Methode Electronics at Small-Cap Virtual Conference: Strategic Transformation

On Thursday, 18 September 2025, Methode Electronics (NYSE:MEI) presented at the Small-Cap Virtual Conference, outlining its strategic transformation amid challenging market conditions. While the company is navigating a downturn in the electric vehicle (EV) sector, it remains optimistic, focusing on high-growth areas like data centers and power solutions. Despite a projected revenue decline, Methode reaffirmed its fiscal year 2026 EBITDA guidance, emphasizing improved operational execution and cost reductions.

Key Takeaways

• Methode Electronics plans to double its EBITDA by fiscal year 2026 despite a $100 million revenue decline.
• The company is focusing on lighting, user interface, and power solutions as core growth areas.
• Methode has reduced its debt by $41 million over the last three quarters.
• The company is adapting its EV strategy to leverage opportunities in China and Europe.
• Methode is expanding its data center offerings, focusing on higher voltage solutions.

Financial Results

Fiscal year 2025 sales were just over $1 billion, with income from operations increasing by $9 million year-over-year. Methode Electronics expects fiscal year 2026 sales to range between $900 million and $1 billion, with EBITDA projected to be between $70 million and $80 million. The company anticipates an EBITDA margin improvement from 4.1% in fiscal year 2025 to 7.9% in fiscal year 2026. Methode also reported a free cash flow of $18 million this quarter, marking the third consecutive quarter of positive free cash flow.

Operational Updates

Methode Electronics has experienced a 30% compound annual growth rate in power solutions sales over the last three years. The company is managing 52 program launches over two years, with 30 more planned for this year. Improved working capital and an uptick in RFQs and RFPs signal potential future sales growth. Methode is reviewing its portfolio for potential footprint consolidation, including closing its headquarters and optimizing engineering centers. The company is mitigating tariff impacts by passing costs to customers and leveraging its global footprint to shift production between regions.

Future Outlook

Methode Electronics is concentrating on lighting, user interface, and power solutions as core growth areas. In the data center market, the company is expanding its offerings to meet the evolving needs of hyperscalers, focusing on higher voltage solutions. Methode is leveraging its capabilities in China and Europe to win EV business while addressing challenges in North America. The company's capital allocation strategy prioritizes investing in the business and paying down debt, with a target to reduce its leverage ratio to the threes.

Q&A Highlights

During the Q&A session, Methode Electronics discussed stabilizing its plants to ensure timely, high-quality product launches. The company has agreements with customers to recover tariff expenses and is adapting to changing EV market trends by focusing on core technologies. Methode is also reviewing its portfolio to concentrate on core growth areas and reduce investment in non-core areas. The company is expanding its data center offerings to meet hyperscalers' evolving needs and improving operational execution through cost reductions and efficiency gains.

For a more detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Small-Cap Virtual Conference:

John Franzreb, Analyst, Sidoti and Company: Good afternoon, everyone. My name is John Franzreb. I'm an analyst here at Sidoti and Company. Our next presentation for the day is Methode Electronics, ticker MEI. For those who not familiar with the name, Methode is the manufacturer of components and systems to the automotive and industrial marketplace.

We are fortunate to have with us today CEO, John DeGainer CFO, Laura Kolchik treasurer, Randy Wilson and vice president, investor relations, Rob Cherry. Following the presentation, there'll be time for q and a. Please utilize the q and a icon at the bottom of the page to submit questions, and I'll present them to management. With that said, thank you everybody for being here. The floor is yours.

John DeGainer, CEO, Methode Electronics: Good afternoon, and thank you for joining us today. I'd like to thank John and the Sidoti team for the invitation to present at their small cap conference. As we before we get started, I just wanna remind you that this some of my statements today are subject to safe harbor protection. For a complete summary of our disclosures, please see Methode's filings with the Securities and Exchange commitment commissions such as our 10 k and 10 q reports. To start, I'd like to take a minute and share the key messages from our recent earnings call.

They're relatively fresh and the messages that that I think are important for you to take away from the presentation today. I'm proud to share that Methode has continued on its transformation journey, and it's firmly on track. There's still much more to do, but the trajectory is according to plan. We had another good quarter for data center power product sales with growth over the prior year. And our income from operations was up $9,000,000 from the prior year.

This was a result of a reduction in SG and A costs and the operational improvements that we have been sharing with you. This is clear evidence of Methode starting to earn the right, as we like to say. Another example of improvement was three straight quarters of strong free cash flow and net debt reduction. Our management team is focused on maintaining a key and keen focus on both the income statement and the balance sheet. As we look to the remainder of fiscal twenty twenty six, we are confident in reaffirming our guidance.

Despite all the various headwinds that we are facing, the company still expects to double its EBITDA for the full year even with a $100,000,000 decline in sales driven by lower EV demand. The ability to reaffirm this profit growth is a direct result of the significant and tireless efforts of the Methode team. They've put a lot of hard work into our transformation, and the progress is tangible. We turn to a brief overview of the company. Let me spend just a minute on Methode.

Methode is a leading global supplier of custom engineered solutions for applications in transportation, construction equipment, cloud computing and automotive applications. Our fiscal twenty twenty five sales were just over $1,000,000,000 with the majority of our business in North America and Europe. We operate the business via our three segments of automotive, industrial and interface. And from a solutions perspective, we view the business through the applications of user interface, lighting, power, and sensors. Together, we are widely recognized as a global tech tier one technology supplier to the OEMs.

If we go to the next slide, we've invested in a global footprint with vertically integrated manufacturing locations in North America, Europe, The Middle East and Asia. This cost efficient footprint is strategically located in proximity to key customers in keeping with our make where we sell strategy. It has also allowed us to make moves in support of our customers and act nimbly when there are changes in customer demand or exogenous events like The U. S. Tariff situation.

Our ability to shift production between regions gives us the ability to gain share versus more regionally entrenched competitors. So we turn to Slide seven. I want to spend a little more time on our Power Solutions enterprise. Power products are in Methode's DNA. Our experience goes back many years to the time when we supplied bus bars and connectors on the Apollo LunarLanders and on the original IBM mainframe computers.

Now those years of experience and expertise are being leveraged on today's power distribution needs in electric vehicles, data centers, and military and aerospace applications. As you can see from the chart on this slide, the these applications have helped us drive our power solution sales to a healthy 30% compound annual growth rate over the last three years. Going forward, we see even more opportunities for sales growth. For data centers, the need for higher voltage bus bars is driving further product innovation. In EVs, we're starting to supply interconnect boards for a more efficient power architecture.

Lastly, for military and aerospace applications, we are supplying advanced products to meet the growing needs of defense equipment manufacturers. In all these cases, we are bringing our one Methode mindset to bear and drawing on our global creativity to drive innovation by listening to customer needs and bringing them solutions like cutting edge high volt voltage power products. Our power history and DNA are providing Methode with competitive differentiation in the marketplace. In regard to our forecast for fiscal twenty twenty six power sales, given our guidance for flat data centers and a decline in EV, our sales will moderate this year before reaccelerating in fiscal 'twenty seven. Power solutions are clearly a long term growth engine for Methode, and we are actively investing in this area.

If we turn to slide eight, I wanna give you an update on where Methode is on its transformation journey. As I've said before, transformations are never easy, and I make a distinction between a transformation and a turnaround. Quite simply, a transformation is about fitting a business in a way that enables it to both evolve and position it for future growth. The Methode journey is undoubtedly a transformation. But like any journey, the path is not always linear.

Our first order of business was stabilizing stabilizing the base, which included significant organizational changes that that we have made in the previous quarters. It meant focusing on executing program launches while simultaneously revamping plants and installing new leaders in many of those plants, all in the face of numerous external distractions. We've worked hard to remediate practices that had atrophied or institute practices where they did not exist. We now have better visibility in the business and are driving more global collaboration and efficiency, especially around engineering, product management and supply chain. The work is showing in many areas, but is exemplified in our improved working capital.

We're now better positioned to leverage synergies and utilize core competencies to align with the market megatrends like data centers and EVs. Our improvements are creating opportunities in other areas as well. We have seen a notable uptick in RFQs and RFPs, which is being driven by our ability to leverage our global footprint and respond to market changes. As a result, we are seeing potential future sales growth upside from takeover business. This takeover business is both in auto and non auto markets, and it will likely result in even more customer diversity from Methode.

While the financial results are not yet where we want them, our team has accomplished much since the beginning of our transformation journey, and a foundation has been laid for us to drive consistent and improved execution. Let's turn to Slide nine. So how do we continue to earn the right from here? First, we continue on our foundational actions to successfully launch programs, drive improved operational execution and accelerate lower level team building, all of which will be enabled by our new global engineering and product management organization. Second, we keep refining the organization to harmonize it to market opportunities.

That includes the rightsizing of plants and headcount that also includes footprint consolidations. Finally, we take actions to address our structure and capital discipline while like reducing our board size from 10 to seven, relocating our headquarters to an already owned Methode facility, reducing our dividend and reviewing our portfolio. All of these actions support Methode's core business in data centers, EV and lighting, which provide an attractive foundation for value creation in fiscal twenty six and beyond. While the transformation is certainly about improving execution and reducing cost, it is also about driving innovation. What drives competitive advantage at the end of the day is the ability for an organization to redeploy the knowledge, resources, and capital gains from its everyday business into new products and markets.

Methode is systematically taking this proactive approach, whether it is digging deeper into the power needs of our data center customers or optimizing our footprint and portfolio for what customers and the business will need in the future. We're working hard to refine our business model. So we turn to Slide 10. Everything I've shared with you today gave us the confidence to reaffirm guidance for fiscal twenty twenty six, which is a notable doubling of our EBITDA from fiscal twenty twenty five. For fiscal twenty twenty six, we expect sales to be in the range of 900,000,000 to $1,000,000,000 Please note that fiscal 'twenty five was a fifty three week fiscal year, and fiscal 'twenty six will be a typical fifty two week fiscal year.

So we will have one less week in fiscal 'twenty six as compared to the prior year. We expect EBITDA to be in the range of 70,000,000 to $80,000,000 as you can see from the charts on the right side of the right of the slide. We expect fiscal 'twenty six to be higher from both fiscal 'twenty four and 'twenty five despite significant reduction in sales over that same period of time. Specifically, in fiscal twenty twenty six, we will not see any downward margin conversion from the $100,000,000 in lower sales. We'll actually see almost a doubling of EBITDA margin from 4.1% to 7.9%.

We are driving improved operational execution this past year that was often masked by various external and historical challenges. The result now is a solid foundation for the Methode team to build on in the future. In summary, we've embarked on a transformation, built a strong team, stabilized the and stabilized the organization. Overall, we truly feel that we have put many of the issues of the past year behind us while still maintaining a strict focus on business performance. John, we can now move to the q and a portion of the program.

John Franzreb, Analyst, Sidoti and Company: Thank you, John. If you have a question, please enter in the q and a box, and I'll present it to management. I'd like to kick it off, John, with that you came aboard during a period of significant launch activity for the firm. Can you talk a little bit about that, and how has it proceeded relative to your expectations going in?

John DeGainer, CEO, Methode Electronics: So yeah. The we're in the still in the middle of that period of launches, 52 total launches, over over the two years, both last year and this year. We got 30 more this year. And what we really had to do is step back and look at where are the capabilities within the organization and how do we make sure that we stabilize appropriately to when we talk about earning the right let me let me back up just a second. Methode's an 80 year old company with many phases in its history.

And as we've talked to the organization, earning what we talk about is earning the right is earning the right to write the next chapter of the Methode story. And the way we do that is we earn the right with our shareholders. We're we earn the right with our customers, and we earn the right with our employees. Earning the right within our customers means that we launch products on time at the right at the right quality and at the right capability, and we weren't doing that a year ago. So that was one of the first things we had to do was get our get our launches right and get our plants stabilized in order to to protect our customers.

And the team has done a fantastic job both in Egypt, Malta, and in Mexico to get those launches stabilized and get our customers moving from being upset with us to being happy and, in some situations, giving us supplier awards.

John Franzreb, Analyst, Sidoti and Company: Not surprising. This this question's coming in as an automotive supplier about the tariff environment. Can you kind of give us maybe your overview of how tariffs are impacting you, and what are you doing to mitigate some of those costs?

John DeGainer, CEO, Methode Electronics: So first, as we've as we've said in many of the earnings calls, we have we have committed to pass on any tariff headwinds that we face. We did have $1,000,000 worth of tariff headwind in Q1, but that's more of a timing thing. We have agreements with our customers to recover tariff expenses. Many of our products are not hit by tariffs, and our footprint allows us to move some end manufacturing around. Our Mexican facility is is over 97% USMCA compliant, it allows us to avoid any tariff issues between Mexico and The US.

And what we're actually doing is that our footprint allows us to actually do some things with our customers and win some business with customers or have opportunities with customers that some of our competitors where their footprint isn't quite as capable or isn't quite as flexible can't do it. So we are not seeing a tremendous amount of financial headwinds. It certainly forced us to make sure that we understood our data, make sure that we understood our systems, make sure that we understood where all of our materials were coming from. But now that we have those things cleaned up, it allows us to, in many ways, delight our customers.

John Franzreb, Analyst, Sidoti and Company: Understood. Can you maybe discuss a little bit about the the changing EV environment? There was once a time when the expectations were rather significant about content and the, changing, EV, outlook has kind of, I don't know, thrown cold water on maybe some of those ex expectations. Now how has that impacted, you know, your planning and outlook for the automotive side?

John DeGainer, CEO, Methode Electronics: So I think it's important to break down, the EV trends by end market, and we've spent quite a bit of time on that on past earnings calls separating out what's happening in the Asia Pacific region, what's happening in Europe and what's happening in North America. Certainly, North American EV penetration has thrown cold water, and it's thrown cold water on a lot of suppliers. And for those of you that follow the industry, you saw announcements over the weekend of Stellantis canceling their EV truck program as an example. That has impacted us from a revenue perspective in in the near term. And it and it's it's one of the reasons why the delays in North America delays or cancellations in North American programs by Stellantis and other OEMs is is the reason why we go down by a $100,000,000 year over year.

So we still believe in the core technologies, and we believe that there are that there are core competencies both from a manufacturing and from a product design perspective that we can apply on EVs around the world as well as from our data center and our military power solutions activity. So the core the core technologies we believe in, we think EVs ultimately will have a place in all of the end markets even if the North American market is gonna take much longer to adopt. But we're using our capabilities in China to win business with the China customers, and it actually helps us with our, if you will, our China speed product development. We're growing with OEMs in Europe from an EV program standpoint, and we're, we're dealing with the challenges in the North American space.

John Franzreb, Analyst, Sidoti and Company: Got it. You mentioned that, you know, you're you're in the process of of reviewing the portfolio and and looking at potential footprint consolidation. Can you kind of discuss, what are you thinking about as far as both those points in in fiscal twenty twenty six? You know, how what to what magnitude are we talking about here?

John DeGainer, CEO, Methode Electronics: Well so I I think it's I think it's important to understand that method for a billion dollar company, if you look at it from the outside or if you look at it from the website and just see how complex the product portfolio is and has been. What we sought to do over the last twelve to fifteen months is really understand both where we make money, where we don't, but also which which of our product our base product lines as well as our core competencies that support those product lines, how are they aligned with what we see as industry megatrends in in the multiple industries in which we play? And as we said in the prepared remarks, we see lighting, user interface, and power as really the core basis for growth going forward. What that should send send a message to everybody is that there are other pieces that are outside of those three cores that, at a minimum, we're probably not gonna make the same levels of investment in as we would in those three core areas. So that's that's the portfolio answer, John.

As you think about footprint, our footprint is, from a manufacturing perspective, is relatively relatively well positioned. But what we are doing is we're taking inventory down. And as we're making our plants more efficient, we're actually reducing our footprint from a warehouse perspective and, in some situations, from a manufacturing perspective. But we're also doing is we're looking at all of the other sources of footprint. Things like closing our headquarters, where we could use a building that we already owned and reduce our structural cost.

We've looked at all of our engineering centers and and small sales and engineering activities around the world to see where do we take cost out. So it's it's not just manufacturing footprint. It's footprint everywhere and it's cost everywhere from the board of directors on down that we're trying to evaluate and size this business appropriately to go forward.

John Franzreb, Analyst, Sidoti and Company: Makes sense. Makes sense. We touched on the EV market. One of the better end markets for you as of late has been the data center market. Maybe we can give, investors maybe an overview of where you participate in that market, maybe some of the recent growth activity, and also maybe what clients are telling you about the year ahead.

John DeGainer, CEO, Methode Electronics: So, you can't pick up a newspaper or listen to the listen to read anything on the Internet or, I'm I'm still dinosaur. I still pick up a newspaper. But the you you you can't you can't do anything without reading about data centers and particularly how the hyperscalers are making investments. Today, we provide busbars that are basically bringing the power directly to the rack for the hyperscalers. We may not supply them directly.

We may supply to their contractors that are making their that are they're producing the racks, but we we are working with the hyperscalers in that situation. Basic foundational busbars Mhmm. Common core competencies to what we have. What we're what we have been doing over the last year, however, is trying to anticipate their needs more both from a lead time perspective, and we're we're doing more to do vendor manage inventory and shorten the lead times with regard to the current technology, and that's providing an opportunity for growth. And at the same time, we're look at where they're going from a technology perspective as they try to bring higher voltages all the way to the rack and how do we use some of our EV system capabilities to bring to them solutions in ways that maybe we haven't done in the past or we haven't thought about in the past.

And thus far, while though it's very early days, we see green shoots of, hey. This is this is exciting, and our customers are excited about it. So what's in our guidance today is flat year over year. But if you look at data centers, it's it went 25,000,000 in fiscal twenty three, 41,000,000 in fiscal twenty four, 80,000,000 in fiscal twenty five. We've guided to flat data center volume in fiscal twenty six, but we believe there's uptime there.

But until we get additional demand, we have not put that in our guidance. And none of the future activities is currently in our guidance, although we do we are excited both about the opportunities to grow the base business as well as where the future is going.

John Franzreb, Analyst, Sidoti and Company: That's that's great to hear. What investors or some of the people listening today might not realize, you also participate in the class a truck market, ag market, construction market. Maybe some general thoughts of what you're seeing in in those markets for fiscal twenty twenty six.

John DeGainer, CEO, Methode Electronics: So it's particularly in North America, it's still a it's still a challenged market. The market is the commercial vehicle market is still down, both due to pure macroeconomic challenges, but also some of the unknowns with regard to emissions regulation, which either has changed the prebuy or or changed the way some of the fleets buy. And, John, you you know that I've got quite a bit of experience in previous lives dealing with the commercial vehicle guys. So I have a feeling for this. Where we're at right now is we have done a lot to refresh our relationships with our with our commercial vehicle OEMs and actually used the tariff challenges to address some of our some of how our supply chain to them, we can change it to shorten our lead times and reduce their tariff expenses.

It's allowed us to deepen our relationships with them and actually fix some relationships in ways that didn't that weren't that were damaged twelve months ago. So the yes. The volume today is a headwind. It's not that we've lost share. It's just the fact that they're selling less trucks.

The the current, ACT guidance is, I believe, '25 and into '26 is where they see it it getting stronger. So we're optimistic about that, but all we can do is take ACT information, and and that's the basis for our guidance.

John Franzreb, Analyst, Sidoti and Company: Fair enough. Fair enough. Maybe we can go ahead shift a little bit to the balance sheet. You've refinanced. You've cut the dividend.

Maybe talk a little bit about, you know, your thoughts about where you stand as far as, you know, capital allocation, maybe deleveraging. Maybe some financial bullets on the on the balance sheet would be helpful.

John DeGainer, CEO, Methode Electronics: Yeah. I'm gonna let I'm gonna let Laura handle that if you don't mind.

John Franzreb, Analyst, Sidoti and Company: Not at all.

Laura Kolchik, CFO, Methode Electronics: Yeah. So as far as our capital allocation, we always use our capital first to invest in our business, being a CapEx or engineering. We also pay down debt. So and over the last three quarters, we paid down 41,000,000 of our debt. And we had a good free cash flow quarter of 18,000,000, and this is the third consecutive quarter of free cash flow.

So there's been a lot of focus on the balance sheet, John.

John Franzreb, Analyst, Sidoti and Company: Excellent. Excellent. I'm sure people look forward to improvement there. Maybe even optimal leverage ratio in the future. Laura, what do you think?

Laura Kolchik, CFO, Methode Electronics: Yeah. I'd certainly like to get down into the threes, and, you know, we're working our way down to that.

John Franzreb, Analyst, Sidoti and Company: Okay. Fair enough. John, you mentioned you reiterated your guidance. Maybe walk people through that with a roughly a $100,000,000 lower revenue, how you're gonna nearly double your EBITDA. People not might not be aware of some of the things that the puts and takes that would take to get there.

John DeGainer, CEO, Methode Electronics: Well, so first and foremost is operational execution and tremendous improvement from an operational execution standpoint, particularly in Egypt, both reduction in premium freight, reduction of scrap costs, and reduction of labor costs, although direct labor is relatively small in Egypt. S g and a reductions of over $9,000,000. And then and then just, you know, basic basic efficiencies in in all of the areas. So, it plus a 3% improvement year over year from a materials perspective. So what we're doing from a supply chain side to get more efficient both on how we deal with our customers as well as how we do reduce freight, what we're doing to reduce our costs in each of our plants from a structural standpoint as well as from a quality perspective that will reduce scrap costs around the world and reduce our premium freight and then reducing our SG and A costs and sizing the business from the leadership team on down.

John Franzreb, Analyst, Sidoti and Company: Fair enough. Well, don't see any other questions in the q and a. If anybody has one, please enter it now. If not, I'm gonna I'm gonna leave it to you, John, for some closing arguments and what people may be missing or not understanding as far as the the Methode story at this point.

John DeGainer, CEO, Methode Electronics: Well, thanks, John. And and for all of you who have taken the time to show interest in Methode, thank you very much. This is a leadership team that is both committed to and excited about the opportunity to transform the company. As I said, it's an 80 year old company with a proud history, and we're all committed to helping write that next chapter. That that starts with execution.

That starts with understanding where we make money and where we don't and taking very strong actions to address areas where we're not performing. It also, requires that we make very clear decisions on where the future growth can be and how that's aligned with megatrends so we start anticipating needs. And as you watch us continue to perform on a quarter over quarter basis, hopefully, what you'll see is that we start tying these quarters together and the words that we're saying to you with regard to how we're gonna focus and how we're gonna prioritize your capital come through, and we work hard to earn your right. So thanks very much for your interest, and we look forward to talking to each of you. Thanks, John.

John Franzreb, Analyst, Sidoti and Company: Thank you, John, Laura, Randy, Rob. Appreciate you being here, and everybody have a great day.

John DeGainer, CEO, Methode Electronics: Thanks. Thank you.

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