Methode Electronics, Inc.

Good day, everyone. Welcome to the Method Electronics third quarter fiscal 2025 results conference call. At this time, 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 the Vice President of Investor Relations, Robert Cherry. The floor is yours.

Thank you, Operator. Good morning, and welcome to Method Electronics fiscal 2025 third quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2025 Third 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 undertakes 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 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 third quarter earnings conference call. I'm also joined today by Laura Kowalczyk, our Chief Financial Officer. Before we discuss the quarter, please turn to slide five, as I take a minute to reflect upon and provide an update on the key messages that I shared with you on my first Methods earnings call six months ago. As I said then, 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 was at such a point. Today, only two quarters later, I can report that Method's journey to transform the business for long-term value creation is well underway. In that first quarter call, I said that our first priority was to execute on the large pipeline of new programs to be launched over a two-year period. Today, I can report that we have successfully launched 20 of those programs year-to-date, and we are working on launching another 33 programs over the next five quarters. Simultaneous with the launches, we committed to focus on immediate actions to address operational execution, costs, and efficiency. Since then, numerous actions have been taken. I will share some of the initial results of those actions later in the presentation, but keep in mind that these are long-term initiatives that will continue to bear fruit over the coming quarters and years. Back in the first quarter call, we committed to building an executive team that was up to both tackling the challenges we faced and moving the company forward. I'm proud to share that we've extensively rebuilt the executive management team, including five new leaders from outside the organization. Again, I'll share more details on this in a few minutes. Lastly, two quarters ago, we committed to profitable organic sales growth in fiscal 26. Today, based on all the information available to us, we're able to reaffirm that guidance. Simply put, Methode is firmly on track to reinvigorate and transform the business for long-term value creation. Turning to slide six and our results for the quarter. Our sales were $240 million and our adjusted pre-tax loss was $7 million. Sales were lower than the prior year as we experienced the first quarter where the impact of two large auto program roll-offs was fully felt. That impact, of course, was anticipated. Our sales were then driven even lower than our expectations by the softening in EV demand as well as the overall weakness in the auto market. Despite the lower sales volume, we were able to deliver $4 million in higher gross profit than last year due to product mix and improved operational execution, including lower scrap and freight costs. Furthermore, at the operating line, despite the notable drop in sales, our loss improved from the prior year. Taking a step back, these results clearly demonstrate that the actions we have taken to improve operational execution have lowered the break-even sales point for the company. This is a key achievement that will enable Method to drive margin leverage on future sales growth. Improved execution also helped us return to positive free cash flow, which was $20 million in the quarter. The fact that we generated the same amount of cash from operating activities as the prior year, despite 20 million less in sales, is a clear indication of an organization whose operating efficiency has improved. Turning to EV activity, sales in the quarter were 24% of our consolidated total, a sequential increase from 20% in the second quarter. While this percentage increased, our EV sales on a dollar basis actually decreased slightly. We remain at the beginning of a wave of new EV program launches, but it's been a softer start than expected due to customer demand that impacted the quarter. There's clearly volatility in several of our key end markets. The weakness in automotive markets, especially in North America and Europe, was a headwind. Conversely, a tailwind was the growth in data centers. We enjoyed very strong sales in the data center applications in the quarter. Our success in that market is expected to result in record sales for those products this year. If you're watching the industry closely, you'll know that the technology in the space is rapidly evolving and will undoubtedly lead to some unevenness in near-term sales. However, that very technology disruption is also expected to lead to even more growth opportunities for Methos products. This will be a specific focus area for our new Chief Strategy Officer, Brad Perotti, who will bring both leadership and technical expertise to our mission to expand our power solutions enterprise. As that strategy develops, we will share more in coming quarters. Turning to the balance sheet, we have maintained an acute focus on managing it, particularly accounts receivable and inventory. At the end of the quarter, we were comfortably in full compliance with the leverage and interest coverage ratios per our covenants. Both improved from the second quarter and were more than a full turn better than requirements. Lastly, our primary focus continues to be on improving operational execution and successfully launching the large pipeline of new programs. In the quarter, we made clear progress on our operational metrics, various cost reductions, and improved organizational structure. As I alluded to earlier, we are in the heart of our record two-year new program launch window. Year to date, we have successfully launched 20 new programs. We have six more in the fourth quarter to launch, and then we expect to launch another 27 new programs in fiscal 26. Our customers continue to count on us, and we plan to continue to deliver. On slide seven, I want to spend some more time giving you an update on our transformation. At a high level, this slide maps out where we are at and where we are going. You will recognize the top of this slide from what we communicated back in the first quarter, that the building blocks of our transformation are to reset performance, build and grow capabilities, and shift our culture. To reset our performance, we have improved the organization's focus on fundamental metrics and levers. Some balance sheet examples include our improved focus on accounts receivable, which dropped $36 million from the second quarter, and inventory, which was down $9 million from the second quarter. Turning to the income statement, we reduced scrap and freight costs a total of $5 million from the prior year. On a longer-term basis, we have executed a number of actions that will bear fruit over time, such as price increases, supplier price reductions, and raw material sourcing consolidations. To build and grow our capabilities, we have also extensively refreshed our executive team, and I'll share more on this in a minute. To accelerate our improvements, such as in our efforts to reduce inventory, we've also selectively utilized outside expert resources to help drive initiatives. Lastly, we have systematically improved rigor and discipline in our day-to-day business in the areas of program launches, procurement, engineering, and finance. One of my key learnings since taking the CEO role is that the company's path to success relies on refreshing history and returning to a one-method mindset. where all our global teams are moving in the same direction. This mindset existed within Method and needed to be reinvigorated. In doing so, we can now leverage global best practices, drive better numeracy and cost consciousness, and instill a sense of urgency at all levels across the business. While we have focused primarily on execution in the last quarters, we have not ignored strategy. We are, in fact, in the early stages of its development. We've been actively planning and formulating the basic building blocks And of course, strong execution is fundamental to good strategy. We intend to deploy a proactive product portfolio management customer approach. We will not sit back and wait for business to come to us. As we build our strategy, we'll focus on megatrends, applying our core competencies and unique ways to develop high-value solutions for both current and adjacent markets. We don't plan to solely be shaped by market forces and swings of our current product portfolio. Our initial focus will be to explore opportunities in non-transportation power solutions, industrial lighting, and industrial user interface areas. These are all areas where we can use our capabilities and drive organic growth in the near term. As I said, we are transforming the business to earn the right with customers, employees, and shareholders in order to write the next chapter of Method's history. Turning to slide eight, I want to give a clear illustration of the refreshed executive management team that I referred to previously. Each of these positions and individuals have been publicly announced, but seen here collectively clearly illustrate that Method is now being run by a seasoned, highly experienced leadership team with both long and short tenures that has the capability to face and overcome challenges. This team has been assembled over just the last seven months, but is already driving the Method transformation and delivering results. Talent management will be a core competency of method going forward. On slide nine, I want to provide an update on the transition that we are navigating from a few large legacy programs to a stream of launches of new ones. The GMT-1 integrated center console program has now gone end of life. The result is a significant sales headwind in fiscal 25 and another lesser one in fiscal 26. The other major legacy program roll-off we previously communicated was for EV lighting. That program 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. The ramp-up of those programs, as well as other launches, has been slower than expected and impacted the quarter and our outlook, although pricing actions did provide some offset. Consequently, we now expect sales for our fiscal 25 be lower than fiscal 24 rather than flat. Looking further out to fiscal 26, we still expect more launches of EV programs for Stellantis, albeit at lower volumes. In addition, we will be launching a sizable bus bar program for GM. This GM program was a takeover award that we disclosed in the first quarter, but we did not identify the customer. This fast track program demonstrates the trust that GM has in Method. It also further adds to the diversity of the OEMs that we are supplying for EV programs. That activity is expected to more than offset the final headwind from the GMT-1 roll-off, as well as a major appliance program that is going end-of-life in fiscal 25. The overall net result is the continued expectation of organic sales growth in fiscal 26. On a more granular basis, excluding the appliance business, which is non-quarterless, we could potentially see high single-digit organic growth in fiscal 26 in an environment of flat end markets. As we navigate this product transition, we remain subject to market conditions, EV adoption trends, and the success of our customers' program launches. However, as of today, this is the line of sight we have based on our projections, the forecasts of our customer base, and third-party data sources. Turning to slide 10. In summary, for the quarter, sales were lower, but gross profit higher than the prior year, while we returned a positive free cash flow. EV activity was steady and was 24% of sales. The data center market drove strong power product sales and is expected to lead to a record year for those products. We were comfortably in full compliance with all debt covenants, and our focus is on driving fundamental operational metric improvement which helped to lower both AR and inventory levels. Lastly, since the first quarter, we have extensively rebuilt the executive management team, including five new leaders hired from the outside. Going forward, our focus this fiscal year continues to be on transforming the business while positioning it to return to profitable growth next fiscal year. Meanwhile, we are focusing intensely on executing six more program launches this year, while preparing to launch another 27 next year. Our decisive actions to reset performance are expected to continue to improve our operational metrics and reduce costs. As I laid out in our transformation roadmap, we are continuing to build and grow our capabilities, shift our culture, and we are planning the next steps of developing our strategy. Lastly, for fiscal 26, we are reaffirming guidance for profitable organic sales growth. I firmly believe that our business is headed in the right direction. At this point, I'll turn the call over to Laura, who will provide more detail on our third quarter financial results.