Annual President’s Letter Fiscal Year 2018

Dear Shareholders,

While fiscal 2018 was a challenging year, we significantly diversified our customer base, reduced our debt and returned to growth.

During the year, our business was adversely impacted by several unrelated events: the massive flooding in Houston, changes in US corporate tax laws and new tariffs, severance costs associated with improved efficiencies in Mexico, unexpected reductions and delays from a few large customers, substantial legal expenses in support of a collection effort and unprecedented industry-wide shortages of key electronic components. Despite these challenges, our total revenue grew 8% sequentially in the fourth quarter, with increasing demand from a number of our longstanding customers and most of our new programs continuing to ramp. Our total revenue was $446.3 million and net income was $2.2 million or $0.20 per share.

We also won 11 major new programs during the year, involving HVAC controllers, exercise equipment monitors , IoT for consumer and commercial applications, gaming equipment, medical devices, home security, distribution services and electronic signage. Our broader and more diversified customer base significantly lowers the potential future impact of a slowdown by any one single customer.

We’re increasingly well positioned for the returning tide of North American-based customers, as they correctly analyze the total cost for overseas production, pushing production into both Mexico and the US. We saw especially strong results from our domestic facilities, which we believe reflects a growing appetite for US-built products and the significant value of having highly efficient domestic production facilities.

While carefully managing our expenses, we are making investments in our sheet metal, SMT and plastic molding capabilities in both Mexico and the U.S. We’re also deploying innovative new manufacturing equipment in each of our facilities which makes our production less labor intensive and more efficient. These investments decrease manufacturing costs and enable future growth plans.

Our steady pipeline of new business opportunities continues to be boosted by our unmatched level of vertical integration, multi-country footprint and the excellence of our manufacturing sites in comparison to other EMS competitors our size. As OEM’s face an increasingly uncertain geo-political landscape, Key Tronic is uniquely equipped to offer risk mitigation with our manufacturing facilities located in China, Mexico and the US.

Moving into fiscal 2019, although we continue to face industry-wide supply chain issues, and growing concern surrounding a trade war, we see a strong pipeline of potential new business and our new programs continue to ramp. We believe we’re well positioned to grow our revenue and increase profitability in fiscal 2019 and beyond.

I want to express my gratitude to our employees for their dedication and hard work during this past year, to our valued customers who continue to honor us with their trust, and to our shareholders for your continuing support.


Craig D. Gates
President and Chief Executive Officer

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