Executive Summary

Q2 FY2025 revenue was $113.9M and GAAP diluted EPS was $(0.46), down sharply YoY from $147.8M and $0.10, driven by an approx. $15M shortfall tied to specific component shortages, holiday production impacts, and reduced demand at certain customers .
Gross margin fell to 6.8% (from 8.0% YoY) and operating margin to (1.0)% (from 2.7% YoY), primarily on lower volumes; management noted fixed-cost leverage should improve as volumes recover and efficiency initiatives take hold .
Management withdrew Q3 FY2025 revenue/EPS guidance due to tariff uncertainty (Mexico/China), after previously pre-announcing Q3 ranges of $115–$130M revenue and $0.00–$0.15 EPS on Jan 24; expansions in Arkansas (lease signed) and Vietnam (capacity doubling by Sep 2025) were announced to mitigate tariff/cost risk .
New “energy resiliency” program is expected to begin ramping in H2 2025 and could exceed $60M annual revenue when fully ramped, adding a potential medium-term growth driver .
Debt refinanced into a new $115M ABL (with ~$76M borrowed at quarter-end); interest expense included ~$1.0M write-off of unamortized loan fees this quarter, contributing to the net loss .

What Went Well and What Went Wrong

What Went Well

Signed a lease to significantly expand Arkansas manufacturing footprint by June 2025 and will double Vietnam capacity by September 2025 to support onshoring/dual-sourcing demand and hedge tariff risk .
Won new programs in aerospace systems and an energy resiliency technology product; management reiterated the energy resiliency program could exceed $60M annually once fully ramped and opens a new industry vertical .
Operational and cost initiatives progressing: inventory down ~19% YoY, total liabilities down ~$38M YoY, and current ratio improved to 2.8x; fixed-cost leverage expected to improve as volumes recover and efficiency actions flow through .

What Went Wrong

Q2 revenue/EPS missed prior Q2 guidance ($130–$140M revenue; $0.05–$0.15 EPS) and fell QoQ/YoY, primarily due to a specific component shortage at a large customer, holiday timing, and softer demand at certain customers (~$15M revenue impact) .
Gross margin compression (6.8%) and operating loss reflect lower volume against largely fixed manufacturing overhead; management highlighted the limited near-term flexibility of production costs within a quarter .
Guidance for Q3 was withdrawn due to tariff uncertainty (pause on Mexico tariffs, potential for China tariffs), creating near-term visibility issues and risk of customer behavior shifts (e.g., shipment timing, sourcing) .

Financial Results

Quarterly Performance (oldest → newest)

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$125.7	$131.6	$113.9
GAAP Diluted EPS ($)	$0.00	$0.10	$(0.46)
Adjusted Diluted EPS ($)	$0.10	$0.11	$(0.38)
Gross Margin %	9.0%	10.1%	6.8%
Operating Margin %	2.2%	3.4%	(1.0)%

Year-over-Year (Q2 FY2025 vs Q2 FY2024)

Metric	Q2 2024	Q2 2025
Revenue ($USD Millions)	$147.8	$113.9
GAAP Diluted EPS ($)	$0.10	$(0.46)
Gross Margin %	8.0%	6.8%
Operating Margin %	2.7%	(1.0)%

Against Prior Guidance (Q2 FY2025 actual vs guidance given Nov 5, 2024)

Metric	Prior Guidance (Q2 FY2025)	Actual (Q2 FY2025)	Result
Revenue ($USD Millions)	$130–$140	$113.9	Miss
GAAP Diluted EPS ($)	$0.05–$0.15	$(0.46)	Miss

KPIs and Balance Sheet Highlights

KPI	Q2 FY2025	Prior/YoY Reference	Notes
Inventory ($USD Millions)	$100.7	↓ ~$23M YoY; ↓ ~19%	Progress on working capital
Accounts Receivable DSO (days)	99	83 a year ago	Reflects revenue decline vs receivables
Current Ratio (x)	2.8x	2.6x a year ago	Liquidity improved
Total Liabilities ($USD Millions)	$208.3	↓ ~$38M YoY (~15%)	Balance sheet progress
Long-term Debt ($USD Millions)	$106.0	New ABL: $115M available; $76M borrowed at Q2 end	Refinancing flexibility
CapEx ($USD Millions)	~$0.8 in Q2	FY target: $8–$10	Arkansas/Vietnam expansions

Non-GAAP note: Q2 adjusted EPS excludes $1.012M write-off of unamortized loan fees and applies a 20% tax effect, among other standard adjustments .

Cross-reference note: Transcript referenced “net loss of $33.8M YTD,” which conflicts with the press release YTD net loss of $(3.79)M; rely on press release as official figures .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	Q3 FY2025	$115–$130 (Jan 24 pre-announcement)	No guidance issued	Withdrawn
GAAP Diluted EPS ($)	Q3 FY2025	$0.00–$0.15 (Jan 24 pre-announcement)	No guidance issued	Withdrawn
CapEx ($USD Millions)	FY2025	$8–$10 (affirmed)	$8–$10	Maintained
Interest/Financing	FY2025	New ABL $115M; lower interest expense anticipated	No numeric change	Qualitative improvement
Tax rate assumption for non-GAAP	Current	20% used in reconciliations	20%	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024, Q1 FY2025)	Current Period (Q2 FY2025)	Trend
Tariffs/Macro	Cost of capital/FX headwinds; improving margins despite cyber disruption	Mexico tariff pause; China tariff uncertainty; withdrew guidance	Elevated uncertainty; risk management focus
Supply Chain/Components	Cyber-affected backlog to be recovered; customer qualification delays impacting revenue	Specific component shortage at a large customer resolved post-Q2	Shortage resolved; ramp expected
Onshoring/Regional Strategy	Increased U.S./Vietnam utilization; Mexico cost rightsizing	Arkansas expansion lease; Vietnam capacity doubling by Sep 2025	Accelerating footprint realignment
Program Wins	Multiple new industrial/medical wins; $15M+ wins in Q4 FY2024	Aerospace ($~5M start) and energy resiliency ($>60M potential)	Pipeline strengthening; new verticals
FX (Mexican Peso)	Peso weakness aided margins; hedges in place	Continued margin support noted	Supportive
Inventory/Working Capital	Significant inventory/liability reductions YoY	Inventory down 19% YoY; DSOs 99 days	Ongoing optimization

Management Commentary

“We’re planning to significantly increase production capacity in Arkansas and Vietnam… [to] help mitigate the adverse impact and uncertainties surrounding the recently announced tariffs on goods manufactured in China and Mexico.” — Brett Larsen, President & CEO .
“Gross margins were 6.8% and operating margins were (1.0)%… The decline… primarily reflects the reduction of revenue.” — Company statement in 8-K press release .
“The new asset-based financing agreement provides up to $115 million… of which $76 million was borrowed… We anticipate these new facilities will lower our interest expense and provide greater financial flexibility.” — Tony Voorhees, CFO .
“Once fully ramped, [the energy resiliency] program could generate annual revenue… in excess of $60 million.” — Company statement .

Q&A Highlights

Component shortage specifics: A targeted set of components managed by a large customer became scarce due to industry-wide demand; production has resumed, and KTCC proposed transitioning to turnkey procurement to mitigate future disruptions .
Tariff uncertainty and customer behavior: The Mexico tariff headlines “freaked out” customers; KTCC highlighted Arkansas/Vietnam as diversification options; contractual tariff costs would be passed through, but competitive dynamics may shift .
Large win confidence: Management cited the customer’s strong financing, market-disrupting product, and in-market functionality as reasons for confidence in the >$60M energy resiliency program .
Inventory and fixed-cost leverage: Inventory uptick in Q2 was due to components already en route for delayed shipments; fixed manufacturing costs are largely inflexible intra-quarter, contributing to margin pressure on lower revenue .
Guidance withdrawal rationale: Visibility on top-line and profitability is clouded by potential tariff actions; guidance will be revisited next quarter if conditions stabilize .

Estimates Context

Wall Street consensus (S&P Global) for Q2 FY2025 EPS and revenue was unavailable at the time of this analysis; KTCC’s Q2 results therefore could not be benchmarked to SPGI consensus in this report. Values retrieved from S&P Global were unavailable due to a temporary access limit.

Key Takeaways for Investors

Q2 was a reset quarter with volume-driven margin compression and a sizeable miss vs prior guidance; the component shortage is resolved, which should aid near-term normalization as production recovers .
Guidance withdrawal elevates near-term uncertainty; watch for tariff developments and customer sourcing decisions that could affect shipment timing and regional mix .
Arkansas/Vietnam expansions are tangible steps to de-risk geography and cost, positioning KTCC to capture onshoring/dual-sourcing demand and potentially offset Mexico wage/tariff risks .
The energy resiliency program (> $60M potential) offers medium-term revenue uplift if ramp executes; management expressed higher-than-usual confidence given product/market factors .
Balance sheet/working capital actions are progressing (inventory/liability reductions; new ABL), but interest expense remains a headwind; refinancing and volume recovery are key to EPS improvement .
Operational leverage to volumes is high; as programs ramp and efficiency initiatives continue, margins should benefit from fixed-cost absorption, aided by a weaker peso and regional footprint optimization .
Near-term trading: headlines on tariffs/guidance policy likely drive volatility; medium-term thesis hinges on execution of program ramps, geographic diversification, and sustaining 9–10% gross margin targets as volumes recover .

KEY TRONIC CORP (KTCC)·Q2 2025 Earnings Summary