Key Tronic Announces Results for Q3 of Fiscal Year 2024

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Key Tronic Corporation, a provider of electronic manufacturing services (EMS), 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.