Greetings. Welcome to the Methode Electronics fourth quarter fiscal 2025 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Robert Cherry, Vice President of Investor Relations. You may begin.

Thank you, operator. Good morning, and welcome to Methode 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 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 Electronics 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. 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-Ks and 10-Q reports.

On slide four, please see an agenda for our call today. We will begin with the 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 fourth 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 five. In my first twelve months, we've achieved a great deal, even if there's still much more to do. We've built a strong team, stabilized the organization. The way in which the leadership team and I have been 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 seven thousand people that work for Methode. 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, 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 2026 will be a reset due to EV program delays, especially by Stellantis. We do expect fiscal 2027 will be a return to growth. Overall, I 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 the quarter. That's the best quarter for that the company has had since Q4 of fiscal 2023. For the full year, our focus on cash drove a $12 million improvement in tolling 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 $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. The $17 million sales increase from Q3 was driven by 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 Console program roll-off. We recorded an 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 EV programs. Historical warranty and quality issues for existing auto programs contributed $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…

Thank you, John, and good morning, everyone. Please turn to slide eleven. Before we address the financial relative to US tariffs, please note that I will be referring to only the tariffs enacted this calendar year and prior to any specific tariffs announcements from this week. First of all, we have had a cross-functional team meeting daily on tariffs from day one. This has not only helped us to navigate this situation, but has also helped to foster team collaboration and drive deeper understanding of how we run our business. From an exposure standpoint, our US sales of imported goods are up, which is our sales that are potentially exposed to US tariffs. This is approximately 25% of our annual global sales. The large majority of those sales come from goods imported from Mexico. Those goods are subject to the USMCA and over 95% of those goods are compliant. As a result, we are not subject to incremental tariffs on those compliant goods. For everything else, we are targeting 100% mitigation either by passing tariffs through to the customer, leveraging our global footprint to reduce the tariffs to the greatest extent possible, or making for supply chain. To be clear, we have communicated to all of our customers that we expect 100% tariff recovery or mitigation. And to be even more clear, this 100% tariff recovery or mitigation expectation also applies to any new tariffs. The work that the team has done from day one was foundational to dealing with potential future circumstances as well. This is a great example of the one Methode collaboration that John mentioned. Lastly, we are utilizing our global footprint to capture opportunities as a result of our geographic position relative to competitors. Please turn to slide twelve. The fourth quarter net sales were $257.1…

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Luke Junk with Baird. Please proceed.

Good morning. Thanks for taking my questions. John, hoping to start with certainly the key message this morning that you expect sales to come down $100 million, the EBITDA go in the opposite direction and rise into fiscal 2026. I'm just trying to understand some of the key earnings levers at a high level given that sales decline. I would assume most of the improvement we should be thinking about operationally would be within automotive. And then I guess if I look at what's going on in that business, exiting this year, you know, pretty weak jumping off point coming out of Q4 fiscal 2025. Even if I back out the inventory charges and more quality expense, you know, I know you're still launching more programs, so how should we just, you know, think about balancing cost saves versus some incremental cost? Coming in the P&L for launches. Thank you.

Thanks, Luke. And, by the way, good morning. Thanks for your question. You know, I think we talked about some of the base performance improvements during my section. Laura will give you a little more detail on the bridge on the top level. We've done a lot to improve how we launch. And so I think the incremental cost, if you will, for these new launches I've got less concern about. The, you know, the challenge that we have is our reaction, our ability to react in such short order to a fairly significant drop in demand on the EV side makes the revenue hole a little more stark. But if you think about the one-off expenses that would give you confidence in why 2026 should be so much better, we talked about the warranty reserve and while we talked about $15 million in the quarter, full year is $22 million. We had $12 million worth of quality and warranty issues in fiscal 2025. We had $9 million with Alex Partners and $5 million with legal expenses and another $3 million worth of restructuring. All of those things are either eliminated or improved year over year as a basis for our guidance. So there are one-off things that are eliminated, and there are expectations of performance based on what we see in the plants and what we see in our supply chain. What we see in our launch execution gives us the basis for why we believe we can lower sales and double our EBITDA.

Thanks for that, John. All helpful commentary, especially all those individual expense items. Second question, just in terms of the launch activity into fiscal 2026, thirty launches, how should we think about those in terms of the percentage that are EV platforms specifically? And then on the EV side of the house, just how can we conceive the materiality of those launches and maybe, you know, given the Stellantis experience this year, and I know you mentioned other EV program delays and whatnot. Just how you attenuate for that potential risk, either timing or volume, as you put together the guidance.

Well, so we as we said each time, we have used third-party as a basis for how we give our guidance. So we tried to tie back and sense check, you know, what our customers told us with third-party evaluations, and that's what's in the guidance. As we said, EV as a percent of sales is 20% this year, and we'll actually the challenge that we have is in past quarters, we've talked about it being an expansion year over year. Now we're talking about it being relatively flat based on some of the program delays or cancellations. What we have, however, is we have other areas where we're driving growth, and we have the ability to use our footprint that some of the tariff challenges have highlighted actually the power of our global footprint to deliver on power products, and we're taking advantage of that, and we'll continue to take advantage of that on the data center side from a power side. So some of the investment that was made for EV programs, particularly in our North American footprint, we're actually gonna put to work. The capabilities there, we're gonna put to work to support our data center and customers. So the attenuation that we've done is there's been a series of headcount reductions and cost reductions that have been taken against the EV programs where there have been delays or where there have been cancellations. We are going back to customers as we talked about. That's the second piece of the attenuation. And then the third side is finding other ways to utilize our engineering capability and our fixed assets to support other pieces, other markets that we touch, and that's particularly on the data center side.

Mhmm. Just to be clear, so I totally get what you're saying in terms of checking customer schedules with third-party data in terms of EV launches should we think that you're then haircutting that further as well, or are you mainly kinda relying on that third-party?

No. I mean, when we say sense checking it, we're trying to take multiple sources of data. And be as conservative as possible without I'm not a big fan of haircutting it on top because then it comes down to our judgment as opposed to a compilation of expert judgment. So we look at it, try to use the best sources of data that we can get and make an evaluation from there, but we don't unless we have better information that's where communications with customers and other things. Unless we have validated better information, we don't just take haircuts.

Understood. Last question for me just on the balance sheet, Laura. Can you help us understand the leverage waiver think that's in effect until the late July, early August next year. I know it was discussed qualitatively in the 10-K, but I didn't see any specifics yet.

Yeah. As far as the leverage, our covenants were relaxed through next year. And we feel confident that we will meet those covenants over the next year.

Yeah. What specifically is the covenant level, Laura, can you say?

Yeah. It's starting at 4.25 for Q4 fiscal year 2025, and then as at 3.75. That was before the amendment. After the amendment is at 4.25 in Q1. And then goes up after that.

Okay. Can take that offline. I'll leave it there. Thank you.

The next question comes from Gary Prestopino with Barrington. Please proceed.

Hey. Good morning, everyone. A lot here. Alright? So first of all, what I wanna ask is and I think I've got I know the answer to this question. You didn't back out these inventory charges in adjusted EBITDA. So that $7 million that you did in adjusted EBITDA, you would add back that $15 million to get kind of a recurring number on your top?

We did not address those out here.

Is that you did you not adjust those out because of why? I mean, it's a nonrecurring charge. I just wanna get an idea of what the thought process there. Is it something with you you can't adjust that out?

Well, so I'm not the best accounting person, but based on our judgment, it's an operational issue. And so that we don't back those things out. That's why we tried to make it very clear to you and all of our shareholders that these are one-time events even if we didn't adjust them out.

Okay. That's fine. And then you went very quickly through all the one-time items in fiscal 2025. So could we just take that slowly? You had $15.2 million of inventory. What else did you have there? I think you cited four.

So the $15.2 million is just in the quarter.

Right. The total inventory reserve in fiscal 2025 is

$22 million. And we had $12 million worth of warranty and quality charges. $9 million for Alex Partners, $5 million worth of legal expenses, and $3 million of restructuring charges.

Okay. And $3 million of restructuring. Alright. Okay. That's fine. And then if I know Luke kinda answered this out. Asked this question, but I wanna get an understanding. Of these thirty new awards that you've got in 2025, how much of those are dealing with the EV market itself?

It's in our 10-K on from a detail standpoint, but I believe it's about fifty percent of the total. What we talked about and we talked about in the conversation that from our booking standpoint, our bookings are about two-thirds power products be that across the board. So, yes, it still is overweight from an EV standpoint, about fifty percent. But I'm really I'm actually really pleased on where we are with regard to our split of bookings and the opportunities for growth in data centers. I think it's important to note we think about 2024 versus 2025, a doubling of our data center revenue, and the opportunities that we talk about briefly regard to 2025 versus 2026, think it gives us the ability to better balance the business than where we were twelve months ago.

Are these new EV awards still with Stellantis?

No.

Okay. As we talked about, we've got launches around the world Asia, Europe, as well as a couple of programs in North America with other customers. But if you look at the bridge that Laura has, I believe it's on slide eighteen, the that shows you that we have had to haircut majority of the launches in North America, not just the Stellantis launches. The Stellantis launch is the biggest impact but there are other launches that have been delayed with other customers. So we're having conversations with all of our customers with regard to how do we offset what we've done for these launches.

Okay. And that's what I wanted to go back to this bridge because a lot of numbers here. But I just wanna get an idea of the Stellantis. So as of this fiscal Q1 2025, you thought you were gonna get $84 million of Stellantis revenue. As of Q4, that actually materialized $46 million. Is that correct?

Correct.

Okay. So then if we go to the next slide, you have $125 million of Stellantis revenue in that number, and that was what you figured you would I'm trying to understand. Going from side to side here. So it looks like to me, excuse me, John, I don't wanna looks like you almost had a $165 million reduction in what you expected from Stellantis.

That's exactly that. It's exactly it's actually more than that. It's roughly $200 million. So the way to think about it, Gary, is and it's the way the way to think about this for all the investors is this this wasn't something that was foreseeable because if you look at what the customer was talking about as well as IHS, in January of 2025. Now I'm not talking fiscal. No. I'm talking calendar. January 2025, the volumes for those programs were between large and frame, the two big Stellantis programs were combined 169,000 vehicles. In May, of 2025. This is for 2025. Goes back to it goes back to the bridge. So in January, it was 169,000 vehicles. In May, this is for 2025. In May, it was 58,000 vehicles. And in July, it dropped to 15,000 vehicles. So we had a huge drop quarter over quarter, which is why Q4 why Q4 had such a revenue hole and also what drove some of the inventory because we had built a pipeline. We built our plants, and we built our pipeline to respond to long when you have long lead time items like copper, we built a pipeline based on what the customers have told us and what IHS said. We take those same numbers for fiscal 2026, in January first so fiscal 2026 January 2025, that number was 259,000 between the two programs. And May dropped to 176,000 and in July, it dropped to 63,000. So we have been reacting within quarter to huge drops both in the quarter and in the following fiscal year, which is why our ability to adjust and overcome that is just not possible within a quarter. So what we're trying to do, we're conversations with the customers. We're trying to work with them and it's not just with Stellantis, work with all of our customers. And at the same time, be able to use our capabilities, use our engineering, use our operations, use our supply chain to support growth in other areas. So if you think about slide eighteen and nineteen, and say they've had a huge hole punched in the revenue from Methode's perspective. But the performance on a year-over-year basis have negative downward conversion that you should expect in any when you take $100 million with the revenue out. Or the better part of $100 million with the revenue out, and on top of the downward conversion, we're driving what, $30-$32 million worth of EBITDA improvement in our midpoint of our guidance.

So, I mean, in the numbers that you're citing for this year, your I guess it's very easy to assume. There's negative growth from Stellantis, in other words.

Oh, yes. Big time. Absolutely. That's what slide eighteen, if you look at the top of slide eighteen is what we knew when we when I first started talking to you.

Mhmm. You're it's Q1.

That's what we knew at the time.

Mhmm.

The bottom of the slide shows you what we know now.

Okay. Okay. That's I just wanna clear that up. Alright. And then I don't just one more quick question. You know, I saw the report that you're paying a seven cent dividend, so it was fourteen. So safe to assume you've cut the dividend. And it was that having to do with some of the issues you had to get with some amendment changes or leverage covenant changes or whatever. Because the cash flow was still pretty strong.

Yeah. So actually but, Gary, if you look at it based on you know, the dividend has historically been dividend policy is set by the board. But let's just let's just talk about it. If you look at it, this change in the dividend still puts us with a yield, the dividend yield, very much in line with our peers. That initial dividend on a per share basis was set back when the stock was much higher. So the new dividend rate one, is in line with our peers. It gives us back some flexibility from a working capital perspective. And, yes, of course, it did consider what we had to do from a covenants perspective.

Okay. Fine. I just wanna make sure I was on the right track there. Thank you.

Our next question comes from John Franzreb with Sidoti. Please proceed, John.

Good morning, everyone. Thanks for taking the questions. Hey, John. Just we just stick with slide eighteen. Here. And I wanna guess I wanna focus on that $48 million and that other launches and pricing and market. I guess my biggest curiosity is how much of that $48 million has pricing benefits embedded in.

Again, as far as versus versus its new programs is just price price. Yeah. On the right-hand side of the column. It's $48 million down from $107. I'm just curious how much is pricing because figured that's gonna be one of the hardest things to execute.

Yeah. No. No. No. It's not that. This is as we said to you, we've had other programs have either been delayed or canceled. So the down draft between the $107 and the $48 is due to delays or cancellations. Pricing is incremental plus. Pro data centers is incremental plus. So what you have to look at is the combination of the Stellantis plus the other delays. It's basically a hole that's been punched in our revenue plan based on largely North American EV program delays or cancellations. Not price. Right. We didn't get.

Okay. Right. Which brings me to my other question. With so much of a revenue coming out of the automotive side of the business, does that suggest that you're assuming growth in the industrial side of the business in the coming year?

Yeah. It does. And not only does it assume growth, but what you'll see is you see it you see that ultimately, this business is gonna be about fifty percent automotive and fifty percent other. And, you know, we're excited about opportunities to grow. Our lighting business, the industrial activities as well as the data center work. Both on base data center activity as well as future data center activity.

Okay. So that's largely coming from data center given what's going on. And in the truck market.

Yeah. Well, so lighting like, lighting would be data centers and lighting for things other than trucks, not off-highway lighting as well.

You know, since you've since you brought that up, I'm I am curious. How Nordic Lights is performing relative to expectations. Maybe just summarize 2025?

I'm very proud of the team at Nordic Lights. Antti and the team there do a fantastic job in a challenging market. You know, the base market they're not they know, the equipment suppliers aren't blowing the doors off, but Nordic Lights is performing well and the team there has been a good addition. And as we talked about briefly with some of the engineering and program management team, program management changes, the team at Nordic Lights is actually contributing more broadly within broader Methode. I'm pleased with it.

Good. Good to hear. Question about slide nine. So we can move forward from eighteen. Seems like there's a it sounded to me it sounded to me as if there's still more to come. Right? The 2026 priorities including further plan consolidation, SG&A rightsizing, you know, portfolio review, things of that nature. Can you get us a sense of some of the timing of those projects? When do you expect to execute or realize them? Are they, you know, are they over materialized in 2026? Any kind of better more color would be appreciated.

Well, the program launches in the operation execution and the team rebuilding that first one, those foundational actions, those are ongoing and of course, we expect them to impact in 2026. Plant and SG&A rightsizing, we're in the process of we're in the process of that right now. None of them are large enough, you know, 8-Kable announcements. But we're moving forward with those activities in each of our sites in each of our regions to size the business. Based on, you know, based on what product development we need and where we're going. Aligning the portfolio, more to come on that, but I expect activity to happen within the fiscal year. And addressing the business structure the board size reduction, that will happen after the annual meeting in the next forthcoming months. The headquarters relocation we expect to have done within fiscal 2026, We talked to you about the dividend adjustment and, as I've just said, the portfolio review. So, yes, these are all things that we're actively working on in fiscal 2026.

Okay. Of the other questions are already answered. You. I'll get back in to queue. Thanks, John.

We have a follow-up question coming from Gary Prestopino with Barrington. Please proceed.

Yeah. I just wanted to kind of ask just for our purposes of modeling, and I don't wanna get too specific. But on a sequential basis, I mean, how are we looking at the sales plotting out quarter to quarter to quarter to quarter sequentially is the should we expect the same seasonality that we saw a couple of years ago, or is there something here where or you know, you're gonna the it just kinda puts out where it just constantly gets better as we go along in the year.

Yeah. We're checking our notes, but typically, with the launches and the ramp-up of timing, that's why we talked about the improvement second half versus first half. Right. Don't we don't typically provide quarterly revenue guidance. But yes, you would expect to see a there is a level of seasonality particularly in Q3 because of our Q3 being with holidays. But a fairly significant step up in Q4 versus Q1.

Okay. So the answer would be that probably sequentially, we're gonna continue to see increases as we go along. Yeah. And your back half of the year is where you're really gonna shine. Okay. That's fine. Thank you.

We have reached the end of the question and answer session, and I will now turn the call over to Jon DeGaynor for closing remarks.

I want to thank everybody for your attendance today. I'll just conclude it by saying we're really proud of what we've achieved in 2025 and we know that we have a lot more to do in 2026. And we look forward to speaking with you in the next earnings call to describe that progress. Thank you all.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.