Key Tronic (NASDAQ:KTCC) reported lower revenue for its fiscal 2026 third quarter as the electronics manufacturing services provider worked through reduced demand from a legacy customer, an end-of-life program, and a series of temporary operational disruptions. Management said, however, that demand trends are improving heading into the fourth quarter and pointed to ongoing cost-cutting and manufacturing footprint changes as drivers of better profitability as volumes return.
Third-quarter results show lower revenue but margin improvement
Chief Financial Officer Anthony Voorhees said Key Tronic posted total revenue of $89.6 million for the fiscal third quarter, down from $112.0 million in the prior-year period. For the first nine months of fiscal 2026, total revenue was $284.6 million, compared with $357.4 million for the same period in fiscal 2025.
Despite the decline in revenue, the company reported modest improvement in profitability metrics. Gross margin was 8.0% and operating margin was -0.3%, up from 7.7% and -0.4%, respectively, a year earlier. Excluding charges related to the company’s China closure, Voorhees said adjusted gross margin was 8.5%, compared with 8.4% in the prior-year quarter.
Voorhees said the margin performance “demonstrates the operating efficiencies gained from our cost-cutting initiatives during the past 2 years,” adding that the business is “structurally more efficient and better positioned to generate margin as volume returns.”
Net loss widens; adjusted results also pressured
The revenue decline weighed on earnings. Key Tronic reported a third-quarter net loss of $2.6 million, or $0.24 per share, compared with a net loss of $0.6 million, or $0.06 per share, in the year-ago quarter.
For the first nine months of fiscal 2026, the company reported a net loss of $13.5 million, or $1.24 per share, versus a net loss of $4.4 million, or $0.41 per share, in the comparable prior-year period.
On an adjusted basis, the company reported a third-quarter adjusted net loss of $2.8 million, or $0.26 per share, compared with adjusted net income of $0.1 million, or $0.01 per share, in the prior-year quarter. For the first nine months, adjusted net loss was $3.9 million, or $0.36 per share, compared with an adjusted net loss of $1.2 million, or $0.11 per share, a year earlier.
Balance sheet and cash flow highlights
Management emphasized operating discipline and cash generation. Voorhees said third-quarter inventory was down $13.5 million, or 14%, from a year earlier. The current ratio was 2.1 to 1, compared with 2.7 to 1 a year ago. Accounts receivable days sales outstanding improved to 85 days from 92 days.
Year-to-date cash flow provided by operations for the first nine months of fiscal 2026 was approximately $10.0 million, roughly in line with $10.1 million in the same period last year. Voorhees said the company reduced debt year-over-year by approximately $14.3 million.
Capital expenditures were “minimal” in the third quarter, and totaled about $3.7 million year-to-date through the third quarter. Voorhees said Key Tronic expects full-year CapEx of $5 million to $8 million, primarily for new production equipment and automation, with continued selective investment in areas such as SMT equipment and plastic molding capabilities.
Manufacturing footprint shifts: China wind-down, U.S. and Vietnam expansion
Both Voorhees and President and CEO Brett Larsen discussed ongoing shifts in the company’s manufacturing footprint aimed at nearshoring and tariff mitigation. Voorhees said Key Tronic continued to wind down manufacturing operations in China during the quarter, shifting production to expanding facilities in the U.S. and Vietnam. The wind-down is expected to be completed by the end of the fiscal year and is anticipated to save approximately $1.2 million per quarter once completed.
During the Q&A, Larsen said manufacturing operations in China were completed in April, with additional work ongoing to move or sell remaining equipment and materials. He said the company expects to begin seeing savings later in the fourth quarter, with “the full $1.2 million” expected in fiscal first quarter 2027.
Larsen also said the company will continue operating in China with a small team focused on sourcing critical components locally. In Mexico, he said the company reduced total headcount by approximately 42% over the past 24 months and has been right-sizing operations while investing in automation, noting that Mexico remains “a unique solution for tariff mitigation under the existing USMCA tariff agreement.”
On U.S. expansion, Larsen said the company opened a technology and R&D location in Arkansas in the first quarter of fiscal 2026 and expects “double-digit growth” in the Arkansas facility during the upcoming fiscal year. He also said Key Tronic has doubled manufacturing capacity in Vietnam, which now has the capability to support anticipated future medical device manufacturing. By the end of fiscal 2026, Larsen said the company expects about half of manufacturing to take place in U.S. and Vietnam facilities.
Pipeline, new program wins, and tariff-driven customer behavior
Management said improved operating efficiency has helped the company become more competitive in quoting new opportunities. Larsen said Key Tronic won new programs during the quarter in:
- Automotive technology
- Industrial tooling
- Pest control
- Industrial power management
Responding to a question from Matt Dane of Titan Capital Management, Larsen provided more detail on the wins and expected timing:
- Automotive technology: a $3 million to $5 million program expected to start in Juarez in fiscal 2027, with ramp expected around the second quarter.
- Industrial tooling: a design program started in Spokane with low-volume production initially in Spokane; current orders around $3 million with expectations to grow; ramp described as “immediate.”
- Pest control: a $2.5 million incremental opportunity for an existing customer in Juarez.
- Industrial power management: an $8 million to $10 million opportunity expected to start toward the end of the calendar quarter, ramping in the second quarter of fiscal 2027 at the Springdale, Arkansas facility.
On tariffs, Larsen said the company’s growing Vietnam capacity, its Mexico operations under USMCA, and U.S. nearshoring options have positioned it to respond to shifting customer needs. He said some customers’ hesitancy to make decisions amid tariff uncertainty appears to be easing, and that the company is seeing awarded opportunities “begin to pile up” as customers move from “wait and see” to making sourcing decisions despite ongoing uncertainty.
George Melas of MKH Management also asked about Key Tronic’s design engineering emphasis. Larsen said the company is continuing to recruit and hire design engineers, calling design work “incredibly important” because it can create “sticky” customer relationships and help ensure products are designed to fit Key Tronic’s production capabilities.
Melas also asked for an update on a data processing customer in Mississippi. Larsen said the program was flat quarter-over-quarter from the second to third quarter and that the company did not see “any real growth” in the fourth quarter, with potential improvement pushed to fiscal 2027. He characterized the program as approximately “50% of what our initial expectation was,” adding that it is “very market sensitive,” while noting the customer has additional SKUs Key Tronic could build.
Looking ahead, Larsen said the company expects revenue to rebound gradually and anticipates a return to profitability in the fourth quarter of fiscal 2026, though management declined to provide formal guidance. Voorhees cited uncertainty around the timing of new product ramps and macroeconomic conditions, stating the company is not providing forward-looking guidance for the fourth quarter.
About Key Tronic (NASDAQ:KTCC)
Key Tronic Corporation (NASDAQ: KTCC) is a global electronics manufacturer headquartered in Spokane, Washington. The company specializes in the design, development and production of human-machine interfaces and input devices, with a core legacy in keyboard technology. Over more than five decades, Key Tronic has expanded its capabilities beyond keyboards to encompass a broad range of electronic assemblies for OEMs across computing, industrial, medical and consumer markets.
Key Tronic’s product portfolio includes membrane and mechanical keyboards, touch panels, silicone keypads and custom input solutions tailored to customer specifications.
