Q1 2025 Methode Electronics Inc Earnings Call

Speaker Change: Good morning everyone and welcome to the method in electronics, 1st quarter fiscal 2025 results.

Unknown Executive: with Quarter Fiscal 2025 results. At this time, all participants are in a listen-only mode, and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded.

Speaker Change: At this time, all participants are in a listen-only mode, and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone, keep at. Please note this conference is being recorded.

Robert Cherry: I will now turn the conference over to your host, Robert Cherry, Vice President of Investor Relations.

Speaker Change: I will now turn the conference over to your host, Robert Cherry, Vice President of Investor Relations, Robert the Floor Issues.

Unknown Executive: Robert, the floor issues.

Robert Cherry: Thank you, operator. Good morning and welcome to Methode Electronics fiscal 2025 first quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2025 First Quarter Financial Results, which can be viewed on the webcast of this call or found at metho.com on the investor's 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 Law. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

Robert Cherry: Thank you, operator. Good morning and welcome to a mental electronics just go 20-25 first quarter earnings conference call.

Speaker Change: For this call we have prepared a presentation entitled fiscal 2025 First Quarter Financial Results, which can be viewed on the webcast of this call or found at method.com on the Infester's page.

Speaker Change: This camera's call contains certain forward-looking statements, which reflects management's expectations regarding future events and operating performance, and speak only as of the date here up. These forward-looking statements are subject to the safe harbor protection provided under the security's law.

Speaker Change: Methodon undertakes no duty to update any forzochine statement to conform this statement to actual results or changes in methods' expectations on a quarterly basis or otherwise.

Unknown Executive: 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 methods filings with the Securities and Exchange Commission, such as our 10-K and 10-Q reports.

Speaker Change: The four-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 message filings with the Securities and Exchange Commission, such as our 10K and 10K reports.

Unknown Executive: At slide floor, please see an agenda for our call today. We will begin with an introduction of Methode's new CEO, move to our key messages, and then provide a business and financial update followed by a Q&A session. Please turn to slide five.

Slide Floor: I'm Slide Floor, please see an agenda for our call today.

Speaker Change: We will begin with an introduction of methods new CEO, move to our key messages, and then provide a business and financial update followed by a Q&A session.

John Degainer: At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer.

Speaker Change: Please turn to slide 5. At this time, I'd like to turn the call over to Mr. John Degainer, President and Chief Executive Officer.

John Degainer: Thank you, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm joined today by Dave Rodden, our Interim Chief Financial Officer.

John Degainer: Thank you, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm joined today by Dave Rodden, our interim Chief Financial Officer.

John Degainer: Before I discuss the quarter, I'd like to take a minute and share why I came to Methode, what I have found so far, and what I think of the key messages for you to take away from this call today. First, I’m truly honored to be the new CEO of Methode at this pivotal time for the company. I've long admired Methode in my roles as Jason companies in the industry, and I look forward to working alongside the team to deliver for all of our stakeholders. Over the past few weeks, I've had the opportunity to tour several of our facilities around the world and meet many of our regional teams. I've spent time learning about our operations, our products, and our people.

Speaker Change: Before we discuss the quarter, I'd like to take a minute and share why I came to methode. What I found so far and what I think of the key messages for you to take away from this call today.

Speaker Change: First, I'm truly honored to be the new CEO of Method at this pivotal time for the company.

Speaker Change: I have long admired method in my roles as Jason companies in the industry and I look forward to working alongside the team to deliver for all of our stakeholders.

Speaker Change: Over the past few weeks have had the opportunity to tour several of our facilities around the world, and meet many of our regional teams. I've spent time learning about our operations, our products, and our people.

John Degainer: I've also had a chance to hear about our history, which is filled with moments when our global engineering and manufacturing teams came together to solve complex problems, innovate new products, and create value for our customers and our shareholders. I see a company with a strong foundation built on years of operational excellence. Some of our plants are world-class, and I will be proud to show them to a customer. However, with my operations background, I can still see areas for improvement in each of our facilities. I look forward to working with the operation and supply chain leaders to improve each of our plants.

Speaker Change: I've also had a chance to hear about our history, which is filled with moments when our global engineering and manufacturing teams came together to solve complex problems, innovate new products and create value for our customers and our shareholders.

Speaker Change: I see a company with strong foundation both on years of operational excellence.

Speaker Change: Some of our plants are world-class and I will be proud to show them to a customer. However, with my operations background, I can still see areas for improvement in each of our facilities. I look forward to working with the operations and supply chain leaders to improve each of our plants.

John Degainer: If you're not familiar with my history, my track record includes enhancing businesses that require both operational and strategic improvement. Through a team effort, we drove those organizations to find unique and often latent value creation opportunities within the existing portfolio. I believe there are similar potential opportunities at Methode, and I look forward to leading the team to capture them.

Speaker Change: If you're not familiar with my history, my track record includes enhancing businesses that require both operational and strategic improvement.

Speaker Change: Through a team effort, we drove those organizations to find unique and often latent value creation opportunities within the existing portfolio. I believe there are similar potential opportunities at method and I look forward to leading the team to capture them.

John Degainer: Turning to slide six, not many companies can talk about a 78-year history, but Methode can. However, 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. Methode is at such a point, and consequently, we are beginning a journey to transform the business to position it for long-term value creation. To do so, our first priority must be to successfully execute on the large pipeline of new programs that must be launched in the next two fiscal years.

Speaker Change: Turning his slide to six, not many companies can talk about a 78-year history from method can.

Speaker Change: However, 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.

Speaker Change: Method is at such a point. And consequently, we are beginning a journey to transform the business to position it for long-term value creation.

Speaker Change: To do so, our first priority must be to successfully execute on the large pipeline of new programs that must be launched in the next two fiscal years.

John Degainer: In fiscal 2025, we have over 30 program launches that our customers are looking forward to, and in fiscal 2026, we have another 20 programs to launch. Any organization that faces this level of launch intensity will have its capabilities tested. At Methode, we are relying on our history of execution and global collaboration to surmount these challenges. Simultaneous with the launches, we must focus on immediate actions to address total supply chain costs and efficiency. With the help of outside resources, we are pursuing a multifaceted approach to set a foundation for future success.

Speaker Change: In fiscal 2025, we have over 30 program launches that our customers are looking forward to. And in fiscal 2026, we have another 24 grams to launch.

Mepode: Any organization that faces this level of launch intensity will have its capabilities tested. At Mepode, we are relying on our history of execution and global collaboration to promote these challenges.

Mepode: Same opinions with the launches, we must focus on immediate actions to address total supply chain costs and efficiency.

Mepode: With the help of outside resources, we are pursuing a multifaceted approach to set a foundation for future success. We are also actively building the executive team, including a new CFO and CPO to support these challenges.

John Degainer: We are also actively building the executive team, including a new CFO and CPO, to support these challenges. On that note, I would like to reiterate the news that we announced last week regarding our CFO transition. Laura Qualcheck, the current CFO of Communication and Power Industries, has been appointed CFO of Methode, effective October 1st. She brings an impressive track record of delivering successful business transformations within our industry. I look forward to partnering with Laura to drive improvement at Methode and welcome her to the Methode team. Lastly, despite some headwinds in our markets, we are in a position to affirm our guidance for flat sales in fiscal 2025, followed by profitable organic sales growth in fiscal 26.

Speaker Change: On that note, I'd like to reiterate the news that we announced last week regarding our CFO transition. Laura Kualcheck, the current CFO of Communication and Power Industries, has been a pointed CFO of method, effective October 1st.

Speaker Change: She brings an impressive track record of delivering successful business transformations within our industry. I look forward to partnering with Laura to drive improvement and method and welcome her to the method team.

Speaker Change: Lastly, despite some headwings in our markets, we are in a position to affirm our guidance for flat sales in fiscal 2025, followed by profitable organic sales growth in fiscal 26.

John Degainer: Our plan is to leverage Methode's strong foundation in order to reinvigorate and transform the business.

Speaker Change: Our plan is to leverage Methods' strong phone nation in order to reinvigorate and transform the business. But what does transform mean?

John Degainer: But what does transform mean? Please turn to Slide 7 and let me elaborate. To start with, transform means resetting performance. That includes improving operational metrics, cost focus, and cost structure. It also means building and growing capabilities. That includes utilizing global best practices, improving our tools and systems, and driving standardization across the organization. Lastly, it means shifting our culture. That includes leveraging our global resources, acting with a sense of urgency, and the rewarding performance. In short, the organization needs to earn the right to write the next chapter of Methode's history. I am confident that it will do just that.

Speaker Change: Please turn this slide seven and let me elaborate.

Speaker Change: Start with Transform Measions Resetting Performance.

Speaker Change: That includes improving operational metrics, cost focus and cost structure.

Speaker Change: It also means building and growing capabilities, that includes utilizing global best practices, improving our tools and systems, and driving standardization across the organization.

Speaker Change: Lastly, it means shifting our culture. That includes leveraging our global resources, acting with a sense of urgency and rewarding performance. In short, the organization needs to earn the right to write the next chapter of Methos history.

John Degainer: Returning to the quarter, let's begin on slide 8. Our sales were $259 million, and our adjusted pre-tax loss was $9 million. Our sales were down from the prior year, mainly due to the roll-off of a previously disclosed ED lighting program in our auto segment. That program has gone end of life, but will impact our prior year sales comparisons from most of fiscal 25. Overall, our sales in the quarter were on track with our expectations. The lower sales volume, along with the continued elevated costs from ongoing program launches, drove the pre-tax loss in the quarter. Customer program delays also contributed to absorption challenges.

Speaker Change: I am confident that it will do just that.

Speaker Change: Returning to quarter, let's begin on slide 8.

Speaker Change: Our sales were $259 million, and our adjusted pre-tax loss was $9 million. Our sales were down from the prior year mainly due to the low off of a previously disclosed EV lighting program in our auto segment.

Speaker Change: That program has gone end of life, but will impact our prior year sales comparisons for most of fiscal 25. Overall, our sales in the quarter were on track with our expectations.

Speaker Change: The lower sales volume along with the continued elevated costs from ongoing program launches drove the pre-text loss in the quarter.

John Degainer: However, our efforts to improve gross profit contributed to the better-than-expected result. A loss is a loss, and we will never celebrate one, but it was good to see the sequential improvement. Turning the EV activity, their sales in the quarter were 18% of our consolidated total, and a sequential increase from 14% in the fourth quarter. As previously communicated, we had a sizable ED lighting program roll-off toward the end of fiscal 2024, and we are now at the beginning of a wave of new program launches for EV power applications. As such, we expect the EV percentage to grow even further and should be over 20% for our fiscal 25.

Speaker Change: Customer Program delays also contributed to absorption challenges. However, our efforts to improve gross profit contributed to the better than expected result. A loss is a loss and we will never celebrate one, but it was good to see this sequential improvement.

Speaker Change: Turning the EV activity.

Speaker Change: Their sales in the quarter were 18% of our consolidated total and a sequential increase from 14% in the fourth quarter.

Speaker Change: As previously communicated, we had a sizable EV lighting program roll off toward the end of fiscal 2024. And we are now at the beginning of a wave of new program launches for EV power applications.

Speaker Change: As such, we've spent the EV percentage to grow even further and should be over 20% for our fiscal 25.

John Degainer: While our sales are currently on track for the year, there are clearly headwinds and several of our key end markets. Those markets include automotive, commercial vehicles, construction, and agriculture. In addition to the EV market, the EV market is clearly lost in steam, particularly in North America, and its near-term outlook has softened. While we are affirming our guidance for the year, we are keenly monitoring market conditions. On the order front, we have another solid quarter with over $80 million in annual program awards. OEMs are clearly reevaluating the adoption rate for the EV market. As such, the pipeline of potential bookings is subject to reduction and/or delay due to customer decisions and/or market conditions.

Speaker Change: While our sales are currently on track for the year, there are clearly headwinds and several of our key and markets. Those markets include automotive, commercial vehicles, construction and agriculture.

Speaker Change: and addition to the EV market.

Speaker Change: In addition, the ED Market is clearly awesome steam, particularly North America, and its near-term outlook has often, so while we are affirming our guidance for the year, we are keenly monitoring market conditions.

Yoderfront: I'm Yoderfront, we have another solid quarter with over $80 million in annual program awards.

Yoderfront: OEMs are clearly reevaluating the adoption right for the EV market. As such, the pipeline of potential bookings is subject to reduction and or delay due to customer decisions and or market conditions.

John Degainer: Turning in balance sheet, we are maintaining an acute focus on managing it and generating cash. As evidence, we reduced working capital by 9 million and improved cash from operations by over $16 million in the quarter. Lastly, our debt covenants were in full compliance at the end of the quarter and have our complete attention.

Speaker Change: Turning to balance sheet, we are maintaining acute focus on managing it in generating cash.

Speaker Change: As evidence, we reduced working capital by 9 million and improved cash from operations by over $16 million in the quarter. Lastly, our debt covenants were in full compliance at the end of the quarter and have our complete attention.

John Degainer: In short, it was a stabilizing start to the year with better-than-expected performance on pre-task income and cash flow. It was also encouraging to see the booking momentum continue.

Speaker Change: In short, it was a stabilizing start to the year with better than expected performance on pre-tax income and cash flow. It was also encouraging to see the booking momentum continue.

John Degainer: Turning this slide 9, the awards identified here are some of the key wins in the quarter and represent $77 million in annual sales at full production. This was our second consecutive quarter of solid awards. The launch timing of most of these programs could be anywhere in the range from one to three years from now. All awards were for power distribution products for applications in EV, defense, and data centers. After a low on data center activity, we are now seeing a rebound in orders there.

Speaker Change: Turning this slide nine, the awards identified here are some of the key winds in the quarter and represent 77 million dollars in annual sales at full production.

Speaker Change: This was our second consecutive quarter of solid awards, the launch timing of most of these programs could be anywhere in the range from one to three years from now.

Speaker Change: All awards were for power distribution products for applications in EB, Defense and Data Centers.

Speaker Change: After a low on data center activity, we are now seeing a rebound in orders there.

John Degainer: On slide 10, I want to provide some more color and details on the transition that we are navigating from a few large legacy programs to a multitude of launches and new programs. Methode has had a tremendous run in supplying integrated center consoles to General Motors. As we have been communicating over the past few years, that program for various platforms and models has been slowly rolling off. It's now expected to go end of life in fiscal 25. The result is a significant held headwind in fiscal 25 and another lesser one in fiscal 26. The other major legacy program roll-off we have previously communicated is for an EV lighting program.

Speaker Change: On slide 10, I want to provide some more color and details on the transition that we are navigating from a few large legacy programs to a multitude of launches and new programs.

Speaker Change: Metro has had a tremendous run supplying integrated center consoles to generators. As we have been communicating over the past few years, that program, for various platforms and models, has been slowly rolling off.

Speaker Change: They're now expected to go end of life in fiscal 25. The result is a significant hell headwind in fiscal 25 and another, lesser one in fiscal 26.

Speaker Change: The other major legacy program rolloff we have previously communicated is for an EV lighting program. That program from about the end of life in fiscal twenty-four and is thus ahead when for us in fiscal twenty-five.

John Degainer: That program for Methode 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. That activity, along with a positive net impact from other launches, roll-offs, and market conditions, leads us to expect flat sales in 25 versus 24. Looking further out to fiscal 26, we expect even more launches of EV programs for Stellantis. That activity, along with a more positive net impact from other launches, roll-offs, and market conditions, will more than offset the final headwind from the GM roll-off, as well as a significant headwind from a major appliance program that is going end of life in fiscal 25.

Speaker Change: Conversely, we are launching several EV programs for Stellantis in fiscal 25. That activity, along with a positive net impact from other launches, role loss and market conditions, leads us to expect black sales in 25 versus 24.

Speaker Change: Looking further out to fiscal 26, we expect even more launches of the VV programs for Stellantis.

Speaker Change: That activity, along with a more positive net impact from other launches, rolloffs and market conditions, will more than offset the final headwind from the GM rolloff, as well as its significant headwind from a major appliance program that is going end of life in fiscal 25.

John Degainer: The overall net result is the expectation of organic sales growth in fiscal 26. As we navigate this product transition, we remain subject to market conditions, EV adoption trends, and the success of our customers' product launches. However, as of today, this is the line of sight we have based on our projections in the forecast of our customer base.

Speaker Change: The overall net result is the expectation of organic sales growth in fiscal 26.

Speaker Change: As we navigate this product transition, we remain subject to market conditions, EV adoption trends and the success of our customers' product launches. However, as of today, this is the line of site we have based on our projections in the forecast of our customer base.

John Degainer: Turning to slide 11. In summary, for the quarter, our sales were on track, while our pre-tax loss was better than expected. EV activity rebounded and was at 18 percent of sales. Key market headwinds, particularly in auto and commercial vehicles, are a concern. However, program awards were solid for the second consecutive quarter. Lastly, we maintained an acute focus on the balance sheet and cash flow, delivering a $9 million reduction in working capital and generating over $16 million in cash from operations.

Speaker Change: Attorney slide 11, in summary, for the quarter, our sales were on track, while our pre-tax loss was better than expected. EV activity rebounded and was at 18% of sales.

Speaker Change: Key Market Headwinds, particularly in auto and commercial vehicles, are a concern. However, program awards were solid for the second consecutive quarter. Lastly, we maintain an acute focus on the balance sheet and cash flow, delivering a $9 million reduction in working capital and generating over $16 million cash from operations.

John Degainer: Going forward, we are beginning a journey to transform the business while positioning it for long-term value creation. Meanwhile, we are focusing intensely on executing over 30 program launches while taking immediate actions to address execution and costs. We simply need to return to better blocking and tackling, and then we can move forward with a discussion on strategy. We are also building the executive team, including our new CFO and CPU, to support these challenges. Lastly, we are affirming our guidance for flat sales in fiscal 25, followed by profitable, organic sales growth in fiscal 26.

Speaker Change: Going forward, we are beginning a journey to transform the business while positioning it for long-term value creation. Meanwhile, we are focusing intensely on executing over 30 program launches while taking immediate actions to address execution and costs.

Speaker Change: We simply need to return to better blocking and tackling, and then we can move forward with a discussion on strategy.

Speaker Change: We are also building the executive team, including our new CFO and CPO, to support these challenges. Lastly, we are affirming our guidance for flat sales in fiscal 25, followed by profitable, organic sales growth in fiscal 26.

John Degainer: To be succinct, our fiscal 25 will be a year of transforming the business with a goal of returning the company to growth and profitability in fiscal 26.

Speaker Change: To be succinct, our fiscal 25 will be a year of transforming the business with a goal of returning the company to growth and profitability in fiscal 26.

David Rawden: At this point, I'll turn the call over to Dave, who will provide more detail on the first quarter financial results.

Speaker Change: At this point, I'll turn the call over to Dave who will provide more detail on the first quarter of financial results.

David Rawden: Thank you. I had a good morning, everyone, but I am actually pleased to turn it to slide 13. 1st quarter net sales were $258.5 million compared to $289.7 million in fiscal 24, a decrease of 11%. On a sequential basis, sales decreased 7% from fiscal 24 for quarter. The main impact on sales in the quarter was the previously disclosed roll-off of an EV lighting program in Asia. That program ended toward the end of last fiscal year and had no sales this quarter. Also impacting this quarter was market weakness for our lighting products in the commercial vehicle, construction, and agricultural applications.

Dave Rodden: Thank you, John, and good morning, everyone. I'd ask you please to turn to slide 13.

Dave Rodden: First quarter net sales were $258.5 million compared to $289.7 million in fiscal 24, a decrease of 11%.

Dave Rodden: On a sequential basis, sales decrease 7% from fiscal 24 for a quarter. The main impact on sales in the quarter was the previously disclosed roll-off of an EV lighting program in Asia. That program ended toward the end of last fiscal year and had no sales this quarter.

Dave Rodden: Also impacting this quarter was market weakness for our lighting products in the commercial vehicle, construction, and agricultural applications. That weakness was partially offset by growth in our auto sales in Europe.

David Rawden: That weakness was partially offset by growth in our auto sales in Europe. 1st quarter adjusted loss from operations was $4.7 million, down $10 million from fiscal 24. At a sequential basis, adjusted loss from operations improved $5.1 million from fiscal 24 for quarter.

Dave Rodden: First quarter adjusted loss from operations is $4.7 million, down $10 million from fiscal to $24. At a sequential basis, adjusted loss from operations improved $5.1 million.

David Rawden: Please see the appendix for a reconciliation of all adjusted measures to GAAP. Income was negatively impacted both year over year and sequentially due to the lower sales volume. In addition, we continue to have high launch costs to support the numerous new program launches that John described. We also had a discrete legal fee in the quarter related to the electronic litigation.

Dave Rodden: from fiscal 24th quarter, please see the appendix for a reconciliation of all adjusted measures to gap.

Speaker Change: Income was negatively impacted both year over year and sequentially due to the lower sales volume. In addition, we continue to have high launch costs to support the numerous new program launches that John described.

Speaker Change: We also had a discrete legal fee in the quarter related to the electronic litigation.

David Rawden: Overall, our 1st quarter sales were on track with a 4-year expectations. Turning to slide 14, shifting to EBITDA and non-GAAP financial measure, 1st quarter adjusted EBITDA was $9.8 million, down $9.5 million from the same period last year. At a sequential basis, adjusted EBITDA improved $4.5 million from the fiscal 24 for quarter. Compared to the prior year, adjusted EBITDA was negatively impacted by the lower sales and gross profit. At a sequential basis, adjusted EBITDA improved despite the lower sales as a result of higher gross profit. The higher gross profit was driven in part by price increases and lower warranty costs.

Operator: with quarter fiscal 2025 results. At this time, all participants are in a listen-only mode and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded.

John Degainer: Over all our first quarter sales, we're on track with a full year of expectations.

John Degainer: Turning the slide 14.

Jesse: Shifting to EBITDA, a nine-gap financial measure, first quarter of Jesse EBITDA, was $9.8 million. Down $9.5 million from the same period last year. At a sequential basis, the Jesse EBITDA improved $4.5 million from the fiscal $24.4.

Robert Cherry: I will now turn the conference over to your host, Robert Cherry, Vice President of Investor Relations, Robert the floor issues. Thank you operator. Good morning and welcome to Methode Electronics fiscal 2025 first quarter earnings conference call. For this call, we have prepared a presentation entitled fiscal 2025 first quarter financial results which can be viewed on the webcast of this call or found at metho.com on the investor's page. This conference call contains certain forward-looking statements which reflect management's expectations regarding future events in operating performance and speak only as of the date hereof.

Speaker Change: Compared to the prior year, the Jesse Duda was negatively impacted by the lower sales and gross profit. On a sequential basis, the Jesse Duda improved despite the lower sales as a result of higher gross profit. The higher gross profit was driven in part by price increases and lower warranty costs.

David Rawden: Turning to slide 15, 1st quarter adjusted pre-tax loss was $9.1 million, down $11.6 million from fiscal 24. At a sequential basis, adjusted pre-tax loss improved $4.7 million from the fiscal 24 for quarter. Compared to the prior year, adjusted pre-tax loss was negatively impacted mainly by lower sales. At a sequential basis, adjusted pre-tax loss improved despite the lower sales as a result of higher gross profit.

Speaker Change: Turning to slide 15.

Speaker Change: First quarter adjusted pre-tax loss was $9.1 million down $11.6 million from fiscal $24. At a sequential basis, adjusted pre-tax loss improved $4.7 million from the fiscal $24.4.

Robert Cherry: These forward-looking statements are subject to the safe harbor protection provided under the securities law. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in metho'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 methods filings with the securities and exchange commission such as our 10k and 10k reports.

Speaker Change: Compared to the prior year, adjusted pre-tax loss was negatively impacted mainly by lower sales. At a sequential basis, adjusted pre-tax loss improved, despite the lower sales as a result of higher growth profit. The loss is quarter exceeded our guidance of similar to the recent fourth quarter performance.

David Rawden: The losses quarter exceeded our guidance of similar to the recent 4th quarter performance. 1st quarter adjusted diluted loss per share decreased to a negative 31 cents from a positive 6 cents in the same period last fiscal year. At a sequential basis, the adjusted loss per share declined 8 cents from the fiscal 24 for quarter. The adjusted earnings per share was negatively impacted by both lower sales and higher interest rates, both year over year and sequentially. This quarter was also negatively impacted compared to the prior year, but higher tax expense due to the GILTI tax treatment on foreign earnings.

Speaker Change: 1st quarter adjusted diluted loss per share at decreased to a negative 31 cents from a positive 6 cents in the same period last fiscal year. And a sequential basis, the adjusted loss per share declined 8 cents from the fiscal 24th quarter.

Robert Cherry: At slide floor, please see an agenda for our call today. We will begin with an introduction of Methode's new CEO, move to our key messages, and then provide a business and financial update followed by a Q&A session. Please turn to slide five.

Speaker Change: The adjusted earnings per share was negatively impacted by both lower sales and higher interest spans, both year over year and sequentially. This corner was also negatively impacted compared to the prior year, but higher tax expense due to the guilty tax treatment on foreign earnings.

David Rawden: Overall, our 1st quarter adjusted pre-tax loss was on track with our full year expectations. Turning to slide 16, debt was down $34.9 million from prior year end. We ended the quarter with $111.3 million in cash, down $50.2 million. The primary use of cash was to pay down debt. Net debt, a non-GAAP financial measure, increased by $15.3 million to $184.7 million. The increase was due to the use of cash for other financing activities that exceeded our cash provided by operating activities.

John Degainer: At this time, I'd like to turn the call over to Mr. John DeGainer, President and Chief Executive Officer. Thank you, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm joined today by Dave Rodden, our Interim Chief Financial Officer.

Speaker Change: Overall, our first corner adjusted pre-text loss was on track with our full year of expectations.

Speaker Change: Turning the slide 16.

Speaker Change: Death was down 34.9 million dollars from prior year end. We ended the quarter with 111.3 million dollars in cash, down $50.2 million.

John Degainer: Before we discuss the quarter, I'd like to take a minute and share why I came to Methode, what I have found so far, and what I think of the key messages for you to take away from this call today. First, I'm truly honored to be the new CEO of Methode at this pivotal time for the company. I've long admired Methode in my roles as Jason companies in the industry, and I look forward to working alongside the team to deliver for all of our stakeholders.

Speaker Change: The primary use of cash was to pay down debt.

Speaker Change: net debt, a nine-cap financial measure, increased by $15.3 million to $184.7 million.

Speaker Change: The increase was due to the use of cash for other financing activities that exceeded our cash provided by operating activities.

David Rawden: We are in compliance with all of our debt covenants at the end of the first quarter. Turning to slide 17, the first quarter's net cash from operating activities was $10.9 million dollars as compared to a negative $5.6 in fiscal 24. The increase of $16.5 million was primarily due to improvements in working capital. First quarter capital expenditures were $13.6 million as compared to $13.8 million dollars in fiscal 24, a slight decrease of $0.2 million dollars. First quarter free cash flow, a non-GAAP financial measure, was a negative $2.7 million dollars as compared to a negative $19.4 million dollars in fiscal 24, an improvement of $16.7 million dollars.

Speaker Change: We are in compliance with all of our dead covenants at the end of the first quarter.

John Degainer: Over the past few weeks, I've had the opportunity to tour several of our facilities around the world and meet many of our regional teams. I've spent time learning about our operations, our products, and our people. I've also had a chance to hear about our history, which is filled with moments when our global engineering and manufacturing teams came together to solve complex problems, innovate new products, and create value for our customers and our shareholders.

Speaker Change: Turning the slide 17.

Speaker Change: The first quarter's net cash from operating activities was $10.9 million as compared to a negative 5.6 in fiscal 24. The increase of $16.5 million was primarily due to improvements in working capital.

Speaker Change: First-quarter capital expenditures were $13.6 million as compared to $13.8 million in fiscal 24. A slight decrease of $0.2 million.

John Degainer: I see a company with strong foundation built on years of operational excellence. Some of our plants are real class, and I will be proud to show them to a customer. However, with my operations background, I can still see areas for improvement in each of our facilities. I look forward to working with the operations and supply chain leaders to improve each of our plans. If you're not familiar with my history, my track record includes enhancing businesses that require both operational and strategic improvement.

Speaker Change: First quarter free cash flow, a 9-gap financial measure, was a negative $2.7 million, as compared to a negative $19.4 million in fiscal $24, an improvement of $16.7 million. This increase was primarily due to reduced working capital.

David Rawden: This increase is primarily due to reduced working capital.

David Rawden: On a historical basis, this is a good start to the fiscal year for free cash flow.

Speaker Change: and historical basis, this is a good start, I'm fiscal year for free cash law.

David Rawden: Turning to slide 18, 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 fiscal 25, we are affirming expected net sales to be similar to fiscal 24 and adjusted pre-tax income to be approaching break even. The adjusted pre-tax income for the second half of fiscal 25 is still expected to be significantly stronger than the first half. This fiscal 25 year 25 guidance assumes depreciation and amortization of $60 to $65 million dollars, capex of $50 to $60 million dollars, and a tax expense of $9 to $11 million dollars.

John Degainer: Through a team effort, we drove those organizations to find unique and often latent value creation opportunities within the existing portfolio. I believe there are similar potential opportunities at Methode, and I look forward to leading the team to capture them.

Speaker Change: turning the slide 18.

Speaker Change: Regarding forward-looking guidance, it is based on management's best estimates and a subject to change due to a variety of factors that's noted at the bottom of the slide.

Speaker Change: For Fiscal 25, we are affirming expecting that sales to be similar to Fiscal 24, and adjusted pre-tax income to be approaching Brakeman.

John Degainer: Turning to slide six, not many companies can talk about a 78-year history, but Methode can. However, 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. Methode is at such a point, and consequently, we are beginning a journey to transform the business to position it for long-term value creation.

Speaker Change: The adjusted pretext income for the second half of fiscal 25 is still expected to be significantly stronger than the first half.

Speaker Change: This fiscal 25 year 25 guidance assumes depreciation and amortization of $60 to $65 million, capex of $50 to $60 million, and he tax expense of $9 to $11 million.

David Rawden: The tax expense is mainly a function of evaluation allowance on deferred tax assets of $4.3 million that we recorded in the first quarter and the expected GILTI tax treatment for the full fiscal year.

Speaker Change: The tax expenses mainly are a function of evaluation allowance on deferred tax assets of $4.3 million that we recorded in the first quarter and the expected guilty tax treatment for a full fiscal year.

John Degainer: To do so, our first priority must be to successfully execute on the large pipeline of new programs that must be launched in the next two fiscal years. In fiscal 2025, we have over 30 program launches that our customers are looking forward to, and in fiscal 2026, we have another 24 programs to launch. Any organization that faces this level of launch intensity will have its capabilities tested. At Methode, we are relying on our history of execution and global collaboration to surmount these challenges. Simultaneous with the launches, we must focus on immediate actions to address total supply chain costs and efficiency. With the help of outside resources, we are pursuing a multifaceted approach to set a foundation for future success.

David Rawden: Looking further ahead to fiscal year 26, we are affirming expected net sales to be greater than fiscal 25 and pre-tax income to be positive and notably greater than fiscal 25.

Speaker Change: Looking further ahead, the fiscal year 26, we are affirming expected nest sales to be greater than fiscal 25, and pre-taxic income to be positive and notably greater than fiscal 25. This concludes my comments and we can roll up to questions.

David Rawden: This concludes my comments, and we can vote up to questions. Thank you very much.

Unknown Executive: At this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press star one on your phone keypad. A confirmation term will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you.

Speaker Change: Thank you very much. At this time we'll be conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad.

Speaker Change: A confirmation time will indicate that your line is in the queue.

Speaker Change: You may press start, too, if you would like to remove your question from the queue, for any participants using speaker equipment, it might be necessary to pick up your hands at before you press the keys. Please wait a moment, whilst we poll for questions.

John Degainer: We are also actively building the executive team, including a new CFO and CPO to support these challenges. On that note, I would like to reiterate the news that we announced last week regarding our CFO transition. Laura Qualcheck, the current CFO of communication and power industries, has been appointed CFO of Methode effective October 1st. She brings an impressive track record of delivering successful business transformations within our industry. I look forward to partnering with Laura to drive improvement at Methode and welcome her to the Methode team.

Luke Junk: Your first question is coming from Luke Young of Barrett. Luke, your line is live. Great. Thank you for taking a question. Good morning, everyone.

Speaker Change: Thank you. Your first question is coming from Luke Young of Bad. Luke, your line is live.

Luke Junk: I'm hoping I could start on with the gross margin, especially within automotive, specifically. You mentioned the improvement that we saw sequentially in the quarter. Hoping we could just unpack that. Clearly, gross margin, especially in auto, has been under pressure in the last few quarters: launch costs, overhead cost dips, or option. There's a lot going on there. Can we just unpack what went right this quarter in terms of gross margin in auto, especially in how we should think about that as being sustainable as we look at the next couple of quarters? Thank you.

Luke Young: Great, thank you for taking a question, good morning, everyone. I could start on with the gross margin, especially within automotive, specifically, you mentioned the improvement that we saw. It's the quenchily in the quarter, hoping we could just unpack that, you know, clearly gross margin, especially in autos. Under pressure, the last few quarters, launch costs, overhead cost, absorption and others, a lot going on there. Can you just unpack, you know, what went right this quarter in terms of gross margin and auto, especially in how we should think about that as being sustainable as we look the next couple of quarters, thank you.

John Degainer: Lastly, despite some headwinds in our markets, we are in a position to affirm our guidance for flat sales in fiscal 2025, followed by profitable organic sales growth in fiscal 26. Our plan is to leverage Methode's strong phone nation in order to reinvigorate and transform the business.

John Degainer: Luke, good morning, and thanks for your question. I think it's important to understand that the team has been working hard, not only on the launches, but on driving operational improvements. So what you're seeing is both the impact of operations improvement, particularly in North America and in our media regions, impact of pricing prices that have been passed on to the customers, work this been done on price reductions with our supply base, and then some of the impact of some of the cost reductions that we've talked about in previous quarters.

Luke Young: Luke, good morning and thanks for your question. I think it's important to understand that the team is when working hard, not only on the launches, but on driving operational improvement. So what you're seeing is both the impact of

John Degainer: But what does transform mean? Please turn to slide 7 and let me elaborate. To start with, transform means resetting performance. That includes improving operational metrics, cost focus, and cost structure. It also means building and growing capabilities. That includes utilizing global best practices, improving our tools and systems, and driving standardization across the organization. Lastly, it means shifting our culture. That includes leveraging our global resources, acting with a sense of urgency, and the rewarding performance. In short, the organization needs to earn the right to write the next chapter of Methode's history. I am confident that it will do just that.

Luke Young: Operations Improvement, particularly in North America and in our Amir regions, impact of pricing creases that have been passed on to the customers.

Luke Young: Worked this been done on price reductions with our supply base and then some of the impact of some of the cost reductions that we've talked about in previous quarters. So these are...

John Degainer: So these are ongoing improvements that will continue to gain momentum on a quarter-over-quarter basis, and why we feel confident in the progress that we talked about here.

Luke Young: on going improvements that will continue to gain momentum on a quarter of a quarter basis and why we feel confident in the progress that we talked about that we talked about here.

Luke Junk: Thank you for that.

Luke Junk: Second question, a little bigger picture in terms of the interface business and the appliance roll-off that you're looking at. In fiscal 26, how does that impact your view of the business? It would seem like the sales are going to come down a lot there just in terms of the strategic relevance going forward and then managing that specific earnings had went from that roll-off. Thank you.

Luke Young: Got it, thank you for that. Second question, a little bigger picture in terms of the interface business and the appliance roll off that you're looking at. In fiscal 26, just, you know, how does impact your...

John Degainer: Returning to the quarter, let's begin on slide 8. Our sales were $259 million and our adjusted pre-tax loss was $9 million. Our sales were down from the prior year mainly due to the roll-off of a previously disclosed ED lighting program in our auto segment. That program has gone end of life but will impact our prior year sales comparisons from most of fiscal 25. Overall, our sales in the quarter were on track with our expectations.

Speaker Change: A few of the business would seem like it, you know, sales are going to come down a lot there just in terms of the strategic relevance going forward and then managing that specific earnings had went from that, from that we're lost thinking.

John Degainer: Yeah, so the interface business was, as I'm coming to learn, critical for us as we launched the GM business and launched some of the other past interface business on the automotive side. What you're seeing us starting to look for is how do we find synergies between the different segments and how do we create some synergistic value between our lighting business and our industrial controls business and other areas. We do have some new appliance programs, so it's not just bad news from an appliance side. But when you talk about all of the launches that we mentioned multiple times, 30 this year, over 20 next year, we mentioned this in the last earnings column.

Speaker Change: Yeah, so the interface business was...

John Degainer: The lower sales volume along with the continued elevated costs from ongoing program launches drove the pre-tax loss in the quarter. Customer program delays also contributed to absorption challenges. However, our efforts to improve gross profit contributed to the better than expected result. A loss is a loss and we will never celebrate one but it was good to see the sequential improvement.

Speaker Change: is on coming to learn what's critical for us as we launched the GM business and want some of the other past interface, business on the automotive side.

Speaker Change: What you're seeing us starting to look for is how do we find synergies between the different segments?

John Degainer: Turning the EV activity, their sales in the quarter were 18% of our consolidated total and a sequential increase from 14% in the fourth quarter. As previously communicated, we had a sizable ED lighting program roll-off toward the end of fiscal 2024 and we are now at the beginning of a wave of new program launches for EV power applications. As such, we expect the EV percentage to grow even further and should be over 20% for our fiscal 25.

Speaker Change: We mentioned this in our last earnings call when we talked to them again here. The trough that we're seeing from a sales perspective is really being sold by a whole series of exciting new programs that are aligned with what we see as a mega trends in this space. So I'm quite confident about where we're going and the opportunity for us to be aligned with where the.

John Degainer: We talked again here. The trot that we're seeing from the sales perspective is really being filled by a whole series of exciting new programs that are aligned with what we see as a mega trends in the space. So I'm quite confident about where we're going and the opportunity for us to be aligned with where the different industries in which we play are going as well. Got it.

John Degainer: While our sales are currently on track for the year, there are clearly headwinds and several of our key end markets. Those markets include automotive, commercial vehicles, construction and agriculture. In addition to the EV market, in addition, the EV market is clearly awesome steam, particularly in North America and its near-term outlook has softened. While we are affirming our guidance for the year, we are keenly monitoring market conditions.

Speaker Change: <unk> industries in which we play are going as well.

Speaker Change: Got it and then my last question.

Luke Junk: My last question, John, just great to get your perspective. Some improvement plans had already been outlined for the organization as you came into the CEO's seat. It is great to understand your focus for the first 90 days on the job, just how you're prioritizing your time, and some of the structures that you've put in place with your leadership team. Obviously, some folks are still coming onto that team, and maybe any other initial focus areas that would be worth highlighting. Thank you. Yeah, so as we said multiple times during the call, our first priority is making sure that we do these launches right.

Speaker Change: John just great to get your perspective.

Speaker Change: Improvement plans were had already been outlined for the organization as you came into the CEOC. It is great to understand kind of your focus for the first 90 days on the job just how you're prioritizing your time some of the structures that you've put in place with your leadership team, obviously, some folks still coming on to that team.

John Degainer: On the order front, we have another solid quarter with over $80 million in annual program awards. OEMs are clearly reevaluating the adoption rate for the EV market. As such, the pipeline of potential bookings is subject to reduction and or delay due to customer decisions and or market conditions.

Speaker Change: And maybe any other kind of initial focus areas that would be worth highlighting.

Speaker Change: Yeah. So.

John Degainer: Turning to the balance sheet, we are maintaining an acute focus on managing it and generating cash. As evidence, we reduced working capital by 9 million and improved cash from operations by over $16 million in the quarter. Lastly, our debt covenants were in full compliance at the end of the quarter and have our complete attention. In short, it was a stabilizing start to the year with better than expected performance on pretax income and cash flow. It was also encouraging to see the booking momentum continue.

Speaker Change: As we said multiple times during the call.

Speaker Change: Our first priority is make sure that these launches right.

John Degainer: So it's why I've made it a point to get to the regions. I'll make it to the last major region of China here in a couple of weeks to make sure that I understand the challenges that the regions are facing and then also to be talking to customers. So the first priority is making sure that we're talking about the regions and in our launches. Secondly, is in some specific launches to make sure that we're supporting our customers appropriately and have had those first rounds of customer meetings. So that's priorities, if you will, number one, and number two.

Speaker Change: So it's why I've made it a point to get to the regions I will make it to the last major region of China here in a couple of weeks.

Speaker Change: To make sure that I understand the challenges that the regions are facing and then also to be talking to customers. So the first priority is making sure that we're talking about the regions and our launches secondly is in some specific launches.

John Degainer: Turning to slide 9, the awards identified here are some of the key wins in the quarter and represent $77 million in annual sales at full production. This was our second consecutive quarter of solid awards. The launch timing of most of these programs could be anywhere in the range from one to three years from now. All awards were for after a long data center activity. We are now seeing a rebound in orders there.

Speaker Change: To make sure that we're supporting our customers appropriately and have had those first rounds of customer meetings.

Speaker Change: So thats priorities, if you will number one and number two.

John Degainer: Number three is really driving an integrated financial improvement approach. So it's not just what are we doing to cut costs, you know, the headcount reduction, but it's a holistic perspective on how do we use the outside resources that we have working with us as well as the internal teams to be driving scrap reduction of the plants, be driving inventory reduction in the facilities. We'll be looking at our total supply chain as well as what do we do with regard to additional pricing opportunities with customers and looking at the entire thing holistically. The as we add capability like with John or when as the CPO and as Dave and Laura transition, I feel really confident that we're building an organization that that will be thinking more and more numerately every day.

Speaker Change: Number three is really driving an integrated financial improvement approach. So it's not just what are we doing to cut costs you had a head count reduction, but it's by holistic perspective on how do we use the outside resources that we have working with us as well as the internal teams to.

John Degainer: On slide 10, I want to provide some more color and details on the transition that we are navigating from a few large legacy programs to a multitude of launches and new programs. Methode has had a tremendous run in supplying integrated center consoles to general motors. As we have been communicating over the past few years, that program for various platforms and models has been slowly rolling off. It's now expected to go end of life in fiscal 25.

Driving scrap reduction of the plant's been driving inventory reduction in the facilities to be looking at our total supply chain as well as what do we do with regard to additional pricing opportunities with customers and looking at the entire spin holistically. The as we add capability. Likewise, John are one is the CPO and as.

Speaker Change: Dave and Laura transition I feel really confident that we're building an organization that that will be thinking more and more numerate. Lee every day and in all of the areas that allow us to drive a holistic continuous improvement approach and then I guess the last priority for me is making sure that we build out that leadership team that says this.

John Degainer: And in all of the areas that allow us to drive a holistic continuous improvement approach, and then I guess the last priority for me is making sure that we build out that leadership team that sets the stage for the next phase of the method, if you will, the next phase of the method history. So when we say we need to earn the right in front of our shareholders and in front of our customers in front of our organization to write the next phase of the history, that comes down to leadership. And what do we do to take the 7,000 plus person organization with a 78-year-old history and set the stage for the next months, years, and decades ahead.

John Degainer: The result is a significant held headwind in fiscal 25 and another lesser one in fiscal 26. The other major legacy program rolloff we have previously communicated is for an EV lighting program. That program for Methode 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. That activity, along with a positive net impact from other launches, rolloffs and market conditions, leads us to expect flat sales in 25 versus 24.

Speaker Change: Stage for the next phase of the method. If you will in the next phase of the method history.

Speaker Change: So when we say.

We need to earn the right in front of our shareholders and in front of our customers and in front of our organization to write the next phase of the history that comes down to leadership and what do we do to take the 7000 plus person organization with a 78 year old history and set the stage for the next one.

John Degainer: Looking further out to fiscal 26, we expect even more launches of EV programs for Stellantis. That activity, along with a more positive net impact from other launches, rolloffs and market conditions will more than offset the final headwind from the GM rolloff as well as a significant headwind from a major appliance program that is going end of life in fiscal 25. The overall net result is the expectation of organic sales growth in fiscal 26.

Speaker Change: <unk> years and decades ahead.

Luke Junk: That's all very helpful. I'll go ahead and pass it back. Thank you. Thanks, Luke.

Speaker Change: Alright, Thats all very helpful. I'll go ahead and pass it back thank you.

Luke Young: Thanks Luke.

John Franzreb: Thank you very much. Your next question is coming from John Franzereb of CIDOT and Company.

Speaker Change: Thank you very much. Your next question is coming from John <unk> of Sidoti <unk> Company. John Your line is live.

John Franzreb: John, your line is live. Good morning, and John, welcome aboard, and thanks for taking the questions. Thanks very much, John. I like to start with the guidance, despite lower revenues sequentially and higher operating and pretext profit sequentially, kind of maintain the outlook for the year. I'm curious if that suggests any change in the past two months in market conditions versus what you're looking for year end. Yeah, not really. We're taking a look at this where I should be cautious and how we forecast things. The still the year still has to play out. We have a good start to the year.

Speaker Change: Good morning, and John welcome aboard and thanks for taking the questions.

John Degainer: Thanks very much.

John Degainer: As we navigate this product transition, we remain subject to market conditions, EV adoption trends and the success of our customers' product launches. However, as of today, this is the line of sight we have based on our projections in the forecast of our customer base.

John Degainer: I'd like to start with the.

John Degainer: The guidance.

Speaker Change: Despite lower revenue sequentially and higher operating and pre tax profit sequentially, you kind of maintain the outlook for the year.

I'm curious if that suggests any change in the past two months and market condition versus what you are looking for at year end.

John Degainer: Turning slide 11, in summary, for the quarter, our sales were on track while our pre-tax loss was better than expected. EV activity rebounded and was at 18% of sales. Key market headwinds, particularly in auto and commercial vehicles, are a concern. However, program awards were solid for the second consecutive quarter. Lastly, we maintained an acute focus on the balance sheet and cash flow, delivering a $9 million reduction in working capital and generating over 16 million in cash from operations.

Speaker Change: Not really.

Taking a look at this were actually being cautious in how we how we forecast things.

Speaker Change: The year is still has to play out we have a good <unk>.

John Degainer: I shouldn't say good. As John says, he never want to celebrate a loss, but it was better than what we were hoping.

Speaker Change: Start to the year I shouldn't say good.

Speaker Change: John says you never want to celebrate a loss.

John Degainer: But it was better than what we were hoping.

John Degainer: Or we were expecting, but we're still going to keep the guidance where it is just until a little bit better track record of how we go forward in the quarters.

Speaker Change: We were expecting but we're still going to keep the guidance where it is just until we get a little bit better track record of how we go forward in the quarters in <unk>.

John Degainer: Going forward, we are beginning a journey to transform the business while positioning, positioning it for long-term value creation. Meanwhile, we are focusing intensely on executing over 30 program launches while taking immediate actions to address execution and costs. We simply need to return to better blocking and tackling, and then we can move forward with a discussion on strategy. We are also building the executive team, including our new CFO and CPO, to support these challenges.

John Degainer: And John, let me just go on what Dave said: it's our responsibility to make sure that we're credible. And credibility comes down to doing what we say and achieving above what we say, as opposed to some of the back and forth that we've had historically. And so when we look at the headwinds in our different end markets, we look at the challenges with regard to the launches and just some of the exogenous turbulence. We thought it was prudent for us to affirm our revenue guidance and affirm what we said in the last quarter, but not go any further with that.

John Degainer: John Let me just build on what Dave said is.

John Degainer: It's our it's our responsibility to make sure that we're credible.

John Degainer: And credibility comes down to doing what we say in achieving.

John Degainer: Achieving above what we say as opposed to some of the back and forth that we've had historically.

Speaker Change: And so when we look at the headwinds in our different end markets. We look at the challenges with regard to the launches and just some of the exogenous turbulence. We thought it was prudent for us to affirm our revenue guidance and affirm what we said in the last.

John Degainer: Lastly, we are affirming our guidance for flat sales in fiscal 25, followed by profitable organic sales growth in fiscal 26. To be succinct, our fiscal 25 will be a year of transforming the business with a goal of returning the company to growth and profitability in fiscal 26.

Speaker Change: Quarter, but not go any further with that until it <unk>.

John Franzreb: Until it recognized the fact that I've been here too much. and Dave's been in his role for a couple of months as well, so making sure that we're prudent in the way in which we lay this out and explain to our investors is why we've approached it this way. Fair enough, just wanted to make sure. Yeah, thank you.

Speaker Change: Recognizing the fact that I've been here two months.

Speaker Change: Dave has been in his role for a couple of months as well, so making sure that we're prudent in the way in which we lay this out and explain to our investors is why we've approached it this way.

Dave Rodden: At this point, I will turn the call over to Dave, who will provide more detail on the first quarter of financial results. Thank you, John. Good morning, everyone.

Dave Rodden: I'd ask you please turn to slide 13. 1st quarter net sales were $258.5 million compared to $289.7 million in fiscal 24, a decrease of 11%. On a sequential basis, sales decreased 7% from fiscal 24 for a quarter. The main impact on sales in the quarter was the previously disclosed roll-off of an EV lighting program in Asia. That program ended toward the end of last fiscal year and had no sales this quarter.

Speaker Change: Fair enough just want to make sure.

Speaker Change: Yes, Thank you I'm actually I'm actually curious about the.

John Franzreb: I'm actually curious about the price increases that you referenced and you prepared remarks. Pricings have been an issue for quite some time. I'm curious on two things.

Speaker Change: Price increases that you referenced in your prepared remarks.

Speaker Change: Pricing has been an issue for quite some time.

Speaker Change: Curious on two things one how.

John Franzreb: One, how much did price impact the gross margin profile in Q1 versus Q4? And two, how much do we run way we have left on getting more price gains on a go-fold basis?

Speaker Change: Would you see price impact the gross margin profile in Q1 versus Q4 and two how much do we runway do we have left on getting more price gains on a go forward basis.

Dave Rodden: Also impacting this quarter was market weakness for our lighting products in the commercial vehicle, construction, and agricultural applications. That weakness was partially offset by growth in our auto sales in Europe. 1st quarter adjusted loss from operations was $4.7 million down $10 million from fiscal 24. At a sequential basis, adjusted loss from operations improved to $5.1 million from fiscal 24 for a quarter. Please see the appendix for a reconciliation all adjusted measures to gap.

John Degainer: Yeah, so we don't typically, John, give this sort of detail on exact impact on a quarter-by-quarter basis. But what I can say to you is, as we have looked a little more rigorously at some of our programs, and some of our longer running programs, as well as the new things, it's forced us to go back to customers. And in some situations where you have an even new program delay, it requires us to go back to customers because we have capital and we have inventory that we have put in place in order to support and ramp up.

Speaker Change: Yes.

Speaker Change: We don't typically just give the sort of detail on.

Speaker Change: Exact impact on a quarter by quarter basis, but what I can say to you is as we have.

Speaker Change: Looked a little more rigorously at.

Speaker Change: Are some of our programs with some of our longer running programs as well as the new things.

Speaker Change: It's forced us to go back to customers and in some situations, where you have a even new program delay it's.

Dave Rodden: Income was negatively impacted both year over year and sequentially due to the lower sales volume. In addition, we continue to have high launch costs to support the numerous new program launches that John described. We also had a discrete legal fee in the quarter related to the hitronic litigation. Overall, our 1st quarter sales were on track with a 4-year expectations. Turning to slide 14, shifting to EBITDA and non-GAF financial measure, 1st quarter adjusted EBITDA was $9.8 million down $9.5 million from the same period last year.

Speaker Change: It requires us to go back to customers because we have capital and we have inventory that we have put in place in order to support a ramp up.

John Degainer: So when I responded earlier about the numeracy and how we think about these things, each of our programs, be they long-term programs or new programs, we're looking at the financial performance of those programs and going back and saying, what is our responsibility and what is it that is a customer's responsibility? And how do we go, how very clear transparent conversations with our customers in all of the businesses?

Speaker Change: So when I when I responded earlier about the numerous C and how we think about these things each of each of our programs be they long term programs or new programs. We're looking at the financial performance of those programs and going back and saying what is our responsibility and what is it that is a customer's responsibility and how do we go.

Speaker Change: Very clear.

Speaker Change: Transparent conversations with our customers and all in all of the businesses.

Dave Rodden: At a sequential basis, adjusted EBITDA improved $4.5 million from the fiscal 24 for a quarter. Compared to the prior year, adjusted EBITDA was negatively impacted by the lower sales and gross profit. At a sequential basis, adjusted EBITDA improved despite the lower sales as a result of higher gross profit. The higher gross profit was driven in part by price increases in lower warranty costs. Turning to slide 15, 1st quarter adjusted pre-tax loss was $9.1 million down $11.6 million from fiscal 24.

John Franzreb: Okay, it's certainly a worthy endeavor.

Speaker Change: Okay.

Speaker Change: Certainly worthy endeavor.

John Degainer: Lastly, you mentioned in your comments going up to supply chain costs. Certainly that's after you handle your launch, successful launch into programs. But what is the opportunity in the better procurement on the supply chain? Yeah, so we've had both outside help as well as the fresh eyes of John or one of our new chief procurement officers really looking at how we buy, looking at where, with how the organization was structured, where there might be the same thing purchased from multiple places. But also, how do we schedule and how do we order material? We have; you can look at our inventory and say that we are certainly not as optimal as we like to be from an inventory standpoint.

Speaker Change: Lastly, you mentioned in your in your comments going after supply chain costs, certainly I'd say have to handle your own launch successful launch of new programs.

Speaker Change: What is the opportunity and the better procurement on the supply chain.

Speaker Change: Yes, so we've had both outside help as well as the fresh eyes of genre of what our new Chief procurement officer really looking at how we buy looking at where with how the organization was structured where there might be.

Dave Rodden: At a sequential basis, adjusted pre-tax loss improved $4.7 million from the fiscal 24 for a quarter. Compared to the prior year, adjusted pre-tax loss was negatively impacted mainly by lower sales. At a sequential basis, adjusted pre-tax loss improved despite the lower sales as a result of higher gross profit. The losses quarter exceeded our guidance of similar to the recent 4th quarter performance. 1st quarter adjusted diluted loss per share decreased to a negative 31 cents from a positive 6 cents in the same period last fiscal year.

The same thing purchase from multiple places.

Speaker Change: But also how do we schedule and how do we.

Speaker Change: Order material we have.

Speaker Change: You can look at our inventory and say that we are certainly not as optimal as we like to be from an inventory standpoint, so as I think about supply chain costs. It's not just it's not just the procurement price. If you will it's not a price to price comparison solely it's a total supply chain costs, what do we do with regard to.

John Degainer: So as I think about supply chain costs, it's not just the procurement price, if you will; it's not a price-to-price comparison solely. It's a total supply chain cost. What do we do with regard to how we ship material, how much material, and how much inventory is sitting on the plant floors? All of those areas allow us to optimize our cost structure. And that's the way John is leading it, and the operations team is thinking about it in each of the regions, as well as with the outside support to help John on those.

Speaker Change: How we how we ship material how much material how much inventory is setting on the plant floors all of those areas allow us to.

Dave Rodden: At a sequential basis, the adjusted loss per share declined 8 cents from the fiscal 24 for a quarter. The adjusted earnings per share was negatively impacted by both lower sales and higher interest expense, both year over year and sequentially. This quarter was also negatively impacted compared to the prior year by higher tax expense due to the guilty tax treatment on foreign earnings. Overall, our 1st quarter adjusted pre-tax loss was on track with our full year expectations.

Speaker Change: Optimize our cost structure.

And Thats the way John is leading it and and the operations team is thinking about it in each of the regions as well as with the outside support to help John on those.

Speaker Change: Okay.

John Franzreb: Okay.

John Franzreb: Actually, I'll leave it there and let somebody else chime in. Thank you for taking my questions. Thank you, John. Appreciate it.

Speaker Change: Actually I'll leave it there and let somebody else chime and thank you for taking my questions. Thank you John appreciate it.

Gary Prestopino: Thank you very much.

Thank you very much just as a reminder, any remaining questions. Please press star one on your phone keypad now to join the queue.

Gary Prestopino: Just a reminder: if there are any remaining questions, please press star one on your phone keypad now to join the key. Your next question is coming from Gary Prestopino of Barrington Research. Gary, your line is live. Thank you. Hi, John. Welcome back. Thank you. And David and Robert, a couple of questions here. First of all, I'm going to jump around a little bit here.

Dave Rodden: Turning to slide 16, Debt was down $34.9 million from prior year end. We ended the quarter with $111.3 million in cash, down $50.2 million. The primary use of cash was to pay down debt. Net debt, a non-gap financial measure, increased by $15.3 million to $184.7 million. The increase was due to the use of cash for other financing activities that exceeded our cash provided by operating activities. We are in compliance with all of our debt covenants at the end of the first quarter.

Speaker Change: Your next question is coming from Gary <unk> of Barrington Research Gary Your line is open.

Gary: Thank you Hi, John welcome back.

Speaker Change: Sure.

Gary: And David and Robert a couple of questions here first of all.

Speaker Change: And then you jump around a little bit here when you're talking about your guidance were.

Gary Prestopino: When you're talking about your guidance, where on pre-text income for this year and next year, is that on an adjusted basis or a gap basis? That would be on an adjusted basis. Okay, just want to make that clear. Okay, so I'm looking at your balance sheet, okay? And I'm seeing a pretty dramatic increase in inventories. I think I got clocked at 18% on a sales decline in the quarter. And this is on a sequential basis. So, could maybe you explain why those inventories are up as high as, as you know, with the growth relative to the sales being down?

Speaker Change: On pre tax income.

Speaker Change: For this year and next year is that on an adjusted basis or a GAAP basis.

Speaker Change: That would be on an adjusted basis.

Dave Rodden: Turning to slide 17, the first quarter's net cash from operating activities was $10.9 million as compared to a negative 5.6 in fiscal 24. The increase of $16.5 million was primarily due to improvements in working capital. First quarter capital expenditures were $13.6 million as compared to $13.8 million in fiscal 24, a slight decrease of $2 million. First quarter free cash flow, a non-gap financial measure, was a negative $2.7 million as compared to a negative 19.4 million in fiscal 24, an improvement of $16.7 million. This increase is primarily due to reduced working capital. On a historical basis, this is a good start to the fiscal year for free cash flow.

Speaker Change: Okay, I just want to make that clear okay.

Speaker Change: No.

Speaker Change: Yeah.

Speaker Change: I am looking at your balance sheet, Okay, and I'm seeing a pretty dramatic increase in inventories I think I got clocked in at 18%.

Speaker Change: On a sales decline in the quarter.

Speaker Change: And this is on a sequential basis, so could maybe could you explain why those inventories are up as as.

Speaker Change: As high as as with the growth.

Speaker Change: Relative to the sales being down is that due to these program launches that youre going to undertake.

John Degainer: Is that due to these program launches that you're going to undertake? Yeah, so Gary, I'll take this, and I'll let Dave add if he's got any additional color. And we have to, particularly for long lead time materials. We have to put things in the pipeline based on a customer based on our best assumption, whether they're customer volumes and ramp up. And so when you have a delay in a watch, it's, you've got, you've got a pipeline that's already started, it's already filled or started to be filled at a certain tape. So, when I say to you, some of those inventories are this mismatch between what we plan from a ramp-up perspective and what's actually happening.

Speaker Change: So Gary I will take this and I'll, let Dave add if he's got any additional color.

Speaker Change: Okay.

Dave Rodden: We have two particularly for long lead time materials, we have to we have to put things in the pipeline based on a customer based on our best assumption with regard to customer volumes and ramp up.

Dave Rodden: Turning to slide 18, 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 fiscal 25, we are affirming expected net sales to be similar to fiscal 24 and adjusted pre-tax income to be approaching break even. The adjusted pre-tax income for the second half of fiscal 25 is still expected to be significantly stronger than the first half.

And so when you have a delay in our launch.

Speaker Change: You've got you've got a pipeline that's already started this already filled or started to be sold at a certainty. So when I when I say to you some of the some of those inventories are this mismatch mismatch between.

Dave Rodden: This fiscal 25 year 25 guidance assumes depreciation and amortization of $60 to $65 million, capex of $50 to $60 million, and a tax expense of $9 to $11 million. The tax expense is mainly a function of evaluation allowance on deferred tax assets of $4.3 million that we recorded in the first quarter and the expected guilty tax treatment for the full fiscal year. Looking further ahead to fiscal year 26, we are affirming expected net sales to be greater than fiscal 25 and pre-tax income to be positive and notably greater than fiscal 25.

Speaker Change: What we plan from a ramp up perspective, and what's actually happening it.

John Degainer: It doesn't mean that we won't use the material. It just means that there is a cost to it of it sitting on our plant floors. And so it goes back to what I said earlier; we're having to go back to customers and talk about holding costs and all those sort of things. So, we're, there are certainly opportunities for inventory optimization and supply chain optimization, and then one of the cute things that now in this will be working on.

Speaker Change: It doesn't mean that we won't use the material. It just means that that there is a cost to it or have it sitting on our plant floors and so it goes back to what I said earlier, we're having to go back to customers and talk about holding costs and all those sort of things so.

Speaker Change: We're there are certainly opportunities for inventory optimization and supply chain optimization and on to one of the key things that we'll be working on but what youre seeing here is not.

John Degainer: But what you're seeing here is not as much about an execution stumble as it is just delays in launches. Okay.

Speaker Change: As much about and execution stumble as it is just delays in along and launches.

Operator: This concludes my comments and we can vote up to questions. If you would like to remove your question from the queue for any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you.

Speaker Change: Okay.

Gary Prestopino: So, that gets me to my next question, John. I don't mean to be nifty, but when you're putting out your sales bridge here, you've got the Lantis program launches. You've got 84 million for this year, 125 million for next year.

Speaker Change: That gets me to my next question John.

John Degainer: I don't mean to be nitpicky, but when youre, putting out your sales bridge here, you've got the Lantus program launches, you've got 84 million for this year $125 million for next year.

John Degainer: First of all, you had liberty to discuss the models that you're going to be launching products on, and are they really hybrid or just ICE? So, so they're, they're EV programs and we are, I mean, we talked about that, that these are EV programs. Okay. But we're not out of the video to talk about specific program, specific platforms, but it's how you end up going from 14% EV to 18% EV in a quarter and to what we talked about of being over 20% going forward in the rest of the fiscal year.

Speaker Change: First of all you at Liberty to discuss the models that youre going to be launching products on and are they werent be hybrid or just ice.

Speaker Change: So their EV programs, where we are and we talked about that that these are EV programs.

Speaker Change: But we're not at Liberty to talk about specific program.

Luke Young: Your first question is coming from Luke Young of Baird. Luke, your line is live. Great. Thank you for taking a question. Good morning everyone. Hoping I could start on with the gross margin, especially within automotive specifically. You mentioned the improvement that we saw. It's the quenching in the quarter. Hoping we could just unpack that, you know, clearly gross margin, especially in auto. It's been under pressure the last few quarters, launch cost, overhead cost, subscription, and others a lot going on there.

Speaker Change: Specific platforms.

Speaker Change: But it's how you ended up going from 14% to 14% to 18% even in a quarter into what we talked about it being over 20% going forward in the rest of the fiscal year.

John Degainer: Okay, so with this number that you have, and I'm just trying to get a handle on how are, is this right now, what Stellantis has said is going to be their take rate from you guys, or is this based on what they are projecting their models to be? Because I'm trying to get around John, is that Stellantis is having really difficult problems with inventories on their lots, and I'm just trying to get an idea of how you're sizing this number. So, certainly we have to be smart about how we think about these things, and Gary, as we talked about in, in previous lives, we thought look at what customer releases are, but also then what do we see from an IHS perspective?

Speaker Change: Okay. So.

Speaker Change: With this number that you have and I'm just trying to get a handle on how or is this right now what the Atlantis has said is going to be their take rate from you guys or yes based on what they are projecting their models to be because I'm getting kind of get around John is thats. The lantus is having really difficult problems with.

Luke Young: Can we just unpack, you know, what went right this quarter in terms of gross margin in auto, especially in how we should think about that as being sustainable as we look the next couple of quarters. Thank you. Luke, good morning and thanks for your question. I think it's important to understand that the team has been working hard, not only on the launches, but on driving operational improvements. So what you're seeing is both the impact of operations improvement, particularly in North America and in our media regions, impact of pricing prices that have been passed on to the customers, work that's been done on price reductions with our supply base, and then some of the impact of some of the cost reductions that we've talked about in previous quarters. So these are ongoing improvements that will continue to gain momentum on a quarter of a quarter basis and why we feel confident in the progress that we talked about that we talked about here.

Speaker Change #100: Inventories on their lots and I'm, just trying to get an idea of how you're sizing this number.

Speaker Change #101: So so certainly we have to be smart about how we think about these things and Gary as we talked about it in previous lives. We both look at customer releases are but also then.

Speaker Change #101: What do we see from an IHS perspective.

John Degainer: And so this is where the confidence is waiting against it, but understand also that we may have some other economic actions that we take, depending on how the ramp up goes. So a revenue for us may not be a part to part correlation with their ramp up. So, where we watch this in detail, remember also that we have launches that are around the world, so it's easy to get distracted in North America with regard to news on EVs. But from a penetration perspective of EVs, and the more advanced hybrids actually in the rest of the world, and we're spread all around the world, China and Europe.

Speaker Change #101: And so this is this is.

Speaker Change #101: Where the confidence weighting against it but understand also that.

Speaker Change #101: We may have some other economic actions that we take.

Speaker Change #102: Depending on how the ramp up goes so our revenue for us may not be a part to part correlation with their ramp up. So we're we watch this in detail remember also that we have launches that are around the world. So it's easy to get distracted in North America.

John Degainer: Thank you for that. Second question, a little bigger picture in terms of the interface business and the appliance roll-off that you're looking at. In fiscal 26, how does that impact your view of the business? It would seem like the sales are going to come down a lot there just in terms of the strategic relevance going forward and then managing that specific earnings had went from that roll-off. Yeah, so the interface business was, as I'm coming to learn, was critical for us as we launched the GM business and launched some of the other past interface business on the automotive side.

Speaker Change #101: Sure.

Speaker Change #101: With regard to news on Evs, but from a penetration perspective of Evs and <unk>.

Speaker Change #101: The more advanced hybrids actually and the rest of the world and were spread all around the world China and in Europe, That's a bigger percentage of sales and we're providing power products in those regions as well.

John Degainer: That's it; it's a bigger percentage of sales, and we're providing power products in those regions as well.

Gary Prestopino: Okay, thank you.

Speaker Change #101: Okay.

Gary Prestopino: So then the other thing that I just wanted to touch on, John, is I think in your opening comment, you said you've been to some of your plants worldwide, and one of the things you said there's areas of improvement. Sure, without, you know, obviously 12 and too much detail, is the areas of improvement dealing with throughput, scrapage. What, what, what, what has a particular, I guess I'm addressing what, what, what has been happening in Mexico, too, and can this be rectified with, you know, with your current personnel at these various, various plants? So, so let me give a shout out to the guys in Mexico.

Speaker Change #101: So the other thing that I just wanted to touch on John is.

Speaker Change #101: I think in your opening comment you said you've been.

Speaker Change #101: To some of your plants worldwide.

John Degainer: What you're seeing us starting to look for is how do we find synergies between the different segments and how do we create some synergistic value between our lighting business and our industrial controls business and other areas? So we do have some new appliance programs, so it's not just bad news from an appliance side, but when you talk about all of the launches that we have that we mentioned multiple times 30 this year, over 20 next year.

John Degainer: One of the things you said theres areas of improvement.

Speaker Change #101: Sure.

Speaker Change #101: Without.

Speaker Change #103: Obviously dwells in too much detail.

Speaker Change #101: <unk>.

Speaker Change #101: Is the areas of improvement dealing with throughput.

Speaker Change #101: Scrappage.

Speaker Change #104: What what.

Speaker Change #104: Particularly I guess im addressing what has been happening in Mexico, two in and can this be rectified with.

Speaker Change #104:

Speaker Change #104: With your current personnel at these various various plants.

Speaker Change #104: So.

John Degainer: We mentioned this in the last earnings column, we talked again here, the trough that we're seeing from the sales perspective is really being filled by a whole series of exciting new programs that are aligned with what we see as a mega trends in the space. So I'm quite confident about where we're going and the opportunity for us to be aligned with where the different industries in which we play are going as well.

Speaker Change #105: These plants, yes, so let me give a shot out to the guys in Mexico.

John Degainer: Not only, I mentioned in my remarks that there are plants that are world class, and I would be really proud to take a customer too. The Mexican facilities are a couple of those plants. And yes, we had fairly significant scrap and premium freight issues in fiscal 2024. Part of, part of the progress on a year-over-year basis is actually the operational improvement that has happened in our Mexican facilities. It does not mean that we are done. There is a lot of productivity activities to be done there. There's a lot of improvement, and it's a lot of work to be done there.

Speaker Change #105: Not only.

Speaker Change #105: I mentioned in my.

Speaker Change #105: My remarks that there are plants that are world class and I would be really proud to take a customer too.

Speaker Change #105: The Mexican facilities are a couple of those plants.

Speaker Change #105: And yes, we had fairly significant scrap and premium freight issues in fiscal 2024 part of part of the progress on a year over year basis is actually the operational improvement that has happened in our Mexican facilities. It does not mean that we're done there is a lot of productivity activities to be done.

John Degainer: Got it. My last question, John, just great to get your perspective. Some improvement plans were had already been outlined for the organization as you came into the CEO's seat as great to understand kind of your focus for the first 90 days on the job, just how you're prioritizing your time. Some of the structures that you've put in place with your leadership team, obviously some folks still coming on to that team and maybe any other kind of initial focus series that we'd be worth highlighting.

Speaker Change #105: There, there's a lot of improvement.

Speaker Change #105: And so for Russia, and the team down there.

John Degainer: So, I think it's a lot of work to be done there. I think it's a lot of work to be done there.

Speaker Change #106: Understand very clearly what what challenges they have in front of them, but it's a very important portion of the company.

Speaker Change #106: And I am absolutely confident of that leadership team and their ability to take not only the progress that they've made the feedback that I have given them. The help that we're giving them from the outside to make those facilities in Mexico, a much much better.

John Degainer: Thank you. Yeah, so as we said multiple times during the call, our first priority is making sure that we do these launches right. So it's why I've made it a point to get to the regions I'll make it to the last major region of China here in a couple weeks to make sure that I understand the challenges that the regions are facing and then also to be talking to customers. So the first priority is making sure that we're talking about the regions and in our launches.

Gary Prestopino: Okay, thank you. Wish you best of luck. Well, thanks, Gary. I really appreciate it.

Speaker Change #106: Okay.

Speaker Change #107: You wish you best of luck.

Speaker Change #107: Well, Thanks, Kerry I really appreciate it.

Gary Prestopino: Thank you very much.

Speaker Change #108: Thank you very much. Your next question is coming from John <unk> of Sidoti <unk> Company John.

John Franzreb: Your next question is coming from John Franzreb of Sudoti and Company. John, your line is Life. Yeah, just a quick question on the guidance. And this is really the tax expense line that you have 9 to 11 million. Is that a gap number compared to the some of the other adjusted numbers that you have as a non gap number? That would be an estimate of what the gap tax would be for the year. Right. Okay, all right. So we have to kind of adjust that will happen in the first quarter and make some assumptions on a go full basis that will balance those two out, right?

Speaker Change #109: John Your line is life.

John Degainer: Yes, just a quick question on the guidance and this is really the tax expense line that you have 9% to $11 million.

John Degainer: Secondly is in some specific launches to make sure that we're supporting our customers appropriately and have had those first rounds of customer meetings. So that's priorities if you will number one and number two. Number three is really driving an integrated financial improvement approach. So it's not just what are we doing to cut costs, you know, the headcount reduction, but it's a holistic perspective on how do we use the outside resources that we have working with this as well as the internal teams to be driving scrap reduction of the plants be driving inventory reduction in the facilities.

John Degainer: Is that a GAAP number compared to the some of the other adjusted numbers that you have is.

Speaker Change #110: non-GAAP number.

That would be an estimate of what the GAAP tax would be for the year right.

Speaker Change #111: Okay, Alright, so we have to kind of adjust out what happened in the first quarter and make some assumptions on a go forward basis that we'll balance those two out right. That's how we should think about it.

John Franzreb: That's what we should think about it. I would think about it is, you know, we recorded the what we recorded in the first quarter to $5 million, and we expect that for the year would be about 9 to 10. I'm sorry, 9 to 11.

Speaker Change #111: I would think about it is we recorded the what.

Speaker Change #111: We recorded in the first quarter to $5 million and we expect that for the year would be about nine to 10.

John Degainer: We'll be looking at our total supply chain as well as what do we do with regard to additional pricing opportunities with customers and looking at the entire thing holistically. The as we add capability like with John Irwin as the CPO and as Dave and Laura transition, I feel really confident that we're building an organization that that will be thinking more and more numerately every day and in all of the areas that allow us to drive a holistic continues improvement approach.

Speaker Change #111: I'm sorry, Andrew.

John Degainer: And just another thought on as the EV programs start to roll out, how should we be thinking about the contribution margin on the new EV programs relative to what you've been getting in the recent automotive side of the business? John, I actually based on some programs that I reviewed yesterday. I actually feel really good about where we are from a contribution margin standpoint. We've got a lot of execution challenges, and we need to make sure that we're driving performance appropriately. But based on what I'm seeing from the initial programs and where the financials are. I think it is at a minimum on par if not a creative from a gross margin perspective.

Andrew: And just another thought on as the EV programs start to rollout how should we be thinking about the contribution margin on the new EV programs realm.

Andrew: Relative to what you've been getting in the recent automotive side of the business.

Andrew: John I actually based on some programs that are reviewed yesterday I actually feel really good about where we are from a contribution margin standpoint.

John Degainer: And then I guess the last priority for me is making sure that we build out that leadership team that sets the stage for the next phase of the method if you will the next phase of the method history. So when we say we need to earn the right in front of our shareholders and in front of our customers in front of our organization to write the next phase of the history that comes down to leadership. And what do we do to take the 7000 plus person organization with a 78 year old history and set the stage for the next months, years and decades ahead.

John Degainer: We've got a lot of execution challenges and we need to make sure that we're.

Speaker Change #114: Driving our performance of appropriately, but based on what I'm seeing from the initial programs and where the financials are I think it is.

Speaker Change #115: At a minimum on par if not accretive from a gross margin perspective.

John Franzreb: Great, great.

Speaker Change #116: Great great. Thanks for taking my follow ups I appreciate it.

John Franzreb: Thanks to take my follow up, so I appreciate it. Thanks, John.

Thanks, Sean.

Unknown Executive: Thank you very much.

Speaker Change #116: Thank you very much while we appear to have reached the end of our question and answer session I will now hand back over to John for any closing remarks.

John Degainer: Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to John for any closing remarks. Yeah. Thank you, operator, and I want to thank all of the people who joined us today for your time and for your interest in method.

Speaker Change #117: Yes, Thank you operator, and I want to thank all of the people who joined US today for your time and for your interest in <unk> as a leadership team we're committed to it.

Luke Young: That's all very helpful. I'll go ahead and pass it back. Thank you. Thanks, Luke. Thank you very much.

Unknown Executive: As a leadership team, we're committed to, if you will, earning your trust and building the capability of this organization, and we look forward to talking to you again in the next quarter. Thanks very much. Thank you very much.

John Franzreb: Your next question is coming from John Franzereb of Cidotean Company. John, your line is live.

Speaker Change #118: If you will earning your trust and building the capability of this organization and we look forward to talking to you again on our next quarter. Thanks very much.

John Franzreb: Good morning and John, welcome aboard and thanks for taking the questions. Thanks very much, John. All right. I'd like to start with the guidance despite lower revenues sequentially and higher operating and pretext profit sequentially. You kind of maintain the outlook for the year. I'm curious if that suggests any change in the past two months in market conditions versus what you're looking for year end.

Speaker Change #119: Thank you very much. This does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Unknown Executive: This is of conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your...

John Degainer: Not really. We're taking a look at this where I should be cautious on how we forecast things. The still the year still has to play out. We have a good start to the year. I shouldn't say good. As John says, he never want to celebrate a loss. But it was better than what we were hoping.

John Degainer: Or we were expecting, but we're still going to keep the guidance where it is just until we get a little bit better track record of how we go forward in the quarters. John, let me just build on what Dave said is it's our responsibility to make sure that we're credible. And credibility comes down to doing what we say and end and achieving above what we say as opposed to some of the back and forth that we've had historically. And so when we look at the headwinds in our different end markets, we look at the challenges with regard to the launches and just some of the the exogenous turbulence.

John Degainer: We thought it was prudent for us to affirm our revenue guidance and affirm what we said in the last quarter, but not go any further with that. Until it recognized the fact that I've been here too much, and Dave's been in his role for a couple months as well. So making sure that we're prudent in the way in which we lay this out and explain to our investors is why we've approached it this way.

John Franzreb: Fair enough, just wanted to make sure. Yeah, thank you.

John Franzreb: I'm actually curious about the price increases that you referenced in your prepared remarks. Pricings have been an issue for quite some time. I'm curious on two things. One, how much did price impact the gross margin profile in Q1 versus Q4? And two, how much do we run way we have left on getting more price gains on a go-fold basis?

John Degainer: Yeah, so we don't typically just give this sort of detail on exact impact on a quarter by quarter basis. But what I can say to you is as we have looked a little more rigorously at some of our programs and some of our longer running programs as well as the new things. It's forced us to go back to customers and in some situations where you have a even new program delay, it requires us to go back to customers because we have capital and we have inventory that we have put in place in order to support a ramp up.

John Degainer: So when I responded earlier about the numeracy and how we think about these things, each of our programs be they long term programs or new programs. We're looking at the financial performance of those programs and going back and saying what is our responsibility and what is it that is a customer's responsibility and how do we go have very clear transparent conversations with our customers in all of the businesses?

John Degainer: Okay, it's certainly worthy endeavor.

John Degainer: Lastly, you mentioned in your comments going up to supply chain costs, certainly that's after you handle your successful launch and do programs. But what is the opportunity in the better procurement on the supply chain? Yeah, so we've had both outside help as well as the fresh eyes of John or one of our new chief procurement officer really looking at how we buy, looking at where with how the organization was structured where there might be the same thing purchased from multiple places.

John Degainer: But also how do we schedule and how do we order material? We have, you can look at our inventory and say that we are certainly not as optimal as we like to be from an inventory standpoint. So as I think about supply chain costs, it's not just the procurement price, if you will, it's not a price to price comparison solely. It's a total supply chain cost. What do we do with regard to how we ship material, how much material, how much inventory is sitting on the plant floors?

John Degainer: All of those areas allow us to optimize our cost structure. And that's the way John is leading it and the operations team is thinking about it in each of the regions as well as with the outside support to help John on those.

Gary Prestopino: Okay, actually, I'll leave it there and let somebody else chime in. Thank you for taking my questions. Thank you, John. Appreciate it. Thank you very much.

Operator: Just a reminder, if there are any remaining questions, please press star one on your phone keypad now to join the key.

Gary Prestopino: Your next question is coming from Gary Prestopino of Barrington Research. Gary, your line is live. Thank you. Hi, John. Welcome back. And David and Robert, a couple of questions here. First of all, I'm going to jump around a little bit here. When you're talking about your guidance where, on pre-text income for this year and next year, is that on an adjusted basis or a gap basis? That would be on an adjusted basis.

Gary Prestopino: Okay, just want to make that clear. Okay, so I'm looking at your balance sheet, okay? And I'm seeing a pretty dramatic increase in inventories. I think I got clocked at 18% on a sales decline in the quarter. And this is on a sequential basis. So, could maybe could you explain why those inventories are up as high as as, you know, with the growth relative to the sales being down? Is that due to these program launches that you're going to undertake?

Gary Prestopino: Yeah, so sort of Gary, I'll take this and I'll let David add if he's got any additional color. And we have to, particularly for long lead time materials, we have to put things in the pipeline based on a customer based on our best assumption whether they're customer volumes and ramp up. And so, when you have a delay in a watch, it's, you've got, you've got a pipeline that's already started, it's already filled or started to be filled at a certain date.

Gary Prestopino: So, when I say to you, some of those inventories are this mismatch between what we plan from a ramp up perspective and what's actually happening. It doesn't mean that we won't use the material. It just means that there is a cost to it of it sitting on our plant floors. And so, it goes back to what I said earlier, we're having to go back to customers and talk about holding costs and all those sort of things. So, we're, there are certainly opportunities for inventory optimization and supply chain optimization and then one of the cute things that now in this thing will be working on.

John Degainer: But what you're seeing here is not as much about an execution stumble as it is just delays and launches.

John Franzreb: Okay, so that gets me to my next question, John. I don't mean to be nifty, but when you're putting out your sales bridge here, you've got the Lantis program launches, you've got 84 million for this year, 125 million for next year. First of all, you have liberty to discuss the models that you're going to be launching products on. And are they really hybrid or just ice? So, so they're, they're EV programs and we are, I mean we talked about that, that these are EV programs.

John Franzreb: Okay. Well, we're not out of the video to talk about specific program, specific platforms. But it's how you end up going from 14 to 14% EV to 18% EV in a quarter and to what we talked about of being over 20% going forward in the rest of the fiscal year. Okay, so with this number that you have, and I'm just trying to get a handle on how are is this right now what Stellantis has said is going to be there take rate from you guys or is this based on what they are projecting their models to be because I'm trying to get around John is that Stellantis is having really difficult problems with inventories on there a lot and I'm just trying to get an idea of how you're sizing this number so so certainly we have to be smart about how we think about these things and and Gary as we talked about in in previous lives we thought look at what customer releases are but also then what do we see from an IHS perspective and so this is this is where the confidence waiting against it but understand also that we may have some other economic actions that we take depending on how the how the ramp up goes so a revenue for us may not be a part to part correlation with their ramp up so where we watch this in detail remember also that we have launches that are around the world so it's easy to get distracted in North America with regard to news on EVs but from a penetration perspective of EVs and the the more advanced hybrids actually in the rest of the world and we're spread all around the world China and in Europe that's it's a bigger percentage of sales and we're providing power products in those regions as well okay thank you so then the other thing that I just wanted to touch on John is I think in your opening comment you said you've been to some of your plants worldwide and one of the things you said there's areas of improvement sure without you know obviously 12 and too much people is the areas of improvement dealing with throughput, scrapage what what what what has a particular I guess I'm addressing what what has been happening in Mexico too and and can this be rectified with you know with your current personnel at these various various plants so let me give a shout out to the guys in in Mexico not only I mentioned in in my remarks that there are plants that are world class and I would be really proud to take a customer too the Mexican facilities are a couple of those plants and yes we had fairly significant scrap and premium freight issues in fiscal 2024 part of part of the progress on a year-over-year basis is actually the operational improvement that has happened in our Mexican facilities it does not mean that we are done there is a lot of productivity activities to be done there there's a lot of improvement and and Phillip Faruja and the team down there understand very clearly what what challenges they have in front of them but it's a very important portion of the company and I am absolutely confident of that leadership team and their ability to take not only the progress that they've made the feedback that I've given them the help that we are giving them from the outside to make those facilities in Mexico much much better Okay, thank you.

John Franzreb: Wish you best of luck. Well, thanks, Gary. I really appreciate it. Thank you very much. Your next question is coming from John Franzreb of Sedoti and company. John, your line is life. Yeah, just a quick question on the guidance. And this is really the tax expense line that you have 9 to 11 million. Is that a gap number compared to the some of the other adjusted numbers that you have as a non-gap number?

John Franzreb: That would be an estimate of what the gap tax would be for the year. Right. Okay, all right. So we have to kind of adjust that what happened in the first quarter and make some assumptions on a go-fold basis that will balance those two out. Right. That's what we should think about it. I would think about it as, you know, we recorded the what we recorded in the first quarter to $5 million and we expect that for the year would be about 9 to 10.

John Franzreb: I'm sorry, 9 to 11. And just another thought on as the EV programs start to roll out, how should we be thinking about the contribution margin on the new EV programs relative to what you've been getting in the recent automotive side of the business. John, I actually based on some programs that I reviewed yesterday actually feel really good about where we are from a contribution margin standpoint. We've got a lot of execution challenges and we need to make sure that we're driving a performance appropriately but based on what I'm seeing from the initial programs and where the financials are. I think it is at a minimum on par if not a creative from a gross margin perspective. Great. Thanks to take my follow up. So I appreciate it. Thanks, John. Thank you very much.

John Degainer: Well, we appear to have reached the end of our question and answer session. I will now hand back over to John for any closing remarks. Yeah. Thank you operator and I want to thank all of the people who joined us today for your time and for your interest in method. As a leadership team, we're committed to if you will, earning your trust and building the capability of this organization and we look forward to talking to you again in the next quarter. Thanks very much. Thank you very much. This is of conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your.