Key Tronic(US:KTCC)2020-05-06 20:03Financial Performance - Total revenue for the third quarter of fiscal year 2020 was $111.5 million, a 3.2% increase from $108.0 million in the same period of fiscal year 2019[103][122]. - Gross profit as a percentage of net sales increased to 8.3% for the third quarter of fiscal year 2020, up from 6.3% in the same quarter of the prior fiscal year, primarily due to increased revenue and streamlining efforts[106][123]. - Operating income for the third quarter of fiscal year 2020 was 1.6% of net sales, compared to a loss of (11.6)% in the same quarter of fiscal year 2019, with a significant improvement attributed to increased revenues[107][121]. - Net income for the third quarter of fiscal year 2020 was $0.9 million or $0.08 per share, compared to a net loss of $(12.0) million or $(1.11) per share in the same quarter of fiscal year 2019[108][121]. - Net sales for the nine months ended March 28, 2020, were $333.5 million, a decrease of 7.0% compared to $358.5 million for the same period in 2019, primarily due to supply chain disruptions caused by COVID-19[132]. - Gross profit margin increased to 8.0% for the nine months ended March 28, 2020, up from 7.3% in the prior year, attributed to streamlining efforts in the Company's facilities[133]. - Operating income for the nine months ended March 28, 2020, was $5.8 million, compared to a loss of $7.4 million in the same period of 2019, reflecting a $13.2 million improvement[131]. Expenses - Research, development, and engineering expenses were $1.7 million, or 1.6% of net sales, for the three months ended March 28, 2020, compared to $1.4 million, or 1.3% of net sales, for the same period in the prior year[126]. - Selling, general, and administrative expenses were $5.7 million, or 5.1% of net sales, for the three months ended March 28, 2020, compared to $5.5 million, or 5.1% of net sales, for the same period in the prior year[127]. - Total research, development, and engineering expenses were $5.1 million for the nine months ended March 28, 2020, compared to $5.0 million in the prior year, maintaining 1.5% of net sales[135]. - Total selling, general and administrative expenses were $15.7 million for the nine months ended March 28, 2020, slightly down from $16.2 million in the prior year, with SG&A as a percentage of net sales increasing to 4.7%[136]. - Interest expense decreased to $2.0 million for the nine months ended March 28, 2020, from $2.1 million in the same period of 2019, reflecting a decrease in the average balance outstanding on the line of credit[137]. Customer and Market Dynamics - The concentration of net sales from the top three customers decreased to 34.7% in the third quarter of fiscal year 2020 from 39.1% in the same period of the prior fiscal year[104]. - The company has seen shifts in demand due to COVID-19, with increased demand for home-consumer products and healthcare equipment, while demand from the gaming industry has decreased significantly[111]. - The order backlog as of March 28, 2020, was approximately $208.1 million, up from $151.5 million on March 30, 2019, driven by increased demand for home-consumer products and healthcare[140]. Financial Position - The company maintains a strong balance sheet with a current ratio of 2.3 and a debt to equity ratio of 0.6 as of March 28, 2020[115]. - Net cash used in operating activities for the nine months ended March 28, 2020, was $32.1 million, compared to net cash provided of $3.4 million in the same period of the prior year[141]. - Cash provided by financing activities was $33.6 million during the nine months ended March 28, 2020, compared to cash used of $2.5 million in the same period of the previous fiscal year[147]. - The company has $57.2 million in borrowings under its revolving credit facility, $11.7 million on its term loan, and $1.1 million on its equipment term loan as of March 28, 2020[189]. - The company has $43.0 million in foreign currency forward contracts to hedge against exchange rate fluctuations, with a fair value of $(2.4) million as of March 28, 2020[190]. Risks and Challenges - The company is experiencing fluctuations in operating results due to changes in customer demand, which can lead to unexpected increases in inventory or accounts receivable[153]. - A significant portion of sales is concentrated among a small number of customers, and a decline in orders from these customers could adversely affect the business[158]. - The company relies on a limited number of suppliers for critical components, and shortages or price increases could disrupt operations and negatively impact financial results[160]. - Economic conditions, including inflation and recession, could adversely impact customer demand and, consequently, the company's sales[156]. - The company faces risks related to currency exchange fluctuations, particularly with operations in Mexico and China, which could increase operating costs[167]. - Start-up costs and inefficiencies associated with new programs may adversely affect operating results if these programs do not meet expected sales volumes[171]. - The company is exposed to interest rate risk under its revolving line of credit and term loan, which could adversely affect financial condition if rates change significantly[174]. - Compliance with environmental regulations is critical, as failure to comply could result in significant expenses and operational disruptions[175]. - The company has implemented health and safety measures in response to COVID-19 to protect employees and comply with regulations[176]. - The stock price is subject to volatility, influenced by factors such as quarterly operating results and broader market conditions[177]. - The company faces potential liability claims if manufacturing processes do not comply with regulatory requirements, which could lead to reduced customer orders and damage to business reputation[180]. - Increased energy prices could raise raw material and transportation costs, potentially impacting profitability if product prices cannot be adjusted accordingly[181]. - The company is involved in various legal proceedings that may require significant financial resources to address, potentially affecting financial conditions and operations[183]. - Insurance coverage may not be sufficient for potential damages or claims, which could negatively impact net income if significant losses occur[184]. - Compliance with the Sarbanes-Oxley and Dodd-Frank Acts has increased legal, financial, and accounting costs, with ongoing costs expected indefinitely[185]. - Acquisitions may require additional equity or debt financing, potentially diluting existing shareholders or affecting credit ratings[186]. - Integration of acquired businesses may face complications, diverting management's attention and potentially increasing expenses[187]. - Changes in financial accounting standards could significantly affect reported financial results and increase implementation costs[188].