Key Tronic Corporation Announces Results For the Second Quarter of Fiscal Year 2025

Rhea-AI Summary

Key Tronic (KTCC) reported Q2 FY2025 results with total revenue of $113.9 million, down from $147.8 million in Q2 FY2024. The company faced challenges including component shortages, lower holiday production, and reduced customer demand, resulting in a $15 million revenue shortfall from initial guidance.

Gross margins declined to 6.8% from 8.0%, and operating margins fell to -1.0% from 2.7% year-over-year. The company reported a net loss of $(4.9) million or $(0.46) per share, compared to net income of $1.1 million or $0.10 per share in Q2 FY2024.

Key Tronic announced plans to expand production capacity in Arkansas and Vietnam to address tariff concerns on Chinese and Mexican manufacturing. The company secured new programs, including an energy resiliency technology program potentially worth $60 million annually. Due to economic and political uncertainties, no guidance was provided for Q3 FY2025.

Positive

• Secured new aerospace systems and energy resiliency program worth potential $60M annually
• Completed long-term debt refinancing agreement expanding growth capital
• Planning production capacity expansion in Arkansas and Vietnam
• Inventory levels aligning with current revenue levels

Negative

• Revenue declined 22.9% YoY to $113.9M in Q2 FY2025
• Net loss of $4.9M compared to $1.1M profit in Q2 FY2024
• Gross margins decreased to 6.8% from 8.0% YoY
• Operating margins fell to -1.0% from 2.7% YoY
• $1.0M write-off in unamortized loan fees
• No guidance provided for Q3 FY2025 due to uncertainties

Insights

Financial Analyst

Key Tronic's Q2 FY2025 results reveal substantial operational headwinds and strategic repositioning efforts. The 23% year-over-year revenue decline to $113.9 million reflects both internal challenges and market dynamics. The deterioration in gross margins to 6.8% and negative operating margins signals significant pressure on operational efficiency.

Three critical developments warrant attention: First, the company's expansion plans in Arkansas and Vietnam represent a strategic pivot to diversify manufacturing footprint amid rising tariff concerns on Chinese and Mexican production. Second, the new aerospace and energy resiliency programs, particularly the latter's potential $60 million annual revenue contribution, could provide meaningful growth catalysts. Third, the debt refinancing, despite incurring $1.0 million in one-time costs, strengthens the company's capital structure for future expansion.

The company's cost reduction initiatives, including headcount reductions and inventory optimization, are important steps toward margin recovery. However, the decision to withhold Q3 guidance suggests continued near-term uncertainty. The focus on high-value sectors like aerospace and energy technology, combined with manufacturing diversification, positions Key Tronic to potentially benefit from reshoring trends, though execution risks remain substantial given the current operational challenges.

New Program Wins; Cost Reduction Initiatives; Expansion Plans in US and Vietnam

SPOKANE VALLEY, Wash., Feb. 04, 2025 (GLOBE NEWSWIRE) -- Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended December 28, 2024. These results are in line with the updated guidance provided on January 24, 2025.

For the second quarter of fiscal year 2025, Key Tronic reported total revenue of $113.9 million, compared to $147.8 million in the same period of fiscal year 2024. The lower than anticipated revenue and earnings for the second quarter of fiscal year 2025 are primarily due to unexpected shortages for specific components managed by a large customer, lower-than-expected production during the holiday season, and reduced demand from certain customers which together lowered revenue by approximately $15 million from initial guidance for the quarter. For the first six months of fiscal year 2025, total revenue was $245.4 million, compared to $298.0 million in the same period of fiscal year 2024.

Gross margins were 6.8% and operating margins were (1.0)% in the second quarter of fiscal year 2025, compared to 8.0% and 2.7%, respectively, in the same period of fiscal year 2024. The decline in margins for the second quarter of fiscal year 2025 primarily reflects the reduction of revenue. As previously announced, interest expense also included approximately $1.0 million in write-offs of unamortized loan fees related to refinancing the Company’s debt with a new lender.

The net loss was $(4.9) million or $(0.46) per share for the second quarter of fiscal year 2025, compared to net income of $1.1 million or $0.10 per share for the same period of fiscal year 2024. For the first six months of fiscal year 2025, the net loss was $(3.8) million or $(0.35) per share, compared to net income of $1.4 million or $0.13 per share for the same period of fiscal year 2024.

The adjusted net loss was $(4.1) million or $(0.38) per share for the second quarter of fiscal year 2025, compared to adjusted net income of $1.1 million or $0.10 per share for the same period of fiscal year 2024. The adjusted net loss was $(2.9) million or $(0.27) per share for first six months of fiscal year 2025, compared to adjusted net income of $1.2 million or $0.11 per share for the same period of fiscal year 2024. See “Non-GAAP Financial Measures,” below for additional information about adjusted net income and adjusted net income per share.

“As we announced today, we’re planning to significantly increase production capacity in Arkansas and Vietnam in order to continue to benefit from the growing customer demand for rebalancing their contract manufacturing. We believe these initiatives should help mitigate the adverse impact and uncertainties surrounding the recently announced tariffs on goods manufactured in China and Mexico,” said Brett Larsen, President and CEO.

“We are disappointed with the unexpected decline in revenue in the second quarter of fiscal 2025, however, we expect our revenue and earnings to improve in the third quarter of fiscal year 2025 as strategic initiatives undertaken in previous quarters come to fruition. We’re actively streamlining our international and domestic operations, with further headcount reductions to enhance efficiency, building on similar actions a year ago. We’re also pleased to see our inventory levels being more in line with current revenue levels and expect that these strategic changes will improve our overall profitability in the longer term.”  

“At the same time, we continued to win new programs, such as aerospace systems and an energy resiliency technology program, which was recently announced. Once fully ramped, the latter program could generate annual revenue for us in excess of $60 million. We also closed on a long-term debt refinancing agreement during the quarter that expands available capital for growth. We believe Key Tronic remains well positioned for increased growth and profitability in coming periods.”

The financial data presented for the second 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 impact of recently announced potential tariffs, Key Tronic will not be issuing revenue or earnings guidance for the third 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: 2254355). 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, 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 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; impact of new governmental legislation and regulation, including tax reform, tariffs and related activities, such trade negotiations and other risks; 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 income and adjusted net income 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 income to the most directly comparable GAAP measure, which is GAAP net income, and the computation of adjusted net income per share, diluted.

CONTACTS:		Tony Voorhees		Michael Newman
		Chief Financial Officer		Investor Relations
		Key Tronic Corporation		StreetConnect
		(509)-927-5345		(206) 729-3625

KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended								Six Months Ended
	December 28, 2024				December 30, 2023				December 28, 2024				December 30, 2023
Net sales	$	113,853			$	147,847			$	245,411			$	297,959
Cost of sales		106,147				136,084				224,402				275,334
Gross profit		7,706				11,763				21,009				22,625
Research, development and engineering expenses		2,320				1,758				4,609				3,999
Selling, general and administrative expenses		6,507				6,057				13,077				11,841
Gain on insurance proceeds, net of losses		—				—				—				(431	)
Total operating expenses		8,827				7,815				17,686				15,409
Operating income (loss)		(1,121	)			3,948				3,323				7,216
Interest expense, net		3,904				2,961				7,167				5,972
Income (loss) before income taxes		(5,025	)			987				(3,844	)			1,244
Income tax benefit		(111	)			(97	)			(54	)			(175	)
Net income (loss)	$	(4,914	)		$	1,084			$	(3,790	)		$	1,419
Net income (loss) per share — Basic	$	(0.46	)		$	0.10			$	(0.35	)		$	0.13
Weighted average shares outstanding — Basic		10,762				10,762				10,762				10,762
Net income (loss) per share — Diluted	$	(0.46	)		$	0.10			$	(0.35	)		$	0.13
Weighted average shares outstanding — Diluted		10,762				10,889				10,762				10,889

KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

		December 28, 2024				June 29, 2024
ASSETS
Current assets:
Cash and cash equivalents		$	4,244			$	4,752
Trade receivables, net of credit losses of $2,931 and $2,918			113,132				132,559
Contract assets			18,892				21,250
Inventories, net			100,709				105,099
Other, net of credit losses of $1,496 and $1,679			24,159				24,739
Total current assets			261,136				288,399
Property, plant and equipment, net			27,123				28,806
Operating lease right-of-use assets, net			13,829				15,416
Other assets:
Deferred income tax asset			19,287				17,376
Other			6,454				5,346
Total other assets			25,741				22,722
Total assets		$	327,829			$	355,343
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	63,585			$	79,394
Accrued compensation and vacation			6,218				6,510
Current portion of long-term debt			5,063				3,123
Other			18,904				15,149
Total current liabilities			93,770				104,176
Long-term liabilities:
Long-term debt, net			106,020				116,383
Operating lease liabilities			8,429				10,312
Deferred income tax liability			9				263
Other long-term obligations			114				219
Total long-term liabilities			114,572				127,177
Total liabilities			208,342				231,353
Shareholders’ equity:
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,762 and 10,762 shares, respectively			47,367				47,284
Retained earnings			73,131				76,921
Accumulated other comprehensive loss			(1,011	)			(215	)
Total shareholders’ equity			119,487				123,990
Total liabilities and shareholders’ equity		$	327,829			$	355,343

KEY TRONIC CORPORATION AND SUBSIDIARIES
Reconciliation of GAAP to non-GAAP measures
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended								Six Months Ended
	December 28, 2024				December 30, 2023				December 28, 2024				December 30, 2023
GAAP net income (loss)	$	(4,914	)		$	1,084			$	(3,790	)		$	1,419
Gain on insurance proceeds (net of losses)		—				—				—				(431	)
Stock-based compensation expense		16				53				83				112
Write-off of unamortized loan fees		1,012				—				1,012				—
Income tax effect of non-GAAP adjustments (1)		(206	)			(11	)			(219	)			64
Adjusted net income (loss):	$	(4,092	)		$	1,126			$	(2,914	)		$	1,164
Adjusted net income (loss) per share — non-GAAP Diluted	$	(0.38	)		$	0.10			$	(0.27	)		$	0.11
Weighted average shares outstanding — Diluted		10,762				10,889				10,762				10,889
(1) Income tax effects are calculated using an effective tax rate of 20%, which approximates the statutory GAAP tax rate for the presented periods.

FAQ

What caused KTCC's revenue decline in Q2 FY2025?

KTCC's revenue decline was due to unexpected component shortages, lower holiday season production, and reduced customer demand, resulting in approximately $15 million lower revenue than initial guidance.

How much revenue did KTCC's new energy resiliency program potentially bring?

The new energy resiliency technology program could generate annual revenue in excess of $60 million once fully ramped up.

What were KTCC's Q2 FY2025 margin performances?

KTCC's gross margins were 6.8% and operating margins were -1.0% in Q2 FY2025, down from 8.0% and 2.7% respectively in Q2 FY2024.

What strategic initiatives is KTCC implementing to improve profitability?

KTCC is streamlining international and domestic operations, implementing headcount reductions, expanding production capacity in Arkansas and Vietnam, and managing inventory levels to improve profitability.