Financial Data and Key Metrics - Q2 2025 sales were $293 million, with adjusted pretax income of $9 million, benefiting from an extra week in the fiscal year [8] - Sales increased by 2% year-over-year to $292.6 million, with a 13% sequential increase from Q1 2025 [24] - Adjusted income from operations was $14.3 million, up $8.3 million year-over-year and $19 million sequentially [26] - Adjusted EBITDA was $26.7 million, up $5.5 million year-over-year and $16.9 million sequentially [27] - Adjusted pretax income was $6.2 million, up $3.8 million year-over-year and $15.3 million sequentially [28] - Adjusted diluted EPS increased to $0.14 from $0.06 year-over-year and $0.45 sequentially [29] - Net cash from operating activities was negative $48 million, primarily due to a timing issue with accounts payable [32] Business Line Performance - EV sales accounted for 20% of total sales, up from 18% in Q1 2025, with expectations to exceed 20% for the full fiscal year [11] - Power Products sales into data centers grew both year-over-year and sequentially, contributing to overall sales growth [25] - Lighting business faced headwinds due to weak demand in the commercial vehicle market [8][25] Market Performance - Data center market showed strong growth, with sales up 50% year-over-year, representing 3%-5% of total sales [42] - EV market softened in North America, but new program launches helped mitigate the impact [11] - Commercial vehicle market weakness continued to affect the lighting business [8][25] Company Strategy and Industry Competition - The company is focused on executing over 30 program launches in fiscal 2025 and 20-plus in fiscal 2026, primarily in EV, traditional auto, and defense sectors [13][14] - A "One Methode" mindset is being reinvigorated to align global teams, with key executive appointments to strengthen leadership [15][16][17] - The company is investing in compliance resources and processes following an SEC subpoena [20] Management Commentary on Operating Environment and Future Outlook - Management highlighted tailwinds from data center growth and headwinds from automotive and commercial vehicle demand [11][18] - The company expects flat sales for fiscal 2025 but raised adjusted pretax income guidance to approximately breakeven [20] - Q3 is historically the weakest quarter due to holidays and customer shutdowns, with potential for a pretax loss [34] Other Important Information - The company ended the quarter with $97 million in cash, down $64.5 million, due to elevated program launch activity and inventory investment [31] - Free cash flow was negative $58.4 million, primarily due to the accounts payable timing issue [32] - The company is reaffirming fiscal 2026 guidance for higher sales and positive pretax income compared to fiscal 2025 [34] Q&A Session Summary Question: Impact of the extra week on revenue and operating results - The extra week contributed approximately $20 million in revenue and corresponding operating results [38] Question: Cost control measures beyond freight cost reduction - Overhead thinning and improved scrap activities contributed to operating income improvement [40] Question: New orders related to EV market - The majority of new orders were related to EV and power programs [41] Question: Data center market growth - Data center sales grew 50% year-over-year, representing 3%-5% of total sales, with above-average margins [42] Question: Pretax income outlook for Q3 - Q3 is expected to be challenging due to seasonal factors, but no one-off positive impacts were noted in Q2 [47] Question: Program launch status and geographic risks - Many launches are in final development or ramp-up phases, with potential delays in EV program starts, particularly in Europe and North America [49] Question: Stellantis program updates - Stellantis remains a key customer, with some timing shifts in EV launches, but the company is not overly exposed to Stellantis or the EV market [51] Question: Data center segment breakdown and AI impact - Data center growth is driven by both AI and core data center demand, with opportunities to expand capabilities in this space [53] Question: Interest expense and inventory reserve reversal - Interest expense is expected to remain at $6.2 million per quarter, with a $0.5 million inventory reserve reversal in the Interface segment [59][60] Question: Premium freight cost normalization - Premium freight costs are not yet normalized, with a $7 million reduction quarter-over-quarter, and further improvements expected [61] Question: New business sources beyond Stellantis - New business is balanced between European, North American, and Japanese OEMs, with launches split between Europe and North America [63] Question: EV market projections and sales determination - The company uses customer data, third-party forecasts, and internal expertise to validate EV sales projections, considering regional market penetration [66][67] Question: Commercial vehicle market assumptions - Commercial vehicle market assumptions remain unchanged, with a focus on deepening customer relationships [70] Question: Operations improvement in Mexico - Operations in Mexico have transitioned from fixing issues to improving processes, with significant premium freight cost reductions [73] Question: CapEx reduction and timing changes - CapEx reduction is due to both lower required spending and timing changes based on customer program needs [74] Question: Cash outflow reversal expectations - The company expects to reverse some of the cash outflow in the next two quarters, approaching neutral cash flow by year-end [75]
Methode Electronics(MEI) - 2025 Q2 - Earnings Call Transcript
Methode Electronics(MEI)2024-12-06 00:57