Key Tronic Q4 2026 Earnings Call Transcript

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Provided by Quartr
August 27, 2026

Key Takeaways

  • Positive Sentiment: New program awards exceeded $60 million in Q4, including a $40 million–$45 million annual data-center opportunity in Mexico, a $15 million power-management program, and a $5 million–$10 million construction program. Management expects meaningful revenue contributions beginning in fiscal 2027.
  • Positive Sentiment: Key Tronic completed its China manufacturing exit and shifted production to the U.S. and Vietnam, with approximately $4 million in expected annual fiscal 2027 savings. Vietnam revenue more than doubled sequentially in Q4, while Arkansas is expected to deliver double-digit revenue growth as programs ramp.
  • Negative Sentiment: Liquidity and tighter supplier credit terms constrained production, forcing the company to delay approximately $10 million of shipments. Management is seeking additional financing and customer capital contributions, including potential collateralization of foreign assets, and did not provide fiscal Q1 2027 guidance.
  • Negative Sentiment: Q4 revenue rose 14% sequentially to $102 million, but remained below the prior-year quarter, while the company reported a $34.3 million net loss. Results included an $8.4 million distressed-customer receivables write-off and a $28.4 million non-cash deferred-tax valuation allowance, although adjusted net loss improved year over year.
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Earnings Conference Call
Key Tronic Q4 2026
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Operator

Good day, and welcome to the Key Tronic FY 2026 Q4 investor call. Today's conference is being recorded. After the presentation, we will begin the question and answer period. At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead.

Tony Voorhees
CFO at Keytronic

Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington headquarters is Brett Larsen, 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 or 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 ditffer 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 that 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.

Tony Voorhees
CFO at Keytronic

During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and a link can be found on our investor relations website. In addition, the slides, together with a 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 reconciliation to the most directly comparable GAAP measures are provided in today's press release, which is posted in the investor relations section of our website. For the fourth quarter of fiscal year 2026, we reported total revenue of $102 million, compared to $89.6 million in the prior quarter and $110.5 million in the same period of fiscal 2025.

Tony Voorhees
CFO at Keytronic

The 14% sequential increase in revenue in the fourth quarter of fiscal year 2026 was driven by strong demand from both legacy and new programs. Notably, revenue from our Vietnam-based production more than doubled sequentially, driven by medical device and consumer products programs. While customer demand rebounded significantly in the fourth quarter of fiscal year 2026, our production was constrained by tightening credit availability and liquidity pressures across the global supply chain. These constraints have affected the entire electronics manufacturing services industry as suppliers, customers, and manufacturers navigate ongoing macroeconomic uncertainty. While not immune to these challenges, our operational discipline, strength in manufacturing footprint, and long-standing customer relationships have positioned us ahead of our competitors. As a result, we continue to win new business and gain market share in several target markets, exhibited by over $60 million in new program awards in the fourth quarter of fiscal 2026.

Tony Voorhees
CFO at Keytronic

Supply chain financing constraints forced us to delay approximately $10 million of shipments during the quarter, but underlying customer demand remains strong. We are actively working with our customers and suppliers while evaluating additional sources of capital to propel growth and alleviate these constraints in future periods. For the full fiscal 2026, our total revenue was $386.7 million, compared to $467.9 million in fiscal 2025, largely reflecting during the first three quarters of the year reduced demand from certain legacy and end-of-life programs, as well as uncertain global economic conditions. Moving into fiscal 2027, we are experiencing increased activity from both legacy customers and new program wins, along with a stronger new sales funnel activity, leading us to expect revenue growth in coming quarters of fiscal 2027. Gross margin was 7.8% in the fourth quarter of fiscal 2026, up from 6.2% in the same period of fiscal 2025.

Tony Voorhees
CFO at Keytronic

Adjusted gross margin was 8.3% for the fourth quarter of fiscal year 2026, up from 6.2% in the same period of fiscal year 2025. Our gross margin improvements in the fourth quarter of fiscal 2026, despite the aforementioned challenges, demonstrated the operating efficiencies gained from our cost-cutting initiatives over the past two years. These margin gains highlight our resilience, commitment, and success in improving operating efficiency. Operating margin was -3.6% in the fourth quarter of fiscal 2026, down from -2.1% in the same period of fiscal 2025. The operating margin for the fourth quarter of fiscal 2026 was adversely impacted by an $8.4 million write-off of long-term receivables for distressed customers, along with the related legal costs incurred in pursuing recovery. Partially offset by a benefit from a $5.3 million insurance recovery related to a roof replacement in our Mississippi-based facility.

Tony Voorhees
CFO at Keytronic

In line with our long-term strategic plan, we continue to prepare for anticipated long-term growth by executing our nearshoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and capabilities. During the quarter, we completed our wind down of our manufacturing operations in China, shifting more production to our expanding facilities in the U.S. and Vietnam. The China wind down is expected to save approximately $4 million in fiscal 2027. As top-line growth returns, we anticipate margins to be strengthened by the 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.

Tony Voorhees
CFO at Keytronic

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 $34.3 million, or $3.16 per share for the fourth quarter of fiscal 2026, compared to a net loss of $3.9 million or $0.36 per share for the same period of fiscal 2025. During the fourth quarter of fiscal 2026, we recorded a $28.4 million non-cash charge to establish a valuation allowance against certain deferred tax assets. The accounting adjustment was driven primarily by the cumulative loss of U.S. taxable income over the last four years. While management remains confident in our expected return to profitability and the future expected utilization of certain tax benefits, the valuation allowance was based on the relative weighting of historical results.

Tony Voorhees
CFO at Keytronic

The adjustment has no impact on cash flows, debt covenant compliance, or our underlying operating performance. Additionally, as discussed earlier, approximately $8.4 million of distressed customer-related long-term receivables were written off in connection with customers that are no longer contributing program revenues. The reduction in revenue during fiscal 2026 also had a significant impact on our bottom line. For the full year 2026, our net loss was $47.8 million or $4.41 per share, compared to a net loss of $8.3 million or $0.77 per share for fiscal 2025. Our adjusted net loss for 2026 was $2.9 million, or $0.26 per diluted share, compared to adjusted net loss of $3.8 million or $0.35 per diluted share for the same period of fiscal 2025.

Tony Voorhees
CFO at Keytronic

For the full fiscal year 2026, our adjusted net loss was $3.7 million, or $0.34 per diluted share, compared to adjusted net loss of $5 million or $0.47 per diluted share for fiscal 2025. Our focus on operating discipline continues to support a strong balance sheet. Our inventory at the end of fiscal 2026 is down $1.5 million or 2% from a year ago. Our current ratio was 2.1 to one, compared to 2.6 to one a year ago. At the same time, our accounts receivable DSOs were at 75 days, compared to 86 days a year ago, reflecting stronger collection on receivables. Capital expenditures in the fourth quarter of fiscal 2026 were $2.7 million, and total capital expenditures for the full year were approximately $6.4 million, reflecting our investments in new innovative production equipment and automation.

Tony Voorhees
CFO at Keytronic

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, and make efficiency improvements to prepare for growth and added capacity. As we move into fiscal 2027, we expect global economic uncertainty and volatile trade policies. Nevertheless, we are increasingly encouraged by the demand trends we're seeing as we enter the first quarter. We believe our customers are adjusting to the volatility as the new normal. Activity with several longstanding customers is improving. New programs are ramping, and our expanded U.S. and Vietnam capacity is generating increased customer interest. Our improved operating efficiency makes us more competitive, resulting in a stronger pipeline of potential new business, and we remain focused on further improving our profitability.

Tony Voorhees
CFO at Keytronic

Our production backlog has grown, and we believe that we are increasingly well-positioned to win new programs and profitably expand our business. Due to uncertainty of timing of new product ramps, in light of continued macroeconomic uncertainty, we're not providing forward-looking guidance for the first quarter of fiscal 2027. That's it for me. Brett?

Brett Larsen
President and CEO at Keytronic

Thanks, Tony. Over the past year, we have taken decisive actions to strengthen Key Tronic's competitive position and create a more efficient global manufacturing footprint. We successfully exited manufacturing operations in China, right-sized our Mexico facility, and expanded production capacity in both the U.S. and Vietnam. These initiatives have improved our cost structure, enhanced supply chain flexibility, and enabled us to provide customers with attractive manufacturing options amid ongoing macroeconomic and geopolitical uncertainties. Our improved operating efficiency has made us more competitive, and we expect our revenue to gradually begin to rebound and see a return to profitability in fiscal year 2027. As part of the long-term strategy to improve competitiveness and better align our manufacturing footprint with evolving customer needs, we completed the wind-down of our China manufacturing operations and successfully transferred production programs to Vietnam.

Brett Larsen
President and CEO at Keytronic

This action reflects both the increasing cost pressure associated with China-based manufacturing and the ongoing geopolitical and tariff uncertainties affecting global supply chains. We expect these initiatives to generate approximately $4 million in annualized savings during fiscal 2027. Importantly, we will maintain a focused sourcing organization still within China to support local procurement activities and ensure access to critical components. We have also undertaken a significant transformation of our Mexico operations. Over the past 27 months, we have reduced headcount by approximately 40%, streamlined production processes, increased automation, and improved operating efficiencies. These actions have enhanced our cost competitiveness while preserving the strategic advantages of our Juarez campus, which continues to offer customers an attractive tariff mitigation solution under the current USMCA framework. The benefit of these actions are now becoming evident in the marketplace.

Brett Larsen
President and CEO at Keytronic

As our cost structure has improved, we have seen a meaningful increase in customer engagement, quoting activity, and new business opportunities. In particular, our Mexico operations have recently experienced a notable increase in customer visit and qualification audits, reflecting growing confidence in our capabilities and competitiveness. At a time when many EMS providers continue to face liquidity and capital constraints, our strengthened financial position and more competitive manufacturing footprint are enabling us to capture market share and compete for broader range of programs. We are encouraged by the progress we have made in expanding our manufacturing capabilities in both the U.S. and Vietnam. These investments are a direct response to evolving customer requirements and position Key Tronic to capitalize on long-term industry trends towards supply chain diversification, tariff mitigation, and operational resilience.

Brett Larsen
President and CEO at Keytronic

As many of you will recall, we opened our new technology and research and development center in Arkansas during the first quarter of fiscal 2026. This investment strengthens our ability to provide customers with enhanced engineering support, faster collaboration, and increased manufacturing flexibility through a U.S.-based solution. Customer interest in our Arkansas operations continue to grow, and we expect the facility to deliver double-digit revenue growth during fiscal 2027 as new programs ramp and existing customers expand their engagement with us. In Vietnam, we completed a significant capacity expansion during fiscal 2026, doubling our manufacturing footprint to support anticipated growth in medical device and other high-value programs. Vietnam has emerged as an increasingly important part of our global manufacturing strategy, providing customers with a highly competitive combination of quality, cost, and a regional supply chain.

Brett Larsen
President and CEO at Keytronic

As Tony mentioned, revenues from our Vietnam operations have more than doubled sequentially during the fourth quarter, driven primarily by strong demand in medical device and consumer-focused programs. We believe Vietnam will be a major contributor to our future growth and an increasingly important differentiator in the marketplace. During the fourth quarter of fiscal 2026, approximately half of our manufacturing activity was generated from our U.S. and Vietnam facilities, both of which have substantial available capacity to support future customer wins. These investments have created a more balanced and resilient manufacturing network that provides customers with attractive alternatives as they assess and then reassess global sourcing strategies. In an environment where geopolitical tension, tariff uncertainty, and supply chain risk continue to influence decision-makers, we believe Key Tronic is exceptionally well-positioned to benefit from customers seeking to nearshore production, diversify manufacturing locations, and reduce overall supply chain risk.

Brett Larsen
President and CEO at Keytronic

Most importantly, these investments are already translating into increased customer engagement, expanding quoting activity, and new program opportunities. Combined with the significant cost reduction and efficiency initiatives implemented across our global operations, we believe our enhanced manufacturing footprint is enabling us to gain market share and compete more effectively for larger and more strategic programs. We remain confident that these actions have established a strong foundation for sustainable growth and improved profitability in the years ahead. During fiscal 2026, we won new programs in medical devices, industrial equipment, automotive, pest control, construction, data centers, and power management. Our improved operating efficiency has also made us more competitive, increasing our sales pipeline, particularly in such steady growth sectors as utilities and data center equipment. During the fourth quarter of fiscal 2026 alone, we secured more than $60 million in new program awards.

Brett Larsen
President and CEO at Keytronic

These wins reflect increasing customer recognition of Key Tronic's ability to deliver high-quality manufacturing solutions with a globally competitive cost structure. In an environment where liquidity and capital constraints are affecting much of the EMS industry, customers are increasingly seeking financially stable, operationally disciplined partners capable of supporting long-term growth. Many of these new programs feature innovative partnership models that provide a more balanced approach to ramp up capital requirements, allowing customers to participate in the upfront investment while enabling Key Tronic to accelerate growth and improve returns on invested capital. Our strong pipeline of potential new business also underscores the continued trend towards onshoring and a dual sourcing of contract manufacturing.

Brett Larsen
President and CEO at Keytronic

As we look beyond the significant transformative initiatives and the operational improvements implemented over the past few years, we believe Key Tronic is emerging as a stronger, more competitive company with several distinct advantages that position us for well-sustained growth. The combination of our optimized global manufacturing footprint, robust engineering capabilities, and vertically integrated manufacturing expertise continues to resonate with both existing and prospective customers and is increasingly translating into new business opportunities. First, we have significantly enhanced the flexibility, competitiveness, and resilience of our global manufacturing network. Through these actions we have taken to optimize operations in China and Mexico while expanding capacity in the U.S. and Vietnam, we now offer customers a broader range of manufacturing solutions aligned with evolving supply chain strategies.

Brett Larsen
President and CEO at Keytronic

As geopolitical tensions, trade policy, and uncertainty, and tariff considerations continue to influence sourcing decisions, we believe that OEMs will increasingly seek manufacturing partners capable of providing geographic flexibility, supply chain resilience, and cost-effective production alternatives. Our investments over the past several years have positioned us exceptionally well to capitalize on these trends. Second, our engineering and design services remain one of the most powerful differentiators in our business model. Many of the programs we win begin long before production, with customers engaging our engineering teams to help develop, optimize, and prepare products for manufacturing. Once a program has progressed from design through commercialization and into production, our deep understanding of the product, manufacturing processes, and customer requirements creates a substantial value and fosters long-term customer relationships. As a result, these programs tend to be highly durable and generate opportunities for future expansion.

Brett Larsen
President and CEO at Keytronic

Given the increasing complexity of many of these products we support, we continue to invest in expanding the capabilities of our engineering organization and expect our design service business to remain an important driver of future growth. Third, we continue to differentiate ourselves through the broad range of vertically integrated manufacturing capabilities and decades of process expertise. These capabilities span advanced plastic technologies, including injection, flow, gas-assist, and multi-shot molding, as well as printed circuit board assembly, metal fabrication, painting and coating, automated high volume assembly, and the design, construction, and operation of sophisticated test systems. By providing customers with a highly integrated manufacturing solution under one roof, we help reduce supply chain complexity, lower total landed costs, improve quality, and accelerate the time to market.

Brett Larsen
President and CEO at Keytronic

We believe this combination of technical expertise and manufacturing breadth remains difficult to replicate and will continue to distinguish Key Tronic from many of our customers. Most importantly, these competitive advantages are becoming increasingly meaningful in today's EMS market. While many providers continue to face liquidity constraints, limited capital availability, and operational challenges, Key Tronic has strengthened its competitive position through disciplined execution, strategic investment, and operational transformation. As customer demand continues to shift towards partners that can provide engineering expertise, manufacturing flexibility, and global supply chain solutions, we believe we are well-positioned to capture additional market share, secure new strategic programs, and drive profitable long-term growth for our shareholders.

Brett Larsen
President and CEO at Keytronic

While the global market uncertainties have created some delays to new product launches for us, our suppliers, and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America, as well as to our expanding Vietnam facilities. We're expecting revenue growth in the coming quarters from both legacy customers and new programs launching in the U.S., Mexico, and Vietnam. Significant improvements in our operating efficiencies are creating a stronger pipeline of potential new business. Over the long term, we remain encouraged by our cost reductions made over the past two years to become more market competitive. Our increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations from our design and engineering. All of these initiatives have increased our potential for profitable growth.

Brett Larsen
President and CEO at Keytronic

In closing, I want to emphasize that this was a challenging year for our industry and for Key Tronic. In these circumstances, the execution of our strategy was only made possible by our investments in plants and equipment, but even more so because of the skills, local knowledge, and talents of our people. I want to thank our exceptional employees for their dedication and hard work during this transformational year. This concludes the formal portion of our presentation, and Tony and I will now be pleased to answer your questions.

Operator

Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. The first question comes from Matt Dhane with Tieton Capital Management.

Matt Dhane
Analyst at Tieton Capital Management

Great. Thank you. I wanted to start out covering the $60 million in new business wins that you had in the fourth quarter here. It looks like it was among three different customers. Was curious, what is the size of the largest win as well as the smallest win or each of the three wins? What additional details can you tell us around those wins?

Brett Larsen
President and CEO at Keytronic

Yeah, I'd be happy to do that, Matt. The first one, the data center program, is with an existing customer. That's a substantial win for our Mexico location. That'll be a $40 million to $45 million per year increase in production in our Mexico facility. The next is a construction support product that came out of our design and engineering group, now has reached commercialization and going into production. That'll actually start out of our Spokane office and migrate to our technology center in Arkansas in fiscal 2027. That's about probably a $5 million to $10 million opportunity. Last is the industrial power management market. That too is a new customer for us, and that is scheduled to be built in Arkansas as well, and that's going to be about a $15 million program when fully ramped.

Matt Dhane
Analyst at Tieton Capital Management

Great. I should have also asked timing of these wins. When do you expect each of the three to contribute real revenues? If you could cover that too, that would be helpful for us.

Brett Larsen
President and CEO at Keytronic

Yeah. The data center win will likely contribute substantial revenue in our second quarter of fiscal 2027. I think the construction will be a little bit of a slower burn. Probably have a couple of million dollars in the first six months of fiscal year 2027. The power management, I would say, will be fully ramped by our third, possibly the start of our fourth quarter fiscal 2027.

Matt Dhane
Analyst at Tieton Capital Management

Okay. That is great. I appreciate that additional help there. You also referenced a strong pipeline of opportunities. It sounds like Mexico, you are seeing a lot of activities there. Was just hoping you could add a little bit more color there and sort of reference how the pipeline is today compared to how it was maybe a year ago. Just try to, I guess, give us a better sense of how much of a step up you are seeing.

Brett Larsen
President and CEO at Keytronic

Yeah. We mentioned repeatedly within the script is that we are really seeing increasing sales opportunities. It is a mix of new programs, like for example, this construction equipment that is a new market entrant. We are actually seeing a lot as well of changes within the EMS to where we are gaining some market share on some of our competition. We are seeing that sales funnel, I would say is improved drastically from where we were a year ago. We set out to really become far more market competitive in our costing structure, and really have seen success from that. So far it is resulting in far more customer visits, qualifications, and now a ramp in actual program wins.

Matt Dhane
Analyst at Tieton Capital Management

Okay. I appreciate that. One other thing I did want to cover before I turn the floor over. You referenced both in your script as well as in the press release that you have an innovative partnership model that you're starting to introduce and sounds like a number of customers are signing on to. Was hoping to get a little bit more color on that. It sounds like there's some capital contributions for customers or just, what exactly, can you add some more details around that, what you're doing and why it's gaining the traction it is?

Brett Larsen
President and CEO at Keytronic

You bet, Matt. I think, you look at where we're at is, I think there is a tightening in the capital structure. We are seeing some tightening within the supply chain. Some of our commercial terms have tightened. I would also say that some of the advance rates that we're seeing, even from our lending partners, have also tightened a bit. With that, coupled with wanting to grow the business, we really are liquidity constrained. So we are actually working with our customers, many of who have ample capital.

Brett Larsen
President and CEO at Keytronic

Then it's just a negotiation with them of whether the discount that we can provide is accretive to their cost of capital, and can we collectively come to a better arrangement whereby they may front-end some working capital, maybe they help provide some of the tooling or production equipment on the front end of a ramp, which is often, particularly for contract manufacturing, very front-end loaded. We mentioned about, what was it, Tony? About 18 months ago, this new consignment model down in Mississippi. That has fared well.

Brett Larsen
President and CEO at Keytronic

We are looking at quoting some potential other consigned opportunities, but also working with some of our longstanding customers of, hey, if we collectively share some of the working capital constraints and work through those together, is there a better solution that we can work collectively than forcing us as the contract manufacturer to basically front-end load that capital until that program can ramp.

Matt Dhane
Analyst at Tieton Capital Management

Okay. I appreciate that help and that insight. Yeah, all the best, guys. Appreciate the help.

Brett Larsen
President and CEO at Keytronic

Thanks, Matt.

Operator

Our next question will come from Sheldon Grodsky with Grodsky Associates.

Sheldon Grodsky
Analyst at Grodsky Associates

Good afternoon, gentlemen. I, for one, am a bit disappointed here, but in the third paragraph, you guys mentioned that you're actively working with your customers while evaluating additional sources of capital to support growth. I do not know if you've already touched upon that in your last answer, but what additional sources of capital are you looking at?

Brett Larsen
President and CEO at Keytronic

Yeah. We did to some degree, the former question, we asked on how we're working with our customers to help provide some of that capital. As capital, really cash. What's some additional liquidity that we can put into the company as we expect double-digit growth into fiscal 2027? We're actively, as mentioned, working with our customers to help share that capital load. We're also working with various financing activities, is there some additional unencumbered assets that we can use as collateral for debt structure and those types of things? As we look at the future, that really is a constraint of ours, is being able to procure parts on time in an increasingly difficult supply chain.

Sheldon Grodsky
Analyst at Grodsky Associates

What do you have that is unencumbered at this point?

Brett Larsen
President and CEO at Keytronic

All of our foreign assets.

Sheldon Grodsky
Analyst at Grodsky Associates

All of the foreign assets. Anything domestically?

Brett Larsen
President and CEO at Keytronic

Most of our domestic would be tied up, I think, in our current lending group. Tony, is there anything in the U.S.? I am unclear.

Tony Voorhees
CFO at Keytronic

Yeah, there is not much in the U.S., but there is ample opportunity to receive some type of benefit from those foreign assets. We are looking at opportunities there as well.

Sheldon Grodsky
Analyst at Grodsky Associates

Thank you.

Operator

As a reminder, if you would like to signal with questions, please press star one. Again, star one if you would like to signal with questions. The next question comes from George Melas-Kyriazi with MKH Management.

George Melas-Kyriazi
Analyst at MKH Management

Thank you. Hi, Brett. Hi, Tony.

Brett Larsen
President and CEO at Keytronic

Hey, George.

George Melas-Kyriazi
Analyst at MKH Management

Tony, I just want to make sure I get my adjusted numbers correct. I see your adjusted EBIT, if I adjust it for the AR write-off, the insurance recovery, and the restructuring, was roughly flat, break even. Is that roughly right?

Tony Voorhees
CFO at Keytronic

Yeah, that's pretty close. Our adjusted figures, not just EBITDA, we're looking at our adjusted gross margin and our adjusted net income was-

George Melas-Kyriazi
Analyst at MKH Management

Yep

Tony Voorhees
CFO at Keytronic

Our adjusted net income was about a $2.7 million loss.

George Melas-Kyriazi
Analyst at MKH Management

Okay.

Tony Voorhees
CFO at Keytronic

I think adding back in some of those EBITDA figures, you could get there pretty quickly.

George Melas-Kyriazi
Analyst at MKH Management

Okay, I'll do that. Brett, what does that mean, the supply chain financing constraint that you encountered? Can you provide a little bit of color on that?

Brett Larsen
President and CEO at Keytronic

Yeah, that's a good question, George. What we're seeing in the market is that suppliers are cracking down on the number of days that they'll extend to us in payables. We're seeing that there's far less flexibility within the market and on an incredibly capital-intensive industry, any tweak of that dial has considerable pressure on us to make sure that we can look out and get the parts that we need on time in order to fulfill increased customer demand. If you look at our DPOs, they definitely have dropped year-over-year.

George Melas-Kyriazi
Analyst at MKH Management

Yep.

Brett Larsen
President and CEO at Keytronic

Some of our custom parts that we get in Asia, we used to get terms on, now being forced to pay in advance, to even some of our domestic supply where there is some capital constraint and they are requiring that we adhere to their credit terms, and oftentimes even those credit terms are reducing from what they were historically.

George Melas-Kyriazi
Analyst at MKH Management

Okay, great. I understand now. Is that $10 million in delayed shipment products that you have almost finished and you are missing some parts and you cannot ship them? Does that sort of capture that?

Brett Larsen
President and CEO at Keytronic

It is. It is not lost revenue. It shifts into a future quarter. But I would also say in this quarter, we have more customer demand than what we are going to be able to execute to based on liquidity constraints. Hence, now we are looking to be a little more creative and possibly capital sharing with a few of our strategic customers in order to continue on the path that we expect of incremental sales growth quarter-over-quarter.

George Melas-Kyriazi
Analyst at MKH Management

Okay. Maybe talking about that, talking about your Mississippi customer who, as you said several times, and again on this call, is on a different model, more consignment model. I think there were some delays in production or in ramp. Have some of those delays or constraints been lifted, and how is that going? It is hard for you to talk about one particular customer, but maybe give us a bit of a sense of it.

Brett Larsen
President and CEO at Keytronic

Yeah. For that particular Mississippi customer, I would say that it's no longer supply chain delays. It's no longer ramp. It's now the actual market demand is down a bit for that particular customer. We'll see what happens in coming quarters, but recent months, the demand for that product we build on their behalf, just out in the market, has seen some softening.

George Melas-Kyriazi
Analyst at MKH Management

Okay.

Brett Larsen
President and CEO at Keytronic

But through that, George, I think we have learned that we can be successful as well on a consignment-type program. It was new for us. It was a bit of a test in the water for something that large, and it actually became a great program for our facility down in Mississippi that had the excess capacity. So we will likely pursue other opportunities as they come. It's not a solution for all potential customers. They need to have a robust supply chain capability within their own organization, and that doesn't exist

George Melas-Kyriazi
Analyst at MKH Management

Yeah

Brett Larsen
President and CEO at Keytronic

for every customer, but there's some opportunity there.

George Melas-Kyriazi
Analyst at MKH Management

Okay, great. With the restructuring and the changes that you've done in the last year or two, are you signing clients that are qualitatively different? You have historically been very strong in being able to design and then produce, so adding a lot of value at the get-go on the design stuff. Are you still very much focused on those kind of customers, or are you able to have a broader range of targets right now?

Brett Larsen
President and CEO at Keytronic

George, I would say more a broader range. You look at, I think our design and engineering services group still is a differentiator for us, and we will continue to do that. A couple of our largest customers were developed from that type of a relationship.

George Melas-Kyriazi
Analyst at MKH Management

Yeah.

Brett Larsen
President and CEO at Keytronic

But we are not just focused on that. There is other existing product streams that we are seeing that we are actually taking from competitors. So we are growing in some market share of existing programs. With a more robust sales funnel, you can also turn the filter a little tighter of what actually ends up being what we accept. So I also think that qualitatively, we can be a little more cautious on making sure that that is a good customer for us in the longer term.

George Melas-Kyriazi
Analyst at MKH Management

Okay. The data center customer that you referenced in relationship to the first question, was that a win from another EMS provider?

Brett Larsen
President and CEO at Keytronic

I would say that is both, that they are seeing increased demand, but I also know that they have multiple sources, and that we are seeing an increase in the market share of even that business we have with them.

George Melas-Kyriazi
Analyst at MKH Management

Okay. Then just maybe one final question for me. You talk about a $4 million saving as you exit China manufacturing. Is that versus a fiscal 2026 number, or is that versus a run rate of that for the June quarter?

Brett Larsen
President and CEO at Keytronic

I would say that is representative of the run rate for the first three quarters of fiscal 2026. The ramp down of China started the latter part of Q3, first part of Q4, and it took us a quarter to close shop.

George Melas-Kyriazi
Analyst at MKH Management

Okay. Were there any China-manufacturing related costs in the June quarter other than restructuring?

Brett Larsen
President and CEO at Keytronic

Very little. Tony?

Tony Voorhees
CFO at Keytronic

Yeah, there was a little bit, George, and that is provided in that non-GAAP table. We excluded those. We expect probably a few more just as we finalize everything in China. Getting out of China can be challenging. There's a lot of red tape to get out of there, and with regards to getting the materials gone, the equipment, putting the facility back in order, and we still have a little bit of work to do there. So there might be a few additional costs in future quarters.

Brett Larsen
President and CEO at Keytronic

George, I would say total revenue for China production in Q4 was minimal. It might have been $1 million or $2 million of just wrapping up-

George Melas-Kyriazi
Analyst at MKH Management

Okay

Brett Larsen
President and CEO at Keytronic

final programs.

Tony Voorhees
CFO at Keytronic

Yeah. That's correct. We were actually done manufacturing in China in period 11.

Brett Larsen
President and CEO at Keytronic

Yeah.

George Melas-Kyriazi
Analyst at MKH Management

In when? When did you say that, Tony?

Tony Voorhees
CFO at Keytronic

That was May of this year.

George Melas-Kyriazi
Analyst at MKH Management

May. Okay.

Brett Larsen
President and CEO at Keytronic

Yeah.

George Melas-Kyriazi
Analyst at MKH Management

Okay, great. Okay, thanks very much for taking my questions.

Brett Larsen
President and CEO at Keytronic

Thanks, George.

Operator

The next question comes from Ben Castle. Actually, that caller no longer has a question, it looks like, and we do not have any further questions. I will go ahead and hand the call back over to you.

Brett Larsen
President and CEO at Keytronic

Great. Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you.

Operator

Thank you. That does conclude the question and answer session. That does conclude today's conference. We do thank you for your participation, and have an excellent day.

Analysts
    • Tony Voorhees
      CFO at Keytronic
    • Brett Larsen
      President and CEO at Keytronic
    • Matt Dhane
      Analyst at Tieton Capital Management
    • Sheldon Grodsky
      Analyst at Grodsky Associates
    • George Melas-Kyriazi
      Analyst at MKH Management
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