MEI earnings call analysis

NYSE:MEI Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day, everyone, and welcome to the Method Electronics First Quarter Fiscal 2026 results. At this time, all participants are on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rob Cherry, Vice President, Investor Relations. Sir, the floor is yours.

Rob Cherry | Vice President, Investor Relations

Thank you, Operator. Good morning, and welcome to Method Electronics Fiscal 2026 First Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2026 First Quarter Financial Results, which can be viewed on the webcast of this call or found at metho.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. Method undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Method'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 Method's filings with the Securities and Exchange Commission, such as our 10 and 10 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&A session. At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer.

John DeGainer | President and Chief Executive Officer

John DeGainer Thanks, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm also joined today by Laura Kowalczyk, our Chief Financial Officer. Let's start with the key messages. Please turn to slide five. I'm happy to report that the method transformation is firmly on track. There's still much more to do, but the trajectory is according to plan. We had another good quarter for data center power product sales with growth over the prior year. Our income from operations was up $9 million from the prior year. This was the result of reduction in SG&A costs and operational improvements that we have been sharing with you. This is clear evidence of methods starting to earn the right, as we like to say. Another example of execution improvement is the third straight quarter of strong free cash flow and net debt reduction. Our management team is maintaining a key focus on both the income statement and the balance sheet. As we look to the remainder of fiscal 26, we are confidently affirming our guidance. Despite all the various headwinds that we are facing, the company still expects to double its EBITDA for the full year, even with a $100 million decline in sales driven by lower EV demand. The ability to affirm this profit growth is a direct result of the significant and tireless efforts of the Method team. They've put a lot of work into our transformation, and the progress is tangible. Turning to slide six and our results for the quarter, our sales were $241 million, down $18 million year-over-year as we continue to navigate the transition and programs that we have previously communicated. We remain on track to launch over 30 new programs this year, with most of the launches scheduled for the remainder of the year. In addition, the ongoing strength of our power products activity was able to partially offset the program transition headwind. We recorded a $9 million increase in operating income driven by the SG&A reductions and operational improvements that I previously mentioned. At the adjusted EBITDA level, we delivered $16 million, up $6 million year over year. All of this is further evidence of the actions that we have taken to improve our operations, supply chain, and product launch capabilities. In these three key areas, our performance in EMEA, particularly in Egypt, has notably improved. while we continue to see solid ongoing performance in Asia. Both free cash flow and debt reduction continue to be good stories for us. The business delivered free cash flow of $18 million in the quarter, which was the third quarter in a row of strong free cash flow. In turn, we reduced our net debt level, also for the third quarter in a row, and we have now reduced it by $41 million over the three quarters. These results provide more evidence of an organization whose operating efficiency is improving. Turning to EV activity, sales were down slightly year over year, but we were up on a percentage basis. For the quarter, they were 19% of our consolidated total, an increase from 18% last year. On a sequential basis, they were down from 20%. We do remain bullish on the long-term megatrend in EVs. the near-term outlook remains soft, mostly in North America, which is partially being offset by the strength in Europe and Asia. Based on customer EDI forecasts and third-party industry projections, we still expect a significant overall rebound in EV sales in fiscal 27. Turning to data centers, sales growth was a solid 12% year-over-year. As a reminder, we did have record sales in the fourth quarter of 25, So, not surprisingly, our sales were lower sequentially. However, we still expect fiscal 26 sales to be similar to fiscal 25 with some upside potential. As I mentioned last quarter, we are achieving this performance based on our existing product technologies. We also have an opportunity to leverage our power expertise, developed over decades and honed by our EV activity, to capture even more growth. The opportunity is being driven by vast increases in power density sought by data center operators for future installations. Again, it's too early to share any more details on this, but it is very promising for future growth in our power solutions enterprise. Turning to slide seven, I want to spend a little more time on our power solutions enterprise. Power products are in methods DNA. Our experience goes back many years. to the time when we supplied bus bars and connectors on the Apollo lunar landers and on the original IBM mainframe computers. Now, those years of experience and expertise are being leveraged on today's power distribution needs in electric vehicle, data center, and military and aerospace applications. As you can see from the chart on this slide, those applications have helped drive our power solution sales to a healthy 30 percent compound annual growth rate over the last three years. Going forward, we see even more opportunities for sales growth. For data centers, the need for higher voltage bus bars is driving further product innovation. In EVs, we are starting to supply interconnect boards for a more efficient power architecture. Lastly, for military and aerospace applications, we are supplying advanced products to meet the growing needs of defense equipment manufacturers. In all these cases, we are bringing our one-method mindset to bear and drawing on our global creativity to drive innovation by listening to customers' needs and bringing them solutions like cutting-edge high-voltage power products. Our power history and DNA are providing method with a competitive differentiation in the marketplace. In regard to our forecast for fiscal 26 power sales, given our guidance for flat data centers and decline in EV, our sales will moderate this year before re-accelerating next year. Power Solutions are clearly a long-term growth engine for Method, and we are actively investing in this area. Turning to slide eight, I'll give a brief update on where Method is on its transformation journey. As I have said before, transformations are never easy, and 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 method journey is undoubtedly a transformation. Like any journey, the path is not linear. The first order of business was stabilizing the base, which included the significant organizational changes that we made in previous quarters. It meant focusing on executing program launches while simultaneously revamping plans and installing a new team, all in the face of numerous external distractions. We have worked hard to remediate practices that had atrophied or institute practices where they didn't exist. We now have better visibility 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. We are now better positioned to leverage synergies and utilize core competencies to align with market megatrends like data centers and EVs. Our improvements are creating opportunities in other areas as well. We have seen a notable uptick in RFQs and RFPs, which is being driven by our ability to leverage our global footprint and respond to market changes. As a result, we are seeing potential future sales growth from takeover business. This takeover business is in both auto and non-auto markets, and it will likely result in even more customer diversity for Method. While the financial results are not yet where we want them, our team has accomplished much since the beginning of our transformation journey, and a foundation has been laid for us to drive consistent and improved execution. At this point, I'll turn the call over to Laura, who will provide more detail on our first quarter financial results and guidance.

Laura Kowalczyk | Chief Financial Officer

Thank you, John, and good morning, everyone. Before I begin, I would like to address the cause of our delay in reporting first quarter earnings. Shortly before our original reporting date, we discovered an inadvertent miscalculation of dividend equivalents. This caused us to exceed our restricted payments basket for the first quarter as per our credit agreement. The amount was not material, but was in excess of what the agreement allowed. We subsequently needed time to obtain a waiver from our banks, which we could not disclose until the matter was resolved. The waiver was successfully obtained. Please turn to slide 10. The first quarter net sales were $240.5 million compared to $258.5 million in fiscal 25, a decrease of 7%. On a sequential basis, sales decreased 6%. The quarter saw continued growth in the sale of power products, including data center applications. In the automotive segment, sales were weaker in North America as we continue to experience a net negative impact from the transition from legacy programs to new ones. We also experience continued sales weakness in commercial vehicle lighting applications. First quarter adjusted income from operations was $2 million, an increase of $6.7 million from fiscal 25. On a sequential basis, adjusted income from operations increased $23.6 million from the fiscal 25 fourth quarter. Please see the appendix for reconciliation of all adjusted measures to GAAP. On a year-over-year basis, gross profit was relatively flat, despite the $18 million in lower sales. The main driver of the improved operating income was a $9.6 million reduction in S&A related to lower professional fees and compensation expenses. In the sequential comparison, The fourth quarter of fiscal 25 included an excess and obsolete inventory expense and discrete inventory adjustments of $15.2 million. Overall, despite the $18 million sales headwind, METHO delivered operating income growth both over the prior year and sequentially. Please turn to slide 11. Shifting to EBITDA, a non-GAAP financial measure, First quarter adjusted EBITDA was $15.7 million, up $5.9 million from the same period last year. On a sequential basis, adjusted EBITDA increased $22.8 million from the fiscal 25 fourth quarter. As with operating income, EBITDA increased despite the sales headwinds, driven mainly by a reduction in S&A and other operational improvements. Please turn to slide 12. First quarter adjusted pre-tax loss was $5.1 million, an improvement of $4 million from fiscal 25. On a sequential basis, adjusted pre-tax loss improved $23.5 million from the fiscal 25 fourth quarter. Again, the pre-tax loss improved despite a 7% sales headwind year over year and was driven mainly by a reduction in S&A and other operational improvements. First quarter adjusted diluted loss per share was 22 cents, a 9-cent improvement from the prior year and a 55-cent improvement from the fiscal 25 fourth quarter. Overall, our cost reduction efforts clearly bore fruit this quarter and set method up for improved margins when we return to sales growth. Please turn to slide 13. The first quarter's net cash from operating activities was $25.1 million, up from $10.9 million in fiscal 25. First quarter capital expenditures were $7.1 million, down from $13.6 million in fiscal 25. The lower CapEx was according to plan, as much of the program launch investments are behind us, and we are becoming more efficient in our spending on the new launches. First quarter free cash flow, a non-GAAP financial measure, was $18 million, as compared to negative $2.7 million in fiscal 25, an increase of $20.7 million. This increase was mainly due to the lower working capital and lower capital expenditures. This was our third quarter in a row of strong free cash flow. Please turn to slide 14. Just like free cash flow, we had our third quarter in a row of reduced net debt, a key focus of the method management team. Total debt was up $5.8 million from the fourth quarter. The increase was mostly driven by foreign exchange, as the majority of our debt is based in euros. We ended the quarter with $121.1 million in cash, up $17.5 million from the fourth quarter. Net debt, a non-GAAP financial measure, decreased by $11.7 million from the fourth quarter to $202.3 million. We have now reduced net debt by $41 million over the last three quarters. Please turn to slide 15. Regarding forward-looking guidance, it is based on management's best estimate and is subject to change due to a variety of factors as noted at the bottom of this slide. For fiscal 26, we are affirming our expectation for sales to be in a range of $900 million to $1 billion. Please note that fiscal 25 was a 53-week fiscal year, and fiscal 26 will be a typical 52-week fiscal year. So we will have one less week in fiscal 26 compared to the prior year. We are also affirming our expectation for EBITDA to be in the range of $70 to $80 million, 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 26 EBITDA to be higher than both fiscal 24 and 25, despite a significant reduction in sales over that same time period. As a percentage of net sales, we expect almost a doubling of EBITDA margin from 4.1% to 7.9%. In regard to free cash flow, as previously noted, we had a strong start to the year. For the full fiscal year 26, we expect free cash flow to be positive versus the negative $15 million in the previous fiscal year. The fiscal 26 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 to $63 million, CapEx of $24 to $29 million, interest expense of $21 to $23 million, and a tax expense of $17 to $21 million, of which $10 to $15 million is for valuation allowance on deferred tax assets. Our practice has been to non-gap the valuation allowance for our adjusted earnings calculation. So to echo John, this guidance represents a solid foundation for the method team to further build on. That concludes my comments, and we can open it up to questions.

Operator | Conference Operator

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Luke Young from Baird.

Your line is live. Luke Young | Analyst, Baird

Good morning. Thanks for taking the questions. John, maybe starting with automotive, you know, clearly most challenging results relative to method overall still. I know there's a lot of countervailing factors there. Just hoping to better understand relative to the overall outlook for EBITDA to double this year, how you see the automotive segment contributing to that incrementally, especially beyond some of the non-repeating operating items that were in the P&L last year. And then, you know, even beyond this year, if we zoom out maybe a couple years, just kind of what you envisioned for that business at a high level on the operating side of the house.

Thank you. John DeGainer | President and Chief Executive Officer

And Luke, thanks for your question. I think it's important that we separate out by region. That's why we specifically talked about the performance in EMEA and the transformation in Egypt. We have automotive business around the world, and our business in EMEA has significantly improved on a year-over-year basis. Part of the challenge that we have in North America, as you well know, is the transition of some of the historic programs rolling off that specifically hit us in Mexico. So the automotive business globally, I would say the performance activities are significant. impacted disproportionately in North America due to just the roll-off of that program and the subsequent delay in the EV programs, particularly with regard to Stellantis, as we've mentioned to you. So we have a bit of a tremendous amount of progress in EMEA. We have stability and good performance in Asia, and we have challenges both from an execution standpoint, as we talked about our Q4 call, but also from a revenue headwind perspective in North America. The second part of your question, where do I see it going forward, as we talked about, we expect to see the volumes start to stabilize and grow in fiscal 27 from an EV standpoint. That will create tailwinds for our Mexican facilities and basically for our North American business. And then you also see some of the data center activity that we're putting into Mexico that will help it. So I see leverage from all of our segments in our facilities, and that will help the business going forward.

Luke Young | Analyst, Baird

Thanks so much, John. And maybe a related question just in terms of Asia. So I know there's been a program roll-off impacting that business and automotive as well if we look at the sales base. Following that role, I'm fairly limited on a quarterly basis right now, just maybe at a high level strategically how you're thinking about Asia, and clearly relative to EV is one of the trends that you're most focused on, probably the most opportunity-rich region, China especially.

Thank you. John DeGainer | President and Chief Executive Officer

Our Asia team really in many ways is leading our activity from development of new product for EV applications. The battery interconnects and some of the other advanced activities are being led out of, from a manufacturing perspective, out of Asia. So they become our, in many situations, our launch facility and our first and our first product development and product validation location. So, yes, true, we had headwinds for the roll-off of one customer's programs, but I see a lot of progress there. It's a very well-run organization from an operational and from an engineering perspective, as well as from a working capital side, and they give us credibility with customers both on the power side and on the... both on the data center and on the EV power side, and give us a chance to grow around the world.

Luke Young | Analyst, Baird

Got it. And then maybe just a quick one on the interface business. I know that in the bridge you had given us for the current fiscal year, there was an appliance program roll-off reflected in that bridge. Are we seeing that in the first quarter results yet? And to what extent there might be any offsets from the transceiver business that we're seeing in the P&L right now?

Thank you. John DeGainer | President and Chief Executive Officer

The reason we didn't put that bridge in there is the situation is consistent with what we have said in previous quarters. So the roll off as we talked about in the fiscal year and how they're going to move year over year is consistent from one quarter to the other. So, yes, you're seeing the impact of the roll-offs both from the user interface as well as from the Whirlpool business. And then we see the ramp-up of some of the new programs as well as the backfill with some of the data center activity.

Understood. Luke Young | Analyst, Baird

I'll leave it there for now.

Thank you. Operator | Conference Operator

Thanks, Luke. Thanks for the questions. Thank you. Your next question is coming from John Fangereb from Sedati.

Your line is live. John Fangereb | Analyst, Sedati

Good morning, everyone, and thanks for taking the questions. I'm curious, last quarter you provided a slide that kind of really took a deep dive into the tariff outlook. Has there been any change in your tariff expectations, be it positive or negative?

John DeGainer | President and Chief Executive Officer

There has been no change, John. We had, what, $1 million worth of impact. That's more of a timing thing than it is anything else in the quarter. But we have been pretty consistent in our approach with regard to tariffs. We're not going to bear the extra cost. We've worked with the customers on this. And so there has been no change different than what we said in the previous quarters, and we feel pretty confident to the greatest extent we can be confident with the changes in Washington, we feel pretty confident based on what we see right now as to where we're at and the relationships that we have with customers through this. The other thing that I would say is, and I mentioned it a little bit in the additional RFQs, the current tariff regime is actually creating opportunities for us because our facilities, our ability to, they're USMCA compliant, and our ability to deliver into North America with 97-plus percent USMCA compliance. So it's creating opportunities and RFQs that we didn't see six or nine months ago with customers that are new to us.

John Fangereb | Analyst, Sedati

That's good to hear. And in terms of restructuring actions, can you talk a little bit about how far along are you in this process, John? You just got the low-hanging fruit at this point, and, you know, maybe some more color. What kind of, what would you expect maybe in fiscal 2026?

John DeGainer | President and Chief Executive Officer

Well, I mean, we've talked about the transformation of the leadership team, and in the last quarter, we talked about the move of the consolidation of the headquarters facility. We're on track with regard to that and believe we'll have everything completed by the middle of this fiscal year from the headquarters consolidation and the facility consolidation. We continue to look at what we can do around the world with regard to reduction of whether it's engineering activities or whether it's warehouse activities or other facilities to take structural cost out. But there isn't anything at this point of a level of materiality. So we reduced headcount probably by 500 people. And we continue to refine that. And part of the transformation that, excuse me, part of the improvement that underlies the EBITDA growth and the performance growth is just ed count reductions in our different facilities, be it in Mexico or in Egypt in particular.

John Fangereb | Analyst, Sedati

Got it, got it. And just, I guess, when you look at the end markets, you know, the class A truck, the ag and construction haven't been particularly favorable. I'm just curious about your thoughts on how those end markets play out in the year ahead based on what your customers are telling you.

John DeGainer | President and Chief Executive Officer

So, you know, we continue to get indications from our customers as well as from forecasting services like ACT that The commercial vehicle space is still bound by 5%. We do expect it to rebound in 26, and we're starting to see we haven't seen that come through an EDI yet. What we are seeing is as our lighting business has worked very hard to improve our relationships with customers, we're seeing additional RFQs. We're also seeing interest. On the power side, from a commercial vehicle standpoint, that doesn't have near-term revenue impact, but it does have future impact. And it goes to, John, what we've talked about with earning the right with customers from the standpoint of us being viewed as a trusted partner beyond just lighting. So both on the commercial vehicle side and on the ag and construction side, we still see softness in the end markets. but we are gaining business based on the improved execution of the organization.

John Fangereb | Analyst, Sedati

Got it. With that, I'll get back to you. Thank you for taking questions.

John DeGainer | President and Chief Executive Officer

Thanks, John.

Operator | Conference Operator

Thank you. Your next question is coming from Gary Pristapino from Barrington.

Your line is live. Gary Pristapino | Analyst, Barrington

Thank you. John, Laura, Rob, how are you? Good morning. We're well. Hope you're well also. Yes, I am. Okay, a couple of questions here. First of all, when you reported Q4, you gave us a sales bridge for sales guidance for this year. Has anything changed dramatically in that bridge? I mean, are we still looking at a 40 million reduction in Stellantis programs, and then about 48 million of other program launches positive on the sales side?

John DeGainer | President and Chief Executive Officer

And that's the reason why we didn't put the bridge back in again, Gary, is there's nothing changed. So as you think about how you model it, just go back and get that as the basis.

Okay. Gary Pristapino | Analyst, Barrington

I just wanted to make sure there. A couple of questions here surrounding bus bars for data centers. Okay. Is this mostly a new construction market, what you guys are supplying? Or is there a repair and replace component of this market for these bus bars for data centers?

John DeGainer | President and Chief Executive Officer

This is primarily new construction. And everything that we've talked about with regard to our guidance is what we would refer to as sort of current technology. We're working with them on future advanced activities. None of that is in our guidance. We're excited about those opportunities, but it's a little bit too soon to talk about from a revenue perspective. But everything that we're talking about here is sort of current product technology and is new construction with multiple end customers.

Gary Pristapino | Analyst, Barrington

Right, because the gist of my question is that, yeah, it's new construction. I mean, who knows how long this is going to go on with growth and data centers. But I guess I'm getting what I'm leading to is, are the plans, can this business get to be fairly substantial relative to the whole pie? It looks like from the chart on page seven, it looks like EVs maybe about 60% of the sales, data centers maybe about 35% of fiscal 25 sales. I mean, is there a way you can make it bigger or are you just range-bound by the fact that it's a new construction market?

John DeGainer | President and Chief Executive Officer

No, we're not range-bound because, remember, we have a relatively de minimis share of the total. So what we've done, and we talked about it in previous calls, to be more responsive to our customers and offer them utilizing our global footprint in a more efficient and effective way than what we've done in the past has allowed us to grow, share on the current data center product. That's where you see the growth between fiscal 24 and fiscal 25. That also is giving us opportunities with expansion because we weren't on every one of their designs for the current data centers. But in addition to that, And so that's what we talk about is in our current guidance. In addition to that, then, as they look at putting higher voltages into their data centers and bringing high voltage closer to the rack, we are working to try to help them with that. And that's growth on top of what you see here. So the chart on slide seven is historical. And yes, it is power activities, not just for data centers, but for Mill Aero as well as EV. But what you heard me say earlier is now we're starting to talk about commercial vehicles. We're starting to talk about utilizing those core competencies in other other pieces of our end markets and with our existing customers, as well as what's the next product families with our existing customers like the data center customers. So we expect this as an opportunity for growth. That's what I mentioned in my script.

Gary Pristapino | Analyst, Barrington

Okay. And then I want to also ask about the EV side of the business here. Can you give us an idea of the percentage of your EB sales that are, or products for EBs, I should say, that are outside the U.S., which would be mainly China and Europe, I suppose?

John DeGainer | President and Chief Executive Officer

So we look at fiscal 2025, and that's probably the best way to look at it so you don't get into one quarter versus another quarter. And remember that we sell things beyond just bus bars into EBs. In fiscal 2025, for our total, if you will, EV sales split, roughly $220 million of fiscal 2025 revenue went to EV products, as we said, the 20%. Fifty-five percent of that was in EMEA, 16% of that was in Asia, and 30% in North America. Okay. When we say to you that our exposure isn't just a North American exposure to EVs, it's that that's the basis for the data. Certainly, we had expected, and go back to the sales bridge that was the start of your question, we had expected significant growth in North America EV, particularly with Stellantis and a few other customers. That's where we see some of the headwinds in North America, but the overall split is pretty balanced between the regions.

Okay. Gary Pristapino | Analyst, Barrington

So in terms of what you're looking for this year, just particularly with the bus bars to the EV market, it's safe to assume the majority of any growth is going to be coming from outside the U.S. just because of the Stellantis program reductions.

John DeGainer | President and Chief Executive Officer

Okay. All right. Thank you. Yep. Thanks, Gary.

Operator | Conference Operator

Thank you. That concludes our Q&A session. I'll now hand the conference back to CEO John DeGainer for closing remarks.

Please go ahead. John DeGainer | President and Chief Executive Officer

I want to thank all of you for joining us and for your interest in Method and for your questions. We look forward to updating you on our progress in future calls, and have a great day.

Operator | Conference Operator

Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation. jsPDF 3.0.3 D:20260606090237-00'00'

NYSE:MEI Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: your host, Robert Cherry, Vice President of Investor Relations.

You may begin. Robert Cherry | Vice President of Investor Relations

Thank you, Operator. Good morning, and welcome to Methyl Electronics' Fiscal 2025 Fourth Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2025 Fourth Quarter Financial Results, which can be viewed on the webcast of this call or found at Methyl.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. The method undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in method'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 and met those filings with the Securities and Exchange Commission, such as our 10-K 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&A session. At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer.

John DeGainer | President and Chief Executive Officer

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. In my first 12 months, we've 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 Method. 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. 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 one-time or historic in nature, such as the fourth quarter inventory write-off. Regarding market volatility, EV activity in the fourth quarter slowed, and fiscal 26 will be a reset due to EV program delays, especially by Stellantis. We do expect fiscal 27 will be a return to growth. 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 million in free cash flow in a quarter. That's the best quarter that the company has had since Q4 of fiscal 23. For the full year, our focus on cash drove a $12 million improvement in tooling recovery and a $22 million 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 million. 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 timeline for that transformation. As we look to fiscal 2026, 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 million in declining sales, driven by lower EV demand, again, mainly driven by Stellantis. Turning to slide six and our specific results for the quarter. Our sales were $257 million, an increase from Q3, but down year-over-year. $17 million in sales increase was from Q3 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 Council program roll-off. We recorded adjusted loss from operations of $22 million. Of that loss, $15 million 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 in EV programs. Historical warranty and quality issues for existing auto programs contributed approximately $5 million to the loss as well. 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 million, and we expect a similar year in fiscal 26 with potential for more growth. The full year sales were almost double those of fiscal 2024. 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. For both the quarter and the full year, they were 20% of our consolidated total, an increase from 14% and 19% 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 forecasts, some program launch delays, and a couple program cancellations. This is causing us to project a 10 to 15 percent decline in EV sales for fiscal 26, a much different picture than just one quarter ago. However, based on our customer EDI forecasts and third-party industry projections, we expect a significant rebound in EV sales in fiscal 27. 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. Despite all the external factors, the business delivered free cash flow of $26 million in the quarter, which 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 million from Q3. We also generated more free cash flow than the prior year Q4, despite 20 million less in sales. This is another clear indicator of an organization whose operating efficiency is improving. 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 25, we launched 22 new programs. We expect to launch another 30 new programs in fiscal 26. Our customers continue to count on us, and we plan on continuing to deliver. Speaking of new programs, for fiscal 25, we had bookings of over $170 million for new and extended programs. About two-thirds of the awards were for power distribution solutions in EV, industrial, and data center applications. The method team has put a lot of hard work into rebuilding our foundation in fiscal 25, which we expect that work to lead to notable performance and financial improvements in fiscal 26. Turning to slide seven. As I mentioned earlier, I'm marking my one-year anniversary as CEO of Method. I'm truly proud of what we have accomplished as a team and I want to 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. A turnaround is basically just fixing the business back to some status quo. The method journey is 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 that focusing on executing program launches while simultaneously revamping plans 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. 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 visibility 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. 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 laid for us to drive consistent and improved execution. On slide eight, I want to 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. It can be seen in 100 basis points worth of gross margin improvement, 9 million worth of SG&A reductions, and $12 million worth of tool and recoveries, all fiscal 25 year-over-year improvements. Then there's been a whole series of execution-focused improvements, like $11 million reduction in freight, 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 material sourcing actions. None of these activities could have been done without the reset of nearly all of the executive leadership teams. the reset and talent lower in 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, it has to have internal capabilities, especially in plant operations, engineering, and the supply chain. 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 Method 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. So how do we continue to earn the right from here? 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 right sizing of plants and headcount. It also includes footprint consolidations. And finally, we take actions to address our structure and capital discipline, like reducing our board size from 10 to 7 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 and data centers, EV, and lighting, which provide an attractive foundation for value creation in fiscal 26 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. Method 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 the business will need in the future, we are working hard to refine our business model. We will continue to highlight the milestones on this transformation journey, but it 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 26, but to project a doubling of our EBITDA from fiscal 25. 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 Pawlczyk | Chief Financial Officer

Thank you, John, and good morning, everyone. Please turn to slide 11. Before I address the financial and relative to U.S. 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. This has not only helped us to navigate the situation, but has also helped to foster team collaboration and drive deeper understanding of how we run our business. From an exposure standpoint, our U.S. sales of imported goods are approximately $265 million, which is our sales that are potentially exposed to U.S. 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. 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 changes to our supply chain. To be clear, we've communicated to all of our customers that we expect 100 percent tariff recovery or mitigation. And to be even more clear, this 100 percent 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. 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 257.1 million compared to 277.3 million in the fiscal 24, a decrease of 7%. On a sequential basis, sales increased 7% from the fiscal 25 third quarter. The quarter saw record sales of power products in the 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 21.6 million, a decrease of 11.8 million from fiscal 24. On a sequential basis, adjusted loss from operations declined 20.3 million from the fiscal 25 third quarter. 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 million, mainly in the automotive segment, and a discrete inventory revaluation of 2.2 million. 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 15.2 million in the quarter, can be seen on the chart. The lower sales had a 6.2 million impact on the year-over-year comparison. A partial offset was a 4.2 million year-over-year improvement in S&A. 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 7.1 million, down 12.4 million from the same period last year. On a sequential basis, adjusted EBITDA declined 19.4 million from the fiscal 25 third quarter. 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&A and other operational improvements. Please turn to slide 14. Fourth quarter adjusted pre-tax loss was 28.6 million, a decrease of 14.8 million from fiscal 24. On a sequential basis, adjusted pre-tax loss declined 21.3 million from the fiscal 25 third quarter. Again, the inventory adjustments and lower sales drove the decline year over year. Excluding the inventory adjustment impacts, operational execution improvements minimize the year over year impact despite sales being 20 million lower. Historical warranty and quality issues in Europe for existing auto programs contributed $4.5 million to the loss as well. Fourth quarter adjusted diluted loss per share was 77 cents, down 54 cents from the prior year and down 56 cents from the fiscal third quarter of 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. The fourth quarter's net cash from operating activities was $35.4 million as compared to $24.9 million in fiscal 24. Fourth quarter capital expenditure was $9.1 million unchanged from fiscal 24. Fourth quarter free cash flow, a non-GAAP financial measure, was $26.3 million as compared to $15.8 million in fiscal 24, an increase of $10.5 million. 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. Debt was down 10.3 million from the third quarter. We ended the quarter with 103.6 million in cash, down slightly from the third quarter of fiscal 25. The strong cash generation in the quarter allowed us to pay down debt. Net debt, a non-GAAP financial measure, decreased by $10.1 million from the third quarter to $214 million. 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 million, which is still in excess of our needs. It revised covenant ratios and updated pricing and other details. The amendment waived any default 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-K filing. Please turn to slide 17. The full year fiscal 25 net sales were $1,048,000,000 compared to $1,115,000,000 in fiscal 24, a decrease of 6%. The net sales decline was primarily driven by the GA Center console and EV lighting program roll-offs that I previously mentioned. Together, their year-over-year impact was 111 million. Partially offsetting those declines was a record year for sales of over 80 million of power products for data centers. Adding back the year-over-year inventory adjustment of 12.2 million, operational improvements minimize the impact of the 67 million decline in sales as seen on the chart. Please turn to slide 18. Next, I want to provide an update on our sales bridge from fiscal 24 to 26. As previously mentioned, the GMT-1 integrated center console program has gone end of life. The result was a significant sales headwind in fiscal 25 and a slightly lesser one in fiscal 26. 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 24 and was thus only a headwind for us in fiscal 25. The major update on this bridge concerns the launching of several EV programs for Stellantis. In fiscal 25, those launches generated 46 million of incremental sales. You may recall that back in Q1, we projected Stellantis to generate a total of 84 million in fiscal 25 and then another incremental 125 million in fiscal 26. However, due to severe reductions and delays from Stellantis, we now expect fiscal 26 to see a decrease of $40 million, essentially a $200 million swing from our Q1 projection. We have also seen EV program reductions for fiscal 26 from two other major OEMs. 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 26 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 26 to be approximately $100 million lower than fiscal 25 rather than the organic growth we previously expected. A byproduct of this revised outlook is that we expect fiscal 26 to see an improved diversity of OEM customers given the forecasted mix. 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 26, we expect sales to be in the range of $900 million to $1 billion. Please note that fiscal 25 was a 53-week fiscal year, and fiscal 26 will be a typical 52-week fiscal year. So we will have one less week in fiscal 26 as compared to the prior year. We expect EBITDA to be in the range of 70 to 80 million, 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 26 EBITDA to be higher than both fiscal 24 and 25, despite a significant reduction in sales over that same time period. Specifically, in fiscal 26, the downward conversion from the lower sales will be offset by operational improvements and we'll actually see almost a doubling of EBITDA margin from 4.1 percent to 7.9 percent. 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 to 63 million, CapEx of 24 to 29 million, interest expense of 21 to 23 million, and a tax expense of 17 to 21 million, 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. One last note on fiscal 25. Back in fiscal 24, 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 25. For more details, please see our 10-K filing. So, to echo John, we have driven improved operational execution this past year that was often masked by various external or historical challenges. The result is a solid foundation for the method team to build on into the future. That concludes my comments, and we can open it up to questions.

Operator | Conference Operator

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. 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. Our first question comes from Luke Junk with Baird.

Please proceed. Luke Junk | Analyst, Baird

Good morning. Thanks for taking the questions. John, hoping to start with, you know, certainly the key message this morning that you expect sales to come down 100 million, but EBITDA to go in the opposite direction and rise into fiscal 26. 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. And I guess if I look at what's going on in that business, exiting this year, you know, pretty weak jumping off point coming out of four key fiscal 25. Even if I back out the inventory charges and warranty quality, expense? You know, I know you're still launching more programs, so how should we just, you know, think about balancing cost saves versus some incremental costs coming in the P&L from launches?

Thank you. John DeGainer | President and Chief Executive Officer

Thanks, Luke. And by the way, good morning. Thanks for your question. 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 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 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 knowledge 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 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, and give us the basis for why we believe we can, on lower sales, double our EBITDA.

Luke Junk | Analyst, Baird

Thanks for that, John.

Luke Junk | Analyst, Baird

All helpful commentary, especially all those individual expense items. Second question, just in terms of the launch activity into fiscal 26, 30 launches, How should we think about those in terms of the percentage that our EV platform 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, you know, potential risk, either timing or volume as you put together the guidance?

John DeGainer | President and Chief Executive Officer

Well, so as we've 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 what our customers told us with third-party evaluations, and that's what's in the guidance. As we said, EB as a percent of sales is 20% this year, and we'll actually – the challenge that we have is in past years, 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. 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 will 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 going to put to work the capabilities there. We're going to put to work to support our data center 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 the third side is finding other ways to utilize our engineering capability and our fixed assets to support other markets that we touch, and that's particularly on the data center side.

Luke Junk | Analyst, Baird

Just to be clear, 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 haircutting that further as well or are you mainly kind of relying on that third party data?

John DeGainer | President and Chief Executive Officer

When we say sense checking it, 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 compilation of expert judgment. So we look at it, try to use the best sources of data that we can get and make an evaluation from there. But we don't, 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 | Analyst, Baird

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 late July, early August next year. I know it was discussed qualitatively in the 10-K, but I didn't see any specifics yet.

Laura Pawlczyk | Chief Financial Officer

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

Luke Junk | Analyst, Baird

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

Laura Pawlczyk | Chief Financial Officer

Yeah, it is starting at 4.25 for Q4 of fiscal year 25, and then it's at 3.75. That was before the amendment. After the amendment, it is at 4.25 in Q1, and then goes up after that.

Luke Junk | Analyst, Baird

Okay, I can take that off. I'll leave it there.

Thank you. Operator | Conference Operator

The next question comes from Gary Prestopino with Barrington.

Please proceed. Gary Prestopino | Analyst, Barrington

Good morning, everyone. A lot here, all right? So first of all, what I want to ask is, and I think I know the answer to this question, you didn't back out these inventory charges in adjusted EBITDA. So that $7 million that you did in adjusted EBITDA, you would add back that $15 million to get kind of a recurring number on EBITDA?

Yes. John DeGainer | President and Chief Executive Officer

We did not adjust those out, Gary.

Gary Prestopino | Analyst, Barrington

Did you not adjust those out because of why? I mean, it's a non-recurring charge. I just want to get an idea of what the thought process there is. Is it something you can't adjust that out?

John DeGainer | President and Chief Executive Officer

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

Gary Prestopino | Analyst, Barrington

Okay, that's fine. And then you went very quickly through all the one-time items in fiscal 25, so could we just take that slowly? You had $15.2 million of inventory. What else did you have there? I think you cited four.

John DeGainer | President and Chief Executive Officer

So the $15.2 is just in the quarter. Right. The total inventory reserve in fiscal 2025 is $22 million. And we had $12 million worth. So $22 million of inventory reserves. Excuse me. $22 million worth of inventory reserves. $12 million worth of warranty and quality charges. $9 million for Alex Partners. $5 million worth of legal expenses and $3 million of restructuring charges.

Gary Prestopino | Analyst, Barrington

Okay, and $3 million restructuring. All right. Okay, that's fine. And then I know Luke kind of asked this question, but I want to get an understanding. Of these 30 new awards that you got in 2025, how much of those are dealing with the EV market itself?

John DeGainer | President and Chief Executive Officer

It's in our 10K from a detailed standpoint, but I believe it's about 50% of the total. What we talked about, and we talked about in the conversation, that from our booking 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 concerned 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 12 months ago.

Gary Prestopino | Analyst, Barrington

Are these new EV awards still with Stellantis?

John DeGainer | President and Chief Executive Officer

No. As we talked about, 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 bridge that Laura has, I believe it's on slide 18. Right. That shows you that 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 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've done for these launches.

Gary Prestopino | Analyst, Barrington

Okay, and that's what I wanted to go back to this bridge because a lot of numbers here, but I just want to get an idea of the Stellantis. So as of fiscal Q125, you thought you were going to get $84 million of Stellantis revenue. As of Q4, that actually materialized to $46 million. Is that correct?

John Frenzreb | Analyst, Sedoti

Correct.

Gary Prestopino | Analyst, Barrington

Okay. So then if we go to the next slide, you have $125 million 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. It looks like you almost had a – $165 million reduction in what you expected from Stellantis?

John DeGainer | President and Chief Executive Officer

That's exactly right. It's actually more than that. It's roughly $200 million. So the way to think about it, Gary, is... The way to think about this for all the investors is this wasn't something that was foreseeable because if you look at what the customer was talking about as well as IHS in... In January of 2025, now I'm not talking fiscal, now I'm talking calendar, January 2025, the volumes for those programs were between large and frame. The two big Stellantis programs were combined 169,000 vehicles. In May of 2025, this is for 2025, it goes back to the bridge. So in January, it was 169,000 vehicles. In May, this is for 2025. 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, which is why Q4 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 When you have long lead time items like copper, we built a pipeline based on what the customers had told us and what IHS said. You take those same numbers for fiscal 2026, in January, so for fiscal 20, excuse me, calendar year fiscal 2026, in January 2025, that number was $259,000 between the two programs, in May it dropped to $176,000, 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 passable within a quarter. So what we're trying to do, we're having conversations with the customers, we're trying to work with them And it's not just with Stellantis, work with all of our customers. And at the same time, be able to use our capabilities, use our engineering, use our operations, use our supply chain to support growth in other areas. So if you think about slide 18 and 19 and say they've had a huge hole punched in the revenue from Methos' perspective, But the performance on a year-over-year basis, you have negative downward conversion that you should expect in any company when you take $100 million worth of revenue out or the better part of $100 million worth of revenue out. And on top of the downward conversion, we're driving, what, $32 million worth of EBITDA improvement in our midpoint of our guidance.

Gary Prestopino | Analyst, Barrington

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

Big time. John DeGainer | President and Chief Executive Officer

Absolutely. That's what slide 18, if you look at the top of slide 18, is what we knew when I first started talking to you. Mm-hmm. Q1. That's what we knew at the time. Mm-hmm. Okay. Now, based on The bottom of the slide shows you what we know now.

Gary Prestopino | Analyst, Barrington

Okay. Okay. I just want to clear that up. All right. And then I don't, just one more quick question. You know, I saw the report that you're paying a seven cent 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 cashflow was still pretty strong.

John DeGainer | President and Chief Executive Officer

Yeah, so actually, but Gary, if you look at it based on the dividend has historically been set first, the dividend policy is set by the board. But let's just talk about it. 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 initial dividend on a per share basis was set back when the stock was much higher. 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 | Analyst, Barrington

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

Thank you. Of course. Operator | Conference Operator

Our next question comes from John Frenzreb with Sedoti. Please proceed, John.

John Frenzreb | Analyst, Sedoti

Good morning, everyone, and thanks for taking the questions. We'll just stick with slide 18 here, and I guess I want to focus on that $48 million and that other launches and pricing and market. I guess my biggest curiosity is how much of that $48 million has pricing benefits embedded in it?

John DeGainer | President and Chief Executive Officer

You mean as far as versus its new programs is just price to price?

John Frenzreb | Analyst, Sedoti

Yeah, on the right-hand side of the column, it's $48 million down from $107 million. I'm just curious how much is pricing because I figure that's going to be one of the hardest things to execute.

John DeGainer | President and Chief Executive Officer

Yeah, no, no, no. It's not that. This is, as we said to you, we've had other programs that have either been delayed or canceled. So the downdraft between the $107 million and the 48 is due to delays or cancellations. Pricing is incremental plus. Data centers is incremental plus. So the, what you have to look at is the combination of the Solantis plus the other delays. It's basically a hole that's been punched in our revenue plan based on largely North American EV program delays or cancellations. Not pricing that we didn't get.

John Frenzreb | Analyst, Sedoti

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

John DeGainer | President and Chief Executive Officer

Yeah. It does. And not only does it assume growth, but what you'll see is you see that ultimately this business is going to be about 50% automotive and 50% other. 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 on base data center activity as well as future data center activity.

John Frenzreb | Analyst, Sedoti

Okay, so that's largely coming from data center given what's going on in the truck market.

Yeah. Yeah. John DeGainer | President and Chief Executive Officer

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

John Frenzreb | Analyst, Sedoti

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

John DeGainer | President and Chief Executive Officer

I'm very proud of the team at Nordic Lights. Auntie and the team there do a fantastic job. in a challenging market. The base market, the equipment suppliers aren't blowing the doors off, but Nordic Lights is performing well, and the team there 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 Frenzreb | Analyst, Sedoti

Good. Good to hear. Question about slide nine, so we can move off from 18. It seems like there's sounded to me it sounded to me as if there's still more to come right uh the 2026 priorities including further plant consolidation sga right sizing um you know portfolio review things of that nature uh can you give us a sense of some of the timing of those projects when do you expect to execute or realize them are they you know are they all going to materialize in 2026 any kind of You know, more color would be appreciated.

John DeGainer | President and Chief Executive Officer

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&A rightsizing, we're in the process of that right now. None of them are large enough where they would be a capable announcements, but we're moving forward with those activities in each of our sites and each of our regions to size the business based on what product development we need and where we're going. Aligning the portfolio, more to come on that, but I expect activity to happen within the fiscal year. And addressing the business structure, the board size reduction, that will happen after the annual meeting in the next forthcoming months, the headquarters relocation. We expect to have done within fiscal 2026. 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 2026.

John Frenzreb | Analyst, Sedoti

Okay. Most of the other questions were already answered. Thank you.

I'll get back to you. Operator | Conference Operator

Thanks, John. We have a follow-up question coming from Gary Prestapino with Barrington.

Please proceed. Gary Prestopino | Analyst, Barrington

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

John DeGainer | President and Chief Executive Officer

Gary, we're checking our notes, but typically with the launches and the ramp up of timing, that's why we've talked about the improvement, second half versus first half. We don't typically provide quarterly revenue guidance, but yes, you would expect to see a, there is a level of seasonality, particularly in Q3 because of our Q3 being with holidays, but a fairly significant step up in Q4 versus Q1.

Gary Prestopino | Analyst, Barrington

Okay. So the answer would be that probably sequentially we're going to continue to see increases as we go along. And back after the year as well, you're really going to shine.

Okay. That's fine. Thank you. Operator | Conference Operator

Thank you. 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.

John DeGainer | President and Chief Executive Officer

I want to 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 | Conference Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090238-00'00'

NYSE:MEI Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Host/Operator: Good day, everyone. Welcome to the Method Electronics third quarter fiscal 2025 results conference call. At this time, participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to the Vice President of Investor Relations, Robert Cherry.

The floor is yours. Robert Cherry | Vice President of Investor Relations

Thank you, Operator. Good morning, and welcome to Method Electronics fiscal 2025 third quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2025 Third Quarter Financial Results, which can be viewed on the webcast of this call or found at metho.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. Method undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Method'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 Method's filings with the Securities and Exchange Commission, such as our 10-K 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&A session. At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer.

John DeGainer | President and Chief Executive Officer

Thanks, Rob, and good morning, everyone. Thank you for joining us for our third quarter earnings conference call. I'm also joined today by Laura Kowalczyk, our Chief Financial Officer. Before we discuss the quarter, please turn to slide five, as I take a minute to reflect upon and provide an update on the key messages that I shared with you on my first Methods earnings call six months ago. As I said then, all companies eventually go through periods where the business must evolve to move forward, changing the solutions it develops for customers, the way in which it produces those solutions, and the way in which the organization works as a whole. Method was at such a point. Today, only two quarters later, I can report that Method's journey to transform the business for long-term value creation is well underway. In that first quarter call, I said that our first priority was to execute on the large pipeline of new programs to be launched over a two-year period. Today, I can report that we have successfully launched 20 of those programs year-to-date, and we are working on launching another 33 programs over the next five quarters. Simultaneous with the launches, we committed to focus on immediate actions to address operational execution, costs, and efficiency. Since then, numerous actions have been taken. I will share some of the initial results of those actions later in the presentation, but keep in mind that these are long-term initiatives that will continue to bear fruit over the coming quarters and years. Back in the first quarter call, we committed to building an executive team that was up to both tackling the challenges we faced and moving the company forward. I'm proud to share that we've extensively rebuilt the executive management team, including five new leaders from outside the organization. Again, I'll share more details on this in a few minutes. Lastly, two quarters ago, we committed to profitable organic sales growth in fiscal 26. Today, based on all the information available to us, we're able to reaffirm that guidance. Simply put, Methode is firmly on track to reinvigorate and transform the business for long-term value creation. Turning to slide six and our results for the quarter. Our sales were $240 million and our adjusted pre-tax loss was $7 million. Sales were lower than the prior year as we experienced the first quarter where the impact of two large auto program roll-offs was fully felt. That impact, of course, was anticipated. Our sales were then driven even lower than our expectations by the softening in EV demand as well as the overall weakness in the auto market. Despite the lower sales volume, we were able to deliver $4 million in higher gross profit than last year due to product mix and improved operational execution, including lower scrap and freight costs. Furthermore, at the operating line, despite the notable drop in sales, our loss improved from the prior year. Taking a step back, these results clearly demonstrate that the actions we have taken to improve operational execution have lowered the break-even sales point for the company. This is a key achievement that will enable Method to drive margin leverage on future sales growth. Improved execution also helped us return to positive free cash flow, which was $20 million in the quarter. The fact that we generated the same amount of cash from operating activities as the prior year, despite 20 million less in sales, is a clear indication of an organization whose operating efficiency has improved. Turning to EV activity, sales in the quarter were 24% of our consolidated total, a sequential increase from 20% in the second quarter. While this percentage increased, our EV sales on a dollar basis actually decreased slightly. We remain at the beginning of a wave of new EV program launches, but it's been a softer start than expected due to customer demand that impacted the quarter. There's clearly volatility in several of our key end markets. The weakness in automotive markets, especially in North America and Europe, was a headwind. Conversely, a tailwind was the growth in data centers. We enjoyed very strong sales in the data center applications in the quarter. Our success in that market is expected to result in record sales for those products this year. If you're watching the industry closely, you'll know that the technology in the space is rapidly evolving and will undoubtedly lead to some unevenness in near-term sales. However, that very technology disruption is also expected to lead to even more growth opportunities for Methos products. This will be a specific focus area for our new Chief Strategy Officer, Brad Perotti, who will bring both leadership and technical expertise to our mission to expand our power solutions enterprise. As that strategy develops, we will share more in coming quarters. Turning to the balance sheet, we have maintained an acute focus on managing it, particularly accounts receivable and inventory. At the end of the quarter, we were comfortably in full compliance with the leverage and interest coverage ratios per our covenants. Both improved from the second quarter and were more than a full turn better than requirements. Lastly, our primary focus continues to be on improving operational execution and successfully launching the large pipeline of new programs. In the quarter, we made clear progress on our operational metrics, various cost reductions, and improved organizational structure. As I alluded to earlier, we are in the heart of our record two-year new program launch window. Year to date, we have successfully launched 20 new programs. We have six more in the fourth quarter to launch, and then we expect to launch another 27 new programs in fiscal 26. Our customers continue to count on us, and we plan to continue to deliver. On slide seven, I want to spend some 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. You will recognize the top of this slide from what we communicated back in the first quarter, that the building blocks of our transformation are to reset performance, build and grow capabilities, and shift our culture. To reset our performance, we have improved the organization's focus on fundamental metrics and levers. Some balance sheet examples include our improved focus on accounts receivable, which dropped $36 million from the second quarter, and inventory, which was down $9 million from the second quarter. Turning to the income statement, we reduced scrap and freight costs a total of $5 million from the prior year. On a longer-term basis, we have executed a number of actions that will bear fruit over time, such as price increases, supplier price reductions, and raw material sourcing consolidations. To build and grow our capabilities, we have also extensively refreshed our executive team, and I'll share more on this in a minute. To accelerate our improvements, such as in our efforts to reduce inventory, we've also selectively utilized outside expert resources to help drive initiatives. Lastly, we have systematically improved rigor and discipline in our day-to-day business in the areas of program launches, procurement, engineering, and finance. One of my key learnings since taking the CEO role is that the company's path to success relies on refreshing history and returning to a one-method mindset. where all our global teams are moving in the same direction. This mindset existed within Method and needed to be reinvigorated. In doing so, we can now leverage global best practices, drive better numeracy and cost consciousness, and instill a sense of urgency at all levels across the business. While we have focused primarily on execution in the last quarters, we have not ignored strategy. We are, in fact, in the early stages of its development. We've been actively planning and formulating the basic building blocks And of course, strong execution is fundamental to good strategy. We intend to deploy a proactive product portfolio management customer approach. We will not sit back and wait for business to come to us. As we build our strategy, we'll focus on megatrends, applying our core competencies and unique ways to develop high-value solutions for both current and adjacent markets. We don't plan to solely be shaped by market forces and swings of our current product portfolio. Our initial focus will be to explore opportunities in non-transportation power solutions, industrial lighting, and industrial user interface areas. These are all areas where we can use our capabilities and drive organic growth in the near term. As I said, we are transforming the business to earn the right with customers, employees, and shareholders in order to write the next chapter of Method's history. Turning to slide eight, I want to give a clear illustration of the refreshed executive management team that I referred to previously. Each of these positions and individuals have been publicly announced, but seen here collectively clearly illustrate that Method is now being run by a seasoned, highly experienced leadership team with both long and short tenures that has the capability to face and overcome challenges. This team has been assembled over just the last seven months, but is already driving the Method transformation and delivering results. Talent management will be a core competency of method going forward. On slide nine, I want to provide an update on the transition that we are navigating from a few large legacy programs to a stream of launches of new ones. The GMT-1 integrated center console program has now gone end of life. The result is a significant sales headwind in fiscal 25 and another lesser one in fiscal 26. The other major legacy program roll-off we previously communicated was for EV lighting. That program went end of life in fiscal 24 and is thus a headwind for us in fiscal 25. Conversely, we are launching several EV programs for Stellantis in fiscal 25. The ramp-up of those programs, as well as other launches, has been slower than expected and impacted the quarter and our outlook, although pricing actions did provide some offset. Consequently, we now expect sales for our fiscal 25 be lower than fiscal 24 rather than flat. Looking further out to fiscal 26, we still expect more launches of EV programs for Stellantis, albeit at lower volumes. In addition, we will be launching a sizable bus bar program for GM. This GM program was a takeover award that we disclosed in the first quarter, but we did not identify the customer. This fast track program demonstrates the trust that GM has in Method. It also further adds to the diversity of the OEMs that we are supplying for EV programs. That activity is expected to more than offset the final headwind from the GMT-1 roll-off, as well as a major appliance program that is going end-of-life in fiscal 25. The overall net result is the continued expectation of organic sales growth in fiscal 26. On a more granular basis, excluding the appliance business, which is non-quarterless, we could potentially see high single-digit organic growth in fiscal 26 in an environment of flat end markets. As we navigate this product transition, we remain subject to market conditions, EV adoption trends, and the success of our customers' program launches. However, as of today, this is the line of sight we have based on our projections, the forecasts of our customer base, and third-party data sources. Turning to slide 10. In summary, for the quarter, sales were lower, but gross profit higher than the prior year, while we returned a positive free cash flow. EV activity was steady and was 24% of sales. The data center market drove strong power product sales and is expected to lead to a record year for those products. We were comfortably in full compliance with all debt covenants, and our focus is on driving fundamental operational metric improvement which helped to lower both AR and inventory levels. Lastly, since the first quarter, we have extensively rebuilt the executive management team, including five new leaders hired from the outside. Going forward, our focus this fiscal year continues to be on transforming the business while positioning it to return to profitable growth next fiscal year. Meanwhile, we are focusing intensely on executing six more program launches this year, while preparing to launch another 27 next year. Our decisive actions to reset performance are expected to continue to improve our operational metrics and reduce costs. As I laid out in our transformation roadmap, we are continuing to build and grow our capabilities, shift our culture, and we are planning the next steps of developing our strategy. Lastly, for fiscal 26, we are reaffirming guidance for profitable organic sales growth. I firmly believe that our business is headed in the right direction. At this point, I'll turn the call over to Laura, who will provide more detail on our third quarter financial results.

Laura Kowalczyk | Chief Financial Officer

Thank you, John, and good morning, everyone. Please turn to slide 12. The third quarter net sales were $239.9 million compared to $259.5 million in fiscal 24, a decrease of 8%. On a sequential basis, sales decreased 18% from the fiscal 25 second quarter. For all the sequential comparisons to the second quarter of this fiscal year, please note that the second quarter had one extra week as we explained last quarter. In addition to the third quarter having one less week in comparison to the second, the third quarter is historically our weakest quarter for sales as it covers the year-end holidays and customer plan shutdowns. As a result, these two factors tend to be a primary driver for most of our sequential financial comparisons. This quarter was the first quarter where the full impact of the GM Center Council and major EV lighting program roll-offs were felt, with negligible total sales in the quarter from both. That headwind outpaced the sales contribution that we received from new program launches. We also experienced sales weakness in the commercial vehicle and off-road lighting applications. A bright spot in the quarter was strong sales of power products into data center applications. As John mentioned, we are on pace for a record year in sales for those data center products. Third quarter adjusted loss from operations was $1.3 million, an improvement of $1.6 million from fiscal 24. On a sequential basis, adjusted income from operations declined $15.6 million from the fiscal 25 second quarter. Please see the appendix for reconciliation of all adjusted measures to GAAP. The improvement and adjusted operating loss year over year was driven by higher gross profit. That improvement in gross profit was driven by lower scrap and premium freight as well as other operational execution improvements. On a sequential basis from the second quarter, the lower sales drove more than 100 percent of the decline as a 4.9 million improvement in SG&A was a partial offset. That improvement in SG&A was mainly driven by lower professional fees and by a reduction of variable management compensation related to financial performance objectives. Overall, the third quarter was transitional in nature as new program sales are starting to replace the legacy program roll-offs. Please turn to slide 13. Shifting to EBITDA, a non-GAAP financial measure, third quarter adjusted EBITDA was $12.3 million. up 2.8 million from the same period last year. On a sequential basis, adjusted EBITDA declined 14.4 million from the fiscal 25 second quarter. The adjusted EBITDA benefited year over year from higher gross profit. The sequential decline was driven by the lower net sales. Please turn to slide 14. Third quarter, adjusted pre-tax loss was 7.3 million, an improvement of 3.1 million from fiscal 24. On a sequential basis, adjusted pre-tax income declined 13.5 million from the fiscal 25 second quarter. The higher gross profit drove the improvement from the prior year while the sequential decline was driven by the lower net sales. Third quarter adjusted diluted loss per share improved 12 cents from a loss of 33 cents in the same period last fiscal year. This 12 cent improvement was achieved despite the 19.6 million decrease in sales. On a sequential basis, the adjusted earnings per share decreased 35 cents from the fiscal 25 second quarter. The third quarter adjusted EPS excluded evaluation allowance of 6.5 million for U.S. deferred tax assets. The adjusted tax for the quarter was a benefit of 0.3 million. Overall, while operational improvements helped minimize the impact, our third quarter profitability was primarily driven by the lower sales. Please turn to slide 15. Debt was down $12.7 million from the second quarter, mainly driven by FX. We ended the quarter with $103.8 million in cash, up $6.8 million driven by improved cash from operations. This improvement was achieved despite a $52.7 million sequential decline in sales. Net debt, a non-GAAP financial measure, decreased by $19.5 million to $224.1 million. As John mentioned, we are comfortably in compliance with all of our debt covenants, at the end of the third quarter. Please turn to slide 16. The third quarter's net cash from operating activities was $28.1 million as compared to $28.8 billion in fiscal 24. Third quarter capital expenditure was $8.5 million as compared to $16.6 million in fiscal 24, a decrease of $8.1 million. The decrease was driven by proactive delays in the purchases of property, plant, and equipment to better match program launch schedules. Third quarter free cash flow, a non-GAAP financial measure, was $19.6 million as compared to $12.2 million in fiscal 24, an increase of $7.4 million. This increase was mainly due to the lower capex spending that I just described. Please turn to slide 17. 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 at the bottom of this slide. For the fourth quarter, we expect sales to be in a range of 240 to 255 million. We expect pre-tax income to be in a range of negative 1 million to positive 3 million. While our transformation efforts have clearly delivered operational improvements, we continue to work through the residual effects from past operating inefficiencies that still have the potential to negatively impact our near-term results. Implied in this first quarter guidance is a reduction to our prior guidance for full-year sales and pre-tax income, as shown on the slide. While our full-year sales guidance has come down 77 million at the midpoint, the adjusted pre-tax income has come down only 9 million, a deleveraging of only 12%. This is yet another indication of our operational improvements. The fourth quarter guidance assumes depreciation and amortization of $14 to $16 million, capex of $8 to $10 million, and a tax benefit of $1.5 million to tax expense of $0.5 million. Looking further ahead to fiscal year 26, we are reaffirming expected net sales to be greater than fiscal 25 and pre-tax income to be positive and notably greater than fiscal 25. Lastly, we have not included any of the very recent changes to U.S. tariff policy in our guidance. That concludes my comments, and we can open it up to questions.

Operator | Conference Call Host/Operator

Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just one moment while we pull for questions. Your first question is coming from John Finch-Rebb with Sidoti. Please pose your question.

Your line is live. John Finch-Rebb | Analyst, Sidoti

Good morning, everyone, and thanks for taking the questions. I guess I'd like to start with the quarter in and of itself. When you look at the drop in the revenue profile, especially in light of maybe some of the anticipation in the lower volume in the EV and hybrid sector, what surprised you really the most about the drop in volumes?

John DeGainer | President and Chief Executive Officer

So, John, you probably were most disappointed with some of the delays and ramp-ups from our new program launches with our customers. We've been working on this with our customers, and we talked about all the launches, and we expected those ramp-ups to occur much more aggressively, and that's what we had talked about during our last earnings call, so that would be the biggest surprise.

Right. John Finch-Rebb | Analyst, Sidoti

And how does that program rollout look today in light of those changes and the confidence level you have that they will continue to roll out at the pace you anticipate over the coming, say, six months?

John DeGainer | President and Chief Executive Officer

Yeah, as you look at the sales bridge that we laid out, particularly both for fiscal 25 and fiscal 26, you can see that we have lowered, go back to previous ones, we have lowered our expectations for a couple of those programs, particularly the Stellantis programs. We are actively working with a customer to deal with that from a commercial perspective. We'll keep you and all of our investors up to date as that comes to fruition. But we're still optimistic with regard to the programs. We've seen no cancellations. It's just delays and ramp-ups or change in overall volume expectations, and we're dealing with our customers that way. The other thing that I think is important to note is the GM program is something that we hadn't talked about before and is a signal of how our customers view us and our opportunity to be a recipient of takeover programs. That is a statement on our customer view of our health.

John Finch-Rebb | Analyst, Sidoti

Understood. And I guess you talked about you've executed some pricing actions. I'm curious how that stands. Are there still other repricing opportunities, or is that program completed?

John DeGainer | President and Chief Executive Officer

No. I mean, as I said, with regard to Stellantis, there are conversations that we have ongoing as we look at these volumes, but with all of our customers. We're in regular conversations with them with regard to economics, with regard to whether there's design changes or whether there's other things. So it's not just one customer. It is a continual activity. We look at the program profitability and we look at what our performance should be. We take our responsibility for our things, but we're talking with customers around the globe on an ongoing basis.

John Finch-Rebb | Analyst, Sidoti

And you mentioned data center. Data center is a bright spot. How much is data center as a percentage of revenue at this point?

John DeGainer | President and Chief Executive Officer

So in a quarter, it was 7%. And for the fiscal year, it should be closer to 9%. And, you know, historically, we've talked about it being 3% to 5% of our sales. Right. You know, there's been many questions in the first two of our earnings calls with regard to data centers, and the more I get into the organization, the more I get a chance to study it, the more optimistic I am about our ability to bring core competencies to bear to grow this space. So it's part of the reason why we announced what we did with regard to Brad Carote and while this 7% and 9% respectively aren't representative of new strategic direction. It is representative of where the opportunity is and how we think we can grow upon that.

John Finch-Rebb | Analyst, Sidoti

Okay, and one last question. I'll get back into Q. Can you give us some updated thoughts on what you're seeing in the Class A truck market and how that's impacted your thoughts on guidance?

John DeGainer | President and Chief Executive Officer

So the Class A truck market as we see it, and I'll just talk about North America for right now, We still see fiscal calendar 25 as down 5%. And that's in the numbers that we talked to you about, our fiscal 26. And what I mentioned to you, both from a past car and a commercial vehicle standpoint, we're talking about flat to down markets, being high single digits up in sales and flat to down markets. That includes what we see with regard to commercial vehicles. I guess one other thing, John, I'll take the opportunity since you asked the question. The team has really done a lot to reinvigorate our relationships with our CV customers, and we're seeing higher RFQ opportunities and really the opportunity to grow that portion of the business more aggressively going forward. I'm optimistic about where we stand with our customers there.

John Finch-Rebb | Analyst, Sidoti

John, on that topic, most people think that's a first-half calendar year-weighted event as far as the drop in the Class 8 market. Is that how you view it, or do you think it's going to be flatter down?

John DeGainer | President and Chief Executive Officer

We don't know. try to be a forecasting house. We use, whether it's ACT or S&P Global for our forecasting. And in talking to customers as well as looking at the forecasting houses, I think that's a fairly common theme, but that's what's in our guidance.

John Finch-Rebb | Analyst, Sidoti

Fair enough. Thank you, sir. I'll get back in the queue. Of course. Thanks, John.

Operator | Conference Call Host/Operator

Your next question is coming from Luke Junk with Baird. Please pose your question.

Your line is live. Luke Junk | Analyst, Baird

Good morning. Thanks for taking the questions. John, maybe to start with, can you just help us unpack the sequential margin momentum in automotive segment margins in this corner? You know, looking, we saw some improvement first half of the year, and now they're kind of back where they were in the back half of 24, roughly speaking. I mean, I understand there's a lot of moving pieces and that there's not direct comparability there, but can you just help bucket some of the factors there in terms of overall industry volumes and take rates on EV, and now with those programs fully sunsetted, any kind of overhead considerations related to that as well?

Thank you. John DeGainer | President and Chief Executive Officer

Yeah. So, Luke, by the way, good morning, and thanks for your question. You know, I would look at it, I would maybe characterize it a little differently than you characterized it. For a revenue, we knew that this quarter, and we've talked about the fact that this quarter was going to be challenging for from a performance standpoint, but also from a revenue standpoint, just from the way our quarters lay out with the holidays, plus then you have weather issues and the EV delays that we talked about. So on a revenue of $239 million for the quarter, and I won't break out the specific regions, if you think about the performance from an adjusted off-income basis versus a comparable quarter last year, so on $20 million less, $19.6 million less in sales, We're actually up from an adjusted operating income basis by $1.6 million. If you would just look at sort of typical downside conversion with regard to revenue, that performance is actually double-digit millions better than between one-timers and conversion. So I'm actually pretty pleased with the operational performance from a scrap perspective, from a premium freight perspective, from an overtime perspective. both in North America and in our EMEA facilities. The progress that's been made in Egypt, the progress, the performance that we see in our Malta facility and our continued performance in China, as well as what's happening in Mexico. Our plants are doing a very good job dealing with a lot of turbulence. The EV volumes have really caused our plants to be choppy in how they run. So this year-over-year performance, I think, is the best way to evaluate where we are from an operating side, and I'm actually quite optimistic about where we are. I view it as a true drop in our break-even.

Luke Junk | Analyst, Baird

Appreciate the color there. Second, typically include some color on awards, and the slides weren't in the slides this quarter. color on current quarter awards and maybe just the industry backdrop as well relative to auto headwinds, EV moderation, et cetera?

Thank you. John DeGainer | President and Chief Executive Officer

Yeah, thanks. So in the quarter, we had $20 million worth of wins. For the year to date, we're at $130 million. Would we like it to be higher than that? Yes. We have a large number of big programs in the pipeline, and whether they'll get awarded in the fourth quarter or whether there'll be an early fiscal 26 awards, I don't know. And as we've said multiple times, awards are lumpy. So we kind of have to average it out over time. The fact that we're talking about high single-digit growth year over year tells you that our awards in flat underlying markets tells you that our awards are turning into revenue growth for the company. And you combine that with a lower break-even, and it really portends much better performance for the business going into fiscal 26, which is what we had been talking about for the last couple quarters.

Luke Junk | Analyst, Baird

Yeah, and just on that high single-digit growth expectation, did you say, John, that you're excluding the appliance sunset? Did you say that you think that's not more essential?

John DeGainer | President and Chief Executive Officer

To get a true like-for-like comparison, if you look at the bridge that we provided on slide 9, If you take out that appliance program roll-off, the $25 million that we show there, and so you would subtract that out of the fiscal 25 guidance and you compare to the fiscal 26, that's all organic growth then in our base business, so that we're talking about base-to-base.

Luke Junk | Analyst, Baird

Got it. And then lastly, I know that you're not including tariffs in the guidance, but just given your manufacturing presence in Mexico, anything you can share around preliminary customer discussions and maybe what your approach might be prospectively should those actually come into effect in April?

John DeGainer | President and Chief Executive Officer

So we've been pretty clear with our customers and we believe that the way in which we're approaching it is relatively similar to our peers and that's that we've been proactive but we basically said we can't bear the extra cost. And so therefore, our actions have been to communicate with our customers that we will not bear that extra cost. To answer your question, about a third of our sales are impacted, a third of Method's overall sales are impacted by the tariff discussions between Mexico, Canada, and China. A much larger portion of that into the U.S. is coming out of Mexico, obviously. But we are in regular conversations with our customers We have a war room set up here, and the team is talking about it multiple times a day to make sure that we've got the latest information and that our strategies are well-defined. It's also giving us an opportunity to make sure that all of our systems are really well-refined, and we're using this crisis as an opportunity to make the business better. That's all I have for now. Thank you. Thanks, Luke.

Operator | Conference Call Host/Operator

Once again, if you do have any remaining questions or follow-up questions, please press star one at this time. Your next question is coming from Gary Prestapino with Barrington Research. Please pose your question.

Your line is live. Gary Prestapino | Analyst, Barrington Research

Thanks. Good morning, all. Hey, John, I'm looking at this bridge here, and I was looking at some historical charts from prior bridges, And way back when at the beginning of the year or whatever, were you anticipating about $84 million of Stellantis program launch sales for this year? And then something like $125 million in fiscal 26? Is that correct?

John DeGainer | President and Chief Executive Officer

Yeah, that's correct, Gary. And thanks for raising that. When we talk about the question was asked about some of our disappointments is, We've made the investments and we've planned these, but we're doing our best to follow our customers and support them. Obviously, we've looked at what, based on third party as well as their feedback, where we see this going both in fiscal 25, 26, and into 27 as these programs ramp up. And so what you're seeing in the new bridge is our current expectations both based on third party as well as customer feedback. And as I said earlier, that does lead us to having to have commercial negotiations and other things.

Gary Prestapino | Analyst, Barrington Research

So these programs have been delayed. I know Stellantis has canceled some model rollouts. Has anything been canceled on you?

John DeGainer | President and Chief Executive Officer

No. No, these are not canceled. These are take rates and these are delays, not cancellations. Delays. So when we talk about launches, and we have launches going on with customers around the world, and many of them are EV-based. And when we talk about these launches, unfortunately, the Stellantis program is so big that it overwhelms some of our growth. But if you look at it from an EV standpoint, EV penetration, as you think about it, in for the market in the U.S. is 10%, in Europe is 25%, in China it's 40%. We have launches happening in all three regions with new customers for EV programs. So I think this will balance out over time, but it's a pretty turbulent time and obviously with the big Stellantis launches, it puts a spotlight on it.

Gary Prestapino | Analyst, Barrington Research

Were all your launches with Stellantis EVs or were they spread out on ICE vehicles too?

John DeGainer | President and Chief Executive Officer

It's EVs and... It's EVs and a hybrid, I believe.

Gary Prestapino | Analyst, Barrington Research

A hybrid. Okay. Okay. All right. So you've channeled those down pretty significantly. Do you think a lot, I mean, the market obviously for EVs has been challenging versus where it was a year ago or two years ago. But does some of this impact come from the change of leadership at Stellantis since Tavares is no longer there and you've got some new players in there running the company?

John DeGainer | President and Chief Executive Officer

Yeah, I don't want to make comments about how our customers run. I just think with the election and with some of the market dynamics, there's a lot of turbulence in the space. Ultimately, do we believe that EVs will be a productive part of the end market in all of our end markets? And again, I'm just going to remind you and our investors that we're selling into multiple end markets, not just into North America. So yes, the 10% market penetration in North America matters, but in Europe it's 25 and in China it's 40. So we have to be a player in this space. And I think this will stabilize out for our customers and for Stellantis in particular, but you see new program launches and new announcements from General Motors and others. our customers are still moving forward with their EV strategies, and we're going to support them.

Gary Prestapino | Analyst, Barrington Research

Okay. Then just two other quick questions. Looking at the slide with transformation update and then talking about initial exploration of non-transportation power, industrial lighting, industrial unit user interface. Do you rely on your segment heads to – be the impetus or the initial, for lack of a better word, spotter of these opportunities? Or do you have your own in-house Corpfin that's out there actively looking for acquisitions?

John DeGainer | President and Chief Executive Officer

Well, so right now, sorry, I want to make sure. We've always had a central acquisition M&A team. But as I've said to you, and as I've said before, Our focus from a capital allocation is on organic growth and on using our core competencies to drive that. The announcement that we made with regard to our new chief strategy officer really is in alignment with that change in strategic direction from growth via acquisition to growth via organic growth. And Brad's bringing a focus will help the central team as well as the business heads to focus on where are those opportunities. And as we said in the script, the near-term focus right now is on industrial data centers, obviously with all of the AI news in the space, as well as what are we doing on some of our other industrial end markets. I believe that between Brad and Lars and some of the other leaders that we've added, it's going to give us we're going to have opportunities to grow on the automotive and the commercial vehicle side, but because of the timing of those programs, it takes longer to see that growth hit. So the near-term organic growth focus is on the non-automotive side, particularly with data centers and what do we do there. And the fact that we went from a usually 3% to 5% of our sales to 7% and forecasting 9% tells you we've got opportunity, that both we're seeing the opportunities now, and I believe there's a lot more opportunity in the future.

Gary Prestapino | Analyst, Barrington Research

Okay, just one last quick one, real easy answer. Laura, are there any issues on the covenants of your debt with buying back stock since your stock's down pretty precipitously here?

John DeGainer | President and Chief Executive Officer

So I'm going to answer that one. We obviously talked at a board meeting level on a regular basis on the priorities for utilization of our capital and utilization of our cash. We have a board meeting upcoming in a couple weeks and certainly those conversations will happen again. Do we like what we see right now with the stock today? No. Do we think there's opportunities given the growth of this business? Yes. Can we answer the question with regard to buybacks right now? No, it wouldn't be appropriate for us to answer that.

Gary Prestapino | Analyst, Barrington Research

Okay, thank you.

Operator | Conference Call Host/Operator

Your next question is a follow-up from John Finchrib with Sedoti. Please pose your question.

Your line is live. John Finch-Rebb | Analyst, Sidoti

Yeah, I'm actually just curious. We haven't talked about Nordic Lights in quite some time, and if you could kind of give an update on how that acquisition is performing relative to the expectations when it was acquired over a year ago.

John DeGainer | President and Chief Executive Officer

John, I'm really pleased with the team at Nordic Lights. Obviously, we have some challenges in the industrial, in their end markets, but we're seeing some green shoots in the beginning of fiscal 2020, not fiscal, but calendar 2025 with regard to that end market, and that impacts both our Nordic Lights business and our Hedronix business. What I mentioned to you or mentioned in the call with regard to opportunities for continued growth on the industrial lighting side, that is Where do we go next with regard to the product portfolio from a Nordic Lights perspective? And Brad has been working with the leadership team in Nordic Lights as well as the leadership team in Hedronix to try to drive additional growth there. So the team from Nordic Lights is doing a very good job around the world, and we see more opportunities for growth in fiscal 26 and going forward.

John Finch-Rebb | Analyst, Sidoti

Okay. And it's not being weighed down by what we're seeing in Europe more so than you anticipated or just context maybe?

John DeGainer | President and Chief Executive Officer

Yeah. I mean, the end markets in calendar 24 were certainly down from an industrial perspective. But that team did a very good job of driving performance in spite of lower end markets. And now we see some of the markets coming back and there is a There's a cyclicality where I'm learning more about that cyclicality versus an automotive or commercial vehicle cyclicality. And the team at Nordic Lights is quite confident as they see the beginning of the year rolling out.

That's good news. Okay. John Finch-Rebb | Analyst, Sidoti

Thank you very much, John. Appreciate it. Thanks for your question, John.

Operator | Conference Call Host/Operator

Once again, if you do have any questions or comments, please press star 1 at this time. Just hold a moment while we poll for questions. There are no additional questions in queue at this time. I would now like to turn the floor back over to John DeGainer for any closing remarks.

John DeGainer | President and Chief Executive Officer

I want to thank all of you for attending our call and for your questions. We look forward to discussing our continued progress in future calls, and we wish you all a great day.

Thanks very much. Operator | Conference Call Host/Operator

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation. jsPDF 3.0.3 D:20260606090239-00'00'