Key Tronic Corporation Q2 FY2026 earnings call

• Wind-down of China manufacturing operations initiated, expected to complete in Q4 FY 2026 saving ~$1,200,000 per quarter. - Further reduced workforce in Mexico, expecting to save ~$1,500,000 per quarter once implemented. - Strategic initiatives led to charges of ~$10,500,000 impacting margins. - New program wins and increased demand from long-standing customers partially offset revenue decline. - Ramping consigned materials program in Corinth, Mississippi with potential to grow to over $25,000,000 in annual revenue. - Investments in US (Arkansas) and Vietnam facilities, with expectation of growth in production there. - Strong pipeline of potential new business, underscoring trend towards onshoring and dual sourcing.

For FY 2026, total revenue was $96,300,000 compared to $113,900,000 in the same period of fiscal 2025. The first six months of fiscal 2026 had total revenue of $195,100,000 vs $245,400,000 in the same period of fiscal 2025. Gross margin was 0.6% in FY 2026 vs 6.8% in FY 2025, with adjusted gross margin at 7.9% for FY 2026. Net loss was $8,600,000 in FY 2026 vs $4,900,000 in FY 2025. Inventory was down $12,300,000 or 12% from a year ago. Current ratio was 2.0 to 1 compared to 2.8 to 1 a year ago. Accounts receivable DSOs were 77 days vs 99 days a year ago. Total cash flow provided by operations for FY 2026 was approximately $6,300,000.

• Due to macroeconomic uncertainty and timing uncertainty of new product ramps, no forward-looking guidance provided for FY 2026.

• Global economic uncertainties and volatile trade policies. - Uncertainty of timing of new product ramps. - Geopolitical tensions and tariff uncertainties impacting program timing and launch.

Q: Delved into increased demand from existing customers, asking if ramp is from new programs.

A: Predominantly from two specific long-standing customers with some increase from half dozen others, and new programs offsetting large revenue decreases.

Q: Asked about size estimate, timing, and manufacturing location of three new programs.

A: Automotive ($5,000,000, Mexico), pest control ($2,000,000, US/Vietnam), industrial equipment (~$5,000,000, US).

Q: Inquired about tariff mitigation strategies.

A: Offer options from US, Mexico, Vietnam locations, quoting lead times and pros/cons, helping customers choose manufacturing location.

Q: Reviewed gross margin, asked about unusual factors.

A: Negative impacts included program transfer costs, holiday production losses, and mix changes.

Q: Asked about consignment program ramping slower than expected.

A: Slow growth due to needed equipment procurement and ice storm in Mississippi.

Q: Inquired about Mexico operations characterization.

A: Restructured for increased efficiency, automation, and competitiveness, expecting growth with anticipated no additional headcount reductions beyond those already accrued.

Q: Asked about $1,200,000 savings from China wind-down impact on P&L.

A: The $1,200,000 impacts cost of goods, SG&A, and OpEx across the board.