Methode Electronics, Inc.

your host, Robert Cherry, Vice President of Investor Relations. You may begin.

Thank you, Operator. Good morning, and welcome to Methyl Electronics' Fiscal 2025 Fourth Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2025 Fourth Quarter Financial Results, which can be viewed on the webcast of this call or found at Methyl.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. The 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 and met those 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 fourth quarter earnings conference call. I'm also joined today by Laura Pawlczyk, our Chief Financial Officer. Let's start with the key messages. Please turn to slide five. In my first 12 months, we've achieved a great deal, even if there's still much more to do. We've built a strong team and stabilized the organization. The way in which the leadership team and I have been talking about our activities and priorities over this first year is all about earning the right with our shareholders our customers, and ultimately with more than 7,000 people that work for Method. What you'll hear on this call and read in the next few slides is the progress that we have made to earn that right. That's the transformation that we're talking about. To earn the right to write the future story, we must first get the foundation correct. In the fiscal year, we took numerous actions to improve our execution, reduce our costs, and respond to external challenges like tariffs and market volatility. Unfortunately, The benefits from these actions were largely masked by a number of items that were one-time or historic in nature, such as the fourth quarter inventory write-off. Regarding market volatility, EV activity in the fourth quarter slowed, and fiscal 26 will be a reset due to EV program delays, especially by Stellantis. We do expect fiscal 27 will be a return to growth. Overall, we truly feel that we have put many of the issues of the past year behind us, while still maintaining a strict focus on business performance. For instance, we delivered $26 million in free cash flow in a quarter. That's the best quarter that the company has had since Q4 of fiscal 23. For the full year, our focus on cash drove a $12 million improvement in tooling recovery and a $22 million reduction in accounts receivable. We also set records for the quarter and the full year in data center power product sales, with the year finishing at over $80 million. Going forward, we expect this level of activity will continue and there will be opportunities for growth. The transformation that I spoke about is absolutely progressing and its priorities remain unchanged. However, given the market conditions, we are looking at a somewhat extended timeline for that transformation. As we look to fiscal 2026, despite all of the challenges that I have cited, the company expects to double its EBITDA as a result of our operational improvements. We expect to achieve this even in the face of approximately 100 million in declining sales, driven by lower EV demand, again, mainly driven by Stellantis. Turning to slide six and our specific results for the quarter. Our sales were $257 million, an increase from Q3, but down year-over-year. $17 million in sales increase was from Q3 was driven by record sales for power products and data center applications. The lower sales from the prior year were driven by the impact of two large, previously disclosed auto program roll-offs. We have now anniversaried the roll-off of the EV lighting program, but we still have two more quarters of year-over-year comparison headwinds on the GM Center Council program roll-off. We recorded adjusted loss from operations of $22 million. Of that loss, $15 million was attributable to unplanned inventory adjustments. These adjustments were for an increase in excess and obsolete inventory reserves and for a discrete inventory revaluation in the quarter. The primary driver of these adjustments were reduced, delayed, or canceled programs that did not have sufficient future demand to support the inventory levels. The impact was mostly in North America and included some in EV programs. Historical warranty and quality issues for existing auto programs contributed approximately $5 million to the loss as well. These historic charges reinforce the actions that we have taken to improve our operations, supply chain, and product launch capabilities. Turning to a true bright spot, as I mentioned, we had record sales for power products and data centers for both the quarter and the full year. The full year sales exceeded $80 million, and we expect a similar year in fiscal 26 with potential for more growth. The full year sales were almost double those of fiscal 2024. We are achieving this performance based on our existing product technology, utilizing our global footprint to serve the customers. What's truly exciting is the opportunity that we have to leverage our power expertise to capture growth that is being driven by the rapid evolution of component designs to enable the vast increases in power density sought by future data center operators. It is too early to share any more details on this, but it's very promising for the future growth in our power distribution enterprise. Turning to EV activity, sales grew year-over-year. For both the quarter and the full year, they were 20% of our consolidated total, an increase from 14% and 19% respectively. While these year-over-year comparisons improved, our EV sales on a sequential basis from Q3 decreased approximately 10%. We remain bullish on the long-term megatrend in EVs. However, as I mentioned earlier, the near-term outlook is soft, particularly in North America. Weaker market demand is driving lower customer EDI forecasts, some program launch delays, and a couple program cancellations. This is causing us to project a 10 to 15 percent decline in EV sales for fiscal 26, a much different picture than just one quarter ago. However, based on our customer EDI forecasts and third-party industry projections, we expect a significant rebound in EV sales in fiscal 27. Our team has been and will continue to be extremely proactive on any exogenous program delays or changes, and actions are underway to recover costs and capital investments related to these program delays. The outcome and timing of these recoveries is yet to be determined. Both free cash flow and debt reduction are good stories for us. Despite all the external factors, the business delivered free cash flow of $26 million in the quarter, which was the second quarter in a row of strong free cash flow. Our relentless drive to reduce working capital is driving this result. In turn, we reduced both our debt and net debt levels by 10 million from Q3. We also generated more free cash flow than the prior year Q4, despite 20 million less in sales. This is another clear indicator of an organization whose operating efficiency is improving. Lastly, our primary focus continues to be on improving operational execution and successfully launching the large pipeline of new programs. As we've communicated before, we are in the midst of a record two-year new program launch window. In fiscal 25, we launched 22 new programs. We expect to launch another 30 new programs in fiscal 26. Our customers continue to count on us, and we plan on continuing to deliver. Speaking of new programs, for fiscal 25, we had bookings of over $170 million for new and extended programs. About two-thirds of the awards were for power distribution solutions in EV, industrial, and data center applications. The method team has put a lot of hard work into rebuilding our foundation in fiscal 25, which we expect that work to lead to notable performance and financial improvements in fiscal 26. Turning to slide seven. As I mentioned earlier, I'm marking my one-year anniversary as CEO of Method. I'm truly proud of what we have accomplished as a team and I want to share some of the reflections on the past year and the road ahead. Transformations are never easy. I make a distinction between transformations and turnarounds. Quite simply, a transformation is about fixing a business in a way that enables it to evolve and positions it for future growth. A turnaround is basically just fixing the business back to some status quo. The method journey is undoubtedly a transformation. Like any journey, The path is not smooth nor linear. The first order of business was stabilizing the base, which included the significant organizational changes that we made in previous quarters, and that focusing on executing program launches while simultaneously revamping plans and rebuilding the team, all in the face of numerous external distractions. Business plans are always linear on paper, but the real world curves and bends every day. The past year was no different. Whether it was tariffs, market shifts, geopolitics, or other factors, we had to maintain discipline and our focus on our objectives while conditions were constantly changing. We worked hard to remediate practices that had atrophied or institute practices where they didn't exist. We now have better visibility into the business and are driving more global collaboration and efficiency, especially around engineering, product management, and supply chain. The work is showing in many areas but is exemplified in our improved working capital, especially around AR and inventory. As we rebuild our foundation, it positions us well to leverage synergies and utilize core competencies to align with market megatrends like data centers and EV. We can also then optimize our footprint and reevaluate the composition of our portfolio. While the financial results are not yet what we want, our team has accomplished much over the past year. and our foundation has been laid for us to drive consistent and improved execution. On slide eight, I want to spend a little 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. First and foremost, we've put in the work to improve our fundamentals and reset performance. It can be seen in 100 basis points worth of gross margin improvement, 9 million worth of SG&A reductions, and $12 million worth of tool and recoveries, all fiscal 25 year-over-year improvements. Then there's been a whole series of execution-focused improvements, like $11 million reduction in freight, reduction in scrap, and a reduction in headcount of over 500 people. All of this complements the execution of customer pricing actions, supplier cost reductions, and material sourcing actions. None of these activities could have been done without the reset of nearly all of the executive leadership teams. the reset and talent lower in the organization, as well as bringing in some specific outside help. However, in order for the organization to be a stable, long-term, execution, and growth-focused organization, it has to have internal capabilities, especially in plant operations, engineering, and the supply chain. Talent and solid fundamentals are yielding improved rigor and discipline in the way in which we procure material, operate our plants, in our launches, and in the way in which we develop new products for our from an engineering standpoint. What that leads to is a change in culture for a company that's almost 80 years old. There's been a lot of change at Method over the decades. What we're trying to bring back is more of a one-method approach, working much more collaboratively and much more globally, leveraging our best practices to drive numeracy and cost consciousness down throughout the organization and to really drive a sense of urgency. Turning to slide nine. So how do we continue to earn the right from here? We continue our foundational actions to successfully launch programs, drive improved operational execution, and accelerate lower-level team rebuilding, all of which will be enabled by our new global engineering and product management teams. Second, we keep refining the organization to harmonize it to market opportunities. That includes the right sizing of plants and headcount. It also includes footprint consolidations. And finally, we take actions to address our structure and capital discipline, like reducing our board size from 10 to 7 directors, relocating our headquarters to an already owned Methode facility, reducing our dividend, and reviewing our product portfolio. All of these actions support Methode's core business and data centers, EV, and lighting, which provide an attractive foundation for value creation in fiscal 26 and beyond. While the transformation is certainly about improving execution and reducing cost, it is also about driving innovation. What drives competitive advantage at the end of the day is the ability for an organization to redeploy the knowledge, resources, and capital it gains from its everyday business into new products and markets. Method is systematically taking this proactive approach, whether it is digging deeper into the power needs of our data center customers or optimizing our footprint and portfolio for what it's what the customers and the business will need in the future, we are working hard to refine our business model. We will continue to highlight the milestones on this transformation journey, but it does take the passage of time to be fully appreciated and valued. Everything that I've shared with you today gives us confidence to not only provide guidance for fiscal 26, but to project a doubling of our EBITDA from fiscal 25. Laura will share more details on our guidance later. In summary, I firmly believe that our 2025 actions have positioned Methode for success in 2026 and beyond. At this point, I'll turn the call over to Laura, who will provide more detail on our fourth quarter and full-year financial results.