STRATTEC SECURITY CORP Q2 FY2025 earnings call

• Generated $9.4 million in cash from operations in the quarter, with $21 million in the first half of fiscal year 2025, improved from fiscal 2024 first half. • Revenue grew almost 10% despite retroactive pricing in the prior year. • Adjusted EBITDA margin expanded 180 basis points. • Milwaukee operations change provides $1.2 million annualized savings, with $300,000 restructuring costs recognized, quick payback. • Milwaukee facility (350,000 sq ft) listed for sale, results to inform next steps. • Ongoing review of manufacturing operations to reduce costs. • Shay Bardo, chief commercial officer, captured ~$8 million in new annualized pricing, expected to be realized in Q3. • Reduced preproduction tooling cost balances by $10.5 million (nearly 50%) since start of fiscal year. • Gross profit up $3.7 million to $17.2 million. • ES&A expenses totaled $15 million, a $1.6 million increase, half due to $800,000 annual bonus provision. • Net income up 29% to $1.3 million or $0.32 per diluted share. • Adjusted EBITDA $8 million, up 60%, margin 6.1% due to higher sales volume, FX, and cost management. • Free cash flow increased by $12.5 million vs prior year Q2 due to improved ops and reduced net working capital.

In the second quarter, Strattec Security generated $9.4 million in cash from operations. Revenue grew almost 10% despite last year's second quarter having $4 million in retroactive pricing. Adjusted EBITDA margin expanded 180 basis points. Power Access products saw a 27% year-over-year increase on new programs, higher value content, and volume. Engineered latches grew 20% year over year for similar reasons. The mature product line of keys and locksets continued to decline. Revenue contribution details weren't explicitly given in absolute percentages but the product performance is as described.

• Expect to realize ~$8 million in new annualized pricing in the third quarter. • Reevaluating capital expenditures for the year, expect better understanding in Q3. • Ongoing efforts to optimize costs despite fluid tariff situation remain a focus.

• Tariffs continue to be a fluid situation, impact on costs needs proactive countermeasures with customers and suppliers. • Real estate sale process timing is uncertain. • Wage increases in Mexico (20% in Jan last year, 12% merit in Jan this year) impact labor costs going forward.

Q: John Franzreb asked about the progress in evaluating the company and examples of higher value products.

A: Jennifer Slater said progress is good but early, 7 months in, and examples like Power Access products with power sliding doors and lift gates have seen growth.

Q: John Franzreb asked about $8 million new pricing.

A: Jennifer Slater said it's from working with customers on contract life and program extensions, Matt Pauley added it's across multiple product categories and OEMs.

Q: Guy Baron asked about the range of $8 million pricing and wage increases in Mexico.

A: Jennifer Slater said it's based on customer production, Matt Pauley said 20% increase was Jan last year, 12% merit in Jan this year, impact of 12% continues.

Q: Guy Baron asked about real estate sale of Milwaukee facility.

A: Matt Pauley said listed in Jan, early in process, brokers see interest.

Q: Brian Sponheimer asked about post-retirement accrual.

A: Matt Pauley said it was a balance sheet reclass, properly stated liability and expense.

Q: Guy Baron asked about Stellantis as a customer.

A: Jennifer Slater said no significant changes, Matt Pauley said sales down ~10% YOY in the quarter