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.
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CONTACTS: |
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Brett Larsen |
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Michael Newman |
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Chief Financial Officer |
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Investor Relations |
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Key Tronic Corporation |
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StreetConnect |
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(509) 927-5500 |
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(206) 729-3625 |
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KEY TRONIC CORPORATION AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In
thousands, except per share amounts)(Unaudited)
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Three Months Ended |
Nine Months Ended |
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March 30, 2024 |
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April 1, 2023 |
March 30, 2024 |
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April 1, 2023 |
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Net sales |
$ |
140,527 |
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$ |
164,553 |
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$ |
433,707 |
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$ |
425,524 |
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Cost of sales |
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132,446 |
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150,277 |
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403,001 |
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391,950 |
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Gross profit |
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8,081 |
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14,276 |
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30,706 |
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33,574 |
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Research, development and engineering expenses |
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2,234 |
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2,580 |
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6,233 |
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7,162 |
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Selling, general and administrative expenses |
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6,422 |
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6,961 |
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18,263 |
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18,353 |
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Gain on insurance proceeds, net of losses |
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— |
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(396 |
) |
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(431 |
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(4,040 |
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Total operating expenses |
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8,656 |
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9,145 |
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24,065 |
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21,475 |
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Operating income |
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(575 |
) |
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5,131 |
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6,641 |
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12,099 |
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Interest expense, net |
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2,800 |
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2,688 |
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8,772 |
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7,081 |
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Income before income taxes |
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(3,375 |
) |
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2,443 |
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(2,131 |
) |
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5,018 |
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Income tax (benefit) provision |
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(1,154 |
) |
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467 |
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(1,329 |
) |
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924 |
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Net income |
$ |
(2,221 |
) |
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$ |
1,976 |
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$ |
(802 |
) |
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$ |
4,094 |
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Net income per share — Basic |
$ |
(0.21 |
) |
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$ |
0.18 |
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$ |
(0.07 |
) |
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$ |
0.38 |
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Weighted average shares outstanding — Basic |
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10,762 |
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10,762 |
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10,762 |
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10,762 |
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Net income per share — Diluted |
$ |
(0.21 |
) |
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$ |
0.18 |
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$ |
(0.07 |
) |
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$ |
0.38 |
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Weighted average shares outstanding — Diluted |
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10,762 |
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10,865 |
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10,762 |
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10,892 |
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KEY TRONIC CORPORATION AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In
thousands)(Unaudited)
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March 30, 2024 |
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July 1, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
5,255 |
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$ |
3,603 |
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Trade receivables, net of allowance for doubtful accounts of $85
and $23 |
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135,642 |
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150,600 |
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Contract assets |
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28,619 |
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29,925 |
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Inventories, net |
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115,115 |
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137,911 |
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Other |
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22,224 |
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27,510 |
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Total current assets |
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306,855 |
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349,549 |
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Property, plant and equipment, net |
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29,046 |
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28,870 |
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Operating lease right-of-use assets, net |
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16,790 |
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16,202 |
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Other assets: |
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Deferred income tax asset |
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14,577 |
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12,254 |
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Other |
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6,109 |
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11,397 |
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Total other assets |
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20,686 |
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23,651 |
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Total assets |
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$ |
373,377 |
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$ |
418,272 |
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LIABILITIES AND SHAREHOLDERS’
EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
82,198 |
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$ |
115,899 |
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Accrued compensation and vacation |
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7,071 |
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13,351 |
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Current portion of debt, net |
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5,928 |
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7,849 |
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Other |
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14,206 |
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14,867 |
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Total current liabilities |
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109,403 |
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151,966 |
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Long-term liabilities: |
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Term loans |
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5,681 |
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6,726 |
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Revolving loan |
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116,512 |
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114,805 |
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Operating lease liabilities |
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11,351 |
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10,317 |
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Deferred income tax liability |
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19 |
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274 |
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Other long-term obligations |
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336 |
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3,567 |
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Total long-term liabilities |
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133,899 |
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135,689 |
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Total liabilities |
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243,302 |
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287,655 |
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Shareholders’ equity: |
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Common stock, no par value—shares authorized 25,000; issued and
outstanding 10,762 and 10,762 shares, respectively |
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47,891 |
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47,728 |
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Retained earnings |
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82,184 |
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82,986 |
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Accumulated other comprehensive income (loss) |
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— |
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(97 |
) |
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Total shareholders’ equity |
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130,075 |
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130,617 |
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Total liabilities and shareholders’ equity |
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$ |
373,377 |
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$ |
418,272 |
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