Key Tronic Corporation Q1 FY2026 earnings call

• Global tariffs and macroeconomic uncertainties delayed new program ramps. - Built new production capacity in US and Vietnam, rightsized Mexico facility. - Won 1 medical ($5M) and 2 industrial ($6M combined) programs in Q1. - Consigned materials program began ramping, expected to improve gross margin. - Utility product program delayed 1.5 months but ramping nicely in Q2. - Softness in long-standing consumer product demand. - Invested in design engineering and vertical integration. - Expect revenue growth from new programs in US, Mexico, Vietnam.

For the first quarter of fiscal 2026, Key Tronic reported total revenue of $98.8 million, down from $131.6 million in the same period of fiscal year 2025. Gross margin was 8.4% in Q1 FY26, compared to 6.2% in the previous quarter and 10.1% in the same period of FY25. Operating margin was a negative 0.6%, down from 3.4% in FY25. Net loss was $2.3 million or $0.21 per share, vs net income of $1.1 million or $0.10 per share in FY25. Adjusted net loss was $1.1 million or $0.10 per share in Q1 FY26, vs adjusted net income of $2.8 million or $0.26 per share in FY25. Inventory for Q1 FY26 was largely unchanged from a year ago. Liabilities were reduced by $21.8 million or 9% from a year ago. Current ratio was 2.4:1. Accounts receivable DSO was 81 days. Cash flow from operations was approximately $7.6 million. CapEx in Q1 FY26 was about $3.2 million, with full-year expected to be around $8 million.

• No forward-looking guidance provided for Q2 FY26 due to uncertainty in new product ramps. - Expect revenue growth from new programs launching in US, Mexico, and Vietnam in coming quarters.

• Uncertainty surrounding global tariffs and macroeconomic outlook delaying new program launches. - Customer bankruptcy leading to inventory and accounts receivable reserves of approx. $1.6 million. - Softness in demand from certain long-standing customers. - Excess capacity in Mexico if not utilized in the latter half of FY26.

Q: What was the size of the 2 wins in Q1?

A: The medical win was roughly $5 million, and the 2 industrial combined were around $6 million.

Q: Where will the medical product be produced?

A: Intent is to produce it in Vietnam later in FY26, with customer giving go-ahead.

Q: How much revenue did the consigned materials program generate in Q1?

A: Just over $1 million in Q1, expected to exceed $20M annually.

Q: What's the update on the utility product program?

A: Delayed 1.5 months but ramping nicely in Q2.

Q: Where is the excess capacity in Mexico and its utilization?

A: Excess capacity in Mexico, expecting to utilize it in latter half of FY26; if not, will need additional cost reductions.

Q: How did the customer bankruptcy impact gross margin?

A: $600k of inventory write-off went through COGS, $1M receivable write-off through SG&A.

Q: What's needed to return to profitability by end of FY26?

A: Ramp consigned program, continue ramping utility program, and add revenue in Mexico.