Methode Electronics, Inc.

Welcome to the Method Electronics second quarter fiscal 2025 results call. At this time, all participants are in a listen-only mode, and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Robert Cherry, Vice President of Investor Relations. Sir, the floor is yours.

Thank you, Operator. Good morning, and welcome to Metho Electronics' Fiscal 2025 Second Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2025 Second 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 reflects 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. The 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 methods filings with the Securities and Exchange Commission, such as our 10Q and 10K reports. On slide four, please see an agenda for our call today. We will begin with a business update, then a financial update, followed by a Q&A session. At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer.

Thanks, Rob, and good morning, everyone. Thank you for joining us for our second quarter earnings conference call. I'm joined today by Laura Kowalczyk, our Chief Financial Officer. We are pleased to have Laura join the Methode team, given her background and experience. She has an impressive track record of delivering successful business transformations within our industry and has gotten off to a fast start at Methode. Turning to slide five and our results for the quarter, our sales were $293 million, and our adjusted pre-tax income was $9 million. As noted in our earnings release, the quarter benefited from an extra week. Our fiscal 2025 is a 53-week year, and that extra week fell into this quarter. Aside from the impact of the extra week, sales benefited from higher demand from our power products and data centers and electric vehicles. We also had growth in Europe from automotive program launches. Offsetting these strengths were program roll-offs that we discussed before and demand weakness in the commercial vehicle market impacting our lighting business. Overall, our sales in the quarter were on track with our expectations. The solid sales volume, along with progress on our cost reduction efforts, drove the pre-tax income improvement in the quarter. In particular, we had a notable reduction in freight costs, particularly premium freight, which is a direct reflection of our overall improved operational execution. The better than expected result was also driven by improved fixed overhead absorption, another sign of execution improvement. Turning to EV activity, sales in the quarter were 20% of our consolidated total, a sequential increase from 18% in the first quarter. We are experiencing the beginning of a wave of new program launches for EV power applications. As such, we continue to expect the EV percentage to grow further, and it should be over 20% for our full year fiscal 2025. While our sales are currently on track for the full year, there are clearly some tailwinds and headwinds in several of our key end markets. Helping us is the growth in data centers. Conversely, hurting us is the weakness in automotive and commercial vehicle demand. The EV market has clearly softened, particularly in North America, but our program launches are mitigating that softening. Turning to the balance sheet, we are maintaining an acute focus on managing it and generating cash. While we experienced a timing issue with accounts payable this quarter that led to a sizable reduction of net cash from operating activities, we were comfortably in full compliance with all our debt covenants. On the order front, we had another solid quarter with over $50 million in annual program awards. This is on track with our expectations for the year. The pipeline of bookings is subject to reduction and or delay due to customer decisions and or market conditions. Lastly, and as I have emphasized before, our immediate priority is to successfully execute on the large pipeline of new programs that must be launched in the next 18 months. In fiscal 25, we have over 30 program launches, and in fiscal 26, we have another 20 plus programs to launch. Our customers are counting on us, and we plan to deliver. In short, we believe that our efforts to improve our execution have started to bear fruit as clearly evidenced by the better than expected results in the quarter. Turning to slide six, the awards identified here are some of the key wins in the quarter and represent $43 million of annual sales at full production. As usual, the launch timing of these programs could be anywhere in the range of one to two years from now. All of these awards were for power distribution products for applications in EV, traditional auto, and defense. As you can see from this chart, bookings can be lumpy. What's important to note is that on a trailing 12-month basis, we are winning awards at a rate sufficient to at least maintain our current annual sales level. Overall, we feel our award activity has been solid. Turning to slide seven, what am I learning since taking the CEO role in July? is that the company's path to success relies on returning to a one-method mindset, where all our global teams are working together and moving in the same direction. This mindset existed within Method historically and needed to be reinvigorated. To facilitate this reinvigoration, we have made a couple of key executive moves. We've appointed a dedicated leader that will oversee all global strategic, launch, and commercial activities for the company's automotive business. On December 2nd, Lars Ulrich joined Method as Senior Vice President, Global Automotive Business, reporting directly to me. Lars comes to us with over 20 years of business and strategic leadership experience in multinational companies, mainly as suppliers like Infineon and Robert Bosch. During his career, he has built a reputation for strategic and innovative thinking, a collaborative approach to customer relationships, operational excellence, and clarity in the face of challenges. He will be a strong addition to our leadership team and help us to develop and launch programs that delight our customers. In addition, we have also promoted Sadiq Eldrisi to lead all operations and engineering in Europe and the Middle East. This will be in addition to his current responsibilities as our Vice President of China. In his 18-year career at Methode, he has held management roles of increasing responsibility, culminating with the successful execution of the company strategy in China. Sadiq is well-respected in his experience, leadership, and demonstrated ability to achieve results makes him an ideal leader to guide our European and Middle Eastern operations through a challenging period of growth. These are both initial but crucial steps to getting back to our history, operating as one method to drive success. And with these steps, we now have fresh perspectives in the roles of CEO, CFO, CPO, and SVP of Global Auto as compared to just five short months ago. Turning to slide eight. In summary for the quarter, sales were on track, while our pre-tax income was better than expected. EV activity steadily grew and was 20 percent of total sales. Data centers were a market tailwind, but the auto and commercial vehicle markets were a concern. While we experienced a timing issue on cash, we were comfortably in full compliance with all debt covenants. Lastly, program awards were solid. Going forward, our focus this fiscal year is to transform the business while positioning it to return to profitable growth next fiscal year. Meanwhile, we are focusing intensely on executing our 30 programs while taking decisive actions to address execution and costs. Led by our new leadership team that we have systematically built over the last several months, Method is focused on transforming its business. We are also committed to compliance and taking steps to invest in our compliance resources and processes. Regarding compliance, Methode has disclosed that the company has received a subpoena from the SEC seeking documents and information. We take all compliance matters seriously and are cooperating fully. While we are limited in what we can say about this matter, we are committed to transparency and will keep you informed. Lastly, for fiscal year 2025, we are reaffirming guidance for flat sales and raising adjusted pre-tax income guidance to approximately break even. I've spent a tremendous amount of time traveling over the past quarter, meeting with customers, visiting our plants, and talking to Method employees. I can share with great confidence that our team is clearly energized, and the results from this quarter demonstrate that our business is heading in the right direction. At this point, I'll turn the call over to Laura, who will provide more detail on our second quarter financials.