Key Tronic Corporation Announces Results for the First Quarter of Fiscal Year 2024
October 01, 2023 at 01:33 am IST
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SPOKANE VALLEY, Wash., Oct. 31, 2023 (GLOBE NEWSWIRE) -- Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended September 30, 2023. These results are in line with the preliminary results announced on October 24, 2023.
For the first quarter of fiscal year 2024, Keytronic reported total revenue of $147.8 million, up 8% from $137.3 million in the same period of fiscal year 2023. The Company’s gross margin for the first quarter of 2024 was 7.4% and operating margin was 2.2%, compared to a gross margin of 7.6% and an operating margin of 2.4% in the same period of fiscal 2023. For the first quarter of fiscal 2024, net income was $0.3 million or $0.03 per share, compared to $1.2 million or $0.11 per share for the same period of fiscal 2023.
The year-over-year decline in earnings was primarily a result of unanticipated severance costs of $0.6 million, or approximately $0.04 to $0.05 per diluted share, as the Company reduced its workforce by over 100 employees in Mexico and the US. The workforce reduction reflects softening demand for a number of different programs and is expected to reduce operating expenses by more than $5 million annually. Keytronic also continued to be adversely impacted by high interest expense and the strength of the Mexican Peso, although the Mexican Peso has weakened during the second quarter.
“During first quarter of fiscal year 2024, we continued to ramp many new programs produced in our US facilities and remained profitable, despite a softening of customer demand for our Mexico-based programs,” said Craig Gates, President and Chief Executive Officer. “As previously announced, the large program with a leading power equipment company is now expected to resume materially in fiscal 2025 rather than 2024, with a redesigned product.”
“At the same time, we continued to expand our customer base during the first quarter and won new programs involving security equipment, sporting goods, environmental solutions, and industrial control systems. We’re also seeing some gradual improvement in our gross margins and have continued to reduce our inventories to be more in line with current revenue levels, as well as reducing our accounts payable, leasing obligations and overall debt in the quarter.”
“In the second half of fiscal year 2024, we expect increased demand for many of our Mexico-based programs. Overall, we continue to see the favorable trend of contract manufacturing returning to North America, as well as a growing number of potential customers evaluating a migration of their China-based manufacturing to our facility in Vietnam.”
The financial data presented for first 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 second quarter of fiscal 2024, Keytronic expects to report revenue in the range of $135 million to $145 million and earnings in the range of $0.05 to $0.10 per diluted share. These expected results assume an effective tax rate of 20% in the coming quarter.
Conference Call
Keytronic 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 888-254-3590 or +1-323-794-2551 (Access Code: 5128668). A replay will be available at www.keytronic.com under “Investor Relations”.
About Keytronic
Keytronic 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 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 Keytronic 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, or will, 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, demand for certain products and the effectiveness of some of our programs, business from customers and programs, and impacts from operational streamlining. 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.
KEYTRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
Three Months Ended
September 30, 2023
October 1, 2022
Net sales
$
147,763
$
137,262
Cost of sales
136,901
126,884
Gross profit
10,862
10,378
Research, development and engineering expenses
2,241
2,296
Selling, general and administrative expenses
5,784
5,656
Gain on insurance proceeds, net of losses
(431
)
(934
)
Total operating expenses
7,594
7,018
Operating income
3,268
3,360
Interest expense, net
3,011
1,887
Income before income taxes
257
1,473
Income tax (benefit) provision
(78
)
322
Net income
$
335
$
1,151
Net income per share — Basic
$
0.03
$
0.11
Weighted average shares outstanding — Basic
10,762
10,762
Net income per share — Diluted
$
0.03
$
0.11
Weighted average shares outstanding — Diluted
11,003
10,832
KEYTRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
September 30, 2023
July 1, 2023
ASSETS
Current assets:
Cash and cash equivalents
3,574
3,603
Trade receivables, net of allowance for doubtful accounts of $23 and $23
141,442
150,600
Contract assets
32,903
29,925
Inventories, net
126,778
137,911
Other
22,930
27,510
Total current assets
327,627
349,549
Property, plant and equipment, net
28,085
28,870
Operating lease right-of-use assets, net
15,928
16,202
Other assets:
Deferred income tax asset
13,205
12,254
Other
7,500
11,397
Total other assets
20,705
23,651
Total assets
392,345
418,272
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
101,638
115,899
Accrued compensation and vacation
11,860
13,351
Current portion of debt, net
6,196
7,849
Other
13,330
14,867
Total current liabilities
133,024
151,966
Long-term liabilities:
Term loans
6,272
6,726
Revolving loan
109,517
114,805
Operating lease liabilities
10,939
10,317
Deferred income tax liability
324
274
Other long-term obligations
1,201
3,567
Total long-term liabilities
128,253
135,689
Total liabilities
261,277
287,655
Shareholders’ equity:
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,762 and 10,762 shares, respectively
Key Tronic Corporation is a contract manufacturer offering value-added design and manufacturing services. The Company provides full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, distribution and unparalleled customer service. It provides a mix of manufacturing services for outsourced original equipment manufacturing (OEM) products. Its services include product design, surface mount technologies (SMT) and pin through hole capability for printed circuit board assembly, tool making, precision plastic molding, sheet metal fabrication and painting, liquid injection molding, complex assembly, prototype design and full product assembly. Its customers include some of the original equipment manufacturers, and its combined capabilities and vertical integration are proving to be a desirable offering to its expanded customer base. Its manufacturing facilities are located in the United States, Mexico, China and Vietnam.