Key Tronic(KTCC) - 2025 Q4 - Annual Report

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