UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________ FORM 10-Q ____________________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD FROM TO . Commission File Number 0-11559 ___________________ ...

Shares of Key Tronic Corporation (KTCC) have risen 2% since reporting results for the second quarter of fiscal 2026. This compares with the S&P 500 index’s 3.8% decline over the same time frame. Over the past month, the stock has gained 9.6% compared with the S&P 500’s 1.1% return.Key Tronic’s most recent results cover the second quarter of fiscal 2026, ended Dec. 27, 2025. Revenues declined 15% to $96.3 million from $113.9 million in the year-ago quarter. The company cited reduced demand from a long-standi ...

Key Tronic (NasdaqGM:KTCC) Q2 2026 Earnings call February 03, 2026 05:00 PM ET Company ParticipantsBrett Larsen - President and CEOGeorge Melas - President and Portfolio ManagerTony Voorhees - CFOConference Call ParticipantsMatt Dane - Equity Research AnalystOperatorDay and welcome to the Key Tronic FY 2026 Q2 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 ahea ...

Financial Data and Key Metrics Changes - For Q2 FY 2026, total revenue was $96.3 million, down from $113.9 million in Q2 FY 2025, primarily due to reduced demand from a longstanding customer and the transition of an End-of-Life program [3][4] - The net loss for Q2 FY 2026 was $8.6 million or $0.79 per share, compared to a net loss of $4.9 million or $0.46 per share in Q2 FY 2025 [7] - Adjusted gross margin for Q2 FY 2026 was 7.9%, down from 6.8% in the same period last year, while operating margin was -10.7% compared to -1.0% in Q2 FY 2025 [5][6] Business Line Data and Key Metrics Changes - The company initiated a wind down of manufacturing operations in China, which is expected to save approximately $1.2 million per quarter once completed [5] - The company is also reducing its workforce in Mexico, anticipating savings of approximately $1.5 million per quarter [5] - The consigned materials program is ramping up, which is expected to significantly improve profitability in future quarters [16] Market Data and Key Metrics Changes - Inventory decreased by $12.3 million or 12% year-over-year, while accounts receivable days sales outstanding (DSOs) improved to 77 days from 99 days a year ago [8] - The company continues to face uncertainties in the global economy and volatile trade policies, impacting demand from longstanding customers [4][9] Company Strategy and Development Direction - The company is focusing on nearshoring and tariff mitigation strategies to reduce costs while maintaining operational flexibility [4] - Investments in U.S. and Vietnam facilities are aimed at enhancing production capabilities and meeting evolving customer demands [11][15] - The company anticipates that by the end of FY 2026, approximately half of its manufacturing will occur in the U.S. and Vietnam [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for profitable long-term growth despite ongoing geopolitical tensions and tariff uncertainties [12][19] - The company is not providing forward-looking guidance for Q3 FY 2026 due to uncertainties in the timing of new product ramps [10] - Management believes that the combination of a flexible global footprint and expansive design capabilities will capture new business opportunities [17][18] Other Important Information - The company has reduced its total headcount by approximately 40% in Mexico over the past 18 months to enhance competitiveness [13] - The consigned material model is expected to grow to over $25 million in annual revenue, equivalent to a $100 million turnkey program [16] Q&A Session Summary Question: Can you provide more details on the increased demand from existing customers? - Management indicated that the increased demand is primarily from two longstanding customers, with a significant revenue impact from product maturation and an End-of-Life program [22][23] Question: What is the size and timing of the new programs won? - The automotive program is expected to generate up to $5 million, while pest control and industrial equipment programs could generate $2-$5 million each, with manufacturing in Mexico and the U.S. [24] Question: What are the tariff mitigation strategies being implemented? - The company is focusing on lower-cost Asian facilities to replace China operations and offers production options in the U.S. and Mexico to mitigate tariffs [25][26] Question: What is the expectation for gross margin and revenue growth? - Management anticipates achieving breakeven by the end of the fiscal year, with expectations for revenue growth and margin expansion from the consignment program [39][40] Question: How is the restructuring in Mexico expected to impact future growth? - Management believes that recent efficiency improvements and automation investments will make the Mexico facility more competitive, with expectations for growth moving forward [42][43]

Financial Data and Key Metrics Changes - For Q2 FY 2026, total revenue was $96.3 million, down from $113.9 million in the same period of FY 2025, primarily due to reduced demand from a longstanding customer and the transition of an End-of-Life program [3][4] - The net loss for Q2 FY 2026 was $8.6 million or $0.79 per share, compared to a net loss of $4.9 million or $0.46 per share in Q2 FY 2025 [7] - Adjusted gross margin for Q2 FY 2026 was 7.9%, down from 6.8% in the same period of FY 2025, while operating margin was -10.7% compared to -1.0% [5][6] Business Line Data and Key Metrics Changes - The company initiated a wind down of manufacturing operations in China, which is expected to save approximately $1.2 million per quarter once completed [5] - The company is also reducing its workforce in Mexico, aiming for savings of approximately $1.5 million per quarter [5] - The consigned materials program is ramping up, with potential revenue growth of over $25 million annually, equivalent to a $100 million turnkey program [16] Market Data and Key Metrics Changes - Inventory decreased by $12.3 million or 12% year-over-year, while accounts receivable days sales outstanding (DSOs) improved to 77 days from 99 days a year ago [8] - The company continues to face uncertainties in the global economy and volatile trade policies, impacting customer demand [4][9] Company Strategy and Development Direction - The company is focusing on nearshoring and tariff mitigation strategies to reduce costs while maintaining operational flexibility [4] - Manufacturing operations are being shifted from China to Vietnam and the U.S. to better align with strategic initiatives and customer demand [12][15] - The company anticipates that by the end of FY 2026, approximately half of its manufacturing will occur in the U.S. and Vietnam [15] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are uncertainties in the global economy, new programs are gradually ramping up, and cost efficiencies from recent overhead reductions are taking hold [9][10] - The company is not providing forward-looking guidance for Q3 FY 2026 due to the uncertainty of new product ramps [10] - Management expressed confidence in the potential for profitable long-term growth despite current challenges [19] Other Important Information - The company has reduced its total debt year-over-year by approximately $13.4 million, reflecting its ability to generate cash from operations [8] - Capital expenditures for FY 2026 are expected to be around $8-$10 million, focusing on new production equipment and automation [9] Q&A Session Summary Question: Can you provide more details on the increased demand from existing customers? - Management indicated that the increased demand is primarily from two longstanding customers, with a significant revenue impact from product maturation and an End-of-Life program [23][24] Question: What is the size and timing of the new programs won? - The automotive program is expected to generate up to $5 million and will be manufactured in Mexico, while pest control and industrial equipment programs are expected to generate $2-$5 million and will be produced in the U.S. [25] Question: What are the tariff mitigation strategies being implemented? - The company is focusing on lower-cost production facilities in Vietnam and Mexico, leveraging the USMCA agreement to mitigate tariffs [26][28] Question: What is the outlook for gross margin and revenue growth? - Management expects to achieve breakeven by the end of the fiscal year, with anticipated revenue growth and margin expansion from the consigned program [40][41] Question: How is the restructuring in Mexico expected to impact future growth? - Management believes that recent efficiency improvements and automation investments will make the Mexico facility more competitive, with expectations for growth moving forward [44][45]

Core Insights - Key Tronic Corporation reported a decline in total revenue for the second quarter of fiscal year 2026, amounting to $96.3 million, down from $113.9 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][3] - The company is implementing significant cost reduction initiatives, including the wind-down of its manufacturing operations in China and workforce reductions in Mexico, which are expected to yield approximately $1.2 million and $1.5 million in quarterly savings, respectively [3][4] - Despite the challenges, Key Tronic generated positive cash flow from operations of approximately $6.3 million in the second quarter of fiscal year 2026, compared to $1.5 million in the same period of fiscal year 2025, allowing for a year-over-year debt reduction of approximately $13.4 million [5] Financial Performance - The gross margin for the second quarter of fiscal year 2026 was reported at 0.6%, with an operating margin of (10.7)%, compared to 6.8% and (1.0)% in the same period of fiscal year 2025; however, the adjusted gross margin improved to 7.9% from 6.8% year-over-year [6] - The net loss for the second quarter was $(8.6) million or $(0.79) per share, compared to a net loss of $(4.9) million or $(0.46) per share in the same period of fiscal year 2025 [7] - Adjusted net income for the second quarter was reported at $0.0 million or $0.00 per share, an improvement from an adjusted net loss of $(4.1) million or $(0.38) per share in the same period of fiscal year 2025 [8] Strategic Initiatives - Key Tronic is focusing on near-shoring and tariff mitigation strategies to enhance operational efficiency and reduce costs while maintaining flexibility in its manufacturing capabilities [3][10] - The company has reduced its workforce in Mexico by approximately 40% over the past 18 months and is transitioning production to its facilities in the US and Vietnam, with expectations that half of its manufacturing will occur in these locations by the end of fiscal 2026 [10] - New program wins in sectors such as automotive technology, pest control, and industrial equipment have been achieved, although demand from some longstanding customers remains uncertain due to geopolitical tensions and tariff issues [10][11]

Financial Performance - Key Tronic reported total revenue of $96.3 million for Q2 FY2026, down 15.5% from $113.9 million in Q2 FY2025[2] - The net loss for Q2 FY2026 was $(8.6) million or $(0.79) per share, compared to a net loss of $(4.9) million or $(0.46) per share in Q2 FY2025[7] - For the first six months of FY2026, total revenue was $195.1 million, down from $245.4 million in the same period of FY2025[2] - GAAP net loss for the three months ended December 27, 2025, was $8,570 thousand, compared to a loss of $4,914 thousand for the same period in 2024[25] - Adjusted net income for the three months ended December 27, 2025, was $21 thousand, a significant improvement from a loss of $4,082 thousand in the prior year[25] Margins and Costs - Gross margin decreased to 0.6% in Q2 FY2026 from 6.8% in Q2 FY2025, while adjusted gross margin improved to 7.9% from 6.8%[6] - Adjusted gross margin improved to 7.9% for the three months ended December 27, 2025, compared to 6.8% in the same period last year[25] - GAAP cost of sales for the three months ended December 27, 2025, was $95,759 thousand, down from $106,147 thousand, a decrease of 9.5%[25] Cash Flow and Assets - Total cash flow from operations was approximately $6.3 million in Q2 FY2026, significantly up from $1.5 million in Q2 FY2025[5] - Total assets increased to $325,267 thousand from $315,874 thousand, reflecting a growth of 1.24%[23] - Cash and cash equivalents decreased to $788 thousand from $1,384 thousand, a decline of 43%[23] Liabilities and Equity - Total current liabilities rose to $102,105 thousand, up from $91,991 thousand, marking an increase of 11.5%[23] - Long-term debt decreased to $90,168 thousand from $98,936 thousand, a reduction of 8.9%[23] - Total shareholders' equity decreased to $106,174 thousand from $117,134 thousand, a decline of 9.4%[23] Operational Changes - Key Tronic initiated a wind-down of its manufacturing operations in China, expected to save approximately $1.2 million per quarter post-completion[3] - Workforce reductions in Mexico are anticipated to provide an additional $1.5 million in quarterly savings starting in Q3 FY2026[4] - The company has reduced its total headcount by approximately 40% in Mexico over the past 18 months[9] Future Outlook - Key Tronic will not issue revenue or earnings guidance for Q3 FY2026 due to macroeconomic uncertainties[10] - The company expects to see revenue gradually rebound and a return to profitability by the end of FY2026[9] - The company incurred severance expenses of $4,293 thousand in the three months ended December 27, 2025, compared to $12 thousand in the same period last year[25]

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]

Financial Data and Key Metrics Changes - For Q1 fiscal year 2026, total revenue was reported at $98.8 million, a decrease from $131.6 million in the same period of fiscal year 2025 [3][4] - Gross margin improved sequentially to 8.4% from 6.2% in the previous quarter, but decreased from 10.1% year-over-year [4][5] - The company reported a net loss of $2.3 million, or $0.21 per share, compared to net income of $1.1 million, or $0.10 per share, in the same period last year [6][8] - Adjusted net loss 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] Business Line Data and Key Metrics Changes - The consigned materials program has begun to ramp, which is expected to lower reported revenue compared to traditional turnkey programs, while gross margin is projected to improve [4][5] - The company won new programs in medical technology and industrial equipment during the quarter, with the medical program valued at approximately $5 million and two industrial programs combined at around $6 million [20][14] Market Data and Key Metrics Changes - Demand from longstanding customers has reduced total revenues compared to last year's first quarter results, influenced by global tariff uncertainties and macroeconomic conditions [11][12] - The Vietnam facility has doubled its manufacturing capacity, now capable of supporting anticipated future medical device manufacturing [12][13] Company Strategy and Development Direction - The company is focused on expanding production capacity in the U.S. and Vietnam to mitigate tariff impacts and meet customer demand for rebalancing contract manufacturing [11][12] - Strategic initiatives include enhancing materials resource planning algorithms and aligning inventory with current revenue [7][8] - The company anticipates that by the end of fiscal 2026, approximately half of its manufacturing will occur in the U.S. and Vietnam [13] Management's Comments on Operating Environment and Future Outlook - Management noted that uncertainties surrounding global tariffs and the macroeconomic outlook continue to delay new program launches [11][12] - The company expects to see growth in U.S. and Vietnam production, with a strong pipeline of potential new business [10][18] - Management refrained from providing forward-looking guidance for Q2 fiscal year 2026 due to uncertainties in timing for new product ramps [10] Other Important Information - Total cash flow from operations for Q1 fiscal year 2026 was approximately $7.6 million, down from $9.9 million in the same period of fiscal year 2025 [9] - The company reduced total liabilities by $21.8 million, or 9%, from a year ago, while accounts receivable days sales outstanding (DSOs) improved to 81 days from 92 days [8][9] Q&A Session Summary Question: What was the size of the new programs won this quarter? - The medical program was roughly about $5 million, and the two industrial programs combined are around $6 million [20] Question: Will the medical production capabilities be in Vietnam? - The intent is to have production for medical devices in Vietnam later this fiscal year, as certification has been received [21][22] Question: What revenue was generated from the consigned program this quarter? - The consigned program generated just over $1 million in revenue during the first quarter, with expectations to exceed $20 million annually [26] Question: What factors will influence the success of the consigned program? - The success depends on the customer's supply chain capabilities and timely provision of components [27][30] Question: What is the current status of the utility product program? - The utility product program experienced a delay but is ramping nicely in the second quarter [34] Question: What is the situation regarding excess capacity in Mexico? - The company has excess capacity in Mexico but expects to fill it with increased activity in the latter half of the fiscal year [40][41] Question: How is the relationship with the bank lender? - The relationship with the bank is solid, with cash generation and debt reduction being positive indicators [94]