Key Tronic Corporation Announces Results For the Third Quarter of Fiscal Year 2024

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New Program Wins Driven by Continued On-Shoring and Dual Sourcing of Manufacturing

SPOKANE VALLEY, Wash., May 07, 2024 (GLOBE NEWSWIRE) -- Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended March 30, 2024.

For the third quarter of fiscal year 2024, Key Tronic reported total revenue of $140.5 million, compared to $164.6 million in the same period of fiscal year 2023. As previously announced, revenue for the third quarter of fiscal year 2024 was constrained by approximately $5 million due to severe winter weather events that took Key Tronic’s facilities in Mississippi and Arkansas offline for approximately two weeks. In addition, the Company saw softening demand for a number of different programs produced in Mexico. For the first nine months of fiscal year 2024, total revenue was $433.7 million, compared to $425.5 million in the same period of fiscal year 2023.

For the third quarter of fiscal year 2024, the Company’s margins and profitability were significantly impacted by severance costs of approximately $3.7 million, or $0.27 per diluted share, as Key Tronic reduced its workforce by over 450 employees in Mexico. The severance costs were incurred late in the third quarter, which limited the previously planned payroll expense reductions anticipated in the third quarter.

The Company also continued to be adversely impacted by high labor costs and interest expense, and the continued strengthening of the Mexican Peso by approximately 5%, increasing expenses by approximately $1.5 million or $0.11 per diluted share. The temporary facilities closures in the US due to severe winter weather discussed above, also resulted in a loss of contribution margin of approximately $1 million or $0.07 per diluted share.

As a result of the combination of factors described above, the Company’s gross margin was 5.8% and operating margin was a loss of (0.4)% for the third quarter of fiscal year 2024, compared to a gross margin of 8.7% and an operating margin of 3.1% in the same period of fiscal year 2023.   Net loss was $(2.2) million or $(0.21) per share for the third quarter of fiscal year 2024, compared to net income of $2.0 million or $0.18 per share for the same period of fiscal year 2023. For the first nine months of fiscal year 2024, net loss was $(0.8) million or $(0.07) per share, compared to $4.1 million or $0.38 per share for the same period of fiscal year 2023.

Additionally, as of the end of the quarter, the Company cured a breach of the fixed charge coverage ratio covenant in its asset-based revolving credit facility by executing a fourth amendment to the agreement on May 7, 2024. This amendment will provide relief on the financial covenant for twelve months, increase the interest rate by 100 basis points and advance the maturity date of the agreement to September 2025.

“During the third quarter, we took the necessary steps to reduce our workforce in Mexico due to softening demand for a number of different programs with high labor content, which is expected to save us more than $10 million annually,” said Craig Gates, President and Chief Executive Officer. “We expect sales from Mexico-based production to recover in coming quarters due to recently won programs and we do not anticipate needing to increase our net headcount in coming periods, which would reflect significant improvements to our operating efficiencies. At the same time, our Juarez site is being restructured to focus on higher-volume manufacturing, while lower-volume products with higher service level requirements will migrate to our other sites.”

“We’re pleased with the continued ramp of new programs in the third quarter of fiscal 2024 and by increased utilization of our US and Vietnam facilities. During the quarter, we continued to expand our customer base, winning new programs involving energy management, telecommunications, consumer audio and industrial manufacturing. The strong pipeline of new business underscores the continued trend towards on-shoring and dual sourcing of contract manufacturing. We also continued to make significant reductions to our inventory, down by approximately $39 million from a year ago, as well as reducing our accounts payable and other liabilities.”

The financial data presented for the third quarter of fiscal year 2024 should be considered preliminary and could be subject to change, as the Company’s independent auditor has not completed their review procedures.

Business Outlook

For the fourth quarter of fiscal 2024, Key Tronic expects to report revenue in the range of $135 million to $145 million and earnings in the range $0.03 to $0.10 per diluted share. These expected results assume an effective tax rate of 20% in the coming quarter.

Conference Call

Key Tronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) today. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 866-400-0049 or +1-313-209-4906 (Access Code: 8579827).   A replay will be available at www.keytronic.com under “Investor Relations”.

About Key Tronic

Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China and Vietnam. The Company provides its customers with full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. For more information about Key Tronic visit: www.keytronic.com 

Forward-Looking Statements

Some of the statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to those including such words as aims, anticipates, believes, continues, estimates, expects, hopes, intends, plans, predicts, projects, targets, will, or would, similar verbs, or nouns corresponding to such verbs, which may be forward looking. Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future. Forward-looking statements in this release include, without limitation, the Company’s statements regarding its expectations with respect to financial conditions and results, including revenue and earnings, cost savings from workforce reduction, demand for certain products and the effectiveness of some of its programs, business from customers and programs, impacts from operational streamlining, efficiencies, and the amendment to the Loan Agreement. There are many factors, risks and uncertainties that could cause actual results to differ materially from those predicted or projected in forward-looking statements, including but not limited to: the future of the global economic environment and its impact on our customers and suppliers; the availability of components from the supply chain; the availability of a healthy workforce; the accuracy of suppliers’ and customers’ forecasts; development and success of customers’ programs and products; timing and effectiveness of ramping of new programs; success of new-product introductions; the risk of legal proceedings or governmental investigations relating to the subject of the internal investigation by the Company’s Audit Committee and related or other unrelated matters; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; impact of new governmental legislation and regulation, including tax reform, tariffs and related activities, such trade negotiations and other risks; and other factors, risks, and uncertainties detailed from time to time in the Company’s SEC filings.

     
CONTACTS: Brett Larsen Michael Newman
  Chief Financial Officer Investor Relations
  Key Tronic Corporation StreetConnect
  (509) 927-5500 (206) 729-3625
     

KEY TRONIC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share amounts)(Unaudited)

 Three Months EndedNine Months Ended
 March 30, 2024 April 1, 2023March 30, 2024 April 1, 2023
Net sales$140,527  $164,553 $433,707  $425,524 
Cost of sales 132,446   150,277  403,001   391,950 
Gross profit 8,081   14,276  30,706   33,574 
Research, development and engineering expenses 2,234   2,580  6,233   7,162 
Selling, general and administrative expenses 6,422   6,961  18,263   18,353 
Gain on insurance proceeds, net of losses    (396) (431)  (4,040)
Total operating expenses 8,656   9,145  24,065   21,475 
Operating income (575)  5,131  6,641   12,099 
Interest expense, net 2,800   2,688  8,772   7,081 
Income before income taxes (3,375)  2,443  (2,131)  5,018 
Income tax (benefit) provision (1,154)  467  (1,329)  924 
Net income$(2,221) $1,976 $(802) $4,094 
Net income per share — Basic$(0.21) $0.18 $(0.07) $0.38 
Weighted average shares outstanding — Basic 10,762   10,762  10,762   10,762 
Net income per share — Diluted$(0.21) $0.18 $(0.07) $0.38 
Weighted average shares outstanding — Diluted 10,762   10,865  10,762   10,892 
               

KEY TRONIC CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)

  March 30, 2024 July 1, 2023
ASSETS    
Current assets:    
Cash and cash equivalents $5,255 $3,603 
Trade receivables, net of allowance for doubtful accounts of $85 and $23  135,642  150,600 
Contract assets  28,619  29,925 
Inventories, net  115,115  137,911 
Other  22,224  27,510 
Total current assets  306,855  349,549 
Property, plant and equipment, net  29,046  28,870 
Operating lease right-of-use assets, net  16,790  16,202 
Other assets:    
Deferred income tax asset  14,577  12,254 
Other  6,109  11,397 
Total other assets  20,686  23,651 
Total assets $373,377 $418,272 
LIABILITIES AND SHAREHOLDERS EQUITY    
Current liabilities:    
Accounts payable $82,198 $115,899 
Accrued compensation and vacation  7,071  13,351 
Current portion of debt, net  5,928  7,849 
Other  14,206  14,867 
Total current liabilities  109,403  151,966 
Long-term liabilities:    
Term loans  5,681  6,726 
Revolving loan  116,512  114,805 
Operating lease liabilities  11,351  10,317 
Deferred income tax liability  19  274 
Other long-term obligations  336  3,567 
Total long-term liabilities  133,899  135,689 
Total liabilities  243,302  287,655 
Shareholders’ equity:    
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,762 and 10,762 shares, respectively  47,891  47,728 
Retained earnings  82,184  82,986 
Accumulated other comprehensive income (loss)    (97)
Total shareholders’ equity  130,075  130,617 
Total liabilities and shareholders’ equity $373,377 $418,272 
     

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Source: Key Tronic Corporation

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