Key Tronic outlines $28M Arkansas expansion and targets $20M new contract ramp by end of fiscal 2026 as cost cuts reshape operations

Earnings Call Insights: Key Tronic Corporation (KTCC) Q4 2025

MANAGEMENT VIEW

* President and CEO Brett R. Larsen described fiscal 2025 as a "year of transition and uncertainty," noting anticipated reductions in demand from two long-standing customers and the delay of new program launches due to tariff uncertainties. He stated, "we were able to rightsize our cost structure in Mexico and introduce new production efficiencies in automation that have allowed us to become more cost competitive."
* Larsen highlighted major investments, including "more than $28 million in our new flagship manufacturing and research and development location here in Arkansas, which we fully believe should create over 400 new jobs over the next 5 years." He emphasized expansion in Arkansas and Vietnam, with the latter expected to play a major role in future growth and to double manufacturing capacity.
* Key Tronic reduced headcount by approximately 800 individuals during fiscal 2025, mainly in Mexico, to align with lower demand and to cut costs.
* A new manufacturing services contract with a data processing equipment OEM was executed, which Larsen said "could exceed $20 million" in annual revenue and is expected to ramp significantly during fiscal 2026.
* CFO Anthony G. Voorhees reported, "For the fourth quarter of fiscal 2025, we reported total revenue of $110.5 million compared to $126.6 million in the same period of fiscal 2024. The revenue for the fourth quarter was adversely impacted by decreased demand from 2 large long-standing customers."
* Voorhees noted, "the negative impact of severance expense on our income statement was approximately $0.1 million during the fourth quarter of fiscal 2025 and $2.9 million for the entire fiscal year 2025."

OUTLOOK

* Management did not provide forward-looking guidance for fiscal 2026, citing "uncertainty of timing of new products ramping" in the upcoming fiscal year.
* Expansion projects in Arkansas and Vietnam are expected to come online during the first quarter of fiscal 2026, with the company projecting to have approximately half of its manufacturing in the U.S. and Vietnam by the end of that year.
* The new $20 million manufacturing services contract is projected to reach that annual revenue run rate by the fourth quarter of fiscal 2026.
* Management expects capital expenditures of about $8 million in fiscal 2026, primarily focused on automation and production equipment.

FINANCIAL RESULTS

* Total revenue for Q4 2025 was $110.5 million, down from $126.6 million in the same period of fiscal 2024. Full-year fiscal 2025 revenue was $467.9 million versus $566.9 million in the prior year.
* Gross margin for Q4 2025 was 6.2% and operating margin was negative 2.1%, compared to 7.2% and 0.1%, respectively, in Q4 2024.
* Net loss for Q4 2025 was ($3.9 million) or ($0.36) per share, up from a net loss of ($2 million) or ($0.18) per share in Q4 2024. Full-year net loss was ($8.3 million) or ($0.77) per share.
* Adjusted net loss for Q4 2025 was ($3.8 million) or ($0.35) per share.
* Inventory was reduced by approximately $8 million or 7% year-over-year. Total liabilities were reduced by $32.7 million or 14% from a year ago. Cash flow provided by operations was $18.9 million for the full year.

Q&A

* Matthew Walter Dhane, Tieton Capital Management: Asked about the size and ramping of new program wins. Brett R. Larsen responded that "those were predominantly around the $5 million program size. Three of them in Mexico, the others are in the U.S. And then, of course, the data processing could be -- could exceed $20 million."
* Dhane inquired about Vietnam medical device manufacturing. Larsen explained that certification and a new program starting in fiscal 2026 will "just have our Vietnam shop show even better and more capable," anticipating additional opportunities.
* Dhane sought color on increased bid activity. Larsen attributed it to cost reductions and facility investments, saying "the cost reductions we have done over the last 2 years have enabled us to provide...commodity pricing for certain customers that require low cost."
* George Melas-Kyriazi, MKH Management: Questioned the large drop in receivables. CFO Voorhees said, "the large driver of that reduction in ARR is primarily due to the reduction in revenue over the quarter," with no factoring involved.
* Melas-Kyriazi asked about the manufacturing services contract's revenue recognition. Larsen clarified the $20 million is for services only and should have a "strong incremental permit margin because there's far less material content to it."
* Melas-Kyriazi asked about Mexico operations and future gross margin. Larsen stated, "with these recent program wins, we will see some growth in Mexico," and incremental gross margin on added revenue "can be 15% to 20%."

SENTIMENT ANALYSIS

* Analysts pressed for specifics on contract ramping, margin recovery, and the impact of cost cuts, signaling a neutral to slightly negative tone on near-term profitability but positive on operational improvements and new program prospects.
* Management's tone was candid about challenges, but optimistic regarding operational improvements, future growth, and the benefits of cost reductions, as reflected in statements like "we believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities."
* Compared to the previous quarter, management and analyst sentiment remained cautious but showed increased optimism about new contracts and the improved cost structure.

QUARTER-OVER-QUARTER COMPARISON

* Revenue, gross margin, and operating income declined compared to the previous quarter, with Q4 2025 net loss higher than Q3 2025.
* Management reiterated its strategic focus on cost reduction, automation, and footprint expansion in the U.S. and Vietnam, continuing themes from the prior quarter.
* Guidance remains withdrawn due to tariff and demand uncertainty, consistent with the previous quarter.
* Analysts' questions shifted more toward the ramping of new wins, the impact of cost cuts, and specific contract terms versus prior focus on the causes of revenue declines and macroeconomic impacts.
* Management's confidence in future margin improvement and growth was more pronounced, with explicit targets for contract ramping and margin potential.

RISKS AND CONCERNS

* Management cited ongoing risks from global tariff escalation, demand volatility from key customers, and uncertainties in timing for new program launches.
* Cost reductions have entailed significant headcount cuts, particularly in Mexico, and severance expenses impacted results.
* Delays in new program launches due to tariffs and customer hesitancy remain a challenge.
* Analysts expressed concern about the sustainability of margin recovery and the successful ramp of new contracts.

FINAL TAKEAWAY

Management highlighted a challenging fiscal year marked by revenue declines and customer demand shifts, but underscored substantial progress in operational efficiency, cost reductions, and expansion initiatives in Arkansas and Vietnam. With a strong pipeline of new programs—including a $20 million manufacturing services contract ramping in fiscal 2026—and increased cash flow from operations, the company expects its enhanced cost structure and global footprint to better position Key Tronic for future profitable growth as new capacity comes online and market conditions stabilize.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ktcc/earnings/transcripts]

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* Key Tronic Corporation (KTCC) Q4 2025 Earnings Call Transcript [https://seekingalpha.com/article/4817335-key-tronic-corporation-ktcc-q4-2025-earnings-call-transcript]
* Key Tronic outlines $28M Arkansas expansion and targets $20M annual contract ramp amid tariff-driven demand shift [https://seekingalpha.com/news/4489818-key-tronic-outlines-28m-arkansas-expansion-and-targets-20m-annual-contract-ramp-amid-tariff]
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