Methode Electronics Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 7, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Methode Electronics First Quarter Fiscal 20 24 Results Call. At this time, all participants are in a listen only mode and 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, Mr. Robert Cherry, VP of Investor Relations.

Operator

Sir, you may begin.

Speaker 1

Thank you, operator. Good morning, and Welcome to Metal Electronics' fiscal 2024 Q1 earnings conference call. For this call, we have prepared a presentation entitled Fiscal 20 24 1st quarter financial results, which can be viewed on the webcast of this call or found at metho.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.

Speaker 1

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. 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. At this time, I'd like to turn the call over to Mr. Don Duda, President and Chief Executive Officer.

Speaker 2

Thank you, Rob, and good morning, everyone. Thank you for joining us for our fiscal 2024 Q1 earnings conference call. I'm joined today by Ron Zumas, our Chief Financial Officer. Both Ron and I will have opening comments and then we will take your questions. Let's begin on Slide 4.

Speaker 2

Our sales for the quarter were a solid $290,000,000 They were up 3% compared to the prior year, mainly due to $21,000,000 in sales from the acquisition of Nordic Lights. Excluding Nordic Lights, foreign exchange and a significant drop in customer reimbursed material spot buy and premium freight Cost recovery, sales were down 2%. The dukemades was mainly due to lower sales in our auto segment, which was partially offset by higher sales in the Industrial segment, driven by lighting solutions for commercial vehicles. With the addition of working lights from Nordic and the ongoing contribution from our existing interior And exterior lighting solutions for commercial vehicles and automotive, Methode is clearly building a lighting solutions franchise that complements our growing business in power distribution solutions. In the quarter, we experienced Very unmettoed like operational challenges.

Speaker 2

Operational inefficiencies in our North American auto operations caused mainly by salaried personnel to turnover, poor operational decisions and vendor issues, which led to subsequent production planning deficiencies. This in turn had a domino effect leading to inventory shortages, Unreimbursed spot purchases and premium freight and some delayed shipments. While the full picture is nuanced, I can share with you the essence of what occurred. Our Monterrey operation has historically manufactured with a low mix And a high volume of product. Recently, the operation has transitioned into a mode of higher mix and lower volume.

Speaker 2

This transition combined with the aforementioned issues led to exposure of latent operating inefficiencies that Early warnings detected, but we failed to mitigate, also very unmethoded. In a lean manufacturing environment, a delay in visibility of a problem can ultimately generate significant costs in the form of premium freight and spot buying, both necessary to immediately address material shortages And maintain customer delivery integrity. In auto, delivery in addition to quality is absolutely paramount to both maintaining and obtaining new business. These operational challenges had approximately $0.15 impact on our Q1 earnings relative to our expectations. We also had accelerated expenses related to the numerous program launches.

Speaker 2

I can confidently tell you these operational challenges have been identified and corrective action plans are already in place, including the hiring of former seasoned planners in the U. S. However, the residual effects Our expected impact our 2nd quarter to approximately the same degree and along with a significant weakening in the e bike market are the primary drivers to our lowering earnings guidance for the full year. As I said, This was very unmettoed and I have been and will continue to be personally involved with the efforts to correct the situation. On that, you have my personal commitment as the CEO and as a shareholder, we will fix this.

Speaker 2

Moving to orders. We had a solid quarter with over $70,000,000 in annual program awards. These programs are once again led by electric vehicle programs. Turning to medical. After pursuing multiple strategic avenues for Dabir, including everything from a formal sales process To the continued operation of the business, it became abundantly clear that a discontinuation was the best financial path forward.

Speaker 3

I want

Speaker 2

to thank the Dabir and Methode employees associated with the business for all their efforts as well as the customers who provided the opportunity to market the Dabir product. Turning back to EV activity. Sales in the quarter were 22% of our consolidated total. In new awards, we won over $30,000,000 in annual EV programs. For fiscal 2024, activity will be strong, We'll still be very dependent on OEM take rates as well as the timing of program roll offs.

Speaker 2

In the quarter, we had an increase in debt, which is driven by an investment in working capital to support our sales and program launches. While our debt and consequently our leverage has increased, it is still relatively low. As such, we are very comfortable with our flexibility for capital deployment, whether it's for internal investments, share buybacks or additional acquisitions. As is typical in our Q1 due to payments for year end items, we had negative cash flow in the quarter. However, we fully expect to return to positive free cash flow in the Q2 and have meaningful positive free cash flow for Full year.

Speaker 2

Moving to Slide 5. The awards identified here represent some of the key wins in the quarter and represent $70,000,000 in annual sales at full production. As a reminder, the launch timing of most of these programs could be anywhere in the range of 1 to 3 years from now. The awards were mainly for power products associated with the EV skateboard architecture. The awards also continue to be weighted towards the United States, where EV quoting activity continues to be strong.

Speaker 2

In other areas, we are awarded programs for lighting solutions in auto and sensor solutions in e bike, although not launching until fiscal 2026. Turning to Slide 6. In summary, Sales in the quarter continued to be solid, including for EV applications. The Nordic Lights integration is progressing well And we expect to own 100 percent of the shares by the end of the second quarter. The program award pipeline continues to be healthy, especially in EB.

Speaker 2

Lastly, the quarter included an unacceptable lapse in operational efficiency. MyMedia focus as well as the entire management team's focus is on correcting those inefficiencies. As I have stated, the operational issues have been identified and corrective actions are underway. We will also continue to have a heavy focus on executing our new program launches. Turning to our outlook.

Speaker 2

Due to program roll offs and the expected weakness in key markets, especially e bikes, we continue to expect low organic sales in fiscal 2024. In addition, we will be making significant investments in launching over 20 new programs. These investments include significant tooling and increased staffing to ensure a successful 2025. This activity, along with multiple years of strong awards, is expected to enable us to not only replace the sunsetting programs, But to organically grow the business 12% from fiscal 2024 to fiscal 2025. Our view on fiscal 2025 Has not changed.

Speaker 2

This guidance demonstrates that our business model is healthy and is positioned to prosper from a strategic direction that we have taken into lighting and power solutions to grow the business. Before I conclude, would like to address the recent announcement of my retirement. Leading Methode has been a tremendous personal and professional journey for me And I am incredibly proud of all our team has achieved to grow the company. I served 19 years as CEO. It is simply time for me to step down and enable the next successful stage of the Methode journey to begin.

Speaker 2

I am extremely confident that the company will continue to flourish given the exceptional team in place and a solid strategy that is positioned for growth. I truly believe that Methode's brightest days are still ahead. Meanwhile, I will continue to actively lead the company until a successor has been named And then we'll work with the new CEO through an extended transition period, which is expected to conclude sometime in fiscal 2025. At this point, I'll turn the call over to Ron, who will provide more detail on our Q1 financial results as well as more details on our outlook.

Speaker 4

Ron? Thank you, Don, and

Speaker 5

good morning, everyone.

Speaker 4

Please turn to Slide 8. 1st quarter net sales were $289,700,000 compared to $282,400,000 in fiscal 2023, an increase of 2.6%. This quarter sales included $21,200,000 from the Nordic Lights acquisition And $1,500,000 from favorable currency translation. Partially offsetting those positive impacts was $10,400,000 lower And spotify and premium freight cost recovery. Excluding Nordic Lights, foreign currency and their year over year cost recovery impacts, Sales decreased by 1.5%.

Speaker 4

In addition to Nordic Lights, this quarter saw ongoing strength in lighting solutions for commercial vehicles, but it also saw the continuation of a large program roll off in North America. 1st quarter income from operations decreased 82.6 percent to $3,800,000 from $21,800,000 in fiscal 2023, mainly due to operational inefficiencies, higher S and A expenses and unfavorable product sales mix. Adjusting for net acquisition costs of $800,000 related to Nordic Lights and restructuring costs related to the exit from Dabir of 0 point 7,000,000 Our non GAAP adjusted income from operations decreased 75.7 percent to 5,300,000 From $21,800,000 in fiscal 2023. Please turn to Slide 9. 1st quarter diluted earnings per share decreased 96.6 percent to $0.02 per share from 0.58 dollars per diluted share in the same period last fiscal year.

Speaker 4

The EPS was negatively impacted from the operational inefficiencies, unfavorable product sales mix, higher professional fees, the absence of government assistance and higher net interest expense. Adjusting for net acquisition costs of $600,000 and restructuring costs of $500,000 our non GAAP adjusted diluted EPS decreased 89.7 percent to $0.06 from $0.58 per share in fiscal 2023. Shifting to EBITDA, a non GAAP financial measure. 1st quarter EBITDA was $17,800,000 versus $38,200,000 in the same period last fiscal year, a 53.4% decrease. EBITDA was negatively impacted by the higher operational costs, unfavorable sales mix, higher SG and A expenses and The absence of government assistance.

Speaker 4

The contribution from Nordic Light helped to partially offset the decrease. Adjusting for acquisition costs of $800,000 and restructuring costs of $700,000 our adjusted EBITDA decreased 49.5 percent to $19,300,000 from $38,200,000 in fiscal 2020. Please turn to Slide 10. We increased gross debt by $32,200,000 in the quarter, mainly due to working capital investments and higher CapEx, both to support sales and new program launches. We ended the quarter with $147,900,000 in cash, down $9,100,000 from the end of last fiscal year.

Speaker 4

Net debt, a non GAAP Financial measure increased by $41,300,000 to $191,100,000 for the quarter from $149,800,000 at the end of 23. Again, the main driver of the increase was working capital and CapEx. Our debt to trailing 12 month EBITDA ratio was approximately 2.7. Our net debt to trailing 12 month EBITDA ratio was approximately 1.5. Please turn to Slide 11.

Speaker 4

1st quarter net cash from operating activities was an Outflow of $5,600,000 as compared to an inflow as compared to $12,700,000 in fiscal 2023. The decrease of $18,300,000 was primarily due to lower net income in the quarter. 1st quarter capital expenditure was $13,800,000 as compared to $9,600,000 in fiscal 2023, an increase of 4,200,000 The increase was mainly a function of investments to support new product launches and was keeping with our guidance. 1st quarter free cash flow, a non GAAP financial measure, was a negative $19,400,000 as compared to a positive $3,100,000 in fiscal 2023, a decrease of $22,500,000 This decrease again was primarily due to reduced net income and increased CapEx. Please turn to Slide 12.

Speaker 4

Regarding forward looking guidance, it is based on management's best estimates and subject to change through a variety of factors as noted on this slide. The operational inefficiencies experienced in the Q1 will carry over to the Q2. The impact to EPS in the Q1 was approximately $0.15 and we expect a similar impact to EPS in the 2nd quarter. In addition, we expect to experience a decrease in sales volume relative to our original expectation and increased legal and professional fees. Given this short headwind, we are providing guidance for the 2nd quarter.

Speaker 4

The expected net sales range for fiscal 2024 Q2 is $285,000,000 to 295,000,000 The expected diluted earnings per share range is $0.08 to $0.13 Adjusting for $0.04 of costs related to the Dabir exit, The expected adjusted diluted earnings per share is $0.12 $0.17 Turning to the full year, The expected net sales range for fiscal 2024 is $1,140,000,000 to 1,180,000,000 Full year sales guidance was decreased by $15,000,000 at the midpoint, mainly due to the softening of sensor sales in the second half of the fiscal year. The expected diluted earnings per share range is $0.80 to $1 down from previous range of $1.55 to 1.75 The drop is predominantly related to the inefficiencies in North American auto being experienced in the 1st and second quarters and a significant slowdown in our sensor business in the second half of the fiscal year. Our sensor business enjoys gross margins well above the consolidated level. Adjusting for $0.06 of costs related to the Dabir exit and $0.02 related to the Nordic Lights acquisition, The expected adjusted diluted earnings per share range is $0.88 to 1.08 The fiscal 2024 guidance assumes an income tax rate of 14% to 16% with no discrete tax benefits or expenses.

Speaker 4

It assumes CapEx of $60,000,000 to $70,000,000 and assumes depreciation and amortization of between $55,000,000 $60,000,000 Looking ahead to fiscal 'twenty five, the expected net sales remains unchanged at $1,250,000,000 to $1,350,000,000 The midpoint of that range represents $0.12 organic Sales growth from the midpoint of the fiscal year 2024 net sales guidance range. The expected range of income from operations as percentage of net sales in fiscal 2025 is also unchanged at 11% to 12%. The fiscal year 2025 income tax rate is expected to be between 20% 22% with no discrete tax benefits or expenses. Don, that concludes my comments.

Speaker 2

Ron, thank you very much. Operator, we are prepared to take questions now.

Operator

Thank you. At this time, we will be conducting a question and answer One moment please while we poll for questions. Thank you. Our first question is coming from Luke Yunck with Baird. Your line is live.

Speaker 6

Good morning. Thanks for taking the questions. I want to start this morning with the labor and Vineyard issues in auto that you saw. What I'm just wondering is to what Stent, you had a

Speaker 5

line of sight or not to

Speaker 6

when you last gave guidance in late June. And more specifically, How that lines up with what you're now anticipating in the business, especially your confidence that the corrective actions you've taken will be a sufficient offset in the second half. What would be the risk that is not the case or that the actions don't have the expected benefit thinking?

Speaker 2

Okay. Through the 1st 2 months of the quarter, we were pretty much on track. Now, when we go back and do a postmortem on it, were there issues, yes. The magnitude Of the inbound and outbound freight really didn't become apparent until July. And Once you start to airfreight product, the costs go up dramatically.

Speaker 2

And that's really when I look at the miss, That's the main driver of it. Confidence, we know this will go into the 2nd quarter. We've dropped the inventory levels. We need to replenish some of that. So we're going to still have some Premium freight, more inbound than outbound this time.

Speaker 2

What's my confidence level? High. I wouldn't have said what I said in my prepared remarks if I didn't feel confident we could fix that. It's very unmethered. It's disturbing to me, but we're a pretty seasoned management team, the plant.

Speaker 2

Let's call it a transition. They're going from high volume, low mix Center councils, which they did very well producing to a high mix, lower volume And there had some issues with that, that coupled with employee turnover, some voluntary, some involuntary. And so some poor decision making that we're correcting. I am confident of that. We're known for our operational excellence.

Speaker 2

So this one is A little red phase for me, but we will correct it. That I'm confident. We've had some corporate people down there that are seasoned Opps, guys, and we know what the fix is.

Speaker 6

Thanks for that. 2nd, hoping you could comment on where price Cost is in the business today, some incremental inflation was mentioned in the release. And just the status or tone of your conversations with customers, recovery is fairly modest here in the Q1. Should we expect that to accelerate as we go through the balance of the fiscal year? That's

Speaker 2

Always a double edged sword for us. We've had some very difficult Stressful discussions with our customers. And some of this is not with us, but some of this has been in the press where the automakers have been getting even tougher on price concessions. So that is going to be a struggle going forward. Now where We've turned our attention to is our PPV or purchase price variance, which For the last couple of years, it has been negative.

Speaker 2

We feel that with our growth, we can Put pressure on our suppliers or get other suppliers. Although I'll tell you one of the issues we had in our Monterey plant was we did change the supplier and I had an issue. So that has to be done carefully. We'll continue to pressure customers Pricing increases, but I'm not going to destroy the relationship. We're in auto and while we've diversified, there's only so many automakers and so we tread lightly Although, again, I think our team has done a good job of pushing it.

Speaker 2

But I think our attention in terms of gross margin We'll be in factory efficiencies improving that and with putting more pressure on our vendors. I see that as a Better avenue than taking a customer relationship to the brink and being put on new product coal. I don't think that Long term, I don't think that will help, Methode. And we will get as we launch these programs, particularly in Monterrey, We're going to get more overhead coverage. That will also help us going forward.

Speaker 2

Ronald, would you?

Speaker 4

I think from the procurement side, we're going to even though we've had some Supply and have to do premium, that was more of our missteps than anything. I think you're going to see a pivot of an emphasis on procuring supply, Which was challenging over the past couple of years. That's stabilized and now I think you're going to see us pivot more towards getting that positive PPV In getting that back to more historical standards.

Speaker 2

And while we Didn't build it into this year's guidance. We've had all of our teams look at The areas that we can economize on purchasing and we put 1 of our seasoned VPs on it. And so what I've seen on paper, that's to come fruition, but that gives me confidence as we go into 2025, We're going to see some we'll definitely we'll see improvement, not just from the overhead coverage, but from PPV. And again, We're going to be a little more cautious on vendor changes because that did cause us a problem.

Speaker 6

And then for my last question, just bigger picture, hoping you could expand on the implications of the decision to wind down the to be your business, specifically if you have any interest in medical going forward overall and to what extent there would be any outstanding cost from the P and L? Thank you.

Speaker 2

That decision was one of the tougher ones that I've made in my career, it's the amount of orders that we received from customers when we knew it was going to be It is an indication that it was well received. It was just very difficult For us to scale. It definitely helps people. It saves money, but it was difficult To scale, expensive to scale. And we did look at maybe we should look to the outside for funding.

Speaker 2

But when I look at that, it was that's probably where not where we should be spending our time now. We had 3 areas that we Concentrated on medical, EV and sensors, and 2 of the 3 have done very well. Medical didn't. I think management team wise, time to concentrate on those two other areas, and we continue to book business in those areas. We did a formal sales process, Luke.

Speaker 2

I mean, I don't want to go into too much detail, but I think there were Tees are sent out to 70 companies and I think we have 30 Returns on it, and there were no in the end, no one was interested in the business. And some of that, I think, is the scale. And hospitals are struggling. So bottom line, it was time to discontinue the business.

Speaker 6

Got it. That's all helpful. Thank you. I'll leave it there.

Speaker 2

Yes. I think, Luc, if I could have seen Our way to breakeven, we've taken a different approach, but Literally, it would take us another 5 years. And again, I don't think that's where Methode should be placing its effort.

Operator

Thank you. Our next question is coming from John Franzreb with Sidoti and Company. Your line is live.

Speaker 3

Good morning, guys, and thanks for taking my questions.

Speaker 2

I want

Speaker 3

to go back to the EPS Revision, you pulled it down more than the implied $0.15 last quarter and expected this quarter From the production and labor disruptions, what is the balance of you pulling down that number?

Speaker 4

The lower EPS gains, operational efficiencies And product mix are the 2 main We're talking

Speaker 5

about full year or quarter? Full year.

Speaker 4

Okay. Yes. Yes. So the operational inefficiencies, looking at $0.30 right? Product mix largely due to sensors and data centers And lower organic volume in total.

Speaker 5

Those are the main drivers

Speaker 2

of Yes. Those three areas are by far our most profitable Products, the e bike market, our customer maybe a week ago, at best 2 weeks ago So that there's still going to be over inventory for the duration of the year and then going into next year as well. And then we've studied the eBag market and we Concluded that and at that point with the change in their forecast, we had no choice but to bring down RSN that again very profitable and that affected EPS. Now do we expect that to return? Yes.

Speaker 2

I mean the e bikes are very popular, But there was a spike during COVID and Every shortage is always followed by a surplus and that's what our customers are seeing and we had to react to that.

Speaker 3

Okay. Just a couple of things based on your answers. Can you give us a context of how much revenue e bikes contributed On a quarterly peak and what they're contributing today?

Speaker 4

We've got quarter over quarter.

Speaker 3

Just in general, at its height, what was the E5 revenue quarterly contribution?

Speaker 2

From its peak.

Speaker 4

From its peak? 50%.

Speaker 2

So that's significant. In the second half.

Speaker 4

In the second half, we expect

Operator

And you think

Speaker 3

A sustainable revenue in 2025 would be about what for ebikes? 40

Speaker 2

ish.

Speaker 3

Okay. All right. Just wondering, I'm just trying to correct that a lot.

Speaker 2

I'm sorry, say that again, please.

Speaker 3

I'm just trying to get the context of that business And how it's impacting everything. And you also mentioned data centers

Speaker 2

is one of the reasons just

Speaker 3

you're pulling down the guidance. As data centers weaken from you from last quarter because most of the companies I follow in the data center market

Speaker 2

are actually posting relatively good results And actually the guidance for the next year or so was actually fairly positive. It seems

Speaker 3

to be disconnected with what you're seeing in data centers

Speaker 2

Our major customer there, John, has told us that they are over inventoried. So it's not the market. It's and we've got one very major customer That has told us they are over inventoried.

Speaker 3

Okay. All right. And Switching off that, on the SG and A expenses, I know you said there's other fees in there. What would be a normalized SG and A run rate for the second half of the fiscal year would you expect it to be like?

Speaker 4

We would expect it to be Less than the 17.3 percent, well, I'll leave out amortization, 15.4% experienced in the quarter, But it will be higher on the second half of the year as compared to prior years being in without amortization in 11% to 12% range. So somewhere in between there depending.

Speaker 3

Okay. And that reflects Nordic, I'm assuming, right?

Speaker 4

Pardon me? Yes. The 1st quarter numbers of 17.3% And 15.4% without amortization. It all includes Nordic Lights. Correct.

Speaker 3

Right, right, right. Okay. After all that, I'm going to jump back into queue and let somebody else ask the question. Thank you, guys.

Speaker 2

Thank you.

Operator

Thank you. Our next question is coming from Gary Prestopino with Barrington Research. Your line is live.

Speaker 5

Hi, good morning, everyone.

Speaker 2

Good morning.

Speaker 5

I want to drill down on what you were talking about in your Monterrey, Mexico facility. You were basically producing center consoles there, right? That was one of the bigger products. I think that business has gone away because the model is going away. Is that correct, Don?

Speaker 2

Right. Center councils are really not Using the vehicles anymore, at least the vehicles that were on pickup trucks and SUVs is more discrete touch screens. So that product When end of life, not only from us, but this is not used in auto. They also produce A lead frame for transmissions that was very high volume for them as well. And that also has I don't know that has gone totally end of life, but that is significantly down.

Speaker 2

Those products have been replaced by a number of smaller volume. And I know when I say smaller volume, it's still 300,000, 400,000 units, which is not a 1,000,000. That's why I was talking about the transition. Your systems have to be when you have that number of products going through a plan, your systems need to be quite good.

Speaker 5

Okay. So this is Monterrey, Mexico. Was there A Mexican national running that plan?

Speaker 4

Or did you have someone from

Speaker 5

the U. S. Doing that?

Speaker 2

What we've done because of the Launches and then transition, we brought in probably our most seasoned Operations leader to oversee the plant. And then he will train Other individuals to run the plant. So he is not a he's a Maltese, not U. S, but he It is essentially next, Pat. So with the And that's what I'm sorry.

Speaker 2

I'm sorry. That also gives me confidence that these issues will be behind us.

Speaker 5

Well, I guess the question I would have is that Out of the plant, can you replace the sales that you've lost from these programs that are going into life or slowing down To the point where you get some kind of equilibrium or even growth by the Yes. Yes. Yes. Or whatever you're producing on smaller volume.

Speaker 2

Yes. The business a lot of the EV business That has been one is launching out of Monterey. And the individual, As I said, it was overseeing the plant now, has made those products in the past. So I'm very confident that they're going to see an uptick In their business. And I'm not happy with what happened obviously, but I'd much rather have it happen now That one we're cranking up production in 2025.

Speaker 2

So that plant is We'll have more volume through it than it had even in the Center Council days.

Speaker 4

Okay. But

Speaker 2

A lot of these additions. I would add, I don't like the pain here, but One of the concerns I had even from day 1 when we booked the Center Council business that we were going to be dependent upon One large automaker and we saw that in our Qs and Ks through the years. And would I like that program to continue? Of course. But it didn't.

Speaker 2

And we're transitioning again to a lower Volume higher mix, I think that gives us better diversification. And yes, we've had a blip. I'll deal with that, but I'll sleep better knowing that We're dependent upon a number of customers, not just one major one. And again, if that customer came and gave us $100,000,000 worth of business, I take it. They're companion, but I do like the fact that we'll be diversified.

Speaker 2

I think that makes us more secure.

Speaker 5

Right. But I guess the last question I would have in that regard is that Most of what happened there was really an operational issue in terms of just the efficiencies At the plants caused by the shift from high volume to low volume mix. I mean, That's kind of the sense that I have. It wasn't the bigger the biggest issue was that it wasn't the fact that the sales weren't where you thought they were going to be.

Speaker 2

No, not at all. I mean, I take a little comfort in that. We had good sales. It cost us a lot to ship those, But ours is not a sales issue. Ours is an execution issue.

Speaker 2

That is internal. We give it to ourselves. That we can fix. I can't e bike, what I like to sell more sensors than e bike, of course, but I can't do anything about that. I can do something about factory.

Speaker 2

So I do take I don't think comfort is the right word, John, but I only one that comes to mind.

Speaker 5

All right. Thank you very much.

Speaker 3

Thank you.

Operator

Thank you. Our next question is coming from John Franzreb with Sidoti and Company. Your line is live.

Speaker 3

Yes. I think we kind of avoid touching on the Class 8 truck market today. It seems that ACT has been narrowing their expectations of the depth and duration of the

Speaker 2

Potential

Speaker 3

downturn in the Class 8 trucks. What are your thoughts about that market? Are you more bullish or bearish than its current ACT trends? Can you just talk to that a little bit?

Speaker 2

We've I can't say we've seen an increase, but it hasn't decreased More than bottomed, as ACT had predicted. I'm not comfortable saying that It's not going to go down. I think they said like 1% now, something like that. So I mean, our view is it will dip below the average line, but maybe recover faster, which It gives me additional comfort for 2025. So I'm not quite there yet, but I'm less concerned than I was A quarter ago, if that helps.

Speaker 3

No, it actually does because it makes sense to me. Okay. All right. Thank you. Thanks for taking my question.

Speaker 2

And Gary, I need to apologize. I called you John at the close of your questions. I apologize.

Speaker 3

Thanks, Chuck.

Operator

Thank you. We have reached the end of our question and answer session. So I will now hand it back to Mr. Duda for any closing remarks.

Speaker 2

Thank you, operator, and we'll thank everyone for joining us today. Good day.

Operator

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

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Key Takeaways

  • Q1 net sales were $290 M, up 3% year-over-year primarily due to the Nordic Lights acquisition, while organic sales declined 2% as lower auto segment volumes were partially offset by industrial lighting growth.
  • North America auto operations faced operational inefficiencies—including planning errors and staff turnover at the Monterrey plant—that cost about $0.15 per share in Q1 EPS; corrective actions are underway but carry into Q2.
  • The company secured over $70 M in annual program awards led by EV power and lighting solutions, but decided to discontinue the medical (Dabir) business after concluding it was not financially scalable.
  • Q1 non-GAAP adjusted EPS plunged to $0.06 from $0.58 and adjusted EBITDA fell 49.5% to $19.3 M; net debt rose to $191 M (≈1.5× trailing EBITDA) driven by working capital and CapEx for new programs.
  • Full-year 2024 guidance was reduced to $1.14–1.18 B in sales and $0.88–1.08 adjusted EPS due to market softness and the noted inefficiencies, but 2025 outlook still targets 12% organic sales growth and an 11–12% operating margin.
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Earnings Conference Call
Methode Electronics Q1 2024
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