Good day, everyone, and welcome to the Methode Electronics First Quarter Fiscal 2026 Results. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Robert Cherry, Vice President, Investor Relations. Sir, the floor is yours.

Thank you, operator. Good morning, and welcome to Methode Electronics Fiscal 2026 First Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2026 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 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. 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 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. Jon DeGaynor, President and Chief Executive Officer.

Thanks, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm also joined today by Laura Kowalchik, our Chief Financial Officer. Let's start with the key messages. Please turn to Slide 5. I'm happy to report the Methode transformation is firmly on track. There's still much more to do, but the trajectory is according to plan. We had another good quarter for Data Center Power Product sales with growth over the prior year. Our income from operations was up $9 million from the prior year. This was the result of reduction in SG&A costs and operational improvements that we have been sharing with you. This is clear evidence of Methode starting to earn the right as we like to say. Another example of excellent improvement is the third straight quarter of strong free cash flow and net debt reduction. Our management team is maintaining a key focus on both the income statement and the balance sheet. As we look to the remainder of fiscal '26, we are confidently affirming our guidance. Despite all the various headwinds that we are facing, the company still expects to double its EBITDA for the full year, even with a $100 million decline in sales driven by lower EV demand. The ability to affirm this profit growth is a direct result of the significant and tireless efforts of the Methode team. They put a lot of work into our transformation and the progress is tangible. Turning to Slide 6 and our results for the quarter. Our sales were $241 million, down $18 million year-over-year as we continue to navigate the transition in programs that we have previously communicated. We remain on track to launch over 30 new programs this year with most of the launches scheduled for…

Thank you, Jon, and good morning, everyone. Before I begin, I would like to address the cause of our delay in reporting first quarter earnings. Shortly before our original reporting date, we discovered an inadvertent miscalculation of dividend equivalents. This caused us to exceed our restricted payments basket for the first quarter as per our credit agreement. The amount was not material but was in excess of what the agreement allowed. We subsequently needed time to obtain a waiver from our banks, which we could not disclose until the matter was resolved. The waiver was successfully obtained. Please turn to Slide 10. The first quarter net sales were $240.5 million compared to $258.5 million in fiscal '25, a decrease of 7%. On a sequential basis, sales decreased 6%. The quarter saw continued growth in the sale of Power products, including data center applications. In the Automotive segment, sales were weaker in North America as we continue to experience a net negative impact from the transition from legacy programs to new ones. We also experienced continued sales weakness in commercial vehicle lighting applications. First quarter adjusted income from operations was $2 million, an increase of $6.7 million from fiscal '25. On a sequential basis, adjusted income from operations increased $23.6 million from the fiscal '25 fourth quarter. Please see the appendix for a reconciliation of all adjusted measures to GAAP. On a year-over-year basis, gross profit was relatively flat despite the $18 million on lower sales. The main driver of the improved operating income was a $9.6 million reduction in S&A related to lower professional fees and compensation expenses. In the sequential comparison, the fourth quarter of fiscal '25 included an excess and obsolete inventory expense and discrete inventory adjustments of $15.2 million. Overall, despite the $18 million sales headwind, Methode…

[Operator Instructions] Your first question is coming from Luke Junk from Baird.

Jon, maybe starting with Automotive, clearly most challenging results relative to Methode overall still. I know there's a lot of countervailing factors there. Just hoping to better understand relative to the overall outlook for EBITDA to double this year. How you see the Automotive segment contributing to that incrementally, especially beyond some of the non-repeating operating items that were in the P&L last year? And then even beyond this year, assume out maybe a couple of years? Just kind of what you envision for that business at a high level on the operating side of the house?

I think it's important that we separate out by region. That's why we specifically talked about the performance in EMEA and the transformation in Egypt. We have Automotive business around the world and our business in EMEA has significantly improved on a year-over-year basis. Part of the challenge that we have in North America, as you well know, is the transition of some of the historic programs rolling off that specifically hit us in Mexico. So the Automotive business globally, I would say the performance activities are impacted disproportionately in North America due to just the roll-off of that program and the subsequent delay in the EV programs, particularly with regard to Stellantis as we've mentioned to you. So we have a bit of a tremendous amount of progress in EMEA. We have stability and good performance in Asia and we have challenges both from an execution standpoint as we talked about in the Q4 call, but also from a revenue headwind perspective in North America. The second part of your question, where do I see it going forward? As we talked about, we expect to see the volumes start to stabilize and grow in fiscal '27 from an EV standpoint, that will create tailwinds for our Mexican facilities and basically for our North American business. And then you also see some of the Data Center activity that we're putting into Mexico that will help it. So I see leverage from all of our segments in our facilities, and that will help the business going forward.

And maybe a related question, just in terms of Asia. So I know there's been program roll off impacting that business in Automotive as well, if we look at the sales base following that roll off fairly limited on a quarterly basis right now. Just maybe at a high level, strategically, how you're thinking about Asia. And clearly, relative to EV is one of the trends that you're most focused on probably the most opportunity-rich region in China, especially.

Yes. Our Asia team, really, in many ways, is leading our activity from development of new product for EV applications. The battery interconnects and some of the other advanced activities are being led out of -- from a manufacturing perspective out of Asia. So they become our -- in many situations, our launch facility and our first -- and our first product development and product validation location. So yes, true, we had headwinds for the roll-off of one customer's programs. But I see a lot of progress there. It's a very well-run organization from an operational and from an engineering perspective as well as from a working capital side. And they built -- they give us credibility with customers, both on the Power side and on the -- both on the Data Center and on the EV Power side, and give us a chance to grow around the world.

Got it. And then maybe just a quick one on the interface business. I know that in the bridge you've given us for the current fiscal year, there was an appliance program roll-off reflected in that bridge. Are we seeing that in the first quarter results yet and to what extent there might be any offsets from the transceiver business that we're seeing in the P&L right now?

The reason we did put that bridge in there is the situation is consistent with what we have said in previous quarters. So the roll off, as we talked about in the fiscal year and how they're going to move year-over-year is consistent from 1 quarter to the other. So yes, you're seeing the impact of the roll-offs both from the user interface as well as from the Whirlpool business and then we see the ramp-up of some of the new programs as well as the backfill with some of the data center activity.

Your next question is coming from John Franzreb from Sidoti.

I'm curious, last quarter you provided a slide that kind of really took a deep dive into the tariff outlook. Has there been any change in your tariff expectations, be it positive or negative?

There has been no change, John. We had, what, $1 million worth of impact. That's more of a timing thing than it is anything else in the quarter. But we have been pretty consistent in our approach with regard to tariffs, we're not going to bear the extra cost. We worked with the customers on this. And so there has been no change different than what we said in the previous quarters, and we feel pretty confident to the greatest extent we can be confident with the changes in Washington. We feel pretty confident based on what we see right now as to where we're at and the relationships that we have with customers through this. The other thing that I would say is, and I mentioned it a little bit in the additional RFQs. The current tariff regime is actually creating opportunities for us because our facilities -- our ability to -- they are USMCA compliant and our ability to deliver in North America with 97-plus percent USMCA compliance. So it's creating opportunities in RFQs that we didn't see 6 or 9 months ago. We have customers that are new to us.

That's good to hear. And in terms of restructuring actions, can you talk a little bit about how far along are you in this process, Jon? You just got the low-hanging fruit at this point? And maybe some more color of what kind of we should expect maybe in fiscal 2026?

Well, I mean, we've talked about the transformation of the leadership team. And in the last quarter, we talked about the move -- the consolidation of the headquarters facility. We're on track with regard to that and believe we'll have everything completed by the middle of this fiscal year, from the headquarters consolidation and facility consolidation. We continue to look at what we can do around the world with regard to reduction of whether it's engineering activities or whether it's warehouse activities or other facilities to take structural cost out. But there isn't anything at this point of a level of materiality. So the -- we reduced head count probably by 500 people, and we continue to refine that. And part of the transformation that -- part of the improvement that underlies the EBITDA growth and the performance growth is just headcount reductions in our different facilities, be it in Mexico or in Egypt in particular.

Got it. And just, I guess, when you look at the end markets, [indiscernible] truck, the ag and construction have been particularly favorable. I'm just curious about your thoughts on how those end markets play out in the year ahead based on what your customers are telling you?

So we continue to get indications from our customers as well as from forecasting services like ACT that the commercial vehicle space is still down by 5%. We do expect it to rebound in '26, and we're starting to see -- we haven't seen that come through in EDI yet. What we are seeing is as we've -- our Lighting business has worked very hard to improve our relationships with customers. We're seeing additional RFQs. We're also seeing interest on the Power side from a commercial vehicle standpoint. That doesn't have -- that doesn't have near-term revenue impact, but it does have future impact, and it goes to John, what we've talked about with earning the right with customers from the standpoint of us being viewed as a trusted partner beyond just Lighting. So both on the commercial vehicle side and on the Ag and construction side, we still see softness in the end markets. But we are gaining business based on the improved execution of the organization.

Your next question is coming from Gary Prestopino from Barrington.

Okay. A couple of questions here. First of all, when you reported Q4, you gave us a sales bridge for sales guidance for this year. Has anything changed dramatically in that bridge? I mean, are we still looking at a $40 million reduction in Stellantis programs and then about $48 million of other program launches positive on the sales side?

And that's the reason why we didn't put the bridge back in again, Gary, as there's nothing to change. So as you think about how you model it, just go back and get that as the basis.

And just wanted to make sure there. Couple of questions here surrounding busbars for data centers, okay. Is this mostly a new construction market, what you guys are supplying? Or is there a repair and replace component of this market for these busbars for data centers?

This is primarily new construction and everything that we talked about with regard to our guidance is what we would refer to as sort of current technology. We're working with them on future advanced activities. None of that is in our guidance. We're excited about those opportunities, but it's a little bit too soon to talk about from a revenue perspective. But everything that we're talking about here is sort of current product technology and is new construction with multiple end customers.

Right. Because the gist of my question is that, yes, it's new construction, I mean, who knows how long this is going to go on with growth in data centers. But I guess I'm getting -- what I'm leading to is -- are the plans -- can this business get to be fairly substantial relative to the whole pie. It looks like from the chart on Page 7, it looks like EV is maybe about 60% of the sales, data centers maybe about 35% of fiscal '25 sales. I mean, is there a way you can make it bigger? Or are you just range bound by the fact that it's a new construction market?

No, we're not range bound because remember, we have a relatively de minimis share of the total. So what we've done, and we talked about it in previous calls, to be more responsive to our customers and offer them utilizing our global footprint in a more efficient way than what we've done in the past has allowed us to grow share on the current data center product. That's where you see the growth between fiscal '24 and fiscal '25, that also is giving us opportunities with expansion because we weren't on every one of their designs for the current data centers. But in addition to that, and so that's what we talked about is in our current guidance. In addition to that, then, as they look at putting higher voltages into their data centers and bringing high voltage closer to the rack, we are working to try to help them with that. And that's growth on top of what you see here. So the chart on Slide 7 is historical and yes it is Power activities, not just for data centers, but for Mil/Aero as well as EV. But what you heard me say earlier is now we're starting to talk about commercial vehicles. We're starting to talk about utilizing those core competencies in other pieces of our end markets and with our existing customers as well as what's the next product families with our existing customers like the data center customers. So we expect this as an opportunity for growth. That's what I mentioned in my script.

Okay. And then I want to also ask about the EV side of the business here. Can you give us an idea of the percentage of your EV sales that our products for EVs, I should say, that are outside the U.S., which will be mainly China and Europe, I suppose?

So the -- we look at fiscal 2025, and that's probably the best way to look at it, so you don't get into one quarter versus another quarter. And remember that we sell things beyond just busbars into EVs. In fiscal 2025 for our total -- our total if you will, EV sales split, roughly $220 million of fiscal 2025 revenue went to EV products, as we said, the 20%; 55% of that was in EMEA, 16% of that was in Asia and 30% in North America. So when we say to you that our exposure isn't just a North American exposure to EVs, it's -- that's the basis for the data. Certainly, we had expected and you go back to the sales bridge that was the start of your question, we had expected significant growth in North America EV, particularly with Stellantis and a few other customers. That's where we see some of the headwinds in North America, but the overall split is balanced between the regions.

Okay. So in terms of what you're looking for this year, just particularly with the busbars to the EV market. It's safe to assume the majority of any growth is going to be coming from outside the U.S. just because of the Stellantis program reductions?

Absolutely.

Thank you. That concludes our Q&A session. I will now hand the conference back to CEO, Jon DeGaynor for closing remarks. Please go ahead.

Yes, I want to thank all of you for joining us and for your interest in Methode and for your questions. We look forward to updating you on our progress in future calls. And have a great day.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.