Q3 2024 Methode Electronics Inc Earnings Call

Greetings and welcome to the method electronics third quarter fiscal 2024 results conference call. At this time, all participants are in a listen only mode.

Operator: Welcome to the Methode Electronics 3rd Quarter Fiscal 2024 Q&A Session. At this time, all participants are in a... This question and answer session will follow the formal... If anyone should require operator assistance, please call 1-866-422-0111.

Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Robert Cherry Vice President of Investor Relations you may begin.

Robert K. Cherry: On this note, I will now turn the conference over to your host, Robert Cherry. Vice President of Invest, Thank you, operator. Good morning, and welcome to Methode Electronics' fiscal 2024 third quarter earnings conference. For this call, we have prepared a presentation entitled Fiscal 2024, the recorded financial, which can be viewed on the webcast of this call or found at methode.com in the Investor section. 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 Law. Methadone undertakes no duty to update any forward-looking statement, or to conform the statement to actual results or changes in Method's expectations on a quarterly basis or otherwise.

Thank you operator, good morning, and welcome to metals Electronics fiscal 2024 third quarter earnings Conference call for this call. We have prepared a presentation entitled fiscal 2024 third quarter financial results, which can be viewed on the webcast of this call or found at Metro Dot 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.

Methanol it takes no duty to update any forward looking statement to conform the statements to actual results or changes in met those expectations on a quarterly basis or otherwise.

Robert K. Cherry: 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 Methode's filings with the Securities and Exchange Commission, such as our 10-K and 10-Q filings. At this time, I'd like to introduce and turn the call over to Mr. Avi Aboula, President and Chief Executive Officer. Thank you, Rob, and good morning, everyone.

The forward looking statements in this conference call involve a number of risks and uncertainties.

Factors that could cause actual results to differ materially from our expectations are detailed in methods filings with the securities and Exchange Commission, such as our 10-K and 10-Q reports.

At this time I'd like to introduce and turn the call over to Mr. Avi <unk>, President and Chief Executive Officer.

Thank you Rob and good morning, everyone. Thank you for joining us for our fiscal 2024 third quarter earnings Conference call.

Avi Avula: Thank you for joining us for our fiscal 2024 third quarter earnings conference call. I'm joined today by Ron Tsoumas, our Chief Financial Officer. Both Ron and I have opening comments, and then we will take your questions.

I'm joined today by Ron <unk>, our Chief Financial Officer.

Both Ron and I have opening comments and then we will take your questions.

Before we discuss the quarter I would like to share with you that I'm truly honored and humbled to be methods third CEO in at 77 year history.

Avi Avula: Before we discuss the quarter, I would like to share with you that I'm truly honored and humbled to be Method's third CEO in its 77-year history. I would also like to take this opportunity to thank Don Duda for his outstanding contributions to Method and for his support during my transition, and to wish him the very best in his retirement. A new chapter in the journey for Methode has begun, and I'm excited and energized by the possibilities ahead. I will provide a brief overview of the transition so far and also share some initial observations. First, while I've only been on the job for just over a month, I visited a number of our facilities, met with many of our employees, visited with a major auto customer, and had the opportunity to review the operating performance for all of Methode's business units.

I would also like to take this opportunity to thank.

Don Duda for his outstanding contributions to method and for her support during my transition and to wish him the very best in his retirement.

A new chapter in the journey for Methode has begun and I am excited and energized by the possibilities ahead.

I will provide a brief overview of the transition so far and also share some initial observations.

First while ive only been on the job for just over a month I visited a number of our facilities met with many of our employees visited with a major auto customer and have the opportunity to review the operating performance for all of methods business units.

I have been impressed with the talent in our organization the depth and breadth of engineering capability across the company and our strong customer relationships.

Avi Avula: I have been impressed with the talent in our organization, the depth and breadth of engineering capability across the company, and our strong customer relationships. Our company foundation is strong with a rich legacy of innovation and an unwavering commitment to excellence. I look forward to building on that foundation and charting a course towards even greater success for the organization. In the coming months, I look forward to meeting with investors and analysts to share more about my background and views on the business. Let's begin on slide five.

Our company Foundation is strong with a rich legacy of innovation and an unwavering commitment to excellence.

I look forward to building on that foundation and charting a course towards even greater success for the organization.

In the coming months I look forward to meeting with investors and analysts to share more about my background and views on the business.

Let's begin on slide five.

Avi Avula: Our sales for the quarter were $260 million, which was down $21 million year over year. The decline was entirely in our auto segment across all three of our reporting regions. The decrease was primarily due to program role loss and EV demand weakness, along with some continued softness in the e-bike market. However, sales in the quarter were helped by the acquisition of Nordic Light in the industrial sector. The lower sales, along with the continued operational inefficiencies in our North American auto operations, drove the net loss in the quarter. These are essentially the same operational challenges that we experienced and communicated to you in the first and second quarters of this fiscal year. We also continue to see increased costs related to our numerous new program launches. Some of these costs are driven by a lack of absorption due to customer program delays.

Our sales for the quarter were $260 million, which were down $21 million year over year.

The decline was entirely in our auto segment across all three of our reporting regions.

The decrease was primarily due to program roll offs and EV demand weakness along with some continued softness in the E bike market.

Sales in the quarter were helped by the acquisition of Nordic light in the industrial segment.

The lower sales along with the continued operational inefficiencies in our North American auto operations drove the net loss in the quarter.

These are essentially the same operational challenges that we experienced and communicated to you in the first and second quarters of this fiscal year.

Yeah.

We also continued to see increased costs related to our numerous new program launches.

Some of these costs are driven by a lack of absorption due to customer program delays.

Avi Avula: We are taking actions to mitigate these launch costs, which range from customer reimbursement to internal cost reduction. Moving to orders, we had a modest quarter with over $20 million in annual program awards. These programs are spread across our user interface, lighting, power, and sensor applications.

We are taking actions to mitigate these launch costs, which range from customer reimbursements to internal cost reductions.

Moving to orders, we had a modest quarter with over $20 million in annual program Awards.

These programs are spread across our user interface lighting power and sensor applications.

Avi Avula: I can share that the pipeline of potential awards remains healthy. However, I would note that the profile of the programs is weighted towards EV and consequently may be subject to reduction or delay due to customer decisions and or market conditions. Turning back to EV activity, sales in the quarter were 19% of our consolidated total, and year-to-date are at 20%. As previously communicated, we have a sizable EV lighting program in the process of rolling out, while we are also at the beginning of the wave of new EV power programs.

I can share that the pipeline of potential awards remains healthy. However, I would note that the profile of the programs are weighted towards EV, and consequently may be subject to reduction or delayed due to customer decisions and or market conditions.

Turning back to EV activity sales in the quarter were 19% of our consolidated total and year to date are up 20%.

As previously communicated we have a sizable EBIT lighting program in the process of rolling off while we're also at the beginning of a wave of new EV power programs.

The consequence of this timing gap will be a period of lower EV sales before the rebound as we transition programs.

Avi Avula: The consequence of this timing gap will be a period of lower EV sales before they rebound as we transition programs. All of this is taking place with the backdrop of a softening near-term outlook in the EV market. EV is clearly a long-term tailwind for Methode, but the path will certainly not be linear.

All of this is taking place with the backdrop of a softening near term outlook in the EV market.

<unk> is clearly a long term tailwind for methods, but the but we will certainly not be linear.

In the quarter, our debt was flat sequentially from the second quarter.

Avi Avula: In the quarter, our debt was flat sequentially from the second quarter. That leveling off was aided by a return to positive free cash flow. While we were challenged in the quarter with net income, we still maintain a sharp focus on cash generation. There is plenty of room for improvement on cash flow, but it was a step in the right direction. Lastly, we continued our share buyback program in the quarter, acquiring $3 million in shares via our automated purchase program. Turning to slide six.

That leveling off was aided by a return to positive free cash flow.

We were challenged in the quarter with net income we still maintain a sharp focus on cash generation.

There is plenty of room for improvement on cash flow, but it was a step in the right direction.

Lastly, we continued our share buyback in the quarter acquiring 3 million <unk> shares why our automated purchase program.

Turning to slide six in summary for the quarter sales were under pressure from auto program roll offs and market headwinds in the EV E bike and data center markets.

Avi Avula: In summary, for the quarter, sales were under pressure from auto program roll-offs and market headwinds in the EV, e-bike, and data center markets. Lower sales volume and persistent operational inefficiencies in our auto segment drove a net loss. We return to a positive free cash flow position, and we continue our share purchase program. Going forward, we have carefully considered the situation with our operational challenges, the evolving market headwinds, and my recent appointment to the CEO position. Consequently, we have decided to suspend all guidance for the near future.

The lower sales volume and persistent operational inefficiencies in our auto segment drove a net loss.

We return to a positive free cash flow position and we continued our share purchase program.

Going forward, we have carefully considered the situation with our operational challenges.

<unk> market headwinds and my recent appointment to the CEO position.

Consequently, we decided to suspend all guidance for the near future.

Avi Avula: We intend to focus on planning and executing on our path forward to restoring profitability and cash generation for the company. We will undertake an intensive review and take quick action to reduce hard costs, including headcount, and to dispose of non-critical and non-revenue generating assets. We will be laser focused on reducing working capital, particularly inventory, and increasing free cash flow. We have engaged an outside cost reduction consultant to review our business operations, and we have delayed all merger and acquisition activities. In addition, we will perform a rigorous review of key operating procedures and processes.

We intend to focus on planning and executing on our path forward to restoring profitability and cash generation for the company.

We will undertake an intensive review and take quick actions to reduce hog costs, including head count and to dispose non critical and non revenue generating assets.

We will be laser focused on reducing working capital, particularly inventory and increasing free cash flow.

We have engaged an outside cost reduction consultants to review our business operations and have delayed all merger and acquisition activity.

In addition, we will perform a rigorous review of key operating procedures and processes.

Avi Avula: Lastly, we will perform an expeditious but thorough review of the entire portfolio. We will then share an update on our business review and when we report fourth-quarter earnings. I'm confident that the foundation of the business is strong, and the potential for greater success is evident. The near-term path for the company will be heavily focused on cost reduction and operational effectiveness, but we will then quickly pivot to strategic actions to take Method to the next stage in its journey. At this point, I'll turn the call over to Ron, who will provide more detail on our third quarter financial results. Thank you, Abby, and good morning, everyone.

Lastly, we will perform an expeditious, but thorough review of the entire portfolio.

We will then undertake share an update on our business review and when we report fourth quarter earnings.

I am confident that the foundation of the business is strong and the potential for greater success as evidenced.

The near term path for the company will be heavily focused on cost reduction and operational effectiveness, but we will then quickly pivot the strategic actions to big metal to the next stage in its journey.

At this point I'll turn the call over to Ron who will provide more detail on our third quarter financial results.

Thank you Bobby and good morning, everyone.

Ronald L.G. Tsoumas: Please turn to slide 8. Third quarter net sales were $259.5 million compared to $280.1 million in fiscal 23, a decrease of 7%. This quarter's sales included $21.2 million from the Nordic Lights acquisition and $1.5 million from Favorable Currency Translation. Excluding Nordic Lights and foreign currency, net sales decreased by 15.5%.

Please turn to slide eight.

Third quarter net sales were $259 5 million compared to $280 1 million in fiscal 'twenty three degrees.

A degree of 7%.

This quarter sales included $21 2 million from the Nordic Life's acquisition and $1 5 million from favorable currency translation.

Excluding Nordic lights, and foreign currency net sales decreased by 15, 5%.

Ronald L.G. Tsoumas: The quarter saw the continuation of two key auto program roll-offs, one in North America and one in Asia. We also had new weakness in EV demand and persistent softness in the e-bike and data center markets. The e-bike market continues to be in an overstock position.

The quarter saw the continuation of two key auto program roll offs, one in North America and one in Asia.

We also had new weakness in EV demand and persistent softness in the E bike and data center markets.

Bike market continues to be in an overstock position.

Ronald L.G. Tsoumas: The data center market did show some signs of recovery. The third quarter loss from operations was $3 million, down from $27.3 million of income in fiscal 23. Income was down due to lower sales volume and ongoing operational inefficiencies, which were mainly in North American Auto and drove inventory adjustments, scrap expenses, and higher labor and freight costs. We also saw higher costs in Europe due to the shipping constraints in the Red Sea. The adjusted loss from operations excluded $100,000 of restructuring costs. Please turn to slide nine.

The data center market did show some signs of recovery for us.

Third quarter loss from operations was $3 million down from $27 3 million of income in fiscal 'twenty three.

Income was down to the lower sales volumes and the ongoing operational inefficiencies, which were mainly in north American auto and drove inventory adjustments scrap expenses and higher labor and freight costs.

We also saw higher costs in Europe due to the shipping constraints in the Red Sea.

The adjusted loss from operations excluded $100.

Restructuring costs.

Please turn to slide nine.

Yeah.

Ronald L.G. Tsoumas: Third quarter diluted earnings per share decreased to a negative 33 cents from a positive 54 cents in the same period last fiscal year. The EPS was negatively impacted by lower operating income and higher net interest expense. Lower tax expense compared to the prior fiscal year was a partial offset. The adjusted EPS rounded to the same number for GAAP this quarter. We are laser focused on cost reductions and their related cash impact.

Third quarter diluted earnings per share decreased to a negative 33 from a positive 54 from the same period last fiscal year.

The EPS was negatively impacted by the lower operating income and higher net interest expense.

Lower tax expense compared to the prior fiscal year was a partial offset.

The adjusted EPS rounded to the same number for gap this quarter.

We are laser focused on cost reductions and their related cash impacts.

Shifting to EBITDA, a non-GAAP financial measure third quarter, EBITDA was $9 4 million versus $36 1 million in the same period last fiscal year.

Ronald L.G. Tsoumas: Shifting to EBITDA, a non-GAAP financial measure, third-quarter EBITDA was $9.4 million versus $36.1 million in the same period last fiscal year, even though it was negatively impacted by lower sales volume, lower gross profit, and higher selling and administrative expenses. The higher selling and administrative expenses were primarily due to the acquisition of Nordic Lights, which accounted for $2.4 million of the increase. Excluding Nordic Lights, selling and administrative expenses decreased $1.4 million primarily due to lower stock-based compensation expense, partially offset by higher professional fees, incentive-based compensation, and salary expense. The adjusted EBITDA excluded $100,000 of restructuring costs.

EBITDA was negatively impacted by lower sales volume lower gross profit and higher selling and administrative expenses.

Higher selling and administrative expenses was primarily due to the acquisition of Nordic lights, which accounted for $2 4 million of the increase.

Excluding Nordic lights, selling and administrative expense decreased $1 $4 million, primarily due to lower stock based compensation expense, partially offset by higher professional fees incentive based compensation and salary expense.

The adjusted EBITDA excluded 100000 of restructuring costs.

Ronald L.G. Tsoumas: Please turn to slide 10. While gross debt is up $24.5 million year to date, it was down $700,000 from the second quarter. The year-to-date increase was mainly due to working capital investments and higher cuts, both to support sales and new program launches. We ended the quarter with $122.9 million in cash, down $34.1 million from the end of last fiscal year but up $400,000 from the second quarter. Net debt, a non-gap financial measure, increased by $58.6 million year-to-date to $208.4, but was down $1.1 million from the second quarter.

Please turn to slide 10.

While gross debt is up $24 5 million year to date. It was down 700000 from the second quarter.

The year to date increase was mainly due to working capital investments and higher Capex, both to support sales and new program launches.

We ended the quarter with $122 9 million in cash down $34 1 million from the end of last fiscal year.

$400 from the second quarter.

Net debt.

non-GAAP financial measure increased by $58 6 million year to date to two.

$108, four but was down $1 1 million from the second quarter.

Ronald L.G. Tsoumas: Overall, we saw stabilization in debt and cash levels in the quarter. After the end of the third quarter, we entered into an amendment to our credit agreement with our lender. The amendment revised the debt to EBITDA leverage ratio covenant for the third quarter and our next three quarters. The amendment waived any default that may have occurred due to the noncompliance with the leverage ratio covenant for the third quarter that was in effect prior to the amendment.

Overall, we saw stabilization in debt and cash levels in the quarter.

After the end of the third quarter, we entered into an amendment to our credit agreement with our lenders. The amendment revised a debt to EBITDA leverage ratio covenant for the third quarter and our next three quarters.

The amendment waived any default that may have occurred due to noncompliance with the leverage ratio covenant for the third quarter that was in effect prior to the amendment.

Following the amendment, we were in compliance with our leverage ratio covenant.

Ronald L.G. Tsoumas: Following the amendment, we were in compliance with our leverage ratio covenant. For further information, please see our 8K and 10Q, which were both filed today. Please return to slide 11. Third quarter net cash from operating activities was $28.8 million, as compared to $55.7 million in fiscal 23. The decrease of $26.9 million was primarily due to lower net income in the quarter. Third quarter capital expenditure was $16.6 million as compared to $12.8 million in fiscal 23, an increase of $3.8 million.

For further information please see our 8-K and 10-Q, which were both filed today.

Please turn to slide 11.

Third quarter net cash from operating activities was $28 8 million as compared to $55 7 million in fiscal 'twenty three.

The decrease of $26 9 million was primarily due to lower net income in the quarter.

Third quarter capital expenditure was $16 6 million as compared to $12 8 million in fiscal 'twenty, three an increase of $3 8 million.

Ronald L.G. Tsoumas: The increase was mainly a function of investments required to support new product launches and was keeping with our prior guidance, www.methodelectronicsinc.com. Third quarter free cash flow, a non-GAAP financial measure, was $12.2 million as compared to $42.9 million in fiscal 23, a decrease of $34.7 million. This decrease, again, was primarily due to reduced net income and increased capex. After having negative free cash flow in the first two quarters of the year, we returned to positive free cash flow in the third quarter. That concludes my comments, and we can open it up for questions. 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. A confirmation tone will indicate your line is in question. You may press star 2 if you would like to remove your question from. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we post. Your question for today is from Luke Junk with Barry. Good morning.

The increase was mainly a function of investments required to support new product launches and was keeping with our prior guidance.

Third quarter free cash flow, a non-GAAP financial measure was $12 2 million as compared to $42 9 million in fiscal 'twenty three a decrease of $34 7 million.

This decrease again was primarily due to reduced net income and increased capex.

After having negative free cash flow in the first two quarters of the year, we returned to positive free cash flow in the third quarter.

That concludes my comments and we can open it up for questions.

Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for.

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.

Hello.

Your first question for today is from Luke junk with Baird.

Okay.

Good morning, Thanks for taking the questions first one either.

Luke L. Junk: Thanks for taking the questions. First one, either for Avi or Ron, just to start, you were expecting Mosley hire EPS sequentially, you know, a month or so into the quarter when you gave that guidance. That would seem to suggest trends sort of pretty materially in December and January.

For IV or Ron I just.

To start you were expecting modestly higher EPS sequentially or in a month or so into the quarter. When you gave that guidance that would seem to suggest trends decelerated pretty materially in December and January I know youre, not providing guidance right now, but just hoping you can speak to where the organization stands on a run rate basis in thinking both.

Avi Avula: I know you're not providing guidance right now, but just hope you can speak to where the organization stands on a run rate basis. I'm thinking both in terms of top line headwinds, especially the EV moderation that you called out, and then the operational inefficiencies, to what extent, you know, things were similar sequentially or if there was any deterioration in the auto segment. Luke, let me start with my view, and then I can let Ron jump in as well.

In terms of topline headwinds, especially the EV moderation that you called out and then the operational inefficiencies to what extent things are similar sequentially or if there's any deterioration in the auto segment. Thank you.

Look let me start with my view and then I can let Ron jump in as well.

Avi Avula: As we've shared, the softness was coming from the auto market, mainly across our businesses worldwide, primarily because of some slowdowns in EV demand rates in our customers. And really, that's where we are seeing some short-term softness as we go into it. Yeah, Luke, from where we were when we gave our guidance to where we ended up, sales were definitely softer. As Avi mentioned, certainly the EV and in some of the other data center space and things of that nature.

As we've shared that the softness was coming from the auto market mainly across our businesses worldwide.

Primarily because of some slowdowns in EV demand rate and our customers and.

Really that's where we are seeing some short term softness as we go into it.

Yes Luke.

From.

Where we were when we gave out guidance to where we ended up sales were definitely softer.

As Avi mentioned certainly the EV.

<unk>.

In some of the other data center space and things of that nature.

We had.

Ronald L.G. Tsoumas: We had operational inefficiencies as well that contributed to the delta in pre-tax profits, and we were encumbered with foreign exchange losses and some higher than expected professional fees. And then, second, just a bigger picture question for you, Avi, about the organization. In a challenging place right now, can you just help us understand your first 90 days on the job that you're in the middle of? You gave some high-level perspective in your prepared comments. I just want to better understand how you're prioritizing your time right now. If there are any structures you've put in place already with your leadership team or anything else, that'd be worth mentioning. Thank you.

Operational inefficiencies as well that contributed to the to the Delta and in pre tax and we were encumbered with foreign exchange losses.

And some higher than expected professional fees.

Got it and then.

Second just a bigger picture question for you I E with the organization.

In a challenging place right now can you just help US understand your first 90 days on the job that you are in the middle of it you gave some.

High level perspective in your prepared comments just wanted to better understand how you're prioritizing your time right now what if any structures you've put in place already with your leadership team or anything else that'd be worth mentioning thank you.

Avi Avula: Yeah, look, I've just been here a month, and I've taken some time to assess where we are. And while I'm still yet to see all our sites, I've got a good sense of the current business and where we are. My priorities are to recover profitability and our path there before we can embark on a long-term strategic journey. And this is also why we have full guidance, because I want to come back to you when we have an idea of all the actions we are taking that we can share more about. But in the long term, my view is to build a future for the company that's based on the foundation we have today and take it into the future. And then the last question for me would be on the balance sheet run and maintaining compliance with the updated covenants that give you some breathing room with looks like through the middle of fiscal 25. It would be great to get some perspective on that and maybe even just the calculation of that ratio.

Yes look ive just been here a month and Thats taken some time to assess where we are and while that's still yet to see all our sites I have got a good sense of the current business and where we are my priorities are to recover profitability in a pop there before we can embark on a long term strategic journey and this is also why we have.

Pulled guidance because I wanted to come back to you. When we have an idea of all the actions. We are taking that we can share more about the long term my view is to build a future for the company and Thats based on the foundation, we have today and take it into the future.

And then a.

Last question for me just would be on the balance sheet, Ryan and maintaining compliance with the updated covenants that give you some breathing room, if it looks like through the middle of fiscal 'twenty five I'm just be great to get some perspective on that and maybe even just the calculation of the ratio at sea.

Ronald L.G. Tsoumas: It seems like you might be contemplating repatriating some cash. Is that right? Any other considerations?

Like you might be.

Are you contemplating repatriating some cash is that right any other considerations.

Thanks Luke.

Ronald L.G. Tsoumas: Thanks, Luke. Yeah, you know, our third quarter results underperformed compared to guidance from sales and EPS and even our expectations. And we then entered into negotiations with our lending group, and we reached an agreement to go from 3.25 was the standard covenant. We were in compliance in the third quarter. The first quarter of the fourth quarter goes to 4.5. The first quarter and the second quarter of next fiscal years go down to four in each of those quarters.

Yes.

Our third quarter results.

To perform compared to guidance from sales and EPS and EBITDA perspective.

We then entered into negotiations with with our lending group and.

We reached an agreement.

To go from three to five was the standard covenant.

We were in compliance in the third quarter, the first quarter on the fourth quarter goes to four five.

The first quarter and the second quarter of next fiscal year's goes down to four in each of those quarters and then as you correctly mentioned in our third quarter of next year, we would revert back to the three to five that was in the standard agreement when we amended the facility in October of 2020.

Ronald L.G. Tsoumas: And then, as you correctly mentioned, in our third quarter of next year, we would revert back to the 3.25 that was in the standard agreement when we amended the facility in October of 2022. As Avi mentioned, we are taking multiple actions to increase our cash generation and EBITDA performance because both of those levers, as you correctly mentioned, Luke, on repatriation and things of that nature, that is a lever that we can pull to take down the net debt, which is the other part of the equation. I got it. I'll leave it there for now with Barron. Hey, good morning, all. Hey Avi,

Two.

As Avi mentioned, we are taking multiple actions to reduce to increase our cash generation and EBITDA performance because both of those levers as you correctly mentioned Luke on repatriation and things of that nature that is a lever that we can pull to take down the net debt, which is the other part of the equation.

Got it I'll leave it there for now thank you.

Okay.

Your next question is from Gary Prester piano with Barrington Research.

Hey, good morning, all Hey, Avi.

Avi.

Gary Frank Prestopino: Welcome to the show. Hey, could you maybe tell us, in your capacity, and I only have some of your experience with DuPont's electronic and industrial business, but in your professional experience, have you ever been faced with a situation like you're getting here at Methode where you had to turn it around in kind of a quick fashion, you know, right-size the organization and then drive profitability over time? Gary, nice to meet you.

Welcome to the show.

Could you maybe tell us in your capacity and I only have some of your experience with Pons electronics and industrial business.

In your professional experience.

Have you.

Been faced with the situation like Youre getting here at met though that you had to turn it around.

In a kind of a quick fashion right size, the organization and drive profitability.

Overtime.

Gerry nice to meet you. Thank you for that question.

Avi Avula: Thank you for that question. I was not a CEO before, but as I came into different businesses at DuPont, I had an opportunity to restructure and reposition growth businesses that were declining in revenue, and we then put them on a significant growth trajectory, both organically and inorganically. And there's a lot of learning from there that I can bring and learning from elsewhere to bring about future growth for the company. Okay, so when you were at DuPont, you were kind of on the path, you weren't the CEO, but you're obviously running a division of electronics and industrial business. And this was an area that kind of had somewhat of the same characteristics as Methode does now, and you were able to turn it around.

Not a CEO before but as I came into different businesses and Dupont.

I had an opportunity to restructure and reposition for growth businesses that were declining in revenue that we then put it onto a growth trajectory, both organically and Inorganically and there's a lot of learning from there that I can bring and learning from elsewhere to bring on future growth for the company.

Okay. So when you were at Dupont you were kind of task you arent the CEO, but you're obviously running US a division the electronics and industrial business and this was an area that.

<unk> had somewhat of the same characteristics.

That though does now and you were able to turn it around.

Yeah, I would say that theyre not exactly similar but there is learnings from bulk to bring to the company here.

Avi Avula: Yeah, I would say that they're not exactly similar, but there are learnings from both to bring to the company here, where there are declining trends where we put it on a turnaround trajectory, where we also look both on the bottom line and the top line to achieve better performance. Okay, thank you very much. Once again, if you have any questions, please press star. John Franzreb with Sidoti.

Where there are declining trends, where we've put it on a turnaround trajectory. When we also look both on the bottom line on the top line to do better performance.

Okay. Thank you very much.

Once again, if you have any questions. Please press star one.

Okay.

Okay.

Your next question is from John Frank <unk> with Sidoti <unk> Company.

John Edward Franzreb: Good morning, and thanks for taking the questions, everyone. I'm sorry I joined late so I might have missed some of the guardrails here as far as the Q&A, but I'm curious about a couple things. One, how is the facility in Monterey performing, has that been corrected, or is that still an ongoing issue? And if it is, when will it be fixed?

Hi, good morning, and thanks for taking the questions everyone.

Im sorry, I joined late so I might have missed some of the guardrails as far as the Q&A, but I'm curious about a couple of things one.

How is the facility in Monterrey, performing is that been corrected or is that still an ongoing issue and if it is when will it be fixed.

John.

Avi Avula: John, our challenges continue to be at the Monterey site, where we are working aggressively to look at all operational effectiveness actions, including cost and productivity inventory as well. Some of these issues may have been more challenging than we thought earlier, so it's taking us some time to review and get back. I think that's our key focus as we go forward.

Challenges continue to be in monitoring site, where we are.

Working aggressively to.

Look at all operational effectiveness actions, including cost and productivity inventory as well.

Some of these issues may have been more challenging than we thought earlier, so it's taking us some time to review and get back.

That's our key focus as we go forward.

Okay.

Ronald L.G. Tsoumas: Yeah, we've experienced the inefficiencies, and they continue, and it takes more time than we had previously thought, but on the right, on the right, getting the right view. Remind me, Ron, what the biggest issue is at this point? Is it labor? Oh, remind me. The issues that are connected are high labor turnover, planning issues, leading to inventory shortages, leading to expedited incoming freight, sometimes outgoing freight, some short shipping, premium freight, inbound and spot purchases where our planning isn't fully vetted. And so all of those things together and launching a significant amount of programs at the same time have led to the inefficiencies that we've been experiencing.

Yes.

<unk> experienced the inefficiencies and they continue and.

Taking more time than we had previously thought.

But on the right.

So right.

Getting the right deal.

We might be wrong with the biggest issue is at this point is it labor or we.

Remind me.

It's.

The issues are that are connected are high labor turnover planning issues.

Inventory, leading to inventory shortages, leading to expedited incoming freight sometimes outgoing freight some short.

Short shipment.

George shipping premium freight inbound and spot purchases, where our planning isn't.

Fully fully embedded and.

So all of those things collectively and launching a significant amount of programs at the same time.

Avi Avula: You have reached the end of the question and answer period, and I will now turn the call over to Avi for closing. I just want to say thank you to all for your participation. Thank you. www.method-electronics.com Thank you. This concludes today's conference, and you may disconnect your lines at Thank you for your participation.

Led to the inefficiencies that we've been experiencing.

We have reached the end of the question and answer session and I will now turn the call over to Ravi for closing remarks.

I just wanted to say thank you to all for your participation. Thank you.

Yes.

Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

Okay.