METHODE ELECTRONICS INC Q4 FY2025 earnings call

• Jon DeGaynor mentioned that in the first twelve months, the team built a strong team, stabilized the organization, and took actions to improve execution and reduce costs despite one-time items masking benefits. • Fiscal 2025 saw $26 million in free cash flow in the quarter, best since Q4 2023. Full year focus on cash drove $12 million improvement in tolling recovery and $22 million reduction in accounts receivable. • EV activity in Q4 slowed, with fiscal 2026 expected to be a reset due to EV program delays, especially from Stellantis, but fiscal 2027 expected to return to growth. • Laura Kowalchik discussed tariffs, noting US sales of imported goods are ~25% of global sales, with most from Mexico compliant under USMCA, and efforts to mitigate tariffs.

In the fourth quarter, sales were $257 million. EV sales were 20% of consolidated total for the quarter and full year. Data center power products had record sales in the quarter and full year, with full year sales exceeding $80 million. The full year data center power product sales were almost double those of fiscal 2024.

• Fiscal 2026 sales expected in the range of $900 million to $1 billion. • EBITDA expected in the range of $70 million to $80 million, with second half of the year higher than the first half. • EBITDA margin expected to almost double from 4.1% to 7.9% in fiscal 2026 despite significant sales reduction. • Fourth quarter guidance factors in current market outlook, depreciation/amortization, CapEx, interest expense, and tax expense.

• EV program delays, especially from Stellantis, causing a 10%-15% decline in EV sales for fiscal 2026. • Market volatility affecting EV activity. • Tariffs posing challenges, though efforts are in place to mitigate them.

Q: Good morning. Thanks for taking my questions. John, hoping to start with certainly the key message this morning that you expect sales to come down $100 million, the EBITDA go in the opposite direction and rise into fiscal 2026. I'm just trying to understand some of the key earnings levers at a high level given that sales decline.

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

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

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