Key Tronic (NASDAQ:KTCC) reported a wider loss for the first quarter of fiscal 2027 as supply-chain financing constraints delayed shipments, pressured factory utilization and reduced margins. Management said customer demand remained strong, however, as reflected in a backlog that rose 76% from a year earlier to $245.9 million.
Revenue was essentially flat at $98.7 million, compared with $98.8 million in the first quarter of fiscal 2026. Chief Financial Officer Tony Voorhees said tightening credit availability and liquidity pressures across the global supply chain delayed about $18 million in shipments during the quarter, primarily for programs manufactured in Mexico and the United States.
“We view these delays as primarily a constraint on our ability to convert demand into revenue, rather than a lack of customer demand,” Voorhees said.
Margins Decline as Delays Raise Costs
Gross margin fell to 2.5% from 8.4% a year earlier. The company attributed the decline partly to excess labor costs and operating inefficiencies at its Mexico and U.S. facilities after production delays tied to supply-chain financing challenges.
Voorhees said gross margin was also reduced by approximately $6 million of inventory sales with no margin contribution and $4.7 million of manufacturing cost variances recognized in cost of goods sold under U.S. GAAP inventory valuation requirements.
Operating margin was negative 4.2%, compared with negative 0.6% in the prior-year period. In addition to lower gross margin, operating results included about $0.5 million in bad-debt write-offs. Those impacts were partly offset by a $3.2 million insurance recovery related to a roof replacement at the company’s Mississippi facility.
Key Tronic posted a net loss of $7.5 million, or $0.69 per share, compared with a net loss of $2.3 million, or $0.21 per share, a year earlier. Adjusted net loss was $7.9 million, or $0.72 per diluted share, versus an adjusted net loss of $1.1 million, or $0.10 per diluted share, in the prior-year quarter.
Cost Actions and Liquidity Efforts
The company is streamlining its U.S.-based workforce, an action expected to reduce annual labor costs by approximately $8 million. President and Chief Executive Officer Brett Larsen said roughly 70% of the planned savings had been implemented in recent weeks, with the remaining reductions expected during fiscal periods five and six. He said the full $8 million cost reduction should be in place by January.
Larsen described the workforce changes as an effort to align labor and manufacturing overhead with current production levels while the company works to resolve capital constraints. He said Key Tronic has significant unused capacity, estimating its facilities are operating at roughly 50% to 60% of manufacturing capacity.
“The contribution margin associated with additional revenue dollars is quite substantial,” Larsen said, adding that underutilization was a major driver of the quarter’s results.
On liquidity, Voorhees said Key Tronic had a $115 million asset-based credit facility and had borrowed about $85 million to $90 million under it. While additional capacity exists, Larsen said the amount available is dependent on eligible receivables and inventory, and the company is using most of its available lending capacity on a week-to-week basis.
Management said it is pursuing additional financing backed by international assets, including in Vietnam and Mexico. Larsen said the company has seen progress in Vietnam and is seeking additional lending against assets in Mexico.
- Inventory increased $6.4 million, or 6.6%, from a year earlier as the company prepared for anticipated growth.
- The current ratio was 1.9-to-1, compared with 2.4-to-1 a year earlier.
- Days sales outstanding improved to 75 days from 81 days.
- Capital expenditures were $1.6 million in the quarter, with full-year capital expenditures expected to total approximately $7 million to $10 million.
Backlog, New Awards and Manufacturing Footprint
Management said the higher backlog reflects both stronger demand and a larger share of firm purchase orders rather than forecasts. Larsen said customers have made longer-term commitments amid tighter supply conditions, while Voorhees noted that purchase orders are representing a greater portion of backlog.
During the quarter, Key Tronic secured program awards in utilities power management, sustainable waste management, data centers, construction and defense technology. The awards represent more than $60 million in potential annual revenue, according to the company.
Larsen said several of the programs include customer support for upfront capital requirements. For example, he said the power-management customer is providing capital for production equipment, the sustainable-waste-management customer has issued purchase orders for needed production equipment, and certain data-center customers are supplying components or helping fund materials. The defense technology program is expected to use consigned materials and be produced in Minnesota for a customer requiring ITAR-specific, military-grade manufacturing.
Key Tronic also recently announced plans to partner with TP-Link Systems to assemble next-generation technologies in the United States. Larsen said TP-Link is expected to provide most upfront production capital and supply components on a consigned basis.
The company said its Vietnam operations continued to grow sequentially, led by medical-device and consumer-product programs. Key Tronic completed an expansion in Vietnam during fiscal 2026 that doubled its manufacturing footprint there. Larsen also highlighted the company’s Mexico operations, including its Juarez campus, as a tariff-mitigation option under the USMCA framework.
Outlook
Key Tronic did not provide revenue or earnings guidance for the second quarter, citing uncertainty around the timing of new program ramps and continued macroeconomic and capital-market challenges. Management nevertheless said it expects revenue growth and a return to profitability in the second half of fiscal 2027.
Larsen said supply-chain financing conditions have not improved and may have tightened further, with some Asian suppliers requiring cash upfront and certain parts availability extending. Still, management said its backlog, program awards, expanded U.S. and Vietnam capacity, and customer-supported capital arrangements position the company to benefit from demand for nearshoring, supply-chain diversification and tariff mitigation.
About Key Tronic (NASDAQ:KTCC)
Key Tronic Corporation is an electronic manufacturing services provider headquartered in Spokane Valley, Washington. The company designs, manufactures, and assembles electronic and mechanical products for original equipment manufacturers and other industrial customers.
Its services include product design and engineering, printed circuit board assembly, system integration, plastics molding, metal stamping, tooling, materials management, and supply-chain support. Key Tronic produces a range of finished and subassembled products used in markets such as industrial, automotive, medical, aerospace and defense, computer, and consumer electronics.
Founded in 1969, Key Tronic initially became known for manufacturing computer keyboards before expanding into broader contract manufacturing and product development services.
