MEI - Earnings call transcript Q3 2021 | Methode Electronics, Inc.

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Operator

Good morning and welcome to the Methode Electronics Third Quarter Fiscal 2021 Results. At this time, all participants are in a listen-only mode. [Operator Instructions] It is now my pleasure to turn the conference over to your host, Rob Cherry, Vice President of Investor Relations. Sir, the floor is yours.

Rob Cherry

Thank you operator, good morning and welcome to Methode Electronics fiscal 2021 third quarter earnings conference call.

found have Results, presentation on which of call we Third Fiscal the call, the this Financial on Quarter can or this prepared entitled a XXXX webcast Investors For page. methode.com at be viewed which contains events regarding performance, speak statements, operating the of management's only expectations This conference as forward-looking date reflect call and certain future and hereof. to provided under laws. These protection forward-looking the Harbor statements the Safe are subject securities or duty to statement update any in to a statement on the results otherwise. no forward-looking to conform quarterly actual undertakes changes or expectations Methode's Methode basis in number statements uncertainties. forward-looking this risks The conference call a of involve and The XX-Q factors Securities could actual reports. the as and detailed are materially results to such that our expectations from with cause Methode's Exchange and filings XX-K in Commission, differ our time, over to this I'd call Mr. the turn to like At Duda, Executive and Chief President Don Officer.

Don Duda

you, good Thank comments Both, quarter today we joining take Financial our thank us XXXX you will and conference Chief for and by call. for questions. everyone third have our your opening I'm and joined I fiscal Tsoumas, earnings and today then morning, Ron Ron Rob, Officer.

Let's begin business with X. on Slide the highlights

Our for the $XXX quarter sales million. were

this in for quarter XX-weeks accounting XX-weeks company’s As our this to quarter morning, for as period compared of third noted included the XXXX. release the

year-over-year discussions Our on context. in this be viewed comparative results should

give up our of improved year-over-year. on For insight strength were prior which a from clearly X% and the this investors translation weekly view sales currency the to on We excluding business illustration, run rate how favorable basis our underlying year. we share

margin Supply inefficiencies. as disruptions freight in strong, such as factor we do well quarter. led While as some chain cost have to was the gross premium headwins topline to to additional the

be joined in near of a for linger are by guidance wide related can recent the these seen and This uncertainty range disruptions some potentially events and to quarter. is the term by forward the level caused Moving extreme which of order in material U.S. shortages our fourth driving will demand challenges that semiconductor weather on-going be

to we this calendar and year. However, middle none are most of resolved these the by systemic expect be issues of

Our to give of early over for confidence a sales fiscal our in evidenced organic by XX% indication of XXXX situation is this decision growth. improving an anticipated

vehicle as addition rebound, further expected to commercial gross the mix market margin. our continues In to sales improve is

Turning to strength to demand. automotive our business, we see continue and

strong Our sales Power, Lighting a and in User had quarter. grew Interface & word EV we and the programs for

the sales over Focusing that sales, into and on of fiscal high single XXXX. quarter in were for X% EV, last we were consolidated reported applications digits to be EV expected

consolidated User Solutions Furthermore, sales quarter, were in now be healthy XX% XX% us well This continued Lighting Distribution Interface, visibility for Power a of over that over to our Methode’s in fiscal EV of EV & growth expect that will winning the programs EV exciting combination XXXX. is now this XXXX. percentage gives positions of sales number to formula project as pipeline for and market. in this in fiscal we mid-teens LED be and

reduced significantly over of March Regarding draw in driven quarter. year. debt was free revolver in The our $XXX last repayment $XX our full reduction we from and the flow net our balance million generated of sheet, debt million cash the by

multiple leverage to order business sheet balance ratio near strength liquidity, the in us in to our We our growth allows drive shareholder and ultimately have and continue The paths and of net to ample consider flexibility is zero. invest return. now to

the semiconductor to shortage growing impact COVID-XX in from pandemic, face a In addition we quarter. the the

was in impact third situation While shorted the the operating on-going is quarter chip minimal. the COVID-XX to the of issues from it remain. improving, the regard In Methode situation,

well as a beyond a aforementioned chain disruptions. as and in result issues quarter potential we of financial the impact However, fourth as anticipate supply do our other

quarter and best trends its and and had awards auto Methode for million five, vehicle awards lighting e-bikes. key electrification, and continued user like won on power identified fiscal of business. market LED awards. slide year here $XX quarter represent sensors to electrification, this to programs. In These The annual capitalize booked a interface cross section Busbar, in we of in awards Moving wins for the vehicle distribution over represent business and the

We auto even we lighting, for continue win applications. applications. programs with and and program station non-EV auto truck to awarded several LED OEMs commercial globally were charging In

our utilizes also in growth We e-bikes, participate continued technology. of to the proprietary which Magnetoelastic

sizeable OEMs. user for interface two international with awards programs won we automotive Lastly,

annual XXX three For over first the booked in of potential sales. quarters year, million fiscal awards of the Methode has

to growth. continue our organic build foundation for We on

approximately largest Regarding program the that new we have our the bookings quarters sales of that timing, can't on single several also in a a of to last any over track a replace we We're from us sales customer's on roll comment line. from pleased put off XX% pleased to ago. while we project strong years from aggregate grow continue the our four expected program. top our our anticipated to auto All while high drop that program, are below XX% is to customer

customer making are program We definitely progress on and reducing both concentration.

six, would on to like slide elaborate I our further EVs. to footprint Turning in

EVs. the of with solutions Interface, into LED and from Distribution. generally chassis As vehicle. Power the Hat” EV the is Hat I've of framework and or has “Top model. body shared architecture Skateboard is three the and The to divided qualified “Skateboard”. model become prong Methode the essentially is include The of vehicle before solution for Lighting uniquely Top Those you the The provider User parts, varies two

game and changer across as and architecture platforms. models As EVs be multiple leveraged many of you is type standardized vehicle know it can with this a of

Hat systems to pedigree, of ports operations, EV Methode and include grade to for with Interface combination specific ports. actuators units supply to Lighting, Busbars, and On auto vehicle lighting disconnect offers such in also such with traditional it’s These addition Methode connection by-wire the EV of User various LED itself. traction the leveraged gaining Top along its battery features charging seven, some battery unique are the connectors manufacturing and and expertise solutions Skateboard. This complex monitoring. auto On as our show solutions, OEMs. fairly and sensor We're power we as distribution slide power is where solutions and charging

opportunity However, growth on our The the our our of to minimal. additional for largest from to it EVs, vehicle. where range approximately has Consequently, a of over EV EV and opportunity lies. it to internal in products in XXX% the distribution In combustion was with per our clear is with quickly content as internal growing Historically, XX% EVs. grow transition half vehicles could content product the power applications. vehicle participation has incrementally reached Methode an current power and combustion sales content content is

organic win pleased growth the Ron? quarter. more strategy who for program this high As in results. our financial our previous turn past, At supply I've team given am that Methode. deliver point, end chain call is and on were the a flow guidance, the over EV in I'll I of at substantial the conclude, quarter said and the challenges able third our generate provide situation, will new tailwind our to cash Ron, free recent detail extremely definite To on-going the awards pandemic and significant to

Ron Tsoumas

fiscal the nine. whereas Please quarter note work everyone. year and of morning weeks, Don, Please slide to XX good XX third that turn you XX of the workweeks. quarter XXXX fiscal third Thank get contains year

were million $XXX.X fiscal to $X.X foreign increase were on quarter. of XXXX X.X%. in to a of excluding quarter up vehicle of quarterly impact sales electric to year-over-year On and compared runway sales current sales Third in of year the solid increase $X.X favorable comparisons fiscal the part in fiscal due and or sales hybrid million net year was included solutions. compared XXXX, X.X% currency in a weekly currency million year impact, $XXX.X million an same The a XXXX. quarter higher The basis the foreign

$X.X decreased share Third per diluted quarter year. or or share same $XX.X million the $X.XX from $XX.X period diluted net last per to million $X.XX million in income

current production to due the supply week inefficiencies to quarter to to resulting fourth due inefficiencies increased from decrease compared the chain less and of experienced other continue and quarter premium of was tariff to supply freight were Fiscal XX.X% are quarter. that primarily The from as the the activity in resulted lesser one third COVID-XX expenses chain extent, freight a in factory factory as premium disruptions chain the fiscal addition to and year to In tax was and income Per and mainly XXXX, COVID-XX third expense and to margins product mentioned XX. resulting from sales to quarter lower and gross million. supply fiscal compared disruptions the year turn Please third the were million income tariff freight slide $X.X quarter expense quarter contributing the sales $X.X to margins of mix. fiscal premium product of in were higher XXXX. XXXX year Also other expense XX.X% in decline due XXXX expected fiscal in inefficiencies in due to and mix. year lower

the are XXXX. the in with based not fourth this impact we quarter these do However, resolved of and on quarter will my year be knowledge time, systemic fiscal first gradually believe at lesser issues to

in The benefit compensation quarter stock fiscal year-over-year based primarily actions Third restructuring to of expense costs by to attributable taken of year third quarter decrease the lower quarter third and the percentage compared year basis quarter. XX.X% higher expense expense, The XX% selling compensation lower first and administrative restructuring year a travel of the partially to offset was sales in decreased XX expenses as XXXX. to expense. fiscal was fiscal percentage in related points XXXX compensation XXXX

to more flow year a more from with of expense, is the in yield we be due and income. still the increase travel an SG&A in percentage expense future percentage units, go-forward anticipate we stock gross full operating on expect amortization, a line normal historical to margins our which basis a efficient While on SG&A through norms, and restricted

expense from fiscal year actions. XX. was the the remainder restructuring of expense expense activities, place restructuring our The currently of third quarter the year. million. quarter’s the the company year-to-date, an previous first expects was the restructuring turn vast fiscal The quarter slide Please to in the Regarding half third in of $X.X And resulting majority took additional the XXX,XXX XXX,XXX. of

comparable the mentioned third quarter net addition of other year the as the last items impacted income to compared fiscal margin gross items year. to In in and significantly above non-operational SG&A, XXXX quarter fiscal two

$X.X government was lower due lower between net to by income other assistance quarters. million, the First, comparable mainly

year. rate the tax of third the in in fiscal or income first $X.X expense effective tax benefits to tax quarter, for The fiscal to year of fiscal which XXXX in XXXX XX.X third tax quarter effective million, due the an the retroactively or compared tax $X.X XX.X% than planning the quarter of a less of quarter X.X% the as enacted expense year of the was million, of Second, was tax was third applied rate to the estimated quarter some current rate

$XXX.XX We versus in expect to a which benefit estimated planning precautionary fourth XXXX gross million in resulting million. of $XXX from XXXX. decreased We in the tax a XX%. from as Please quarter XX% reduced fourth ended we in reduced period negatively noted. $XX.X fiscal the the from compared the turn the result million. of of we Grakon debt year. financial fiscal March We to of of debt, non-GAAP Shifting the year full to $XXX the to $XXX by XXXX the XXXX $XX.X quarter billion third million current cash. debt initiated the quarter, gross tax September have guided year I the effective million by acquisition down costs previously $XX.X was year fiscal from rate Net the in million end measures by million impacted in measure, quarter XXXX, XX. quarter rate third $XXX.X with third previously to our in million was year third an EBITDA, in financial quarter EBITDA will EBITDA by repayment non-GAAP $XXX.X same quarter, Since higher the draw last slide

is used which covenants approximately debt, the EBITDA trailing ratio, our is bank for Our X.X. XX-month

measure cash debt minus flow, turn ratio X.X. Free defined non-GAAP provided net slide financial CapEx. Please EBITDA operating XXXX which as to year a is effective trailing to in fiscal Our from XX-months was cash XX. activities

was compared change as favorable For million the capital in of year cash flow quarter. free third million performance in $XX fiscal driven an XXXX $XX.X million by the XXXX. strong working third free approximately cash $X.X quarter, fiscal in the flow The to quarter was

in and invested to return consistently future likely we the funding supply While working navigate as growth for of inorganic is this we XXXX, especially chain simply as of timing occur reflected to shareholders. these the $X.X reporting $X.X level periods. capital ample we during challenges, will compared million XXXX. CapEx. million not flow quarter fiscal year to was of of CapEx lower outlay to quarter the flows, fiscal the CapEx expenditures organic future growth, statement The execution due anticipate not conscious was quarter generating effort approximately in our to We opposed in cash approved third approved any which In CapEx continuing be history that cash of the actual the curtail capital sustainable, as third for year predictable allow will quarter as third through in of to

sheet; in will our continued the future. by it it businesses balance utilizing strong them a organically investment continue have grow in We to

start slide actively we XX. growth. addition, to In inorganic for continue to Please pursue opportunities

disruption subject per due Diluted share to share the at is to on-going and earnings from shortage for Don variety of in include supply lesser to a products. COVID-XX per which The for is would comments. our U.S. As weather sales is for from tariffs both higher factors customers, to and in other rate range of remarks, indirect time disruption the would Don $X.XX a due including fourth the challenges in is direct impacts and due between result between higher $XXX my extent Methode premium to the which are of could in higher range and sales moving the Factors revenue its cost paying ranges us for factors in disruption fourth situation, also The we factory lesser disruption from uncertainty freight quarter Lesser $XXX demand and potential and earnings that customers. wide the experienced as supply supply severe his concludes minimize that sales our us logistic and any pandemic quarter, guidance $X.XX. port and and inefficiencies from the other revenue million. semiconductors supply the on the for mentioned such semiconductor and million providing and congestion. disruption mid-February. towards end result the material the chain resulting to

Don Duda

very ready take you much, to are we Catherine, thank Ron, questions.

Operator

first our Junk. Luke And from question Instructions] is [Operator

live. Your line is

Luke Junk

point talk for first about view here in the if customers current shortage in good chip wondering telling Yes, this Don what morning. your at just and of question, your you could are the you in within SUVs to some should curious that to think cushion the early as you the you're business to to… March. And we waiting margin extent company and if help trucks the auto go

Don Duda

we I I’ll reallocating for answer customer. board want don't selling are know speak do are the to But the last that the across customers part them. models first. that the for to

that. was and we that our it's the to said quarter reflects work and we quarter our How So but in are project. that. we from said but will it guidance our do benefit that fourth difficult very out. minimal, We it of clearly third No, effect seeing in

we heard gamut. mitigate. year. we've also we're The heard well. latest But it'll is longer, the middle of It the when as maybe being runs So told the

difficult that said again, guidance we predict and where we range. very that's wide why gave from it's a to So

Luke Junk

understood. Okay,

LED is show your I what question by on six Second emerging maybe so for and couple beyond key is slide an seven. know you example. of two strengths the and a or as my There that you lighting already products or highlight terms are two product three company EV you'd had opportunity Busbars about in a for count, dozen applications of is

Don Duda

ones A and They've them, There's in surfaces. charging in Sure, prepared there's there's ports. so connectors, one there's are fairly complicated. my of I Class actuators like the we them remarks mentioned the coils

announce don't pursuing. is that but area have that any moment that we're at the I are an we So can awards we

area of The on. have and also putting of some major [Indiscernible] we with so is where well. unit, we're sensors trucks camera vehicles, smaller for go battery external working we as has you do eight take the cameras that standpoint, on business in a company Skateboard but and other standpoint, From one that electric we we looking some I from a but on cameras are another Not class cameras area other the disconnect that. EV guess as vehicles much putting into putting at it, the delivery we're

are are content that then complicated. distribution the a those vehicles, and unit well, high those Now, fairly And for qualified as power those there's are we're uniquely those. dollar areas produce again, to

I will those think the areas. be key

Luke Junk

rates you commercial of great. exposure could then just your businesses your and increase had Thank And order question in I importantly, Okay, on us for right recover. is seen, you rates start if overall the for vehicle to as those now, industrial and what outlook and that that more based that. remind we've last

Don Duda

follow I would quarter. shouldn't But I'm say up we we call it see look ACT. that's just our increasing it to the fourth of mid out that, peak. is. I continuing I I it. the we at not see how roll next tend outpace it go And We, And does in and where third We that up to year, XXXX. because strong if also sure catching somewhat is flat. some ACT ACT have has But to that think point is demand. with recovery into would

Ron Tsoumas

get our Yes, in commercial trend provide to into whole vehicle think opportunity, into to, forward and margin next more for that expansion segment. margin the we electrification segment, vehicles, going year. the will highest this The as this, that's we uptick

to so to there all more speak. activity boats So have should lift

closely. good watch a thing that's very So we that

Luke Junk

and for Great, leave I'll ahead that. thank go you it there.

Don Duda

Thank you.

Operator

Ryan coming next question from Instructions] Sigdahl. Your [Operator is

live. is line Your

Ryan Sigdahl

for Thanks Good morning, our guys. questions. taking

Don Duda

Good morning, Ryan.

Ryan Sigdahl

to in. want dive Just

I But of XXXX lot headwinds EBITDA close maybe mentioned This year, we challenges, there's better content, helpful were which margins, that obviously, baseline mentioned fiscal expansion think reasons You directionally worse? I can is guess XX%. good is that? next do margins, more is commentary. back next fiscal it'll think a to year. be year for a this than Or where you the that baseline? looking margin a reasonable as higher year, you You to directional guess,

Don Duda

next requires get to guidance into year. That us

one. pandemic. since want for what expansion good the see about of sit we would the I Yes, do see much, in But increase. margins would say with from to I benefit some time higher little. mix these Keep fiscal and probably my products. and standpoint, shortages, that in in inventory if aids, what It the consumer me with And there. talked really, really have in at what you've I here just on of the shortages. fiscal some consumer. BDUs both what up Auto, but at I Right much very so and carry have margin I know, but you from time Also, for the and for need to or through don't look from of were margins, we've won't Let that these see a just and They're we we I we industrial replenishment shortages look throughout would getting better happens XX. I say quite PDUs get in We've demands, of industrial flow there. would benefit that. to can flow actual seen lowest XXX from say to and back and our that’s is margin in got I benefit what the SUVs. a auto, of QX inventory class we're think have to and Could XX new depends because too, the that. really faced the those in shortages, been sure, a the the to so days trucks mind, I've of double inventory launch XXXX? if and with expect we benefiting demand not days But take that's beginning which chip tougher an also shortages would from we're the us has a we there's expansion old. the and the the That'll semiconductors, margin that OEMs now from

them, but results they're, And seeing now. For the been affect we're real very we've part, to they're most able everybody's right around…. them alleviate

Ron Tsoumas

operations agree line. clearly well, as that a and all see, whammy double the I you and top in they also Don the with are what they headwinds as saying too. effect And through have and that the the results, affect shortages, from could our

probably looking will then depend So next a better getting of a normal being fine run we'd on and and to, at position tune to satisfied what in rate, lot answer. be that we're a that to year more I think

Don Duda

position units stay and what Are going program would to Ryan no obviously the our it for difficult very that EVs. is be, know about get end, a you And we pretty will so Or EV. how the one they a on in But more we're the we're need enough x history plus? GM, thing x? they be. to what in volumes materialized. is, if a for Is see volume the I those say the much is much Ford track? on -- other on programs x on say, negative, little Do excited it or It's has know, on sure, to guarded, get in truck you you are

wait volume, program, and Now, see materializes. on to some how to get the but we'll on have we're we're the that going because

Ryan Sigdahl

do the did think resolved linger just shortage, then, on could you And quantify QX you quantify And year? how your you do that'll much expect that or this it you impacted guide? into quarter? then next I earlier, fiscal to this Or chip and missed be maybe that

Don Duda

next it's linger of I going to think year. into QX

There's it. that. told alleviate also tell a range. we quarter. can lot have that calendar go But pieces the why but itself, moving it We the perhaps that quantify had it in gave mid been we did we've that on, I a That's of may you by not the may caution large year

which quarter a ago Let's was go XXX million, the forecast that of for weeks have or fourth would six it quarter. was record our excess four been in

third quarter haven't. by we much fourth the in impacted being clearly chips, quarter, the not we're but so So

quantified We exactly. haven't

Ryan Sigdahl

it’s position, I've from relative a but a Last repayment, more capital net a directly, this almost valuation stock debt Have this program at one for premium versus point sizable previously, on cash guys focused you acquisitions? a guess years, little acquisitions, your meaningful at on but your which earnings reconsidered lagged to cash peers standpoint, [Ph] more MEIs come focused me. a to have buyback maybe fairly I based net for have asked you share allocation valuation.

Don Duda

A That very something we now there's considering. we going question. that have pay may are more likely million repay. in over appropriate in to not down is much We're may cash, debt, some we XXX to debt data, Europe, very inexpensive

thought achieve that. So very, now, one. accomplished important street that let on it And that up. the that a break doing synergies down importantly, to Methode after was me to we've the the proved on back acquisition, that since more debt. pay has was We break very for and we its last And acquisition discipline the priority

and of that be job Now tariffs where out with classes our because and very teams on. thought we the we would of factories where ahead are we good sitting largely have today dealing taking of we're so

use, you is are that a considering. buyback? it will that certainly we a are it, list. So to certainly won't to priority our we now our but do give cast where do I attention put we on that I we won't, stock do on is That turn we something is

has us market. put in look I commercial always EV good there we some stead -- in market will it we that clearly and the concern said think first, was acquisitions. Grakon at vehicle was it. about having at the But Now,

had, particularly wins EV you of get what be the when And and and or we commercial BDU into will PDU. some trucks,

we're So, do not I'm acquisition. going to to not say going that an

order, consider. something buyback you stock So a tell I I'm we give not going would certainly that can the to is but that you

Ryan Sigdahl

guys. Great, luck, helpful color. Thanks. Good

Don Duda

Thank you.

Operator

questions no for turn further at now from There closing remarks. to lines the to like I would time. call are back this the Don

Don Duda

Yes, we'll and to day. very have thank good, good rest much. listening us for everyone a of the thank And you today

Operator

ladies gentlemen. and conclude conference you today's This call. Thank does

You your Thank your phone you for and disconnect have day. a time this lines wonderful participation. may at

Methode Electronics (MEI) 4 Mar 212021 Q3 Earnings call transcript