Core Insights - Key Tronic Corporation reported a decline in revenue for both the fourth quarter and full fiscal year 2025, attributed to reduced demand from longstanding customers and delays in new program launches due to tariff fluctuations [2][3] - The company is implementing cost reduction initiatives, including a significant workforce reduction, to align costs with current demand and enhance competitiveness [3][5] - Despite the challenges, Key Tronic anticipates long-term growth and profitability, supported by new manufacturing contracts and expansion of production capacity in the US and Vietnam [8][9] Financial Performance - For Q4 FY 2025, total revenue was $110.5 million, down from $126.6 million in Q4 FY 2024; for the full year, revenue decreased to $467.9 million from $566.9 million [2] - The net loss for Q4 FY 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 FY 2024; the full year net loss was $(8.3) million or $(0.77) per share, compared to $(2.8) million or $(0.26) per share in FY 2024 [6][7] - Cash flow from operations increased to $8.8 million in Q4 FY 2025 from $7.7 million in Q4 FY 2024, and for the full year, it rose to $18.9 million from $13.8 million [4] Operational Changes - The company reduced its workforce by approximately 300 jobs in Q4 FY 2025, totaling around 800 job cuts for the fiscal year, aimed at improving operational efficiency [3] - Key Tronic is expanding its manufacturing footprint with new facilities in the US and increased capacity in Vietnam to mitigate tariff impacts and enhance competitiveness [3][8] - The gross margin for Q4 FY 2025 was 6.2%, down from 7.2% in Q4 FY 2024, while the full year gross margin improved to 7.8% from 7.0% in FY 2024, reflecting operational efficiencies despite severance costs [5] Business Outlook - The company will not provide revenue or earnings guidance for Q1 FY 2026 due to uncertainties surrounding new program ramps and potential tariffs [10] - Key Tronic is optimistic about future growth, particularly with new contracts in various sectors, including pest control and medical technology, which are expected to contribute significantly to revenue in FY 2026 [9]

[Press Release Overview](index=1&type=section&id=Press%20Release%20Overview) [Announcement of Results](index=1&type=section&id=Announcement%20of%20Results) Key Tronic Corporation announced its financial results for the fourth quarter and full fiscal year ended June 28, 2025, highlighting a challenging period marked by reduced demand and tariff disruptions - Key Tronic Corporation (Nasdaq: KTCC) announced its financial results for the fourth quarter and full fiscal year ended June 28, 2025[2](index=2&type=chunk) [Financial Performance Highlights (FY2025 & Q4 FY2025)](index=1&type=section&id=Financial%20Performance%20Highlights%20(FY2025%20%26%20Q4%20FY2025)) [Revenue Analysis](index=1&type=section&id=Revenue%20Analysis) Key Tronic experienced a significant decline in revenue for both the fourth quarter and the full fiscal year 2025, primarily due to reduced demand from key customers and delays in new program launches caused by global tariff fluctuations Revenue Performance (FY2025 vs. FY2024) | Period | FY2025 Revenue (Millions) | FY2024 Revenue (Millions) | YoY Change (%) | | :---------------- | :------------------------ | :------------------------ | :------------- | | Fourth Quarter | $110.5 | $126.6 | -12.7% | | Full Fiscal Year | $467.9 | $566.9 | -17.5% | - Revenue was adversely impacted by reduced demand from two longstanding customers and delays to new program launches due to escalating global tariffs[3](index=3&type=chunk) [Gross and Operating Margins](index=1&type=section&id=Gross%20and%20Operating%20Margins) Gross margin decreased in Q4 FY2025 but improved for the full fiscal year due to operational efficiencies from workforce reductions, despite severance expenses. Operating margin declined significantly for the full year, impacted by credit loss adjustments Margin Performance (FY2025 vs. FY2024) | Metric | Q4 FY2025 (%) | Q4 FY2024 (%) | FY2025 (%) | FY2024 (%) | | :-------------- | :-------- | :-------- | :----- | :----- | | Gross Margin | 6.2% | 7.2% | 7.8% | 7.0% | | Operating Margin| N/A | N/A | 0.1% | 1.2% | - Q4 gross margin decrease was related to reduced revenue and **$0.1 million** in severance expenses. Full fiscal year gross margin increase was due to operational efficiencies from workforce reductions, offset by **$2.9 million** in severance expenses[6](index=6&type=chunk) - Full fiscal year operating margin decline was primarily due to **$1.8 million** in credit loss adjustments[6](index=6&type=chunk) [Net Loss and EPS (GAAP)](index=1&type=section&id=Net%20Loss%20and%20EPS%20(GAAP)) The company reported increased net losses and diluted EPS losses for both the fourth quarter and the full fiscal year 2025, primarily driven by substantial revenue reductions, higher severance expenses, and adjustments for estimated customer collections GAAP Net Loss and EPS (FY2025 vs. FY2024) | Metric | Q4 FY2025 (Millions)| Q4 FY2024 (Millions)| FY2025 (Millions)| FY2024 (Millions)| | :----------------- | :-------- | :-------- | :----- | :----- | | Net Loss | $(3.9) | $(2.0) | $(8.3) | $(2.8) | | EPS (Diluted) | $(0.36) | $(0.18) | $(0.77)| $(0.26)| - Increased net losses were primarily related to large reductions in revenue, increased severance expense, and **$1.1 million** (Q4) and **$1.8 million** (FY) in adjustments for estimated collections from customers[7](index=7&type=chunk) [Adjusted Net Loss and EPS (Non-GAAP)](index=1&type=section&id=Adjusted%20Net%20Loss%20and%20EPS%20(Non-GAAP)) Key Tronic's adjusted net loss and adjusted diluted EPS also increased significantly for both the fourth quarter and the full fiscal year 2025, reflecting a more severe loss when excluding certain non-GAAP adjustments Adjusted Net Loss and EPS (Non-GAAP) (FY2025 vs. FY2024) | Metric | Q4 FY2025 (Millions)| Q4 FY2024 (Millions)| FY2025 (Millions)| FY2024 (Millions)| | :------------------------- | :-------- | :-------- | :----- | :----- | | Adjusted Net Loss | $(3.8) | $(0.7) | $(5.0) | $(0.2) | | Adjusted EPS (Diluted) | $(0.35) | $(0.06) | $(0.47)| $(0.02)| [Cash Flow from Operations](index=1&type=section&id=Cash%20Flow%20from%20Operations) Cash flow provided by operations improved for both the fourth quarter and the full fiscal year 2025, enabling the company to continue reducing its debt Cash Flow from Operations (FY2025 vs. FY2024) | Period | FY2025 Cash Flow (Millions) | FY2024 Cash Flow (Millions) | YoY Change (Millions) | | :--------------- | :-------------------------- | :-------------------------- | :-------------------- | | Fourth Quarter | $8.8 | $7.7 | +$1.1 | | Full Fiscal Year | $18.9 | $13.8 | +$5.1 | - The increase in cash from operations allowed the Company to continue reducing its debt during the fiscal year[5](index=5&type=chunk) [Strategic Initiatives and Operational Updates](index=1&type=section&id=Strategic%20Initiatives%20and%20Operational%20Updates) [Cost Reduction and Efficiency Measures](index=1&type=section&id=Cost%20Reduction%20and%20Efficiency%20Measures) Key Tronic implemented significant cost reduction initiatives, including substantial headcount reductions and increased automation, to align costs with demand and enhance competitiveness - Approximately **300 jobs** were cut in Q4 FY2025, totaling about **800 headcount reductions** for the full fiscal year 2025[4](index=4&type=chunk) - These measures improved competitiveness for new program bids and are part of ongoing efforts to streamline international and domestic operations[4](index=4&type=chunk)[10](index=10&type=chunk) [Manufacturing Footprint Expansion and Tariff Mitigation](index=1&type=section&id=Manufacturing%20Footprint%20Expansion%20and%20Tariff%20Mitigation) To counter tariff disruptions and support near-shoring, Key Tronic is expanding its manufacturing capacity with a new US facility and added capacity in Vietnam, aiming for these facilities to handle approximately half of its manufacturing by the end of fiscal year 2026 - Expanding manufacturing footprint with a new US facility and added capacity in Vietnam to support near-shoring and tariff mitigation strategies[4](index=4&type=chunk) - These enhancements are expected to be fully operational in the first half of fiscal 2026, with approximately **half of manufacturing** anticipated in US and Vietnam facilities by the end of fiscal 2026[9](index=9&type=chunk)[10](index=10&type=chunk) [New Program Wins and Customer Contracts](index=2&type=section&id=New%20Program%20Wins%20and%20Customer%20Contracts) Despite challenges, Key Tronic secured new programs across diverse sectors and announced a significant new consigned manufacturing services contract with a large data processing OEM, which has substantial revenue potential - Won new programs in pest control, personal protection, air purification, automotive, medical technology, and utilities inspection equipment[10](index=10&type=chunk) - Announced a new manufacturing services contract with a large data processing OEM for a consigned program in Corinth, Mississippi, estimated to eventually exceed **$20 million** in annual revenue[10](index=10&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) [CEO's Perspective on FY2025 Challenges and Future Growth](index=1&type=section&id=CEO's%20Perspective%20on%20FY2025%20Challenges%20and%20Future%20Growth) CEO Brett Larsen acknowledged the significant impact of tariff uncertainty on new program delays in FY2025. He emphasized strategic investments in US and Vietnam production capacity and ongoing operational streamlining to manage tariffs, enhance competitiveness, and position the company for long-term growth and profitability - CEO Brett Larsen stated that unprecedented tariff uncertainty significantly delayed new program ramps from customers during fiscal 2025[9](index=9&type=chunk) - The company is building new production capacity in the US and Vietnam and right-sizing its Mexico facility to manage tariffs and remain cost-competitive[9](index=9&type=chunk) - Despite challenges, the CEO believes Key Tronic is well-positioned for increased growth and profitability over the longer term, supported by new program wins and operational efficiencies[10](index=10&type=chunk) [Business Outlook](index=2&type=section&id=Business%20Outlook) [Q1 FY2026 Guidance](index=2&type=section&id=Q1%20FY2026%20Guidance) Due to continued uncertainty regarding potential tariffs and the timing of new program ramps, Key Tronic will not be issuing revenue or earnings guidance for the first quarter of fiscal year 2026 - Key Tronic will not be issuing revenue or earnings guidance for the first quarter of fiscal year 2026 due to uncertainty in the timing of new program ramps and potential tariffs[11](index=11&type=chunk) [Additional Information](index=2&type=section&id=Additional%20Information) [About Key Tronic](index=2&type=section&id=About%20Key%20Tronic) Key Tronic is a leading contract manufacturer providing comprehensive electronic manufacturing services, including design, materials management, assembly, testing, and distribution, from facilities in the US, Mexico, China, and Vietnam - Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services[13](index=13&type=chunk) - Services include full engineering, materials management, worldwide manufacturing, assembly, in-house testing, and global distribution from facilities in the United States, Mexico, China, and Vietnam[13](index=13&type=chunk) [Conference Call Information](index=2&type=section&id=Conference%20Call%20Information) Key Tronic hosted a conference call on August 27, 2025, to discuss its financial results, with details provided for live access and replay via webcast and phone - A conference call was hosted on August 27, 2025, at 2:00 PM Pacific (5:00 PM Eastern) to discuss financial results[12](index=12&type=chunk) - Broadcast and replay available at www.keytronic.com under 'Investor Relations' or via phone[12](index=12&type=chunk) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section provides a standard disclaimer regarding forward-looking statements, outlining the nature of such statements and the various factors, risks, and uncertainties that could cause actual results to differ materially from projections - The press release contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[14](index=14&type=chunk) - Key risks include global economic environment, governmental legislation (tariffs), supply chain availability, customer forecasts, new program timing, and legal proceedings[14](index=14&type=chunk) [Non-GAAP Financial Measures Explanation](index=3&type=section&id=Non-GAAP%20Financial%20Measures%20Explanation) Key Tronic uses non-GAAP financial measures, specifically adjusted net loss and adjusted net loss per share, to provide greater transparency into core operations and facilitate period-to-period performance comparisons by excluding certain income and expense items - Non-GAAP financial measures, adjusted net loss and adjusted net loss per share, are used to supplement GAAP results[15](index=15&type=chunk) - These measures aim to provide greater transparency into core operations and facilitate performance comparisons by excluding certain items[15](index=15&type=chunk) [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show a decline in net sales and a shift from operating income to operating loss for the fourth quarter, and a significant reduction in operating income for the full fiscal year 2025, leading to increased net losses Consolidated Statements of Operations (Selected Data, In thousands) | Metric | Three Months Ended June 28, 2025 (Thousands) | Three Months Ended June 29, 2024 (Thousands) | Twelve Months Ended June 28, 2025 (Thousands) | Twelve Months Ended June 29, 2024 (Thousands) | | :--------------------------- | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $110,486 | $126,556 | $467,871 | $566,942 | | Gross profit | $6,811 | $9,172 | $36,427 | $39,879 | | Total operating expenses | $9,113 | $9,056 | $35,865 | $33,121 | | Operating income (loss) | $(2,302) | $116 | $562 | $6,758 | | Net Loss | $(3,924) | $(1,986) | $(8,318) | $(2,787) | | Net loss per share — Basic | $(0.36) | $(0.18) | $(0.77) | $(0.26) | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets as of June 28, 2025, show a decrease in total assets, primarily driven by reductions in current assets like trade receivables and inventories. Total liabilities also decreased, with a notable reduction in long-term debt Consolidated Balance Sheets (Selected Data, In thousands) | Account | June 28, 2025 (Thousands) | June 29, 2024 (Thousands) | | :--------------------------- | :------------ | :------------ | | Cash and cash equivalents | $1,384 | $4,752 | | Trade receivables, net | $96,142 | $132,559 | | Inventories, net | $97,321 | $105,099 | | Total current assets | $234,173 | $288,399 | | Total assets | $315,874 | $355,343 | | Accounts payable | $63,725 | $79,394 | | Current portion of long-term debt | $6,215 | $3,123 | | Long-term debt, net | $98,936 | $116,383 | | Total liabilities | $198,740 | $231,353 | | Total shareholders' equity | $117,134 | $123,990 | [Reconciliation of GAAP to Non-GAAP Measures](index=6&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) This section provides a reconciliation of GAAP net loss to adjusted net loss, detailing adjustments for items such as cybersecurity expenses, severance expenses, stock-based compensation, and write-off of unamortized loan fees, to arrive at the non-GAAP adjusted figures Reconciliation of GAAP to Non-GAAP Measures (Selected Data, In thousands) | Adjustment Item | Three Months Ended June 28, 2025 (Thousands) | Three Months Ended June 29, 2024 (Thousands) | Twelve Months Ended June 28, 2025 (Thousands) | Twelve Months Ended June 29, 2024 (Thousands) | | :------------------------------- | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | GAAP net loss | $(3,924) | $(1,986) | $(8,318) | $(2,787) | | Cybersecurity expenses | — | $2,340 | — | $2,340 | | Severance expenses | $51 | $(108) | $2,908 | $1,743 | | Stock-based compensation expense | $109 | $(607) | $218 | $(444) | | Write-off of unamortized loan fees | — | — | $1,012 | — | | Income tax effect of non-GAAP adjustments | $(32) | $(325) | $(828) | $(642) | | Adjusted net loss | $(3,796) | $(686) | $(5,008) | $(221) | | Adjusted net loss per share — non GAAP Diluted | $(0.35) | $(0.06) | $(0.47) | $(0.02) |

Part I: Financial Information [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Key Tronic Corporation's unaudited condensed consolidated financial statements for the period ended March 29, 2025, are presented, covering Balance Sheets, Operations, and Cash Flows [Condensed Consolidated Financial Statements](index=4&type=section&id=Condensed%20Consolidated%20Financial%20Statements) The company reported a net loss of **$0.6 million** for Q3 and **$4.4 million** for the nine months ended March 29, 2025, with total assets decreasing to **$328.6 million** Condensed Consolidated Balance Sheet Data (in millions) | | March 29, 2025 | June 29, 2024 | | :--- | :--- | :--- | | **Total current assets** | $252.8 | $288.4 | | **Total assets** | $328.6 | $355.3 | | **Total current liabilities** | $92.8 | $104.2 | | **Total liabilities** | $209.0 | $231.4 | | **Total shareholders' equity** | $119.6 | $124.0 | Condensed Consolidated Statement of Operations Data (in millions) | | Three Months Ended Mar 29, 2025 | Nine Months Ended Mar 29, 2025 | | :--- | :--- | :--- | | **Net sales** | $112.0 | $357.4 | | **Gross profit** | $8.6 | $29.6 | | **Operating income (loss)** | $(0.5) | $2.9 | | **Net loss** | $(0.6) | $(4.4) | | **Net loss per share — Diluted** | $(0.06) | $(0.41) | Condensed Consolidated Statement of Cash Flows Data (in millions) | | Nine Months Ended Mar 29, 2025 | Nine Months Ended Mar 30, 2024 | | :--- | :--- | :--- | | **Cash provided by operating activities** | $10.1 | $6.1 | | **Cash used in investing activities** | $(3.0) | $(1.0) | | **Cash used in financing activities** | $(9.4) | $(3.4) | | **Net (decrease) increase in cash** | $(2.3) | $1.7 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, new credit facilities including a **$115 million** revolving facility, and a tax holiday in Vietnam, significantly reducing the tax rate - Liquidity is supported by **$10.1 million** cash from operations for the nine months ended March 29, 2025, and new credit facilities, including a **$115 million** asset-based revolving credit facility and a **$28 million** term loan secured on December 3, 2024[24](index=24&type=chunk)[25](index=25&type=chunk) - Revenue is primarily recognized 'over-time' using a cost-to-cost input method for customer-specific products with enforceable payment rights[30](index=30&type=chunk) Long-Term Debt Composition (in millions) | Debt Instrument | March 29, 2025 | | :--- | :--- | | Asset-based senior secured revolving credit facility | $79.5 | | Domestic term loan - Callodine | $27.3 | | Foreign line of credit | $4.0 | | Other term loans | $5.2 | | **Total debt** | **$115.9** | - The company benefits from a **0%** tax rate in Vietnam for four years starting fiscal 2021, followed by reduced rates[60](index=60&type=chunk) - On May 13, 2025, the company obtained waivers for non-compliance with financial covenants related to its Term Loan and Credit Agreement for the period ending March 29, 2025[49](index=49&type=chunk)[55](index=55&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a **21.4%** YoY quarterly revenue decline to **$112.0 million**, improved gross margin to **7.7%**, and strategic production shifts to mitigate tariff risks and capture onshoring trends [Executive Summary](index=22&type=section&id=Executive%20Summary) Q3 FY2025 saw new program wins, a **21.4%** YoY revenue decline to **$112.0 million**, but gross margin improved to **7.7%** due to cost-cutting and strategic facility restructuring - New programs were won in telecommunications, pest control, energy storage, medical technology, and temperature-controlled shipping solutions[100](index=100&type=chunk) Q3 FY2025 vs Q3 FY2024 Performance | Metric | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Net Sales | $112.0M | $142.4M | | Gross Margin | 7.7% | 5.7% | | Net Loss | $(0.6)M | $(2.2)M | | Diluted EPS | $(0.06) | $(0.21) | - The company is restructuring its Juarez facility for higher volume manufacturing and expanding Arkansas and Vietnam capacities to leverage onshoring and mitigate tariffs[106](index=106&type=chunk) [Results of Operations](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) Q3 net sales decreased **21.4%** YoY to **$112.0 million** with gross margin improving to **7.7%**, while nine-month net sales fell **18.8%** to **$357.4 million** with gross margin at **8.3%** Comparison of Three Months Ended (in millions) | | Mar 29, 2025 | Mar 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $112.0 | $142.4 | $(30.5) | | Gross profit | $8.6 | $8.1 | $0.5 | | Gross Margin | 7.7% | 5.7% | +2.0 ppt | | Net loss | $(0.6) | $(2.2) | $1.6 | - The quarterly net sales decrease was primarily due to worldwide economic disruptions, global tariffs, and reduced customer demand[115](index=115&type=chunk) Comparison of Nine Months Ended (in millions) | | Mar 29, 2025 | Mar 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $357.4 | $440.4 | $(83.0) | | Gross profit | $29.6 | $30.7 | $(1.1) | | Gross Margin | 8.3% | 7.0% | +1.3 ppt | | Net loss | $(4.4) | $(0.8) | $(3.6) | - The nine-month net sales decrease was driven by economic disruptions, component shortages, and a **~$44 million** decrease in excess inventory and scrap sales due to program endings[128](index=128&type=chunk) [Capital Resources and Liquidity](index=28&type=section&id=CAPITAL%20RESOURCES%20AND%20LIQUIDITY) The company generated **$10.1 million** in operating cash flow for the nine months ended March 29, 2025, supported by new **$115 million** revolving credit and **$28 million** term loan facilities - Net cash provided by operating activities was **$10.1 million** for the nine months ended March 29, 2025, up from **$6.1 million** in the prior year period[140](index=140&type=chunk) - Operating cash flow increased primarily due to a **$19.6 million** decrease in accounts receivable and a **$5.8 million** decrease in inventory[141](index=141&type=chunk) - On December 3, 2024, the company secured a new **$115 million** asset-based revolving credit facility and a **$28 million** term loan, expected to provide sufficient liquidity for the next 12 months[147](index=147&type=chunk)[148](index=148&type=chunk) [Backlog](index=28&type=section&id=BACKLOG) Order backlog decreased to **$138.1 million** as of March 29, 2025, from **$275.8 million** a year prior, primarily due to softer demand for Mexico-based programs Order Backlog Comparison | Date | Backlog Amount | | :--- | :--- | | March 29, 2025 | $138.1 million | | March 30, 2024 | $275.8 million | - Backlog decreased due to softer demand for Mexico-based programs, partially offset by higher U.S. demand, with future increases expected from recent program wins[139](index=139&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from fluctuating interest rates on its SOFR-linked debt and foreign currency exchange rates from operations in Mexico, China, and Vietnam - Interest rate risk arises from the asset-based senior secured revolving credit facility, which fluctuates with SOFR rates[212](index=212&type=chunk) - Foreign currency exchange risk stems from operations in Mexico, China, and Vietnam, partially hedged by Mexican Peso forward contracts[214](index=214&type=chunk) - As of March 29, 2025, **$20.9 million** in foreign currency forward contracts were outstanding to manage Mexican Peso exposure[214](index=214&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of March 29, 2025, due to un-remediated material weaknesses in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 29, 2025[217](index=217&type=chunk) - Ineffectiveness stems from material weaknesses in internal control over financial reporting related to revenue recognition and new accounting standard adoption, as previously disclosed[196](index=196&type=chunk)[217](index=217&type=chunk) - Remediation efforts, including staff training and enhanced procedures, are underway, but material weaknesses are not yet fully resolved[219](index=219&type=chunk)[220](index=220&type=chunk) Part II: Other Information [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, which management does not expect to have a material adverse effect on its financial position or results - The company is party to certain lawsuits or claims arising in the ordinary course of business[222](index=222&type=chunk) - Management does not expect these legal proceedings to materially adversely affect the company's financial condition or results[222](index=222&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks including customer and supplier dependency, foreign currency fluctuations, cyberattacks, debt covenant non-compliance, and material weaknesses in internal controls - **Business Risks:** The company faces risks from international operations, dependency on a small number of customers for sales, and reliance on limited critical component suppliers[152](index=152&type=chunk)[161](index=161&type=chunk)[165](index=165&type=chunk) - **Technology Risks:** The company is dependent on digital technologies and subject to cyberattacks, with a previously disclosed material incident in May 2024 and ongoing threats[184](index=184&type=chunk)[185](index=185&type=chunk) - **Financial Risks:** Restrictive debt covenants, past non-compliance, potential accelerated debt repayment, and interest rate risk on variable-rate debt pose significant financial risks[189](index=189&type=chunk)[190](index=190&type=chunk)[193](index=193&type=chunk) - **Control & Legal Risks:** Material weaknesses in internal control over financial reporting, if un-remediated, could lead to inaccurate reporting, delisting, regulatory action, and loss of investor confidence[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) - **Trade Policy Risks:** Majority of manufacturing outside the U.S. (China, Mexico) exposes the company to tariffs and U.S. trade policy changes, potentially increasing costs and reducing revenue[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) Recent events include a **10%** voluntary salary reduction for executive leadership and Board, and waivers obtained for non-compliance with debt covenants for the quarter ended March 29, 2025 - On May 12, 2025, executive leadership and the Board agreed to a voluntary **10%** temporary reduction in base salaries and cash retainers for cost reduction[226](index=226&type=chunk) - On May 13, 2025, the company amended its Term Loan and Credit Agreement to waive a default related to non-compliance with minimum earnings covenants for the period ending March 29, 2025[227](index=227&type=chunk)[228](index=228&type=chunk)

Core Viewpoint - Key Tronic Corporation is facing significant challenges in the third quarter of fiscal 2025, with a notable decline in revenues due to global tariff volatility and reduced customer demand, while simultaneously making strides in operational efficiency and securing new contracts for future growth [1][2][9][12]. Revenue & Earnings Overview - Total revenues for the third quarter of fiscal 2025 were reported at $112 million, a decrease of 21.3% from $142.4 million in the same quarter last year [2] - The gross margin improved to 7.7% from 5.7% year over year, attributed to cost-cutting measures and workforce reductions [2] - The company reported a net loss of $0.6 million or 6 cents per share, an improvement from a net loss of $2.2 million or 21 cents per share in the prior year [3] Operational Performance & Business Metrics - Operating cash flow for the first nine months of fiscal 2025 was $10.1 million, up from $6.1 million in the same period last year [4] - Inventory levels decreased by 14% or $16 million year over year, aligning with current revenue levels [4] - Total liabilities were reduced by 14% or $34.3 million compared to the same quarter last year [4] Capital Expenditure - Capital expenditure for the first nine months of fiscal 2025 was approximately $3 million, with expectations for the full year between $6 million and $8 million, primarily for capacity expansions in Arkansas and Vietnam [5] Management Commentary - Management highlighted that global tariff volatility, especially concerning components from China, has caused customer hesitancy [6] - The company is optimistic about long-term growth, focusing on operational streamlining and cost reductions [6] Business Wins - Key Tronic secured five significant contracts in the quarter, including a $12 million telecommunications program in Mexico and a $6 million pest-control device contract in Vietnam [7] - A $1 million design contract with potential production value up to $15 million emphasizes the importance of the company's design capabilities [7] Future Developments - A previously disclosed $60 million program is on track, with ramp-up expected to begin in the first quarter of fiscal 2026 [8] - The company plans to invest over $28 million in a new manufacturing and R&D facility in Arkansas, projected to create over 400 jobs [11] - Expansion plans in Vietnam aim to more than double the current manufacturing footprint, providing alternatives to Chinese manufacturing [11] Summary - Despite facing near-term challenges such as falling revenues and macroeconomic uncertainties, Key Tronic is strengthening its cost base, expanding its operational footprint, and diversifying its customer portfolio, which may lead to a return to profitability in the long term [12]

Financial Data and Key Metrics Changes - For Q3 FY2025, total revenue was $112 million, down from $142.4 million in the same period of FY2024, impacted by global economic disruptions and tariff fluctuations [5] - Gross margins were 7.7% and operating margins were -0.4% in Q3 FY2025, compared to 5.7% and -0.4% respectively in Q3 FY2024, reflecting cost-cutting measures [5] - The net loss for Q3 FY2025 was $600,000 or $0.06 per share, an improvement from a net loss of $2.2 million or $0.20 per share in Q3 FY2024 [6] - For the first nine months of FY2025, net loss was $4.4 million or $0.41 per share, compared to a net loss of $800,000 or $0.07 per share in the same period of FY2024 [8] Business Line Data and Key Metrics Changes - The company reported a reduction in inventory by approximately $16 million or 14% year-over-year, aligning inventory levels with current revenue [9] - Total liabilities were reduced by $34.3 million or 14% from a year ago, indicating improved financial health [10] Market Data and Key Metrics Changes - The company noted that many customers have revamped their forecasting methodologies, which has led to improved materials research planning [10] - Accounts receivable days sales outstanding (DSOs) increased to 92 days from 85 days a year ago, reflecting a decline in net sales [10] Company Strategy and Development Direction - The company is focusing on expanding production capacity in Arkansas and Vietnam, with an investment of over $28 million expected to create over 400 jobs in the US [16] - The strategic expansion aims to mitigate the impact of tariffs and geopolitical tensions, with a strong pipeline of potential new business opportunities [19] - The company is also investing in vertical integration and manufacturing process knowledge to differentiate itself from competitors [20] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the uncertainties related to tariffs, which have caused increased costs and reduced demand [12] - Despite these challenges, the company anticipates growth in US and Vietnam production and remains focused on improving profitability [12] - Management decided not to provide revenue or earnings guidance for Q4 FY2025 due to the unpredictable economic climate [12] Other Important Information - Operating cash flows for the first nine months of FY2025 were $10.1 million, up from $6.1 million in the same period of FY2024, reflecting better working capital management [11] - The company is continuing to streamline operations in Mexico to enhance efficiency and competitiveness [18] Q&A Session Summary Question: Can you walk us through the five new business wins and their anticipated dollar amounts? - The first win is a $12 million telecommunications program in Mexico, expected to ramp up in Q2 FY2026 [25] - The second is a $6 million pest control device program in Vietnam [26] - The third is a $7 million energy program in Arkansas, currently in the design stage [27] - The fourth is a consumer product worth $2 to $5 million in Arkansas [28] - The fifth is a design contract starting at $1 million, potentially growing to $5 to $15 million [29] Question: What has changed regarding working with Fortune 500 companies? - The company noted that once it becomes an approved vendor, it opens doors for additional opportunities within the conglomerate [30] Question: What impact is the macro environment having on a previously anticipated $60 million program? - The program is expected to generate income in Q1 FY2026, with a ramp-up period of 12 to 18 months [32][33] Question: Can you clarify the unusual items flagged in the financials? - The severance in Mexico is included in cost of goods sold, while the other adjustments are split between OpEx and cost of goods [39][41] Question: How is the company managing working capital and inventory? - The company manages over 90% of its customers' bill of materials and aims for inventory turns of four [50]

Financial Data and Key Metrics Changes - For Q3 FY2025, total revenue was $112 million, down from $142.4 million in the same period of FY2024, reflecting a significant decline due to global economic disruptions and tariff fluctuations [5] - Gross margins improved to 7.7% from 5.7% year-over-year, while operating margins remained negative at -0.4% [5] - The net loss for Q3 FY2025 was $600,000 or $0.06 per share, compared to a net loss of $2.2 million or $0.20 per share in Q3 FY2024 [6] - For the first nine months of FY2025, total revenue was $357.4 million, down from $440.4 million in the same period of FY2024 [5] Business Line Data and Key Metrics Changes - The company reported a reduction in inventory by approximately $16 million or 14% year-over-year, aligning inventory levels with current revenue [9] - Total liabilities decreased by $34.3 million or 14% from a year ago, indicating improved financial health [10] Market Data and Key Metrics Changes - The company faced significant uncertainties due to tariffs on China and potential tariffs on Mexico and Vietnam, impacting costs and margin performance [6][12] - The operational adjustments and cost-cutting measures are expected to enhance productivity and streamline the supply chain, contributing to stronger financial performance in the future [6] Company Strategy and Development Direction - The company is expanding production capacity in Arkansas and Vietnam, investing over $28 million in the US facility, which is expected to create over 400 jobs [15][16] - The strategic focus includes adapting to tariff implications by diversifying manufacturing locations and enhancing design capabilities to capture new business opportunities [14][19] - The company anticipates that the new facilities will come online during FY2026, allowing it to benefit from customer demand for rebalancing contract manufacturing [17] Management's Comments on Operating Environment and Future Outlook - Management noted that the global tariff wars are creating significant challenges, but they remain optimistic about the potential for growth and profitability improvements [12][21] - The company has decided not to provide revenue or earnings guidance for Q4 FY2025 due to the unpredictable economic and political climate [12] - Despite the uncertainties, management expects to see growth in US and Vietnam production and a strong pipeline of potential new business [12][21] Other Important Information - The company has made significant progress in managing working capital, with operating cash flows increasing to $10.1 million for the first nine months of FY2025, up from $6.1 million in the same period of FY2024 [11] - The company is focused on vertical integration and enhancing manufacturing process knowledge to differentiate itself from competitors [20] Q&A Session Summary Question: Can you walk us through the five new business wins and their anticipated dollar amounts? - The first win is a $12 million telecommunications program in Mexico, with production expected to ramp up in Q2 FY2026 [26] - The second is a $6 million pest control device program in Vietnam [27] - The third is a $7 million energy program in Arkansas, currently in the design stage [28] - The fourth is a consumer product worth $2 to $5 million, also in Arkansas [29] - The fifth is a design contract starting at $1 million, potentially growing to $5 to $15 million [30] Question: What impact is the macro environment having on the $60 million program? - The program is expected to generate income in Q1 FY2026, with a ramp-up period of 12 to 18 months [34][35] Question: Can you clarify the unusual items flagged in the report? - The severance in Mexico is included in cost of goods sold, while the balance of $700,000 is split between operating expenses and cost of goods sold [41][42] Question: How do you see gross margins improving as revenue grows? - With incremental revenue, the expectation is to exceed 10% gross margin as fixed costs are covered [44] Question: What is the current state of customer demand? - There has been a significant reduction in demand from existing customers, but new program wins are helping to offset this decline [47][50] Question: How is the company managing working capital? - The company manages over 90% of its customers' bill of materials and aims for inventory turns of four [53]

Core Viewpoint - Key Tronic Corporation reported a decline in revenue for the third quarter of fiscal year 2025, primarily due to global economic disruptions and tariff fluctuations, but remains optimistic about long-term growth and profitability [2][3][7]. Financial Performance - Total revenue for Q3 FY2025 was $112.0 million, down from $142.4 million in Q3 FY2024, with a year-to-date revenue of $357.4 million compared to $440.4 million in the same period last year [2][5]. - Gross margin improved to 7.7% in Q3 FY2025 from 5.7% in Q3 FY2024, while operating margin remained at (0.4)% for both periods [4]. - The net loss for Q3 FY2025 was $(0.6) million or $(0.06) per share, an improvement from a net loss of $(2.2) million or $(0.21) per share in Q3 FY2024 [5][6]. Strategic Initiatives - The company is expanding production capacity in Arkansas and Vietnam to mitigate tariff impacts and enhance operational flexibility [7]. - Cost reduction initiatives have been implemented, including headcount reductions, which have lowered the break-even revenue requirements [3][4]. Cash Flow and Operations - Key Tronic generated positive cash flow from operations of $10.1 million in the first nine months of FY2025, compared to $6.1 million in the same period of FY2024 [3]. - The company continues to win new programs across various sectors, including telecommunications and medical technology, positioning itself for future growth [7][8]. Business Outlook - Due to ongoing uncertainties regarding tariffs and economic conditions, Key Tronic will not provide revenue or earnings guidance for Q4 FY2025 [9].

[Q3 FY2025 Financial Performance and Corporate Strategy](index=1&type=section&id=Key%20Tronic%20Corporation%20Announces%20Results%20for%20the%20Third%20Quarter%20of%20Fiscal%20Year%202025) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Key Tronic's Q3 FY2025 revenue declined to $112.0 million, but net loss narrowed to $(0.6) million, gross margin improved, and operating cash flow remained positive Q3 & YTD FY2025 Key Financial Results | Metric | Q3 FY2025 ($ millions) | Q3 FY2024 ($ millions) | YTD FY2025 ($ millions) | YTD FY2024 ($ millions) | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $112.0M | $142.4M | $357.4M | $440.4M | | **Net Loss** | $(0.6)M | $(2.2)M | $(4.4)M | $(0.8)M | | **Net Loss per Share** | $(0.06) | $(0.21) | $(0.41) | $(0.07) | Q3 FY2025 vs Q3 FY2024 Margin Comparison | Margin | Q3 FY2025 (%) | Q3 FY2024 (%) | | :--- | :--- | :--- | | **Gross Margin** | 7.7% | 5.7% | | **Operating Margin** | (0.4)% | (0.4)% | - The year-over-year improvement in **gross margin** was driven by cost-cutting and headcount reductions in both international and domestic operations[5](index=5&type=chunk) - The company generated positive cash flow from operations, totaling **$10.1 million** for the first nine months of fiscal 2025, an increase from **$6.1 million** in the same period of fiscal 2024[4](index=4&type=chunk) [Operational and Strategic Developments](index=1&type=section&id=Operational%20and%20Strategic%20Developments) Key Tronic's operations were impacted by tariff disruptions, prompting cost reductions and new manufacturing expansions in Arkansas and Vietnam, expected by H1 FY2026, alongside securing new programs - Revenue was adversely impacted by worldwide economic disruptions and uncertainty from escalating and fluctuating global tariffs, leading to delays and reduced customer demand[3](index=3&type=chunk)[8](index=8&type=chunk) - The company is building new production capacity in Arkansas and Vietnam, expected to be operational in the **first half of fiscal 2026**, to help customers mitigate tariff impacts on goods from China[8](index=8&type=chunk)[9](index=9&type=chunk) - Strategic initiatives include streamlining operations and reducing headcount to lower the cost structure and enhance competitiveness[5](index=5&type=chunk)[9](index=9&type=chunk) - Key Tronic has won new programs in telecommunications, pest control, energy storage, medical technology, and temperature-controlled shipping solutions[9](index=9&type=chunk) [Business Outlook](index=2&type=section&id=Business%20Outlook) Key Tronic will not provide Q4 FY2025 financial guidance due to significant economic and political uncertainty, particularly concerning potential tariffs - The company will not provide financial guidance for Q4 FY2025 due to uncertainty related to potential tariffs[10](index=10&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) [Consolidated Statements of Operations](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) In Q3 FY2025, net sales decreased to $112.0 million, resulting in an operating loss of $0.5 million and a net loss of $0.6 million, with similar trends for the nine-month period Consolidated Statements of Operations (In thousands) | | Three Months Ended (in thousands) | Nine Months Ended (in thousands) | | :--- | :--- | :--- | | | **Mar 29, 2025** | **Mar 30, 2024** | **Mar 29, 2025** | **Mar 30, 2024** | | **Net sales** | **$111,974** | **$142,427** | **$357,385** | **$440,386** | | Gross profit | $8,607 | $8,081 | $29,616 | $30,706 | | Operating income (loss) | $(459) | $(575) | $2,864 | $6,641 | | **Net Loss** | **$(604)** | **$(2,221)** | **$(4,394)** | **$(802)** | | Net loss per share — Diluted | $(0.06) | $(0.21) | $(0.41) | $(0.07) | [Consolidated Balance Sheets](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of March 29, 2025, Key Tronic's total assets decreased to $328.6 million, total liabilities to $209.0 million, and shareholders' equity slightly reduced to $119.6 million Consolidated Balance Sheet Highlights (In thousands) | | March 29, 2025 (in thousands) | June 29, 2024 (in thousands) | | :--- | :--- | :--- | | **Total current assets** | $252,816 | $288,399 | | **Total assets** | **$328,557** | **$355,343** | | **Total current liabilities** | $92,788 | $104,176 | | Long-term debt, net | $108,516 | $116,383 | | **Total liabilities** | **$208,962** | **$231,353** | | **Total shareholders' equity** | **$119,595** | **$123,990** | [Reconciliation of GAAP to Non-GAAP Measures](index=6&type=section&id=Reconciliation%20of%20GAAP%20to%20non-GAAP%20measures) Key Tronic provides non-GAAP financial measures for transparency, with Q3 FY2025 GAAP net loss of $(0.6) million adjusted to a non-GAAP net loss of $(0.6) million, or $(0.05) per share - The company uses non-GAAP financial measures, such as adjusted net loss and adjusted net loss per share, to supplement its GAAP financial statements and provide greater transparency on core operations[14](index=14&type=chunk) GAAP to Non-GAAP Reconciliation (In thousands) | | Three Months Ended (in thousands) | Nine Months Ended (in thousands) | | :--- | :--- | :--- | | | **Mar 29, 2025** | **Mar 30, 2024** | **Mar 29, 2025** | **Mar 30, 2024** | | **GAAP net loss** | **$(604)** | **$(2,221)** | **$(4,394)** | **$(802)** | | Stock-based compensation | $26 | $52 | $109 | $163 | | Write-off of unamortized loan fees | — | — | $1,012 | — | | **Adjusted net loss (Non-GAAP)** | **$(583)** | **$(2,179)** | **$(3,497)** | **$(1,016)** | | **Adjusted net loss per share (Non-GAAP)** | **$(0.05)** | **$(0.20)** | **$(0.32)** | **$(0.09)** |

Core Points - Key Tronic Corporation is expanding its clean-tech manufacturing operations in Springdale, Arkansas, with an investment exceeding $28 million and the creation of over 400 jobs in the next five years [1][2][5] - The new facility will increase Key Tronic's total U.S. production capacity by approximately 40% [3] - The expansion is part of a larger business park investment of over $100 million in the Springdale community [4] Company Overview - Key Tronic, founded in 1969, is a leading contract manufacturer providing design and manufacturing services from facilities in the U.S., Mexico, China, and Vietnam [6][7] - The company has been operating in Arkansas since 1985 and has a long history of manufacturing electronics in the state [7] Economic Impact - The expansion is expected to enhance the local economy by providing significant job opportunities and reinforcing Springdale's reputation as a destination for industry and innovation [5] - Local officials, including the Governor and the Mayor of Springdale, have expressed strong support for the expansion, highlighting the region's skilled workforce and business-friendly environment [2][5]

[Part I: Financial Information](index=4&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited condensed consolidated financial statements for Key Tronic Corporation for the quarter ended December 28, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 28, 2024 | Jun 29, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $261,136 | $288,399 | | **Total Assets** | **$327,829** | **$355,343** | | **Total Current Liabilities** | $93,770 | $104,176 | | Long-term debt, net | $106,020 | $116,383 | | **Total Liabilities** | **$208,342** | **$231,353** | | **Total Shareholders' Equity** | **$119,487** | **$123,990** | Condensed Consolidated Statement of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | Six Months Ended Dec 28, 2024 | Six Months Ended Dec 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $113,853 | $147,847 | $245,411 | $297,959 | | **Gross Profit** | $7,706 | $11,763 | $21,009 | $22,625 | | **Operating Income (Loss)** | $(1,121) | $3,948 | $3,323 | $7,216 | | **Net Income (Loss)** | **$(4,914)** | **$1,084** | **$(3,790)** | **$1,419** | | **Diluted EPS** | **$(0.46)** | **$0.10** | **$(0.35)** | **$0.13** | Condensed Consolidated Statement of Cash Flow Highlights (Six Months Ended, in thousands) | Cash Flow Activity | Dec 28, 2024 | Dec 30, 2023 | | :--- | :--- | :--- | | **Cash provided by operating activities** | $11,537 | $9,080 | | **Cash used in investing activities** | $(821) | $(360) | | **Cash used in financing activities** | $(11,224) | $(9,370) | | **Net decrease in cash** | $(508) | $(650) | | **Cash and cash equivalents, end of period** | $4,244 | $2,953 | - On December 3, 2024, the company entered into a **new asset-based senior secured revolving credit facility of up to $115 million and a $28 million term loan**, both maturing in December 2029. These were used to pay off the prior credit facility[43](index=43&type=chunk)[45](index=45&type=chunk)[48](index=48&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 FY25 financial performance, highlighting revenue decline, debt refinancing, and operational restructuring - **Net sales for Q2 FY25 were $113.9 million, a 23.0% decrease** from $147.8 million in the prior-year period. The decline was attributed to component shortages, lower holiday production, and reduced customer demand, which collectively lowered revenue by about $15 million[104](index=104&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - The company completed a **new asset-based revolving credit facility and term loan that extends debt maturity to December 3, 2029, and is expected to lower cash interest expense**[103](index=103&type=chunk) - The company is **restructuring its Juarez facility to focus on higher volume manufacturing** in response to rising Mexican wages and to improve competitiveness. This involves significant headcount reductions[110](index=110&type=chunk) - **Order backlog was approximately $162.5 million** on December 28, 2024, **down from $264.1 million** a year earlier, due to softening demand for Mexico-based programs. However, the company expects the backlog to increase due to recent program wins[143](index=143&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Net sales decreased 23.0% to $113.9 million for Q2 FY25, resulting in a $4.9 million net loss, due to shortages and demand Comparison of Three Months Ended (in thousands) | Metric | Dec 28, 2024 | Dec 30, 2023 | $ Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $113,853 | $147,847 | $(33,994) | | **Gross Profit** | $7,706 | $11,763 | $(4,057) | | **Operating Income (Loss)** | $(1,121) | $3,948 | $(5,069) | | **Net (Loss) Income** | $(4,914) | $1,084 | $(5,998) | - **The decrease in Q2 gross margin to 6.8% from 8.0% YoY** was primarily due to lower net sales without a corresponding decrease in fixed manufacturing costs[121](index=121&type=chunk) - **Interest expense for Q2 FY25 increased to $3.9 million from $3.0 million YoY**, largely due to a **$1.0 million write-off** of unamortized loan fees related to the debt refinancing[126](index=126&type=chunk) [Capital Resources and Liquidity](index=27&type=section&id=Capital%20Resources%20and%20Liquidity) The company generated $11.5 million in operating cash flow, refinanced debt, and maintains sufficient liquidity - **Net cash provided by operating activities was $11.5 million** for the six months ended December 28, 2024, primarily driven by **decreases in inventory ($4.4M), accounts receivable ($19.4M), and contract assets ($2.4M)**, offset by a **decrease in accounts payable ($15.8M)**[144](index=144&type=chunk)[145](index=145&type=chunk) - The company entered into a **new $115 million asset-based senior secured revolving credit facility and a $28 million term loan** on December 3, 2024, both maturing on December 3, 2029[151](index=151&type=chunk) - **Management expects capital expenditures to be approximately $8-$10 million** for the fiscal year, funded by internal funds, the credit facility, and equipment term loans[149](index=149&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from fluctuating interest rates on secured debt and foreign currency exchange rates, partially hedged - The company is **subject to interest rate risk on its debt, including a $75.6 million outstanding balance** on its asset-based senior secured revolving credit facility, which has a variable rate tied to SOFR[215](index=215&type=chunk) - **The company faces foreign currency exchange risk from its operations in Mexico, China, and Vietnam. To mitigate this, it uses Mexican Peso forward contracts, with $29.0 million outstanding** as of December 28, 2024[75](index=75&type=chunk)[217](index=217&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses, with remediation efforts underway - **The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of December 28, 2024, due to previously identified material weaknesses in internal control over financial reporting**[220](index=220&type=chunk) - **Remediation efforts are underway to address the material weaknesses. Steps include training on accounting for material price variances, enhancing closing process documentation, and hiring technical accounting finance staff**[222](index=222&type=chunk)[227](index=227&type=chunk) - **Despite the material weaknesses, management believes the financial statements in this report are fairly presented in all material respects in accordance with GAAP**[221](index=221&type=chunk) [Part II: Other Information](index=38&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant business, operational, technology, capital, and control risks, including customer dependence, cyber incidents, and debt [Risks Related to Business and Strategy](index=29&type=section&id=RISKS%20RELATED%20TO%20OUR%20BUSINESS%20AND%20STRATEGY) Business risks include international operational instability, volatile customer demand, customer concentration, and limited suppliers - **Operations in Mexico, China, and Vietnam expose the company to risks including political instability, regulatory changes, trade barriers, and tariffs**[156](index=156&type=chunk)[159](index=159&type=chunk) - **The company's customer base is concentrated, and it does not typically have long-term volume purchase contracts**, making it vulnerable to the loss or reduction of orders from principal customers[164](index=164&type=chunk)[165](index=165&type=chunk) - **Dependence on a limited number of suppliers for critical components creates a risk of operational interruption** from component shortages or price increases, which could damage customer relationships[168](index=168&type=chunk)[169](index=169&type=chunk) [Technology Risks](index=33&type=section&id=TECHNOLOGY%20RISKS) The company faces significant technology risks, primarily from cybersecurity threats and IT system disruptions, including a Q4 FY2024 cyber incident - **The company is subject to cyberattacks and experienced a material incident in Q4 FY2024 involving unauthorized access and data exfiltration, which had a material impact on financial condition and results**[187](index=187&type=chunk)[188](index=188&type=chunk) - **The company relies heavily on its IT infrastructure for critical functions** like financial reporting and inventory management, which are susceptible to outages that could disrupt operations[189](index=189&type=chunk) [Risks Related to Capital and Financing](index=34&type=section&id=RISKS%20RELATED%20TO%20CAPITAL%20AND%20FINANCING) Capital and financing risks include restrictive debt covenants, potential for default, interest rate exposure, and credit risk - **The company's credit agreements contain restrictive covenants. It has a history of breaching covenants** under its prior facility and may not meet covenants in its new facility, which could result in default[191](index=191&type=chunk)[192](index=192&type=chunk) - **The company is exposed to interest rate risk** under its revolving line of credit and term loans, as it has not historically hedged this exposure[195](index=195&type=chunk) [Risks Related to Controls, Procedures, and Internal Investigation](index=35&type=section&id=RISKS%20RELATED%20TO%20OUR%20CONTROLS%20AND%20PROCEDURES%20AND%20THE%20INTERNAL%20INVESTIGATION) Risks include ineffective internal controls due to material weaknesses, potential for inaccurate reporting, and ongoing SEC cooperation - **The company identified material weaknesses in internal controls over financial reporting as of June 29, 2024**, leading to the conclusion that controls were not effective[199](index=199&type=chunk) - **Failure to remediate the material weaknesses in a timely manner increases the risk** of being unable to file periodic reports on time and could lead to stock delisting or regulatory action[200](index=200&type=chunk) - **The company continues to cooperate with the SEC regarding matters from a past internal investigation**, which could lead to significant legal expenses, penalties, or other remedies[203](index=203&type=chunk)[205](index=205&type=chunk) [Other Information](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings not expected to be material, and no Rule 10b5-1 trading plans were adopted or terminated - **The company is involved in various legal proceedings in the ordinary course of business, which it does not expect to have a material adverse effect** on its financial condition or results of operations[225](index=225&type=chunk) - **During the fiscal quarter ended December 28, 2024, no directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements**[227](index=227&type=chunk)