Joining me here in our Spokane Valley headquarters is Brett Larson, 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 differ 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 q's. 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. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast and the link can be found on our Investor Relations website. In addition, the slides together with the 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 reconciliations to the most directly comparable GAAP measures are provided in today's press release.

Which is posted to the Investor Relations section of our website. For the third quarter of fiscal twenty twenty five, we reported total revenue of $112,000,000. Compared to a hundred and 42,400,000.0 in the same period of fiscal twenty twenty four. The revenue for the third quarter of fiscal twenty twenty five was adversely impacted by the worldwide economic disruptions, and uncertainty caused by the recent escalation and fluctuations in global tariffs. Which resulted in delays increased costs, and reduced demand from many customers. For the first nine months of fiscal twenty twenty five, total revenue was $357,400,000. Compared to 440,400,000.0 in the same period of fiscal twenty twenty four. Gross margins were 7.7% and operating margins were a negative 0.4% in the third quarter of fiscal twenty twenty five. Compared to 5.7% and a negative 0.4% respectively in the same period of fiscal twenty twenty four. The year over year improvement in gross margins for the third quarter of fiscal twenty twenty five reflects cost cutting and headcount reductions over the past three quarters. The results of the third quarter of fiscal twenty twenty five also included government mandated severance expenses in Mexico during the quarter of approximately $800,000 and approximately 700,000.0 in balance sheet adjustments for inventory and estimated collections from customers.

In the coming quarters, we anticipate margins to be strengthened by additional cost reductions and improvements in operating efficiencies. Resulting from our strategic cost savings initiatives. As production volumes increase, our recent 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. That said, the significant tariffs on China, potential tariffs on Mexico and Vietnam create significant uncertainties about costs, and our margin performance in coming quarters. Our net loss was 600,000.0 or 6¢ per share for the third quarter of fiscal twenty twenty five. Compared to a net loss of 2,200,000.0 or 21¢ per share for the same period of fiscal twenty twenty four. For the first nine months of fiscal twenty twenty five, our net loss was $4,400,000 or 41¢ per share. Compared to a net loss of 800,000.0 or 7¢ per share for the same period of fiscal twenty twenty four. The increase in year to date net loss is primarily related to the large reduction in revenue. Partially offset by the reduction in costs made during the fiscal year. Our adjusted net loss was $600,000 or 5¢ per share for the third quarter of fiscal twenty twenty five.

Compared to adjusted net loss of 2,200,000.0 or 20¢ per share for the same period of fiscal twenty twenty four. The adjusted net loss was 3,500,000.0 or 32¢ per share for the first nine months of fiscal twenty twenty five. Compared to a adjusted net loss of 1,000,000 or 9¢ per share for the same period of fiscal twenty twenty four. See non GAAP finance financial measures in our earnings release and the appendix to the slide deck for additional information about adjusted net loss and adjusted net loss per share. Turning to the balance sheet. We ended the third quarter of fiscal twenty twenty five by reducing inventory by approximately $16,000,000 or 14% from the same time a year ago. These improvements in inventory levels primarily reflect our strategic initiatives aimed at inventory reductions. We're pleased to see our inventory levels continue to become more in line with our current revenue. At the same time, the state of the worldwide supply chain still requires that we drive demand for parts differently than in historical periods. Many of our customers have revamped their forecasting methodologies and we have significantly modified and improved our materials research planning algorithms. As a result, we should be better equipped for future disruptions in the supply chain.

And more able to react to changes that may occur with current and future tariff implications as we continue to manage inventory more cost effectively. During the third quarter, we also reduced our total liabilities by a combined amount of $34,300,000 or 14% from a year ago. Our current ratio has remained relatively flat and was 2.7 to one. Compared to 2.8 to one from a year ago. At the same time, our accounts receivable DSOs at ninety two days compared to eighty five days a year ago. Reflecting reductions in net sales at higher rates than reductions in receivables. Operating cash flows were $10,100,000 for the first nine months of fiscal year twenty twenty five up from 6,100,000.0 for the same period in fiscal twenty twenty four. This reflects our ongoing efforts to manage working capital. Total capital expenditures to date in fiscal year twenty twenty five are about $3,000,000. And we are expecting CapEx for the full year to be approximately 6 to 8,000,000. A significant part of this year and early next year's capital expenditures will be related to our planned expansions in Arkansas and Vietnam. 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, as well as make efficiency improvements to prepare for growth and add capacity. Particularly in our Vietnam and US locations. Moving further into fiscal twenty twenty five, we are pleased to continue to see our new programs ramping, and cost and efficiency improvements from our recent overhead reductions taking hold. At the same time, we face great uncertainties related to tariffs, which we believe are causing increased costs, production disruptions, and reduced demand for many customers. Although we expect the new tariffs to increase costs for both Keytronic and our customers the current economic and political climates are too unpredictable to provide an accurate estimate at this time. After careful consideration of all relevant factors, we have decided not to provide revenue or earnings guidance for the fourth quarter of fiscal twenty twenty five. We expect to see growth in our US and Vietnam production, have a strong pipeline of potential new business, and remain focused on improving profitability. Over the longer term, we believe that we are increasingly well positioned to win new programs, and profitably expand our business. That's it for me. Brett.

Thanks, Tarni. The rapid unprecedented increases and decreases in tariffs have significantly impacted both our business and our customers. As previously announced, we're underway with the buildup of new production capacity capacity in both Arkansas and Vietnam. At the same time, we have continued to streamline our Mexico operations with further headcount reductions to enhance efficiency Building on similar actions, in recent periods. The sudden increases and decreases in tariffs have unfortunately impacted production across all of our facilities. Especially the tariffs on Chinese components. Clearly, these global tariff wars are outside of our control and will similarly impact all other manufacturers as well. Are doing our best to work with suppliers, and with our customers on options for manufacturing their products from different locations. To manage this process efficiently, we have been proactively expanding our production footprint in strategic locations to better serve our customers and improve flexibility offered to our customers in choosing which locations to build their product. Our expanding footprint enables us to offer improved mitigation options particularly when our customer's considering consider the varying implications of current and future potential tariffs. We're excited to announce plans to add as previously discussed, additional capacity in key in key regions.

In The US, we're expanding our clean tech cutting edge manufacturing operations in dark in Arkansas. We expect to invest more than $28,000,000 in our new flagship manufacturing and research and development location which we believe should create over 400 new jobs. In the next five years. We're delighted to be enhancing also our operations in a region where we have maintained a long standing presence and a strong team and can benefit from a business friendly environment. For US based production, provides customers with outstanding flexibility engineering support, and ease of communication. In Vietnam, we have ample space in our current facility to more than double our manufacturing capacity. Our Vietnam based production offers the high quality low cost choice that was associated with China and Mexico in the past. In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate that these new facilities in The US and Vietnam will come will come online during fiscal twenty twenty six and enable us to benefit from customer demand for rebalancing their contract manufacturing. And mitigate the severe the severe impact and uncertainties surrounding the tariffs on goods and critical components manufactured in China and in other locations.

Our customers are very excited about our plans. To increase our production capabilities in The US and in Vietnam. These initiatives, reflect both the launch long standing trends to move more of their production away from China, as well as derisk the potential adverse impact of tariff increases and geopolitical tension. At the same time, we are seeing a sustained trend of wage increases in Mexico. And it is as it has become clear, that these changes in the base cost of Mexican production are long long standing. Have continued to streamline our operations in order to be more cost competitive in the market. Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. During the third quarter of fiscal twenty twenty five, we continued to win new programs. In telecommunications, pest control, energy storage, medical technology, and temperature controlled shipping solutions. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and dual sourcing of contract manufacturing. We expect we expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsourcing strategies.

Over over time, the decision to onshore production is becoming more widely accepted as a smart long term strategy. The combination of our flexible global and our expansive design capabilities continues to be extremely effective in cap in capturing new programs. Many of our large and medium sized manufacturing program wins are predicated on Keytronics Deep and broad design services. And once we have completed a design, and ramped it into production, we believe our knowledge of the program's specific design challenges, makes that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters. We also continue to invest in vertical integration, and manufacturing process knowledge including a wide range of plastic molding, injection, blow, gas assist, multi shot, as well as PCB assembly. Metal forming, painting, and coating, complex, high volume automated assembly, and the design construction, and operation of complicated test equipment. We believe this expertise will increasingly set us apart from our competitors of similar size. While the global tariff policies are creating major logistical challenges for us, our suppliers, and our customers, We believe geopolitical tensions and heightened concern about tariff 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 believe these tariff challenges were a significant factor in component delays and reduced demand for many of our customers which hammered our growth and profitability in the third quarter of fiscal twenty twenty five. And continue to disrupt our business even in the fourth quarter.

Nevertheless, we continue to rebalance our manufacturing across our facilities. In The US and Vietnam. We are, however, excited to see the results of rightsizing our operations and the increased generation of cash flow over recent quarters. We're moving forward with a strong pipeline of potential new business and we're seeing significant improvements in our operating efficiencies. Over the long term, we remain very encouraged by our cost reductions made over the past eighteen months. To become more market competitive, Our increasing cash flow generated from operations enhanced global manufacturing footprint, and the innovation our design engineering team. All of these initiatives have increased our potential for profitable growth. This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions.

Thank you. If you would like to signal, with questions, please press 1 on your touch tone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that will be 1 if you would like to signal. With questions. The first question will come from Bill Dezellem with Titan Capital. Thank you. First of all, let me apologize I am traveling, and so if I'm not asking questions as I might that's my excuse. First of all, would you please walk us through the five new business wins that you discussed and and share the dollar amount that you anticipate each to be number one. And then number two, if there are any interesting insights that any of those program wins, will provide us or that are informative Share those with us if you can, please.

No. Absolutely. That's Bill, probably the first one is a $12,000,000 telecommunications program that will be manufactured down in our Mexico facility. It is the first of what we're hoping is many programs from a fairly large conglomerate This will be the first order from them. We're hoping to ramp that towards the second quarter of fiscal twenty twenty six. And be in full production by this time next year. Second one was, as well a fairly large, Fortune 500 company that is allowing us to start building some pest control [indiscernible] We've been chasing this one for quite some time. Excited about this opportunity. It's about a $6,000,000 opportunity that will be in Vietnam. Hoping that we actually land some additional programs from this customer at other of our Keytronic facilities as well. The third is in in in energy. Combined right now. It's about a $7,000,000 program. To be placed in our new facility down in Arkansas. It's in currently the develop design stage Not not seeing not not expecting any meaningful production for at least six months on this one. But excited about the opportunity for this and definitely is helping nearshore some of their intent to manufacture in The US.

And then the the the am I at? So this that would be the third, the fourth, is a consumer product roughly 2 to $5,000,000. That that as well is in Arkansas. And then the fifth is kinda unique is that's actually that's a design contract, which is starting out to our design and engineering folks roughly around a million dollar contract But once that goes into production, that could be easily 5 to $15,000,000 program which will definitely disrupt a little bit of the market that they're that they're hoping to penetrate. Well capitalized. And I think that's a good demonstration that you know, our design team continues to be a sales channel. For future production.

That that's very helpful. Thank you. And you'd mentioned a couple of Fortune 500 companies. That's that's a little bit unusual compared to what we are accustomed to hearing. Now maybe you're just sharing something different or maybe that is unique. If it is unique, would you walk through kind of what what maybe has changed?

Yeah. Bill, I'm I'm not sure if that's unique. You know, some some we we deal with with a variety of different sized divisions and and companies within Fortune 500 conglomerates. What's great, though, is once you get your foot in the door, once you become a known supplier or an approved vendor, it really does open the door for a lot of cultivating not only within that division, but but other sister companies as long as you're able perform and and do well. So those are those are very exciting for us. Because those those really kind of are an open door to additional opportunities down the road. Great. Thank you.

And then given the uncertainty in the macro environment, Would you please discuss, I believe it was a $60,000,000 prospect that you that you had. Sorry. It was a win that you had, not a prospect.

That you had in the past that you anticipated would be ramping at some point in the in the coming quarters. What impact, if any, the the macro environment volatility. Is is or is not having on that.

That's a unique that's a unique program. I I think it's it is not going to have an impact on that. I think one of the reasons they chose to go with Keytronic was not only our design but then also our global manufacturing footprint. So initially, we were planning to build it in one location. With the uncertainties of tariffs, we've now moved to a new location That is actually going to start generating income in our first quarter of fiscal twenty six. It will be a ramp but I'm still expecting that at at some point to to still approach that $60,000,000. They've recently received a fairly large award from a very well known utility, and I think that'll just continue to grow. I think that's that's a bright spot, and we're we're expecting that to have some revenue in our first quarter of fiscal twenty six.

And when would you expect that to be ramped to its full full 60,000,000?

How did I know you were gonna ask that though? My expectation is that it's going to take probably twelve to eighteen months to get there. Great.

Thank you. Appreciate the the the the comments.

Thanks, Bill.

One on your touch tone telephone. Again, that is 1 if you would like to signal with questions. Our next question will come from George Melas with MKH Management.

Hello, Brett. Hi, Donnie. Hey, George. Quick question about the the two unusual items that you guys flagged out.

The severance in Mexico is that is that in cost of goods sold? It is. Okay. And the other point seven, it seems to be partly cost of goods sold, partly OpEx. Would that be right as well? And and what would be the mix? I would say it's about $400,000 in OpEx. 300,000 in cost of goods.

Okay. So then if we sort of do an adjusted gross profit, we have to add back roughly 1,100,000.0 So you you get to roughly $9,700,000, and and then adjusted gross margin of roughly 8.6, I believe. 8.6, 8.7. And that's on a a fairly you know, a significantly drop in revenue over the last few years. So where could your gross margin go as you grow and let's say, get back to hundred and $40,000,000?

George, I think that is as well part you know, the silver lining of seeing some in revenue while it's hammered our profitability during this fiscal year. I think the reductions that have been made to date and are currently being made We'll only further improve anticipated improvements in gross margin. Another way, as you've mentioned, you know, with incremental revenue, once you have your fixed cost covered, you know, once you've hit once you hit the breakeven point, and you're adding additional revenue above and beyond that, you should have a, you know, an incremental margin well above the 10%. It's tough for me at this point to project what that could be but I will say that you know, what we've done over the last eighteen months has enabled us to with some with some growth, if we're able to actually achieve some revenue growth, as we hope and expect, not hope we anticipate, and are driving towards, that'll have a robust impact gross margin and my expectation is that we should exceed 10% gross margin at some point.

And and what?

What's the revenue required to exceed 10% in your view?

You know, and that's that's that's largely dependent on a whole litany of factors. It's it's tough to just give you a dollar amount with the uncertainty and tariffs, the you know, or will we be required if some some pricing decreases? There's just a whole whole litany of things, but if if all things were the same, you know, another $20,000,000 of of revenue at least on paper, would generate somewhere near 10% gross margin.

Overall. As a the the the then the entire operation is at 10%.

Yeah.

Yeah. Okay. Okay. Good to know. Is there is there a way to look at the revenue and the revenue change? And try to put that in various buckets. I mean, reduce demand from sort from existing customers, [indiscernible] new revenue, from new customers. Is there a way to sort of, like, break that down? And and and is that a useful exercise, maybe? I don't know. I think it is. Is there any way you you can, you know, add some color to that?

Yeah. I guess I guess there has definitely been a step function in reduction in demand from existing customers But kind of offsetting a portion of that have been new program wins. And and that's the case each and every quarter. But it seems like within the last twelve months, there's been a significant reduction in existing customers well beyond what we've seen historically. So, of course, internally, we analyze that and try to determine what are we doing wrong, or is this just a some bad circumstances of macroeconomic environment You know, it's across the board. There's a few that we probably should have done a better job. Earlier on to ensure that we'd get the incumbent or the the the new generation of the of of that device or program. Some of it was end of life and and really the demand has continued to to over time. There's a few in there that we've actually asked to to for for for us to no longer manufacture because they were difficult to work with.

And we we saw some risk, some financial risk So it's a whole number of of of items, but I will tell you the last twelve months definitely we've seen more historical reduction of existing program revenue than what we typically see. Right.

And and and as you look at that, it doesn't feel like it's something that you have done or something you have missed in particular. I see. Like, it's much more reduction among your customer base or You know, the the the biggest point I think we gleaned out of that is we needed to make sure that we were from a cost structure in the market. That also has driven us to be far more efficient, reduce some headcount, and make sure that we remain market competitive. Particularly down in Mexico. I think that was something we definitely learned from from this. And the others you know, were were equally driving. You know? Some more US manufacturing capabilities. Similarly, in [indiscernible] And I think as well, making sure that we're a part of the design function of our customers. That definitely makes that business far ier and you know, if if you're helping them with designs, you're seeing the next generation. Well before they may be out quoting that out in the market with other CMs.

Yeah. Interesting. Okay. And then maybe final question on working capital. You guys have done a lot of progress this year. But it seems like there's still a lot of progress that could be done. If you look at inventory, and and AR, Is there do you expect I mean, I think, hopefully, you will have some some revenue growth so that will have an impact on both both of that But how much how much better can you perform there? And maybe on the inventory what percentage of the BOMs of your customers do you manage or is managed by your customer? And does that make a real big difference?

Predominantly, all of our customers' billing materials managed by Keytronix. There are a few components here or there, some custom mechanical or something. Sometimes the we'll get that consigned by our our customers. But I would say over 90% of the bill of materials managed by Keytronic.

Okay.

Now do we anticipate some incremental improvement in working capital? Yes. You know, that'll be largely dependent as well on how quickly we are able to ramp revenue in the in you know, in a positive direction. But I think the goal to have inventory at four turns is something that we're continuing to drive towards.

And and what is the current? How do you calculate turn right now?

Tony, do you know what the specific turns are? But roughly, you should have an inventory at any given point between raw materials, WIP, and finished goods. Of about a quarter's worth of revenue.

Right. Okay. Great. Thank you.

And our next question will come from Sheldon with Grodsky Associates.

Hello, everybody. It's been quite a struggle here for Keytronix for the last couple of years. Let let me ask a quick question since I'm I'm in the camp of investors who think that we might be slipping into a recession, in the near term. And you have a a new credit agreement, and you're doing a major expansion at this time. Are you concerned? Or do do you have leeway under the credit agreement if you continue to have disappointing quarters? Do do you think or or are there hair triggers provisions that might put you into early defaults if if if you have small losses?

Sheldon, with with that, I'm I'm glad that that we were able to refinance some new debt a few quarters ago. It is largely dependent on availability, not necessarily the profitability of the company. Right now, there's there's ample availability We're continuing to drive debt down. We're expecting that as well over time. Cash is far less of a concern right now than it was, say, a year ago. We've got a a good strong relationship with with the new debtors and have a line of sight of continuing to provide for all of the expected CapEx [indiscernible] so so, no, that that that that is not while it's always a concern, that definitely not the the same level of concern that that that where we were a year ago.

Okay. And for obviously, you've had declines in revenues recently. For a variety of reasons. Mean, effectively, you you're already in a recession. So just going based on the gross numbers, the the top line, Does it feel like things are are picking up from that or just it's so crazy that you can't tell very much of anything from your customers anymore? I mean, I understand. If if if you say you you use the term in the in the press release that where was it? So you were talking about paralysis. Hesitancy and business paralysis in many of our customers' businesses. Is that getting better or worse now? I mean, do you have a sense that people can live with it?

Yeah. Sheldon, I you know, there definitely is a hesitant hesitancy to to make business decisions in uncertainty in uncertainty. We've definitely seen that over the, you know, the the the past few months. There appears at this point to be somewhat of a balancing of that and is is this chaos now now that the the new normal? I don't know. But I will tell you they're they're have definitely seen within the last few months some some hesitancy to move forward on projects that that should have already been started. And even some new business programs that we would have anticipated to have already building. Some production. And, equally, we're we're trying to manage and and look at our customers' inventories. I see some going up. I see some coming down. You know? For a large part, I I think we have developed ourselves to be able to survive on far less revenue and we can continue to do that as necessary But I'm expecting actually some some growth even in light of a potential recession in next fiscal.

Let's hope you're right. Okay. I'll let someone else get on.

And that does conclude the question and answer session. I'll now turn the conference back over to Mr. Larson for any additional or closing remarks.

We appreciate the time today, and Tony and I look forward to discussing next quarter's results a quarter from now. Thank you. Thank you. That does conclude today's conference We do thank you for your participation. Have an excellent day.