Executive Summary
Key Tronic’s QQ3 2025 results reflect a cloudy near-term demand environment driven by global tariffs and macro uncertainties, even as the company moves forward with meaningful capacity additions and a strong program win pipeline. Revenue declined 14.9% year over year to $111.97 million, while gross margin expanded modestly to 7.69% from 5.70% a year earlier, aided by cost-cutting and headcount reductions. However, operating margin remained negative at approximately -0.41% and the company posted a quarterly net loss of $0.60 million. Management highlighted ongoing cost-reduction initiatives, inventory optimization, and strategic footprints in Arkansas (US) and Vietnam as levers to drive fixed-cost leverage and near-term profitability once volumes recover. Importantly, management elected not to provide Q4 guidance due to tariff-related cost and demand uncertainties, while signaling a longer-term rebalancing of the manufacturing footprint to mitigate tariff risk and capitalize on nearshore/onshore opportunities. A multi-quarter earnings trajectory is anticipated, underpinned by added production capacity online in fiscal 2026 and a robust project pipeline that could meaningfully lift revenue and improve gross margins if demand stabilizes. Cash flow remained challenged in the quarter on a standalone basis, with negative net cash from operations (-$1.42 million) and negative free cash flow (-$3.62 million), though year-to-date cash flow from operations remained positive ($10.1 million) through nine months, reflecting working capital improvements. The strategic backdrop remains constructive, with management forecasting improved profitability from cost structure improvements, higher capacity utilization, and a larger, more flexible production footprint to address tariff volatility and onshoring trends.
Key Performance Indicators
QoQ: -1.65% | YoY:-14.89%
QoQ: 11.69% | YoY:-35.30%
QoQ: 59.05% | YoY:-110.33%
QoQ: 87.71% | YoY:-153.74%
QoQ: 89.13% | YoY:-150.00%
Key Insights
Revenue: $111.974 million, down 14.89% YoY and -1.65% QoQ; Gross profit: $8.607 million, gross margin 7.69%; Operating income: -$0.459 million, operating margin -0.41%; EBITDA: -$2.984 million, EBITDA margin -2.66%; Net income: -$0.604 million, net margin -0.54%; EPS: -$0.05; Weighted average shares: 10.762 million; Interest expense: $2.581 million; Depreciation & amortization: $2.409 million; Net cash from operating activities (nine months): $10.1 million; Free cash flow: -$3.618 million; C...
Financial Highlights
Revenue: $111.974 million, down 14.89% YoY and -1.65% QoQ; Gross profit: $8.607 million, gross margin 7.69%; Operating income: -$0.459 million, operating margin -0.41%; EBITDA: -$2.984 million, EBITDA margin -2.66%; Net income: -$0.604 million, net margin -0.54%; EPS: -$0.05; Weighted average shares: 10.762 million; Interest expense: $2.581 million; Depreciation & amortization: $2.409 million; Net cash from operating activities (nine months): $10.1 million; Free cash flow: -$3.618 million; Cash at end of period: $2.468 million; Total assets: $328.56 million; Total liabilities: $208.96 million; Total stockholders’ equity: $119.60 million; Net debt: $118.78 million; Current ratio: 2.72; Quick ratio: 1.65; DSO: ~92 days; Inventory turns: ~1.04x; Capex (YTD 2025): ~$3.0 million; Full-year Capex guidance: $6–8 million; Long-term guidance: no revenue or earnings guidance provided for Q4 2025; Key growth initiatives: Arkansas and Vietnam expansions; Margin improvement through cost cuts and supply chain optimization; Large program wins pipeline includes multiple named opportunities across telecom, pest control, energy storage, and consumer products.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
111.97M |
-14.89% |
-1.65% |
| Gross Profit |
8.61M |
-35.30% |
11.69% |
| Operating Income |
-459.00K |
-110.33% |
59.05% |
| Net Income |
-604.00K |
-153.74% |
87.71% |
| EPS |
-0.05 |
-150.00% |
89.13% |
Key Financial Ratios
operatingProfitMargin
-0.41%
operatingCashFlowPerShare
$-0.13
freeCashFlowPerShare
$-0.34
Management Commentary
- Tariff volatility remains the dominant macro risk, but management anticipates improved margins from ongoing cost reductions and operating efficiency improvements as new programs ramp. - Management outlined a significant expansion plan, including more than $28 million of capex in Arkansas for a flagship US manufacturing/R&D site and capacity expansion in Vietnam, expected to come online in fiscal 2026, aimed at leveraging nearshore/onshore trends and tariff de-risking. - A strong new program pipeline was highlighted, including a $12 million telecom program in Mexico, a $6 million pest-control program in Vietnam, a $7 million energy/storage opportunity in Arkansas, a $2–5 million consumer product program in Arkansas, and a design contract (potentially $5–15 million in production later). This underscores the company’s design-led sales approach and geographic diversification. - Management stressed that tariff policies have caused increased costs, production disruptions, and reduced demand, but also indicated the company’s strategy to rebalance manufacturing across the US and Vietnam to mitigate tariff risk. - The company opted not to provide Q4 2025 revenue or earnings guidance due to tariff-related uncertainty, highlighting the environment’s unpredictability while maintaining a constructive longer-term growth thesis. - Operating cash flow improvements and inventory reductions were emphasized, with management noting a ~14% reduction in total liabilities and inventory cuts of ~$16 million in Q3, supporting a stronger balance sheet as volumes recover. - Executives emphasized that cost reductions over the past 18 months, along with an expanded design and manufacturing footprint, should enable higher incremental margins as volumes scale, potentially surpassing 10% gross margins if revenue growth accelerates.
In the US, we're expanding our clean tech, cutting-edge manufacturing operations in Arkansas. We expect to invest more than $28 million in our new flagship manufacturing and research and development location, which we believe should create over 400 new jobs in the next five years.
— Brett Larsen
Although we expect the new tariffs to increase costs for both Key Tronic and our customers, the current economic and political climates are too unpredictable to provide an accurate estimate at this time.
— Tony Voorhees
Forward Guidance
Management intentionally did not provide Q4 revenue guidance due to tariff uncertainties, but articulated a clear multi-quarter growth construct anchored in: (1) US and Vietnam capacity additions coming online in fiscal 2026 to support nearshoring/defense against tariff volatility; (2) a robust pipeline of new programs across telecom, pest control, energy storage, medical technology, and temperature-controlled shipping; (3) continued emphasis on design-enabled growth to improve customer stickiness and program wins. Assessing achievability: the Arkansas/Vietnam expansions are funded (capex targeted at $6–8 million for the year, with >$28 million allocated to Arkansas) and, if ramp timelines hold (production in 2026), could meaningfully lift capacity and fixed-cost absorption. However, tariff volatility remains the primary hurdle; material cost inflation or further tariffs could compress margins in the near term. Key metrics to monitor include: (a) ramp progress and utilization of Arkansas and Vietnam facilities; (b) progression of the $60 million program previously discussed to full ramp over 12–18 months; (c) gross margin trajectory toward and beyond 10% as volumes increase; (d) working capital discipline to sustain positive cash flow given capex and ramp costs; (e) ongoing negotiations with customers on tariff-sharing and price recovery. If these components align, KTCC could transition from a negative to a positive operating margin environment and improve free cash flow, supporting a more favorable investment thesis.