Methode Electronics(US:MEI)2025-12-04 17:02Financial Data and Key Metrics Changes - Net sales for Q2 2026 were $247 million, up 3% sequentially, but down 16% year-over-year from $292.6 million in Q2 2025 [4][11] - Adjusted EBITDA for Q2 2026 was $17.6 million, down $9.1 million from the same period last year, but increased by $1.9 million sequentially [11] - Adjusted net loss for Q2 2026 was $6.7 million, a $11.9 million change from fiscal 2025, with a sequential reduction of $1.1 million [11] - Free cash flow usage was $11.6 million in Q2 2026, an improvement of $46.8 million year-over-year from a usage of $58.4 million in Q2 2025 [14] Business Line Data and Key Metrics Changes - The power solutions segment is expected to maintain sales in line with fiscal 2025, with a focus on data centers and vehicle electrification as growth drivers [6][8] - Data center revenue for Q2 2026 was in line with expectations, showing potential for growth as the company transitions to vendor-managed inventory [22][23] Market Data and Key Metrics Changes - Automotive sales represented 44% of total sales, with EVs accounting for 41% of that, indicating a significant reliance on the automotive sector [19][52] - EV exposure in North America is limited, with total revenue year-to-date for EVs being less than $12 million [20] Company Strategy and Development Direction - The company is undergoing a transformation to improve operational performance, focusing on leadership upgrades and cross-functional teamwork [6][10] - A strategic relocation of the corporate headquarters to Southfield, Michigan, aims to enhance operational efficiency and customer proximity [7] - The company is committed to long-term growth investments aligned with megatrends in data centers and vehicle electrification [6][8] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2026, expecting stronger results compared to the first half [14][15] - The company is focused on improving execution and reliability, which is reflected in the financial results [10][16] - External market volatility, including tariffs and economic turbulence, continues to pose challenges, affecting revenue predictability [36][67] Other Important Information - The company reaffirmed its full-year sales guidance of $900 million to $1 billion and Adjusted EBITDA guidance of $70 million to $80 million [14][15] - The transition to vendor-managed inventory for data center customers involved a $10 million inventory bill [13] Q&A Session Summary Question: Trends in the power business regarding EV and data center growth - Management noted that EV headwinds have already impacted revenue, particularly in North America, while data center growth is expected to accelerate [19][22] Question: Guidance comfort level for the lower or upper end - Management indicated that external volatility prevents narrowing guidance, maintaining a cautious outlook [36] Question: Improvement in industrial operating profit - The improvement is attributed to better plant performance rather than solely data center growth [37] Question: Roadmap to returning to profitability - The focus will be on cost-cutting and ramping up new programs, with expectations for revenue growth as market conditions improve [41][42] Question: Cash outflow in the quarter - The cash outflow was attributed to seasonal timing and increased receivables, with some collections occurring after the quarter ended [62][65] Question: Tariff impacts and updates - No new updates on tariffs were provided, with ongoing efforts to manage their impact on operations [67] Question: Outlook for calendar year 2026 in problematic end markets - Management anticipates slight improvements in the automotive sector and commercial vehicles, particularly in the latter half of fiscal 2026 [70]