Key Tronic Corporation

and welcome to the Keytronic first quarter fiscal year 26 investor call. Today's conference is being recorded. After the presentation, we will begin the question and answer period. At this time, I would like to turn the call over to Tony Voorhees. Please go ahead.

Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Keytronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here in our Corinth, Mississippi facility is Brett Larson, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections for other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K and quarterly 10-Qs. Please note, on this call, we will discuss historical, financial, and other statistical information regarding our business and operations. Some of this information is included in today's press release. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast and the link can be found on our investor relations website. In addition, the slides together with the recorded version of this call will be available on the investor relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the investor relations section of our website. For the first quarter of fiscal 2026, we reported total revenue of $98.8 million. compared to $131.6 million in the same period of fiscal year 2025. Revenue for the first quarter of fiscal year 2026 was adversely impacted by reductions in demand from one longstanding customer and delays in new program launches as our customers face continued uncertainties in the global economy. In addition, the consigned materials program that was announced last quarter has begun to ramp. As this large program grows, reported revenue is expected to be lower compared to traditional turnkey programs, while our gross margin is projected to improve. Our gross margin was 8.4% in the first quarter of fiscal year 2026. compared to 6.2% in the previous quarter and 10.1% in the same period of fiscal year 2025. The sequential quarterly increase in gross margin was primarily related to operational efficiencies gained from the reductions in workforce. The year-over-year decreases in gross margin in the first quarter of fiscal 2026 largely reflects reduced revenue. as well as inventory and accounts receivable reserves of approximately $1.6 million due to a customer bankruptcy. Our operating margin for the first quarter of fiscal year 2026 was a negative 0.6%, down from 3.4% for the same period of fiscal year 2025. As top-line growth returns, we expect margins to be strengthened by improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new program opportunities. As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. Our net loss was $2.3 million, or 21 cents per share, for the first quarter of fiscal year 2026, compared to net income of $1.1 million, or 10 cents per share, for the same period of fiscal year 2025. As mentioned previously, the change in earnings was largely due to the reduction in revenue when compared to last year's results. Our adjusted net loss was $1.1 million, or $0.10 per share, for the first quarter of fiscal year 2026, compared to adjusted net income of $2.8 million, or $0.26 per share, for the same period of fiscal year 2025. The non-GAAP financial measures in the earnings release for additional information about adjusted net loss and adjusted net loss per share. Turning to the balance sheet, our inventory for the first quarter of fiscal 2026 remained largely unchanged from the same time a year ago. Our recent strategic initiatives were designed to better align our inventory with our current revenue. While many of our customers have revamped their forecasting methodologies, we have made significant enhancements to our materials resource planning algorithms. As a result, we are now more prepared to address potential future disruptions in the supply chain and more able to respond effectively to evolving tariff implications as we continue to manage inventory more cost effectively. For the first quarter of fiscal 2026, we reduced our total liabilities by a combined amount of $21.8 million or 9% from a year ago. Our current ratio was 2.4 to 1 compared to 2.6 to 1 from a year ago. At the same time, accounts receivable DSOs were at 81 days compared to 92 days a year ago reflecting stronger collection on receivables. Total cash flow provided by operations for the first quarter of fiscal year 2026 was approximately $7.6 million as compared to 9.9 million for the same period of fiscal year 2025. Our continuing ability to generate cash from operations has allowed us to reduce our debt year over year by approximately $12 million. Total capital expenditures in the first quarter of fiscal 2026 are about $3.2 million, and we expect CapEx for the full year to be around $8 million, largely spent on new innovative production equipment and automation. While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities, utilize leasing facilities, as well as make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal year 2026, we are pleased to continue to see our new programs gradually ramping. and our cost and efficiency improvements from our recent overhead reductions are paying off. We expect to see growth in our US and Vietnam production, have a strong pipeline of potential new business, and remain focused on improving our profitability. Over the longer term, we believe that we are increasingly well positioned to win new programs and profitably expand our business. Due to the uncertainty of timing of new products ramping, we are not providing forward-looking guidance in the second quarter of fiscal year 2026.

That's it for me. Brett?