Greetings, and welcome to the Methode Electronics Fourth Quarter and Full Year Fiscal 2023 Results Call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Robert Cherry, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator. Good morning. And welcome to Methode Electronics fiscal 2023 fourth quarter and full year earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2023 Fourth Quarter and Full Year Financial Results, which can be viewed on the webcast of this call or found at methode.com on the Investors page. 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. The factors that could cause actual results to differ materially from our expectations are detailed in Methode’s filings with the Securities and Exchange Commission, such as our 10-K and 10-Q reports. At this time, I’d like to turn the call over to Mr. Don Duda, President and Chief Executive Officer.

Thank you, Rob, and good morning, everyone. Thank you for joining us for our fiscal 2023 fourth quarter earnings conference call. I’m joined today by Ron Tsoumas, our Chief Financial Officer, and both Ron and I will have opening comments, and then we will take your questions. Let’s begin with the highlights on slide 4. Our sales for the quarter were a healthy $301 million. They were up 4% compared to the prior year, but up 9%, excluding a significant headwind from foreign exchange and a drop in material spot buy and premium freight cost recovery. The increase was mainly due to higher sales in the Industrial segment, driven by lighting solutions for commercial vehicles and by power distribution solutions for electric vehicles. The sales growth from lighting and power products is another data point in our strategic pivot to reduce our reliance on user interface solutions. In the quarter, we continued to face ongoing cost increases due to inflation in material and labor, which continued to be a drag on margins. The ongoing cycle of inflation and subsequent efforts to obtain price increases from customers is a persistent challenge; I cannot stress that enough. We can, however, report a significant reduction in spot buys and expedited shipping as supply chain constraints have improved over last year. On the order front, we had a very strong quarter with over $250 million in annual program awards. These programs were once again dominated by electric vehicle programs. The Nordic Lights acquisition, which is an exciting opportunity to grow our lighting franchise and gain more industrial and non-auto market exposure, is nearing completion. While we have secured over 99% of the outstanding shares, we are still working through the squeeze-out process for the remaining shares. Once that legal process is complete, we will be able to provide more information. Turning back to EV activity. Sales in the quarter were 23% of our consolidated total and were a record on a dollar basis. In regards to awards, we won over $215 million in annual EV awards in the quarter. Looking forward on EV, activity will be strong again in fiscal 2024, but will be very dependent on auto OEM take rates as well as the timing of program roll-offs. In the quarter, we had an increase in debt, which was driven entirely by the Nordic Lights acquisition. During the quarter, we purchased approximately $8 million of shares. Of the announced $200 million Board authorization, we have now purchased $119 million in total. Prior to the Nordic Lights acquisition, this buyback program was a key focus of our capital allocation strategy. With the increased debt level, part of our focus will return to debt reduction. Lastly, but just as important on anything on the slide, we generated $38 million in free cash flow in the quarter, which is an indication of our attention to operational performance and a focus on generating cash in our business model. Moving to slide 5. The awards identified here represent some of the key wins in the quarter, and represent $258 million in annual sales at full production. As a reminder, the launch timing of most of these programs could be anywhere in the range of 1 to 3 years from now. The awards were mainly for power products associated with the EV skateboard architecture. The awards were also heavily weighted towards the United States, where EV quoting activity has clearly picked up. In other areas, we were awarded programs for lighting, user interface, and sensitive solutions for applications in commercial vehicles and e-bikes. I would like to take a step back and reflect on our EV activity over the last three years. Since the beginning of fiscal year 2021, we have won approximately $600 million in EV awards. This award stream acts like a backlog of potential future business. There is little doubt that EVs will be driving our organic growth in the coming years. Turning to slide 6 and our fiscal 2023 highlights. We delivered sales growth for the sixth year in a row and finished with a record sale of $1,180 million for the full year. Excluding foreign exchange and cost recovery, we had a 7% year-over-year sales growth. Material, labor, and overall manufacturing cost inflation challenges during the year took a toll on earnings. Clearly, we were disappointed in our cost recovery efforts with our customers. Those efforts continue, as well as other initiatives to improve manufacturing efficiencies. However, program awards were very strong, reaching over $435 million with over 75% in EV applications. The strength of our bookings gives me confidence that along with the aforementioned initiatives, we will achieve the margin expansion that supports our guidance for fiscal 2025. We had record sales into EV applications, and they reached 21% of our total sales for the full year. Our free cash flow generation was up 50% year-over-year in support of the purchase of $48 million of shares as well as our ongoing dividend program. It was a challenging quarter and a year plagued by ongoing cost inflation headwinds. However, our worldwide team still delivered organic sales growth for the year. Moving to slide 7. Looking forward, we are expecting a slight slowdown in sales for fiscal 2024 and then a significant ramp-up of sales in fiscal 2025. I want to walk you through the basic drivers of this. As you can see from the slide, the net of program roll-offs and program launches is a sales headwind in fiscal 2024. While Nordic Lights will add to our sales, we expect headwinds in the commercial vehicle, data center, and e-bike markets. The net result of all this is a slight sales slowdown in fiscal 2024. In fiscal 2025, the net of program roll-offs and program launches becomes a tailwind. We also expect a tailwind from strength in commercial vehicles, data centers, and e-bike markets. The net result is an 11% organic sales growth rate from fiscal 2024 to fiscal 2025. With the strong award pipeline for the past three years and the effort Methode has made to transition its product portfolio further in the lighting and power solutions, this fiscal 2025 guidance demonstrates that our business model is healthy and is positioned to prosper from the strategic steps that we’ve taken to grow the business. Turning to slide 8. In summary, Methode had a number of successes in fiscal 2023. We achieved record sales in our Industrial segment with growth of 29%. We delivered record sales in the EV applications. We generated strong free cash flow. And lastly, we executed the acquisition of Nordic Lights. Turning to our outlook. Due to the program roll-offs and the expected weakness in key markets, we expect to have lower organic sales in fiscal 2024. In addition, we will be making significant investments in launching over 20 new programs. These investments include significant tooling and increased staffing. This activity, along with multiple years of strong awards, will enable us not only to replace the sunsetting program but to organically grow the business 11% for fiscal 2024 to fiscal 2025. At this point, I’ll turn the call over to Ron, who will provide more detail on our fourth quarter and full year financial results as well as more details on our outlook.

Thank you, Don, and good morning, everyone. Please turn to slide 10. Fourth quarter net sales were $301.2 million compared to $287.7 million in fiscal 2022, an increase of 4.3%. This quarter’s sales had $7.7 million unfavorable currency impact and $2.5 million favorable spot buy and premium freight cost recovery impact. Also impacting the quarter’s prior year comparison was the roll-off of a large automotive program in North America. Excluding the foreign currency and year-over-year cost recovery impacts, sales increased by 8.8%. The strength in the quarter was driven by lighting solutions in commercial vehicles and power solutions in EV. EV product applications were 23% of sales in the quarter. Fourth quarter income from operations decreased 41.8% to $8.5 million from $14.6 million in fiscal 2022, mainly due to acquisition costs, material cost inflation, and unfavorable foreign currency translation. Partially offsetting those factors was the higher sales volume. Adjusting for acquisition costs of $6.8 million and costs related to the reorganization of a foreign subsidiary of $0.5 million, our non-GAAP adjusted income from operations increased 8.2% to $15.8 million from $14.6 million in fiscal 2022. Please turn to slide 11. Fourth quarter diluted earnings per share decreased 48.8% to $0.22 per diluted share from $0.43 per diluted share in the same period last fiscal year. The EPS was negatively impacted by the acquisition cost, material cost inflation, and unfavorable foreign currency translation. Adjusting for the net acquisition cost of $6.6 million and the net benefit related to the reorganization of our foreign subsidiary of $7 million, our non-GAAP adjusted diluted EPS decreased 51.2% to $0.21 per diluted share from $0.43 in fiscal 2022. Shifting to EBITDA, a non-GAAP financial measure. Fourth quarter EBITDA was $21.9 million versus $30.8 million in the same period last fiscal year, a 28.9% decrease. EBITDA was negatively impacted by acquisition costs, material costs inflation, and the unfavorable foreign currency translation. Higher sales volumes helped to partially offset the decrease. Adjusting for acquisition costs of $6.8 million and costs of $2.6 million related to the reorganization of a foreign subsidiary, our adjusted EBITDA increased 1.6% to $31.3 million from $30.8 million in fiscal 2022. Please turn to slide 12. We increased gross debt by $96.3 million for the full year, mainly due to the Nordic Lights acquisition. We ended the year with $157 million in cash, down $15 million for the full year. During the quarter, we bought back shares for $8.5 million, bringing the year-to-date total to $48.1 million. Net debt, a non-GAAP financial measure, increased by $111.3 million to $149.8 million in the full year from $38.5 million at the end of fiscal 2022. Again, the main driver of the increase was the Nordic Lights acquisition. Our debt to trailing 12-month EBITDA ratio was approximately 2.2. Our net debt to trailing 12-month EBITDA ratio was approximately 1. We continue to have solid debt capacity, which offers the Company flexibility from a capital allocation perspective, especially for inorganic growth initiatives. Please turn to slide 13. Fourth quarter net cash from operating activities was a healthy $49 million as compared to $42 million in fiscal 2022. The increase of $7 million was primarily due to working capital improvements in the quarter. Fourth quarter capital expenditure was $11.2 million as compared to $8.4 million in fiscal 2022, an increase of $2.8 million. The increase was mainly a function of a lower level of spending in the prior year quarter as the spending level this quarter wasn’t keeping with our guidance. Fourth quarter free cash flow, a non-GAAP financial measure, was $37.8 million as compared to $33.6 million in fiscal 2022, an increase of $4.2 million. This increase, again, was primarily due to working capital improvements. We continue to have a strong balance sheet, and we will continue to utilize it by investing in our businesses to grow organically and by pursuing opportunities for inorganic growth. Please turn to slide 14. Fiscal 2023 net sales were a record $1,179.6 million compared to $1,163.6 million in fiscal 2022, an increase of 1.4%. This was our sixth year in a row of record sales. This year’s sales had $57.3 million unfavorable foreign currency impact and $20.9 million favorable spot buy and premium freight cost recovery impact. Excluding the foreign currency and year-over-year cost recovery impacts, sales increased by 6.5%. The strength in the year was driven by our Industrial segment. EV product applications were 22% of sales in the year. Negatively impacting the year was the roll-off of a large automotive program in North America. Fiscal 2023 income from operations decreased 19.1% to $90.4 million from $111.7 million in fiscal 2022, mainly due to acquisition cost and material inflation, which were partially offset by higher sales volumes. Adjusting for the acquisition cost of $6.8 million and costs related to the reorganization of a foreign subsidiary of $0.5 million, our non-GAAP adjusted income from operations decreased 12.5% to $97.7 million from $111.7 million in fiscal 2022. Please turn to slide 15. Fiscal 2023 diluted earnings per share decreased 22.2% to $2.10 from $2.70 per diluted share last fiscal year. The EPS was negatively impacted by the acquisition costs and material cost inflation, which were partially offset by a net tax benefit related to the reorganization of a foreign subsidiary. Adjusting for the acquisition cost of $6.6 million and net benefit related to the reorganization of a foreign subsidiary of $7 million, our non-GAAP adjusted diluted EPS decreased 22.6% to $2.09 from $2.70 in fiscal 2022. Shifting to EBITDA. The full year EBITDA was $142.3 million versus $174.6 million last fiscal year, an 18.5% decrease. EBITDA was negatively impacted by the acquisition costs and material cost inflation, which were partially offset by higher sales volume. Adjusting for the acquisition costs of $6.8 million and the costs of $2.6 million related to the reorganization of a foreign subsidiary, our adjusted EBITDA decreased 13.1% to $157.1 million from $174.6 million in fiscal 2022. Please turn to slide 16. Fiscal 2023 net cash from operating activities was a healthy $132.8 million as compared to $98.8 million in fiscal 2022. The increase of $34 million was primarily due to working capital improvements. Capital expenditure was $42 million as compared to $38 million in fiscal 2022, an increase of $4 million. The increase was mainly a function of a low level of spending in the prior year as the spending level this year was within guidance. We expect significant increase in CapEx in fiscal 2024 to increase capacity and capability for the increased launches in both fiscal 2024 and fiscal 2025. Free cash flow was $90.8 million as compared to $60.8 million in fiscal 2022, an increase of $30 million. This increase again was primarily due to working capital improvements. Please turn to slide 17. Regarding forward-looking guidance, it is based on management’s best estimate and is subject to change due to a variety of factors noted on this slide. While we have experienced some success in price increases to offset the ongoing material cost inflation, we expect this headwind will still be with us in fiscal 2024. The expected net sales range for fiscal 2024 is $1,150 million to $1,200 million. The expected diluted earnings per share range is $1.55 to $1.75. This fiscal year 2024 guidance includes the Nordic Lights acquisition, assumes an income tax rate of between 18% and 20% with no discrete tax benefits or expenses. It assumes CapEx in the $65 million to $75 million range and assumes depreciation and amortization in the range of $57 million to $62 million. The fiscal year 2024 EPS cadence will be somewhat uneven with the first quarter being weakest, largely due to the anticipated contingent legal fees related to the Medtronic lawsuit. We anticipate minimal sequential quarterly EPS growth from the fourth quarter of fiscal 2023. Looking further ahead to fiscal 2025, the expected net sales range is between $1,250 million to $1,350 million. The midpoint of this range represents 11% organic growth from the midpoint of the fiscal year 2024 net sales guidance range. The expected range income from operations as a percentage of net sales in fiscal year 2025 is 11% to 12%. The fiscal year 2025 income tax rate is expected to be between 20% and 22%, with no discrete tax benefits or expenses. Don, that concludes my comments.

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

Thank you. At this time, we will be conducting a question-and-answer session. Our first question is coming from John Franzreb with Sidoti & Company. You may proceed.

I’d like to start with a couple of quick clarifications. First and foremost, it looks like Nordic is part of the balance sheet. I’m curious if it’s part of the P&L too, because I didn’t hear any mention of any revenue contribution from Nordic in the fourth quarter. So, can you just kind of walk me through that?

Yes. You’re absolutely correct. It’s on the opening balance sheet, but we did not have any profit and loss activity in fiscal 2023 related to Nordic Lights due to its very late closing right prior to the end of the fiscal year. And we will report it in fiscal 2024. Yes.

Okay. All right. So, you mentioned legal fees that you’re going to continue to incur from Nordic. Are there any other cash expenses that we should be worried about or incremental debt that you’re going to have to bring on board that will be part of Q1 that was not part of Q4?

We indicated that from a legal expense standpoint, if the Supreme Court ruling occurs next week, we could incur the contingent legal fee related to that matter in the first quarter. We do not anticipate taking on any additional debt in the first quarter, and depending on cash flows and overall circumstances, we might actually reduce our debt a bit.

Yes. Interest rates are a concern as the cost of borrowing has increased, and we have some fixed interest and variable to fixed interest rate swaps that will be expiring. Therefore, we anticipate an increase in debt and a significantly higher interest expense in fiscal 2024 compared to fiscal 2023.

What is your expected interest expense embedded in your guidance for fiscal 2024?

It’s in the about $13 millionish range, somewhere around there.

Okay. Perfect. And then, just switch gears real quick. On the program roll-offs, just to clarify, you mentioned the impact in 2023 of the North American program roll-off that we’ve been talking about for quite some time. Two questions here. One, how much was that impact in the fourth quarter? And secondly, when you’re talking about the fiscal 2024 guidance, it’s a plural. It’s program roll-offs. So in addition to the one that we’ve been going through, what’s the incremental number on top of that from new program roll-offs?

So, the program roll-offs in total, we would expect around $150 million.

Yes, I agree.

And how much of that is leftover from what we’ve been incurring in 2023?

So, it would be approximately, from that program, another $100 million. And then there’s another program in the EV space that would take a lot of the balance of that.

Perfect. That’s what I was looking for. You know what, I’ve been taking a lot of time, guys. I’ll get back into queue for follow-ups. Thank you.

Thanks, John.

Thank you. Our next question is coming from Gary Prestopino with Barrington Research. You may proceed.

My question relates to the previous inquiry, but regarding the North American program roll-off, is it expected to conclude in fiscal 2024, or will there be some residual effects extending into fiscal 2025 with multiple roll-offs?

In round numbers, the roll-off in 2025, and I talked about in 2024, their headwinds in 2025, our increased business becomes a tailwind, even with about $120 million of roll-offs in fiscal 2025.

I understand that, but what I'm trying to ask is whether the North American roll-off will be finished by fiscal 2024, or if there will still be some carryover into fiscal 2025.

That depends on the customer. There could be some additional business in 2025. It depends on their launch of new programs. I really can’t get into too much detail about that. However, we have seen programs extend a little longer, so there could be some of that in 2025.

Gary, I think what I would say, too, about the other program is the one that started rolling off in fiscal 2023, that’s rolling off in 2024, the preponderance of the roll-off will be done by the end of fiscal 2024. There will be some in carryover in 2025, but the preponderance is in 2023 and 2024.

Yes. And I don’t look at extending into 2025 as a huge upside. It’s just the timing of the customer’s launch.

Okay. That’s kind of what I was getting at. Thank you for that answer. And then, in terms of the D&A range for fiscal 2024, how does that break down between depreciation and amortization? Can you give us some rough numbers there?

I guess, at a high level, $20 million in the A part and the rest in the D part.

Thank you. I would like to ask about the recent product launches. Can you explain what some of the upfront expenses are related to these launches? Additionally, as we project our models, is the expense front-loaded in the first and second quarters, followed by a decrease in upfront expenses as revenues begin to grow from the new programs in the latter half of fiscal 2024? Please provide some clarity on this.

Sure. We're incurring costs related to equipment, personnel, and prototyping, and these will continue through fiscal 2024. As we approach the end of 2024, these costs will be integrated into our product launches. This is included in our guidance, and we have been hiring and acquiring equipment. The plant is about 30% equipped at this stage. This process will carry on throughout the year, and we will start to launch a lower volume of products by the end of the year. While this initial volume is not substantial, it will begin to offset the incurred costs.

All right. And I know you didn’t give this as a point of your guidance, but it looks like you had almost a 13% adjusted EBITDA margin in fiscal 23. Given the range of what you’ve given us for fiscal 24, where do you see that adjusted EBITDA margin range, if you have that calculation handy?

Well, in terms of the range, it would be somewhat comparable to this fiscal year, i.e., our fiscal 24 from an EBITDA margin percentage as a percentage of sales.

Thank you. Our next question is coming from Matt Sheerin with Stifel. Sir, you may proceed.

I have a couple of quick questions. One, your commentary in terms of your outlook for data centers. It looks like that will continue to be a headwind. Is that due to the inventory build at the hyperscale customers that’s yet to work off? And are you having any visibility in terms of that picking up in the back half of your fiscal 2024? And then, the second question, in your preliminary earnings release, your pre-announcement a couple of weeks ago, you talked about a sunsetting of an EV program due to a change in technology by that customer. Could you be more specific about what that technology changes and how that may impact you on other programs? Thank you.

I can’t provide specific details due to our contract with the customer. However, I can confirm that it concerns one customer and one product, which we do not offer to others. While I would prefer to retain this business, I'm aware that it won’t influence our long-term strategy regarding electric vehicles. The product in question has more volatility compared to both passenger and internal combustion engine vehicles. So, I’m not worried long-term. While I would appreciate the business, I’m unable to share further information out of respect for our agreement. Regarding the question about inventory, I don't anticipate improvement towards the end of the year; we haven’t factored that into our forecasts. Looking solely at commercial vehicles, the market is down 29%, according to ACT. Market predictions aren't always accurate, including our own, yet this is a clear trend and a challenge we expect to face in 2024, although they project a recovery in 2025.

Got it. And just so on data center, you’re just not getting visibility into that picking up anytime soon?

No. We understand the customer's usage and they have indicated that they are overstocked. Until they reduce their inventory, we can't accurately model their demand based on their purchases over the last three quarters. With all that inventory, it’s reasonable to expect a low volume of business in the upcoming three quarters. We are aware of this situation, which is why we are adjusting our guidance downward.

Fair enough. Okay. Thanks very much.

Thank you.

I want to quickly clarify Gary’s question. The A part of D&A will be about $25 million instead of $20 million. I think I said $20 million. $25 million is the correct answer.

Thanks, Ron.

Thank you. As we have reached the end of our question-and-answer session, I will turn the call back over to Mr. Duda for any closing remarks.

Thank you. We will thank everyone for their questions and for listening and wish everyone a very safe and enjoyable summer. Good day.

Thank you. This concludes today’s conference, and you may disconnect your lines at this time. And we thank you for your participation.