KTCC - Earnings call transcript Q2 2025

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Operator

Good day, and welcome to the Key Tronic Q2 Fiscal Year '25 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Tony Voorhees.

Anthony Voorhees

Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. thank call. joining to our today like conference investor would everyone us for for I

here our me President Joining in and Larsen, is Chief our Brett Executive Officer. Spokane Valley headquarters

that predictions. would Please such to materially. call, I may remember might or events that regarding projections Actual statements results forward-looking make course differ future or always, As the we remind you company's events of during or like this statements future only other are the financial performance.

review risk latest we the note factors operations. may XX-Qs the you other the company with this in will X-Ks. Please information, filed documents financial and and SEC, statistical more For call, the historical that on and XX-K, information outlined discuss business has regarding our specifically quarterly our

included press today's this Some release. is of information in

will discussion. Investor During the with found and that reference also can slides this be on slides call, website. be These can viewed accompany we our the link webcast, Relations our

recorded available the version website. addition, In call of the Relations on will our slides section this of Investor with together the be

will financial this measures discuss non-GAAP We call. on certain also

non-GAAP of about today's is measures press to which reconciliations Relations most directly to these comparable provided GAAP release, information Additional posted Investor the in our the website. measures section are and

certain together from quarter revenue XXXX. customer, components production season of million year the fiscal lower-than-expected $XX and The demand are to holiday primarily the quarter. of unexpected customers, year $XXX.X lower-than-anticipated $XXX.X lowered the by managed during we due and For million to which large a approximately of quarter fiscal from fiscal from reported specific revenue second by for impact the shortages for reduced compared period XXXX same million XXXX, year total second the of revenue in earnings the

to allowing and to second million For the negative Subsequent were fiscal quarter of the resume. Gross component of shortages, X.X% second XXXX and resolved same X% of was for strengthened of we the strategic first in period period the initiatives. months were In our improved same to production operating fiscal reflects unexpected $XXX.X to anticipate fiscal XXXX, XXXX. the operating continued end quarter, of reduction fiscal we coming the and levels, decline the to of quarter the margins million revenue $XXX compared compared in in margins our fiscal quarters, the by savings higher total XXXX. X.X%, XXXX in X the margins The revenue. respectively, X% benefits of primarily margins second cost of revenue efficiencies be

recent fixed tariffs we adjustments As about greater uncertainties contributing expect productivity leverage financial coming our chain, effect, all on the potential in said, significant stronger on more quarters. and and China recently Mexico see announced streamlined increase create operational tariffs production take our and margin supply full to and That to performance on volumes costs costs, performance. enhanced a

needed new next the will end quarter X second arrangement growth for working at XXXX. This access plans. the position the to liquidity borrowed fiscal capital years million of was previously new As write-offs million million financing of refinancing new which $X available to approximately announced, $XXX a The our provides included up $XX lender. providing year by ensuring the and of agreement with over of growth long-term us in support to asset-based our to fees loan of debt also related increased interest credit, our expense financing unamortized

expense lower provide forward. and we moving financial these facilities flexibility new our Additionally, interest greater anticipate will

million income of share Our compared $X.X to or net loss or fiscal per $X.XX share second was the fiscal $X.X for the net XXXX. period per $X.XX of quarter same million of XXXX for

net share fiscal or $XX.X the $X.XX million share our of XXXX, $X.XX or period first X to of compared for per same the net million For fiscal income was per months $X.X of XXXX. loss

compared share of quarter or per year million additional or net $X.X to adjusted Our slide months net financial $X.XX period same the $X.X income period the of to non-GAAP adjusted the income the per the net and XXXX See adjusted measures and loss our year $X.XX share. net compared for fiscal of million about $X.XX or net for $X.X deck for fiscal second for X loss XXXX. fiscal first per adjusted per fiscal XXXX adjusted release in of share million The $X.XX XXXX. was or of earnings the to same million share income income was the net of for appendix $X.X adjusted information

for increased periods. industry-wide by time to to availability. We're in a from inventory XXXX the reducing we inventory second fiscal These than quarter At state our year component inventory inventory drive pleased the of We $XX current of reductions balance more see our line the or concerted and levels the approximately levels to historical improvements reflect effort ago. primarily parts ended by supply year million in XX% continue to Turning differently demand sheet. the become same the revenue. time, same still that chain requires drive with worldwide in

methodologies, planning have revamped and have improved algorithms. their forecasting significantly our and modified Our we customers materials resource

be result, in for to future disruptions should a continue we better the inventory cost manage even as more equipped effectively. As supply we chain

amount reduced or also ago. by During million from the liabilities second year $XX total XX% combined quarter, of our a we a

ago. receivables. Total were At $X ratio DSOs was to of for in net receivable capabilities year reductions a of days expenditures time, XX will A year's significant the the capital fiscal XX in expansions than X.X:X quarter for higher and part at accounts sales expenditures capacity and same year Arkansas locations. be about were at expecting rates be current our year million. planned compared a Vietnam of related to days Our in reflecting second year reductions this we're XXXX, capital $XX and the our approximately ago, compared X.X:X million $XXX,XXX to to CapEx full to

facilities production make efficiency equipment, While [ SMT as our CapEx, leasing in eye continue prepare on we're for molding keeping plastic as a to and selectively plan to ] well to careful growth. improvements equipment capabilities, utilize we invest

improvements Moving pleased our reduced from further customers. continue long-standing from to we taking into overhead At and demand face certain XXXX, reductions new same cost recent see we fiscal our the efficiency programs are time, to hold. ramping,

faces to in China for uncertainties the tariff the also Mexico. for potential related industry increases Our great and new tariffs increases

we third of factors it or anticipate this will full do all fiscal economic at new quantify tariffs While not current the customers, to for to costs and be consideration, XXXX. increase our makes issuing us accurately Taking quarter we for the earnings impact political time. these into guidance the uncertainty revenue both and difficult

strong Vietnam and remain business to on potential a production, growth new expect improving see pipeline We of U.S. in our profitability. focused our and have

it Over me. the increasingly profitably Brett? to win well believe new we term, longer that and our are business. That's programs expand we for positioned

Brett Larsen

Tony. Thanks,

we're While we're the to in third previous recover our operations fruition. in our year actions reductions domestic with on that these in fiscal disappointed and more with and capacity X the Arkansas to production XXXX of levels onshoring growing and headcount is enhance from inventory come quarters also benefit Vietnam profitability. Moreover, earnings in significantly unexpected in continue building order for the of tariffs pleased in and customer the year to their impact changes We're potential efficiency, similar international strategic increasing second levels quarter XXXX, fiscal ago. strategic further adverse decline help Mexico. and actively revenue surrounding our announced initiatives line manufactured the manufacturing overall expected to in with to contract and see the being revenue streamlining on our to also in and mitigate uncertainties goods quarter China demand expect recently to improve We're we will current undertaken as our revenue expect

This its Once exceed revenue resiliency expansion was new relationship to and our fully annual it announced. manufacturing XXXX. program to we an growth. recently quarter, second contribute aerospace and represents million. continued profitable which base is begin the expect we programs we involving the long-term technology, of ramped, win customer in During strategic half new expected important could to believe second The of systems will energy $XX

sourcing towards of contract onshoring Our and potential dual strong the underscores continued new manufacturing. business trend of pipeline

[ that outsource these manufacturers the reexamine OEMs China-U.S. increases overly to become for more global widely recent Over long-term tensions not their on product, strategy. At and production we're China only Mexico. contract believe Mexico in becoming is continued of that on services. and geopolitical customers decision expect traditional have increasingly but wage also realize time, ] We to design the dependent the time, will tariffs and trend drive seeing for China-based a to of they as logistics smart a logistics sustained same their onshore strategies. We problems, threat continue accepted

competitive. we operations clear become of have As cost in to our remain order cost changes long-standing, rightsized that it Mexico in these the has base are

very for potential as adverse we the plans are These result, in both in and away clearly the becoming U.S. more a initiatives in As Vietnam. see opportunities capabilities excited about also of help opportunities those trends increases. and increase address production from China reflect to growth defined, impact and our may are nearshore tariff long-standing our production customers

of provides customers XXXX. significantly new the flexibility, by company lease has manufacturing its a outstanding engineering Our communications. to signed and size of ease with U.S.-based production increase In June the support Arkansas, current footprint

and design production, investment by facility we of of capital in ramped years, manufacturing engineers months, Many expect expansive to play production X high-quality, be manufacturing Key knowledge offers that In we our have we coming services. into in increase major forward program-specific capability of the once we We look about details continued believe to business. Tronic's proving the and sticky. we anticipate role September Vietnam-based broad associated large Vietnam, design current design growth. the ample makes effective expansions. The extremely these number a was our new in have and quarters. business space our our are design that completed combination wins deep In equipment. and challenges In our in with our footprint coming it in Our our the a past. to more medium-sized China to and capabilities And facility extremely design in XXXX Vietnam with on our choice coming capacity specific of significant global our the a capturing program predicated is sharing low-cost in double

facilities. blow, gas in and to and painting believe plastic knowledge, coating, We and blow manufacturing supply this the contract high expertise and favorable manufacturing assist, well tensions about will the tariffs expanding a well assembly, and continue returning concerns multi-shot design, our of -- as logistics problems, as increasingly complicated the injection, heightened automated including invest will set construction of us injection, continue that as We and range trend forming, a integration believe global America volume competitors our to similar Vietnam metal wide operation to as of size. We to apart chains of China-U.S. from complex also political equipment. assembly drive North PCB test molding, process vertical

including with see to number across the in increase with active metrics customers. business continue prospective improvement development, a the We of significant quotes associated

unexpected now fiscal significant encouraged second improvements continued portion quarter to with and lower-than-expected from your the Mexico, we demand manufacturing concludes ] remain presentation, While for our in during and potential in component very formal a operating pleased holiday in the efficiencies will our potential across our shortages, our term. This of will Tony and growth XXXX profitability revenues the further and we the strategic season a of by and customers over new and longer answer into hammered the questions. peso. Moreover, pipeline [ and I business, our direction profitable fiscal to Vietnam. weakening production facilities our rebalance be and continue reduced certain We U.S. seeing of move strong XXXX, we're

Operator

Instructions] Capital. Bill first Dezellem [Operator the with question Tieton of line Your comes from

William Dezellem

not in start please the of question? for what's X you I with detail, the ramping? have With size that -- my I it about first may one would timing and Brett, normal the its these production guess, of kind wins, be talked

Brett Larsen

$X grow Sure. Yes. is to at The program, start over million for to aerospace going Bill, is potential out that opportunity time. there a but

the September-October that latter of expected calendar -- frame. year, ramping begin so is is time other probably this the in to The half

course, shared resiliency second we The the of one, technology. energy

still well as latter that ramping year. begin of this plans Our the have half calendar to are in

William Dezellem

component shortages. taken is I has That's And component and ] then haven't talk about how the I shortage how you component now? both shortages why or that helpful. in being actually, heard about Can [ issue that, pre-announcement you a components referenced your any or place that guess longer. short and an today

Brett Larsen

our component You and our market. set set -- production last -- that But try a quarter shortages bet. don't we to attempted customers. by saying at the demand And real being across it set components unfortunately, of very across able disrupted, specific We and of any a a delineate real I to to intended to see specific kind it being in unfortunately that than pace, larger this high components. -- I into specific that was build it of quick became of this that one quarter. was driven slid by was rather

William Dezellem

Okay. that from hear so, there you led the And me. say or was demand -- that customer your up high for high shortage? just did there And large? at if was Back Did guess, demand to the industry I I that right? that

Brett Larsen

industry large. at Yes, with the

again last a for resolved production. that when unfortunately was the just bring that resuming try components has of line to they since and attempted it's specific on been in set weeks. available So couple of began to that not production our That

William Dezellem

this a -- that you mean, revenues their business industry quarter, or have does about just your either customer I for described this strong? what with potential significant growth they're imply that they does in problem -- even has the the has is created given though that So that

Brett Larsen

there we to can future. have hiccups going proposed potential to some And the a that well type supply hope growth. There that Yes, long-term might procurement I of turnkey manage well, is as chain as so in mentioned we full and avoid these is.

William Dezellem

there, for just you through of been you, there if we your or please. would, in with dynamics if walk Okay. tariffs the that What currently Mexico that please? mindset And are let's has about moment, of a the customers and then, production kind talk could, commentary

Brett Larsen

Sure.

think I Then became thought administration evident, for. some get fairly I some all attempt asking -- over by I that was and leverage, the on specific with leverage to think we all that we of this this specific us dealt tariff of everyone that they're been real time, it to think current initially, some might with. to Mexico Since scared Mexico. pause course, that But this of days [ ] weekend a has, that there's customers. for XX our tariff a a frankly, out freaked the become really that need on lot things

past stable I think to in of dynamics how the can a which predictable. on cost been change lot the of something has Mexico, reflecting stroke pin them that's from fairly a and are outsourcing the been

how customers of I -- in So own to their Mexico think it's well profitability. figure just trying I as risk on cause that the of a tariff, think not but things it's mindset out our the much building may

our scenario, why I the we -- don't our some of each contributes a of strategic the there's As market that's think solution our part I to wanted into continuing of facility, expansion one with offer Vietnam in we reasons that, look also direction perfect then into at solutions. to any every but this the we share type of and domestic -- it and larger build quarter. what Arkansas of

better locations think total not tariffs, and [ set might be may cost ] one I nuances those there that be of each all [ to program While ]. any another than avoid every has its bullet in silver

William Dezellem

large to announced, you can, And as much talk as win helpful. you you around that is that detail relative would -- around please? your That

Brett Larsen

Yes.

sure particular keep For product. lot excited but be opened really now, other quote It's company up to anonymous, this market and grow an demand. us. space. entered has we've even and opportunities to seen the we're today, a And that excited within they've asked new as utility since this in and technology excited they've industry increased different Super that about with a it into about to power the actually out able time, for of us we're and

William Dezellem

here you with question. allow be if a Brett, pointed will to please me Okay.

of lead What as with announced million if past increase to gives to I have? the rather some haven't you permanently revenues, confidence and a the a big and changer real ultimately have pretty go a you number. wins that it that company. $XX in having the does other for add large you game benefit mean, had others we haywire meaningful actually this meaningful all have had all than a essentially You something that's to

Brett Larsen

Sure.

one. I to the out the market well and And product there's our we market the on is, I intended. that disruptor. in going point, what product. -- think and And and fact this be particular for some significant from see is for it actual three, really financed, from demand Two then functioning as are it's they hinges a vantage already

So I us. think feel with will point confident a program great really that those more X things, be for at we this this

Operator

Melas MKH our George take from Management. will We with next question

George Melas

on is follow-up product you over are you becoming with your that that question and in-house by Or source are a new that production? energy -- is resiliency does that few win a of a customer production? Was Just partly work? space. in that How that Bill's second taking manufactured the

Brett Larsen

George, contract they're today that, but to for manufacturer Yes, we and need much manager, on footprint. how with share contract with currently we outsourcing careful looking it global a be larger a or

George Melas

much ask won't Question more on I Okay. inventory. there.

think noted think the last trend quarters particular But reduction reversed. I the this had that gone inventory year in down. of that over I you that was quite has you correctly the quarter, X and

I that's... imagine So

Brett Larsen

Yes.

George Melas

Partly product in you see half of trending not the how you fiscal the because that that do could But second of year? ship.

Brett Larsen

Yes.

happened. reason quarter. of reduction what this absolutely, our inventory flipped that's So, that last continued trend exactly The

a of $XX large we $XX on quarter, million in missed in roughly million route. of were already course, those part -- of second revenue. The to that And components

the in continue inventory turns, will the My was what inventory. improve. reason overall that today, uptick are is slight that from So to for they expectation

rest throughout that the our is calendar so improve. still flex but that, hope the my Now with year, revenue turns increase to inventory of will continues the should

George Melas

Okay.

your amount owned of fair by the sheet you Okay. Very good. not a inventory on actually customers? And that's have balance still that's

Brett Larsen

age. as the There's components do. before, point in -- spoke we we time, at Yes,

let's actually for days. we our just contractually our say in Then invoice they're warehouse for, those. XX So customer

So still quite yes, that. a have bit we of

George Melas

Great. Okay.

drop Trying a $X.X the that Okay. me gross profit million. And makes was and a and do to gross And sense. the the margin. was gross calculation profit if understand to trying that there in I'm help

XX% was last your So you of it time was XXXX, roughly of reported in that material, the That cost XXXX. revenue.

of your the And order drop down and your $XX $X million, to that a decline in $XX and roughly So I'm million. get profit, basically down support revenue it I'm gross saying, went means $X of cost roughly to million. on then, same in sequentially productivity doing math, of million material went

seems the revenue. hardly part very drop dollar. at moved that the by it of manufacturing in all in like drop fixed was So and drop despite small cost versus facilitated a the the the peso in And support production

because I'm forward to -- understand sense? well, those So trying are first moves numbers maybe, that of make those all, numbers -- how do

Brett Larsen

Yes.

directionally correct, unfortunately, frame, and short in are time those of is most production overhead think I cost fixed. very George. a pretty that And

we Now that And additional think made that. January. -- we actually reductions cost production make a time, of can quarter's from a pretty But that is Tony we fixed. to in changes period within short mentioned some I most headcount or

George Melas

Okay.

numbers. So that's those reflected in

Okay. those and both at not them, factors the hiccups to components least then just ] not really sort you the you guidance you [indiscernible] component some for of holiday December I'm of to factors sure. Two that March, of the the the the month revenue, impacted maybe of the seem of your at because Very be of good. X in recurring production entire related for [ And period looking quarter, [indiscernible]. the uncertainties shortage,

a see right? profitability? is about not of pickup. more we guiding line Or about and nice the that Is are it the you concerns top -- So should getting because guys

Brett Larsen

customers' to tariff table to coming our many currently in in just point, us are it be to or again, of XX% quicker? really results the for to coming product the to bringing into things lot cost additional is shifts asking There's now. So delay shipments? will be this digest weekend were will because there -- some pay Contractually, of at big a a of coming there XX% enacted, that to any of that. would in It's trying China. delays demands -- we XX-point They're we And because from Or hey, will real kind there shifts pass there's right that in still on it's both. is on be digest, anything of to our what a any going were on just And be crazy our on a XX-day either in where a that customer. still Mexico. time. trying in air At if have off of tariff some customers

that to legacy everyone things? still are some is does say, because and/or Now, impacted we -- you'd or competition products, surface the force and but CM. competitive other yes, manufacturers it the internal transfers On same, contract of with maybe those types still of could additional another

comfortable and we to and So -- those all line. line ahead we top guidance go of things, I -- just pull bottom for felt the

As because bottom so so much in is X, quarter you drastically impacted have we revenue on the saw line your cost. fixed in

predictable So settle readdress and good then revenue solid, to in quarter. we'll But have things and that between I'm to then, guidance. and back we now stream, we'll back get offering where hoping X a down

Operator

[Operator time, have additional additional or Larsen I the Instructions] will now remarks. this at And back to turn no closing any call for questions. Mr. we

Brett Larsen

to next quarter. I for to call. in and Thank you speaking today's in you again conference again look participating Tony forward

Operator

for This does you Thank participation. your today's conclude call.

may disconnect. You now

Key Tronic (KTCC) 4 Feb 252025 Q2 Earnings call transcript