Methode Electronics Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 10, 2025

Key Takeaways

  • Positive Sentiment: In FY26, Methode expects to double its EBITDA even with a ~$100 million sales decline, driven by operational improvements and cost reductions.
  • Positive Sentiment: Methode generated $26.3 million in free cash flow in Q4, the second consecutive strong quarter, and reduced net debt by $10.1 million sequentially.
  • Positive Sentiment: Full‐year data center power product sales set a record at over $80 million, nearly doubling year over year, with similar growth expected in FY26.
  • Negative Sentiment: Q4 adjusted loss included $15.2 million of one‐time inventory adjustments and historic warranty, quality, legal and restructuring charges that masked underlying performance gains.
  • Negative Sentiment: Near‐term EV demand is soft with EV sales expected to fall 10–15% in FY26 due to program delays and cancellations, notably at Stellantis, before rebounding in FY27.
AI Generated. May Contain Errors.
Earnings Conference Call
Methode Electronics Q4 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Welcome to the Methode Electronics Fourth Quarter Fiscal twenty twenty five 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.

Operator

I will now turn the conference over to your host, Robert Cherry, Vice President of Investor Relations. You may begin.

Robert Cherry
Robert Cherry
VP - IR at Methode Electronics

Thank you, operator. Good morning, and welcome to Methode Electronics fiscal twenty twenty five fourth quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal twenty twenty five 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.

Robert Cherry
Robert Cherry
VP - IR at Methode Electronics

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 ks and 10 Q reports. On Slide four, please see an agenda for our call today. We will begin with a business update, then a financial update, followed by a Q and A session.

Robert Cherry
Robert Cherry
VP - IR at Methode Electronics

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

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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 Pawlczyk, our Chief Financial Officer. Let's start with the key messages. Please turn to Slide five.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

In my first twelve months, we have achieved a great deal even if there's still much more to do. We've built a strong team and stabilized the organization. The way in which the leadership team and I have been talking 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 7,000 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.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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 and market volatility. Unfortunately, the benefits from these actions were largely masked by a number of items that were onetime or historic in nature, such as the fourth quarter inventory write off. Regarding market volatility, EV activity in the fourth quarter slowed, and fiscal twenty six will be a reset due to EV program delays, especially by Stellantis. We do expect fiscal twenty seven will be a return to growth.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Overall, we 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 $26,000,000 in free cash flow in the quarter. That's the best quarter that the company has had since q four of fiscal twenty three. For the full year, our focus on cash drove a $12,000,000 improvement in tooling recovery and a $22,000,000 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 80,000,000.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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 time line for that transformation. As we look to fiscal twenty twenty six, 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 approximately $100,000,000 in declining sales, driven by lower EV demand, again mainly driven by Stellantis.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Turning to Slide six and our specific results for the quarter. Our sales were $257,000,000 an increase from Q3, but down year over year. $17,000,000 in sales increase was from q three was driven by record 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.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We recorded adjusted loss from operations of $22,000,000 Of that loss, dollars 15,000,000 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 approximately $5,000,000 to the loss as well.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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 $80,000,000 and we expect a similar year in fiscal twenty six with potential for more growth. The full year sales were almost double those of fiscal twenty twenty four.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We are achieving this performance based on our existing product technology, utilizing our global footprint to serve the customers. What's truly exciting is the opportunity that we have to leverage our power expertise to capture growth that is being driven by the rapid evolution of component designs to enable the vast increases in power density sought by future data center operators. It is too early to share any more details on this, but it's very promising for the future growth in our power distribution enterprise. Turning to EV activity. Sales grew year over year.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

For both the quarter and the full year, they were 20 of our consolidated total, an increase from 1419%, respectively. While these year over year comparisons improved, our EV sales on a sequential basis from Q3 decreased approximately 10%. We remain bullish on the long term megatrend in EVs. However, as I mentioned earlier, the near term outlook is soft, particularly in North America. Weaker market demand is driving lower customer EDI forecast, some program launch delays, and a couple program cancellations.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

This is causing us to project a 10% to 15% decline in EV sales for fiscal twenty six, a much different picture than just one quarter ago. However, based on our customer EDI forecast and third party industry projections, we expect a significant rebound in EV sales in fiscal twenty seven. Our team has been and will continue to be extremely proactive on any exogenous program delays or changes, and actions are underway to recover costs and capital investments related to these program delays. The outcome and timing of these recoveries is yet to be determined. Both free cash flow and debt reduction are good stories for us.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Despite all the external factors, the business delivered free cash flow of twenty six million dollars in the quarter, which is was the second quarter in a row of strong free cash flow. Our relentless drive to reduce working capital is driving this result. In turn, we reduced both our debt and net debt levels by $10,000,000 from q three. We also generated more free cash flow than the prior year q four despite $20,000,000 less in sales. This is another clear indicator of an organization whose operating efficiency is improving.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Lastly, our primary focus continues to be on improving operational execution and successfully launching the large pipeline of new programs. As we've communicated before, we are in the midst of a record two year new program launch window. In fiscal twenty five, we launched 22 new programs. We expect to launch another 30 new programs in fiscal twenty six. Our customers continue to count on us, and we plan on continuing to deliver.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Speaking of new programs, for fiscal twenty five, we had bookings of over 170,000,000 for new and extended programs. About two thirds of these awards were for power distribution solutions in EV, industrial, and data center applications. The Mentho team has put a lot of hard work into rebuilding our foundation in fiscal twenty five, which we expect that work to lead to notable performance and financial improvements in fiscal twenty six. Turning to slide seven. As I mentioned earlier, I'm marking my one year anniversary as CEO of Methode.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

I'm truly proud of what we have accomplished as a team, and I wanna share some of the reflections on the past year and the road ahead. Transformations are never easy. I make a distinction between transformations and turnarounds. Quite simply, a transformation is about fixing a business in a way that enables it to evolve and positions it for future growth. The turnaround is basically just fixing the business back to some status quo.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

The Methode journey is an undoubtedly a transformation. Like any journey, the path is not smooth nor linear. The first order of business was stabilizing the base, which included the significant organizational changes that we made in previous quarters and meant focusing on executing program launches while simultaneously revamping plants and rebuilding the team, all in the face of numerous external distractions. Business plans are always linear on paper, but the real world curves and bends every day. The past year was no different.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Whether it was tariffs, market shifts, geopolitics, or other factors, we had to maintain discipline and our focus on our objectives while conditions were constantly changing. We worked hard to remediate practices that had atrophied or institute practices where they didn't exist. We now have better go into the business and are driving more global collaboration and efficiency, especially around engineering, product management, and supply chain. The work is showing in many areas but is exemplified in our improved working capital, especially around AR and inventory. As we rebuild our foundation, it positions us well to leverage synergies and utilize core competencies to align with market megatrends like data centers and EV.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We can also then optimize our footprint and reevaluate the composition of our portfolio. While the financial results are not yet what we want, our team has accomplished much over the past year, and our foundation has been lie laid for us to drive consistent and improved execution. On slide eight, I wanna spend a little more time giving you an update on our transformation. At a high level, this slide maps out where we are at and where we are going. First and foremost, we've put in the work to improve our fundamentals and reset performance.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

It can be seen in a 100 basis points worth of gross margin improvement, 9,000,000 worth of SG and A reductions, and 12,000,000 worth of tooling recoveries, all fiscal twenty five year over year improvements. Then there's been a whole series of execution focused improvements, like $11,000,000 reduction in freight, a reduction in scrap, and a reduction in headcount of over 500 people. All of this complements the execution of customer pricing actions, supplier cost reductions, and this material sourcing actions. None of these activities could have been done without the reset of nearly all of the executive leadership team, the reset and talent lowering the organization as well as bringing in some specific outside help. However, in order for the organization to be a stable, long term execution and growth focused organization, that has to have internal capabilities, in plant operations, engineering, and the supply chain.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Talent and solid fundamentals are yielding improved rigor and discipline in the way in which we procure material, operate our plants, in our launches, and in the way in which we develop new products for our from an engineering standpoint. What that leads to is a change in culture for a company that's almost 80 years old. There's been a lot of change at Methode over the decades. What we're trying to bring back is more of a one method approach, working much more collaboratively and much more globally, leveraging our best practices to drive numeracy and cost consciousness down throughout the organization and to really drive a sense of urgency. Turning to slide nine.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

So how do we continue to earn the right from here? First, we continue our foundational actions to successfully launch programs, drive improved operational execution, and accelerate lower level team rebuilding, all of which will be enabled by our new global engineering and product management teams. Second, we keep refining the organization to harmonize it to market opportunities. That includes the rightsizing of plants and headcount. It also includes footprint consolidations.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

And finally, we take actions to address our structure and capital discipline, like reducing our board size from 10 to seven directors, relocating our headquarters to an already owned Methode facility, reducing our dividend, and reviewing our product portfolio. All of these actions support Methode's core business in data centers, EV, and lighting, which provide an attractive foundation for value creation in fiscal twenty six and beyond. While the transformation is certainly about improving execution and reducing cost, it is also about driving innovation. What drives competitive advantage at the end of the day is the ability for an organization to redeploy the knowledge, resources, and capital it gains from its everyday business into new products and markets. Methode is systematically taking this proactive approach, whether it is digging deeper into the power needs of our data center customers or optimizing our footprint and portfolio for what it's what the customers and business will need in the future, we are working hard to refine our business model.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We will continue to highlight the milestones on this transformation journey, but does take the passage of time to be fully appreciated and valued. Everything that I've shared with you today gives us confidence to not only provide guidance for fiscal twenty six, but to project a doubling of our EBITDA from fiscal twenty five. Laura will share more details on our guidance later. In summary, I firmly believe that our 2025 actions have positioned Methode for success in 2026 and beyond. At this point, I'll turn the call over to Laura, who will provide more detail on our fourth quarter and full year financial results.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Thank you, John, and good morning, everyone. Please turn to Slide 11. Before I 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.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

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 approximately $265,000,000 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.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

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 change for our supply chain. To be clear, we've 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.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

This is a great example of the one method 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 12. The fourth quarter net sales were $257,100,000 compared to $277,300,000 in the fiscal twenty twenty four, a decrease of 7%. On a sequential basis, sales increased 7% from the fiscal twenty twenty five third quarter.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

The quarter saw record sales of power products into data center applications. This was the second quarter where the full impact of the GM center console roll off was felt, but it was also the last quarter to have any impact from a major EV lighting program roll off. We also experienced sales weaknesses in commercial vehicle and off road lighting applications. Fourth quarter adjusted loss from operations was $21,600,000 a decrease of $11,800,000 from fiscal twenty twenty four. On a sequential basis, adjusted loss from operations declined 20,300,000 from the fiscal twenty twenty five third quarter.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Please see the appendix for all reconciliation of all adjusted measures to GAAP. In the fourth quarter, the company recorded an excess and obsolete inventory expense of $13,000,000 mainly in the Automotive segment and a discrete inventory revaluation of $2,200,000 As John described, the excess and obsolete expenses were related to reduced, delayed or canceled programs that impacted future demand projections. The effect of excluding these two impacts totaling $15,200,000 in the quarter can be seen on the chart. The lower sales had a $6,200,000 impact on the year over year comparison. A partial offset was a $4,200,000 year over year improvement in S and A.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Overall, the inventory adjustments had a significant impact on the quarter and masked operational improvements. Please turn to Slide 13. Shifting to EBITDA, a non GAAP financial measure. Fourth quarter adjusted EBITDA was a negative $7,100,000 down $12,400,000 from the same period last year. On a sequential basis, adjusted EBITDA declined $19,400,000 from the fiscal twenty twenty five third quarter.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

As with loss from operations, the inventory adjustments and lower sales drove the year over year decline. They were only partially offset by a reduction in S and A and other operational improvements. Please turn to Slide 14. Fourth quarter adjusted pretax loss was $28,600,000 a decrease of $14,800,000 from fiscal twenty twenty four. On a sequential basis, adjusted pretax loss declined $21,300,000 from the fiscal twenty twenty five third quarter.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Again, the inventory adjustments and lower sales drove the decline year over year. Excluding the inventory adjustment impacts, operational execution improvements minimized the year over year impact despite sales being $20,000,000 lower. Historical warranty and quality issues in Europe for existing auto programs contributed $4,500,000 to the loss as well. Fourth quarter adjusted diluted loss per share was $0.77 down $0.54 from the prior year and down $0.56 from the fiscal third quarter of $0.25 Overall, while operational improvements helped minimize the impact, our fourth quarter loss was primarily driven by the inventory adjustments. Please turn to Slide 15.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

The fourth quarter's net cash from operating activities was $35,400,000 as compared to $24,900,000 in fiscal twenty twenty four. Fourth quarter capital expenditure was $9,100,000 unchanged from fiscal twenty twenty four. Fourth quarter free cash flow, a non GAAP financial measure, was $26,300,000 as compared to $15,800,000 in fiscal twenty twenty four, an increase of $10,500,000 This increase was mainly due to the lower working capital. This was our second quarter in a row of strong free cash flow. Please turn to Slide 16.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Debt was down $10,300,000 from the third quarter. We ended the quarter with $103,600,000 in cash, down slightly from the third quarter of fiscal twenty twenty five. The strong cash generation in the quarter allowed us to pay down debt. Net debt, a non GAAP financial measure, decreased by $10,100,000 from the third quarter to $214,000,000 After the end of the fourth quarter, we entered into an amendment to our credit agreement. The amendment reduced the capacity of the facility to $400,000,000 which is still in excess of our needs.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

It revised covenant ratios and updated pricing and other details. The amendment waived any defaults that may have occurred due to noncompliance with covenants for the fourth quarter that were in effect prior to the amendment. Following the amendment, we were in compliance with all covenants. For further information, please see our 10 ks filing. Please turn to slide 17.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

The full year fiscal twenty twenty five net sales were $1,048,000,000 compared to $1,115,000,000 in fiscal twenty twenty four, a decrease of 6%. The net sales decline was primarily driven by the geocenter console and EV lighting program roll offs that I previously mentioned. Together, their year over year impact was 111,000,000 Partially offsetting those declines was a record year for sales of over $80,000,000 of power products for data centers. Adding back the year over year inventory adjustment of $12,200,000 operational improvements minimized the impact of the $67,000,000 decline in sales seen on the chart. Please turn to Slide 18.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Next, I want to provide an update on our sales bridge from fiscal twenty twenty four to 2026. As previously mentioned, the GMT1 integrated center console program has gone end of life. The result was a significant sales headwind in fiscal twenty five and a slightly lesser one in fiscal twenty six. The other major legacy program roll off we previously communicated was for EV lighting. That program went end of life at the end of fiscal twenty twenty four and was thus only a headwind for us in fiscal twenty twenty five.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

The major update on this bridge concerns the launching of several EV programs for Celantus. In fiscal twenty twenty five, those launches generated $46,000,000 of incremental sales. You may recall that back in Q1, we projected Stellantis to generate a total of $84,000,000 in fiscal twenty twenty five and then another incremental $125,000,000 in fiscal twenty twenty six. However, due to severe reductions and delays from Stellantis, we now expect fiscal twenty twenty six to see a decrease of $40,000,000 essentially a $200,000,000 swing from our Q1 projection. We have also seen EV program reductions for fiscal twenty twenty six from two other major OEMs.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

As John mentioned, our team has been proactive on these customer program changes, and actions are underway to recover costs and capital investments related to them. The magnitude and timing of these recoveries is yet to be determined, but it is our intention to maximize our recovery. While we do expect growth from our fiscal twenty twenty six launches with other key customers as well as potential growth from data centers, they are not enough to overcome the drop in demand from Stellantis and other EV customers, giving the soft market outlook. Consequently, we now expect sales for our fiscal twenty twenty six to be approximately $100,000,000 lower than fiscal twenty twenty five rather than the organic growth we previously expected. A byproduct of this revised outlook is that we expect fiscal twenty twenty six to see an improved diversity of OEM customers given the forecasted mix.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Please turn to slide 19. Regarding forward looking guidance, it is based on management's best estimates and is subject to change due to a variety of factors as noted on the bottom of the slide. For fiscal twenty twenty six, we expect sales to be in the range of $900,000,000 to $1,000,000,000 Please note that fiscal twenty twenty five was a fifty three week fiscal year, and fiscal twenty twenty six will be a typical fifty two week fiscal year, so we will have one less week in fiscal twenty twenty six as compared to the prior year. We expect EBITDA to be in the range of 70,000,000 to $80,000,000 and we expect the second half of the year to be higher than the first half. As you can see from the charts on the right of this slide, we expect fiscal twenty twenty six EBITDA to be higher than both fiscal twenty twenty four and 2025 despite a significant reduction in sales over that same time period. Specifically, in fiscal twenty twenty six, the downward conversion from the lower sales will be offset by operational improvements and will actually see almost a doubling of EBITDA margin from 4.1% to 7.9.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

The fourth quarter guidance assumes the current market outlook based on third party forecasts and customer projections, The current U. S. Tariff policy, depreciation and amortization of 58,000,000 to 63,000,000 CapEx of $24,000,000 to $29,000,000 interest expense of $21,000,000 to $23,000,000 and a tax expense of 17,000,000 to $21,000,000 most of which is related to a valuation allowance on deferred tax assets and is non cash. It is worth noting that our interest expense is expected to be essentially flat year over year despite the amended credit facility agreement. This is mainly a factor of lower year over year benchmark European interest rates.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

One last note on fiscal twenty five. Back in fiscal twenty four, we identified three material weaknesses in our internal controls. We are pleased to inform you that all three of these material weaknesses were remediated in fiscal twenty five. For more details, please see our 10 ks filing. So to echo John, we have driven improved operational execution this past year that was often masked by various external or historical challenges.

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

The result is a solid foundation for the Methode team to build on into the future. That concludes my comments, and we can open it up to questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Once again, please press star one if you have a question or a comment.

Operator

Our first question comes from Luke Junk with Baird. Please proceed.

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

Good morning. Thanks for taking the questions. John, hoping to start with certainly the key message this morning that you expect sales to come down $100,000,000 but EBITDA to go in the opposite direction and rise into fiscal twenty twenty six. 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.

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

And I guess if I look at what's going on in that business exiting this year, pretty weak jumping off point coming out of 4Q fiscal twenty twenty five. Even if I back out the inventory charges and warranty quality expense, know you're still launching more programs. So how should we just think about balancing cost saves versus some incremental costs coming in the P and L for launches?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Thanks,

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Luke. And by the way, good morning. Thanks for your question. I think we talked about some of the base performance improvements during my section. Laurel will give you a little more detail on the bridge on the top level.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We've done a we've done a lot to improve how we launch. And so I think the incremental costs, if you will, for these new launches, I've got less concern about. The, you know, the challenge that we have is our our our reaction our our ability to react in in such short order to a fairly significant drop in demand on the EV side makes 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 15,000,000 in the quarter, full year is 22,000,000.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We had 12,000,000 worth of quality and warranty issues in fiscal twenty twenty five. We had 9,000,000 with knowledge partners and 5,000,000 worth of legal expenses and another 3,000,000 worth of restructuring. All of those things, are either eliminated or improved year over year in as basis for our guidance. So there is there are one off things that are eliminated, and there is expectations of performance based on what we see in the plants and what we see in our supply chain and what we see in our launch execution to give us the basis for why we believe we can, on lower sales, double our EBITDA.

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

Thanks for that, John. All helpful commentary, especially all those individual expense items. Second question, just in terms of the launch activity into fiscal twenty twenty six, 30 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 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, timing or volume as you put together the guidance?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Well so we as we've said each time, we have used third party third party as a basis for how we give our guidance. So we tried to tie back and and sense check, you know, what our customers told us with third party evaluations, and that's what's in the guidance. The as we said, EV EV per as a percent of sales is 20% this year, and we'll actually the 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, 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.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Some of the tariff challenges have highlighted actually the power of our global footprint to deliver on power products, and we're 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 customers. So the 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.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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 and our fixed assets to support other pieces, other markets that we touch, and that's particularly on the data center side.

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

Mhmm. Just to 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 hair cutting that further as well, or are you mainly kinda relying on that, that third party data?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

I mean, I mean, we're when we say sense checking it, we're trying to take multiple 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 a compilation of expert judgment. So we look we look at it, try to use the best sources of data that we can get and make it and and make an evaluation from there, but we don't unless 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.

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

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

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

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

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

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

Laura Kowalchik
Laura Kowalchik
CFO at Methode Electronics

Yeah. It's, it is starting at 4.25 for q four of fiscal year twenty five, and then is at 3.75. That was before the amendment. After the amendment, it is at 4.25 in q one, and then goes up after that.

Luke Junk
Senior Research Analyst at Robert W. Baird & Co

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

Operator

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

Gary Prestopino
Managing Director at Barrington Research Associates

Hey. Good morning, everyone.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Morning, everyone.

Gary Prestopino
Managing Director at Barrington Research Associates

A lot here. Alright? So first of all, what I wanna ask is, and I think I've got know the answer to this question. You you didn't back out these inventory charges in adjusted EBITDA. So that $7,000,000 that you did in adjusted EBITDA, you would add back that $15,000,000 to get kind of a recurring number on EBITDA?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We did not adjust those out, Garrett.

Gary Prestopino
Managing Director at Barrington Research Associates

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

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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

Gary Prestopino
Managing Director at Barrington Research Associates

Okay. That's fine. And then you you you went very quickly through all the onetime items in fiscal twenty five. So could we just take that slowly? You had 15,200,000.0 of inventory.

Gary Prestopino
Managing Director at Barrington Research Associates

What else did you have there? I think you cited four.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

So so the 15.2 is just in the quarter.

Gary Prestopino
Managing Director at Barrington Research Associates

Right.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

The the total the total inventory reserve in fiscal twenty twenty five is 22,000,000, And we had 12,000,000 worth so twenty two million of in of inventory reserves. Mhmm. 12 excuse me.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

22,000,000 worth of inventory reserves, 12,000,000 worth of warranty and quality charges, $9,000,000 for Alex Partners, $5,000,000 worth of legal expenses, and 3,000,000 of restructuring charges.

Gary Prestopino
Managing Director at Barrington Research Associates

Jesus. Okay. And 3,000,000 restructuring. Alright. Okay.

Gary Prestopino
Managing Director at Barrington Research Associates

That's fine. And then if if I I know Luke kinda answered this asked this question, but I wanna get an understanding. Of these 30 new awards that you've got in '25, how much of those are dealing with the EV market itself?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

It it it's in our 10 k on from a detail standpoint, but I believe it's about it's about 50% of the total. What we talked about and and we talked about in in the conversation that from our bookings 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 50%. 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 with regard to 2025 versus 2026, I think it gives us the ability to better balance the business than where we were twelve months ago.

Gary Prestopino
Managing Director at Barrington Research Associates

Are are these new EV awards still with Stellantis?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

No.

Gary Prestopino
Managing Director at Barrington Research Associates

Okay.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

As as we talked about, we've got 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 the bridge that Laura has, I believe it's on slide 18

Gary Prestopino
Managing Director at Barrington Research Associates

Right.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

The the that that shows you that we we have had to haircut the 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 are 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 what done for these launches.

Gary Prestopino
Managing Director at Barrington Research Associates

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 fiscal q one twenty five, you were thought you were gonna get $84,000,000 of Stellantis revenue. As of q four, that actually materialized to 46,000,000. Is that correct?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Correct.

Gary Prestopino
Managing Director at Barrington Research Associates

Okay. So then if we go to the next slide, you have a 125,000,000 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.

Gary Prestopino
Managing Director at Barrington Research Associates

I don't wanna looks like you almost had a a $165,000,000 reduction in what you expected from Stellantis.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

That's exactly that. It's exactly it's actually more than that. It's it's it's roughly $200,000,000. So the way to think about it, Gary, is and and it's the way the way to think about this for all the investors is this this isn't this wasn't something that was foreseeable because if you look at what the customer was talking about as well as IHS Mhmm. In in January of twenty twenty five now I'm not talking fiscal. Now I'm talking calendar. January 2025.

Gary Prestopino
Managing Director at Barrington Research Associates

Mhmm.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

The volumes for those programs were between large and frame. The two big Stellantis programs were combined a 169,000 vehicles in May of twenty twenty five.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

This is for 2025. It goes back to it goes back to the bridge. The so in January, it was a 169,000 vehicles. In May Mhmm. This is for 2025.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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 over quarter, which is why q four why why q four 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 when you have long lead time items like copper. We we built a pipe pipeline based on what the customers have told us and what IHS said.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

You take those same numbers for fiscal twenty twenty six. In January for so for fiscal twenty excuse me. Calendar year fiscal twenty twenty six. In January 2025, that number was 259,000 between the two programs. In May, it dropped to a 176,000.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

And in July, it dropped to 63,000. So we have been reacting within a 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 we're conversations with the customers. We're trying to work with them, and and it's not just with Stellantis. Work with all of our customers.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

And at the same time, be able to use our capabilities, use our engineering, use our our operations, use our supply chain to support growth in other areas. So the if you think about slide eighteen and nineteen and say they've had a a huge hole punched in the revenue from Methode's perspective. But the but the performance on a year over year basis, you have negative downward conversion that you should expect in any company when you take a $100,000,000 with the revenue out or the better part of a $100,000,000 with the revenue out. And on top of the downward conversion, we're driving, what, $3,032,000,000 dollars worth of EBITDA improvement in our in our midpoint of our guidance.

Gary Prestopino
Managing Director at Barrington Research Associates

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

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Oh, yes.

Gary Prestopino
Managing Director at Barrington Research Associates

Big time. Absolutely. Yeah.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

That's that's what that's what slide 18 if you look at the top of slide 18 is what we knew when we when I first started talking to you.

Gary Prestopino
Managing Director at Barrington Research Associates

Mhmm.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

A year in q one. That's what we knew at the time.

Gary Prestopino
Managing Director at Barrington Research Associates

Mhmm. Okay. Now And then I don't want done.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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

Gary Prestopino
Managing Director at Barrington Research Associates

Okay. Okay. That's I just wanna clear that up. Alright. And then I I don't just one more quick question. You know, I saw the report that you're paying a 7¢ dividend, so it was 14. So, safe to assume you've 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.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Yeah. So, actually but but, Gary, if you look at it based you know, the dividend has historically been set first. The dividend policy is set by the board. But Right. Let's just let's just talk about it.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

If you look at it, this change in the dividend still puts us with a yield, a dividend yield, very much in line with our peers. That that initial dividend on a per share basis was set back when the stock was much higher. So 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.

Gary Prestopino
Managing Director at Barrington Research Associates

Okay. That's fine. I just wanted to make sure I was on the right track there. Thank you.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Of course.

Operator

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

John Franzreb
Senior Equity Analyst at Sidoti & Company

Good morning, everyone, and thanks for taking the questions.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Hey, good morning, John.

John Franzreb
Senior Equity Analyst at Sidoti & Company

We'll just stick with Slide 18 here. And I want to get someone to focus on that $48,000,000 net other launches and pricing and market. I guess my biggest curiosity is how much of that $48,000,000 has pricing benefits embedded in.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

You mean as far as versus versus its new programs, it's just price price to price?

John Franzreb
Senior Equity Analyst at Sidoti & Company

Yeah. On the right hand side of the column, it's it's 48,000,000 down from $1.00 7. I'm just curious how much is pricing because I figured that's gonna be one of the hardest things to execute.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Yeah. No. No. No. The the it's not that.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

This is this is as we said to you, we've had other programs that have either been delayed or canceled. So the downdraft between the one zero seven and the 48 is due to delays or cancellations. Pricing is incremental plus. Pro data centers is incremental plus. So so the what what you have to look at is the combination of the Cylantis plus the other delays.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

It's basically a hole that's been punched in our revenue plan based on largely North American EV program delays or cancellations, not not pricing that we didn't get.

John Franzreb
Senior Equity Analyst at Sidoti & Company

Okay. Right. Which which brings me to my other question. With 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 business in the coming year?

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Yes. 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 50% automotive and 50% other. The and and, you know, we're excited about opportunities to grow our lighting business, the industrial activities as well as the data center, work, both both on base Okay. Data center activity as well as future data center activity.

John Franzreb
Senior Equity Analyst at Sidoti & Company

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

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

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

John Franzreb
Senior Equity Analyst at Sidoti & Company

You know, since you since you brought that up, I am curious how Nordic Lights is performing relative to expectations. Maybe just summarize 2025.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

I'm I'm very proud of the team at Nordic Lights. Antti and the team there do a fantastic job in a challenging market. Know, the the base market, they're not the the, you know, the equipment suppliers aren't aren't blowing the doors off. But Nordic Lights is performing well, and the team there has 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 method. I'm pleased with it.

John Franzreb
Senior Equity Analyst at Sidoti & Company

Good. Good to hear. Question about slide nine, to move forward from 18. It seems like there's Sure. It sounded to me it sounded to me as if there's still more to come.

John Franzreb
Senior Equity Analyst at Sidoti & Company

Right? The 2026 priorities, including further plant consolidation, SG and A rightsizing, you know, portfolio review, things of that nature. Can you give us a sense of of some of the timing of those projects? When do you expect to execute or realize them? Are they are they all gonna materialize in 2026?

John Franzreb
Senior Equity Analyst at Sidoti & Company

Any kind of, you know, better more color would be appreciated.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Well, the program launches and the operational 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 and A rightsizing, we're in the process of we're in the process of that right now. None of them are large enough where they would be, eight kable announcements, but we're we're moving forward with those activities in each of our in each of our sites and each 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 I expect activity to happen within the fiscal year.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

And addressing the business structure, the board size reduction, that will happen after the annual meeting in the next in in the next forthcoming months. The headquarters relocation, we expect to have done within fiscal twenty twenty six. We we talked to you about the dividend adjustment and, as I just said, the portfolio review. So, yes, these are all things that we're actively working on in fiscal twenty twenty six.

John Franzreb
Senior Equity Analyst at Sidoti & Company

Okay. Most of my other questions were already answered. Thank you. I'll get back into queue.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Thanks, John.

Operator

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

Gary Prestopino
Managing Director at Barrington Research Associates

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

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Gary, we're we're checking our notes. But typically, with with the launches and the ramp up of timing, that's why we've talked about the improvement second half versus first half.

Gary Prestopino
Managing Director at Barrington Research Associates

Right.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

We don't typically we don't typically provide quarterly revenue guidance. But, yes, you would you would expect to see a a there is a level of seasonality, particularly in q three because of our q three being with holidays, but a fairly significant step up, in q four versus versus q one.

Gary Prestopino
Managing Director at Barrington Research Associates

Okay. So so the answer would be that probably, sequentially, we're gonna continue to see increases as we go along.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Yeah.

Gary Prestopino
Managing Director at Barrington Research Associates

And your back half of the year is where you're really gonna shine. Okay. That's fine. Thank you.

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

Thank you.

Operator

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

Jonathan DeGaynor
Jonathan DeGaynor
CEO, President & Director at Methode Electronics

I wanna 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. So thank you all.

Operator

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

Executives
Analysts
Powered by Quartr