Koss Corporation’s Fiscal 2026 First Quarter Results

Koss Corporation, a leading manufacturer of high-quality audio products, has reported its financial results for the first quarter of fiscal year 2026. The company’s performance during this period showcases both its strengths and the challenges it faces in the current economic landscape.

Revenue Growth Driven by Diverse Channels Koss Corporation’s net sales for the three months ended September 30, 2025 totaled $4,071,000, reflecting a significant increase of 27.1% compared to the same period in the previous year. This growth was primarily driven by a substantial order from an Education customer, as well as a 22.5% increase in direct-to-consumer (DTC) sales and a notable 243% year-over-year rise in sales to the Asia market. However, these gains were partially offset by delays in re-orders from certain customers in the European market.

Domestic Market Strength Offsets Export Declines While export sales declined by 27.6% to $749,000, the company’s domestic sales increased by 53.3% to $3,322,000. The sizable sale of custom headphones to the company’s largest education customer, along with a nearly 23% rise in DTC sales, were the main contributors to the significant domestic sales growth. These gains were partially offset by a 38% decrease in sales to the company’s largest domestic distributor and a 27% decline in sales to e-tailers.

Improved Gross Margins Koss Corporation’s gross margins as a percentage of net sales for the three months ended September 30, 2025 increased to 40.0%, up from 36.6% in the same period of the prior year. This improvement was primarily due to a favorable customer mix, the absence of a reserve for excess inventory that was established in the previous year, and a reduced impact from fixed manufacturing costs. However, the sale of inventory purchased at the 145% tariff rate adversely impacted the margins for the current quarter, offsetting some of the gains.

Reduced Operating Expenses Selling, general, and administrative expenses decreased by 7.5% to $1,675,000 for the three months ended September 30, 2025. This decline was mainly due to lower spending on new product compliance testing and certifications, reduced legal fees, and a decrease in deferred compensation expense. These savings were partially offset by higher sales commissions to external sales representatives.

Effective Tax Rate and Net Operating Loss Carryforwards The company’s effective tax rate for the three months ended September 30, 2025 was 1.1%, down from 0.7% in the same period of the prior year. This low effective rate is due to the utilization of the company’s substantial net operating loss (NOL) carryforwards, which are expected to continue reducing the company’s future tax burden. As of September 30, 2025, the company’s remaining expected federal tax loss carryforward approximates $34,500,000.

Intellectual Property Enforcement Efforts Koss Corporation maintains a program focused on enforcing its intellectual property, particularly its patent portfolio related to wireless headphone technology. The company has filed complaints against certain parties alleging infringement, and if successful, it may receive royalties, offers to purchase its intellectual property, or other remedies. However, there is no guarantee of a positive outcome from these efforts, and the company may owe a portion of any future proceeds to third parties.

Strong Financial Position The company’s financial position remains strong, with $2.5 million in cash and cash equivalents, $13.9 million in short-term investments, and $4.0 million in long-term investments in U.S. treasury debt securities as of September 30, 2025. Additionally, the company has access to $5.0 million in available credit facilities.

Navigating Macroeconomic and Geopolitical Challenges Koss Corporation is facing a range of macroeconomic and geopolitical challenges that have impacted, and will continue to impact, its business. These include economic uncertainty, tariff volatility, elevated inflation, weakening of the job market, reduced consumer confidence, supply chain disruptions, geopolitical tensions, and increased risk of cyberattacks.

Tariff Volatility and Trade Tensions The company has been significantly affected by the fluctuating tariff policies, particularly the 145% tariffs on certain imports from China that were imposed in April 2025. While the tariffs have since been reduced to 30% due to temporary pauses and negotiations, the company continues to closely monitor the volatile tariff landscape and its impact on operations, planning, and financial conditions.

Inflationary Pressures and Impact on Consumer Confidence In addition to the tariff-related inflation, Koss Corporation is also facing sustained higher interest rates and higher energy costs, which are negatively impacting consumer sentiment and purchasing decisions. The company has implemented pricing actions to offset these increased costs and is working with its freight forwarding partner to minimize freight rate increases.

Supply Chain Disruptions and Geopolitical Tensions The company’s reliance on third-party supply chains, primarily in southern China and Taiwan, exposes it to significant risks. Issues such as pandemic restrictions, geopolitical unrest, labor shortages, and component procurement failures could delay manufacturing and increase costs. The escalating U.S.-China tariff war and the potential for further geopolitical tensions between China and Taiwan have severely disrupted supply chains, impacting the company’s operations.

Cybersecurity Concerns Koss Corporation is also facing the growing threat of cyberattacks, which have become larger, more frequent, and more sophisticated. The company relies on accounting, financial, and operational management information systems to conduct its operations, and any disruption to these systems could adversely affect its ability to do business. Additionally, the company collects and stores confidential information about its customers, employees, vendors, and suppliers, and a failure to maintain the security of this data could result in significant consequences.

Outlook and Strategies Despite the challenges, Koss Corporation remains committed to navigating the current environment and positioning itself for long-term success. The company will continue to closely monitor the evolving macroeconomic and geopolitical conditions, adapt its strategies as necessary, and work to mitigate the impact on its operations and financial performance.

Key strategies include:

• Diversifying its supply chain and exploring alternative sourcing options to reduce reliance on China
• Implementing pricing actions to offset increased costs and maintain profitability
• Enhancing its cybersecurity measures to protect against the growing threat of cyberattacks
• Continuing to enforce its intellectual property rights and explore opportunities to monetize its patent portfolio
• Closely managing its liquidity and capital resources to ensure financial flexibility

By proactively addressing these challenges and leveraging its strengths, Koss Corporation aims to navigate the current landscape and continue delivering value to its shareholders.