KTCC KeyTronic Corporation

Winning Established Programs from Competitors;Investing for Growth in Coming Fiscal Year

Key Tronic Corporation (Nasdaq:KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended April 1, 2017.

For the third quarter of fiscal year 2017, Key Tronic reported total revenue of $113.6 million, compared to $118.4 million in the same period of fiscal year 2016. For the first nine months of fiscal year 2017, total revenue was $349.3 million, compared to $361.1 million in the same period of fiscal year 2016.

Net income for the third quarter of fiscal year 2017 was $1.0 million or $0.09 per share, compared to $1.8 million or $0.16 per share for the third quarter of fiscal year 2016. For the first nine months of fiscal year 2017, net income was $4.3 million or $0.39 per share, compared to $4.4 million or $0.39 per share for the same period of fiscal year 2016.

For the third quarter of fiscal year 2017, gross margin was 8.0% and operating margin was 1.6%, compared to 8.4% and 2.3%, respectively, in the same period of fiscal 2016.

“During the third quarter of fiscal 2017, our new programs continued to ramp, despite a slowdown in demand from a few longstanding customers, which has also impacted our margins,” said Craig Gates, President and Chief Executive Officer. “At the same time, we continued to ramp significant new business from other EMS competitors that we expect will set up revenue growth in fiscal 2018.”

“We recently won two new programs involving electronic scheduling devices and pool controllers. Moving into the fourth quarter, we continue to see a strong pipeline of potential new business and our new programs continue to ramp, offsetting softening demand for a few current programs. At the same time, we continue to invest in expanding our SMT, sheet metal and plastic molding capabilities in preparation for future growth.”

Business Outlook

For the fourth quarter of fiscal year 2017, the Company expects to report revenue in the range of $112 million to $117 million, and earnings in the range of $0.10 to $0.15 per diluted share. These expected results assume an effective tax rate of 25% in the quarter.

Conference Call

Key Tronic will host a conference call today to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern). A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 888-221-3894 or +1-913-312-0683 (Access Code: 8039313).  A replay will be available by calling 888-203-1112 or +1-719-457-0820 (Access Code: 8039313).

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 and China. The Company provides its customers 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. 

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 all passages containing verbs such as aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects or targets or nouns corresponding to such verbs. Forward-looking statements also include other passages that are primarily relevant to expected future events 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 quarterly revenue and earnings during fiscal year 2017. 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, legal and regulatory environment and its impact on our customers and suppliers; the availability of parts from the supply chain; the accuracy of customers’ forecasts; success of customers’ programs; timing of new programs; success of new-product introductions; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; and the other risks and uncertainties detailed from time to time in the Company’s SEC filings.

KEY TRONIC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share amounts)(Unaudited)
	Three Months Ended								Nine Months Ended
	April 1, 2017				April 2, 2016				April 1, 2017				April 2, 2016
Net sales	$	113,601			$	118,448			$	349,253			$	361,060
Cost of sales	104,462				108,493				320,793				333,076
Gross profit	9,139				9,955				28,460			27,984
Research, development and engineering expenses	1,569				1,634				4,756				4,696
Selling, general and administrative expenses	5,721				5,564				16,518				16,348
Total operating expenses	7,290				7,198				21,274				21,044
Operating income	1,849				2,757				7,186				6,940
Interest expense, net	566				620				1,707				1,674
Income before income taxes	1,283				2,137				5,479				5,266
Income tax provision	322				354				1,198				879
Net income	$	961			$	1,783			$	4,281			$	4,387
Net income per share — Basic	$	0.09			$	0.17			$	0.40			$	0.41
Weighted average shares outstanding — Basic	10,759				10,711				10,755				10,709
Net income per share — Diluted	$	0.09			$	0.16			$	0.39			$	0.39
Weighted average shares outstanding — Diluted	10,957				11,068				10,916				11,298

KEY TRONIC CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)
		April 1, 2017				July 2, 2016
ASSETS
Current assets:
Cash and cash equivalents		$	911			$	1,018
Trade receivables, net of allowance for doubtful accounts of $138 and $135		62,331				61,678
Inventories		98,806				107,006
Other		11,233				11,757
Total current assets		173,281				181,459
Property, plant and equipment, net		31,030				27,925
Other assets:
Deferred income tax asset		8,507				8,982
Goodwill		9,957				9,957
Other intangible assets		5,082				5,928
Other		1,821				1,673
Total other assets		25,367				26,540
Total assets		$	229,678			$	235,924
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	49,390			$	58,967
Accrued compensation and vacation		7,967				9,571
Current portion of debt		5,841				5,000
Other		12,167				10,572
Total current liabilities		75,365				84,110
Long-term liabilities:
Term loan - long term		20,233				21,250
Revolving loan		18,233				18,073
Other long-term obligations		3,085				6,909
Total long-term liabilities		41,551				46,232
Total liabilities		116,916				130,342
Shareholders’ equity:
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,760 and 10,725 shares, respectively		45,629				45,227
Retained earnings		72,209				67,928
Accumulated other comprehensive loss		(5,076		)		(7,573		)
Total shareholders’ equity		112,762				105,582
Total liabilities and shareholders’ equity		$	229,678			$	235,924

CONTACTS:
Brett Larsen
Chief Financial Officer
Key Tronic Corporation
(509) 927-5500

Michael Newman
Investor Relations
StreetConnect
(206) 729-3625