Core Insights - Strattec Security reported a strong second quarter for fiscal 2026, with significant improvements in profitability and cash generation despite challenges in the automotive industry [4] - The company experienced a 6% increase in sales to $137.5 million, driven by pricing strategies, favorable product mix, and tariff recoveries [3][6] - Gross margin expanded by 330 basis points to 16.5%, with net income nearly quadrupling year-over-year to approximately $5.0 million, or $1.21 per diluted share [3][6] Financial Performance - Quarterly sales reached $137.5 million, with management noting disciplined pricing actions contributing approximately $3.1 million [2][6] - Gross margin improved to 16.5%, reflecting a 330 basis point increase from the previous year, while year-to-date gross margin expanded to 16.9% [3][7] - Operating cash flow for Q2 was $13.9 million, up 48% year-over-year, with total cash at $99 million and total debt reduced to $2.5 million [13][15] Cost Management and Restructuring - The company achieved $1.7 million in restructuring savings during the quarter, contributing to margin improvements [1][6] - Operating expenses increased to $17.9 million, or 13% of sales, but were partially offset by lower executive transition expenses [10] - A voluntary retirement program is expected to generate $3.4 million in annualized savings, with benefits expected to phase in over the next quarters [12] Market Outlook and Strategic Focus - Strattec anticipates a slight sequential sales improvement in Q3 but forecasts a 3%–4% decline in sales for the second half of the fiscal year [15] - The company is focusing on power access products and digital key technology, with new customer wins expected to take time due to the long automotive sales cycle [19][20] - Management addressed supply chain disruptions, indicating minimal impact on sales from recent challenges [16] Investment and Growth Initiatives - Capital expenditures for the quarter were $2.6 million, primarily for new product programs and equipment [14] - The company is evaluating mergers and acquisitions as a potential growth lever while maintaining flexibility amid market uncertainties [18]

Financial Data and Key Metrics Changes - Sales for Q1 2025 were $2.4 billion, a decrease of $83 million compared to the previous year, driven by lower demand across all end markets [19][21] - Adjusted EBITDA was $188 million, with a profit margin of 8%, just 20 basis points lower than last year [19] - Net income attributable to Dana was $25 million, significantly up from $3 million in the previous year, primarily due to the proposed divestiture of a non-core hydraulics business [20] - Operating cash flow was a use of $30 million, an improvement of $65 million year-over-year due to lower working capital requirements [25] Business Line Data and Key Metrics Changes - The integration of the former power technology segment into the aftermarket business is expected to yield operational improvements and contribute $30 to $35 million to the overall cost reduction target of $300 million [10] - Cost savings initiatives added $41 million in profit for Q1 2025, with an expectation to realize an additional $50 million in cost savings this year [23] Market Data and Key Metrics Changes - North American commercial vehicle customers are experiencing a reduction in schedules, impacting the outlook for the segment [13] - There is a slight increase in pre-buy interest in the Off Highway segment, with some positive signs of order improvements outside North America in the second half of the year [14] Company Strategy and Development Direction - The company is accelerating its cost reduction program from $175 million to $225 million for 2025, focusing on operational efficiencies and leveraging best practices across its businesses [10] - The company aims to maintain its market share in light vehicles while being cautious about potential risks in the second half of the year [15] Management's Comments on Operating Environment and Future Outlook - Management views the tariff situation as manageable, with several mitigation actions already in place [12] - The company expects to recover steel and aluminum tariffs through already negotiated mechanisms with customers, although timing may vary [13] - The overall outlook for 2025 remains unchanged, with expectations for sales to be above the midpoint of the guidance range [26] Other Important Information - The company won its tenth PACE award for a hybrid transmission product, which is expected to grow sales significantly in the coming years [16][17] - The company is focusing on divesting non-core assets, with expectations to generate $50 million in proceeds in the second quarter and potentially another $50 million in the back half of the year [11][100] Q&A Session Summary Question: Guidance and Market Assumptions - Management indicated that commercial vehicle expectations are lower than previously seen, but this is offset by light vehicle and Off Highway revenue [33] Question: Tariff Exposure and Recovery Timing - The company expects tariff recoveries to take less than a quarter on average, with a structured process already in place for claims [46] Question: Light Vehicle Production Assumptions - Current light vehicle production outlook remains consistent with previous forecasts, with no substantial changes noted [61] Question: Non-Core Asset Divestiture - The company is actively pursuing the sale of non-core assets, including a joint venture in India, to improve capital efficiency [101]