Key Tronic Corporation Announces Results for the Second Quarter of Fiscal Year 2023

Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended December 31, 2022.

For the second quarter of fiscal year 2023, Key Tronic reported total revenue of $123.7 million, compared to $134.5 million in the same period of fiscal year 2022. For the first six months of fiscal year 2023, total revenue was $261.0 million, compared to $267.2 million in the same period of fiscal year 2022.

As previously announced, revenue for the second quarter of fiscal year 2023 was impacted by a six-week delay in starting production for a large program with a leading power equipment company. This delayed revenue by approximately $20 million from the second quarter of fiscal 2023, but production for this program is currently underway and increasing in the third quarter.

For the second quarter of fiscal year 2023, the Company’s gross margin was 7.2% and operating margin was 2.9%, compared to a gross margin of 7.3% and an operating margin of 1.2% in the same period of fiscal year 2022. The gross margin in the second quarter of fiscal year 2023 was adversely impacted by business interruption and other operational losses related to storm damage to the Company’s Arkansas facility, as well as by preparations for expected sales growth in the second quarter and increased labor costs in both the US and Mexico. While profitability is expected to improve in coming quarters with expected increases in revenue, higher interest rates on our line of credit and increasing wages will limit a portion of that expected improvement.

For the second quarter of fiscal year 2023, net income was $1.0 million or $0.09 per share, compared to $0.6 million or $0.05 per share for the same period of fiscal year 2022. The Company’s results for the second quarter of fiscal year 2023 include a gain on insurance proceeds of $2.7 million or approximately $0.19 per share related to equipment damaged in the storm at the Company’s Arkansas facility. The Company is still determining further business interruption proceeds related to the operational losses incurred in the past two quarters as a result of the storm damage. For the first six months of fiscal year 2023, net income was $2.1 million or $0.20 per share, compared to $1.4 million or $0.13 per share for the same period of fiscal year 2022.

“We’re pleased with the successful ramp of new programs and our expanding customer base in the second quarter of fiscal 2023, despite the six-week delay for the large, previously announced power equipment program,” said Craig Gates, President and Chief Executive Officer. “Production for that program is now back on track and rapidly ramping up.”

“During the second quarter of fiscal year 2023, we continued to see the favorable trend of contract manufacturing returning to North America. We won new programs involving outdoor power equipment, battery management, automated sprinklers and biometric sensor technology. We move into the third quarter with record backlog and we’re seeing improvement in the global supply issues for certain components that have severely limited our production in recent periods.”

The financial data presented for the second quarter of fiscal year 2023 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 third quarter of fiscal 2023, Key Tronic expects to report revenue in the range of $160 million to $170 million and earnings in the range of $0.15 to $0.25 per diluted share. These expected results assume an effective tax rate of 25% 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 888-204-4368 or +1-323-994-2093 (Access Code: 5318438). A replay will be available at www.keytronic.com under “Investor Relations”.

About Key Tronic

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 during periods of fiscal year 2023, risks of manufacturing supply chain and operational disruptions, demand for certain products and the effectiveness of some of our programs, business from new customers and programs, improvement of supply chain delivery 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.

KEY TRONIC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share amounts)(Unaudited)

	Three Months Ended						Six Months Ended
	December 31, 2022			January 1, 2022			December 31, 2022			January 1, 2022
Net sales	$	123,708		$	134,456		$	260,971		$	267,218
Cost of sales		114,788			124,648			241,672			247,272
Gross profit		8,920			9,808			19,299			19,946
Research, development and engineering expenses		2,287			2,498			4,583			4,947
Selling, general and administrative expenses		5,735			5,659			11,391			11,254
Gain on insurance proceeds, net of losses		(2,710	)		—			(3,644	)		—
Total operating expenses		5,312			8,157			12,330			16,201
Operating income		3,608			1,651			6,969			3,745
Interest expense, net		2,507			1,095			4,394			2,087
Income before income taxes		1,101			556			2,575			1,658
Income tax provision		134			(31	)		456			256
Net income	$	967		$	587		$	2,119		$	1,402
Net income per share — Basic	$	0.09		$	0.05		$	0.20		$	0.13
Weighted average shares outstanding — Basic		10,762			10,762			10,762			10,762
Net income per share — Diluted	$	0.09		$	0.05		$	0.20		$	0.13
Weighted average shares outstanding — Diluted		10,832			11,057			10,832			11,055

KEY TRONIC CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)

	December 31, 2022			July 2, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	810		$	1,707
Trade receivables, net of allowance for doubtful accounts of $14 and $12		134,290			135,876
Contract assets		28,329			21,974
Inventories, net		171,749			155,741
Other		28,969			24,710
Total current assets		364,147			340,008
Property, plant and equipment, net		27,110			26,012
Operating lease right-of-use assets, net		18,652			16,731
Other assets:
Deferred income tax asset		10,911			10,055
Other		11,928			14,117
Total other assets		22,839			24,172
Total assets	$	432,748		$	406,923
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	140,704		$	121,393
Accrued compensation and vacation		7,813			11,836
Current portion of debt, net		6,667			7,402
Other		18,285			23,036
Total current liabilities		173,469			163,667
Long-term liabilities:
Term loans		4,603			5,716
Revolving loan		109,704			94,577
Operating lease liabilities		13,084			12,023
Deferred income tax liability		24			64
Other long-term obligations		4,553			5,998
Total long-term liabilities		131,968			118,378
Total liabilities		305,437			282,045
Shareholders’ equity:
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,762 and 10,762 shares, respectively		47,576			47,474
Retained earnings		79,948			77,829
Accumulated other comprehensive income (loss)		(213	)		(425	)
Total shareholders’ equity		127,311			124,878
Total liabilities and shareholders’ equity	$	432,748		$	406,923