What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-02-09 compared with 2025-11-07 · 160 added, 80 removed, 396 unchanged (38% of the section changed)

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Readers should carefully review the risk factors described in this report and other periodic reports the Company files from time to time with the Securities and Exchange Commission, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China, and Vietnam.

Key Tronic is a leading contract manufacturer offering value-added design, sourcing and manufacturing services from its facilities in the United States, Mexico, China and Vietnam.

The Company provides its customers full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution.

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Executive Summary

During the first quarter of fiscal 2026, we won new programs in medical technology, industrial equipment, and recent cost reduction efforts continued to take hold, helping to drive improved gross margins.

We reported net sales of $98.8 million the first quarter of fiscal year 2026, down 24.9 percent from $131.6 million in the same period of fiscal year 2025 .

Net sales in the first quarter of fiscal year 2026 was adversely impacted by reductions in demand from one longstanding customer and delays to new program launches as we believe customers continue to face uncertainties in the global economy.

In addition, the Company started ramping a consigned materials program that was announced last quarter.

As this large program ramps, the Company anticipates less revenue when compared to traditional turnkey programs, but an increase in its gross margin.

Gross margin was 8.4 percent in the first quarter of fiscal year 2026, compared to 6.2 percent in the previous quarter and 10.1 percent in the same period of fiscal year 2025.

The sequential quarterly increase in gross margin is primarily related to operational efficiencies gained from the recent reductions in workforce.

The year-over-year decreases in gross margin in the first quarter of fiscal 2026 largely reflects reduced revenue, as well as inventory and receivable write-offs of approximately $1.6 million in the first quarter of fiscal 2026 due to a customer bankruptcy.

Operating margin for the first quarter of fiscal year 2026 was (0.6) percent, down from 3.4% for the same period of fiscal year 2025.

The concentration of our top three customers’ net sales decreased to 30.4 percent of total sales in the first quarter of fiscal year 2026 from 37.5 percent in the same period of the prior fiscal year.

As new customer programs ramp, we expect that concentration to our top three customers will decrease.

During the second quarter of fiscal 2026, we won new programs in automotive technology, pest control, and industrial equipment.

We reported net sales of $96.3 million the second quarter of fiscal year 2026, down 15.4 percent from $113.9 million in the same period of fiscal year 2025 .

Net sales in the second quarter of fiscal year 2026 were adversely impacted by reductions in demand from longstanding customers and continued delays to some new program launches as we believe customers continue to face uncertainties in the global economy and also due to product design modifications to certain new customers.

In addition, the Company continued to ramp its large consigned materials program that was previously announced.

As this program ramps, the Company anticipates less overall revenue when compared to traditional turnkey programs, but an increase in its gross margins.

Additionally during the quarter, Key Tronic initiated a wind-down of its manufacturing operations at its China based facility and instead intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations.

This initiative is expected to shift more production to the Company’s expanding facilities in the US and Vietnam.

The wind-down is expected to be completed by the end of the current fiscal year, and is anticipated to save approximately $1.2 million per quarter following completions.

During the second quarter of fiscal year 2026, the Company accrued approximately $1.1 million in severance-related expenses related to this wind-down and approximately $5.0 million in additional non-cash expenses related to the transfer, disposal, and write-off of certain existing inventory, fixed assets, deferred taxes, and other assets.

Furthermore, as previously disclosed, the Company has been restructuring its operations in Juarez, Mexico to focus on higher volume manufacturing.

In connection with this restructuring and related headcount reductions, the Company has incurred severance charges in prior periods and has incurred $3.3 million in charges related to severance during its second fiscal quarter related at its Mexico based facility.

The restructuring is expected to provide approximately $1.5 million in quarterly savings after the reductions are fully executed.

Gross margins were 0.6 percent in the second quarter and 4.5 percent for the year-to-date period of fiscal year 2026, compared to 6.8 percent in the second quarter and 8.6 percent for the year-to-date period in fiscal year 2025.

Operating margin was (10.7) percent in the second quarter and (5.6) percent for the six-month year to date period in fiscal year 2026, down from (1.0) percent and 1.4 percent for the same periods of fiscal year 2025.

The year-over-year decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.

The concentration of our top three customers’ net sales decreased to 25.1 percent of total sales in the second quarter of fiscal year 2026 from 41.8 percent in the same period of the prior fiscal year.

This decrease is related to a decrease in demand from a longstanding customer as well as the transition of an end of life program.

As new customer programs ramp, we expect that concentration of our top three customers will continue to decrease.

Net sales to our largest customers may vary significantly from quarter to quarter depending on the size and timing of customer program commencement, forecasts, delays, and design modifications.

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In addition, our capacity and core competencies for printed circuit board assemblies, precision molding, sheet metal fabrication, tool making, assembly, and engineering can be applied to a wide variety of products.

Net loss for the first quarter of fiscal year 2026 was $(2.3) million or $(0.21) per diluted share, as compared to net income of $1.1 million or $0.10 per diluted share for the first quarter of fiscal year 2025.

The year-over-year decrease in earnings was a result of the factors discussed above, primarily reduced revenue and balance sheet write-offs due to a customer bankruptcy

Moving into the second quarter of fiscal year 2026, we continue to see a favorable trend of contract manufacturing returning to North America, as well as continued increases in Mexican wages, and continued market uncertainty related to current and future potential tariffs.

In response to these sustained and ongoing trends, the Company is restructuring its Juarez facility to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our

This restructuring resulted in a significant headcount reduction starting in the third quarter of fiscal year 2024 with a follow on reduction in the third quarter of fiscal year 2025, and smaller further reductions expected throughout fiscal year 2026.

Net loss for the second quarter of fiscal year 2026 was $(8.6) million or $(0.79) per diluted share, as compared to net loss of $(4.9) million or $(0.46) per diluted share for the second quarter of fiscal year 2025.

Year-to-date net loss for the first half of fiscal year 2026 was $(10.8) million or $(1.00) per diluted share, compared to $(3.8) million, or $(0.35) per diluted share for the same period of fiscal year 2025.

The year-over-year decreases in earnings are a result of the wind-down of manufacturing operations in China, additional headcount reductions in Mexico, and continued reduced demand from longstanding customers.

The adjusted net income was $0.0 million or $0.00 per share for the second quarter of fiscal year 2026, compared to adjusted net loss of $(4.1) million or $(0.38) per share for the same period of fiscal year 2025.

For the first six months of fiscal year 2026, the adjusted net loss was $(1.1) million or $(0.10) per share, compared to adjusted net loss of $(1.3) million or $(0.12) per share for the same period of fiscal year 2025.

See “Non-GAAP Financial Measures,” below for additional information about adjusted net income (loss) and adjusted net income (loss) per share.

Moving into the third quarter of fiscal year 2026, we continue to see a favorable trend of contract manufacturing returning to North America, as well as continued increases in Mexican wages, and continued market uncertainty related to current and future potential tariffs.

In response to these sustained and ongoing trends, the Company continues to restructure its Juarez operations to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites.

These restructuring efforts resulted in a significant headcount reduction which started in the third quarter of fiscal year 2024 and will continue into the third quarter of fiscal year 2026 and potentially smaller further reductions throughout the remainder of fiscal year 2026.

Additionally, global logistics problems, China-U.S.

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As a result, we see opportunities for growth moving forward.

We maintain a strong balance sheet with a current ratio of 2.4 and a debt-to-equity ratio of 0.9 as of September 27, 2025.

Total cash provided by operating activities as defined on our cash flow statement was $7.6 million for the three months ended September 27, 2025.

We believe we maintain sufficient liquidity for our expected future operations and as of September 27, 2025, had $64.5 million in borrowings under our asset-based revolving credit facility with $20.9 million remaining available and $1.1 million of cash on hand.

We maintain a strong balance sheet with a current ratio of 2.0 and a debt-to-equity ratio of 0.9 as of December 27, 2025.

Total cash provided by operating activities as defined on our cash flow statement was $14.0 million for the six months ended December 27, 2025.

We believe we maintain sufficient liquidity for our expected future operations and as of December 27, 2025, had $63.0 million in borrowings under our asset-based revolving credit facility with $20.9 million remaining available and $0.8 million of cash on hand.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 27, 2025 with the Three Months Ended September 28, 2024

Comparison of the Three Months Ended December 27, 2025 with the Three Months Ended December 28, 2024

The financial information and discussion below should be read in conjunction with the Consolidated Financial Statements and Notes.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended September 27, 2025 as compared to the three months ended September 28, 2024.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended December 27, 2025 as compared to the three months ended December 28, 2024.

It is provided to assist in assessing differences in our overall performance (in thousands):

Three Months Ended

September 27, 2025 % of

net sales September 28, 2024 % of

December 27, 2025 % of

net sales December 28, 2024 % of

net sales $ change % point

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Total operating expenses 10,818 11.2 % 8,827 7.7 % 1,991 3.5 %

Operating income (584) (0.6) % 4,444 3.4 % (5,028) (4.0) %

Operating loss (10,258) (10.7) % (1,121) (1.0) % (9,137) (9.7) %

Interest expense, net 2,371 2.5 % 3,904 3.4 % (1,533) (0.9) %

Income (loss) before income taxes (3,360) (3.4) % 1,181 0.9 % (4,541) (4.3) %

Income tax provision (benefit) (1,105) (1.1) % 57 — % (1,162) (1.1) %

Net (loss) income $ (2,255) (2.3) % $ 1,124 0.9 % $ (3,379) (3.2) %

Loss before income taxes (12,629) (13.1) % (5,025) (4.4) % (7,604) (8.7) %

Income tax benefit (4,059) (4.2) % (111) (0.1) % (3,948) (4.1) %

Net loss $ (8,570) (8.9) % $ (4,914) (4.3) % $ (3,656) (4.6) %

Effective income tax rate 32.1 % 2.2 %

Net sales of $98.8 million for the first quarter of fiscal year 2026 decreased by 24.9 percent as compared to net sales of $131.6 million for the first quarter of fiscal year 2025.

The $32.8 million decrease was primarily due to reductions in demand of approximately $23 million from two longstanding customers as well as approximately $7 million due to delays related to new program launches, as our customers face continued uncertainties in the global economy.

In addition, we started ramping a new manufacturing services contract with a large data processing OEM that consigns its material and components for new production in our Corinth, Mississippi manufacturing facility.

Net sales of $96.3 million for the second quarter of fiscal year 2026 decreased by 15.4 percent as compared to net sales of $113.9 million for the second quarter of fiscal year 2025.

The $17.5 million decrease was primarily due to reductions in demand of approximately $28 million from a longstanding customer and transition of an end-of-life program offset by approximately $11 million in additional revenue from currently ramping programs and increased demand from other longstanding customers.

This includes the ongoing ramp of a new manufacturing services contract with a large data processing OEM that consigns its material and components for new production in our Corinth, Mississippi manufacturing facility.

This program has the potential to ramp significantly during fiscal year 2026 and is estimated to grow over time to potentially exceed $20 million in annual revenue.

Gross profit as a percentage of net sales for the three months ended September 27, 2025 was 8.4 percent compared to 10.1 percent for the three months ended September 28, 2024.

The year-over-year decrease in gross margin in the first quarter of fiscal 2026 largely reflects reduced revenue, as well as inventory and receivable provisions of approximately $1.6 million in the first quarter of fiscal 2026 due to a customer bankruptcy.

Gross profit as a percentage of net sales for the three months ended December 27, 2025 was 0.6 percent compared to 6.8 percent for the three months ended December 28, 2024.

The level of gross margin is additionally impacted by facility utilization, product mix, timing, severity and steepness of new program ramps, pricing within the electronics industry and material costs, which can fluctuate significantly from quarter to quarter.

Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence.

We recorded an impairment of approximately $1.2 million and $0.3 million for obsolete inventory during the three months ended September 27, 2025 and September 28, 2024, respectively.

We recorded an impairment of approximately $1.3 million and $0.1 million for obsolete inventory during the three months ended December 27, 2025 and December 28, 2024, respectively.

We adjust the carrying value for estimated obsolesc ence as necessary in an amount equal to the difference between the cost of inventory and its net realizable value based on assumptions as to future demand and market conditions.

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Operating Expenses

There were no significant changes to operating expenses during the first quarter of fiscal year 2026.

Total research, development, and engineering (“RD&E”) expenses were $2.1 million during the three months ended September 27, 2025 and $2.3 million during the three months ended September 28, 2024, respectively.

Total RD&E expenses as a percent of net sales were 2.1 percent during the three months ended September 27, 2025 and 1.7 percent during the three months ended September 28, 2024.

Total selling, general and administrative (“SG&A”) expenses were $6.8 million during the three months ended September 27, 2025 compared to $6.6 million for the three months ended September 28, 2024.

Total SG&A expenses as a percentage of net sales were 6.8 percent for the three months ended September 27, 2025 and 5.0 percent for the three months ended September 28, 2024.

This increase in percentage is attributable to increases in the estimated provision for credit losses along with decreased revenues.

Interest expense was $2.8 million during the three months ended September 27, 2025 and $3.3 million during the three months ended September 28, 2024.

There were no significant changes to operating expenses during the second quarter of fiscal year 2026.

Total research, development, and engineering (“RD&E”) expenses were $1.8 million during the three months ended December 27, 2025 and $2.3 million during the three months ended December 28, 2024, respectively.

Total RD&E expenses as a percent of net sales were 1.9 percent during the three months ended December 27, 2025 and 2.0 percent during the three months ended December 28, 2024.

Total selling, general and administrative (“SG&A”) expenses were $9.0 million during the three months ended December 27, 2025 compared to $6.5 million for the three months ended December 28, 2024.

Total SG&A expenses as a percentage of net sales were 9.3 percent for the three months ended December 27, 2025 and 5.7 percent for the three months ended December 28, 2024.

These increases are attributable to approximately $3.4 million in estimated reserves associated with the decision to wind-down manufacturing in China partially offset by less variable spend due to the decrease in revenues.

Interest expense was $2.4 million during the three months ended December 27, 2025 and $3.9 million during the three months ended December 28, 2024.

This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender, and a reduction in amounts borrowed, as described in Note 4 of the “Notes to Consolidated Financial Statements.”

The effective tax rate for the three months ended September 27, 2025 was 32.9 percent compared to 4.8 percent for the three months ended September 28, 2024.

The increase was primarily due to federal research and development tax credits and permanent book-to-tax differences, including new safe harbor transfer pricing adjustments in Mexico, relative to the respective pretax income (or loss) amounts of each period.

The effective tax rate for the three months ended December 27, 2025 was 32.1 percent compared to 2.2 percent for the three months ended December 28, 2024.

The increase was primarily due to federal research and development tax credits and permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period, and the recognition of a full valuation allowance against net deferred tax assets in China.

Our judgments regarding deferred tax assets and liabilities may change due to changes in market conditions, changes in estimates, changes in tax laws or other factors.

If assumptions and estimates change in the future, the deferred tax assets and liability will be adjusted accordingly and any increase or decrease will result in an additional deferred income tax expense or benefit in subsequent periods.

Comparison of the Six Months Ended December 27, 2025 with the Six Months Ended December 28, 2024

The financial information and discussion below should be read in conjunction with the Consolidated Financial Statements and Notes.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the six months ended December 27, 2025 as compared to the six months ended December 28, 2024.

It is provided to assist in assessing differences in our overall performance (in thousands):

Six Months Ended

December 27, 2025 % of

net sales December 28, 2024 % of

net sales $ change % point

Net sales $ 195,069 100.0 % $ 245,411 100.0 % $ (50,342) — %

Cost of sales 186,255 95.5 % 224,402 91.4 % (38,147) 4.1 %

Gross profit 8,814 4.5 % 21,009 8.6 % (12,195) (4.1) %

Research, development and engineering 3,923 2.0 % 4,609 1.9 % (686) 0.1 %

Selling, general and administrative 15,733 8.1 % 13,077 5.3 % 2,656 2.8 %

Total operating expenses 19,656 10.1 % 17,686 7.2 % 1,970 2.9 %

Operating income (loss) (10,842) (5.6) % 3,323 1.4 % (14,165) (7.0) %

Interest expense, net 5,147 2.6 % 7,167 2.9 % (2,020) (0.3) %

Loss before income taxes (15,989) (8.2) % (3,844) (1.6) % (12,145) (6.6) %

Income tax benefit (5,164) (2.6) % (54) — % (5,110) (2.6) %

Net loss $ (10,825) (5.5) % $ (3,790) (1.5) % $ (7,035) (4.0) %

Effective income tax rate 32.3 % 1.4 %

Net sales of $195.1 million for the six months ended December 27, 2025 decreased by 20.5 percent as compared to net sales of $245.4 million for the six months ended December 28, 2024.

The $50.3 million decrease was primarily due to reductions in demand of approximately $75 million from longstanding or end-of-life customers, offset by approximately $30 million in additional revenue from currently ramping programs or increases in demand from other longstanding customers.

This program has the potential to ramp significantly during fiscal year 2026 and is estimated to grow over time to potentially exceed $20 million in annual revenue.

Gross profit as a percentage of net sales for the six months ended December 27, 2025 was 4.5 percent compared to 8.6 percent for the six months ended December 28, 2024.

The year-to-date, year-over-year decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.

Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence.

We recorded an impairment of approximately $2.6 million and $0.0 million for obsolete inventory during the six months ended December 27, 2025 and December 28, 2024, respectively.

Approximately $0.9 million of this amount is related to the wind-down of our manufacturing operations in China.

The provisions are established for inventory that we have determined customers are not contractually responsible for and also inventory that we believe customers will be unable to purchase.

Operating Expenses

There were no significant changes to operating expenses during the six months ended December 27, 2025.

Total research, development, and engineering (“RD&E”) expenses were $3.9 million during the six months ended December 27, 2025 and $4.6 million during the six months ended December 28, 2024, respectively.

Total RD&E expenses as a percent of net sales were 2.0 percent during the six months ended December 27, 2025 and 1.9 percent during the six months ended December 28, 2024.

Total selling, general and administrative (“SG&A”) expenses were $15.7 million during the six months ended December 27, 2025 compared to $13.1 million for the six months ended December 28, 2024.

Total SG&A expenses as a percentage of net sales were 8.1 percent for the six months ended December 27, 2025 and 5.3 percent for the six months ended December 28, 2024.

Interest expense was $5.1 million during the six months ended December 27, 2025 and $7.2 million during the six months ended December 28, 2024.

This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender in December 2024, which resulted in a $1.0 million write-off of unamortized loan fees in December of 2024, and a reduction in amounts borrowed, as described in Note 4 of the “Notes to Consolidated Financial Statements.”

The effective tax rate for the six months ended December 27, 2025 was 32.3 percent compared to 1.4 percent for the six months ended December 28, 2024.

The increase was primarily due to federal research and development tax credits and permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period and the recognition of a full valuation allowance against net deferred tax assets in China.

Our judgments regarding deferred tax assets and liabilities may change due to changes in market conditions, changes in estimates, changes in tax laws or other factors.

Non-GAAP Financial Measures

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We exclude (or include) certain items in our non-GAAP financial measures as we believe the net result is a measure of our core business.

We believe this facilitates operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis.

We believe this facilitates operating performance comparisons from period to period by

eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis.

In addition, during this period, we have provided adjusted cost of sales, adjusted gross profit, and adjusted gross margin.

These additions supplement adjusted net income (loss) by mapping the portion of the identified adjustments utilized in the calculation of adjusted net income (loss) to relevant financial statement line items for re-calculation of the adjusted metrics presented.

We have provided these additional non-GAAP financial measures because we believe they provide greater transparency related to our core operations and represent supplemental information used by management in its financial and operational decision making.

Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP.

The non-GAAP financial measures disclosed below should be read in conjunction with the remainder of this Quarterly Report on Form 10-Q, including the consolidated financial statements and footnotes thereto.

We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Our non-GAAP financial measures may be different from those reported by other companies.

See the table below for reconciliations of adjusted net income (loss) to the most directly comparable GAAP measure, which is GAAP net income (loss), and the computation of adjusted net income (loss) per share, diluted.

Three Months Ended

(in thousands, except per share amounts) September 27, 2025 September 28, 2024

GAAP net income (loss) $ (2,255) $ 1,124

See the table below entitled “Reconciliation of GAAP to non-GAAP measures” for reconciliations of adjusted net income (loss) and adjusted cost of sales to the most directly comparable GAAP measure, which is GAAP net income (loss), and GAAP cost of sales, respectively, as well as the computation of adjusted gross profit, adjusted gross margin, and adjusted net income (loss) per share, diluted.

Three Months Ended Six Months Ended

(in thousands, except per share amounts) December 27, 2025 December 28, 2024 December 27, 2025 December 28, 2024

GAAP net loss $ (8,570) $ (4,914) $ (10,825) $ (3,790)

Severance expenses 4,293 12 5,506 2,039

China manufacturing wind-down 6,168 — 6,168 —

Stock-based compensation expense 278 16 499 83

Write-off of unamortized loan fees — 1,012 — 1,012

Income tax effect of non-GAAP adjustments (1) (2,148) (208) (2,435) (627)

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$ 21 $ (4,082) $ (1,087) $ (1,283)

Adjusted net loss per share — non-GAAP Diluted $ (0.10) $ 0.26

Adjusted net income (loss) per share — non-GAAP Diluted $ 0.00 $ (0.38) $ (0.10) $ (0.12)

Weighted average shares outstanding — Diluted 10,946 10,762 10,815 10,762

GAAP cost of sales $ 95,759 $ 106,147 $ 186,255 $ 224,402

Severance expenses 4,293 12 5,506 2,039

China manufacturing wind-down 2,775 — 2,775 —

Adjusted cost of sales $ 88,691 $ 106,135 $ 177,974 $ 222,363

Total gross profit adjustments $ 7,068 $ 12 $ 8,281 $ 2,039

GAAP gross profit $ 560 $ 7,706 $ 8,814 $ 21,009

Total gross profit adjustments 7,068 12 8,281 2,039

Adjusted gross profit $ 7,628 $ 7,718 $ 17,095 $ 23,048

GAAP net sales $ 96,319 $ 113,853 $ 195,069 $ 245,411

Adjusted gross margin 7.9 % 6.8 % 8.8 % 9.4 %

(1) Income tax effects are calculated using an effective tax rate of 20%, which approximates the effective statutory tax rate for the presented periods.

On September 27, 2025, we had an order backlog of approximately $139.9 million.

This compares with a backlog of approximately $210.8 million on September 28, 2024.

On December 27, 2025, we had an order backlog of approximately $139.1 million.

This compares with a backlog of approximately $162.5 million on December 28, 2024.

The decrease in order backlog is primarily related to softening of demand for a number of existing programs.

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Operating Cash Flow

Net cash provided by operating activities for the three months ended September 27, 2025 was $7.6 million.

Net cash provided by operating activities was $9.9 million for the three months ended September 28, 2024.

The $7.6 million of net cash provided by operating activities for the three months ended September 27, 2025 was primarily related to $2.3 million in net loss for the period adjusted for $2.5 million of depreciation and amortization, a $14.7 million decrease in accounts receivable, and a $2.1 million increase in other liabilities partially offset by a $4.9 million increase in contract assets, a $2.7 million decrease in accounts payable, a $0.8 million increase in other assets, and a $1.3 million decrease in accrued compensation and vacation.

The $9.9 million of net cash provided by operating activities for the three months ended September 28, 2024 was primarily related to $1.1 million in net income for the period adjusted for $3.0 million of depreciation and amortization, a $9.0 million decrease in inventory, a $2.2 million increase in other liabilities, a $4.4 million increase in accounts payable, and a $0.4 million increase in accrued compensation and vacation partially offset by a $6.7 million increase in other assets, a $1.6 million increase in accounts receivable, and a $2.4 million increase in contract assets.

Net cash provided by operating activities for the six months ended December 27, 2025 was $14.0 million.

Net cash provided by operating activities was $11.5 million for the six months ended December 28, 2024.

The $14.0 million of net cash provided by operating activities for the six months ended December 27, 2025 was primarily related to $10.8 million in net loss for the period adjusted for $5.0 million of depreciation and amortization, an $11.0 million decrease in accounts receivable, a $6.3 million decrease in inventories, a $2.5 million decrease in contract assets, and a $2.0 million increase in accrued compensation and vacation partially offset by a $1.3 million decrease in accounts payable, a $1.4 million decrease in other liabilities, and a $1.8 million increase in other assets.

The $11.5 million of net cash provided by operating activities for the six months ended December 28, 2024 was primarily related to $3.8 million in net loss for the period adjusted for $5.5 million of depreciation and amortization, a $4.4 million decrease in inventory, a $19.4 million decrease in accounts receivable, a $2.4 million decrease in contract assets, and a $1.7 million increase in other liabilities partially offset by a $15.8 million decrease in accounts payable, a $3.9 million increase in other assets, and a $0.3 million decrease in accrued compensation and vacation.

Accounts receivable fluctuates based on the timing of shipments, terms offered, and collections that occurred during the quarter.

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Investing Cash Flow

Cash used in investing activities was $3.2 million during the three months ended September 27, 2025 as compared to cash used in investing activities of $0.4 million during the three months ended September 28, 2024.

Our primary investing activities during the three months ended September 27, 2025 and September 28, 2024, related to purchasing equipment to support increased production levels for new programs.

Cash used in investing activities was $6.5 million during the six months ended December 27, 2025 as compared to cash used in investing activities of $0.8 million during the six months ended December 28, 2024.

Our primary investing activities during the six months ended December 27, 2025 and December 28, 2024, related to purchasing equipment to support increased production levels for new programs.

Leases are often utilized when potential technical obsolescence and funding requirement advantages outweigh the benefits of equipment ownership.

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Financing Cash Flow

Cash used in financing activities was $4.7 million during the three months ended September 27, 2025 as compared to $7.8 million used in financing activities in the same period of the previous fiscal year.

Our primary financing activities during the three months ended September 27, 2025, and September 28, 2024, were borrowings and repayments under our asset-based credit agreement with BMO Bank, N.A.

Cash used in financing activities was $8.1 million during the six months ended December 27, 2025 as compared to $11.2 million used in financing activities in the same period of the previous fiscal year.

Our primary financing activities during the six months ended December 27, 2025, and December 28, 2024, were borrowings and repayments under our asset-based credit agreement with BMO Bank, N.A.

that provides for an asset-based senior secured revolving credit facility (the “Credit Facility”) of up to $115 million, maturing on December 3, 2029, our prior loan and security agreement, as amended, with Bank of America, N.A.

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As discussed in Note 4 – “Long Term Debt” of the Notes to the Consolidated Financial Statements, we entered the Credit Facility, and also entered into a $28 million term loan (the "Term Loan") credit agreement with Callodine Commercial Finance, LLC.

We believe that projected cash from operations, funds available under the Credit Facility, Term Loan, the line of credit with Banorte Financial Group, and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

As of September 27, 2025, we had approximately $1.1 million of cash held by foreign subsidiaries.

We believe that projected cash from operations, funds available under the Credit Facility and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

As of December 27, 2025, we had approximately $0.8 million of cash held by foreign subsidiaries.

If cash is to be repatriated in the future from these foreign subsidiaries, the Company would be subject to certain withholding taxes in the foreign jurisdictions.

The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of September 27, 2025 would approximate $26,000.

The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of December 27, 2025 would approximate $16,000.

We have accrued withholding taxes for expected future repatriation of foreign earnings as discussed in Note 5 of the “Notes to Consolidated Financial Statements.”

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Our operations may be subject to certain risks.

We manufacture product in facilities located in Mexico, China, Vietnam, and the United States.

We manufacture and/or source product in facilities located in Mexico, China, Vietnam, and the United States.

These operations may be subject to a number of risks, including:

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and global macroeconomic environment, volatility in overall demand for our customers’ products, success of customers’ programs, timing of new programs, new product introductions or technological advances by us, our customers and our competitors, and changes in pricing policies by us, our customers, our suppliers, and our competitors.

Our customer base is diverse in the markets they serve, however, decreases in demand, particularly from customers in certain industries, have affected our results and could affect future quarterly results.

Our customer base is diverse in the markets they serve, however, decreases in demand, particularly from customers in certain industries, have

affected our results and could affect future quarterly results.

Additionally, our customers could be adversely impacted by illiquidity in the credit markets which could directly impact our operating results.

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Inflation may further exacerbate other risk factors discussed in this Quarterly Report on Form 10-Q, including disruptions to international operations.

The ongoing wind-down of our China-based manufacturing operations may adversely affect our business, results of operations and financial condition.

On December 19, 2025 the Company committed to a plan to modify its China-based operations, and will end the manufacturing operations at its China-based facility.

Instead, the Company intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations.

The wind down activities remain ongoing and are expected to be substantially completed by the end of the Company’s fiscal year 2026, after which there will still be ongoing sourcing and procurement activities intended to support its remaining global locations.

As wind down activities progress, we may discover other facts necessitating additional expenses or charges that may differ from our initial expectations.

In addition, we may not be able to complete the wind down activities in all respects or in the expected time frame, due to factors outside of our control.

If actual amounts were to differ from our estimates, or if the full and complete wind down takes longer than expected, our results of operations and financial condition could be materially and adversely affected.

Current and future U.S.

trade policy could adversely affect our business and results of operations.

Although we maintain significant manufacturing capacity in the U.S., the majority of our manufacturing operations are currently located outside the U.S (in countries such as Vietnam, China, and Mexico).

We also source certain components and materials for our products from various countries.

has imposed tariffs impacting certain components and products imported from these countries by us into the U.S.

Although we maintain significant manufacturing capacity in the U.S.

and are in the process of terminating our manufacturing operations in China, the majority of our manufacturing operations are currently located outside the U.S (in countries such as Vietnam and Mexico).

We also source certain components and materials for our products from various countries, including China.

has imposed tariffs impacting certain components and products imported from these countries by us into the

These tariffs apply to both components imported into the U.S.

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Actions we take to adapt to new tariffs or trade restrictions may increase our costs or may cause us to modify our operations, and could drive up our prices to customers.

For example, we have incurred significant one-time expenses in the second quarter of 2026 related to the wind-down of our China manufacturing operations.

Any decision by a large number of our customers to cease using our manufacturing services due to the application of tariffs could materially reduce our revenue and net income.

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In addition, our suppliers' facilities may also experience closures or limited production due to macroeconomic conditions, natural disasters or other reasons, which may cause a shortage of components.

This can result in longer lead times and the inability to meet our

customers' requests for flexible production and extended shipment dates.

This can result in longer lead times and the inability to meet our customers' requests for flexible production and extended shipment dates.

If demand for components outpaces supply, capacity delays could affect future operations.

Delays in deliveries from suppliers or the inability to obtain sufficient quantities of components and raw materials have and may continue to cause delays or reductions in shipment of products to our customers which could adversely affect our operating results and damage customer relationships.

Delays in deliveries from suppliers or the inability to obtain sufficient quantities of

components and raw materials have and may continue to cause delays or reductions in shipment of products to our customers which could adversely affect our operating results and damage customer relationships.

We operate in a highly competitive industry;

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Fluctuations in foreign currency exchange rates have increased and could continue to increase our operating costs.

We have manufacturing operations located in Mexico, China, and Vietnam.

We have manufacturing and other operations located in Mexico, China, and Vietnam.

A significant portion of our operations are denominated in the Mexican Peso, the Chinese currency, the renminbi ("RMB"), and the Vietnamese dong.

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Consequently, our exposure to these factors is consistently elevated.

In addition, if any of these new programs or new customer relationships were

terminated, our operating results could be harmed, particularly in the short term.

In addition, if any of these new programs or new customer relationships were terminated, our operating results could be harmed, particularly in the short term.

We may not be able to recoup these start-up costs or replace anticipated new program revenues.

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The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable.

Our success will depend upon our customers’ ability to enhance existing products and to develop and introduce, on a timely and cost-effective basis, new products that keep pace with technological developments and emerging industry standards and address evolving and

increasingly sophisticated customer requirements.

Failure of our customers to do so could substantially harm our customers’ competitive positions.

Failure of our customers to do so could substantially harm our customers’

competitive positions.

There can be no assurance that our customers will be successful in identifying, developing and marketing products that respond to technological change, emerging industry standards or evolving customer requirements.

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Our asset-based senior secured revolving credit facility (the “Credit Facility”), also includes certain financial covenants, including average and daily availability and, if triggered, earnings before interest, taxes, depreciation, amortization and other adjustments and a fixed charge coverage ratio covenant will apply.

We may not meet such covenants in the future and may not be able to obtain waivers or amendments from the relevant lenders on terms acceptable to us, or at all.

We have in the past failed to meet certain covenants, and may not meet such covenants in the future and may not be able to obtain waivers or amendments from the relevant lenders on terms acceptable to us, or at all.

In the event we breach any covenant that results in an event of default, we may be required to amend the Credit Facility on terms that would be less favorable to us, such as an increase in the interest rate.

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Moreover, as discussed in the following risk factor, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all.

We are a non-accelerated filer under the Exchange Act and are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We are a non-accelerated filer under the Securities Exchange Act of 1934 (the “Exchange Act”) and are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements.

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federal securities laws, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).

The Sarbanes-Oxley and Dodd-Frank Acts required or will require changes in some of our corporate governance, securities disclosure and compliance practices.

The Sarbanes-Oxley and Dodd-Frank Acts required certain changes in some of our corporate governance, securities disclosure and compliance practices.

The SEC and NASDAQ Global Market have promulgated new rules over time, resulting in increased legal, financial and accounting costs as well as a potential risk of noncompliance.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis