Good morning, and welcome to Methode Electronics fiscal 2026 third quarter earnings conference call. Our fiscal 2026 third quarter financial results, including a press release and presentation, can be found on the Methode Investor Relations website.

I am joined today by Jon DeGaynor, President and Chief Executive Officer, and Laura Kowalchik, Chief Financial Officer. Please turn to slide two for our Safe Harbor statements.

This conference call contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance, and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws.

Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties.

We will also be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials.

The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the SEC, such as the 10-K and 10-Q. Please turn to slide three, and I will now turn the call over to Jon DeGaynor.

Thanks, Joni, and good morning. Welcome to Methode's third quarter 2026 earnings call.

I want to begin by recognizing our global team for their continued focus on serving our customers in the face of a challenging and rapidly evolving environment, while driving forward our multi-year transformation journey. Across our manufacturing sites and corporate functions, our teams have demonstrated resilience as we work through industry headwinds and advance our transformation initiatives.

Your discipline, collaboration, and commitment to continuous improvement are strengthening our foundation and positioning us for better long-term performance. Thank you.

Moving to our third quarter results. We generated $234 million in sales and $7.3 million in adjusted EBITDA.

While profitability was pressured year-over-year, we delivered positive free cash flow of $10 million in the quarter and approximately $17 million in year to in year-to-date cash flow, as we remain on track to achieve our fiscal '26 free cash flow targets. Importantly, our Industrial segment sales increased 9.5% year-over-year, reflecting continued strength in off-high off-road lighting and power distribution solutions supporting data center applications.

That performance demonstrates the benefit of our growing exposure to higher-growth industrial power markets and helps offset some of the headwinds we are seeing in North American Automotive and in commercial vehicle lighting. Generating cash while navigating a volatile revenue environment is a clear reflection of the operational discipline we're building into this organization.

Please turn to slide four. Our transformation journey continues.

As I've said before, progress will not be linear, and is not something that can be measured in a single quarter, or even a few quarters. Our transformation is a multi-year effort focused on strengthening the foundation of the company, utilizing our resources as efficiently as possible, and finding new sources of value.

Along the way, we must refine our portfolio, align our business structure, optimize our footprint, and embed operational discipline into everything we do. At the same time, there are factors outside of our near-term control—commercial vehicle market softness, EV program delays, and macro-volatil macro-volatility, particularly in North American Automotive—that will impact our improvement trajectory.

We are addressing those realities directly with our teams and with our customers, but we are not allowing them to distract us from executing our priorities. Let me briefly recap these priorities.

First, stabilize and improve our operational execution. When we started this journey, we had two facilities that were extremely challenged: Egypt and Mexico.

We continue to see positive trends in Egypt as a result of the changes we have made there. The transformation of our Mexico facility is not as far along.

We're making progress in upgrading the team and improving execution on both existing programs and new programs. However, we have not seen the productivity improvements as quickly as we initially expected, which has been exacerbated by commercial vehicle volume reductions and program delays from multiple North American customers.

These external factors were the primary driver of our EBITDA guidance revision that Laura will talk about later in the call. We've built an entirely new leadership team in Mexico, and we are self- supplementing that team with both corporate and specialist external resources.

Our new leadership team is getting fully up to speed and working hard to tackle the challenges in our two Mexico facilities, understanding root causes, driving accountability, and resetting expectations. Naturally, when you're transforming an operation, there is a clean-up involved.

You have to surface issues before you can permanently fix them. This is part of the process.

It is not comfortable, but it is necessary. We are taking focused actions to improve execution, efficiency, and cost control, and we expect performance to strengthen as those actions take hold.

Second, we are refining and simplifying the portfolio. A clear example is the completed sale of the DataMate business, which I'll talk about more in a minute.

Third, align our cost structure and footprint. We completed the move of our headquarters from Chicago and subleased that facility.

We've signed a purchase agreement on our Harwood Heights facility in Illinois, facility that formerly housed our DataMate business, we are making good progress in reducing our overall footprint. Fourth, position the company to capitalize on secular growth opportunities, particularly in power solutions.

We are actively capitalizing on the data center and vehicle electrification megatrends, reallocating resources toward the areas with the strongest long-term return potential. These are deliberate, measurable actions, and we are doing what we said we would do.

These are not concepts; they are actions. Turning to slide five.

For background, DataMate is a supplier of copper transceivers for enterprise and telecom networks. While it was a solid business, it was not aligned with our long-term power solutions strategy.

Divesting it allows us to redeploy capital and management toward higher-growth, higher-return opportunities, particularly in our Industrial power solutions business. We are concentrating our capital management—capital and management attention and engineering resources on the areas that can generate the greatest long-term returns.

The proceeds from this sale and the Harwood Heights facility sale will be used primarily to repay debt and further strengthen our balance sheet, consistent with our disciplined capital allocation approach. Turning to slide six.

Power solutions has been part of the Methode DNA for more than 60 years. We are now leveraging that deep expertise to serve today's most demanding applications across EV, industrial, and data center markets.

We're expanding our customer base, we are adding experienced industry veterans into the industrial power business, and we are rotating engineering and commercial resources toward higher-growth opportunities. This is not a short-term pivot.

It is a structural reallocation of talent and capital, and we expect this to pay dividends over time, but we are still early in this journ- journey. Let me spend a minute on data centers.

Based on Q4 order patterns, we now have line of sight toward $120 million annualized run rate. This represents a significant increase in run rate year-over-year.

Importantly, this run rate reflects current end customers through various contract manufacturers. It does not assume incremental wins from new accounts.

Our actions regarding additional commercial and engineering resources and our investment in items like vendor-managed inventory are enabling us to react much more quickly to customers. We are seeing increasing momentum as a result of these actions.

We are expanding our customer base, but our current run rate is supported solely by existing relationships. As momentum builds, the trajectory suggests a 50% increase in run rate year-over-year in the near term.

This is a meaningful growth driver for Methode, both for today and the future. Turning to slide seven.

Transformation is not linear. There will be turbulence, particularly in North American Automotive, and we are seeing that today.

We are building a stronger operational foundation underneath the business. At the same time, we are executing every day: we're shipping product, we're supporting launches, and we are managing working capital.

This dual focus of transformation while operating is critical. Transformation does not happen in isolation.

We remain encouraged by opportunities in our Industrial segment, especially into power distribution solutions supporting data center infrastructure. Those align directly with our core competencies.

While there is more work ahead, we are making measurable progress: strengthening execution, simplifying the organization, improving the balance sheet, and positioning Methode for improved performance over time. I'll now turn it over to Laura to go through the financials.

Thanks, Jon, and turning to slide eight. Third quarter net sales were $233.7 million, compared to $239.9 million in fiscal 2025, a decrease of 3%.

The year-over-year decrease in sales reflected lower sales volumes in the Automotive segment related to a reduction in North American electric vehicle volumes and the Interface segment related to a previously announced appliance program roll-off. Results were partially offset by a higher sales volumes in the Industrial segment, particularly for off-road lighting and power products, as well as positive foreign currency translation, which had a favorable impact of approximately $12 million in the quarter.

As a reminder, the third quarter is also historically our weakest quarter for sales as it covers the year-end holidays. Gross profit was $38.8 million, down from $41.3 million in the prior fiscal year quarter, primarily a result of lower sales volume and product mix in the Automotive segment and Interface segment.

Selling and administrative expenses increased by $1.4 million to $39.1 million in the quarter. Restructuring and asset impairment charges included within selling and administrative expenses were $400,000.

Income tax expense for the quarter was $2.8 million, down from $6.2 million in the prior fiscal year quarter. In the quarter, we realized a lower valuation allowance for US deferred tax assets of $2.4 million, compared to $6.5 million in the prior fiscal year quarter.

Third quarter adjusted EBITDA was $7.3 million, down $5 million from the same period last fiscal year. Third quarter adjusted net loss was $13.1 million, a $5.9 million change from the third quarter of fiscal 2025, attributable to the decrease in gross profit and increase in selling and administrative expenses, partially offset by a lower income tax expense.

Third quarter adjusted loss per diluted share was 37 cents, compared to a loss of 21 cents in the prior fiscal year third quarter. Please turn to slide nine, where I will discuss the progress made with our disciplined capital allocation strategy.

We ended the quarter with $133.7 million in cash, which was up $30.1 million compared to the end of fiscal 2025. Operating cash generation in the third quarter was $15.4 million.

Third quarter free cash flow was $10.1 million, compared to $19.6 million in the fiscal third quarter 2025. Although down year-over-year, we continue to generate robust free cash flow amidst a challenging operating environment, with a free cash flow of $16.5 million year-to-date, as we continue to operate with strong capital discipline.

Net debt was down $16.9 million compared to the same period last year. Moving forward, we remain committed to driving strong cash flow generation to further pursue our capital allocation priorities of net debt reduction, selective high-growth investments, business improvements, portfolio alignment, as well as returning value to our shareholders through dividends.

Turning to slide 10. Again, please note that fiscal 2025 was a 53-week fiscal year, and fiscal 2026 is a 52-week fiscal year.

Our guidance also does not reflect the sale of DataMate or our Harwood Heights, Illinois facility. For fiscal 2026, we have narrowed our net sales guidance, raising the low end of the range by $50 million to now be $950 million to $1 billion.

The increase primarily reflects the benefit of foreign currency translation, which totaled approximately $25 million through the first nine months of fiscal 2026. For the full year, we anticipate foreign exchange to provide an approximate $30 million benefit relative to our prior assumptions, which is largely driving the increase in our midpoint.

In addition, we have lowered our adjusted EBITDA outlook to be in the range of $58 to $62 million, compared to our prior range of $70 to $80 million. The reduction is primarily concentrated in North American Auto and reflects updated cost assumptions related to multiple customer program delays and higher expenses associated with the transformation of our Mexico facility, including wages and professional fees.

For fiscal year 2026, we continue to expect positive free cash flow in the fourth quarter and for the full year, compared to an outflow of $15 million in the previous fiscal year. With that, I will hand it back to Jon for closing remarks.

Thanks, Laura. To close, while the near-term environment remains dynamic and our improvement trajectory is not linear, we are taking deliberate actions to strengthen the company.

We are stabilizing operations, refining the portfolio, aligning our footprint and cost structure, and reallocating resources toward higher-growth power solutions opportunities. There is more work ahead, particularly in Mexico and within North American Automotive, but the foundation we are building is real.

At the same time, we are maintaining a sharp focus on cash generation and balance sheet discipline. We believe the actions we are taking today position Methode for improved performance and more consistent value creation over the long term.

With that, operator, please open the line for questions.

Good morning, everyone, and thanks for taking the questions. Good

morning, John.

John, I'd like to start with Mexico. Can we just kind of review what's going on there and how far along are you on the process, and maybe timeline when you think it'll all be completed?

Yeah. John, a couple of things.

Thanks for your question, and Laura will chime in here as well. As we've said on previous calls, the transformation in Mexico is probably about six months behind where we are with Egypt.

We are making progress there, but one of the challenges that we have is in Egypt, we have year-over-year revenue growth on top of performance improvement, whereas in Mexico, we have year-over-year revenue shrinkage. Most of the roll-off of our past programs is in Mexico, and the primary impact of program delays is also in Mexico.

What we're spending to prepare and launch new programs as well as the transformation there isn't getting any benefit from tailwinds of increased revenue. We're spending the money to get the launches ready, and we're seeing the delays.

The team has been completely rebuilt over the last six months, and I'm really pleased with the progress that we're making on our day-to-day execution, but we're six months behind where we were with regard to Egypt.

As Jon mentioned, the decrease year-over-year in revenue, which results in the bottom-line decreases, as well as underabsorption. We have some additional SMA expenses related to changing out the management team and wages, as well as additional resources that were brought in to help with the operational performance.

Despite this, we are seeing improvements in scrap and direct material costs as a percent of sales through our supply chain initiatives.

Got it. Thank you for that.

Now,

we had three great months of commercial truck orders. I'm curious, have you seen that flow through your P&L yet or purchasing orders or anything?

Also, does that impact the Mexico facility at all? Can you maybe talk to that?

John, it does impact the Mexico facility. We're actually still seeing it as a headwind with regard to orders, both what we've seen from DTNA and PACCAR.

Is more of second half of calendar '26 as to where the volume start to come back. What we're seeing the impact, and we talked a little bit about it, is the trade-off between commercial vehicle volumes in lighting and some of the North American Automotive programs.

That we have a mix impact as well as volume impact. We do see some future growth later in this quarter and probably more into early of our fiscal 2027, but we aren't yet seeing it.

Okay. Good.

Okay. Got it.

One last question on DataMate. How much in revenue or annualized revenue did that business contribute, and was it profitable?

Maybe you could give us maybe the scale of profitability.

It's roughly $18 million worth of revenue. It was profitable, but what I can say is roughly $3 million worth of profitability.

What we can say, John, is the ability to pay down debt, the ability to exit a underutilized facility, and to continue just our overall rationalization of structural cost, we believe we can largely offset that profitability. We think overall, it's an accretive decision.

I got it, John. I'm gonna get back in queue on that.

Thank you.

Great. Thanks, John.

Good morning, and thanks for taking the questions. Maybe I'll jump off there.

John, can you just remind us of some of the key products and applications for that DataMate business? I guess one of the obvious questions strategically is just why it wasn't too complementary with the core power business in data center?

This is more of a data over copper in system. It's a small electronic data over copper product.

It's not complementary with our data center activity whatsoever. Really the judgment for this, Luke, was it's a good business, but if you think about the opportunities that we have, and you and I have talked many times about return on effort, what it would take to make that grow materially, because it's been relatively flat in the $15 to $18 million revenue for a long period of time.

As we looked at it, it was a good business. It is a good business, but in order for us to make it grow versus putting more effort into our base data center business or some of the other areas where we can drive growth and really return for the shareholders, our decision was there probably is a better owner for the business than Methode.

Got it. Sticking with data center, if I look at the chart that you guys provided, which is helpful, just trying to extrapolate the data center piece in fiscal '26 specifically.

Seems like it's trending fairly flat this year. Now, I understand some of the reasons for that.

I know you're implementing the VMI, there's some other things going on under the hood there. Just, yeah, trying to understand, certainly there's been a lot of capex growth this year.

Should we perceive that there's been effectively a little bit of a growth bubble? Because I'm, yeah, just trying to get comfortable then stepping into, I think you said of that $120 million run rate on a go-forward basis given some clarification [unclear].

Yeah. Luke, what we've said to you and said to the investors is that as we move to an EDI-based sales forecast versus just, if you will, a contract-by-contract sales forecast, that we would give you transparency as soon as we knew it.

This run rate that we're talking about is that transparency. This is backed with EDI.

You're right that on a total year basis, it looks like it's relatively flat. Part of that was due to some of the sales gap that we had moving from where we recognize the sale when the part went the boat in Shanghai to moving to vendor-managed inventory, which created a six to eight-week revenue gap.

The most important thing here is relatively flat year-over-year, but a Q4 run rate of $120 million with EDI that gives us great confidence in what we see on year-over-year growth and what we see into the future. The other aspect is, and I think you made a comment about capex growth, we have not had significant capex growth.

It's actually down year-over-year, and there's been no material capex that's been invested for the data center business whatsoever. As a matter of fact, we're using some core competencies and some capabilities from other investments as we rotate into Mexico.

We have really used our capabilities. We've rotated with this VMI, and it is creating the momentum that we said it would, and the $120 million run rate reinforces that.

Luke, just to jump in here, our capex was $42 million for FY '25, and we're at $16.5, right under $17 approximately this year. Yeah.

That 120, you also mentioned, John, that you have a line of sight to 50% kind of growth in the medium term. I think if I try to extrapolate what you're implying the turn, it's maybe about $85 million in data center this year.

What kind of base numbers should we use for that 50% opportunity?

That's what we have said pretty consistently is $80 to $85 million as a basis in our guidance. As we talked about on the last earnings calls, that considered the impact of VMI, but what we're seeing here is a run rate that's actually higher, much of which will be setting us up into 2027, fiscal 2027.

Okay. Then last question for me, meaning Mexico, understand some of the challenges there.

I think you had some initial improvement, but obviously things that are cutting against you as well. It just feels like maybe there's been some things that have cropped up that you weren't anticipating.

I guess is it some more contagion across launches, the fact that just I know you had whatever, something in the range of 20 launches this year, just that as you're spending to those, Stellantis was pretty visible, but are there more launches that are becoming problematic at the margin? Yeah.

I think the way to think about this is as you bring new people in with fresh eyes, we do see some things from a performance perspective. As Laura said, our scrap rates and our premium freight and other items that are really controllable, performance-based items are better year-over-year.

What we have seen with regard to new launches is we've spent the money, both from a capital standpoint and from an engineering standpoint, to prepare for the launches, and we've had further delays even from what we said in the last quarter. Because those launches were primarily EV-based power application launches for North America, and many of our customers have further delayed their programs, that's where the challenges.

We just don't have the revenue that we would expected as these programs start and ramp up, we're not seeing those. As we've talked about, we are dealing with it from a cost standpoint, and we're also dealing with it with going back to customers for recoveries on where we have those delays.

Got it. I'll leave it there for now.

Thank you.

Great. Thanks, Luke.

Hi. Good morning, John, Laura.

Good morning, Gary.

I just want to follow up on this EV issue. These are delayed programs.

Is there any programs that have been outright canceled?

Yes. That you

Okay.

Gary, just to answer that, as we've talked about, we have talked about some Stellantis program cancellations as well as other programs that are delayed, and we've mentioned what we've done previously about going back to customers and particularly Stellantis with regard to dealing with cancellation claims. Those are ongoing.

None of the customer negotiations are in this guide. I think it's important to note that neither the DataMate transaction, nor the Harwood Height transaction, nor any customer recoveries are in this guide.

Okay. Let me ask the question another way just so I can get an idea.

In the programs that you have right now that you're actually producing for and you're actually having take rates, were the take rates less than you had anticipated, and that has been causing you to channel down your expectations for the EV market this year? I'm just trying to get a handle on how this is all shaping out.

Yeah. The answer is yes.

Okay.

It's primarily in North America. If you think about it, Auto is 45% of Methode.

Mm-hmm.

EVs are 41% of Auto. As a total, EVs as a percentage of Methode through this this year, through this fiscal year, is 18%.

Where

Now, take it to the take take it to the next level, which is exposure to EVs. Of that 41% of Auto that is EVs, only 14% of that is North America.

If we would have gone back, and I don't have the number at my fingertips, if we've gone back when we originally set guidance, that number should have been much, much higher based on the assumption of launches from multiple programs. The what we're seeing is expenses, launch expenses, capex, building inventory, all those sort of things in Mexico, in a place where the where you have big programs rolling off that we've talked about across multiple quarters,

Right. and

none of the revenue coming from the EV programs. Mm-hmm.

What about what you're doing outside of North America? How have the take rates been there?

Those take rates are relatively on track. The growth on a year-over-year basis in Egypt, the top-line growth, we have bottom line that's driven by performance, we have top-line growth that's basically driven by ramp-up of programs, particularly the EV programs that we launched there, and China is stable.

This is why we refer to it specifically as a North American Automotive challenge, and as an EV program cancellation or delay challenge.

Are the products that you guys produce the EVs, are they applicable to plug-in hybrids and hybrids? Can you bid on those new models that are coming out?

Because it seems that's the way the market's really rolling now.

Yes, and our pipeline of bids has our quoting and cost-estimating teams very busy.

Okay. All right.

Thank you so much.

Thanks, Gary.

Thanks for taking the follow-up. I got to stick to the launch topic here.

How many programs have you launched on so far in fiscal '26, and how many remain for this year? How does that compare to your expectations at the beginning of the year?

I'm just trying to contextualize what kind of magnitude we're talking here.

John, I don't have the exact split between what we plan to launch and what we have launched versus cancellations. Our number was 29 programs in this fiscal year.

It was 56 over fiscal 2025 and fiscal 2026. Because of the timing of some of these delays,

Right.

we spent the money on the launches before we ended up with either a delay or a cancellation. The number is still the same.

It's just a question of whether we got the revenue from it.

Okay. When you're looking at the product portfolio,

where's

that stand? Is DataMate the first of many or are you still looking at everything trying to decide?

I'm pretty sure at one point you said there are some unprofitable businesses that you may want to exit. Can you just kind of give us an update on how that process looks at this point?

What we would say is DataMate was an important first step. It reinforces what we have said to the shareholders that we will continue to refine our portfolio as well as refine our overhead structure.

The portfolio review is ongoing, and you can expect more to come in the future.

Okay. All right, John.

Thanks for taking the follow-ups. I appreciate it.

Great. Thanks, John.

Thank you, everybody.