Methode Electronics Inc Q3 FY2025 Earnings Call

Good day, everyone. Welcome to the Methode Electronics Third Quarter Fiscal 2025 Results Conference Call. I would now like to hand the call over to the Vice President of Investor Relations, Robert Cherry. The floor is yours.

Thank you, operator. Good morning, and welcome to Methode Electronics fiscal 2025 third quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2025 Third Quarter 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. On Slide 4, please see an agenda for our call today. We will begin with a business update, then a financial update, followed by a Q&A session. At this time, I'd like to turn the call over to Mr. Jon DeGaynor, President and Chief Executive Officer.

Thanks, Rob, and good morning, everyone. I appreciate you joining us for our third quarter earnings conference call. I'm accompanied today by Laura Kowalchik, our Chief Financial Officer. Before we dive into the quarter's details, please refer to Slide 5 for a moment as I reflect on and update you on the key messages I shared during my first earnings call with Methode six months ago. As I mentioned then, all companies eventually face periods requiring them to evolve, altering their solutions for customers, production methods, and organizational operations. Methode was at such a juncture. Today, just two quarters later, I'm pleased to report that Methode's transformation journey aimed at creating long-term value is progressing well. In that initial call, I stated that our top priority was to execute on the extensive pipeline of new programs planned for launch over a two-year timeframe. I'm happy to announce that we've successfully launched 20 of those programs year-to-date and are preparing to launch an additional 33 programs over the next five quarters. In tandem with these launches, we also committed to addressing immediate operational execution, cost, and efficiency issues, and we've taken numerous actions since then. I'll share some initial results of these actions later in the presentation, keeping in mind that these are long-term initiatives which will continue to yield benefits in the coming quarters and years. During the first quarter call, we pledged to build an executive team capable of tackling our challenges and advancing the company. I'm proud to report that we've significantly revamped the executive management team, bringing in five new leaders from outside the organization. More details on this will be shared shortly. Lastly, two quarters ago, we committed to achieving profitable organic sales growth in fiscal '26, and today, based on what we know, we can reaffirm that guidance. Simply put, Methode is well-positioned to reinvigorate and transform the business for long-term value creation. Moving to Slide 6 and our quarterly results, our sales were $240 million, and our adjusted pretax loss amounted to $7 million. Sales were lower than the previous year due to the full impact of two large auto program roll-offs. This outcome was anticipated. Furthermore, our sales volume was affected more than expected by a decline in EV demand, along with overall weakness in the auto market. Despite the reduced sales, we achieved $4 million in higher gross profit compared to last year, thanks to product mix improvements and better operational efficiency, including reduced scrap and freight costs. Additionally, at the operating level, our loss improved from last year, which clearly indicates that our efforts to enhance operational execution have successfully lowered the company’s breakeven sales point. This is a significant accomplishment that will enable Methode to leverage margins on future sales growth. Improved execution also enabled us to return to positive free cash flow, with $20 million in the quarter. It’s noteworthy that we generated the same amount of cash from operating activities as the prior year despite a $20 million drop in sales, reflecting improved organizational efficiency. On the EV front, sales for the quarter accounted for 24% of our consolidated total, up from 20% in the second quarter. However, our EV sales in dollar terms saw a slight decline. While we are at the beginning of a new wave of EV program launches, the start has been softer than anticipated due to customer demand affecting the quarter. There's clear volatility in several key end markets. The decline in automotive markets, especially in North America and Europe, presented challenges. On a more positive note, we experienced strong sales growth in the data center market, and expectations point towards record sales for those products this year. As industry observers know, technology in this field is rapidly evolving, which may lead to short-term sales volatility. However, this disruption is also anticipated to create more growth opportunities for Methode's products. Our new Chief Strategy Officer, Brad Corrodi, will be focusing on this area as we expand our Power Solutions enterprise. We’ll share updates on this strategy in the upcoming quarters. Looking at our balance sheet, we've maintained a strong focus on managing it, particularly accounts receivable and inventory. At the quarter's end, we were comfortably compliant with the leverage and interest coverage ratios per our covenants, showing improvement from the previous quarter and exceeding requirements by over a turn. Our primary focus remains on enhancing operational execution and successfully launching our extensive pipeline of new programs. This quarter, we've made significant strides in operational metrics, cost reductions, and better organizational structure. As mentioned earlier, we are in the midst of a record two-year new program launch period, having successfully launched 20 new programs year-to-date. We have six more launches planned for the fourth quarter, with expectations to unveil an additional 27 new programs in fiscal '26. Our customers rely on us, and we are committed to delivering. On Slide 7, I want to provide an update on our transformation progress. This slide outlines our current position and future direction. You'll recall the foundations of our transformation are focused on resetting performance, building and growing capabilities, and shifting our culture. In our effort to reset performance, we've heightened the organization's attention on fundamental metrics and levers. For instance, our improved management of accounts receivable has resulted in a reduction of $36 million from the second quarter, along with a $9 million decrease in inventory. On the income statement side, we've successfully reduced scrap and freight costs by $5 million compared to the previous year. Longer-term measures, such as price increases, supplier reductions, and raw material sourcing consolidations, are also being implemented to yield benefits over time. To grow our capabilities, we have extensively refreshed our executive team, and I will cover this shortly. To expedite improvements, particularly concerning inventory reduction, we have selectively utilized external expert resources to help drive initiatives. Furthermore, we have systematically enhanced rigor and discipline in our daily operations, encompassing program launches, procurement, engineering, and finance. One significant lesson I've learned since becoming CEO is that our success hinges on rejuvenating our past and adopting a unified approach—where all our global teams are aligned and moving in the same direction. This collaborative mindset existed previously at Methode but needed revitalization. By doing this, we can leverage global best practices, enhance numeracy and cost awareness, and instill a sense of urgency across the organization. Although we’ve concentrated on execution in past quarters, we haven’t overlooked strategy, which is in its early development stages. We've actively started crafting the foundational elements of our strategy. Strong execution is, of course, essential for effective strategy. We intend to actively manage our product portfolio and customer relations—rather than passively waiting for business to come to us. As we refine our strategy, we'll emphasize megatrends and apply our core strengths in innovative ways to create high-value solutions for both existing and adjacent markets. We aim to be proactive rather than solely reacting to market forces and fluctuations in our current product offerings. Initially, we will target opportunities in non-transportation power solutions, industrial lighting, and industrial user interface areas—where we can employ our capabilities and drive organic growth in the near future. As I mentioned earlier, we are in the process of transforming the business to gain the right to serve our customers, employees, and shareholders as we embark on the next chapter of Methode's history. Moving to Slide 8, I want to clearly illustrate our refreshed executive management team. While each of these positions and individuals have been publicly announced, collectively seeing them here underscores that Methode is now led by a highly experienced and competent leadership team ready to tackle challenges. This team was assembled over the past seven months and is already delivering results in driving the Methode transformation. Going forward, talent management will become a core competency of Methode. On Slide 9, I’d like to provide an update regarding our transition from a few major legacy programs to a consistent stream of new launches. The GMT1 integrated center console program has reached the end of its lifecycle, resulting in a substantial sales headwind in fiscal '25, with another, smaller impact expected in fiscal '26. The other significant legacy program that has concluded is for EV lighting, which ended in fiscal '24 and poses a similar headwind for fiscal '25. Conversely, we are beginning several new EV programs for Stellantis in fiscal '25. However, the ramp-up for these programs has been slower than we anticipated, affecting our quarter and outlook, though pricing measures have provided some mitigation. As a result, we now foresee sales for fiscal '25 being lower than fiscal '24 rather than holding steady. As we look ahead to fiscal '26, we still expect additional EV program launches for Stellantis, albeit at reduced volumes. We will also be launching a considerable busbar program for GM, which was a takeover award previously mentioned, but we withheld the customer name. This fast-track program showcases GM's confidence in Methode and further diversifies the range of OEMs we're supplying for EV initiatives. This activity is expected to more than counteract the headwinds from the GM T1 roll-off and a major appliance program concluding in fiscal '25. As a result, we maintain the expectation of organic sales growth for fiscal '26. Excluding the non-core appliance business, we could see potential high single-digit organic growth in fiscal '26 in a relatively flat end-market environment. As we navigate this transition in products, we remain subject to market conditions, trends in EV adoption, and the success of our customer program launches. However, as of now, this is the outlook based on our projections, customer forecasts, and third-party data. To summarize on Slide 10, for the quarter, while sales were lower, our gross profit exceeded last year's figures, and we returned to positive free cash flow. EV activity remained steady, representing 24% of total sales, bolstered by strong demand in the data center market, expected to lead to a record year for those products. We complied fully with all debt covenants, and our focus remains on improving fundamental operational metrics, which helped reduce accounts receivable and inventory levels. Additionally, since the first quarter, we have extensively overhauled the executive management team, incorporating five new leaders from outside the organization. Moving forward, our efforts this fiscal year will concentrate on transforming the business while positioning it for profitable growth next fiscal year. At the same time, we will intently work toward executing the remaining six program launches this year while setting the stage for another 27 next year. Our decisive actions to reset performance are anticipated to keep enhancing our operational metrics and cutting costs. As outlined in our transformation roadmap, we will continue to build our capabilities, shift our culture, and outline the next steps in our strategy development. Finally, for fiscal '26, we are reaffirming our guidance for profitable organic sales growth. I am confident that our business is heading in the right direction. I will now hand the call over to Laura for a more detailed review of our third quarter financial results.

Thank you, Jon, and good morning, everyone. Please turn to Slide 12. The third quarter net sales were $239.9 million compared to $259.5 million in fiscal '24, a decrease of 8%. On a sequential basis, sales decreased 18% from the fiscal '25 second quarter. For all the sequential comparisons to the second quarter of this fiscal year, please note that the second quarter had one extra week as we explained last quarter. In addition to the third quarter having one less week in comparison to the second, the third quarter is historically our weakest quarter for sales as it covers the year-end holidays and customer plant shutdowns. As a result, these two factors tend to be a primary driver for most of our sequential financial comparisons. This quarter was the first quarter where the full impact of the GM Center Council and major EV lighting program roll-offs were felt with negligible total sales in the quarter from both. That headwind outpaced the sales contribution that we received from new program launches. We also experienced sales weakness in the commercial vehicle and off-road lighting applications. A bright spot in the quarter was strong sales of power products into data center applications. As Jon mentioned, we are on pace for a record year in sales for those data center products. Third quarter adjusted loss from operations was $1.3 million, an improvement of $1.6 million from fiscal '24. On a sequential basis, adjusted income from operations declined $15.6 million from the fiscal '25 second quarter. Please see the Appendix for a reconciliation of all adjusted measures to GAAP. The improvement in adjusted operating loss year-over-year was driven by higher gross profit. That improvement in gross profit was driven by lower scrap and premium freight as well as other operational execution improvements. On a sequential basis from the second quarter, the lower sales drove more than 100% of the decline as a $4.9 million improvement in SG&A was a partial offset. That improvement in SG&A was mainly driven by lower professional fees and by a reduction of variable management compensation related to financial performance objectives. Overall, the third quarter was transitional in nature as new program sales are starting to replace the legacy program roll-offs. Please turn to Slide 13. Shifting to EBITDA, a non-GAAP financial measure. Third quarter adjusted EBITDA was $12.3 million, up $2.8 million from the same period last year. On a sequential basis, adjusted EBITDA declined $14.4 million from the fiscal '25 second quarter. The adjusted EBITDA benefited year-over-year from higher gross profit. The sequential decline was driven by the lower net sales. Please turn to Slide 14. Third quarter adjusted pretax loss was $7.3 million, an improvement of $3.1 million from fiscal '24. On a sequential basis, adjusted pretax income declined $13.5 million from the fiscal '25 second quarter. The higher gross profit drove the improvement from the prior year, while the sequential decline was driven by the lower net sales. Third quarter adjusted diluted loss per share improved $0.12 from a loss of $0.33 in the same period last fiscal year. This $0.12 improvement was achieved despite the $19.6 million decrease in sales. On a sequential basis, the adjusted earnings per share decreased $0.35 from the fiscal '25 second quarter. The third quarter adjusted EPS excluded a valuation allowance of $6.5 million for U.S. deferred tax assets. The adjusted tax for the quarter was a benefit of $0.3 million. Overall, while operational improvements helped minimize the impact, our third quarter profitability was primarily driven by the lower sales. Please turn to Slide 15. Debt was down $12.7 million from the second quarter, mainly driven by FX. We ended the quarter with $103.8 million in cash, up $6.8 million, driven by improved cash from operations. This improvement was achieved despite a $52.7 million sequential decline in sales. Net debt, a non-GAAP financial measure, decreased by $19.5 million to $224.1 million. As Jon mentioned, we are comfortably in compliance with all of our debt covenants at the end of the third quarter. Please turn to Slide 16. The third quarter's net cash from operating activities was $28.1 million as compared to $28.8 million in fiscal '24. Third quarter capital expenditure was $8.5 million as compared to $16.6 million in fiscal '24, a decrease of $8.1 million. The decrease was driven by proactive delays in the purchases of property, plant and equipment to better match program launch schedules. Third quarter free cash flow, a non-GAAP financial measure, was $19.6 million as compared to $12.2 million in fiscal '24, an increase of $7.4 million. This increase was mainly due to the lower CapEx spending that I just described. Please turn to Slide 17. Regarding forward-looking guidance, it is based on management's best estimates and is subject to change due to a variety of factors as noted at the bottom of this slide. For the fourth quarter, we expect sales to be in a range of $240 million to $255 million. We expect pretax income to be in a range of negative $1 million to positive $3 million. While our transformation efforts have clearly delivered operational improvements, we continue to work through the residual effects from past operating inefficiencies that still have the potential to negatively impact our near-term results. Implied in this fourth quarter guidance is a reduction to our prior guidance for full year sales and pretax income, as shown on the slide. While our full year sales guidance has come down $77 million at the midpoint, the adjusted pretax income has come down only $9 million, a deleveraging of only 12%. This is yet another indication of our operational improvements. The fourth quarter guidance assumes depreciation and amortization of $14 million to $16 million, CapEx of $8 million to $10 million and a tax benefit of $1.5 million to a tax expense of $0.5 million. Looking further ahead to fiscal year '26, we are reaffirming expected net sales to be greater than fiscal '25 and pretax income to be positive and notably greater than fiscal '25. Lastly, we have not included any of the very recent changes to U.S. tariff policy in our guidance. That concludes my comments, and we can then open it up to questions.

Your first question is from John Franzreb with Sidoti. Please go ahead with your question. Your line is active.

Good morning everyone, and thanks for taking the questions. I guess I'd like to start with the quarter in and of itself. When you look at the drop in the revenue profile, especially in light of what maybe some of the anticipation in the lower volume in the EV and hybrid sector, what surprised you really the most about the drop in volumes?

So John, probably we're most disappointed with the some of the delays and ramp ups from our new program launches with our customers. We've been working on this with our customers. We talked about all the launches, and we expected those ramp ups to occur much more aggressively, and that's what we had talked about during our last earnings call. So that would be the biggest surprise.

And how does that program rollout look today, in light of those changes and the confidence level you have that they will continue to roll out, at the pace you anticipate over the coming, say six months?

Yes. As you look at the sales bridge that we laid out, particularly both for fiscal '25 and fiscal '26, you can see that we have lowered our expectations for a couple of those programs, particularly the Stellantis programs. We are actively working with the customer to deal with that from a commercial perspective. We'll keep you and all of our investors up-to-date, as that comes to fruition. But we're still optimistic with regard to the programs. We've seen no cancellations, it's just delays in ramp ups, or change in overall volume expectations. And we're dealing with our customers that way. The other thing that I think is important to note, is the GM program is something that we hadn't talked about before, and is a signal that of how our customers view us, and our opportunity to be a recipient of takeover programs. That is a statement on our customer's view of our health.

Understood. And I guess you talked about you've executed some pricing actions. I'm curious how that stands. Are there still other repricing opportunities, or is that program completed?

No, I mean we, as I said with regard to Stellantis or conversations we have ongoing as we look at these volumes, but with all of our customers, we're in regular conversations with them with regard to economics, with regard to whether there's design changes, or whether there's other things. So it's not just one customer, it is a continual activity. We look at the program profitability, and we look at what our performance should be. We take our responsibility for our things. But we're talking with customers around the globe on an ongoing basis.

And you mentioned - data centers is a bright spot. How much is data center as a percentage of revenue at this point?

So in the quarter it was 7%, and for the fiscal year it should be closer to 9%. And historically we've talked about it being 3% to 5% of our sales. There's been many questions in the first two of our earnings calls with regard to data centers. And the more I get into the organization, the more I get a chance to study it, the more optimistic I am about our ability to bring core competencies to bear to grow this space. So it's part of the reason why we announced what we did with regard to Brad Corrodi. And while this 7% and 9% respectively aren't representative of new strategic direction; it is representative of where the opportunity is, and how we think we can grow upon that.

Okay. And one last question, I'll get back into queue. Can you give us some updated thoughts with what you're seeing in the Class 8 truck market, and how that's impacted your thoughts on guidance?

So the Class 8 truck market as we see it, and I'll just talk about North America for right now. We still see fiscal '25 - calendar '25 as down 5%, and that's in the numbers that we talked to you about our fiscal '26. And when I mentioned to you both from a passenger car and a commercial vehicle standpoint, we're talking about flat to down markets, being high single-digits up in sales and flat to down markets. That includes what we see with regard to commercial vehicles. I guess, one other thing, John, I'll take the opportunity since you asked the question. The team has really done a lot to reinvigorate our relationships with our CV customers, and we're seeing higher RFQ opportunities and really the opportunity to grow that portion of the business more aggressively going forward. I'm optimistic about where we stand with our customers there.

Jon, could I just on that topic, most people think that's a first half calendar year weighted event. As far as the drop in the Class 8 market, is that how you view it or do you think it's going to be flatter down?

We don't try to be a forecasting house. We use whether it's ACT or S&P global for our forecasting, and in talking to customers as well as looking at the forecasting houses. I think that's a fairly common theme, but that's what's in our guidance.

Fair enough. Thank you, sir. I'll get back in the queue.

Of course. Thanks, John.

Your next question is coming from Luke Junk with Baird. Please pose your question. Your line is live.

Good morning. Thanks for taking questions. Jon, maybe to start with, can you just help us unpack the sequential margin momentum in Automotive segment margins this quarter looking - we saw some improvement in the first half of the year. Now they're kind of back where they were in the back half of '24, roughly speaking. I understand there's a lot of moving pieces, and that there's not direct comparability there, but can you just help bucket some of the factors there in terms of overall industry volumes, take rates on EV and now with those programs fully sunsetted, any kind of overhead considerations related to that as well? Thank you.

Yes. So Luke, by the way, good morning and thanks for your question. I would look at it, I would maybe characterize it a little differently than you characterized it. On a for a revenue that we knew that this quarter, and we've talked about the fact that this quarter was going to be challenging from a performance standpoint but also from a revenue standpoint, just from the way our quarters lay out with the holidays. Plus then you have weather issues and EV delays that we talked about. So on a revenue of $239 million for the quarter, and I won't break out the specific regions, if you think about the performance from an adjusted op income basis, versus a comparable quarter last year. So on $20 million less, $19.6 million less in sales, we're actually up from an adjusted operating income basis by $1.6 million. If you would just look at sort of typical downside conversion with regard to revenue, that performance is actually double-digit millions better than between one-timers and conversions. So I'm actually pretty pleased with the operational performance from a scrap perspective, from a premium freight perspective, from an overtime perspective, both in North America and in our EMEA facilities. The progress has been made in Egypt, the performance that we see in our Malta facility, and our continued performance in China, as well as what's happening in Mexico. Our plants are doing a very good job dealing with a lot of turbulence. The EV volumes have really caused our plants to be choppy in how they run. So this year-over-year performance, I think is the best way to evaluate where we are from an operating side. And I'm actually quite optimistic about where we are. I view it as a true drop in our breakeven.

Appreciate the color there. Second, typically include some color on awards in the slides - weren't in the slides this quarter. Any color on current quarter awards and maybe just the industry backdrop as well, relative to auto headwinds, EV moderation, etc.? Thank you.

Yes thanks, Luke. So in the quarter we had $20 million worth of wins. For the year-to-date we're at $130 million. Would we like it to be higher than that, yes? We have a large number of big programs in the pipeline, and whether they'll get awarded in the fourth quarter or whether they'll be in early fiscal '26 awards, I don't know. And as we've said multiple times, awards are lumpy. So we kind of have to average it out over time. The fact that we're talking about high single-digit growth year-over-year tells you that our awards in flat underlying markets tell you that our awards are turning into revenue growth for the company. And you combine that with a lower breakeven and it really portends much better performance for the business going into fiscal '26, which is what we have been talking about the last couple quarters.

Yes. And just on the high single-digit growth expectation. Did you say, Jon that you're excluding the appliance sunset? Did you say that you think that non-essentially?

A true like-for-like comparison. If you look at the bridge that we provided on Slide 9, you take out that appliance program, roll off the $25 million that we showed there. And so, you would subtract that out of the fiscal '25 guidance, and you compare it to the fiscal '26. That's all organic growth then in our base business. So that we're talking about base-to-base.

Got it. And then lastly, know that you're not including tariffs in the guidance, but just given your manufacturing presence in Mexico, anything you can share around preliminary customer discussions, and maybe what your approach might be prospectively, should those actually come into effect in April?

So we've been pretty clear with our customers, and we've, we believe that the way in which we're approaching it is relatively similar to our peers, and that's that we've been proactive. But we basically said we can't bear the extra cost. And so, therefore our actions have been to communicate with our customers that we will not bear that extra cost. To answer your question, about a third of our sales impacted, a third of Methode's overall sales are impacted by the tariff discussions between Mexico, Canada and China. A much larger portion of that into the U.S. is coming out of Mexico obviously. But we are in regular conversations with our customers. We have a war room set up here, and the team is talking about it multiple times today. Multiple times a day, to make sure that we've got the latest information, and our strategies are well defined. It's also giving us an opportunity to make sure that all of our systems are really well refined, and we're using this crisis as an opportunity to make the business better.

That's all I had for now. Thank you.

Thanks Luke.

Your next question is coming from Gary Prestopino with Barrington Research. Please pose your question. Your line is live.

Thanks. Good morning all. Hi Jon, I'm looking at this bridge here, and I was looking at some historical charts from prior bridges, and way back when, at the beginning of the year or whatever, were you anticipating about $84 million Stellantis program launch sales, for this year. And then something like $125 million in fiscal '26, is that correct?

Yes, that's correct, Gary. And thanks for raising that. When we talk about. The question was asked about some of our disappointments, is we've made the investments and we planned these, but we're doing our best to follow our customers and support them. Obviously, we've looked at what based on third-party as well as their feedback, where we see this going both in fiscal '25, '26 and into '27, as these programs ramp up. And so, what you're seeing in the new bridge is our current expectations, both based on third-party as well as customer feedback. And as I said earlier, that does lead us to having to have commercial negotiations and other things.

So these programs have been delayed. I know Stellantis has canceled some model rollouts. Has anything been canceled on you?

No, no, these are not canceled. These are take rates and these are delays, not cancellations. So when we talk about launches, and we have launches going on with EV customer, with customers around the world, and many of them are EV-based. And when we talk about these launches - unfortunately the Stellantis program, is so big that it overwhelms. It overwhelms some of our growth. But if you look at it from an EV standpoint, EV penetration as you think about it in - for the market in the U.S. is 10%. In Europe is 25%. In China it's 40%. We have launches happening in all three regions, with new customers for EV programs. So I think this will balance out over time. But it's a pretty turbulent time, and obviously with the big Stellantis launches, it puts a spotlight on it.

Were all your launches with Stellantis EVs or were they spread out on ICE vehicles too?

It's EVs, and it's EVs and a hybrid, I believe, a hybrid.

Okay. Okay. All right. So you've channeled those down pretty significantly, do you think - a lot. I mean, the market obviously for EVs, has been challenging versus where it was a year ago, or two years ago. But does some of this impact come from the change of leadership at Stellantis since Tavares is no longer there and you've got some new players in there running the company?

Yes, I don't want to make comments about how our customers run. I just think with the election, and with some of the market dynamics It's a - there's a lot of turbulence in the space. Ultimately, did we believe that EVs will be a productive part of the end market in all of our end markets? And again I'm just going to remind you, and our investors that we're selling - into multiple end markets, not just into North America. So yes, the 10% market penetration in North America matters, but in Europe its 25% and in China it's 40%. So we have to be a player in this space, and I think this will stabilize out for our customers and Stellantis in particular. But you see new program launches, and new announcements from General Motors and others. Our customers are still moving forward, with their EV strategies, and we're going to support them.

Okay. Then just two other quick questions. Looking at the slide with transformation update, and then talking about initial exploration of non-transportation power industrial lighting, industrial - user interface. Do you rely on your segment heads, to be the impetus or the initial, for lack of a better word, spotter of these opportunities, or do you have your own in-house corporate finance that's out there actively looking for acquisitions?

Well, so right now, sorry, I want to make sure we've always had a central M&A team. But as I've said to you, as I've said before, our focus from a capital allocation, is on organic growth and on using our core competencies to drive that. The announcement that we made with regard to our new Chief Strategy Officer, really is in alignment with that change in strategic direction, from growth via acquisition to growth via organic growth. And Brad's bringing a focus, will help the central team as well as the business heads to focus on where are those opportunities. And as we said in the script, the near term focus right now is on industrial data centers. Obviously with all of the AI news in the space, as well as what are we doing in some of our other industrial end markets. I believe that between Brad and Lars and some of the other leaders that we've added. It's going to give us, we're going to have opportunities to grow on the automotive and the commercial vehicle side. But because of the timing of those programs, it takes longer to see that growth hit. So the near term organic growth focus is on the non-automotive side, particularly with data centers, and what do we do there. And the fact that we went from a usually 3% to 5% of our sales to 7% and forecasting 9% tells you we've got opportunity, that both we're seeing the opportunities now, and I believe there's a lot more opportunity in the future.

Okay. Just one last quick one, real easy answer, Laura. Are there any issues on the covenants of your debt with buying back stock, since your stock's down pretty precipitously here?

So I'm going to answer that one. We obviously talk at Board level on a regular basis on are the priorities for utilization of our capital and utilization of our cash. We have a Board meeting upcoming in a couple weeks, and certainly those conversations will happen again. Do we like what we see right now with the stock today? No. Do we think there's opportunities given what, given the growth of this business? Yes. Can we answer the question with regard to buybacks right now? No, it wouldn't be appropriate for us to answer that.

Okay. Thank you.

Your next question is a follow-up from John Franzreb with Sidoti. Please pose your question. Your line is live.

Yes, I'm actually just curious. We haven't talked about Nordic Lights in quite some time, and if you could kind of give an update on how that acquisition is performing relative to the expectations when it was acquired over a year ago?

John, I'm really pleased with the team at Nordic Lights. Obviously, we have some challenges in the industrial in their end markets, but we're seeing some green shoots in the beginning of fiscal - not fiscal, but calendar 2025, with regard to that end market. And that impacts both our Nordic Lights business and our Hetronic's business. What I mentioned to you or mentioned in the call with regard to opportunities for continued growth on the industrial lighting side. That is, where - we go next with regard to the product portfolio from a Nordic Lights perspective? And Brad has been working with the leadership team in Nordic Lights, as well as a leadership team in Hetronic's, to try to drive additional growth there. So the team from Nordic Lights, is doing a very good job around the world, and we see more opportunities for growth in fiscal '26 and going forward.

Okay. And it's not being weighed down, by what we're seeing in Europe more so than you anticipated, just context maybe?

Yes. I mean, the end market, the end markets in calendar '24 were certainly down from an industrial perspective, but that team did a very good job of driving performance in spite of lower end markets. And now, we see some of the markets coming back and there is a cyclicality where I'm learning more about that cyclicality versus an automotive or commercial vehicle cyclicality. And the team at Nordic Lights is quite confident as they see the beginning of the year rolling out.

That's good news. Okay. Thank you very much, Jon. I appreciate it.

Thanks for your question, John.

There are no additional questions in the queue at this time. I would now like to turn the floor back over to Jon DeGaynor for any closing remarks.

I want to thank all of you for attending our call and for your questions. We look forward to discussing our continued progress in future calls, and we wish you all a great day. Thanks very much.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.