Methode Electronics at J.P. Morgan Auto Conference: Strategic Growth Amid Challenges

On Tuesday, 12 August 2025, Methode Electronics (NYSE:MEI) presented at the J.P. Morgan Auto Conference 2025. The company highlighted its ongoing transformation and strategic initiatives aimed at improving financial performance and driving future growth. CEO John DeGaener underscored both achievements and challenges, including record performance in the data center business and persistent EV headwinds in North America.

Key Takeaways

• Methode Electronics reported a strong Q4 with €26 million in free cash flow, the highest since 2023.
• The company aims to double EBITDA despite a projected revenue reduction of $100 million for fiscal year 2026.
• Strategic focus areas include power distribution capabilities, data center expansion, and vehicle electrification.
• Methode Electronics is consolidating its global footprint and reviewing its portfolio for efficiency.
• Tariffs have had minimal impact due to USMCA compliance, with a strategic focus on leveraging the Mexican footprint.

Financial Results

• Fiscal Year 2025:

- Sales: $1.05 billion

- Adjusted EBITDA: $43 million

- Free Cash Flow: €26 million

- Debt Reduction: $10 million

• Fiscal Year 2026 Guidance:

- Revenue: $950 million (midpoint)

- Adjusted EBITDA: $70 million to $80 million

• Improvements:

- Gross margin reduction by 100 basis points

- SG&A reduction of $9 million

- $12 million from the 201 recovery

- Accounts receivable reduction of $22 million

- Premium freight reduction of $11 million

- Headcount reduction of over 550 people

Operational Updates

• Improved launch execution in Mexico and Egypt, managing over 50 program launches in fiscal years 2025 and 2026.
• New leadership team installed, applying a global approach to purchasing, engineering, and operations.
• Consolidating global footprint, including relocating headquarters from Chicago.
• Ongoing portfolio review aimed at driving efficiency.

Future Outlook

• Growth Engines:

- Focus on power distribution capabilities in data centers, military, and EV sectors.

- Capitalizing on EV megatrends, especially in China and Europe.

- Reinvigorating the lighting segment for industrial applications.

• Capital Allocation:

- Prioritizing data center growth and lighting activities.

• EV Strategy:

- Adjusting to North American EV market changes, exploring opportunities in China and Europe.

• Financial Goals:

- Improving return on invested capital (ROIC) and total shareholder return (TSR).

- Aiming for 10-12 inventory turns in all facilities.

Q&A Highlights

• Tariffs:

- Minimal direct impact due to USMCA compliance.

- Using tariffs as a growth driver for the data center business in Mexico.

• EV Outlook:

- North American EV program delays impacting revenue.

- Focusing on EV opportunities in China and Europe.

- EV content per vehicle is approximately twice that of internal combustion engine vehicles.

• Data Center Business:

- Expecting stable growth in fiscal year 2026.

- Exploring EV battery technology for data centers.

• Portfolio Review:

- Aiming to refine focus and drive efficiency.

- Considering deleveraging through potential transactions.

• Financial Strategy:

- Emphasizing capital efficiency and cash generation.

- Targeting a leverage range of 1.5 to 2.0x.

Readers are invited to refer to the full transcript for more detailed insights into Methode Electronics’ strategic plans and financial outlook.

Full transcript - J.P. Morgan Auto Conference 2025:

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Once again, I’m Ryan Brinkman at JPMorgan and The U. S. Automotive Equity Research Analyst here. Thanks for joining us for the next presentation. We have John DeGaener, Methode Electronics, relatively new President and Chief Executive Officer and Rob Jerry, their Vice President of Investor Relations.

I’m going to turn it over to John for some remarks, and then we’ll engage in a fireside chat. Thank you. Great.

John DeGaener, President and Chief Executive Officer, Methode Electronics: Thanks, Ryan, and good afternoon, and thank you all for joining us today. It’s a pleasure to be here. I’d like to start by taking just a minute and talk a little bit about some messages that are fresh from our most recent earnings call. And I think it’s important to note that while Methode is an 80 year old company, as a leadership team, it’s a relatively new leadership team. And what we’ve been focused on for the last twelve months is what we would refer to as earning the right, Earning the right with our shareholders and really driving performance back into the organization.

Earning the right with our customers. Twelve months ago, we walked into quite a few challenges with regard to customers. And then earning the right with 6,500 employees that worked for Methode and really helping to build what that next chapter of the Methode story is. While there’s been a lot of challenges and a lot of transformation, we did have a very good quarter in Q4 with regard to €26,000,000 worth of free cash flow, which is highest level since 2023. We had a record for both the quarter and the year in our data center business, and we expect that to be at least stable or look forward to growth on that.

EVs were certainly a challenge, particularly North American programs created a headwind for us, a significant headwind, and we see that continuing into 2026, going back into growth in 2027. And what I would say is that the transformation progress that we’ve laid out over the last four quarters is the priorities are unchanged, but the time line is taking a little bit longer, both with regard to market conditions, some of the challenges from a tariff perspective. But the bottom line on this is, as we laid out guidance in the earnings call, on lower top line sales, we’re looking at doubling of EBITDA, both from a numeric standpoint as well as from a percentage perspective and starting back to really much more respectable performance levels. For those of you that don’t know Methode, Methode is an 80 year old global supplier of custom engineered solutions. We are we split across a whole series of end markets.

Automotive is about 50% of our business. Industrial is another 45%. And then our Interface business, 5%, primarily North America and Europe, with 45% in North America, 40% in Europe and 15 in Asia. And then those product lines, as I said, user interface, lighting, power sensors and others. And we’ll talk a little bit more about that in a few minutes.

The footprint is spread around the world and gives us the ability to deliver regional low cost. And while that has really been brought to if you will, brought to the forefront during the tariff conversations and while the tariff challenges have certainly created turbulence in the marketplace, it’s created an opportunity for us to move some manufacturing around the world and deliver some solutions to customers that maybe we hadn’t thought about before and maybe they hadn’t seen us do before. And it’s allowing us, as we say, earn the right with our customers to bring them solutions and help to win going forward. The product mix, user interface, so that’s everything from switches and controls in your vehicle overhead consoles, but also includes the industrial remote controls and other switch panels for industrial and commercial vehicles. Lighting, both front and rear lighting as well as other industrial lighting.

Then our power distribution business, power distribution is both in the data center as well as in

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: military

John DeGaener, President and Chief Executive Officer, Methode Electronics: automotive. That’s a business that’s grown fairly significantly, 13% in fiscal twenty twenty three to 2524% in fiscal twenty twenty five, and we expect that to continue to grow. And that growth is in spite of what we said with regard to the EV headwinds. What we see then with regard to that business is an opportunity to really bring between the busbars, high current connectors and battery disconnect units to bring technologies together to provide solutions in those end markets in a much more aggressive way. As we think about the engines of growth for Methode going forward, it’s really using that power distribution capability, blending what we’re doing both for EVs and in other and our military applications into the data centers, driving supporting the megatrend of vehicle electrification and the need for power in the data centers and bringing them solutions.

And then also on the lighting side. So where you would see us moving portfolio, with regard to the investment in engineering and where we see the growth driving is coming from those two segments primarily. As I said, I’ve been here about a year. And the transformation that we’ve been leading over this last year started with a really starting point of got to stabilize the base. And that’s both with regard to improving our launch execution.

Twelve months ago, we had customers very, very frustrated with us in multiple locations around the world with regard to our launch execution on new programs. And we’ve talked about in our earnings calls about 50 plus programs that we’re launching in fiscal twenty twenty five and fiscal twenty twenty six. Well, if you don’t launch them well, you don’t get a chance to do that the next time. So dry launch execution, in particular, improve our plants in Mexico and in Egypt, our two of our largest sites and rebuild an executive team that through retirements and through other changes had been fairly well decimated. And that was the starting point twelve months ago.

Then you move into and what you’ll see is these arrows continue. They don’t necessarily stop. You stabilize the basin, then you build upon it. Installing the new team really comes down to as you get the executives in, you start working on diagnosing the operations and the supply chain and how do we drive more efficiencies, applying a global approach. Methode had been run historically much more regionally.

And what you end up then is with three approaches from a purchasing standpoint, three approaches from an engineering standpoint, three approaches from an operational perspective. And that doesn’t get you the sort of efficiencies that you would expect in our company. And then as new leaders come in, they actually reset the expectations and allows us to rebuild the next levels down from an organizational standpoint. So that has accelerated as new leaders have come into the organization. I’m really pleased with the progress that we’ve made there.

And then that leads us to as we add capability, then being able to remediate some of the practices focusing on working capital, both getting inventories down, improving our AR collection and really just driving efficiencies in our operations as well as in our commercial activities. The other thing that we’ve done is to accelerate our launch capability and our product development capability is truly created global engineering and program management and supply chain organizations under new leaders brought in from the outside to set the stage for how do we develop and launch products in a much better way. And where we’re at right now, while we’re continuing to work on all three of those sets of actions, is now starting to look at how do we leverage our capabilities to drive growth, utilizing the core competencies, and that’s why we talk about focusing on the power capabilities, both from a data center standpoint, expanding what we’re doing with data centers and military and other places, capitalizing on EV megatrend. And while EV megatrend in North America is a significant challenge, our opportunities and the programs that we’re launching both in China and in Europe set the stage for a more balanced EV portfolio.

And we do believe that EVs are a much more important part of the future, and we need to be there. We’re consolidating our footprint. That includes closing warehouses and closing facilities across the world, but also actually consolidating our headquarters and making a move out of Chicago as an opportunity to reduce costs. And then we talked a bit about reviewing our portfolio. No news to be made there today, but we’re really looking at how do we drive efficiency with regard to the portfolio going forward.

As you think about how that transformation is working, we’ve improved on the fundamental metrics. We’ve dropped gross margin by 100 basis points, reduced SG and A by $9,000,000 We’ve gotten $12,000,000 with the two zero one recovery and then a lot of execution activities, reduced AR by $22,000,000 premium freight by 11,000,000 and reduced headcount by over five fifty people. That then sets the stage as we add capabilities with an entirely new leadership leadership teams in our Egyptian facility and in our Mexican facility and a new supply chain organization sets the stage with base performance and capabilities. Now you can start driving rigor and discipline in the plants, in the launches, in procurement, and the flywheel of change really starts to go. That then leads us to how do we shift our culture.

And again, Methode is 80 years old. One Methode is not a new phrase since I joined. It is something that had atrophied over the last few years, and we’re trying to bring that back and bring back the that creativity, that one organization focused around the world to bring our customer solutions energy that existed in the company for decades. And one thing that we have to do and that we’re doing with some of the changes in people is driving a lot more numeracy and cost consciousness in all functions instilling urgency. And that then gets us to how do we drive execution and new strategies.

So what does that mean from a financial standpoint? In fiscal twenty twenty five, and we’re on a May 1, April 30 fiscal year, we had sales in fiscal twenty twenty five of $1,050,000,000 and adjusted EBITDA of $43,000,000 and free cash flow of 26,000,000 We reduced our net debt and our overall debt by $10,000,000 and we were in compliance with our credit facility at the end of fiscal twenty twenty five. There’s been a lot of talk about new business awards. And even in this period of challenge, we have been awarded over $1,000,000,000 in new business awards on annual sales. All of this progress leads us to the ability, as we talked about from a guidance perspective, to lay out EBITDA guidance for fiscal twenty twenty six of 70,000,000 to $80,000,000 on a reduction of midpoint from $1,000,000,000 to $950,000,000 in revenue.

So you’re talking about $100,000,000 in reduction in revenue and a doubling of EBITDA. So the efforts are paying dividends, and they’re showing up in how we’re guiding going forward. So as I would say, what we’re doing to earn the right is focus on the improvement priorities that we talked about, continue to drive the foundational actions. Again, we’ve got a whole series. We’ve got 25 plus launches yet to do in this fiscal year, so we need to do that well.

We’ve got to drive our operational execution and accelerate the lower level team rebuilding, continue to right size the plant in the footprint. And that includes addressing our business structure. We reduced our board from 10 to seven, and we announced that. As I said, we’re relocating our headquarters. We did adjust our dividend, but we’re looking at all of the ways that we can put the shareholders’ capital to the best work, deliver the best performance for shareholders and then ultimately drive growth going forward.

And that’s where we talk about aligning the portfolio and our engineering activities with the megatrends to drive growth. So with that, I’ll turn it over to you.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Great. Thanks so much for the overview. I thought to ask first on tariffs for the industry overall and for your company in particular. How have you been managing the direct impact? Can you confirm, are your Mexican built products USMCA compliant?

And how are you thinking about the indirect impact to going forward, including the potential for demand destruction as automakers raise prices? Do you think any differently now post tariffs about normalized demand of light vehicle sales in The U. S. Or North America production?

John DeGaener, President and Chief Executive Officer, Methode Electronics: So let’s talk first about the primary impact. Our business in Mexico, two sixty five million of our annual sales are exposed to tariffs. 97% of that 95 plus percent of that is USMCA compliant. In a situation where we have things that are not USMCA compliant, we are working with all of our customers either to adjust to get to USMCA compliant or getting tariff recovery. So from a direct impact to us, it’s de minimis.

Secondly, what it’s allowed us to do is go back to customers And in some situations where we were bringing parts from different regions, we have gone to them on what do we do to utilize that global footprint and ameliorate those tariffs over time. And now that’s a much more proactive interaction with customers rather than just a here’s your new bill. The third thing I would say is in an organization that is facing as much turbulence as we have faced, we’ve used the tariffs as a, if you will, a rallying point. The leadership team meets every day to go through this where it highlights gaps in our numeracy, where it highlights gaps in our system. We are rallying behind that.

And what it’s done is it’s actually accelerated some of our improvements because it puts a spotlight on things that in a normal turnaround might take six, twelve months. Now we’re measuring it in six, twelve weeks or six, twelve days. And the other the final thing is, particularly on the data center side, on automotive, the supply chains are really well developed and the customers are mature and the competitors are mature. On the data center side, we’ve actually used it as an opportunity to utilize our Mexican footprint and support into some of the tiers for the hyperscalers who are in Mexico, and they avoid some of the shipments. And we’ve actually been able to shorten lead times and gain some share there.

So we’re using the tariff activity and the supply chain focus as a way to drive growth. On the to answer your second question with regard to the second order impacts and what we see from a market perspective, Unlike some of the other people who’ve presented today, automotive is 50% of our sales. It’s not 100%. So we use IHS. We look at the customer information.

We’re protecting for the downside, but we see offsets between some of the other markets as ways from a method specific perspective to manage it maybe a little differently than just being exposed to a SAR based rising tide lifts all boats and lowering tide lowers all boats. It’s we’re while, yes, it’s an important portion of our business, it’s not 90% of our business.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Next question is on your outlook for vehicle electrification, including in light of the recent changes to the regulatory backdrop, cancellation of the $7,500 federal consumer credit, the relaxation of enforcement on greenhouse gas and corporate average fuel economy standards. How has your outlook evolved? Can you remind us of the content per vehicle that you might have on an EV versus an ICE?

John DeGaener, President and Chief Executive Officer, Methode Electronics: So obviously, our power business is significant. And while we are split between having business in China, Europe and North America. The North American change in the direction, if you will, certainly had a big impact on us on fiscal twenty twenty five. And as part of the reason why you see a revenue step down from fiscal twenty twenty five to fiscal twenty twenty six is EV program delays or cancellations in North America. We talked about particularly the challenges that we have with Stellantis, but there are some other programs.

So what we see is globally, EV penetration will continue. It’s been talked about multiple times today about the speed at which China is moving, particularly with the China locals. Europe is moving more slowly, but it’s definitely way ahead of The U. S, and we are launching programs with multiple leading customers in both regions. And in North America, we’re adjusting our business.

We’re going back to customers where there’s cancellations or there’s volume changes. And then we’re actually looking at how do we use our capital for some of the other end markets like the data center activity to be able to utilize capital we put on the plant floor for EV programs in North America. We talked earlier about the Section two thirty two automotive sectoral tariffs that have been

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: in place for a number of months, I agree that’s been rolling out smoothly between the OEMs and the suppliers. What about the more recent copper tariffs? What impact does that have on you, including in a lot of the like busbars, is there a lot of copper in there?

John DeGaener, President and Chief Executive Officer, Methode Electronics: So while there’s a lot of copper in there, based on all of our analysis, that’s one of the excluded product lines from the copper tariffs activity. So as we’ve looked at it, like I said, as a leadership team, we’re together we have people that are going through the federal register every day and evaluating the impact that we have on our product lines, and busbars are one of the areas that are excluded. So at this point, we don’t see any specific headwinds that are driven by the copper tariffs, but we’re evaluating it and adjusting every day.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Did you ask on our EV content? Yes.

Rob Jerry, Vice President of Investor Relations, Methode Electronics: Thank you. For BEVs, our content opportunity is about 2x of ICE. And for hybrids, it’s little less than that. So yes, we get about twice the opportunity on an EV.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Great. And maybe just digging on the data center comments. It seems very interesting. It’s in the news a lot, driven by AI and crypto mining and whatnot. What who are the customers here?

What are the I mean, who are you supplying to? Is it Amazon Web Services? What are the drivers of the growth in data center? Are there different types of data center end markets? What are you levered to?

I saw the other day there was an article that GM’s Lordstown, Ohio auto plant could be turned into a data center. So it seems like a perfect reason to love this part of your business more than the other, I don’t know.

John DeGaener, President and Chief Executive Officer, Methode Electronics: So we’ve been in the bus bar business for thirty five years. Forty. And that started with military applications. We have been a while a direct supplier to the hyperscalers, usually as a second supplier. What we have been working with over the last particularly the last six months is to get closer to them doing vendor managed inventory and some other things, which has facilitated our ability to grow that business from $35,000,000 in fiscal twenty twenty four to $80,000,000 in fiscal twenty twenty five.

And as we said in our guidance, we expect fiscal twenty twenty six to be at least at that level. And that’s just on the base bus bars and interconnect products that we’re providing into hyperscalers. What we are also working on is using some of the EV battery technology that we’ve worked on with, again, talking to the hyperscalers on what do we do to bring additional value there as opposed to just primarily copper. It’s too early. We don’t have anything to say that here’s a product and where we’re going, but there are advanced talks and advanced work going on, how do we use our core competencies in a little different way.

And that’s a different approach than existed within Methode twelve months ago.

Rob Jerry, Vice President of Investor Relations, Methode Electronics: And to add on to the pedigree we have in Power Distribution, in addition to Mirror Aero, Military Aero, we were also on IBM mainframes going back thirty, forty years. So this is not new territory for us.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Interesting. Thank you. And given the roughly fifty-fifty split in your sales now, automotive and nonautomotive, how do you see that trending going forward? I mean, guess last year, was the automotive business down while the data centers was up. But and are you allocating capital to one division more than the other?

John DeGaener, President and Chief Executive Officer, Methode Electronics: The way in which we think about it is really a return on effort. So that’s not just return on capital, but also return on engineering. And we the company made some very significant investments over the last couple of years with regard to putting manufacturing investments in place and manufacturing capacity in place for EVs. We are now we’ve scaled some of that back. We’re adjusting it.

We’re looking at other uses for it. So yes, we are prioritizing the data center growth. We’re reinvigorating our lighting activity, which really supports the most of the industrial activities. Almost all of that is nonautomotive. And but at the same time, we have 25 launches that we’re doing this calendar year that are all primarily EV based programs around the world, be they in Europe or in China and a couple here in North America.

So we’ve got to continue on the trend that we’re on. We’ve got to support the customers while at the same time looking at where is the greatest return on capital for the business and the greatest return on the engineering for the business, thus the greatest return for our shareholders. And you

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: don’t have too many manufacturing facilities, just the one in North America, for example. I imagine that your manufacturing is split by geography with multiple products in the same plant, it’s not split by product grouping. Are the products relatively similar? Can the capacity be easily shared between the different end markets such that there wouldn’t really be any benefit to separating them and there’d be cost dis synergies? Or what do you think?

John DeGaener, President and Chief Executive Officer, Methode Electronics: So a lot of that depends on the specific product line. With regard to the power, you’re exactly right. All three regions, there exists the capability to do those things. With regard to lighting, there’s some of the manufacturing processes exist in all three regions, portions of it do not. So what we have been looking at is in a make versus buy analysis on, again, how do we get to global low or regional low cost, support our customers in region for region more than was done in the past.

With Power, there are synergies between the EV side and the data center side that we want to build upon and utilize our core competencies there. And then really simplifying some of the other product portfolio activities so that we’re going deeper from a manufacturing core competency perspective as well.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: You mentioned portfolio review, and there’s nothing to announce. But can you talk about what you’re trying to accomplish? And also what the potential timing might be? So our goal would be, one, to

John DeGaener, President and Chief Executive Officer, Methode Electronics: refine the focus of the organization. If you look at the product portfolio slide that we showed, for a business that’s $1,000,000,000 there’s a lot of things on that slide. Secondly, be which if you do that, allows you to focus from a commercial standpoint, from an engineering standpoint, it drives efficiency. Secondly, we will look at any transaction as an opportunity to clean up to continue to strengthen the balance sheet. And that gives us the ability to then put resources to bear where the greatest sources of growth are.

I look at our opportunity to create value for the shareholders is where are the places that I can put shareholders’ capital. And I view engineering as another place where we use shareholder capital to drive the highest margin, greatest growth businesses where we have the right core competencies and to adjust away from the others.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Would it be a way to delever the business?

John DeGaener, President and Chief Executive Officer, Methode Electronics: Sure. Yes, absolutely. I think I mentioned that. Clean up the balance sheet and delever the business. We would like to we’ve got the covenants where we’d like them to be.

We have the bank agreements, but we certainly would love to delever the business from where we’re

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Which part of the business gave rise to the inventory charge in the fourth fiscal quarter? What did that relate to? And same quarter, you had a strong free cash flow. How are you thinking about earnings versus cash going forward? So as I

John DeGaener, President and Chief Executive Officer, Methode Electronics: said, we generated $26,000,000 in cash in the last quarter. That the majority of those write offs were in North America, in our Mexican facilities. The majority of those were due to historic issues from past consolidations and some past business changes that led to excess and obsolete that we needed to clean up. We had a few charges in our European businesses and actually nothing in China. That business is very well run and executes at a very high level.

So it’s primarily those problems we’re in are Mexican facilities, and we’re working to improve that. As we think about then our goals for this fiscal year are to continue to drive that capital efficiency. We put as we roll out our LTIP plan for the a new LTIP plan for the next three years, return on invested capital and TSR are the two measures. And getting the entire organization thinking about how do we do a better job of utilizing capital when and get to ten, twelve inventory turns in all of our facilities as opposed to a couple of inventory turns in one and fifteen in another.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Maybe we can talk about the bridge to 26 earnings. It looks ambitious. You’re looking to double EBITDA to $100,000,000 despite $100,000,000 of lower sales. I don’t know, it might not be quite as ambitious as

Rob Jerry, Vice President of Investor Relations, Methode Electronics: it looks because you got

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: the non repeat of the inventory charge, right? But still and then you got the sort of annualizing or anniversarying the efficiency gains that you’ve already accomplished. But at the same time, it does look like you’re going to need to generate more efficiency gains next year. Talk about maybe where those are coming from.

John DeGaener, President and Chief Executive Officer, Methode Electronics: So just to make sure that we’re clear, it’s to $75,000,000 to $80,000,000 midpoint of $75,000,000 worth of EBITDA. So doubling EBITDA on $100,000,000 less in sales. You have, as you said, a whole series of one off things that provided a headwind in the $43,000,000 But we also then you get an annualizing of improvement in scrap rates and an annualizing improvement of the reduction in headcount and the consolidation of facilities, the reduction of premium freight, the reduction of scrap, plus then the annualizing of the 30 launches that we did in fiscal twenty twenty five, so you get that revenue impact. The we’ve talked fairly extensively about the headwinds that Methode faced with the roll off of a couple of large programs, and we run out of those, if you will, those headwinds in fiscal twenty twenty six. So there’s a lot of revenue down, new revenue up full year of program launches and where you don’t have one off sort of launch costs in fiscal twenty twenty six or in 2025.

So it is execution based improvements as well as some of the structural costs that take a couple of million dollars out from a run rate standpoint as well.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: And have you guided to the cash conversion on that 80,000,000 And do we look at the strong cash flow in 4Q? Was it the strongest in years? Is that a jumping off point into next year? Or is it there were some working capital that might unwind the next quarter?

John DeGaener, President and Chief Executive Officer, Methode Electronics: So we did not guide to a cash flow. Positive. Just positive. But we do see that there are significant still cash generation opportunities, continued improvement in our AR management, continued improvement particularly in North America in our inventory levels, where we’re looking at double digit million reductions on a year over year basis even from the level that we’re at. So to drive financial improvement while at the same time reducing and much less CapEx in fiscal twenty twenty six.

So we feel very confident about the foundation stones that are in place to be able to be setting the stage for growth and being much more capital efficient and cash efficient in 2026 and beyond.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Okay. And you recently renegotiated your credit agreement. You’re talking about being free cash positive next year. There’s optionality around delevering from dispositions. How would you rate your comfort with the balance sheet at this point?

And what is the targeted leverage range over time?

John DeGaener, President and Chief Executive Officer, Methode Electronics: So for me, I’m comfortable with where we’re at right now. As we start thinking about at this debt level, so we’re $214,000,000 worth of net debt today. If we look at how we’ve guided, we talked about under around three, I would certainly like to be at 1.5 to two. It’s a much safer much, much safer level. Goal would be around one.

That’s going to take us time. It’s going to take an exogenous activity, asset sales or some other thing to get that in the near term. But in order to be able to continue and invest throughout the cycles to continue to drive the growth that we have and to do targeted M and A, that’s why we’re looking at portfolio moves as well as continuing to wring cash out of this business to be able drive growth and get this business back moving the way it was between 2018 and 2022.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Sometimes the auto parts suppliers we cover that would like to do more nonautomotive revenue, typically, it’s a relatively noninvestment grade industry, average leverage net debt closer to 1.75x, 2x. And the suppliers tell us, well, we want to delever toward investment grade metrics, 1.5 or lower, so that we can better effectively compete with technology companies that are trying to sell techie products into the auto industry or into other industries. And I mean, already, you found a lot of success in nonautomotive with the leverage ratio you have. But does the competing against nonautomotive companies cause you to need or want to have lower leverage?

John DeGaener, President and Chief Executive Officer, Methode Electronics: I don’t look at competing against the other companies. Our cost our current leverage and our cost of debt isn’t the reason if we’re competitive or noncompetitive. There’s too many other performance improvements that we have. I just look at it as an opportunity for us to be much more balanced between organic growth and inorganic growth and utilizing we don’t have the sort of flexibility that I would like us to have with the balance sheet as it sits today.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Are there any questions for Methode in the audience? There is one up front, please. I’m coming. Yes. We need that.

We can hear you, but folks on the webcast cannot. That’s the issue. Thank you.

Unidentified speaker: So you mentioned something you’re kind of getting your financial house in order and getting yourself a little more nimble and strong. At some point to, I guess, truly inflect the trajectory of the stock, you’re going to have to really focus on growth. I think you said that was probably that next stage in the earning what was it? Earning the right. Yes.

So does that are you going to have to then put your eyes towards your commercialization capabilities as the next place you need to beef up or do some things to improve?

John DeGaener, President and Chief Executive Officer, Methode Electronics: Yes. So what I thanks for the question. What I would say to you is our execution got in the way of some of our commercialization opportunities. And it impacted us with many customers, not just in the automotive side, but on the commercial vehicle side and other places where a year ago, we were on new business hold. So fixing the execution actually helps us from a commercialization standpoint.

And if you look at some of the things that we’ve announced in the last twelve months, we’ve talked about winning now winning customer of the year awards with some of these customers like PACCAR. What we are saying is, and it’s on this slide, is focused on things that are aligned with the megatrends and going much more proactively to customers and bringing solutions. So that’s true with data centers and providing them a solution on VMI. Going to multiple end customers and utilizing our footprint in ways that the tariffs were hurting them that we can help them through that. And that’s not an approach that the organization was as adept at prior to this leadership team.

So it’s not necessarily a change in we don’t need new commercial teams. We don’t need new commercialization activities as much as utilize the relationships that we’ve had over years and decades, delivering at a higher level and doing a better job of anticipating needs in those spaces and going to the customers with those.

Ryan Brinkman, U. S. Automotive Equity Research Analyst, JPMorgan: Looks like we’re over time. So please join me in thanking John and Rob for all the great color. Thank you.

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