Good morning, everyone, and welcome to the Methode 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. [Operator Instructions] 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 Methode 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 methode.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. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode’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 Methode’s filings with the Securities and Exchange Commission, such as our 10-K and 10-Q reports. On Slide 4, please see an agenda for our call today. We will begin with an introduction of Methode’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 5. At this time, I’d like to turn the call over to Mr. Jon DeGaynor, 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 Rawden, 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 Methode at this pivotal time for the company. I’ve long admired Methode in my roles as 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. However, 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 plants. 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…

Thank you, Jon, and good morning everyone. I'd actually please turn to Slide 13. First quarter net sales were $258.5 million compared to $289.7 million in fiscal 2024, a decrease of 11%. On a sequential basis sales decreased 7% from fiscal 2024 fourth quarter. The main impact on sales in the quarter was the previously disclosed roll-off of an EV lighting program in Asia, that program ended toward the end of last fiscal year and had no sales this quarter. Also impacting this quarter was market weakness for our lighting products in the commercial vehicle, construction and agricultural applications. That weakness was partially offset by growth in our auto sales in Europe. First quarter adjusted loss from operations was $4.7 million, down $10 million from fiscal 2024. On a sequential basis, adjusted loss from operations improved $5.1 million from fiscal 2024, fourth quarter. Please see the appendix for a reconciliation of all adjusted measures to GAAP. Income was negatively impacted both year-over-year and sequentially due to the lower sales volume. In addition, we continue to have high launch costs to support the numerous new program launches that Jon described. We also had a discrete legal fee in the quarter related to Hetronic litigation. Overall, our first quarter sales were on track with the full year expectations. Turning to Slide 14, shifting to EBITDA a non-GAAP financial measure, first quarter adjusted EBITDA was $9.8 million, down $9.5 million from the same period last year. On a sequential basis, adjusted EBITDA improved $4.5 million from the fiscal 2024, fourth quarter. Compared to the prior year adjusted EBITDA was negatively impacted by the lower sales and gross profit. On a sequential basis, adjusted EBITDA improved despite the lower sales as a result of higher gross profit. The higher gross profit was driven in…

Thank you very much. [Operator Instructions] Thank you. Your first question is coming from Luke Junk of Baird. Luke, your line is live.

Great. Thank you for taking the question. Good morning everyone. Hoping I could start, Jon, with the gross margin, especially within automotive specifically, you mentioned the improvement that we saw sequentially in the quarter. Hoping we could just unpack that. Clearly, gross margin, especially in auto has been under pressure the last few quarters, launch, overhead cost absorption. I know there's a lot going on there. Can you just unpack what went right this quarter in terms of gross margin and auto especially, and how we should think about that as being sustainable as we look the next couple of quarters? Thank you.

Luke, good morning, and thanks for your question. I think it's important to understand that the team has been working hard not only on the launches but on driving operational improvements. So what you're seeing is both the impact of operations improvement particularly in North America and in our EMEA regions. Impact of price increases that have been – that have been passed on to the customers, work that's been done on price reductions with our supply base and then some of the impact of, some of the cost reductions that we've talked about in previous quarters. So these are ongoing improvements that will continue to gain momentum on a quarter-over-quarter basis and why we feel confident in the progress that we talk about – that we talk about here.

Got it. Thank you for that. Second question, a little bigger picture and it's in terms of the interface business and the appliance roll-off that you're looking at. In fiscal 2026, just how does that impact your view of the business? It would seem like sales are going to come down a lot there just in terms of the strategic relevance going forward and then managing that specific earnings headwind from that roll-off? Thank you.

Yes. So the interface business was as I'm coming to learn was critical for us as we launched the GM business and launched some of the other PaaS [ph] interface business on the automotive side. What you're seeing us starting to look for is how do we find synergies between the different segments and how do we – how do we create some synergistic value between our lighting business and our industrial controls business and other areas. So we do have some new appliance programs, so it's not just bad news from an appliance side, but when you talk about all of the launches that we have that we mentioned multiple times, 30 this year and over 20 next year. We mentioned this in the last earnings call and we talked again here. The trough that we're seeing from a sales perspective is really being filled by a whole series of exciting new programs that are aligned with what we see as the mega trends in the space. So I'm quite confident about where we're going and the opportunity for us to be aligned with where the different industries in which we play are going as well.

Got it. And then my last question, Jon, just great to get your perspective. Some improvement plans were, had already been outlined for the organization as you came into the CEO seat. It was great to understand your focus for the first 90 days on the job, just how you're prioritizing your time, some of the structures that you've put in place with your leadership team, obviously some folks still coming onto that team and maybe any other kind of initial focus areas that would be worth highlighting? Thank you.

Yes. So as we said multiple times during the call, our first priority is making sure that we do these launches, right. So it's why I've made it a point to get to the regions and I'll make it to the last major region of China here in a couple weeks to make sure that I understand the challenges that the regions are facing and then also to be talking to customers, so the first priority is making sure that we're talking about the regions and our launches. Secondly is in some specific launches to make sure that we're supporting our customers appropriately, and had those first rounds of customer meetings. So that's priorities, if you will, number one, and number two. Number three is really driving an integrated financial improvement approach. So it's not just what are we doing to cut costs in a headcount reduction, but it's a holistic perspective on how do we use the outside resources that we have working with us, as well as the internal teams to be driving scrap production in the plants, driving inventory reduction in the facilities, be looking at our total supply chain as well as what do we do with regard to additional pricing opportunities with customers and looking at the entire thing holistically. As we add capability like with John Erwin as a CPO, and as Dave and Laura transition, I feel really confident that we're building an organization that will be thinking more and more numerately every day and in all of the areas that allow us to drive a holistic, continuous improvement approach. And then I guess the last priority for me is making sure that we build out that leadership team that sets the stage for the next phase of the Methode, if you will, the next phase of the Methode history. So when we say we need to earn the right in front of our shareholders and in front of our customers and in front of our organization to write the next phase of the history, that comes down to leadership. And what do we do to take the 7,000-plus person organization with a 78-year old history and set the stage for the next months, years and decades ahead.

That's all. Very helpful. I'll go ahead and pass it back. Thank you.

Thanks Luke.

Thank you very much. Your next question is coming from John Franzreb of Sidoti & Company. John, your line is live.

Good morning and Jon welcome aboard and thanks for taking the questions.

Thanks very much, John.

I'd like to start with the guidance. Despite lower revenue sequentially and higher operating and pretax profit sequentially you kind of maintain the outlook for the year. I'm curious if that suggests any change in the past two months in market conditions versus what you're looking for at year end?

Not really. We're taking a look at this. We're actually being cautious on how we forecast things. The year still has to play out. We have a good start to the year. Well, I shouldn't say good. As John says you never want to celebrate a loss, but it was better than what we were hoping or we were expecting. But we're still going to keep the guidance where it is just until we get a little bit of better track record of how we go forward in the quarters.

And John, let me just build on what Dave said is it's our responsibility to make sure that we're credible. And credibility comes down to doing what we say and achieving above what we say, as opposed to some of the back and forth that we've had historically. And so when we look at the headwinds in our different end markets we look at the challenges with regard to the launches and just some of the exogenous turbulence, we thought it was prudent for us to affirm our revenue guidance and affirm what we said in the last quarter, but not go any further with that until recognizing the fact that I've been here two months and Dave's been in his role for a couple months as well. So making sure that we're prudent in the way in which we lay this out and to our investors is why we've approached it this way.

Fair enough. Just wanted to make sure.

Yeah. Thank you.

I'm actually curious about the price increases that you referenced in your prepared remarks. Pricing has been an issue for quite some time. I'm curious on two things. One, how much did price impact the gross margin profile in Q1 versus Q4? And two, how much runway do we have left on getting more price gains on a go-forward basis?

Yes. So we don't typically, John, give the sort of detail on exact impact on a quarter-by-quarter basis. But what I can say to you is as we have looked a little more rigorously at some of our programs and some of our longer running programs as well as the new things; it's forced us to go back to customers. And in some situations where you have a even new program delay it requires us to go back to customers because we have capital and we have inventory that we have put in place in order to support a ramp-up. So when I responded earlier about the numeracy and how we think about these things, each of our programs be they long-term programs or new programs, we're looking at the financial performance of those programs and going back and saying, what is our responsibility? And what is it that is a customer's responsibility? And how do we go have very clear, transparent conversations with our customers in all of the businesses?

Okay. It's certainly a worthy endeavor. Lastly, you mentioned in your comments going after supply chain costs, certainly, that’s after you handle your launch, successful launch in new programs. But what is the opportunity in the better procurement on the supply chain?

Yes. So we’ve had both outside help as well as the fresh eyes of John Erwin, our new Chief Procurement Officer, really looking at how we buy, looking at where, with how the organization was structured, where there might be the same thing purchased from multiple places, but also how do we schedule and how do we order material we have. You can look at our inventory and say that we are certainly not as optimal as we like to be from an inventory standpoint. So as I think about supply chain costs, it’s not just the procurement price, if you will. It’s not a price-to-price comparison solely. It’s a total supply chain cost. What do we do with regard to? How we ship material? How much material? How much inventory is sitting on the plant floors? All of those areas allow us to optimize our cost structure and that’s the way John is leading it and the operations team is thinking about it in each of the regions as well as with the outside support to help John on those.

Okay. Actually, I’ll leave it there and let somebody else chime in. Thank you for taking my questions.

Thank you, John. Appreciate it.

Thank you very much. [Operator Instructions] Your next question is coming from Gary Prestopino of Barrington Research. Gary, your line is live.

Thank you. Hi, Jon, welcome back…

Hey, Gary.

…and David and Robert. A couple of questions here. First of all, let me jump around a little bit here. When you’re talking about your guidance where with – on pre-tax income for this year and next year, is that on an adjusted basis or a GAAP basis?

That would be on an adjusted basis.

Okay. I just want to make that clear. Okay. So I’m looking at your balance sheet, okay, and I’m seeing a pretty dramatic increase in inventories. I think I got clocked it at 18% on a sales decline in the quarter and this is on a sequential basis. So could – maybe could you explain why those inventories are up as high as with the growth relative to the sales being down? Is that due to these program launches that you’re going to undertake?

Yes. So, Gary, I’ll take this and I’ll let Dave add if he’s got any additional color.

Okay.

We have to – particularly for long lead time materials, we have to put things in the pipeline based on a customer, based on our best assumption with regard to customer volumes and ramp up. And so when you have a delay in a launch, it’s – you’ve got a pipeline that’s already started, that’s already filled or started to be filled at a certain date [ph]. So when I say to you some of those inventories are this mismatch between what we plan from a ramp up perspective and what’s actually happening, it doesn’t mean that we won’t use the material. It just means that there is a cost to it, of it sitting on our plant floors. And so it goes back to what I said earlier. We’re having to go back to customers and talk about holding costs and all those sort of things. So we’re – there are certainly opportunities for inventory optimization and supply chain optimization and that’s one of the key things that John and his team will be working on. But what you’re seeing here is not as much about an execution stumble as it is just delays in launches.

Okay. So that gets me to my next question. Jon, I don’t mean to be nitpicky, but when you’re putting out your sales bridge here, you’ve got Stellantis program launches. You’ve got $84 million for this year, $125 million for next year. First of all, are you at liberty to discuss the models that you’re going to be launching products on, and are they hybrid or just ICE?

So they’re EV programs. And we are – and we talked about that that these are EV programs.

Okay.

But we’re not upgrading to talk about the specific program, specific platforms. But it’s how you end up going from 14% EV to 18% EV in the quarter, and to what we talked about it being over 20% going forward in the rest of the fiscal year.

Okay. So with this number that you have, and I’m just trying to get a handle on, how are – is this right now what Stellantis has said is going to be their take rate from you guys, or is this based on what they are projecting their models to be? Because I’m getting – what I’m trying to get around, Jon, is that Stellantis is having really difficult problems with inventories on their lots. And I’m just trying to get an idea of how you’re sizing this number.

So certainly, we have to be smart about how we think about these things. And, Gary, as we talked about in previous lives, we do look at what customer releases are, but also then what do we see from an IHS perspective? And so this is with the confidence waiting against it. But understand also that we may have some other economic actions that we take depending on how the ramp up goes. So our revenue for us may not be a part-to-part correlation with their ramp up. So we’re – we watch this in detail. Remember also that we have launches that are around the world. So it’s easy to get distracted in North America with regard to news on EVs. But from a penetration perspective of EVs and the more advanced hybrids actually in the rest of the world, and we’re spread all around the world, China and in Europe, it’s a bigger percentage of sales. And we’re providing power products in those regions as well.

Okay. Thank you. So then, the other thing that I just wanted to touch on, Jon, is I think in your opening comment, you said you’ve been to some of your plants worldwide, and one of the things you said, there’s areas of improvement.

Sure.

Without obviously dwell in too much detail is the areas of improvement dealing with throughput, scrappage, what has particularly, I guess I’m addressing what has been happening in Mexico, too. And can this be rectified with your current personnel at these various plants – leadership [ph] at these plants.

Yes. So let me give a shout out to the guys in Mexico. Not only I mentioned in my remarks that there are plants that are world class, and I would be really proud to take a customer too. The Mexican facilities are a couple of those plants. And yes, we had fairly significant scrap and premium freight issues in fiscal 2024. Part of the progress on a year-over-year basis is actually the operational improvement that has happened in our Mexican facilities. It does not mean that we are done. There is a lot of productivity activities to be done there. There’s a lot of improvement and Philip Farrugia and the team down there understand very clearly what challenges they have in front of them. But it’s a very important portion of the company, and I am absolutely confident of that leadership team and their ability to take not only the progress that they’ve made, the feedback that I’ve given them, the help that we are giving them from the outside to make those facilities in Mexico much, much better.

Okay. Thank you. Wish you best of luck.

Well, thanks, Gary. I really appreciate it.

Thank you very much. Your next question is coming from John Franzreb of Sidoti & Company. John, your line is live.

Yes. Just a quick question on the guidance and this is really the tax expense line that you have $9 million to $11 million. Is that a GAAP number compared to the – some of the other adjusted numbers that you have as a non-GAAP number?

That would be an estimate of what the GAAP tax would be for the year.

Right. Okay. All right. So we have to kind of adjust out what happened in the first quarter and make some assumptions on a go forward basis that will balance those two out, right. That’s how we should think about it?

I would think about it as we recorded the – what we recorded in the first quarter the $5 million. And we expect that for the year it would be about $9 million to $10 million, I’m sorry, $9 million to $11 million.

And just another thought on as the EV programs start to roll out, how should we be thinking about the contribution margin on the new EV programs relative to what you’ve been getting in the recent automotive side of the business?

John I actually, based on some programs that I reviewed yesterday, actually feel really good about where we are from a contribution margin standpoint. We’ve got a lot of execution challenges and we need to make sure that we’re driving our performance appropriately. But based on what I’m seeing from the initial programs and where the financials are, I think it is at a minimum on par, if not accretive from a gross margin perspective.

Great. Great. Thanks for taking my follow-ups. I appreciate it.

Thanks, John.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to Jon for any closing remarks.

Yes. Thank you, operator. And I want to thank all of the people who joined us today for your time and for your interest in Methode as a leadership team. We’re committed to, if you will, earning your trust and building the capability of this organization. And we look forward to talking to you again in the next quarter. Thanks very much.

Thank you very much. This does conclude today’s conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.