Q3 2025 Methode Electronics Inc Earnings Call
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Today everyone, welcome to the Methode Electronics 3rd quarter fiscal 2025 results conference call.
At this time participants are on a listen only mode. After management's prepared remarks there will be a question and answer session
Speaker Change: I would now like to turn the call over to the vice president of Investor Relations, Robert Cherry, the floor is yours.
Speaker Change: Thank you, operator. Good morning. And welcome to Methode Electronics, Fiscal 2025, Third quarter earnings conference call.
Speaker Change: For this call, we have prepared a presentation entitled Fiscal 2025, Third Quarter Financial Results, which can be viewed on the webcast of this call or found at metho.com on the investor's page.
Speaker Change: This conference call contains certain forward-looking statements which reflects management's expectations regarding future events and operating performance and speak only as of the date hereof.
Speaker Change: These four looking statements are subject to the safe harbor protection provided under the securities laws.
Speaker Change: Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in methods' expectations on a quarterly basis or otherwise
Speaker Change: The four-looking statements in this conference call involve a number of risks and uncertainties.
Speaker Change: 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 10Q reports.
Speaker Change: On Slide 4, please see an agenda for our call today.
Speaker Change: We will begin with a business update, then a financial update followed by a Q&A session.
Speaker Change: At this time, I'd like to turn the call over to Mr. John DeGaynor, President and Chief Executive Officer.
Speaker Change: Thanks Rob and good morning everyone. Thank you for joining us for our third quarter earnings conference call. I'm also joined today by Laura Kowalchik, our chief financial officer.
Speaker Change: Before we discuss the quarter, please turn to slide five, as I take a minute to reflect upon and provide an update on the key messages that I shared with you on my first not those earnings call six months ago.
Speaker Change: As I said then, all companies eventually go through periods where the business must evolve to move forward.
Speaker Change: 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 was at such a point.
Speaker Change: Today, only two quarters later, I can report that Methode's journey to transform the business for long-term value creation is well underway.
Speaker Change: In that first quarter call, I said that our first priority was to execute on a large pipeline of new programs to be launched over a two-year period.
Speaker Change: Today, I can report that we have successfully launched 20 of those programs here to date, and we are working on launching another 33 programs. We're going to the next five quarters.
Speaker Change: Simultaneous with the launches, we committed to focus on immediate actions to address operational execution, cost, and efficiency.
Since then, numerous actions have been taken.
Speaker Change: I will share some of the initial results of those actions later in the presentation but keep in mind that these are long-term initiatives that will continue to bear fruit over the coming quarters and years.
Speaker Change: Back in the first quarter call, we committed to building an executive team that was up to both tackling the challenges we faced and moving the company forward. I'm proud to share that we've extensively rebuilt the executive management team, including five new leaders from outside of the organization. Again, I'll share more details on this in a few minutes.
Speaker Change: Lastly, two quarters ago, we committed to profitable organic sales growth in fiscal 26.
Speaker Change: Today, based on all the information available to us, we're able to reaffirm that guidance.
Speaker Change: Simply put, Methode is firmly on track to reinvigorate and transform the business for long-term value creation.
Turning to slide six and our results for the quarter.
Speaker Change: Our sales were $240 million, and our adjusted pre-tax loss was $7 million and dollars.
Speaker Change: Sales were lower than the prior year as we experienced the first quarter where the impact of two large auto program
– that impact, of course, was anticipated.
Speaker Change: Our sales were then driven even lower than our expectations by the softening and EV demand, as well as the overall weakness in the auto market.
Speaker Change: Despite the lower sales volume, we are able to deliver $4 million in higher growth profit than last year. Do your product mix and improve operational execution including lower scrap and freight costs?
Speaker Change: Furthermore, at the operating line, despite the notable drop in sales, are lost and proved from the prior year.
Speaker Change: Taking a step back, these results clearly demonstrate that the actions we have taken to improve operational execution have lower the break even sales point for the company. This is a key achievement that will enable Methode to drive margin leverage on future sales growth.
Speaker Change: Improved execution also helped us return to positive-free cash flow which is $20 million in the quarter
Speaker Change: The fact that we generated the same amount of cash from operating activities as the prior year, despite 20 million less than sales, is a clear indication of an organization whose operating efficiency has improved.
Speaker Change: Turning the EV activity, sales in the quarter with 24% of our consolidated total, a sequential increase from 20% in the second quarter.
Speaker Change: While this percentage increased, our EV sales on a dollar basis actually decreased slightly. We remain at the beginning of a wave of new EV program launches, but it's been a software start that expected due to customer demand that impacted the quarter.
There's clearly volatility and some several of our key end markets.
Speaker Change: The weakness in automotive markets, especially North American Europe , was a headwind. Conversely, a tailwind was the growth in data centers.
Speaker Change: We enjoyed very strong sales into data center applications in the quarter.
Speaker Change: Our success in that market is expected to result in record sales for those products this year.
Speaker Change: If you're watching the industry closely, you'll know that the technology in the space is rapidly evolving and will undoubtedly lead to some unevenness in near-term sales. However, that very technology disruption is also expected to lead to even more growth opportunities for methode products.
Speaker Change: This will be a specific focus area for our new T-Strategy Office for Brad Carrote who will bring both leadership and technical expertise to our mission to expand our power solutions and our prize. As that strategy develops, we will share more incoming quarters.
Speaker Change: Turning to the balance sheet, we have maintained an acute focus on managing it, particularly accounts receivable and inventory.
Speaker Change: At the end of the quarter, we were comfortably in full compliance with the leverage and interest coverage ratios per our covenants.
Speaker Change: Both improved from the second quarter and were more than a full turn better than requirements.
Organizational Structured
Speaker Change: As I alluded to earlier, we are in the heart of our record.
Speaker Change: Two-year new program launch window. Year-to-date, we have successfully launched 20 new programs, we have six more in the fourth quarter to launch, and then we expect to launch another 27 new programs in fiscal 26. Our customers continue to count on us when we plan to continue to deliver.
Speaker Change: On slide 7, I want to spend some more time giving you an update on our transformation.
Speaker Change: At a high level, this slide maps out where we are at and where we are going.
Speaker Change: You will recognize the top of this slide from what we communicated back in the first quarter. That the building blocks of our transformation are to reset performance.
Doldens grow capabilities and shift our culture.
Speaker Change: To reset our performance, we have improved the organization's focus on fundamental metrics and lovers.
Speaker Change: Some balance sheet examples include our improved focus on a count receivable, which struck $36 million from the second quarter, an inventory which was down $9 million from the second quarter.
Speaker Change: Turning to the Income Statement, we reduce scrap and freight costs a total of $5 million from the prior year.
Speaker Change: On a longer-term basis, we have executed a number of actions that will bear fruit over time such as price increases, supplier price reductions, and raw material sourcing consolidations.
Speaker Change: To build and grow our capabilities, we have also extensively refreshed our executive team and I'll share more on this in a minute.
Speaker Change: To accelerate our improvements, such as in our efforts to reduce inventory, we've also selectively utilized outside expert resources to help drive initiatives.
Speaker Change: Lastly, we have systematically improved the rigor and discipline in our day-to-day business in areas of program launches, procurement, engineering, and finance.
Speaker Change: One of my key learnings since taking the CEO role is that the company's path to success relies on refreshing history and returning to a one method mindset, where all our global teams are moving in the same direction.
This mindset existed with that method and needed to be reinvigorated.
Speaker Change: In doing so, we can now leverage global best practices, drive better numeracy and cost-consciousness, and instill a sense of urgency at all levels across the business.
Speaker Change: While we have focused primarily on execution in the last quarters, we have not ignored strategy. We are, in fact, in the early stages of its development. We've been actively planning and formulating the basic building blocks, and of course our strong execution is fundamental to good strategy.
Speaker Change: We intend to deploy a proactive product portfolio management and customer approach. We will not sit back and wait for business to come to us.
Speaker Change: As we build our strategy, we will focus on mega trends, applying our core competencies in unique ways to develop high value solutions for both current and adjacent markets.
Speaker Change: We don't plan to solely be shaped by market forces and swings of our current product portfolio.
Speaker Change: Our initial focus will be to explore opportunities in non-transportation power solutions, industrial lighting, and industrial user interface areas. These are all areas where we can use our capabilities in drive organic growth in the near term.
Speaker Change: As I said, we are transforming the business to earn the right with customers, employees, and shareholders in order to write the next chapter of Methode's history.
Speaker Change: Turning to slide 8, I want to give a clearer illustration of the Refreshed Executive Management team that are referred to previously.
Speaker Change: Each of these physicians and individuals have been publicly announced, but seen here collectively clearly illustrate that Methode is now being run by a seasoned, highly experienced leadership team with both long and short tenures that has the capability to face and overcome challenges.
Speaker Change: This team has been assembled over just the last seven months but is already driving the Methode transformation and delivering results.
Speaker Change: Talent Management will be a core competency of Methode going forward.
Speaker Change: On slide nine, I want to provide an update on the transition that we are navigating from a few large legacy programs to a stream of launches of new ones.
Thank you.
The GMT-1 Integrated Center Council Program has now gone end of life.
Speaker Change: The result is a significant sales headwind in fiscal 25 and another lesser one in fiscal 26.
Speaker Change: The other major legacy program all-off we previously communicated was for EV lighting.
Speaker Change: That program went end of life in fiscal 24 and is thus a headwind for us in fiscal 25.
Speaker Change: Conversely, we're launching several EV programs for Stellantis in fiscal 25.
Speaker Change: The ramp of those programs, as well as other launches, has been slower than expected and impacted the quarter and our outlook, although pricing actions did provide some offset. Consequently, we now expect sales for our fiscal 25 be lower than fiscal 24 rather than flat.
Speaker Change: Looking further out to Festival 26, we still expect more launches of EV programs for Stolantis albeit at lower volumes. In addition, we will be launching a sizable bus bar program for GM.
Speaker Change: This GM program was a takeover award that we disclosed in the first quarter but we did not identify the customer. This fast track program demonstrates the trust that GM has in Methode. It also further adds to the diversity of the OEMs that we are supplying for EV programs.
Speaker Change: That activity is expected to be more than offset the final headwind from the GMT1 roll-off as well as a major appliance program that is going end of life in fiscal 25.
Speaker Change: The overall net result is the continued expectation of organic sales growth in fiscal 26.
Speaker Change: On a more granular basis, excluding the appliance business, which is non-core to us, we could potentially see high single-digit organic growth in fiscal 26 within an environment of flat and markets.
Speaker Change: As we navigate this product transition, we remain subject to market conditions, EV adoption trends, and the success of our customer's program launches.
Speaker Change: However, as of today, this is the line of sight we have based on our projections, the forecast of our customer base and third-party data sources.
Turn it to slide 10.
Speaker Change: In summary, for the quarter sales were lower but grossed profit higher than the prior year, while return to positive free cash flow.
EV activity was steady and was 24% of sales.
Speaker Change: The data center market drove strong, power product sales and expected to lead to a record year for those products.
Speaker Change: We were comfortably in full compliance with all of that covenants.
Speaker Change: and our focus is on driving fundamental operational metric improvement, which helped to lower both AR and inventory levels.
Speaker Change: Lastly, since the first quarter, we have extensively rebuilt the executive management team, including five new leaders hired from the outside.
Speaker Change: Going forward, our focus this fiscal year continues to be on transforming the business while positioning it to return to profitable growth next fiscal year.
Speaker Change: Meanwhile, we're focusing intensely on executing six more program launches this year while preparing to launch another 27 next year.
Speaker Change: Our decisive actions to reset performance are expected to continue to approve our operational metrics and reduce costs.
Speaker Change: As I laid out in our transformation roadmap, we are continuing to build and grow our capabilities, shift our culture, and we are planning the next steps of developing our strategy.
Speaker Change: Lastly, for fiscal 26, we are reaffirming guides for profitable organic sales growth.
Speaker Change: I firmly believe that our business is headed in the right direction. At this point, I'll turn the call over to Laura, who will provide more detail on our third quarter financial results.
Laura Kowalchik: Thank you, John , and good morning, everyone. Please turn to slide 12.
Laura Kowalchik: The third quarter net sales were 239.9 million compared to 259.5 million in fiscal 24, a decrease of 8%. On a sequential basis, sales decreased 18% from the fiscal 25 second quarter.
Laura Kowalchik: For all the sequential comparisons to the second quarter of this fiscal year, please note that the second quarter had one extra week as we explained last quarter.
Laura Kowalchik: In addition to the third quarter having one last week and comparison to the second, the third quarter is historically our weakest quarter for sales as it covers the year in holidays and customer
Laura Kowalchik: As a result, these two factors tend to be a primary driver for most of our sequential financial comparison.
Laura Kowalchik: This quarter was the first quarter where the full impact of the GM Center Council and major EV lighting program roll-offs were felt with negligible total sales in the quarter from both. That headwind outpaced the sales contribution that we received from new program launches.
Laura Kowalchik: We also experience sales, weakness in the commercial vehicle and off-road lighting applications.
Laura Kowalchik: The bright spot in the quarter was strong sales of power products into data center applications. As John mentioned, we are on pace for a record year in sales for those data center products.
Laura Kowalchik: Third quarter, adjusted loss from operations was 1.3 million, an improvement of 1.6 million from fiscal 24.
Laura Kowalchik: On a sequential basis, adjusting some from operations declined $15.6 million from the Fisble 25-second quarter. Please see their appendix for reconciliation of all adjusted measures to gap.
Laura Kowalchik: The improvement in adjusted operating last year of a year was driven by higher gross profit. That improvement in gross profit was driven by lower scrap and premium freight, as well as other operational execution improvements.
Laura Kowalchik: On a sequential basis from the second quarter, the lower sales drove more than 100% of the decline as a 4.9 million improvement in S-GNA was a partial offset.
Laura Kowalchik: That improvement, Nessu Nae, was mainly driven by lower professional fees and by a reduction of variable management compensation related to financial performance objectives.
Laura Kowalchik: Overall, the third quarter was transitional in nature as new program sales are starting to replace the legacy program real
Please turn to slide 13.
Laura Kowalchik: Shifting to EBITDA, a non-GAAP financial measure, third quarter adjusted EBITDA was $12.3 million, up $2.8 million from the same period last year. On a sequential basis, adjusted EBITDA declined $14.4 million from the fiscal 25-second quarter.
Laura Kowalchik: The Adjusted EBITDA benefited year-of-year from higher gross profit. The sequential decline was driven by the lower net sales
Please turn to slide 14
Laura Kowalchik: 3rd quarter, adjusted pre-tax loss with $7.3 million, and improvement of $3.1 million from fiscal 24. On a sequential basis, adjusted pre-tax income declined $13.5 million from the fiscal 25-second quarter.
Laura Kowalchik: The higher-grows profit drove the improvement from the prior year while the sequential decline was driven by the lower net sales.
Laura Kowalchik: Third quarter, adjusted deluded, lost per share, improved 12 cents from a loss of 33 cents in the same period at the last fiscal year.
Laura Kowalchik: was achieved despite the 19.6 million decrease in sales. On a sequential basis, the adjusted earnings per share decreased 35 cents from the fiscal 25-second quarter.
Laura Kowalchik: The third quarter, adjusted EPS excluded evaluation allowance of 6.5 million per U.S. deferred tax assets.
Laura Kowalchik: The adjusted tax for the quarter was a benefit of $0.3 million.
Laura Kowalchik: Overall, while operational improvements helped minimize the impact or third-quarter profitability was primarily driven by the lower sales.
Please signify the team.
Laura Kowalchik: That was down 12.7 million from the second quarter mainly driven by FX. We ended the quarter with 103.8 million cash, up 6.8 million driven by improved cash from operations. This improvement was achieved despite a 52.7 million sequential decline in sales.
Laura Kowalchik: Net debt, a non-GAAP financial measure, decreased by 19.5 million to 224.1 million. As John mentioned, we are comfortably in compliance with all of our debt covenants at the end of the third quarter.
Please turn to slide 16
Laura Kowalchik: The third quarter's net cash from operating activities was 28.1 million as compared to 28.8 million and fiscal 24. Third quarter capital expenditure was 8.5 million as compared to 16.6 million and fiscal 24, a decrease of 8.1 million.
Laura Kowalchik: The decrease was driven by proactive delays in the purchases of property plant and equipment to better match program launch schedules
Laura Kowalchik: Third quarter, free cash flow, a non-GAAP financial measure, was 19.6 million as compared to 12.2 million in fiscal 24, an increase of 7.4 million.
Laura Kowalchik: This increase was mainly due to lower-capic spending that I just described.
Please turn to slide 17.
Laura Kowalchik: Regarding forward-looking guidance, it is based on management, best assessments, and is subject to change due to a variety of factors as noted at the bottom of this slide.
Laura Kowalchik: For the fourth quarter, we expect sales to be in a range of 240 to 255 million.
Laura Kowalchik: We expect pre-tax income to be in a range of negative 1 million to positive 3 million.
Laura Kowalchik: While our transformation efforts have clearly delivered operational improvements, we continue to work through the residual effects from past operating inefficiencies that still have the potential to negatively impact our near-term results.
Laura Kowalchik: implied in this first quarter guidance is a reduction to our prior guidance for full your sales and pre-tax income as shown on the slide.
Laura Kowalchik: While our full-year sales guidance has come down 77 million at the midpoint, the adjusted pre-tax income has come down only 9 million, a de-leveraging of only 12%. This is yet another indication of our operational improvements.
Laura Kowalchik: The fourth quarter guidance assumes depreciation and amortization of 14 to 16 million, capex of 8 to 10 million, and a tax benefit of 1.5 million to tax expense of 0.5 million.
Laura Kowalchik: Looking further ahead to fiscal year 26, we are reaffirming expected net sales to be greater than fiscal 25 and pre-tax income to be positively positive and notably greater and down fiscal 25.
Laura Kowalchik: Lastly, we have not included any of the very recent changes to U.S. terror policy in our guidance.
Laura Kowalchik: That concludes my comments and we can open it up to questions.
Speaker Change: Certainly, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speaker phone to provide optimum sound quality. Please hold just one moment while we pull for questions.
Speaker Change: Your first question is coming from John Franzreb with Sedotti. Please pose your question. Your line is live.
Good morning, everyone, and thanks for taking the questions.
Speaker Change: You know, I guess I like to start with the quarter and in of itself. When you look at the drop in the revenue profile, especially in light of what maybe some of the, you know.
Speaker Change: Participation in the lower volume in the EV and hybrid sector, what surprised you really the most about the drop in volumes?
Speaker Change: So John , probably we're most disappointed with some of the delays and rampups from our new program launches with our customers.
Speaker Change: We've been working on this with our customers and we talked about all the launches and we expected those ramp-ups to occur much more aggressively and that's what we had talked about during our last run-ins course, so that would be the biggest surprise.
Speaker Change: And how does that program roll out? Look today in light of those changes in the conference level you have that they will continue to roll out at the pace you anticipate over the coming say six months.
Speaker Change: If you look at the sales bridge that we laid out, particularly both for Fiscal 25 and Fiscal 26, you can see that we have lowered, go back to previous ones, we have lowered our expectations for a couple of those programs, particularly the Stellantis programs.
Um...
Speaker Change: We are actively working with a customer to deal with that from a commercial perspective.
Wal-Koop
Speaker Change: We'll keep you and all of our investors up to date as that comes to fruition. But we're still optimistic with regard to the programs. We've seen no cancellations. It's just delays in ramparts or change in overall volume expectations and we're dealing with our customers that way.
Speaker Change: The other thing that I think is important to note is the GM program is something that we hadn't talked about before and is a signal that
Speaker Change: of how our customers view us in our opportunity to be a recipients of takeover programs. That that is a statement on our customer's view of our health.
Speaker Change: understood. And I guess you talked about you've executed some pricing actions. I'm curious how that stands, are there still other repricing opportunities, or is that...
That program completed.
Speaker Change: No, I mean, we, as I said with regard to talented conversations, we have ongoing, as we look at these minds, but with all of our customers.
Speaker Change: We're in regular conversations with them, with regard to economics, with regard to whether there's design changes or whether there's other things. So it's not just one customer, it is a continual activity, we look at the program profitability and we look at...
Speaker Change: What our performance should be, we take our responsibility for our things, but we're talking with customers around the globe on an ongoing basis.
Speaker Change: And you mentioned data centers is a bright spot. How much is data centers a percentage of revenue at this point?
Speaker Change: So in a quarter it was 7% and for the fiscal year it should be closer to 9%
Speaker Change: And, you know, historically we've talked about it being 3-5% of our sales. All right.
Speaker Change: There's been many questions in the first two of our earnings calls with regard to data centers and the more I get into the organization, the more I get a chance to study it, the more optimistic I am about our ability to bring core competencies to bear to grow this space.
Speaker Change: Representative of new strategic direction, it is representative of where the opportunity is and how we think we can grow up on that.
Speaker Change: Okay, and one last question, I'll get back into queue. Can you give us some updated thoughts we've seen in the class, a truck market and how that's impacted your thoughts on guidance?
Speaker Change: So, the classic truck market, as we see it, and I'll just talk about North America for right now, we still see fiscal calendar 25 as down 5%.
Speaker Change: and that's in the numbers that we talked to you about our fiscal 26 is...
Speaker Change: and when I mention to you both from a past car and a commercial vehicle standpoint, we're talking about flat to down markets being high single digits up in sales and flat to down market that includes what we see with regard to commercial vehicles.
Speaker Change: We, I guess one of the things down, I'll take the opportunities since you asked the question.
Speaker Change: The team has really done a lot to reinvigorate our relationships with our CV customers.
Speaker Change: and we're seeing higher RFQ opportunities and really the opportunity to grow that portion of the business more aggressively going forward. I'm optimistic, but where we stand with our customers are.
Junk, I just, you know, on that topic.
Speaker Change: Most people think that's a first half, calendar year, weighted event as far as the drop in the
Speaker Change: Closet Market. Is that how you view it or do you think it's going to be?
Speaker Change: Slatter down, I know, I know what the words he knows. We don't, we don't.
Speaker Change: whether it's ACT or S&P global for our forecasting. And in talking to customers as well as looking at the forecasting houses, I think that's a fairly common theme but that's what's
Speaker Change: Fair enough. Thank you, Sarger, back in the queue.
Boris, thanks, Jim.
Speaker Change: Your next question is coming from Luke Junk with Baird. Please pose your question. Your mind is live.
Speaker Change: Good morning, thanks for taking the questions. John , maybe to start with, can you just help us unpack the sequential margin momentum in automotive segment margins this quarter?
Speaker Change: You know, looking, we saw some improvement in first half of the year and now they're kind of back where they were in the back half of 24, roughly speaking. And I understand there's a lot of moving pieces and that there's not a direct comparability there, but can you just help?
Fuck it.
Speaker Change: Some of the factors there in terms of overall industry volumes take rates on EV and now with those programs fully sunseted, any overhead considerations related to that as well. Thank you.
Speaker Change: Yes, so Luke, by the way, good morning and thanks for your question. You know, I would look at it, I would maybe characterize it a little differently than you characterized it.
Speaker Change: For a revenue, we knew that this quarter, and we've talked about the fact that this quarter was going to be challenging from a performance standpoint, but also from a revenue standpoint, just from the way our quarters lay out with the holidays, plus then you have weather issues and the EV delays that we talked about. So on a revenue of $239 million for the quarter, and I won't break out the specific regions. [inaudible]
Speaker Change: If you think about the performance from an adjusted off-income basis versus a comparable quarter last year.
Speaker Change: If you would just look at typical downside conversion with regard to revenue, that performance is actually, you know, double digit millions better.
Speaker Change: Our Amia Facilities, the progress has been made in Egypt, the progress, the performance that we see in our multifacility and our continued performance in China, as well as what's happening in Mexico. Our plants are doing a very good job dealing with a lot of turbulence.
Speaker Change: The EV volumes have really caused our plans to be choppy and holly run. So this year over year performance I think is the best way to evaluate where we are from an operating side, and I'm actually quite optimistic about where we are. I view it as a true drop in our brain
Speaker Change: I appreciate the color there. Second, typically include some color on awards and the slides weren't in the slides this quarter. Any color on current quarter awards and maybe just the industry backdrop as well relative to auto headwind, EV moderation, etc. Thank you.
Yeah, thanks, Luke, Luke, so...
Speaker Change: In the quarterway of $20 million worth of wins for the year to date, we're at 130 million.
Speaker Change: Would we like it to be higher than that? Yes, we have a large number of big programs in the pipeline and whether they'll get awarded in the fourth quarter or whether they'll be in early, 20, fiscal, 26 awards. I don't know. And as we've said, multiple times awards are lumpy.
Speaker Change: So, we kind of have to average it out over time. The fact that we're talking about high single digit growth year-over-year tells you that our awards are in flat.
Speaker Change: Underlying Markets tells you that our awards are turning into revenue growth for the company and you combine that with a lower break even and it really portends much better performance for the business going into fiscal 26, which is what we have been talking about for the last couple quarters.
Speaker Change: Yeah, and just on that high single-digit growth application, did you say, John , that you're excluding the client's sunset? Did you say that you think that's no more essentially? Yeah, to get it we should. To give it a true like-for-like comparison, if you look at the, if you look at the bridge that we've provided.
on slide nine.
Speaker Change: Can you take out that appliance program roll off the 25 million that we showed there? And so you would subtract that out of the out of the fiscal 25 guidance and you compare to the fiscal 26. That's all organic growth then in our base business so that we're talking about base to base.
Speaker Change: Got it. And then, lastly, know that you're not including tariffs in the guidance, but just given your manufacturing presence in Mexico, anything you can share around preliminary customer discussions and maybe what your approach might be prospectively should those actually come into effect in April .
Speaker Change: So we've been pretty clear with our customers and we believe that the way in which we're approaching it is relatively similar to our peers and that's that we've been proactive but we basically said we can't bear the extra cost.
Speaker Change: and so therefore our actions have been to communicate with our customers that we will not bear that extra that we will not bear that extra cost.
to answer your question about a third of our sales.
Speaker Change: are impacted, a third of Methode's overall sales are impacted by the terror discussions between Mexico, Canada and China, a much larger portion of that into the US is coming out of Mexico, obviously.
Speaker Change: But in regular conversations with our customers, we have a war room set up here and the team is talking about it multiple times today multiple times a day to make sure that we've got the latest information and other strategies are well defined.
Speaker Change: It's also giving us an opportunity to make sure that all of our systems are really well-refined and we're using this crisis as an opportunity to make the business better.
That's all I had for now. Thank you.
Thanks, Luke.
Speaker Change: Once again, if you do have any remaining questions or follow-up questions, please press star one at this time. Your next question is coming from Gary Prestopino with Barrington Research. Please pose your question, your line is live.
I was looking at some...
Gary Prestapino: The store of the charts that from prior bridges and way back when at the beginning of the year whatever were you anticipating about eighty four million dollars [inaudible]
Gary Prestapino: Stalantis Program Launch Sales for this year, and then something like 125 million in fiscal 26.
Is that correct?
Yeah, that's correct, Gary. And thanks for raising that. It's
Gary Prestapino: Support them. Obviously, we've looked at what, based on third party as well as their feedback, where we see this going both in fiscal
Gary Prestapino: And so what you're seeing in the new bridge is our current expectations both based on third party as well as customer feedback. And as I said earlier, that does lead us to having to have commercial negotiations and other things. Thank you.
So...
Um.
Speaker Change: These programs have been delayed, I don't, Stellanis has canceled some model roll outs, has anything been canceled on you?
Speaker Change: Now, these are not canceled. These are take rates and these are delays, not cancel delays. So, when we talk about launches and we have launches going on with the EV customers around the world and many of them are EV-based.
Speaker Change: And when I talk about these launches, it's, it's, it's, it's, unfortunately the, the
Speaker Change: that it overwhelms, it overwhelms some of our growth. But if you look at it from an EV standpoint, EV penetration, is it think about it in
Speaker Change: for the market in the US is 10% in Europe is 25% in China it's 40%
Speaker Change: We have launches happening in all three regions with new customers for EV programs, so I think this will balance out over time, but it's a pretty trivial time and obviously with the big slantous launches, it puts a spotlight on it.
Speaker Change: We're all your launches with the Lannis EBS or where they spread out on ICE vehicles too.
It's EVs and it's EVs and a hybrid, I believe.
Okay, okay.
Speaker Change: A lot of being the market obviously for EVs has been challenging versus where it was.
Speaker Change: a year ago, two years ago. But the sum of this impact come from the change of leadership it's the Lannis since Taboris is no longer there and you've got some new players in there running the company.
Speaker Change: Yeah, I don't want to make comments about how our customers run. I just think with the election and with some of the market dynamics, there's a lot of turbulence in the space.
Speaker Change: Ultimately, do we believe that EVs will be a productive part of the end market in all of our end markets and again I'm just going to remind you and our investors that
Speaker Change: We're selling in the multiple end markets, not just in the North America, so yes, the 10% market penetration in North America matters, but in Europe it's 25 and in China it's 40, so we have to be a player in this space.
Speaker Change: and I think this will stabilize out for our customers and first tolantis in particular, but you see new program launches and new announcements from General Motors and others, our customers are still moving forward with their EV strategies, and we're going to support them.
Speaker Change: Okay, then just two other quick questions. Looking at the slide with transformation update and then talking about our initial and exploration of non-strangeportation power industrial lighting.
Tuspergill, Unibuser Interface
Do you rely on your segment heads?
Speaker Change: The impetus of the initial, like Collack of a Better Word spotter of these opportunities, do you have your own in-house?
Corpfin that's out there actively looking for acquisitions.
Well, so...
Speaker Change: Right now, sorry, I want to make sure, we've always had a central requisite M&A team.
Speaker Change: But as I've said to you, and as I've said before here,
Speaker Change: Our focus from a capital allocation is on organic growth and on using our core competencies to drive that.
Speaker Change: The announcement that we made with regard to our new chief strategy officer really is in alignment with that change and strategic direction from growth, the acquisition to growth, the organic growth, and you know, Brad's bringing a focus.
Speaker Change: We'll help the central team as well as the business heads to focus on where are those opportunities and as we said in the script
Speaker Change: Obviously with all of the AI news in the space, as well as what are we doing in some of our other industrial and markets?
Well, I believe that between Brad and Lars.
Speaker Change: And some of the other leaders that we've added, it's going to give us, we're going to have opportunities to grow on the automotive and the commercial vehicle side, but because of the timing of those programs, it takes longer to see that growth hit. So, the near term organic growth focuses on is on the non automotive. [inaudible]
Side.
Speaker Change: particularly with data centers and what do we do there. And the fact that we went from us a usually three to five percent of our sales to seven percent and forecasting nine percent tells you we've got opportunity that both we're seeing the opportunities now and I believe there's a lot more opportunity in the future.
Gary Prestapino: Okay, just one last quick, one real easy answer. Laura, are there any issues on the cover so you're dealt with buying back stock since your stock's down pretty precipitously here?
and Kevin Nystrom. Thank you. Thank you.
Thank you for tuning in.
Speaker Change: We obviously talked at a board level on a regular basis on our
Gary Prestopino
Speaker Change: Do we like what we see right now with the stock today now? Do we think there's opportunities?
Speaker Change: Given the growth of this business, yes, can we answer the question where they're going to buy backs right now? No, it wouldn't be appropriate for us to answer that.
Okay, thank you.
Thank you.
Speaker Change: Your next question is a follow-up from John Franzreb with Sedoti. Please pose your question to your finest life
John Finchrub: Yeah, I'm actually just curious, we haven't talked about Nordic lights in quite some time and I think you could kind of give an update on how that acquisition is performing relative to the expectations when it was acquired over a year ago.
John , I'm really pleased with the team at Nordic Wights.
John Finchrub: Obviously, we have some challenges in the industrial, in their end markets.
John Finchrub: But we're seeing some green shoots in the beginning of fiscal 2020, not fiscal, but calendar 2025, or regard to that end market, and that impacts both our Nordic like business and our heteronics business.
Um...
John Finchrub: What I mentioned to you are a mention in the call with regard to opportunities for continued growth.
John Finchrub: on the industrial lighting side. That is where we go next with regard to the product portfolio from the Nordic Lights perspective, and Brad has been working with the leadership team in Nordic Lights as well as a leadership team in hetronics to try to drive additional growth there. So the team from Nordic Lights is doing a very good job around the world, and we see more opportunities for growth in fiscal 26 and going forward.
John Finchrub: Okay, and it's not being weighed down by what we're seeing in Europe more so than you anticipated. I just, you know, context making. Yeah, I mean, the end market, the end market's in calendar 24, we're certainly down from an industrial perspective.
Speaker Change: and the team at Nordic Lates is quite confident as they see the beginning of the year rolling out.
Jon: That's good news. Okay. Thank you very much, John . Appreciate it. Thanks for your attention, John .
Jon: Once again, if you do have any questions or comments, please press star one at this time, just hold a moment while we pull for questions.
Speaker Change: There are no additional questions in queue at this time, but I would now like to turn the floor back over to John DeGaynor for any closing remarks.
Speaker Change: I want to thank all of you for attending our call and for your questions. We look forward to discussing our continued progress in future calls and we wish you all a great day. Thanks very much.