Key Tronic Q2 2026 Key Tronic Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q2 2026 Key Tronic Corp Earnings Call
Speaker #1: You're holding for today's conference. We are still admitting additional participants, and the call should begin shortly. We do thank you for your patience, and please continue to stand by.
Operator: You're holding for today's conference. We are still on many additional participants, and the call should begin shortly. We do thank you for your patience, and please continue to stand by. Please stand by. Good day, and welcome to the Key Tronic FY 2026 Q2 investor call. Today's conference is being recorded. After the presentation, we will begin the question and answer period. At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead.
Operator: You're holding for today's conference. We are still on many additional participants, and the call should begin shortly. We do thank you for your patience, and please continue to stand by. Please stand by. Good day, and welcome to the Key Tronic FY 2026 Q2 investor call. Today's conference is being recorded. After the presentation, we will begin the question and answer period. At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead.
Speaker #2: Please stand by. Good day. And welcome to the Key Tronic FY 2026 Q2 investor recorded. call. After the presentation, we will Today's conference is being begin the question and answer period.
Speaker #2: At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead.
Speaker #3: Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I'd like to thank everyone for joining us today for our investor conference call.
Anthony Voorhees: Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I'd like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington, headquarters is Brett Larsen, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K and quarterly 10-Qs. Please note that on this call, we will discuss historical, financial, and other statistical information regarding our business and operations. Some of this information is included in today's press release.
Tony Voorhees: Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I'd like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington, headquarters is Brett Larsen, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K and quarterly 10-Qs. Please note that on this call, we will discuss historical, financial, and other statistical information regarding our business and operations. Some of this information is included in today's press release.
Speaker #3: Joining me here at our Spokane, Washington headquarters is Brett Larsen, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance.
Speaker #3: Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC.
Speaker #3: Specifically, our latest 10-K and quarterly 10-Qs. Please note that on this call, we will discuss historical financial and other statistical information regarding our business and operations.
Speaker #3: Some of this information is included in today's press release. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our investor relations website.
Anthony Voorhees: During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our investor relations website. In addition, the slides, together with the recorded version of this call, will be available on the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the investor relations section of our website. For Q2 of fiscal year 2026, we reported total revenue of $96.3 million, compared to $113.9 million in the same period of fiscal 2025.
Tony Voorhees: During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our investor relations website. In addition, the slides, together with the recorded version of this call, will be available on the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the investor relations section of our website. For Q2 of fiscal year 2026, we reported total revenue of $96.3 million, compared to $113.9 million in the same period of fiscal 2025.
Speaker #3: In addition, the slides together with the recorded version of this call will be available on the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call.
Speaker #3: Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the investor relations section of our website.
Speaker #3: For the second quarter of fiscal year 2026, we reported total revenue of $96.3 million. Compared to $113.9 million in the same period of fiscal 2025.
Speaker #3: Revenue for the second quarter of fiscal 2026 was adversely impacted by reduced demand from a longstanding customer and the transition of an end-of-life program.
Anthony Voorhees: Revenue for Q2 of fiscal 2026 was adversely impacted by reduced demand from a long-standing customer, and the transition of an end-of-life program. However, this impact was partially offset by new program wins, and an increase in demand from other long-standing customers. As in other recent quarters, we believe customers continue to face uncertainties in the global economy, and volatile trade policies. In addition, we continued ramping the consigned materials program that was previously announced. For the first six months of fiscal 2026, our total revenue was $195.1 million, compared to $245.4 million in the same period of fiscal 2025. In line with our long-term strategic plan, we proactively advanced our nearshoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and operational capabilities.
Tony Voorhees: Revenue for Q2 of fiscal 2026 was adversely impacted by reduced demand from a long-standing customer, and the transition of an end-of-life program. However, this impact was partially offset by new program wins, and an increase in demand from other long-standing customers. As in other recent quarters, we believe customers continue to face uncertainties in the global economy, and volatile trade policies. In addition, we continued ramping the consigned materials program that was previously announced. For the first six months of fiscal 2026, our total revenue was $195.1 million, compared to $245.4 million in the same period of fiscal 2025. In line with our long-term strategic plan, we proactively advanced our nearshoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and operational capabilities.
Speaker #3: However, this impact was partially offset by new program wins and an increase in demand from other longstanding customers. As in other recent quarters, we believe customers continue to face uncertainties in the global economy and volatile trade policies.
Speaker #3: In addition, we continued ramping the consigned materials program that was previously announced. For the first six months of fiscal 2026, our total revenue was $195.1 million, compared to $245.4 million in the same period of fiscal 2025.
Speaker #3: In line with our long-term strategic plan, we proactively advanced our nearshoring and tariff mitigation while maintaining the strategies. To reduce costs key locations and operational capabilities.
Speaker #3: During the second quarter of fiscal 2026, we initiated a wind-down of our manufacturing operations at our China-based facility. This was designed to better align organizational structure and resources with our strategic initiatives.
Anthony Voorhees: During Q2 of fiscal 2026, we initiated a wind down of our manufacturing operations at our China-based facility, designed to better align organizational structure and resources with our strategic initiatives, including filling the capacity recently created in Vietnam. We expect to complete this wind down in our Q4, at which point we anticipate saving approximately $1.2 million per quarter. We also continue to further reduce our workforce in Mexico, as we intend to have that facility focus on higher volume manufacturing. Once these reductions are fully implemented during our Q3, we would expect to save approximately $1.5 million per quarter moving forward. These strategic initiatives resulted in charges for severance, inventory write-offs, and other related expenses of approximately $10.5 million for the quarter, which had a significant adverse impact on our margins.
Tony Voorhees: During Q2 of fiscal 2026, we initiated a wind down of our manufacturing operations at our China-based facility, designed to better align organizational structure and resources with our strategic initiatives, including filling the capacity recently created in Vietnam. We expect to complete this wind down in our Q4, at which point we anticipate saving approximately $1.2 million per quarter. We also continue to further reduce our workforce in Mexico, as we intend to have that facility focus on higher volume manufacturing. Once these reductions are fully implemented during our Q3, we would expect to save approximately $1.5 million per quarter moving forward. These strategic initiatives resulted in charges for severance, inventory write-offs, and other related expenses of approximately $10.5 million for the quarter, which had a significant adverse impact on our margins.
Speaker #3: Including filling the capacity recently created in Vietnam. We expect to complete this wind-down in our fourth quarter. At which point, we anticipate saving approximately $1.2 million per quarter we also continue to further reduce our workforce in Mexico.
Speaker #3: As we intend to have that facility focus on higher volume manufacturing. Once these reductions are fully implemented, during our third quarter, we would expect to save approximately $1.5 million per forward.
Speaker #3: quarter moving These strategic initiatives resulted in charges for severance, inventory write-offs, and other related expenses of approximately $10.5 million for the quarter. Which had a significant adverse impact on our margins.
Speaker #3: Gross margin was $0.6% and operating margin was negative $10.7% in the second quarter of fiscal 2026. Compared to $6.8% and negative $1.0%, respectively, in the same period of fiscal 2025.
Anthony Voorhees: Gross margin was 0.6%, and operating margin was -10.7% in Q2 of fiscal 2026, compared to 6.8% and -1.0%, respectively, in the same period of fiscal 2025. Excluding the charges related to the China closure and the Mexico workforce reductions, the adjusted gross margin was 7.9% for Q2 of fiscal year 2026. As top-line growth returns, we anticipate margins to be strengthened by improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new program opportunities.
Tony Voorhees: Gross margin was 0.6%, and operating margin was -10.7% in Q2 of fiscal 2026, compared to 6.8% and -1.0%, respectively, in the same period of fiscal 2025. Excluding the charges related to the China closure and the Mexico workforce reductions, the adjusted gross margin was 7.9% for Q2 of fiscal year 2026. As top-line growth returns, we anticipate margins to be strengthened by improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new program opportunities.
Speaker #3: Excluding the charges related to the China closure and the Mexico workforce reductions, the adjusted gross margin was 7.9% for the second quarter of fiscal year 2026.
Speaker #3: As top-line growth returns, we anticipate margins to be strengthened by improvements in our operating efficiencies, and the positive impact of our strategic cost-savings initiatives.
Speaker #3: We also believe the recent cost-savings initiatives have made us more competitive when quoting new program opportunities. As production volumes increase, and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance.
Anthony Voorhees: As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. The wind down of China production, severance charges, and the reduction in revenue had a significant impact on our bottom line. Our net loss was $8.6 million, or $0.79 per share, for Q2 of fiscal 2026, compared to a net loss of $4.9 million or $0.46 per share for the same period of fiscal 2025. For the first six months of fiscal 2026, the net loss was $10.9 million, or $1 per share, compared to $3.8 million, or $0.35 per share, for the same period of fiscal 2025.
Tony Voorhees: As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. The wind down of China production, severance charges, and the reduction in revenue had a significant impact on our bottom line. Our net loss was $8.6 million, or $0.79 per share, for Q2 of fiscal 2026, compared to a net loss of $4.9 million or $0.46 per share for the same period of fiscal 2025. For the first six months of fiscal 2026, the net loss was $10.9 million, or $1 per share, compared to $3.8 million, or $0.35 per share, for the same period of fiscal 2025.
Speaker #3: The wind-down of China production severance charges and the reduction in revenue had a significant impact Our net loss was $8.6 on our bottom line.
Speaker #3: million or 79 cents per share for the second quarter of fiscal 2026. Compared to a net loss of $4.9 million or 46 cents per share for the same period of fiscal 2025.
Speaker #3: For the first six months of fiscal 2026, the net loss was $10.9 million, or $1.00 per share, compared to $3.8 million, or $0.35 per share, for the same period of fiscal 2025.
Anthony Voorhees: Our adjusted net income was breakeven, or $0.00 per share, for Q2 of fiscal 2026, compared to adjusted net loss of $4.1 million, or $0.38 per share, for the same period of fiscal 2025. For the first six months of fiscal 2026, the adjusted net loss was $1.1 million, or $0.10 per share, compared to an adjusted net loss of $1.3 million, or $0.12 per share, for the same period of fiscal 2025. Turning to the balance sheet. Our inventory for Q2 of fiscal 2026 is down $12.3 million, or by 12% from a year ago. Our current ratio was 2.0 to 1, compared to 2.8 to 1 from a year ago.
Tony Voorhees: Our adjusted net income was breakeven, or $0.00 per share, for Q2 of fiscal 2026, compared to adjusted net loss of $4.1 million, or $0.38 per share, for the same period of fiscal 2025. For the first six months of fiscal 2026, the adjusted net loss was $1.1 million, or $0.10 per share, compared to an adjusted net loss of $1.3 million, or $0.12 per share, for the same period of fiscal 2025. Turning to the balance sheet. Our inventory for Q2 of fiscal 2026 is down $12.3 million, or by 12% from a year ago. Our current ratio was 2.0 to 1, compared to 2.8 to 1 from a year ago.
Speaker #3: Our adjusted net income was break-even, or zero cents per share for the second quarter of fiscal 2026. Compared to adjusted net loss, of $4.1 million or 38 cents per share for the same period of fiscal 2025.
Speaker #3: For the first six months of fiscal 2026, the adjusted net loss was $1.1 million, or $0.10 per share, compared to an adjusted net loss of $1.3 million, or $0.12 per share, for the same period of fiscal 2025.
Speaker #3: Turning to the balance sheet, our inventory for the second quarter of fiscal 2026 is down $12.3 million, or by 12%, from a year ago.
Speaker #3: Our current ratio was 2.0 to 1, compared to 2.8 to 1 from a year ago. At the same time, accounts receivable DSOs were at 77 days.
Anthony Voorhees: At the same time, accounts receivable DSOs were at 77 days, compared to 99 days a year ago, reflecting stronger collection on receivables. Total cash flow provided by operations for Q2 of fiscal 2026 was approximately $6.3 million, as compared to $1.3 million in the same period of fiscal 2025. Our continuing ability to generate cash from operations has allowed us to reduce our debt year-over-year by approximately $13.4 million. In Q2, capital expenditures were approximately $3.3 million, bringing year-to-date total capital expenditures through Q2 to approximately $6.5 million.... We expect CapEx for the full year to be around $8 to 10 million, largely spent on new innovative production equipment and automation.
Tony Voorhees: At the same time, accounts receivable DSOs were at 77 days, compared to 99 days a year ago, reflecting stronger collection on receivables. Total cash flow provided by operations for Q2 of fiscal 2026 was approximately $6.3 million, as compared to $1.3 million in the same period of fiscal 2025. Our continuing ability to generate cash from operations has allowed us to reduce our debt year-over-year by approximately $13.4 million. In Q2, capital expenditures were approximately $3.3 million, bringing year-to-date total capital expenditures through Q2 to approximately $6.5 million.... We expect CapEx for the full year to be around $8 to 10 million, largely spent on new innovative production equipment and automation.
Speaker #3: Compared to 99 days a year ago, reflecting stronger collection on receivables. Total cash flow provided by operations for the second quarter of fiscal 2026 was approximately $6.3 million as compared to $1.3 million in the same period of fiscal 2025.
Speaker #3: Our continuing ability to generate cash from operations has allowed us to reduce our debt year over year by approximately $13.4 million. In the second quarter, capital expenditures were approximately $3.3 million, bringing year-to-date total capital expenditures through the second quarter to approximately $6.5 million.
Speaker #3: We expect CapEx for the full year to be around $8 to $10 million, largely spent on new, innovative production equipment and automation. While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities.
Anthony Voorhees: While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities, utilize leasing facilities, and make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies. Nevertheless, we are pleased to continue to see our new programs gradually ramping and our cost and efficiency improvements from our recent overhead reductions taking hold. We also expect to see growth in our US and Vietnam production, have a strong pipeline of potential new business, and remain focused on improving our profitability. Over the longer term, we believe that we are increasingly well-positioned to win new programs and profitably expand our business.
Tony Voorhees: While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities, utilize leasing facilities, and make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies. Nevertheless, we are pleased to continue to see our new programs gradually ramping and our cost and efficiency improvements from our recent overhead reductions taking hold. We also expect to see growth in our US and Vietnam production, have a strong pipeline of potential new business, and remain focused on improving our profitability. Over the longer term, we believe that we are increasingly well-positioned to win new programs and profitably expand our business.
Speaker #3: Utilize leasing facilities and make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies.
Speaker #3: Nevertheless, we are pleased to continue to see our new programs gradually ramping, and our cost and efficiency improvements from our recent overhead reductions taking hold.
Speaker #3: We also expect to see growth in our U.S. and Vietnam production. We have a strong pipeline of potential new business and remain focused on improving our profitability.
Speaker #3: Over the longer term, we believe that we are increasingly well-positioned to win new programs and profitably expand our business. Due to the continued uncertainty of timing of macroeconomic uncertainty, new products' ramps, and light, we are not providing forward-looking guidance in the third quarter of fiscal 2026.
Anthony Voorhees: Due to the uncertainty of timing of new products ramps in light of the continued macroeconomic uncertainty, we are not providing forward-looking guidance in Q3 of fiscal 2026. That's it for me. Brett?
Tony Voorhees: Due to the uncertainty of timing of new products ramps in light of the continued macroeconomic uncertainty, we are not providing forward-looking guidance in Q3 of fiscal 2026. That's it for me. Brett?
Speaker #3: That's it
Speaker #2: Thanks, Tony. During the second quarter of fiscal 2026, we continue to options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth.
Brett Larsen: Thanks, Tony. During Q2 of fiscal 2026, we continued to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth. We are excited about the significant investments made to our US and Vietnam locations. During the quarter, we witnessed the increasing number of customer program starts in Springdale, Arkansas, started a new production line in Corinth, Mississippi, in support of a growing consignment customer, and we shipped our first batch of medical products from Da Nang, Vietnam. Due to ongoing geopolitical tensions and tariff uncertainties, we began to execute our long-term strategy to wind down manufacturing operations at our China facility and continue to rightsize our Mexico facility. Demand from a specific long-standing customers has declined in recent periods, but we believe that recently won programs more than offset the loss in revenue in future quarters.
Brett Larsen: Thanks, Tony. During Q2 of fiscal 2026, we continued to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth. We are excited about the significant investments made to our US and Vietnam locations. During the quarter, we witnessed the increasing number of customer program starts in Springdale, Arkansas, started a new production line in Corinth, Mississippi, in support of a growing consignment customer, and we shipped our first batch of medical products from Da Nang, Vietnam. Due to ongoing geopolitical tensions and tariff uncertainties, we began to execute our long-term strategy to wind down manufacturing operations at our China facility and continue to rightsize our Mexico facility. Demand from a specific long-standing customers has declined in recent periods, but we believe that recently won programs more than offset the loss in revenue in future quarters.
Speaker #2: We are excited about the significant investments made to our U.S. and Vietnam locations. During the quarter, we witnessed the increasing number of customer program starts in Springdale, Arkansas.
Speaker #2: Started a new production line in Corinth, Mississippi, and support of a growing consignment customer. And we shipped our first batch of medical Vietnam. Due to ongoing geopolitical tensions and tariff uncertainties, we began to execute products from Da Nang, our long-term strategy to wind down manufacturing operations at our China facility and continue to right-size our Mexico facility.
Speaker #2: Demand from a specific long-standing customer has declined in recent periods, but we believe that recently won programs more than offset the loss in revenue in future quarters.
Speaker #2: Moreover, the continued market uncertainty and shifts of tariffs have unfortunately impacted the timing and launch of new programs. But those programs continue to slowly proceed.
Brett Larsen: Moreover, the continued market uncertainty and shifts of tariffs have unfortunately impacted the timing and launch of new programs, but those programs continue to slowly proceed. We are doing our best to work with suppliers and with our customers on options for manufacturing their products from different locations in mitigating the impact of tariffs. Our changes made to our manufacturing footprint and cost reductions have enabled us to offer improved mitigation options, particularly when our customers consider the varying implications of current and future potential tariffs. As part of our long-term strategy, and in recognition of the continuing geopolitical tensions, tariff uncertainties, and increasing costs associated with China-based productions, we have begun winding down our facilities there and transferring several programs to Vietnam. As part of our global supply-sourcing strategy, we will continue to operate in China with a small team focused on sourcing critical components locally.
Brett Larsen: Moreover, the continued market uncertainty and shifts of tariffs have unfortunately impacted the timing and launch of new programs, but those programs continue to slowly proceed. We are doing our best to work with suppliers and with our customers on options for manufacturing their products from different locations in mitigating the impact of tariffs. Our changes made to our manufacturing footprint and cost reductions have enabled us to offer improved mitigation options, particularly when our customers consider the varying implications of current and future potential tariffs. As part of our long-term strategy, and in recognition of the continuing geopolitical tensions, tariff uncertainties, and increasing costs associated with China-based productions, we have begun winding down our facilities there and transferring several programs to Vietnam. As part of our global supply-sourcing strategy, we will continue to operate in China with a small team focused on sourcing critical components locally.
Speaker #2: We are doing our best to work with suppliers, and with our customers, on options for manufacturing their products from different locations and mitigating the impact of tariffs.
Speaker #2: Our changes made to our manufacturing footprint and cost reductions have enabled us to offer improved mitigation options. Particularly, when our customers consider the varying implications of current and future potential tariffs.
Speaker #2: As part of our long-term strategy and in recognition of the continuing geopolitical tensions, tariff uncertainties, and increasing costs associated with China-based productions, we have begun winding down our facilities there and transferring several programs to Vietnam.
Speaker #2: global sourcing As part of our strategy, we will continue to operate in China with a small team focused on sourcing critical components locally. Over the past 18 months, we have also reduced our total headcount by approximately 40% in Mexico, and have begun transferring some of the programs from Mexico to the U.S.
Brett Larsen: Over the past 18 months, we have also reduced our total headcount by approximately 40% in Mexico and have begun transferring some of the programs from Mexico to the US and Vietnam. Our Mexico facility continues to offer a unique solution for tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies, and invested in automation in order to be more cost-competitive in the market. Due to the successful cost reductions and streamlining production processes, we have recently seen an increase in the quoting volume and probability of landing new programs manufactured within our Mexico facilities. We've also seen an influx of new customer visits and audits of our Juarez campus as of late that demonstrates we are competitive for a growing variety of quoting opportunities.
Brett Larsen: Over the past 18 months, we have also reduced our total headcount by approximately 40% in Mexico and have begun transferring some of the programs from Mexico to the US and Vietnam. Our Mexico facility continues to offer a unique solution for tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies, and invested in automation in order to be more cost-competitive in the market. Due to the successful cost reductions and streamlining production processes, we have recently seen an increase in the quoting volume and probability of landing new programs manufactured within our Mexico facilities. We've also seen an influx of new customer visits and audits of our Juarez campus as of late that demonstrates we are competitive for a growing variety of quoting opportunities.
Speaker #2: and Vietnam offer a unique solution for our Mexico facility, which continues to provide tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies, and invested in automation in order to be more cost-competitive in the market.
Speaker #2: Due to the successful cost reductions and streamlining of production processes, we have recently seen an increase in quoting volume and the probability of landing new programs manufactured within our Mexico facilities.
Speaker #2: We've also seen an influx of new customer visits and audits of our Warez campus as of late. That demonstrates we are competitive for a growing variety of quoting opportunities.
Speaker #2: Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. We are very excited about the recent investments made in the U.S.
Brett Larsen: Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. We are very excited about the recent investments made in the US and Vietnam to build out capacity and new capabilities to meet evolving customer demand. You will recall that we opened our new technology and research and development location in Arkansas during Q1 of fiscal 2026. Our US-based production provides customers with outstanding flexibility, engineering support, and ease of communication. We expect double-digit growth in our facility in Arkansas during the latter half of this fiscal year. You will also recall that we have recently doubled our manufacturing capacity in Vietnam, that now has the capability to support medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that had been associated with China in the past.
Brett Larsen: Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. We are very excited about the recent investments made in the US and Vietnam to build out capacity and new capabilities to meet evolving customer demand. You will recall that we opened our new technology and research and development location in Arkansas during Q1 of fiscal 2026. Our US-based production provides customers with outstanding flexibility, engineering support, and ease of communication. We expect double-digit growth in our facility in Arkansas during the latter half of this fiscal year. You will also recall that we have recently doubled our manufacturing capacity in Vietnam, that now has the capability to support medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that had been associated with China in the past.
Speaker #2: and Vietnam to build our capacity and new capabilities to meet evolving customer demand. You will recall that we opened our new technology and research and development location in Arkansas during the first quarter of fiscal 2026.
Speaker #2: Our U.S.-based production provides customers with outstanding support and ease of communication. We expect double-digit growth in our facility in Arkansas during the latter half of this fiscal year.
Speaker #2: You also recall that we have recently doubled our manufacturing capacity in Vietnam, which now has the capability to support medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that had been associated with China in the past.
Speaker #2: In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate these new facilities in the U.S. and Vietnam will enable us to benefit from customer demand for rebalancing contract manufacturing and mitigate the severe impact and uncertainties surrounding the tariffs on goods and critical components.
Brett Larsen: In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate these new facilities in the US and Vietnam will enable us to benefit from customer demand for rebalancing contract manufacturing and mitigate the severe impact and uncertainty surrounding the tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our US and Vietnam facilities. These initiatives reflect both the long-standing customer trend to nearshore, as well as de-risk the potential adverse impact of tariff increase and geopolitical tensions. During Q2 of fiscal 2026, we won new programs in automotive technology, pest control, and industrial equipment. As already noted, we continue to ramp our recently announced manufacturing services contract with a data processing OEM that's consigned its materials to our Corinth, Mississippi, manufacturing facility.
Brett Larsen: In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate these new facilities in the US and Vietnam will enable us to benefit from customer demand for rebalancing contract manufacturing and mitigate the severe impact and uncertainty surrounding the tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our US and Vietnam facilities. These initiatives reflect both the long-standing customer trend to nearshore, as well as de-risk the potential adverse impact of tariff increase and geopolitical tensions. During Q2 of fiscal 2026, we won new programs in automotive technology, pest control, and industrial equipment. As already noted, we continue to ramp our recently announced manufacturing services contract with a data processing OEM that's consigned its materials to our Corinth, Mississippi, manufacturing facility.
Speaker #2: By the end of
Speaker #1: Fiscal 2026 , we expect approximately half of our manufacturing to take place in our US and Vietnam facilities . These initiatives reflect long standing customer trend to initiatives nearshore .
Speaker #1: reflect both the long These standing customer trend to nearshore , as well as potential de-risk the adverse impact of tariff increase and geopolitical tensions .
Speaker #1: second During the quarter of fiscal 2026 , we won new programs in automotive technology , pest control , and industrial equipment . As already noted , we to ramp our recently announced manufacturing services contract with continue a data processing OEM that's consigns .
Speaker #1: Its materials to our Corinth , Mississippi manufacturing facility . As we discussed , the consigned material model is new for us at this scale , and if successful , we'll considerably improve our profitability in coming quarters .
Brett Larsen: As we discussed, the consigned material model is new for us at this scale, and if successful, will considerably improve our profitability in coming quarters. It has the potential to grow to over $25 million in annual revenue, roughly the equivalent of a $100 million turnkey program. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and the dual sourcing of contract manufacturing. We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsource strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart, long-term strategy. We believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities.
Brett Larsen: As we discussed, the consigned material model is new for us at this scale, and if successful, will considerably improve our profitability in coming quarters. It has the potential to grow to over $25 million in annual revenue, roughly the equivalent of a $100 million turnkey program. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and the dual sourcing of contract manufacturing. We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsource strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart, long-term strategy. We believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities.
Speaker #1: has the It potential to grow to over $25 million in annual revenue , roughly the equivalent of $100 million turnkey program . Despite uncertainties and disruptions in global the many strong our pipeline markets , of new business underscores the continued trend potential towards Onshoring and the dual sourcing of contract manufacturing .
Speaker #1: We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional strategies time , the . Over decision to onshore production is becoming more widely accepted as smart , a long term strategy .
Speaker #1: I believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities. The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business.
Brett Larsen: The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business. Many of our manufacturing program wins are predicated upon Key Tronic's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program's specific design challenges makes that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters. We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, blow, gas assist, multi-shot, as well as PCB assembly, metal forming, painting, and coating, complex high-volume automated assembly, and the design, construction, and operation of complicated test equipment. We believe that this expertise will increasingly set us apart from our competitors of a similar size.
Brett Larsen: The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business. Many of our manufacturing program wins are predicated upon Key Tronic's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program's specific design challenges makes that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters. We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, blow, gas assist, multi-shot, as well as PCB assembly, metal forming, painting, and coating, complex high-volume automated assembly, and the design, construction, and operation of complicated test equipment. We believe that this expertise will increasingly set us apart from our competitors of a similar size.
Speaker #1: Many of our manufacturing program wins are predicated upon Key Tronic Corp's deep and broad design services we have. And once completed the design and it into ramped production, we believe our knowledge of the program-specific design challenges makes that extremely business.
Speaker #1: Many of our manufacturing program wins are predicated upon Key Tronic Corp deep and broad design services we have . And once completed the design and it into ramped production , we believe our knowledge of the program specific design challenges makes that extremely business sticky capability of design our coming quarters .
Speaker #1: We also engineers in continue to invest in vertical integration and manufacturing process knowledge , including a wide range of plastic molding , injection , blow gas assist , multishot , as well as PCB assembly .
Speaker #1: forming , painting and coating . Complex high volume Metal automated assembly and the design , construction and of complicated test equipment . We believe that this expertise will increasingly set us apart from our of a similar competitors size While the global market .
Brett Larsen: While the global market uncertainties have created some delays to new product launches for us, our suppliers, and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America, as well to our expanding Vietnam facilities. We are expecting revenue growth in the coming quarters from new programs launching in the US, Mexico, and Vietnam. We move forward with a strong pipeline of potential new business, and we are anticipating significant improvements in our operating efficiencies. Over the long term, we remain very encouraged by our cost reductions made over the past two years to become more price competitive. Our increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations from our design engineering. All of these initiatives have increased our potential for profitable growth.
Brett Larsen: While the global market uncertainties have created some delays to new product launches for us, our suppliers, and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America, as well to our expanding Vietnam facilities. We are expecting revenue growth in the coming quarters from new programs launching in the US, Mexico, and Vietnam. We move forward with a strong pipeline of potential new business, and we are anticipating significant improvements in our operating efficiencies. Over the long term, we remain very encouraged by our cost reductions made over the past two years to become more price competitive. Our increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations from our design engineering. All of these initiatives have increased our potential for profitable growth.
Speaker #1: uncertainties have created delays to some new product launches for our us , our suppliers and customers , we believe tensions geopolitical and heightened concerns about tariffs and supply chains will favorable drive the of continue to contractor returning to North manufacturing , as well .
Speaker #1: To expanding our Vietnam facilities' revenue, expecting coming growth in the from new quarters launching in the, we are programs Mexico and Vietnam.
Speaker #1: We move a forward with strong pipeline of potential new , and we business are anticipating significant improvements in our operating efficiencies long over the term .
Speaker #1: We remain very encouraged by our cost reductions made over the past few years to become more competitive. Our price, cash flow generated from operations, enhanced global manufacturing footprint, and the innovations from our design and engineering.
Speaker #1: All of these initiatives have increased our potential for profitable growth . This concludes the portion of our formal presentation . Tony will now to answer be pleased and I your questions .
Brett Larsen: This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions.
Brett Larsen: This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions.
Operator: Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions, star one. And our first question will come from Matt Dame with Titan Capital Management.
Operator: Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions, star one. And our first question will come from Matt Dame with Titan Capital Management.
Speaker #2: Thank you. If you would like to ask a question, please press star one on your touchtone telephone. If you are using a speakerphone today, please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker #2: is Again , that one . If you would like to signal with questions , star one . And our first question will come from Matt Dain with Tieton Capital Management .
Matt Dame: Great. Thank you. I was hoping to delve a little bit more. You referenced earlier in the call that... Can you hear me?
Matt Dame: Great. Thank you. I was hoping to delve a little bit more. You referenced earlier in the call that... Can you hear me?
Speaker #3: Great . Thank you . I was hoping to delve a little bit more . You referenced earlier call in the that can you hear me ?
Brett Larsen: Yes, we can, Matt.
Brett Larsen: Yes, we can, Matt.
Matt Dame: Okay. I'm sorry. I thought maybe someone was saying they could not hear me. So wanted to circle back around, like I was saying, the increased demand from existing customers. I was hoping to get a little bit more color, how significant that is. Is it across a wide variety of customers? And what do you sense is driving that increased demand?
Matt Dame: Okay. I'm sorry. I thought maybe someone was saying they could not hear me. So wanted to circle back around, like I was saying, the increased demand from existing customers. I was hoping to get a little bit more color, how significant that is. Is it across a wide variety of customers? And what do you sense is driving that increased demand?
Speaker #1: Yes, we can, Matt.
Speaker #3: sorry . Okay . I'm I thought maybe someone was saying they could not hear me . So I want to circle back around saying , the increased demand from existing customers .
Speaker #3: Hoping to get a little bit more color on how significant that is. Is it across a variety of, like, customers?
Speaker #3: a wide what do sense is you driving that that demand increased
Brett Larsen: Yeah, I would say that, you know, the large part there, it's predominantly two specific long-standing customers. One is product maturation, just, you know, the fact that there's a need for a refresh of this particular design. That had a rough order of magnitude, probably about a $20 million hit to our overall quarter revenue. I think the next was essentially an end-of-life program. They're looking at replacing it down the road, but that one, too, is roughly about a $7 million reduction from last year's fiscal. Of course, offsetting that, those large decreases in revenue are some of the ramping new programs.
Brett Larsen: Yeah, I would say that, you know, the large part there, it's predominantly two specific long-standing customers. One is product maturation, just, you know, the fact that there's a need for a refresh of this particular design. That had a rough order of magnitude, probably about a $20 million hit to our overall quarter revenue. I think the next was essentially an end-of-life program. They're looking at replacing it down the road, but that one, too, is roughly about a $7 million reduction from last year's fiscal. Of course, offsetting that, those large decreases in revenue are some of the ramping new programs.
Speaker #3: ? Yeah , I
Speaker #1: I would say that, you know, the large part is predominantly due to two specific long-standing customers. One is product maturation.
Speaker #1: Just , you know , the fact that there's a need for refresh of this particular a that had rough order of a magnitude , probably about a $20 million hit to our overall quarter I think revenue .
Speaker #1: next was essentially an life program . They're looking end of at replacing it down the road , that one to but roughly about a from $7 million reduction last year , fiscal , of course , offsetting that , those large decreases in revenue are some of the ramping new programs .
Matt Dame: ... Okay, so, you're not really seeing a ramp from existing customers, that the ramp is really coming from new programs then, is that am I hearing you correct then?
Matt Dame: ... Okay, so, you're not really seeing a ramp from existing customers, that the ramp is really coming from new programs then, is that am I hearing you correct then?
Speaker #3: Okay . So you're not really seeing a ramp from existing customers that the ramp is coming from really new that . Is programs then .
Brett Larsen: Yeah, Matt, we do have a few customers that we're seeing some increased demand on. I would say it's, you know, around a half dozen that are, you know, kind of impacting that increase from long-standing customers.
Brett Larsen: Yeah, Matt, we do have a few customers that we're seeing some increased demand on. I would say it's, you know, around a half dozen that are, you know, kind of impacting that increase from long-standing customers.
Speaker #3: hearing you Am I correct them ?
Speaker #4: yeah , Matt , We we do few have a customers that we're seeing some increased demand on . I would say it's , you know , around a half dozen that are , you know , kind of impacting that increase from long customers .
Matt Dame: Okay. Okay, no, that, that's helpful. And then you also in the press release referenced the three new programs that you won. I was just hoping to get a rough size estimate of each, the timing of the ramp, and where you're gonna be manufacturing each of those.
Matt Dame: Okay. Okay, no, that, that's helpful. And then you also in the press release referenced the three new programs that you won. I was just hoping to get a rough size estimate of each, the timing of the ramp, and where you're gonna be manufacturing each of those.
Speaker #3: Okay , okay . No that's helpful . And then you also also in the the press release referenced the three new programs that you won , was just hoping to get a size rough estimate of each .
Speaker #3: And the timing of the ramp . And then also where you're going to be manufacturing each of those .
Brett Larsen: Sure. I think the first, we'll start with the automotive. That one will be manufactured down in Mexico. That will, rough order, could be up to $5 million when fully ramped. I think the pest control, I think that one's actually in our US facility in Vietnam, and that could be up to $2 million. And then the industrial equipment is also in our US location, $2 to 5 million.
Brett Larsen: Sure. I think the first, we'll start with the automotive. That one will be manufactured down in Mexico. That will, rough order, could be up to $5 million when fully ramped. I think the pest control, I think that one's actually in our US facility in Vietnam, and that could be up to $2 million. And then the industrial equipment is also in our US location, $2 to 5 million.
Speaker #1: Sure . I think the first we'll start with the automotive , that manufactured down in one will be Mexico . That will . Rough , rough order could be up to $5 million .
Speaker #1: When fully ramped . I think the pest control , I think that one's in our actually US facility in Vietnam , and that could be up And then industrial to $2 million .
Speaker #1: the equipment is also in our US location , 2 to 5 million .
Matt Dame: Okay. No, that, that's helpful. And then final question I'd like to ask. You folks have referenced in the past, and, and again on this call today, that you're you have a number of tariff mitigation strategies. I don't think I've ever actually delved in and tried to better understand. When you say that, what are you actually doing behind the scenes, and what can you do to help us understand better what you're doing there?
Matt Dame: Okay. No, that, that's helpful. And then final question I'd like to ask. You folks have referenced in the past, and, and again on this call today, that you're you have a number of tariff mitigation strategies. I don't think I've ever actually delved in and tried to better understand. When you say that, what are you actually doing behind the scenes, and what can you do to help us understand better what you're doing there?
Speaker #3: That's helpful . Okay . And then final like to question I'd ask you folks have referenced in and again past , on this call today that you're you have a number of tariff mitigation strategies .
Speaker #3: I don't think I've ever actually delved in and tried to to better when you understand say that , what what are you actually behind the doing scenes and what can you do us better understand to help you're doing there ?
Brett Larsen: Yeah, I mean, that really gets to the core of our strategy, our long-term strategy, to essentially have a lower-cost Asian facility that could eventually replace our China facility. You know, one of the biggest reasons we're winding down China is now that we've ramped Vietnam, we feel confident in the new technology and the new production equipment that we now have online. It really is ready now to essentially resolve, you know, the China to US tariff situation, and then also, you know, some of the geopolitical tension that we have. You know, that's one piece.
Brett Larsen: Yeah, I mean, that really gets to the core of our strategy, our long-term strategy, to essentially have a lower-cost Asian facility that could eventually replace our China facility. You know, one of the biggest reasons we're winding down China is now that we've ramped Vietnam, we feel confident in the new technology and the new production equipment that we now have online. It really is ready now to essentially resolve, you know, the China to US tariff situation, and then also, you know, some of the geopolitical tension that we have. You know, that's one piece.
Speaker #1: Yeah . I mean , really that that gets to the core of our strategy , our long term strategy to essentially have a lower cost Asian facility that could eventually replace our China facility .
Speaker #1: You know, one of the biggest reasons we’re winding down China is now that we’ve ramped Vietnam, we feel confident in the new technology and the new production equipment that we now have online.
Speaker #1: now ready It really to essentially resolve the the China , the US tariff situation . And then also , you know , some of the geopolitical tension that we have , you know , that's one piece , you know , the other piece is that we offer either a us made opportunity for those that that would that .
Brett Larsen: You know, the other piece is that we offer either a US-made opportunity for those that would require that, but we also still offer, you know, the production down in Mexico, that currently you still can take advantage of the USMCA agreement, that allows you to build things down in Mexico and bring it back up into the US and even consume it in the US under that agreement and avoid certain tariffs as well. You know, it's a complex algorithm that really we help our customers with coming up with the best solution. A lot of that is dependent on how much labor is required, where the components are currently being supplied, where could they be supplied from, possibly using some more North American-centric suppliers that we have.
Brett Larsen: You know, the other piece is that we offer either a US-made opportunity for those that would require that, but we also still offer, you know, the production down in Mexico, that currently you still can take advantage of the USMCA agreement, that allows you to build things down in Mexico and bring it back up into the US and even consume it in the US under that agreement and avoid certain tariffs as well. You know, it's a complex algorithm that really we help our customers with coming up with the best solution. A lot of that is dependent on how much labor is required, where the components are currently being supplied, where could they be supplied from, possibly using some more North American-centric suppliers that we have.
Speaker #1: also But we still offer , you know , the production down in Mexico require that currently you still can take advantage of the Usmca agreement .
Speaker #1: That allows you to build things down in Mexico and bring it back up into the US , and even consume it in the US agreement .
Speaker #1: And . Under that avoid certain , certain tariffs well . as You know , it's a complex algorithm that really we help our customers with coming up with the best solution .
Speaker #1: that is dependent on how much labor is required , what where the components are currently being supplied , where could they be supplied from using some , possibly more North American centric suppliers we that have .
Brett Larsen: And then basically coming up with various price points of a total cost to our customer and saying, "Here's where we think it's advantageous to build your product." We feel confident, based on our locations and footprint, that we can offer, you know, a suite of different answers to our customers that really could mitigate tariffs regardless of where they end up.
Brett Larsen: And then basically coming up with various price points of a total cost to our customer and saying, "Here's where we think it's advantageous to build your product." We feel confident, based on our locations and footprint, that we can offer, you know, a suite of different answers to our customers that really could mitigate tariffs regardless of where they end up.
Speaker #1: And then basically coming up with various price points of a total cost to ours and saying, customer, here's where we think it's advantageous to build your product.
Speaker #1: We feel confident, based on our locations and footprint, that we can offer, you know, a suite of different answers to our customers that really could mitigate tariffs regardless of where they end up.
Matt Dame: Okay. Okay, and so whenever a prospective customer is coming to you, looking to have you quote a new product or program, do you usually go back to them? And if they're really agnostic where it comes from, do you go back to them and offer them pricing, "If we were to build it in Vietnam, this would be your price, US price, and then a Mexico price?" Do they really have the full choice and spectrum, and is that really how you approach it oftentimes?
Matt Dame: Okay. Okay, and so whenever a prospective customer is coming to you, looking to have you quote a new product or program, do you usually go back to them? And if they're really agnostic where it comes from, do you go back to them and offer them pricing, "If we were to build it in Vietnam, this would be your price, US price, and then a Mexico price?" Do they really have the full choice and spectrum, and is that really how you approach it oftentimes?
Speaker #3: Okay , okay . And so whenever a prospective customer is coming to you looking to to have you , you quote a new product or program , usually go back to them .
Speaker #3: do you And if they're really agnostic where it comes from , do you go back to them and offer them pricing ? If we were to build it in Vietnam , this would be your price .
Speaker #3: US price, and then a Mexico price. Do they really have the full choice and spectrum? And is that really how you approach it?
Brett Larsen: It really is. And that - I think that's one of the unique things that we can offer as Keytronic, is we can easily quote from all three of those, all three of those locations that you provided and offer, you know, our customer, "This is what the lead time would be required. Here's what your price is. You know, here's what the pros and cons from building in each of those locations," and really offer that to our customer to ultimately make that decision of where they want the product built.
Brett Larsen: It really is. And that - I think that's one of the unique things that we can offer as Keytronic, is we can easily quote from all three of those, all three of those locations that you provided and offer, you know, our customer, "This is what the lead time would be required. Here's what your price is. You know, here's what the pros and cons from building in each of those locations," and really offer that to our customer to ultimately make that decision of where they want the product built.
Speaker #3: Oftentimes .
Speaker #1: It really is . And I think that's one of the unique things that we can offer as Key Tronic Corp is , is we can easily quote from all three of those , all three of those locations that you provided and offer , you know , our customer , this is this is what the lead time that would be required .
Speaker #1: Here's price is . You know , what your here's what here's the the pros and cons from building in each of those locations .
Speaker #1: And really offer that to our customer to ultimately make that decision of where they want the product built.
Matt Dame: Okay, great. That's helpful. Appreciate the answers, guys.
Matt Dame: Okay, great. That's helpful. Appreciate the answers, guys.
Brett Larsen: You bet.
Brett Larsen: You bet.
Speaker #3: Okay , great . That's helpful . Appreciate the the answers , guys .
Operator: As a reminder, if you would like to signal with questions, please press star one. Again, that is star one. Our next question will come from George Melas with MKH Management.
Operator: As a reminder, if you would like to signal with questions, please press star one. Again, that is star one. Our next question will come from George Melas with MKH Management.
Speaker #1: bet You .
Speaker #2: reminder , if you would like to signal with questions , please press As a star one . Again . That is star one .
Speaker #2: And our next question will come from George Ellis with RMC Management.
George Melas: Great, thank you. Let me just pick up the phone. How are you guys?
George Melas: Great, thank you. Let me just pick up the phone. How are you guys?
Speaker #5: Great . Thank you . Let me just pick up the phone . How are you guys .
Brett Larsen: Doing well, George.
Brett Larsen: Doing well, George.
Matt Dame: Doing good.
Matt Dame: Doing good.
Brett Larsen: Thank you.
Brett Larsen: Thank you.
George Melas: Good. Great. Just want to review a little bit the gross margin. On an adjusted basis, it's roughly, it's 7.9%, which is better than a year ago, but it's down a bit sequentially. And I'm just trying to see if there is anything unusual in the quarter, in the gross margin, something positive, like a high level of tooling or engineering services, or maybe something negative, like some disruptions and the transition of the end-of-life program or, or other things like that.
George Melas: Good. Great. Just want to review a little bit the gross margin. On an adjusted basis, it's roughly, it's 7.9%, which is better than a year ago, but it's down a bit sequentially. And I'm just trying to see if there is anything unusual in the quarter, in the gross margin, something positive, like a high level of tooling or engineering services, or maybe something negative, like some disruptions and the transition of the end-of-life program or, or other things like that.
Speaker #1: Doing well, George, thank you.
Speaker #5: Great . Just want to review a little bit the gross margin on an adjusted basis . It's roughly it's 7.9% , which is than a year ago .
Speaker #5: better But it's down a bit sequentially . And just trying to see if there is anything unusual in the quarter in the gross margin , something positive level of tooling or services , engineering or maybe something negative , like some disruptions and the transition of the end of life program or other things like that .
Brett Larsen: Yeah, I just to mention a few, and I'm sure Tony will fill in as well, but I think some of the negative, some of the headwind we had during the quarter was. You know, we still are transferring programs from Mississippi up into Arkansas, the new facility. And of course, with that comes some additional costs. I'd also mention that in our second quarter, as always, we really lose out on a week of production just due to the holidays. Our particularly, in particular, our Mexican facility was closed for a full week, and then, of course, our domestic sites are closed for at least a half a week over Christmas. So you lose some production time, but you know, that helps explain some of the sequential drop in the adjusted gross margin.
Brett Larsen: Yeah, I just to mention a few, and I'm sure Tony will fill in as well, but I think some of the negative, some of the headwind we had during the quarter was. You know, we still are transferring programs from Mississippi up into Arkansas, the new facility. And of course, with that comes some additional costs. I'd also mention that in our second quarter, as always, we really lose out on a week of production just due to the holidays. Our particularly, in particular, our Mexican facility was closed for a full week, and then, of course, our domestic sites are closed for at least a half a week over Christmas. So you lose some production time, but you know, that helps explain some of the sequential drop in the adjusted gross margin.
Speaker #1: , just Yeah to mention a few . And I'm sure Tony will fill in as well . But I think some of the negative , some of the headwind we we had during the quarter was , you know , we still are transferring programs from Mississippi up into Arkansas .
Speaker #1: The new facility, and that comes with some additional costs. It’s also, as mentioned, that in this quarter, always, we really lose out on a week of production just due to the holidays—particularly, in particular, our facility in Mexico was closed for a full week.
Speaker #1: And then, of course, our sites domestically closed for at least half a week over our Christmas. So you lose some production time.
Speaker #1: know that that helps But you explain some of the sequential drop the in in the adjusted gross margin we really need volume . And looking forward prospectively is in order to really increase our gross margin need to we drive sales volume and utilize the some of we have sites .
Brett Larsen: We really need volume, and looking forward prospectively, in order to really increase our gross margin prospectively, we need to drive sales volume and utilize some of the excess capacity that we have in each of our sites. Tony, anything you'd add?
Brett Larsen: We really need volume, and looking forward prospectively, in order to really increase our gross margin prospectively, we need to drive sales volume and utilize some of the excess capacity that we have in each of our sites. Tony, anything you'd add?
Anthony Voorhees: There was just to add to that, there were some slight mix changes that negatively impacted gross margin quarter-over-quarter, essentially.
Tony Voorhees: There was just to add to that, there were some slight mix changes that negatively impacted gross margin quarter-over-quarter, essentially.
Speaker #1: excess anything our you'd Tony , in each of
Speaker #4: There was
Speaker #4: just to that , to add there were some slight mix changes that impacted gross negatively margin quarter over capacity that , sequentially .
George Melas: Mix changes, Tony, do you mean different programs or different locations?
George Melas: Mix changes, Tony, do you mean different programs or different locations?
Speaker #5: mix And changes you mean different programs or different ?
Anthony Voorhees: Primarily just different programs. Yeah.
Tony Voorhees: Primarily just different programs. Yeah.
George Melas: Okay, great. Okay, maybe another question on, so you guys redoing the expectation to be net income breakeven in, in the June quarter, so just two quarters away. And with interest expense sort of remaining, let's say, at $2.3 million or in that range, you need. And if we think of OpEx, normalized OpEx, at roughly $7.4 million, you need roughly $10.7 million in my basic calculation of gross profits. And that implies both revenue growth and margin expansion, I think. Some of the margin expansion will come from the consignment program in Mississippi. But can you comment on that and how you think that you're able to both grow revenue and margin?
George Melas: Okay, great. Okay, maybe another question on, so you guys redoing the expectation to be net income breakeven in, in the June quarter, so just two quarters away. And with interest expense sort of remaining, let's say, at $2.3 million or in that range, you need. And if we think of OpEx, normalized OpEx, at roughly $7.4 million, you need roughly $10.7 million in my basic calculation of gross profits. And that implies both revenue growth and margin expansion, I think. Some of the margin expansion will come from the consignment program in Mississippi. But can you comment on that and how you think that you're able to both grow revenue and margin?
Speaker #4: Just locations, primarily different programs? Yeah.
Speaker #5: Okay . Great . Okay . another on so do you guys question read the be net income breakeven . And in the Maybe quarter .
Speaker #5: So, expectation to just two quarters away, and with interest expense sort of remaining, say, let's at $2.3 million, in that range, you need...
Speaker #5: And if we think of opex, normalized opex at roughly $7.4 million, you need roughly $10.7 million—in my basic calculation—gross of profit.
Speaker #5: And that implies both revenue growth and margin margin think some of the expansion will come expansion . I the consignment from program in Mississippi , but can you comment on that and you think were that you able to grow both revenue and margin ?
Brett Larsen: Yeah, I think we would stick with that same expectation. You know, we still anticipate achieving somewhere break even by the end of the fiscal year. You know, we mentioned a bit about that consignment program. That continues to ramp nicely. It's definitely not to the level of revenue that we expect it to be exiting this quarter or even in the fourth quarter. There's more growth there that is required. But as we mentioned earlier, I think with that consignment program, as large as it is, you will also see some uptick in the gross margin percentage. So you'll see both. Our expectation is some additional revenue, but then also improvement in the gross margin percentage.
Brett Larsen: Yeah, I think we would stick with that same expectation. You know, we still anticipate achieving somewhere break even by the end of the fiscal year. You know, we mentioned a bit about that consignment program. That continues to ramp nicely. It's definitely not to the level of revenue that we expect it to be exiting this quarter or even in the fourth quarter. There's more growth there that is required. But as we mentioned earlier, I think with that consignment program, as large as it is, you will also see some uptick in the gross margin percentage. So you'll see both. Our expectation is some additional revenue, but then also improvement in the gross margin percentage.
Speaker #1: Yeah , I think I think would stick with we that same expectation . You know , we still anticipate achieving somewhere by by the end breakeven fiscal year of the .
Speaker #1: know , we You bit mentioned a about consignment that program that continues to ramp nicely . It's to the not level of revenue expect that we it to be that exiting this this quarter or even in their fourth quarter .
Speaker #1: There's more growth there required that is . But as we earlier , I think mentioned consigned , as large as program it as it is , you will see also some uptick in the gross margin So you'll see percentage .
Speaker #1: Our additional is some revenue, but expectation then also improvement in the gross percentage margin.
George Melas: Okay. Just, just a follow-up on that, Brett. Any particular reason for the program sort of ramping up, maybe slower than you expected? Because it seems like it's a very important program for you guys.
George Melas: Okay. Just, just a follow-up on that, Brett. Any particular reason for the program sort of ramping up, maybe slower than you expected? Because it seems like it's a very important program for you guys.
Speaker #6: Okay .
Speaker #5: And just a follow-up on Brett. Is there any particular reason for the program's ramping up maybe slower than you expected? Because it seems like it's a very important program for you guys.
Brett Larsen: No, you know, we expected that it would be a slow grow. You know, some of that required some additional equipment. We were able to procure that. It had some lead time to it. We actually ended up installing some of that over the Christmas holiday.
Brett Larsen: No, you know, we expected that it would be a slow grow. You know, some of that required some additional equipment. We were able to procure that. It had some lead time to it. We actually ended up installing some of that over the Christmas holiday.
Speaker #1: No . You know , we expected that it would be a slow grow some of that required some . additional You know , equipment .
Speaker #1: We were able to to procure that . It had some lead time to it . We actually we ended up installing some of that over the Christmas holiday .
George Melas: Okay.
George Melas: Okay.
Brett Larsen: And then, you know, unfortunately, down in Mississippi, this quarter, you know, they got hit with a bad ice storm. So we are recovering from that. I think that'll have a slight impact into our Q3, but won't disrupt the momentum of growing that consignment model. It just may delay it by a week or two as we get through this ice storm. But we fully anticipated that that would be a slow roll to get to its peak.
Brett Larsen: And then, you know, unfortunately, down in Mississippi, this quarter, you know, they got hit with a bad ice storm. So we are recovering from that. I think that'll have a slight impact into our Q3, but won't disrupt the momentum of growing that consignment model. It just may delay it by a week or two as we get through this ice storm. But we fully anticipated that that would be a slow roll to get to its peak.
Speaker #1: then And , you know , unfortunately in Mississippi , this , this quarter , you got hit know , they some , some , with bad ice storm .
Speaker #1: So, we are recovering from that. I think that will have a slight impact into our third quarter, but it won't disrupt the growing momentum of the consignment model.
Speaker #1: It just may delay it by a week or two as we get through this ice storm . But we fully anticipated that be a that would slow roll to be to to get to its peak .
George Melas: Okay. Okay. Then just to try to understand, in Mexico, you expect growth in Mexico going forward. So does that mean that Mexico has hit sort of a bottom and that you restructured Mexico into, let's say, a lower service, but full capability, but maybe slightly lower service, but low cost operation? How would you characterize that?
George Melas: Okay. Okay. Then just to try to understand, in Mexico, you expect growth in Mexico going forward. So does that mean that Mexico has hit sort of a bottom and that you restructured Mexico into, let's say, a lower service, but full capability, but maybe slightly lower service, but low cost operation? How would you characterize that?
Speaker #6: Okay , okay .
Speaker #5: And then just to try to understand Mexico , , in you expect growth in Mexico going forward . So does that that mean Mexico has hit sort of a bottom that you and restructured Mexico into , let's say , a lower service ?
Speaker #5: But but full capability , but maybe slightly lower service , but low cost operation . How would you characterize that ?
Brett Larsen: George, I think, kind of like what we mentioned is that we have found that we were not market competitive. We needed to increase our efficiency. We needed to invest in some automation. We really needed to be far more competitive in our pricing down in Mexico. I hope that we're at a bottom. You know, I can't... I don't have a crystal ball, but my expectation, based off of just the recent history, the recent visits that we've had down in Mexico, and some of the quoting opportunities that we've been down-selected to take it to the next round, I feel like we're more competitive in Mexico than we were. So yeah, over the longer term, we're still expecting Mexico to grow.
Brett Larsen: George, I think, kind of like what we mentioned is that we have found that we were not market competitive. We needed to increase our efficiency. We needed to invest in some automation. We really needed to be far more competitive in our pricing down in Mexico. I hope that we're at a bottom. You know, I can't... I don't have a crystal ball, but my expectation, based off of just the recent history, the recent visits that we've had down in Mexico, and some of the quoting opportunities that we've been down-selected to take it to the next round, I feel like we're more competitive in Mexico than we were. So yeah, over the longer term, we're still expecting Mexico to grow.
Speaker #1: I, George, I think I would, I kind of like what we mentioned, is that we have found that we were market competitive.
Speaker #1: Not needed increase our efficiency. To needed to invest in some automation. We really needed to be far more pricing down in in our competitive Mexico.
Speaker #1: hope I that we're at a know , I bottom . can't I You can't I don't have a crystal ball , but my expectation based off of just the recent history , just recent visits just the that we've had down in and some Mexico of the quoting opportunities that we've been down selected to take it to the next round .
Speaker #1: I , I feel like we're we're competitive more in Mexico than we were . So yeah , over the longer term , we're still expecting Mexico grow to .
Brett Larsen: We don't have anticipated additional reductions in headcount, other than those that we've already accrued for in our second quarter. But as you know, things change. We are looking forward to the review of the USMCA that is to occur mid-year this year, and hoping that most, if not all, of that continues as part of a trilateral agreement between us, Mexico, and Canada. You know, but things do change. But for now, yes, we, based on the volume of quotes and the recent visits by potential customers, our expectation is that Mexico will grow.
Brett Larsen: We don't have anticipated additional reductions in headcount, other than those that we've already accrued for in our second quarter. But as you know, things change. We are looking forward to the review of the USMCA that is to occur mid-year this year, and hoping that most, if not all, of that continues as part of a trilateral agreement between us, Mexico, and Canada. You know, but things do change. But for now, yes, we, based on the volume of quotes and the recent visits by potential customers, our expectation is that Mexico will grow.
Speaker #1: We don't have anticipated additional reductions in headcount those other than that we've already accrued for in our second quarter . know , things as you But .
Speaker #1: We are looking change to the review of the Usmca , that is , to occur midyear . This year and hoping that that that most , if of that not all continues as a part of agreement between us , Mexico and Canada but , you know , but things do change and but but for now , yes , we the based on volume of quotes and the recent visits by customers , our expectation is that Mexico potential will grow .
George Melas: Okay, great. And then just one quick final question for Tony. You mentioned the $1.2 million savings per quarter once the ramp down or the wind down of the China manufacturing operation is completed. That $1.2 million, is that the impact on cost of sales? Is it the impact on the EBIT line? What-- how does that $1.2 million flow through the P&L?
George Melas: Okay, great. And then just one quick final question for Tony. You mentioned the $1.2 million savings per quarter once the ramp down or the wind down of the China manufacturing operation is completed. That $1.2 million, is that the impact on cost of sales? Is it the impact on the EBIT line? What-- how does that $1.2 million flow through the P&L?
Speaker #6: great Okay , .
Speaker #5: And then just just one quick final question for Tony . You mentioned the 1.2 million savings per quarter once the the ramp down or the wind down of the manufacturing operation is , completed $1.2 million is that the impact on on cost of sales ?
Speaker #5: Is it on the EBIT impact line? Does that $1.2 million flow to personnel?
Anthony Voorhees: Well, yeah, good question, George. So that, that $1.2 million really is kind of taking into consideration the entire wind down of the manufacturing portion of our China operations. So it's, it's across the board. It's up in COGS as well as certain SG&A as well, and OpEx. So, you know, as we see... And, and we expect to have that done by our fiscal year-end. So at which point is when we'd see that $1.2 million begin to take full effect in our, in our results.
Tony Voorhees: Well, yeah, good question, George. So that, that $1.2 million really is kind of taking into consideration the entire wind down of the manufacturing portion of our China operations. So it's, it's across the board. It's up in COGS as well as certain SG&A as well, and OpEx. So, you know, as we see... And, and we expect to have that done by our fiscal year-end. So at which point is when we'd see that $1.2 million begin to take full effect in our, in our results.
Speaker #4: , yeah . Well Good question George . So that 1.2 million really is kind of taken into entire wind consideration the down of the manufacturing portion our China of operations .
Speaker #4: So it's it's across the board . It's up well Cogs as as in certain G&A as well . And OpEx . So , you know , as we see and we expect that done by to have our fiscal year end .
Speaker #4: So at which point is when we'd see that $1.2 million began to take full effect in our our in
Brett Larsen: I would say the bulk of it is in cost of goods, but to Tony's point, there is also some OpEx that will be reduced based off of that wind down.
Brett Larsen: I would say the bulk of it is in cost of goods, but to Tony's point, there is also some OpEx that will be reduced based off of that wind down.
Speaker #1: would say the bulk of it
Speaker #1: is in cost of goods . But to point , there Tony's is also some opex that that will be results . reduced based I off of that wind down .
George Melas: Okay. And that $1.2 million in savings, what would be the impact on the EBIT line?
George Melas: Okay. And that $1.2 million in savings, what would be the impact on the EBIT line?
Speaker #6: Okay .
Speaker #5: And that 1.2 million in savings . What would be the impact on the Ebit line ?
Speaker #5: And that 1.2 million in savings . What would be the impact on the Ebit line ?
Brett Larsen: I would take the $1.2 million.
Brett Larsen: I would take the $1.2 million.
Speaker #1: Would take I the $1.2 million.
George Melas: But if you have some COGS, wouldn't there be some revenue attached to the COGS that... So the $1.2 is a net number, basically?
George Melas: But if you have some COGS, wouldn't there be some revenue attached to the COGS that... So the $1.2 is a net number, basically?
Speaker #5: if you have some Cogs , wouldn't there be some But revenue attached to the Cogs that so the 1.2 is a net number .
Brett Larsen: It is. Sorry. Yes, it is a net number.
Brett Larsen: It is. Sorry. Yes, it is a net number.
George Melas: Okay. Okay.
George Melas: Okay. Okay.
Brett Larsen: Sorry. Yes, I know.
Brett Larsen: Sorry. Yes, I know.
Speaker #5: . Basically
George Melas: Okay.
George Melas: Okay.
Speaker #1: It is. Sorry. Yes, it is.
Brett Larsen: We know now what you're asking. Sorry about that, George.
Brett Larsen: We know now what you're asking. Sorry about that, George.
Speaker #6: Okay . Okay .
Speaker #1: Sorry . Yes .
Speaker #6: I know okay .
George Melas: I just had to ask 3 times because I couldn't find a way to do it. I'm not surprised by that.
George Melas: I just had to ask 3 times because I couldn't find a way to do it. I'm not surprised by that.
Speaker #1: We know now what you're asking. Sorry about that, George.
Speaker #6: Yeah , I .
Speaker #5: had to Just ask three times because I couldn't find a way to do it . I'm not surprised by that .
Brett Larsen: No, thank you, George.
Brett Larsen: No, thank you, George.
George Melas: Great. Okay, great. Thanks for your hard work. It seems like you're really doing a lot of stuff to make the operation better, so thank you very much.
George Melas: Great. Okay, great. Thanks for your hard work. It seems like you're really doing a lot of stuff to make the operation better, so thank you very much.
Speaker #1: No .
Speaker #5: Okay , great . Okay , great . Thanks for your hard work . It seems like you're really doing a lot of stuff to to make the operation better , so thank you very much .
Brett Larsen: Thank you.
Brett Larsen: Thank you.
Operator: And once again, if you would like to signal with questions, please press star one. Again, star one if you would like to ask questions. We'll pause for a moment. And that does conclude the question and answer session. I'll now turn the conference back over to Brett Larsen for closing remarks.
Operator: And once again, if you would like to signal with questions, please press star one. Again, star one if you would like to ask questions. We'll pause for a moment. And that does conclude the question and answer session. I'll now turn the conference back over to Brett Larsen for closing remarks.
Speaker #1: Thank you .
Speaker #2: And once again , if you would like to signal with questions , please press star one . Again . That's star one . If you would like to ask questions , we'll pause for a moment .
Speaker #2: does And that question and answer conclude the now turn conference session . back I'll over to Brett Larsen for closing remarks .
Brett Larsen: Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you.
Brett Larsen: Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you.
Speaker #1: Thank you again for participating in today's conference call . Tony and I look forward to speaking again to you quarter . Thank you next .
Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
