Strattec Security Corporation Q1 FY2026 earnings call

• Revenue grew nearly 10% with gross profit margin expanding 370 basis points and EBITDA margin 310 basis points to 10.2%.
• Margin improvements from sales growth, pricing actions, cost reductions. An additional restructuring action expected to save ~$1 million annually, fully realized in Q3.
• Solid cash generation of $11 million, ending quarter with over $90 million in cash.
• Automotive industry facing headwinds: aluminum supplier fire impacting Q2 and potentially Q3 production, chip shortages from international trade restrictions.
• Starting to automate manual assembly stations in Mexico, applying automation to other production lines.
• Commercial efforts focus on gaining new customers and capturing future vehicle platforms. Decision to pursue sale leaseback for Milwaukee facility, consolidating test lab to Auburn Hills, moving corporate offices for better productivity.

Revenue grew nearly 10% in the quarter. Gross profit increased $7.4 million or approximately 40% on 10% sales growth, with gross margin expanding by 370 basis points to 17.3%. Gross profit improvement was due to strategic pricing actions, higher production volumes, tooling contributions, and restructuring savings, offsetting some unfavorable factors like foreign currency, tariffs, and labor rates. Selling, administrative and engineering expenses (SAE) were $15.9 million, a $2 million increase year-over-year, with SAE at 10.4% of sales. Net income attributable to Strattec was up meaningfully on both GAAP and adjusted basis, with adjusted EBITDA $15.6 million and margin 10.2%. Operating cash flow was $11.3 million. CapEx was $1.5 million in the quarter, expected to be higher in coming quarters.

• CapEx budget for 2026 is about $12.5 million (2% of sales), with automation costs having come down. CapEx expected to be higher in next several quarters as part of modernization plans.
• Considering M&A as part of longer-term growth, but in very early stages.
• Impact of automotive industry headwinds expected to affect current quarter, but uncertainty around full-year impact.

• Automotive industry issues: aluminum supplier fire impacting production levels for major customers into Q3, chip shortages from international trade restrictions causing uncertainty for OEM responses.
• Unfavorable foreign currency, net tariff expenses, and increase in statutory labor rates in Mexico as risks to financial performance.

Q: Congratulations on another good quarter. What's new in ongoing operations review compared to fourth quarter results?

A: Jennifer Slater mentioned moving from basics to leveraging automation in simple processes for future products, a progression in modernization.

Q: How to think about change in CapEx as starting to automate? What's 2026 CapEx budget vs 2025?

A: Mathew Pauli said full-year CapEx budget is ~$12.5 million (2% of sales), automation costs have come down, not a significant CapEx investment. Jennifer Slater added simple automation processes have quick payback.

Q: Talk about Mexico restructuring and footprint moves like lab relocation, corporate office change, sale leaseback in Milwaukee?

A: Jennifer Slater said it's about optimizing space, process flow, being closer to customers, driving culture change, providing flexibility.

Q: Impact of fire and semiconductor disruption on company, timing?

A: Jennifer Slater said industry issues will impact current quarter, customers will work to make up lost time, but full-year impact uncertain.

Q: Regarding automation products, expected ROI and when results show up?

A: Mathew Pauli said less than 1-year payback, results expected in second half of fiscal year.

Q: On developing relationships with other North American vehicle manufacturers, any specifics?

A: Jennifer Slater said no specifics, but they aim to expand customer base with power access and digital key products