Executive Summary
Key Tronic Corporation reported a challenging but improving Q4 FY2024, as revenue declined year over year but margins stabilized and cost actions began to accrue. GAAP gross margin expanded to about 9% with an operating margin near 2.2%, while GAAP net income essentially broke even at the quarter level. Management highlighted the cyber disruption experienced late in the period, which added approximately $2.3 million in costs, and a favorable peso movement that offset about $0.6 million. On a full-year basis, KTCC posted a net loss of roughly $0.8 million, while adjusted net income for FY2024 was about $3.4 million ($0.31 per share), reflecting the company’s ongoing efforts to rightsize costs and improve operational efficiency.
Inventory reductions remained a bright spot, with approximately $29 million (about 21%) of inventory pulled down year-over-year, aligning working capital with revenue. Management stressed a wait-and-see stance on further restructuring given the cyber recovery, but indicated some additional efficiency actions could occur in fiscal 2025. The company reaffirmed its onshoring thesis, emphasizing the U.S. and Vietnam facilities as growth anchors and signaling Vietnam as the lowest-cost footprint as volumes mature.
Looking forward, KTCC guided for Q1 FY2025 revenue of $140–$150 million and net income of $0.10–$0.20 per diluted share, supported by new program ramps, ongoing overhead reductions, and a weaker peso. Management also noted a robust pipeline of potential new business across security, industrial, environmental, medical, and consumer segments, with a focus on expanding U.S. and Vietnam production capacity and balancing Mexico, the U.S., and Vietnam operations.
Key Performance Indicators
QoQ: -31.05% | YoY:13.51%
QoQ: -97.37% | YoY:120.35%
QoQ: -276.60% | YoY:10.63%
QoQ: -280.00% | YoY:14.29%
Key Insights
Revenue: Q4 2024 revenue of $126.7 million (GAAP), down from $162.6 million in Q4 FY2023. QoQ change between Q3 and Q4 2024 was negative on a reported basis (Q3 revenue was ~$140.5 million in the period), indicating a cyclicality tied to the cyber disruption and backlog.
Gross Profit and Margin: Gross margin ~9.0% in Q4 2024, up from 8.5% in Q4 2023. Gross profit approximately $11.33 million. Gross margin uplift largely reflects workforce reductions in Mexico and the favorable peso movement.
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Financial Highlights
Revenue: Q4 2024 revenue of $126.7 million (GAAP), down from $162.6 million in Q4 FY2023. QoQ change between Q3 and Q4 2024 was negative on a reported basis (Q3 revenue was ~$140.5 million in the period), indicating a cyclicality tied to the cyber disruption and backlog.
Gross Profit and Margin: Gross margin ~9.0% in Q4 2024, up from 8.5% in Q4 2023. Gross profit approximately $11.33 million. Gross margin uplift largely reflects workforce reductions in Mexico and the favorable peso movement.
Operating Profitability: Operating income ~$2.70 million with an operating margin ~2.15% for Q4 2024, versus 2.60% in Q4 FY2023.
Net Income and EPS: GAAP net income of about $0.037 million (break-even level for the quarter). Diluted EPS ~ $0.0034. On an adjusted (non-GAAP) basis, Q4 FY2024 net income was ~$1.1 million or $0.10 per share.
Full-Year FY2024: Net loss of about $0.8 million (GAAP), or $(0.07) per share; adjusted net income of ~$3.4 million, or $0.31 per share.
Cash Flow and Balance Sheet: Net cash provided by operating activities ~$7.70 million; free cash flow ~$7.14 million. Cash balance end of period ~$4.75 million. Total current assets ~$295.76 million; total assets ~$361.40 million. Total debt ~$119.51 million; net debt ~$114.75 million. Current ratio ~2.83; quick ratio ~1.79. Inventory declined ~21% year over year by about $29 million; DSO cited at 98 days by management (vs 85 days prior year) due to the cyber disruption; capex ~$1.2 million for Q4 FY2024 and ~$5.2 million for the full year.
Guidance and Margins: For Q1 FY2025, revenue guidance is $140–$150 million with expected net income of $0.10–$0.20 per diluted share. Management cited cost savings of roughly $10 million annually (most of which to occur in FY2025) and a weaker Mexican peso as drivers of improved profitability.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
125.69M |
-5.19% |
1.27% |
| Gross Profit |
11.33M |
13.51% |
-31.05% |
| Operating Income |
2.70M |
120.35% |
-97.37% |
| Net Income |
37.00K |
10.63% |
-276.60% |
| EPS |
0.00 |
14.29% |
-280.00% |
Key Financial Ratios
operatingProfitMargin
1.58%
priceEarningsRatio
282.14
Management Commentary
Key themes from the earnings call and Q&A:
- Cost savings and restructuring cadence: Management indicated that most of the anticipated annual savings (approximately $10 million) should occur in fiscal 2025, with much of the benefit realized in Q4 and into 2025. Quote: "Through the fiscal year 2025 most of it, if not all of it, Bill, we're expecting that those cost savings to occur in the year." (Brett Larsen)
- Vietnam as a strategic, low-cost growth engine: The company described Vietnam as intended to be the lowest-cost production site, with long-term expectations for higher-volume, lower-mix programs. Quote: "No. That really is our intent of Vietnam is to be our lowest cost facility. ... as that grows, those will really be more higher volume, less mix type products that are better suited for our lowest cost site." (Brett Larsen)
- Four new program wins and ramp risk: The call highlighted multiple new programs, including a roughly $15 million electronics program in Arkansas and a $15 million metals fabrication program in Mexico, plus two other Mexico wins of $5–$10 million each. All four were expected to ramp by around the next year, with potential delays. (Brett Larsen)
- Cyber disruption costs and margin dynamics: Approximately $2.3 million of incremental cyber-related costs were incurred, with about two-thirds in cost of goods and one-third in G&A; a peso movement provided a $0.6 million cushion. Management emphasized that gross margin benefited from workforce reductions and peso weakness. (Tony Voorhees, Brett Larsen)
- Outlook on legacy customers and demand recovery: Management noted that legacy customer demand had retracted late in 2023 but has shown signs of rebound in early 2024, with expectations to return to 2023 demand levels over the next several months. (Brett Larsen)
- Management intent on profitability and capital allocation: The new leadership emphasized profitability-focused strategy, balanced manufacturing, and continued investment in plants and equipment to support future capacity and efficiency gains. (Brett Larsen)
"Through the fiscal year 2025 most of it, if not all of it, Bill, we're expecting that those cost savings to occur in the year."
— Brett Larsen
"No. That really is our intent of Vietnam is to be our lowest cost facility. I think to your point, they need to have increased transportation time. There are a few smaller programs in Vietnam, but longer-term, my expectation is as that grows, those will really be more higher volume, less mix type products that are better suited for our lowest cost site."
— Brett Larsen
Forward Guidance
Near-term outlook is modestly constructive, anchored by a rebound in legacy customer demand and a ramp in new programs. Key items:
- Q1 FY2025 revenue guide: $140–$150 million, implying a roughly flat to modestly higher revenue trajectory versus Q4 and a return to stabilization after the cyber disruption.
- Earnings trajectory: Net income guidance of $0.10–$0.20 per diluted share for Q1 FY2025, supported by continued overhead reductions, a weaker peso, and ongoing efficiency improvements.
- Growth drivers: U.S. and Vietnam production expansion, a healthy project pipeline across security, environmental, medical devices, and industrial segments, and a push to onshore/nearshore production in North America.
- Margin expectations: Management aims to sustain gross margins in the 9–10% range aided by workforce optimization and favorable currency movements; further potential upside from incentive compensation (not yet included) and additional productivity gains.
- Risks to monitor: Execution risk on ramping new programs, potential for cyclicality in legacy demand, currency volatility (especially the peso), ongoing supply chain volatility, and the rate environment impacting financing costs.
- Milestones to watch: backlog conversion, ramp timing of the Arkansas and Mexico programs, growth contribution from Vietnam, and the extent of any additional restructuring in FY2025.