&P 500's 0.2% growth during the same period [1] - The company reported a significant decline in revenues for both the fourth quarter and the entire fiscal year, with fourth-quarter revenues at $110.5 million, down from $126.6 million year-over-year, and total fiscal 2025 revenues at $467.9 million, a 17% decrease from $566.9 million in fiscal 2024 [2] - The net loss for the fourth quarter widened to $3.9 million, or 36 cents per share, compared to a loss of $2 million, or 18 cents per share, in the prior year, with a total fiscal year net loss of $8.3 million, or 77 cents per share, compared to a loss of $2.8 million, or 26 cents per share, in the previous year [3] Financial Metrics - The gross margin contracted to 6.2% in the fourth quarter from 7.2% a year earlier, but improved to 7.8% for the full year from 7% in fiscal 2024 due to workforce reductions and operational streamlining [4] - Operating margin decreased to 0.1% for the year from 1.2% in the prior year, impacted by credit loss adjustments [4] - Cash flow from operations improved to $8.8 million in the fourth quarter from $7.7 million in the same quarter last year, totaling $18.9 million for fiscal 2025 compared to $13.8 million in fiscal 2024 [5] Management Insights - The CEO described fiscal 2025 as a year of transition and uncertainty, citing tariff-related disruptions and strategic shifts in manufacturing, including expansion in the U.S. and Vietnam [6] - Key Tronic secured program wins in various industries and entered a significant services contract projected to exceed $20 million in annual revenues [7] - The company faced headwinds from reduced demand and tariff fluctuations, with severance expenses of $2.9 million impacting profitability, although operational efficiencies are expected to enhance margins once revenue growth resumes [8] Balance Sheet and Guidance - Adjustments for expected customer collections amounted to $1.1 million in the fourth quarter and $1.8 million for the year, further pressuring reported results [9] - Key Tronic did not provide revenue or earnings guidance for the first quarter of fiscal 2026 due to ongoing uncertainties but expressed confidence in improving gross margins as production volumes increase [10] Developments and Investments - The company is investing in its global footprint, with a new $28 million facility in Arkansas expected to create over 400 jobs, and production capacity in Vietnam being doubled [11] - These expansions aim to offer customers flexible manufacturing options while addressing rising wage pressures through automation and efficiency improvements [11]

Financial Data and Key Metrics Changes - For fiscal year 2025, total revenue was $467.9 million, down from $566.9 million in fiscal year 2024, reflecting a decrease of approximately $100 million [5][6] - Gross margin for fiscal year 2025 was 7.8%, down from 10.1% in fiscal year 2024, while operating margin was negative 2.1% compared to 7.2% in the previous year [5][6] - The net loss for fiscal year 2025 was $8.3 million or $0.77 per share, compared to a net loss of $2.8 million or $0.26 per share in fiscal year 2024 [8][9] - Cash flow from operations was $18.9 million for fiscal year 2025, an increase from $13.8 million in fiscal year 2024 [11] Business Line Data and Key Metrics Changes - The company experienced a significant reduction in demand from two large longstanding customers, which adversely impacted revenue [5][6] - Despite the revenue decline, gross margins improved year over year due to operational efficiencies and cost-saving initiatives [6][7] Market Data and Key Metrics Changes - The company reduced total liabilities by $32.7 million or 14% from the previous year, indicating improved financial health [10] - The current ratio was 2.5:1, down from 2.8:1 a year ago, while accounts receivable days sales outstanding (DSOs) improved to 86 days from 95 days [11] Company Strategy and Development Direction - The company is focusing on expanding its manufacturing capabilities in the U.S. and Vietnam, with plans to invest over $28 million in a new facility in Arkansas [16][18] - The strategy includes transitioning manufacturing to mitigate tariff impacts and enhance competitiveness, particularly in light of geopolitical tensions [15][21] - The company aims to increase its manufacturing footprint in Vietnam, anticipating that it will play a major role in future growth [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by fluctuating tariffs and reduced demand but expressed optimism about future growth opportunities and operational improvements [13][24] - The company is not providing forward-looking guidance due to uncertainties regarding new product launches [13] - Management emphasized the importance of cost reductions and operational efficiencies in positioning the company for future profitability [24] Other Important Information - The company reduced its workforce by approximately 800 employees, or roughly 30%, primarily in Mexico, to align costs with current demand [6][19] - A new manufacturing services contract with a data processing equipment OEM is expected to generate significant revenue, potentially exceeding $20 million annually [20][46] Q&A Session Summary Question: What is the range of sizes for the new wins in the quarter? - The new wins were predominantly around the $5 million program size, with one data processing contract potentially exceeding $20 million [27] Question: How is the Vietnam medical device manufacturing capability being developed? - The company is certified to build medical products in Vietnam and expects to start a program in fiscal year 2026, anticipating additional opportunities [30] Question: What is driving the increase in new program bids? - The increase is attributed to improved cost competitiveness and pent-up demand for U.S. manufacturing amid tariff uncertainties [32][34] Question: Can you explain the reduction in accounts receivable? - The reduction is primarily due to decreased revenue and improved collection efforts, with no factoring involved [38][39] Question: What is the expected revenue from the new manufacturing services contract? - The expectation is to reach a $20 million annual run rate by fiscal year 2026, with the contract currently ramping up [52][56] Question: How do you see the Mexico operations evolving in fiscal year 2026? - The company anticipates growth in Mexico due to recent program wins and the favorable USMCA agreement for tariff mitigation [55] Question: What are the expectations for gross margin in fiscal year 2026? - The goal is to improve gross margins, potentially reaching 15% to 20% as revenue increases [58][60]

Financial Data and Key Metrics Changes - For Q4 2025, total revenue was $110.5 million, down from $126.6 million in Q4 2024, primarily due to decreased demand from two large customers [5] - Full fiscal year 2025 revenue was $467.9 million, compared to $566.9 million in fiscal year 2024, reflecting a significant decline [5] - Gross margin for Q4 2025 was 6.2%, and operating margin was negative 2.1%, compared to 7.2% and 1.0% respectively in Q4 2024 [5] - The net loss for Q4 2025 was $3.9 million or $0.36 per share, compared to a net loss of $2.0 million or $0.18 per share in Q4 2024 [8] - For the full fiscal year 2025, the net loss was $8.3 million or $0.77 per share, compared to a net loss of $2.8 million or $0.26 per share in fiscal year 2024 [8] Business Line Data and Key Metrics Changes - The company cut approximately 300 jobs in 2025, totaling an 800 headcount reduction for the fiscal year, to align costs with current demand [6] - Despite revenue reduction, gross margins increased year over year due to operational efficiencies and cost-saving initiatives [6] Market Data and Key Metrics Changes - The company reduced inventory by approximately $8 million or 7% year over year, reflecting strategic initiatives to align inventory with current revenue [10] - Total liabilities were reduced by $32.7 million or 14% from the previous year [10] Company Strategy and Development Direction - The company is focusing on expanding its manufacturing footprint in the U.S. and Vietnam, with plans to invest over $28 million in a new facility in Arkansas [17] - The strategy includes enhancing production capabilities and mitigating tariff impacts by diversifying manufacturing locations [19] - The company anticipates that by the end of fiscal 2026, approximately half of its manufacturing will occur in the U.S. and Vietnam [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging year due to reduced demand and tariff uncertainties but expressed optimism about future growth driven by new programs and operational efficiencies [13][26] - The company is not providing forward-looking guidance due to uncertainties in product ramp-up timing [13] Other Important Information - Cash flow from operations was $18.9 million for fiscal year 2025, up from $13.8 million in fiscal year 2024, indicating two consecutive years of positive cash flow [11] - The company is investing selectively in production equipment and automation to prepare for growth [12] Q&A Session Summary Question: What is the range of sizes for the new wins in the quarter? - The new wins were predominantly around $5 million, with potential for a data processing contract to exceed $20 million [29] Question: How is the Vietnam medical device manufacturing capability being developed? - The company is certified to build medical products in Vietnam and expects to start a program in fiscal 2026, anticipating additional opportunities [32] Question: What is driving the increase in new program bids? - Cost reductions and improved global footprint have opened up opportunities, alongside pent-up demand for U.S. manufacturing [36][37] Question: Can you explain the reduction in accounts receivable? - The reduction was primarily due to decreased revenue and improved collection efforts, with no factoring involved [41][42] Question: What is the potential size of the manufacturing services contract with the data processor OEM? - The contract is expected to generate $20 million in revenue, which is significant due to its potential margin improvement [48][49] Question: How do you see Mexico operations growing in fiscal 2026? - Recent program wins are expected to drive growth in Mexico, leveraging the USMCA agreement for tariff mitigation [56] Question: What are the expectations for gross margin in fiscal 2026? - The company aims to improve gross margins and expects incremental gross margins of 15% to 20% as revenue increases [59][61]