Methode Electronics, Inc.

Good day and welcome to the Methload Electronics Fourth Quarter Fiscal 2024 Results Conference Call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Robert Cherry, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to Methload Electronics Fiscal 2024 Fourth Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2024 Fourth Quarter Financial Results, which can be viewed on the webcast of this call or found at metho.com on the Investors page. This conference call contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance, and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Method owner takes no duty to update any forward-looking statement to conform the statement to actual results or changes in Method's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Method's filings with the Securities and Exchange Commission, such as our 10 and 10 reports. At this time, I'd like to turn the call over to Mr. Kevin Nystrom, Interim Chief Executive Officer.

Thank you, Rob, and good morning to everyone. Thank you for joining us for our fiscal 2024 fourth quarter earnings call. I'm joined here today by Ron Sumas, our Chief Financial Officer. Both Ron and I will have some opening comments, and then we'll take your questions. Before we discuss the quarter, I want to reiterate the news that we announced in late June regarding our CEO transition. John DeGainer, former CEO of Stone Ridge, has been appointed president and CEO of Method effective next Monday, July 15th. We congratulate John and welcome him to the Method team. John has significant industry experience and I think will be a strong leader for Method into the future. Back to the quarter. Returning to the quarter, let's go to slide four of the presentation. Our sales for the quarter were $227 million, which were down $24 million year-over-year. The decline was mostly entirely in our auto segment across all three of our reporting regions. The decrease was primarily due to program roll-offs and continued softness in the e-bike market along with some EV demand weakness. The sales declines were offset by the acquisition of Nordic Lights in the industrial segment around the beginning of the year. After adjusting for goodwill impairment, the lower sales volume along with continued operational inefficiencies in our North American auto operations drove the net loss in the quarter. These are essentially the same operational challenges that we've experienced and communicated through this past fiscal year. They are being driven by increased program launches, labor turnover, and higher overall costs. With the company in the midst of record number of program launches, it is only natural for there to be production inefficiencies that drive higher costs. often simply as a matter of a timing lag between the investments to develop and support the launches and the eventual realization of sales from the launches. Customer program delays can also contribute to these fixed cost absorption challenges. We are taking numerous actions to mitigate these launch costs, which range from looking for customer support to reimburse some of these costs and internal cost reductions. We have also have our best talent keenly focused on managing the launches to maximize cost efficiencies. Next, I want to move to orders. We had a strong quarter with over $140 million in annual program awards. These programs were spread across our power, lighting, sensor, and user interface applications. I can also share that the pipeline of potential awards remains healthy. I would note that the profile of the program awards and the pipeline are both heavily weighted towards EV and are subject to reduction or delay due to customer decisions or market conditions. Turning back to EV activity. Their sales in the quarter were 14% of our consolidated total, or for the year, we're at 19%. As previously communicated, we had a sizable EV lighting program roll off in the fourth quarter, and we are now at the beginning of a wave of several new EV power programs. As we transition programs, there is a timing gap where we expect a period of lower EV sales before they rebound. All of this is taking place within the backdrop of a softening near-term market outlook in EV. However, as we look out several years, EV is still clearly a long-term tailwind for Method. But the path, as we are seeing, may not be linear. At year end, our net debt was at the lowest level it has been in the last four quarters. That reduction was aided by our highest free cash flow quarter of the year. Our cash position at the end of the fourth quarter was aided by the sale of certain non-core assets, including the company aircraft. We are maintaining a sharp focus on cash generation. Lastly, we continued our share buyback in the quarter acquiring $3 million in shares via our automated purchase program. Let's go to page five of the presentation. The awards identified here are some of the key wins in the quarter and represent $141 million in annual sales at full production. The launch timing of most of these programs could be anywhere in the range of one to two years from now. The awards were mainly for power products associated with the EV skateboard architecture. These awards were also weighted towards the United States and Asia. In other areas, we were awarded programs for sensors, user interface, and solutions for applications in e-bikes, traditional auto, and commercial vehicles. It was by far our strongest quarter for the year for awards, and was once again driven by EV. As I mentioned earlier, the award pipeline remains healthy but is also very EV-centric. Let's go to page six of the presentation. In summary for the quarter, sales were under pressure from major auto program roll-offs and market headwinds in the e-bike and EV markets. The goodwill impairment Operational inefficiencies of our auto segment and lower sales volume drove a net loss. However, we reported the best quarter of the year for free cash flow and new program awards. Lastly, we delivered the lowest quarterly debt level of the fiscal year. Going forward, we are fully focused on profitability improvements. We are undertaking initiatives to reduce costs, particularly in the areas of sourcing, logistics, and sales and administrative costs. We're also focused on monetizing non-critical assets, managing our strong backlog of program launches, and improving low-margin programs. We will also continue our efforts to reduce working capital, increase cash flow, and reduce net debt. These actions are all foundational to our long-term plans and will carry on beyond the company's leadership transition. Simply put, our fiscal 2025 will be a year of repositioning the business with the goal of returning the company to growth and profitability in 2026. Now, before I turn the call over to Ron, who will provide more detail on fourth quarter financial results, I would like to recognize Ron for his service to Methode. Ron's retiring tomorrow, and this is his last earnings call. Ron has been a valuable contributor to Methode for over 40 years and will long be remembered as a pillar in the history of this company. We thank Ron for his tireless efforts and wish him and his family the best in retirement. With that, Ron, I'll hand it over to you.