Tariff Disruptions; New Program Wins; Building New Capacity in US and Vietnam; Cost Reduction Initiatives
SPOKANE VALLEY, Wash., May 06, 2025 (GLOBE NEWSWIRE) -- Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended March 29, 2025.
For the third quarter of fiscal year 2025, Key Tronic reported total revenue of $112.0 million, compared to $142.4 million in the same period of fiscal year 2024. The revenue for the third quarter of fiscal year 2025 was adversely impacted by the worldwide economic disruptions and uncertainty caused by the recent escalation and fluctuations in global tariffs. This resulted in delays, increased costs, and reduced demand from many customers. For the first nine months of fiscal year 2025, total revenue was $357.4 million, compared to $440.4 million in the same period of fiscal year 2024.
Despite the revenue trends in fiscal year 2025, Key Tronic believes it is well positioned for growth and a return to profitability in the long term. The Company's international and domestic manufacturing footprint provides flexibility to respond to market conditions, including current and potential future tariffs. This is expected to help mitigate tariff implications and optimize pricing for customers. Strategic initiatives to streamline the Company's cost structure have decreased its break-even revenue requirements, and expected long-term revenue growth is estimated to have a positive impact on incremental margins. Additionally, the Company has continued to generate positive cash flow throughout fiscal year 2025. Total cash flow provided by operations for the first nine months of fiscal year 2025 was $10.1 million compared to $6.1 million for the same period of fiscal year 2024.
Gross margin was 7.7% and operating margin was (0.4)% in the third quarter of fiscal year 2025, compared to 5.7% and (0.4)%, respectively, in the same period of fiscal year 2024. The year-over-year improvement in gross margins for the third quarter of fiscal year 2025 reflects the cost-cutting and headcount reductions in our international and domestic operations over the past three quarters. These streamlining initiatives have enabled the Company to lower its cost structure to become more competitive in new quote opportunities. As a result, the Company anticipates improved gross margins as our revenue rebounds, driven by ramps of existing new programs and potential new wins in future quarters. The results during the third quarter of fiscal 2025 included government-mandated severance expenses in Mexico of approximately $0.8 million and balance sheet adjustments for inventory and estimated collections from customers of approximately $0.7 million.
The net loss was $(0.6) million or $(0.06) per share for the third quarter of fiscal year 2025, compared to a net loss of $(2.2) million or $(0.21) per share for the same period of fiscal year 2024. For the first nine months of fiscal year 2025, the net loss was $(4.4) million or $(0.41) per share, compared to a net loss of $(0.8) million or $(0.07) per share for the same period of fiscal year 2024. The increase in year-to-date net loss is primarily related to the large reduction in revenue, partially offset by the reduction in costs made by the Company during the current fiscal year.
The adjusted net loss was $(0.6) million or $(0.05) per share for the third quarter of fiscal year 2025, compared to adjusted net loss of $(2.2) million or $(0.20) per share for the same period of fiscal year 2024. The adjusted net loss was $(3.5) million or $(0.32) per share for first nine months of fiscal year 2025, compared to $(1.0) million or $(0.09) per share for the same period of fiscal year 2024. See “Non-GAAP Financial Measures,” below for additional information about adjusted net loss and adjusted net loss per share.
“The rapid, unprecedented changes in tariffs have significantly impacted the demand from our customers during the quarter. We believe that uncertainties about tariffs have led to hesitancy and business paralysis in many of our customers’ businesses,” said Brett Larsen, President and CEO. “As previously announced, we’re proceeding with the buildout of new production capacity in Arkansas and Vietnam. Our manufacturing footprint in the U.S., Mexico and Vietnam provides our customers with options to manage current tariffs and future tariff changes. We anticipate these new facilities will be operational in the first half of fiscal 2026 and will enable us to benefit from customers rebalancing their contract manufacturing to mitigate the severe impact and uncertainties surrounding the tariffs on goods manufactured in China.”
“At the same time, we have continued to streamline our international and domestic operations, with further headcount reductions to reduce costs and enhance efficiency, building on similar actions in recent periods. We also continued to win new programs in telecommunications, pest control, energy storage, medical technology, and temperature-controlled shipping solutions. We believe Key Tronic remains well positioned for increased growth and profitability over the longer term.”
The financial data presented for the third quarter of fiscal 2025 should be considered preliminary and could be subject to change, as the Company’s independent auditor has not completed their review procedures.
Business Outlook
Due to uncertainty in the economic and political environments related to the varying uncertainty of potential tariffs, Key Tronic will not be issuing revenue or earnings guidance for the fourth quarter of fiscal year 2025.
Conference Call
Key Tronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) today. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 888-394-8218 or +1-313-209-4906 (Access Code: 2003797). The Company will also reference accompanying slides that can be viewed with the webcast at www.keytronic.com under “Investor Relations”. A replay will be available at www.keytronic.com under “Investor Relations”.
About Key Tronic
Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China and Vietnam. The Company provides its customers with full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. For more information about Key Tronic visit: www.keytronic.com
Forward-Looking Statements
Some of the statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to those including such words as aims, anticipates, believes, continues, estimates, expects, hopes, intends, plans, predicts, projects, targets, will, or would, similar verbs, or nouns corresponding to such verbs, which may be forward looking. Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future. Forward-looking statements in this release include, without limitation, the Company’s statements regarding its expectations with respect to financial conditions and results, including revenue and earnings, the Company’s ability to build out production capacity in Arkansas and Vietnam and the timing of completion of those facilities, cost savings from headcount reduction and the Mexican Peso exchange rate, demand for certain products and the effectiveness of some of its programs, business from customers and programs, and impacts from operational streamlining and efficiencies, including reductions in inventories. There are many factors, risks and uncertainties that could cause actual results to differ materially from those predicted or projected in forward-looking statements, including but not limited to: the future of the global economic environment and its impact on our customers and suppliers; the impact of new governmental legislation and regulation, including tax reform, tariffs and related activities, such trade negotiations and other risks; the success and timing of our expansion plans; the availability of components from the supply chain; the availability of a healthy workforce; the accuracy of suppliers’ and customers’ forecasts; development and success of customers’ programs and products; timing and effectiveness of ramping of new programs; success of new-product introductions; the risk of legal proceedings or governmental investigations relating to the previously reported financial statement restatements and related material weaknesses, the May 2024 cybersecurity incident and the subject of the internal investigation by the Company’s Audit Committee and related or other unrelated matters; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; and other factors, risks, and uncertainties detailed from time to time in the Company’s SEC filings.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States (GAAP), we use certain non-GAAP financial measures, adjusted net loss and adjusted net loss per share, diluted. We provide these non-GAAP financial measures because we believe they provide greater transparency related to our core operations and represent supplemental information used by management in its financial and operational decision making. We exclude (or include) certain items in our non-GAAP financial measures as we believe the net result is a measure of our core business. We believe this facilitates operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Our non-GAAP financial measures may be different from those reported by other companies. See the table below entitled “Reconciliation of GAAP to non-GAAP measures” for reconciliations of adjusted net loss to the most directly comparable GAAP measure, which is GAAP net loss, and the computation of adjusted net loss per share, diluted.
KEY TRONIC CORPORATION AND SUBSIDIARIES | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
March 29, 2025 | March 30, 2024 | March 29, 2025 | March 30, 2024 | ||||||||||||
Net sales | $ | 111,974 | $ | 142,427 | $ | 357,385 | $ | 440,386 | |||||||
Cost of sales | 103,367 | 134,346 | 327,769 | 409,680 | |||||||||||
Gross profit | 8,607 | 8,081 | 29,616 | 30,706 | |||||||||||
Research, development and engineering expenses | 2,308 | 2,234 | 6,917 | 6,233 | |||||||||||
Selling, general and administrative expenses | 6,758 | 6,422 | 19,835 | 18,263 | |||||||||||
Gain on insurance proceeds, net of losses | — | — | — | (431 | ) | ||||||||||
Total operating expenses | 9,066 | 8,656 | 26,752 | 24,065 | |||||||||||
Operating income (loss) | (459 | ) | (575 | ) | 2,864 | 6,641 | |||||||||
Interest expense, net | 2,581 | 2,800 | 9,748 | 8,772 | |||||||||||
Loss before income taxes | (3,040 | ) | (3,375 | ) | (6,884 | ) | (2,131 | ) | |||||||
Income tax benefit | (2,436 | ) | (1,154 | ) | (2,490 | ) | (1,329 | ) | |||||||
Net Loss | $ | (604 | ) | $ | (2,221 | ) | $ | (4,394 | ) | $ | (802 | ) | |||
Net loss per share — Basic | $ | (0.06 | ) | $ | (0.21 | ) | $ | (0.41 | ) | $ | (0.07 | ) | |||
Weighted average shares outstanding — Basic | 10,762 | 10,762 | 10,762 | 10,762 | |||||||||||
Net loss per share — Diluted | $ | (0.06 | ) | $ | (0.21 | ) | $ | (0.41 | ) | $ | (0.07 | ) | |||
Weighted average shares outstanding — Diluted | 10,762 | 10,762 | 10,762 | 10,762 | |||||||||||
KEY TRONIC CORPORATION AND SUBSIDIARIES | ||||||||
March 29, 2025 | June 29, 2024 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,468 | $ | 4,752 | ||||
Trade receivables, net of credit losses of $2,798 and $2,918 | 112,333 | 132,559 | ||||||
Contract assets | 19,032 | 21,250 | ||||||
Inventories, net | 99,330 | 105,099 | ||||||
Other, net of credit losses of $1,496 and $1,679 | 19,653 | 24,739 | ||||||
Total current assets | 252,816 | 288,399 | ||||||
Property, plant and equipment, net | 27,977 | 28,806 | ||||||
Operating lease right-of-use assets, net | 12,592 | 15,416 | ||||||
Other assets: | ||||||||
Deferred income tax asset | 21,563 | 17,376 | ||||||
Other, net of credit losses of $500 and $0 | 13,609 | 5,346 | ||||||
Total other assets | 35,172 | 22,722 | ||||||
Total assets | $ | 328,557 | $ | 355,343 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 65,267 | $ | 79,394 | ||||
Accrued compensation and vacation | 5,857 | 6,510 | ||||||
Current portion of long-term debt | 5,078 | 3,123 | ||||||
Other | 16,586 | 15,149 | ||||||
Total current liabilities | 92,788 | 104,176 | ||||||
Long-term liabilities: | ||||||||
Long-term debt, net | 108,516 | 116,383 | ||||||
Operating lease liabilities | 7,653 | 10,312 | ||||||
Deferred income tax liability | 5 | 263 | ||||||
Other long-term obligations | — | 219 | ||||||
Total long-term liabilities | 116,174 | 127,177 | ||||||
Total liabilities | 208,962 | 231,353 | ||||||
Shareholders’ equity: | ||||||||
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,762 and 10,762 shares, respectively | 47,393 | 47,284 | ||||||
Retained earnings | 72,527 | 76,921 | ||||||
Accumulated other comprehensive loss | (325 | ) | (215 | ) | ||||
Total shareholders’ equity | 119,595 | 123,990 | ||||||
Total liabilities and shareholders’ equity | $ | 328,557 | $ | 355,343 | ||||
KEY TRONIC CORPORATION AND SUBSIDIARIES
Reconciliation of GAAP to non-GAAP measures
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
March 29, 2025 | March 30, 2024 | March 29, 2025 | March 30, 2024 | ||||||||||||
GAAP net loss | $ | (604 | ) | $ | (2,221 | ) | $ | (4,394 | ) | $ | (802 | ) | |||
Gain on insurance proceeds (net of losses) | — | — | — | (431 | ) | ||||||||||
Stock-based compensation expense | 26 | 52 | 109 | 163 | |||||||||||
Write-off of unamortized loan fees | — | — | 1,012 | — | |||||||||||
Income tax effect of non-GAAP adjustments (1) | (5 | ) | (10 | ) | (224 | ) | 54 | ||||||||
Adjusted net loss: | $ | (583 | ) | $ | (2,179 | ) | $ | (3,497 | ) | $ | (1,016 | ) | |||
Adjusted net loss per share — non-GAAP Diluted | $ | (0.05 | ) | $ | (0.20 | ) | $ | (0.32 | ) | $ | (0.09 | ) | |||
Weighted average shares outstanding — Diluted | 10,762 | 10,762 | 10,762 | 10,762 | |||||||||||
(1) Income tax effects are calculated using an effective tax rate of 20%, which approximates the statutory GAAP tax rate for the presented periods. | |||||||||||||||
CONTACTS: | Tony Voorhees | Michael Newman | ||
Chief Financial Officer | Investor Relations | |||
Key Tronic Corporation | StreetConnect | |||
(509)-927-5345 | (206) 729-3625 |