Executive Summary

Q3 FY2025 revenue was $112.0M, down 21% year over year (vs. $142.4M) and slightly below the pre-announced range; GAAP EPS was -$0.06, improving from -$0.21 YoY as gross margin expanded to 7.7% from 5.7% .
Management withdrew revenue and EPS guidance due to tariff volatility; no Q4 FY2025 guidance was provided, citing demand paralysis and cost uncertainty from rapid tariff changes .
Cost actions drove margin resiliency despite lower volumes; non-recurring items included ~$0.8M severance in Mexico and ~$0.7M balance sheet adjustments; adjusted EPS was -$0.05 .
Strategic capacity expansions in Arkansas and Vietnam, plus new program wins (including an energy resiliency program that could exceed $60M annually when fully ramped) are positioned as medium-term catalysts .

What Went Well and What Went Wrong

What Went Well

Cost reductions improved gross margin to 7.7% (from 5.7% YoY); operating margin held flat despite revenue compression, reflecting streamlining and headcount reductions across regions .
New business momentum: wins in telecommunications (~~$12M), pest control (~~$6M), energy (~$7M initially in Arkansas), consumer ($2–$5M in Arkansas), and a ~$1M design contract potentially scaling to $5–$15M; “These initiatives reflect...customers rebalancing their contract manufacturing” .
Working capital progress: inventories trending more in line with revenue; nine-month operating cash flow improved to $10.1M vs. $6.1M prior year .

What Went Wrong

Revenue fell 21% YoY to $112.0M, with management citing “rapid, unprecedented changes in tariffs” causing delays, higher costs, and demand reduction; demand hesitancy and “business paralysis” persisted into Q4 planning .
Q3 non-recurring costs: ~$0.8M mandated severance (COGS) in Mexico and ~$0.7M balance sheet adjustments (approx. $0.3M COGS / $0.4M OpEx), weighing on profitability; interest expense remained elevated ($2.6M in Q3) .
Guidance risk management: withdrawal of Q4 guidance and earlier Q3 guidance, reflecting tariff uncertainty and potential impacts on pricing, margins, and customer ordering behavior .

Financial Results

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Millions)	$142.4	$131.6	$113.9	$112.0
Diluted EPS ($USD)	-$0.21	$0.10	-$0.46	-$0.06
Gross Margin %	5.7%	10.1%	6.8%	7.7%
Operating Margin %	-0.4%	3.4%	-1.0%	-0.4%
Net Income ($USD Millions)	-$2.22	$1.12	-$4.91	-$0.60

Non-GAAP:

Adjusted EPS: Q3 2025 -$0.05 ; Q2 2025 -$0.38 ; Q3 2024 -$0.20 .

Selected KPIs (current quarter-end or FY-to-date):

Operating Cash Flow (9M FY2025): $10.1M
Inventory (Mar 29, 2025): $99.33M
Trade Receivables (Mar 29, 2025): $112.33M
Cash (Mar 29, 2025): $2.47M
Current Ratio: 2.7:1
DSOs: 92 days (vs. 85 prior year)
Q3 non-recurring costs: ~$0.8M severance (COGS); ~~$0.7M balance sheet adjustments (~~$0.3M COGS / ~$0.4M OpEx) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q3 FY2025	$115M–$130M	Guidance withdrawn (Feb 4)	Withdrawn
EPS (Diluted)	Q3 FY2025	$0.00–$0.15	Guidance withdrawn (Feb 4)	Withdrawn
Revenue/EPS	Q4 FY2025	None	Not issuing guidance	Maintained (no guidance)
CapEx	FY2025	$8M–$10M (Feb 4 call)	$6M–$8M (May 6 call)	Lowered

Note: Q1 FY2025 provided Q2 guidance ($130M–$140M revenue; $0.05–$0.15 EPS) which was missed materially (actual $113.9M; -$0.46 EPS) amid component shortages and demand weakness .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY2025)	Previous Mentions (Q2 FY2025)	Current Period (Q3 FY2025)	Trend
Tariffs/Macro	No explicit tariff impact; focus on cost actions and design delays	Newly emphasized; China tariffs and potential Mexico tariffs; withdrew Q3 guidance	“Rapid, unprecedented changes in tariffs” driving delays, higher costs, demand paralysis; withdrew Q4 guidance	Intensifying headwind
Supply Chain	Improvements vs PY; resumed shipments on delayed programs	Specific component shortages at a large customer; resolved post-Q2	Adjusted MRP; better preparedness for disruptions, still cautious	Stabilizing with process upgrades
Capacity Expansion (US & Vietnam)	Not detailed	Announced expansions: AR lease increase by June 2025; Vietnam capacity doubling by Sep 2025	AR flagship facility investment (> $28M; ~400 jobs); Vietnam to play major role; online in FY2026	Execution underway
New Program Wins	Manufacturing equipment, vehicle lighting, commercial pest control	Aerospace (~~$5M) and energy resiliency (~~$60M fully ramped)	5 wins: telecom ($12M), pest control ($6M), energy ($7M in AR initial), consumer ($2–$5M), design (~$1M; potential $5–$15M)	Pipeline broadening
Mexico Cost Base	Workforce reductions improved efficiencies	Rightsizing; peso weakness supportive	Continued headcount reductions; wage increases in Mexico prompt streamlining	Structural cost action
Financing/Liquidity	N/A	New ABL facilities up to $115M; write-off ~$1.0M loan fees; adequate liquidity	Debt flexibility; availability-driven covenants; lowered concern vs prior year	Improved flexibility
Working Capital	Inventory reductions, improved alignment to revenue	Inventory uptick due to missed shipments; continued DSO elevation	Inventory reduced ~14% YoY; target ~4 turns; DSOs 92 days	Ongoing optimization

Management Commentary

“The rapid, unprecedented changes in tariffs have significantly impacted the demand from our customers… uncertainties about tariffs have led to hesitancy and business paralysis” — Brett Larsen, CEO .
“We anticipate these new [Arkansas and Vietnam] facilities will be operational in the first half of fiscal 2026… benefit from customers rebalancing their contract manufacturing” — Brett Larsen, CEO .
“We anticipate margins to be strengthened by additional cost reductions and improvements in operating efficiencies… as production volumes increase” — Tony Voorhees, CFO .
“We’re planning to significantly increase production capacity in Arkansas and Vietnam… help mitigate the adverse impact and uncertainties surrounding tariffs” — Company release .

Q&A Highlights

Program wins detail: telecom (~~$12M, Mexico, ramp by Q2 FY2026), pest control (~~$6M, Vietnam), energy (~~$7M initial, Arkansas), consumer ($2–$5M, Arkansas), design (~~$1M; $5–$15M potential) .
Non-recurring items: ~$0.8M severance in Mexico booked in COGS; ~$0.7M adjustments split ~$0.3M COGS/$0.4M OpEx .
Margin sensitivity: analyst-calculated adjusted GM ~~8.6%–8.7% after add-backs; management expects >10% gross margin with incremental revenue (~~$20M) assuming stable tariff/pricing backdrop .
Working capital: target ~4 inventory turns; >90% of BOMs managed by KTCC; DSOs 92 days .
Energy resiliency program: expected to begin revenue in Q1 FY2026; ramp to ~$60M over 12–18 months; location shifted to mitigate tariff risk .

Estimates Context

S&P Global consensus coverage for KTCC’s Q3 FY2025 EPS and revenue was unavailable/insufficient for a meaningful comparison. As a result, we cannot quantify a beat/miss vs. Street. Values retrieved from S&P Global.*
Pre-announcement (Jan 24) indicated management’s internal expectations of Q3 revenue $115–$130M and EPS $0.00–$0.15, which were subsequently withdrawn on Feb 4 due to tariff uncertainty; actual Q3 delivered $112.0M and -$0.06 EPS .

Metric	Q3 2025 (Consensus)	Q3 2025 (Actual)
Revenue ($USD Millions)	N/A*	$112.0
EPS ($USD)	N/A*	-$0.06

*Values retrieved from S&P Global.

Key Takeaways for Investors

Tariff volatility is the primary near-term swing factor: management withdrew guidance and flagged demand paralysis; expect continued earnings variability until tariff path stabilizes .
Cost reductions are working: gross margin improved YoY despite lower sales; add-backs suggest core GM nearing 9%; incremental revenue could lift GM >10% with fixed-cost leverage if volumes rebound .
Pipeline depth is improving: multiple wins across telecom, pest control, energy, and consumer; the energy resiliency program offers ~$60M annual potential over 12–18 months, providing medium-term revenue visibility .
Strategic capacity shifts: Arkansas flagship and Vietnam expansion target tariff mitigation and onshoring/dual-sourcing trends; new capacity expected online in FY2026, aligning with program ramps .
Working capital and liquidity are supportive: nine-month operating cash flow $10.1M; new ABL provides flexibility; focus on inventory turns and DSOs should continue to free cash as volumes normalize .
Near-term trading lens: lack of guidance and tariff uncertainty likely cap upside; watch for tariff headlines, component availability, and program ramp updates (especially energy resiliency) as catalysts .
Medium-term thesis: diversified footprint, vertical integration, and design-led wins position KTCC to benefit from re/onshoring; execution on Arkansas/Vietnam expansions and disciplined cost control underpin margin recovery as volumes return .

KEY TRONIC CORP (KTCC)·Q3 2025 Earnings Summary