KEY TRONIC CORP (KTCC)·Q1 2026 Earnings Summary

Executive Summary

• Q1 FY2026 revenue fell 25% year over year to $98.8M and GAAP EPS was -$0.21; gross margin improved sequentially to 8.4% on workforce reductions and mix, but remained below prior year given lower volume and a $1.6M bankruptcy-related provision .
• Management withheld Q2 guidance citing tariff and ramp timing uncertainty; directionally, they do not expect “any meaningful change” in Q2 revenue versus Q1, and target a return to profitability by year-end FY2026 .
• New wins (medical ~$5M; two industrial ~$6M combined) and the consigned materials program (>$1M Q1 revenue, ramping toward a ~$20M annual run-rate) are intended to boost margins and reduce working capital intensity .
• Strategic catalysts: Arkansas facility opened; Vietnam capacity doubled with medical certification; Mexico right-sized. These are positioned to mitigate tariff volatility and support near-shoring demand .
• Cash from operations was $7.6M; receivables DSOs improved to 81 days, and debt was reduced ~$12M year over year, supporting liquidity while revenue resets on program delays .

What Went Well and What Went Wrong

What Went Well

• Sequential gross margin expansion to 8.4% (from 6.2% in Q4) driven by workforce reductions and operational efficiencies; adjusted for severance ($1.2M) and inventory write-off ($0.6M), gross margin would have been notably higher per management’s Q&A .
• Strategic footprint progress: opened new Springdale, Arkansas facility; doubled Vietnam capacity and achieved medical device manufacturing certification; expect ~50% of manufacturing to be in US/Vietnam by FY2026-end .
• Consigned materials program initiated (>~$1M revenue in Q1) with potential to exceed $20M annualized and meaningfully lift reported margins and reduce working capital needs (“we are really billing for use of the facility, labor, and your profit”) .

What Went Wrong

• Revenue down 25% YoY on reduced demand from a longstanding customer and delays to new program ramps amid tariff/macro uncertainty; operating margin slipped to -0.6% and net loss was -$2.3M .
• Bankruptcy-related provisions (~$1.6M: ~$0.6M COGS inventory write-off, ~$1.0M SG&A receivable write-off) pressured margins and earnings; severance expense ($1.2M) also weighed on COGS in Q1 .
• No revenue/EPS guidance for Q2 due to ramp timing uncertainty; management expects Q2 revenue to be roughly flat sequentially, which constrains near-term visibility and complicates estimate setting .

Financial Results

Non-GAAP (select):

• Adjusted net income (loss) and diluted EPS: Q1 FY2026 $(1.109)M and $(0.10); Q1 FY2025 $2.799M and $0.26 .

KPIs and Balance Sheet/CF:

Narrative drivers:

• YoY revenue decline due to a longstanding customer demand reduction and delayed new program ramps (tariff/macro uncertainty). Sequential gross margin improvement reflects cost actions; Q1 included ~$1.6M provisions tied to a customer bankruptcy .
• Working capital improvement evidenced by DSOs and AR collection; debt reduced ~$12M YoY; positive CFO continues .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “Moving into fiscal 2026, the uncertainty surrounding global tariffs and the macroeconomic outlook continued to delay new program ramps… By the end of fiscal 2026, we continue to expect approximately half of our manufacturing to take place in our US and Vietnam facilities.” .
• CEO: “During the first quarter… we won new programs in medical technology and industrial equipment… we expect… a return to profitability by the end of fiscal 2026.” .
• CFO: “Total cash flow provided by operations… approximately $7.6 million… allowed us to reduce our debt year-over-year by approximately $12.0 million.” .
• CEO (on consigned program): “In our first quarter, there was roughly just over $1 million of actual revenue… could exceed $20 million on an annual basis… margin will increase because you’re not including the cost of the materials.” .
• CEO (on Mexico): “We have excess capacity… strong sales pipeline… if it doesn’t transpire, we’ll need to make some additional cost reductions.” .

Q&A Highlights

• Consigned program economics: Management reiterated the model bills for facility, labor, and profit (no material cost), increasing reported margin percent; ramp goal to ~$20M annualized by FY2026 exit, potentially one of the largest customers .
• New wins: Medical ($5M) and industrial ($6M combined); medical slated to run in Vietnam post certification .
• Margin drivers: Severance runs through COGS; bankruptcy reserve split ~$0.6M inventory (COGS) and ~$1.0M AR (SG&A). NRE profit contributed ~$1–$1.5M in Q1, bolstering margin at low revenue levels .
• Mexico utilization: H2 FY2026 pipeline expected to absorb capacity; otherwise, additional cost actions considered; earnings leverage expected once fixed costs covered .
• Q2 directional view: “No meaningful change” in revenue; ongoing caution due to tariffs and macro uncertainty .

Estimates Context

• S&P Global consensus data coverage for KTCC appears limited; we did not receive quarter-level EPS or revenue consensus for Q1 FY2026 or Q2 FY2026. As a result, comparisons to Street are unavailable, and we anchor on company-reported actuals.
• Where available, S&P Global returned actuals for Q1 FY2026 (Revenue, EBITDA) but no forward consensus detail for the periods requested.

Values marked with * retrieved from S&P Global; consensus was unavailable for these periods.

Key Takeaways for Investors

• Sequential margin improvement at depressed revenue suggests cost actions are working; watch for sustainability as NRE tailwinds fade and volume returns .
• The consigned materials program is a structural margin lever and working-capital relief; successful ramp to ~$20M could meaningfully lift gross margin percent and ROIC despite lower reported revenue per unit of output .
• Near-shoring footprint (Arkansas/Vietnam) is designed to de-risk tariff volatility and enable sticky program wins; execution progress is visible and a medium-term thesis point .
• Near-term visibility remains limited: No Q2 guidance and management’s directional view suggests flat sequential revenue; bankruptcy provisions and severance are largely behind, but further tariff shifts could impact demand .
• Liquidity and balance sheet: positive CFO ($7.6M), improved DSOs, and debt reduction (~$12M YoY) provide cushion while new programs ramp; monitor interest expense trajectory and revolver availability .
• Mexico capacity is an inflection variable: pipeline conversion in H2 FY2026 would drive fixed-cost absorption and earnings leverage; failure to convert implies further cost actions .
• Trading/PM angle: Stock narrative likely hinges on visibility into ramp cadence (consigned + utility metering program), tariff headlines, and margin durability; upside if ramps execute and tariff risk subsides, downside if delays persist.

Citations: Q1 FY2026 8-K and Exhibit 99.1 ; Q1 FY2026 press release ; Q1 FY2026 earnings call transcript ; Q4 FY2025 press release and call ; Q3 FY2025 8-K ; Arkansas facility opening PR .