Methode Electronics, Inc.

Good morning everyone and welcome to the Method Electronics first quarter fiscal 2025 results. At this time all participants are in a listen only mode and we will open for questions following the presentation. If anyone should require operator assistance during the conference please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host Robert Cherry, Vice President of Investor Relations. Robert, the floor is yours.

Thank you, Operator. Good morning, and welcome to Metho Electronics' Fiscal 2025 First Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2025 First 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 law. 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-K and 10-Q reports. On slide floor, please see an agenda for our call today. We will begin with an introduction of Method's new CEO, move to our key messages, and then provide a business and financial update followed by a Q&A session. Please turn to slide five. At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer.

Thank you, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm joined today by Dave Rodden, our Interim Chief Financial Officer. Before we discuss the quarter, I'd like to take a minute and share why I came to Methode, what I have found so far, and what I think are the key messages for you to take away from this call today. First, I'm truly honored to be the new CEO of Method at this pivotal time for the company. I've long admired Method in my roles at adjacent companies in the industry, and I look forward to working alongside the team to deliver for all of our stakeholders. Over the past few weeks, I've had the opportunity to tour several of our facilities around the world and meet many of our regional teams, I've spent time learning about our operations, our products, and our people. I've also had a chance to hear about our history, which is filled with moments when our global engineering and manufacturing teams came together to solve complex problems, innovate new products, and create value for our customers and our shareholders. I see a company with a strong foundation built on years of operational excellence. Some of our plants are world-class, and I will be proud to show them to a customer. With my operations background, I can still see areas for improvement in each of our facilities. I look forward to working with the operations and supply chain leaders to improve each of our plans. If you're not familiar with my history, my track record includes enhancing businesses that require both operational and strategic improvement. Through a team effort, we drove those organizations to find unique and often latent value creation opportunities within the existing portfolio. I believe there are similar potential opportunities at Method, and I look forward to leading the team to capture them. Turning to slide six, not many companies can talk about a 78-year history, but Method can. However, all companies eventually go through periods where the business must evolve to move forward. Changing the solutions it develops for customers, the way in which it produces those solutions, and the way in which the organization works as a whole Method is at such a point, and consequently, we are beginning a journey to transform the business to position it for long-term value creation. To do so, our first priority must be to successfully execute on the large pipeline of new programs that must be launched in the next two fiscal years. In fiscal 2025, we have over 30 program launches that our customers are looking forward to, and in fiscal 2026, we have another 20 programs to launch. Any organization that faces this level of launch intensity will have its capabilities tested. At Method, we are relying on our history of execution and global collaboration to surmount these challenges. Simultaneous with the launches, we must focus on immediate actions to address total supply chain costs and efficiency. With the help of outside resources, we are pursuing a multifaceted approach to set a foundation for future success. We are all We are also actively building the executive team, including a new CFO and CPO, to support these challenges. On that note, I'd like to reiterate the news that we announced last week regarding our CFO transition. Laura Kowalczyk, the current CFO of Communication and Power Industries, has been appointed CFO of Method effective October 1st. She brings an impressive track record of delivering successful business transformations within our industry. I look forward to partnering with Laura to drive improvement at Method and welcome her to the Method team. Lastly, despite some headwinds in our markets, we are in a position to affirm our guidance for flat sales in fiscal 2025, followed by profitable organic sales growth in fiscal 26. Our plan is to leverage Method's strong foundation in order to reinvigorate and transform the business. But what does transform mean? Please turn to slide seven and let me elaborate. To start with, transform means resetting performance. That includes improving operational metrics, cost focus, and cost structure. It also means building and growing capabilities. That includes utilizing global best practices, improving our tools and systems, and driving standardization across the organization. Lastly, it means shifting our culture. That includes leveraging our global resources, acting with a sense of urgency and rewarding performance. In short, the organization needs to earn the right to write the next chapter of Methos history. I am confident that it will do just that. Returning to the quarter, let's begin on slide eight. Our sales were $259 million, and our adjusted pre-tax loss was $9 million. Our sales were down from the prior year mainly due to the roll-off of a previously disclosed EV lighting program in our auto segment. That program has gone end of life, but will impact our prior year sales comparisons for most of fiscal 25. Overall, our sales in the quarter were on track with our expectations. The lower sales volume along with the continued elevated costs from ongoing program launches drove the pre-tax loss in the quarter. Customer program delays also contributed to absorption challenges. However, Our efforts to improve gross profit contributed to the better-than-expected result. A loss is a loss, and we will never celebrate one, but it was good to see the sequential improvement. Turning to EV activity, their sales in the quarter were 18 percent of our consolidated total and a sequential increase from 14 percent in the fourth quarter. As previously communicated, we had a sizable EV lighting program roll off toward the end of fiscal 2024. and we are now at the beginning of a wave of new program launches for EV power applications. As such, we expect the EV percentage to grow even further and should be over 20% for our fiscal 25. While our sales are currently on track for the year, there are clearly headwinds in several of our key end markets. Those markets include automotive, commercial vehicles, construction, and agriculture. In addition to the EV market, In addition, the EV market has clearly lost some steam, particularly in North America, and its near-term outlook has softened. So while we are affirming our guidance for the year, we are keenly monitoring market conditions. On the order front, we have another solid quarter with over $80 million in annual program awards. OEMs are clearly reevaluating the adoption rate for the EV market. As such, the pipeline of potential bookings is subject to reduction and or delay due to customer decisions and or market conditions. Turning to the balance sheet, we are maintaining an acute focus on managing it and generating cash. As evidence, we reduced working capital by $9 million and improved cash from operations by over $16 million in the quarter. Lastly, our debt covenants were in full compliance at the end of the quarter and have our complete attention. In short, it was a stabilizing start to the year with better than expected performance on pre-tax income and cash flow. It was also encouraging to see the booking momentum continue. Turning to slide nine, the awards identified here are some of the key wins in the quarter and represent $77 million in annual sales at full production. This was our second consecutive quarter of solid awards. The launch timing of most of these programs could be anywhere in the range from one to three years from now. All awards were for power distribution products for applications in EV, defense, and data centers. After a lull in data center activity, we are now seeing a rebound in orders there. On slide 10, I want to provide some more color and details on the transition that we are navigating from a few large legacy programs to a multitude of launches of new programs. Methode has had a tremendous run supplying integrated center consoles to General Motors. As we have been communicating over the past few years, that program, for various platforms and models has been slowly rolling off. It's now expected to go end of life in fiscal 25. The result is a significant headwind in fiscal 25 and another lesser one in fiscal 26. The other major legacy program roll off we have previously communicated is for an EV lighting program. That program for Method went end of life in fiscal 24 and is thus a headwind for us in fiscal 25. Conversely, we are launching several EV programs for Stellantis in fiscal 25. That activity, along with a positive net impact from other launches, roll-offs, and market conditions, leads us to expect flat sales in 25 versus 24. Looking further out to fiscal 26, we expect even more launches of EV programs for Stellantis. That activity, along with a more positive net impact from other launches, roll-offs, and market conditions, will more than offset the final headwind from the GM roll-off, as well as a significant headwind from a major appliance program that is going end-of-life in fiscal 25. The overall net result is the expectation of organic sales growth in fiscal 26. As we navigate this product transition, we remain subject to market conditions, EV adoption trends, and the success of our customers' product launches. However, as of today, this is the line of sight we have, based on our projections and the forecasts of our customer base. Turning to slide 11. In summary, for the quarter, our sales were on track, while our pre-tax loss was better than expected. EV activity rebounded and was at 18% of sales. Key market headwinds, particularly in auto and commercial vehicles, are a concern. However, program awards were solid for the second consecutive quarter. Lastly, we maintained an acute focus on the balance sheet and cash flow, delivering a $9 million reduction in working capital and generating over $16 million in cash from operations. Going forward, we are beginning a journey to transform the business while positioning it for long-term value creation. Meanwhile, we are focusing intensely on executing over 30 program launches while taking immediate actions to address execution and costs. We simply need to return to better blocking and tackling and then we can move forward with a discussion on strategy. We are also building the executive team, including our new CFO and CPO, to support these challenges. Lastly, we are affirming our guidance for flat sales in fiscal 25, followed by profitable organic sales growth in fiscal 26. To be succinct, our fiscal 25 will be a year of transforming the business with a goal of returning the company to growth and profitability in fiscal 26. At this point, I'll turn the call over to Dave, who will provide more detail on the first quarter financial results.