Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Methode Electronics Fourth Quarter Fiscal 2022 Results At this time, all participants are in 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 host, Vice President of Investor Relations, Robert Cherry. Sir, please go ahead.

Thank you, operator. Good morning, and welcome to Methode Electronics fiscal 2022 fourth quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2022 third quarter financial results, which can be viewed on the webcast 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 statements 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. At this time, I'd like to turn the call over to Mr. Don Duda, President and Chief Executive Officer.

Thank you, Rob, and good morning, everyone. Thank you for joining us for our fiscal 2022 fourth quarter earnings conference call. I'm joined today by Ron Tsoumas, our Chief Financial Officer. Both Ron and I will have opening comments, and then we will take your questions. Let’s begin with the highlights on Slide 4. Our sales for the quarter were $289 million, upping our sales by $7 million with successful spot buy in premium freight cost recovery efforts. However, our Automotive segment encountered demand headwinds in North America and Europe due to program roll offs and the ongoing global supply chain disruptions. Also in Europe, the extent of the weakness in the auto market, due to the conflict in Ukraine was worse than expected. Also unexpected where the COVID-19 lockdowns in China, which led to weaker than forecasted sales in Asia. While the overall sales for the quarter were in our expected range, sales could have been better reducing the effects of other headwinds. We continue to face the ongoing supply chain challenges in the quarter. Our team worked diligently to mitigate these challenges which required remedial actions such as spot buys and expedited shipping. We have worked relentlessly with our customers to share in the absorption of these increased costs. You may recall that we had made solid progress on this front in the third quarter. However, in the fourth quarter, we saw even more acceleration in our material, labor and freight costs. Our ability to obtain reimbursement for or to offset these costs is likely the lag as a matter of process as long as inflation continues. In addition, the demand weakness in Europe resulted in an unfavorable product sales mix. All of these factors, along with some unanticipated expenses, significantly changed the landscape from the time that…

Thank you, Don. And good morning, everyone. Please turn to Slide 8. Fourth quarter net sales were $288.7 million in fiscal ’22, compared to $301 million in fiscal 21, a decrease of $12.3 million or 4.1%. Fiscal ‘22 sales include a $7 million of spot buy in premium freight cost recovery, partially offset by an unfavorable foreign currency impact of sales of $5.7 million. Excluding the spot by premium freight cost recovery and foreign currency impact, sales decreased by $13.6 million or 4.5%. Sales declined in the automotive industrial interface segments but increased in the medical segment. The decrease in the fourth quarter sales was mainly due to program roll offs in North America, supply chain issues in North America and weakness in Europe due to the conflict in Europe. While year-over-year sales in Asia were higher in fiscal ‘22 as compared to fiscal ’21, the lockdown in China due to the zero COVID policy impacted our fourth quarter results, especially to our expectations to our March guidance issuance. This weakness was partially offset by higher sales of EV product application which amounted to 17% of sales in the quarter and for the full year. We now expect EV sales to represent over 20% of our full year fiscal ‘23 consolidated sales. Income from operations decreased to $14.6 million from $33.7 million, mainly due to higher costs due to material cost inflation, spot buys, an increase unreimbursed freight which accelerated during the quarter and our ability to fully recover the increased costs from our customers was hampered from a timing perspective. Also, reduced sales and unfavorable product mix contributed to the decline in the operating margin. Fourth quarter net income decreased $14.9 million to $16.2 million or $0.43 per diluted share from $31.1 million or $0.81 per diluted share in…

Thank you very much. Kelly, we are ready to take questions.

Certainly. The floor is now open for questions. [Operator Instructions] Your first question is coming from Luke Junk with Baird. Please pose your question. Your line is live.

Good morning. Thanks for taking the questions today.

Good morning, Luke.

For starters, was just – I want to start on the top line. Hoping you could help us unpack the lower sales and power distribution that you said in the quarter. Should we read that as purely a reflection of the market and the weakness that you called out in China? And I would assume probably Europe to some extent as well, or is there anything else that we should be aware of there?

I would say, there's nothing unusual. This is the way the orders flow. Ron, do you have any additional comments? It was the slowest quarter and the last of several, but nothing particularly notable. Ron?

Yeah. Luke, I think the lockdown that we experienced in China negatively impacted our ability with our products as well. As that has lifted, we would expect that to relieve that pressure in the first quarter of this year after the lockdown is lifted.

Okay, thank you for that. And then switching to margins, but staying with industrial, maybe a question for you, Ron. Can you just help us better understand the earnings bridge versus last year in the segment? If I look at the top line down to few million dollars, but income from operations off more than $10 million. And what I'm wondering is, how much of this is timing-related or temporary in terms of things like mix or whatnot, as opposed to something that you'll need to ultimately recover from your customers and could have more of a lasting impact as we look into the first half of next year, I’d say?

Yeah, Luke, yes, I took extra care to talk about the industrial segment because it is our highest-margin segment. And you're absolutely right. I think, if we look at some of the margin mix compared to our year-to-date, or 40% margin last quarter. Of that margin mix, about 50% of it was due to the - the material, excess freight and spot buys of which we don't anticipate -- we anticipate some recovery in the future. And then part of it was due to some of the inventory-related items that I had mentioned, whether they be booked to physical adjustments, a profit elimination of any inventory based on the amount of inventory that's on the water. We would expect those types of costs to not continue are certainly much harder to forecast. So we anticipate in fiscal ‘23 our industrial gross margins gravitating more towards where we have historically been as opposed to what we experienced in the fourth quarter.

Okay, thank you for that clarification, especially the last comment there. And then the last thing I wanted to ask is a related question, but in the auto business. And just want to make sure we're reading the $7 million of spot buy and premium for a cost recovery in the quarter correctly. Specifically, I don't know if you can disclose how much of that pertained to the current quarter i.e. offset to the cost of the experience in the quarter versus some kind of clawback of cost that you had incurred in prior quarters?

Probably half and half look at a high level 50% each.

Okay, great. Well, I will go ahead and leave it there. Thank you.

Yes. And Luke, I just want to clarify on your first question when we were talking about power and actually the effect. I agree with Ron the EV power certainly affected by the shutdown in Asia. But also our non-EV power had a slower quarter than in the past. And again, there's nothing special there perhaps a little bit affected by the lockdown, but more just the order rate. But I just wanted to clarify that, that was really two areas of our power group.

[Operator Instructions] Your next question is coming from John Franzreb with Sidoti & Company. Please pose your question. Your line is live.

Good morning, guys, and thanks for taking the questions. Take a step back, you've carved out freight, labor and material as the reasons for the margin degradation. For the company as a whole, okay, how much either dollar values or percentages that impact the fourth quarter on either relative or sequential basis?

So, on the fourth quarter, we had about $3.5 million net impact.

On all three of those buckets or --

Yeah. So what we billed as price recovery and what we incurred as price recovery was a net negative of about $3.5 million.

Okay. And would you look at the slope of clawing back those costs, is it something is going to take time for any specific reason? Or could you get that back relatively quickly?

Now, let me answer that. First, let me say this. And am I correct? I've never had to go back to a customer twice in such short order for price increases or to gain expedited class. So it's very unusual in auto and in the commercial vehicle group. So what we have seen -- and we do recover those costs. And the team did -- up until the third quarter, I thought did a very good job. In the fourth quarter, we ran into more resistance because this has been going on for a while. I think I've said in the past that this can be a six to 12-month process. Now, if you have a situation where you present it to the customer, we can ship you parts, but we have to incur extra overtime or something very unusual and the customer agrees or increase in purchase order and all that will occur in the same quarter. But generally, if you're going for material price increases, or even in the freight recovery, it's a process and customers are getting the same pressures that we are and there's - we saw a fair amount of resistance in the fourth quarter. I thought we won't prevail and that we've -- over the years we've done a good job of that, but it is a headwind that I said in my prepared remarks, it's going to be there until inflation subsides. Do I think whatever we incurred here in the fourth quarter, we're going to recover at some point in this new fiscal year? Yes. The timing of that is a bit unpredictable.

Okay. Regarding the GM T1 program. Are you supplying? Is there any more revenue from that program that's going to be hit in the first quarter of this year?

On the on the GM T1 lightweight truck program that has rolled up we will have zero revenue this quarter, and it’s fully rolled off fourth quarter.

Right. Just make sure that. And you've referenced that you expect the first quarter EPS to be soft. I'm just wondering if you're comparing to a year ago, or you're comparing it to the fourth quarter

The cadence from -- for the full fiscal year, that we anticipate quarter by quarter basis for this year coming up, that will be -- we anticipate that being the softness. So kind of a continuation, I guess for the lack of better word just coming out of the fourth quarter, our first quarter will be -- we anticipate that being starting off soft.

Okay. So in cadence wise is the softest. But you're not suggesting that it's going to be down versus the fourth quarter.

That's correct.

Perfect. Okay. And just I guess one last question regarding your CapEx? Are there any significant programs you plan on initiating, that we should be aware of in the coming year?

Well, a fair amount of our CapEx is going to be increased capacity for our EV grants that we've won. It's going to be a significant amount of CapEx to do that. So I don't know that there's any particular program that will be CapEx intensive that is rolling on this year. But overall, with the two years of robust bookings that we've had, especially in the EV space, and the power side, especially, we're going to have to increase our CapEx to accommodate that growth.

Okay, thank you very much for taking my questions. I appreciate it.

Thank you.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Donald Duda for any closing remarks.

Thank you, Kelly. Well, thank everyone for listening and their questions. And wish everyone a very safe and pleasant summer. Good day.

Thanks. Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time. And have a wonderful day. Thank you for your participation.