METHODE ELECTRONICS INC Q2 FY2025 earnings call

• Sales were on track, and adjusted pretax income was better than expected. - EV activity steadily grew to 20% of total sales. - Data centers were a tailwind, but auto and commercial vehicle markets were a concern. - Experienced a timing issue on cash but were in full compliance with debt covenants. - Program awards were solid. - Appointed Lars Ullrich as Senior Vice President, Global Automotive business, and promoted Sadek El Idrissi to lead operations and engineering in Europe and the Middle East. - Focus this fiscal year is to transform the business while positioning for profitable growth next fiscal year, focusing on executing 30 programs and addressing execution and costs.

Sales for the quarter were $293 million. Adjusted pretax income was $9 million. EV activity was 20% of consolidated total sales, a sequential increase from 18% in the first quarter. Data centers were a market tailwind, while the auto and commercial vehicle markets had weakness. Power Products in data centers and electric vehicles saw higher demand, and Europe had growth from automotive program launches, offset by program roll-offs and commercial vehicle demand weakness.

• Reaffirmed fiscal 2025 net sales to be similar to fiscal 2024 and raised adjusted pretax income guidance to approximately breakeven. - For fiscal 2026, reaffirmed net sales to be greater than fiscal 2025 and pretax income to be positive and notably greater than fiscal 2025. - Fiscal 2025 guidance assumes depreciation and amortization of $60 million to $65 million, CapEx of $45 million to $55 million, and tax expense of $13 million to $15 million.

• Received a subpoena from the SEC seeking documents and information. - Potential delays in program launches, including some customer delays in ramping up programs. - Premium freight and scrap costs still needing improvement, with continued work needed to drive further improvement. - Market weakness in auto and commercial vehicle markets could impact performance.

Q: Could you quantify the impact of the extra week on the top line and operating results?

A: The extra week was approximately $20 million worth of revenue with follow-on operating results.

Q: What cost control measures beyond reduction in freight costs impacted the second quarter results?

A: Thinning of overheads and improvement in scrap activities.

Q: Of the $50 million in new orders, how much was directly related to new programs in the EV market?

A: The majority of awards were in EV or power programs.

Q: Can you quantify the impact of the data center market improvement year-over-year?

A: Data centers are roughly 3% to 5% of total sales, with about 50% year-over-year improvement.

Q: Talk about the pretax income walk into the third quarter?

A: Q3 is the lightest revenue quarter due to holiday periods, not one-off issues within Methode.

Q: Where stand on launch standpoint with 30-plus launches this year?

A: Many launches are in final development or ramp-up phase, split relatively equally between North America and EMEA, with some customer delays in program start.

Q: Comment on Stellantis launch?

A: Stellantis is an important customer, with some timing shifts in EV launches, but EV programs are 20% of total Methode.

Q: Premium freight costs, are they normalized?

A: Not normalized, still room to improve, with $7 million reduction quarter-over-quarter, and continued improvement expected.

Q: Where is new business coming from beyond Stellantis?

A: Balanced between European, North American, and Japanese OEMs, primarily split between European and North American markets.

Q: CapEx spending reduction, change in timing or lower required spending?

A: Some of both, based on customer needs and operations background.

Q: Cash outflow, will it be recaptured by end of fiscal year?

A: Looking to reverse cash outflow in next two quarters and approach neutral.