METHODE ELECTRONICS INC

Previous wording

Potential impact of securities class action and other litigation;

Current wording

Potential impact of securities class action, other litigation, and government investigations and inquiries;

Previous wording

Although we saw improvements in our supply chain in fiscal 2024, including easing of the worldwide semiconductor supply shortage, new supply chain disruptions may occur in the future. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. We continue to work closely with suppliers and customers to minimize the potential adverse impact from global supply chain disruptions. However, if we are not able to mitigate any direct or indirect supply chain disruptions, this may have a material adverse impact on our financial condition, results of operations and cash flows.

Current wording

Although we saw improvements in our supply chain in fiscal 2024, including easing of the worldwide semiconductor supply shortage, new supply chain disruptions may occur in the future. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. We could also be impacted by changes in government regulations in areas including, but not limited to, trade and tariff regulations, which would increase our costs. We continue to work closely with suppliers and customers to minimize the potential adverse impact from global supply chain disruptions. However, if we are not able to mitigate any direct or indirect supply chain disruptions, this may have a material adverse impact on our financial condition, results of operations and cash flows.

Previous wording

The table below compares our results of operations between the three months ended July 27, 2024 and the three months ended July 29, 2023:

Current wording

The table below compares our results of operations between the three and six months ended November 2, 2024 and the three and six months ended October 28, 2023:

Previous wording

Cost of products sold decreased $21.8 million, or 9.2%, to $213.9 million (82.7% of net sales) in the three months ended July 27, 2024, compared to $235.7 million (81.4% of net sales) in the three months ended July 29, 2023. Foreign currency translation decreased cost of products sold by $1.4 million. Excluding foreign currency translation, cost of products sold decreased $20.4 million. The decrease was primarily due to lower material costs as a result of a decrease in sales volumes, partially offset by higher salary expense and higher costs due to program launches. Restructuring and asset impairment charges included within cost of products sold were $0.3 million in the three months ended July 27, 2024, compared to $0.6 million in the three months ended July 29, 2023.

Current wording

Cost of products sold decreased $22.8 million, or 4.8%, to $448.6 million (81.4% of net sales) in the six months ended November 2, 2024, compared to $471.4 million (81.6% of net sales) in the six months ended October 28, 2023. Foreign currency translation increased cost of products sold by $2.0 million. Excluding foreign currency translation, cost of products sold decreased $24.8 million. The decrease was primarily due to lower material and freight costs as a result of a decrease in sales volumes, partially offset by higher salary expense. Restructuring and asset impairment charges included within cost of products sold were $0.4 million in the six months ended November 2, 2024, compared to $0.8 million in the six months ended October 28, 2023.

Previous wording

Gross profit margin was 17.3% of net sales in the three months ended July 27, 2024, compared to 18.6% of net sales in the three months ended July 29, 2023. The decrease in gross profit margin was primarily a result of lower sales.

Current wording

Gross profit margin was 19.8% of net sales in the three months ended November 2, 2024, compared to 18.2% of net sales in the three months ended October 28, 2023. Gross profit margin was 18.6% of net sales in the six months ended November 2, 2024, compared to 18.4% of net sales in the six months ended October 28, 2023.

Previous wording

Selling and administrative expenses increased $1.7 million, or 3.8%, to $46.2 million (17.9% of net sales) in the three months ended July 27, 2024, compared to $44.5 million (15.4% of net sales) in the three months ended July 29, 2023. The increase was primarily due to higher professional fees, partially offset by lower outbound freight expense, salary expense and stock-based compensation expense. Professional fees include $3.5 million for consulting and interim executive services provided by AlixPartners.

Current wording

Selling and administrative expenses increased $1.7 million, or 4.2%, to $42.6 million (14.6% of net sales) in the three months ended November 2, 2024, compared to $40.9 million (14.2% of net sales) in the three months ended October 28, 2023. The increase was due to higher incentive compensation expense and professional fees, partially offset by lower salary expense. Professional fees include $5.4 million for consulting and interim executive services provided by AlixPartners.

Previous wording

Amortization of intangibles was $5.9 million in the three months ended July 27, 2024, compared to $5.7 million in the three months ended July 29, 2023.

Current wording

Amortization of intangibles was $5.9 million in the three months ended November 2, 2024, compared to $6.2 million in the three months ended October 28, 2023. Amortization of intangibles was $11.8 million in the six months ended November 2, 2024, compared to $11.9 million in the six months ended October 28, 2023.

Previous wording

Interest expense, net was $4.8 million in the three months ended July 27, 2024, compared to $2.8 million in the three months ended July 29, 2023. The increase was due to a higher level of borrowings and increased interest rates.

Current wording

Interest expense, net was $6.2 million in the three months ended November 2, 2024, compared to $4.4 million in the three months ended October 28, 2023. Interest expense, net was $11.0 million in the six months ended November 2, 2024, compared to $7.2 million in the six months ended October 28, 2023. The increase in both periods was due to a higher level of borrowings and increased interest rates.

Previous wording

Other expense, net was $0.8 million in the three months ended July 27, 2024, compared to other expense, net of zero in the three months ended July 29, 2023. Other expense, net in the three months ended July 27, 2024 includes a non-cash write-off of $1.2 million of unamortized debt issuance costs. Net foreign exchange loss was $0.6 million in the three months ended July 27, 2024, compared to net foreign exchange loss of zero in the three months ended July 29, 2023. In the three months ended July 27, 2024, we received $0.9 million of international government assistance.

Current wording

Other expense, net was $2.4 million in the six months ended November 2, 2024, compared to other income, net of $0.2 million in the six months ended October 28, 2023. Other expense, net in the six months ended November 2, 2024 includes a non-cash write-off of $1.2 million of unamortized debt issuance costs. Net foreign exchange loss was $2.3 million in the six months ended November 2, 2024, compared to net foreign exchange gain of $0.5 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we received $1.0 million of international government assistance.

Previous wording

Income tax expense was $5.2 million (-39.7% effective tax rate) in the three months ended July 27, 2024, compared to $0.1 million (10.0% effective tax rate) in the three months ended July 29, 2023.

Current wording

Income tax expense was $3.2 million (200.0% effective tax rate) in the three months ended November 2, 2024, compared to an income tax benefit of $0.2 million (0.4% effective tax rate) in the three months ended October 28, 2023. Income tax expense was $8.4 million (-73.0% effective tax rate) in the six months ended November 2, 2024, compared to an income tax benefit of $0.1 million (0.2% effective tax rate) in the six months ended October 28, 2023.

Previous wording

The effective tax rate for the three months ended July 27, 2024 was higher than the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for U.S. deferred tax assets and global intangible low-tax income, partially offset by the impact of income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions. The effective tax rate for the three months ended July 29, 2023 was lower than the U.S. federal statutory tax rate of 21% primarily due to income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions, partially offset by global intangible low-tax income and non-deductible expenses.

Current wording

The effective tax rate for the three and six months ended November 2, 2024 was higher than the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for U.S. deferred tax assets and global intangible low-tax income, partially offset by the impact of income derived from foreign operations with lower statutory tax rates, research deductions claimed in foreign jurisdictions and foreign exchange loss. The effective tax rate for the three and six months ended October 28, 2023 was lower than the U.S. federal statutory tax rate of 21% primarily due to income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions, partially offset by global intangible low-tax income and non-deductible expenses.

Previous wording

Net loss was $18.3 million in the three months ended July 27, 2024, compared to net income of $0.9 million in the three months ended July 29, 2023. The net loss was a result of the reasons described above.

Current wording

Net loss was $1.6 million in the three months ended November 2, 2024, compared to $55.3 million in the three months ended October 28, 2023. Net loss was $19.9 million in the six months ended November 2, 2024, compared to $54.4 million in the six months ended October 28, 2023. The net loss was a result of the reasons described above.

Previous wording

Net sales in North America decreased $0.5 million to $66.3 million in the three months ended July 27, 2024, compared to $66.8 million in the three months ended July 29, 2023. The decrease was due to the roll off of legacy programs offset by new program launches. Net sales in EMEA increased $7.1 million to $59.3 million in the three months ended July 27, 2024, compared to $52.2 million in the three months ended July 29, 2023. The weaker euro, relative to the U.S. dollar, decreased net sales in EMEA by $0.7 million. Excluding foreign currency translation, net sales in EMEA increased $7.8 million due to increased demand for user interface and switch products, partially offset by lower sales volumes of sensor products. Net sales in Asia decreased $30.1 million to $9.2 million in the three months ended July 27, 2024, compared to $39.3 million in the three months ended July 29, 2023. The decrease was primarily due to a program roll-off and lower sales volumes of lead frame products.

Current wording

Net sales in North America decreased $1.7 million to $136.0 million in the six months ended November 2, 2024, compared to $137.7 million in the six months ended October 28, 2023. The decrease was due to the roll off of legacy programs offset by new program launches. Net sales in EMEA increased $23.9 million to $125.8 million in the six months ended November 2, 2024, compared to $101.9 million in the six months ended October 28, 2023. The stronger euro, relative to the U.S. dollar, increased net sales in EMEA by $1.3 million. Excluding foreign currency translation, net sales in EMEA were higher due to new program launches, partially offset by lower sales volumes of sensor products. Net sales in Asia decreased $54.5 million to $18.5 million in the six months ended November 2, 2024, compared to $73.0 million in the six months ended October 28, 2023. The decrease was primarily due to a program roll-off.

Previous wording

Automotive segment loss from operations was $5.7 million in the three months ended July 27, 2024, compared to $2.8 million in the three months ended July 29, 2023. The higher loss from operations was primarily due to lower gross profit, partially offset by lower selling and administrative expenses. Selling and administrative expenses decreased due to lower outbound freight expense.

Current wording

Automotive segment loss from operations was $5.0 million in the six months ended November 2, 2024, compared to $64.3 million in the six months ended October 28, 2023. Loss from operations in the six months ended October 28, 2023, includes goodwill impairment of $56.5 million. Excluding goodwill impairment and foreign currency translation, loss from operations decreased $2.8 million. The improvement was due to lower selling and administrative expenses, partially offset by lower gross profit. Selling and administrative expenses decreased due to lower outbound freight, travel and entertainment expense, compensation expense and professional fees.

Previous wording

Industrial segment net sales decreased $3.9 million, or 3.4%, to $111.5 million in the three months ended July 27, 2024, compared to $115.4 million in the three months ended July 29, 2023. Excluding foreign currency translation, net sales decreased $3.2 million. The decrease was primarily due to lower sales volumes for lighting products in the commercial vehicle and off-road equipment markets, partially offset by higher sales volumes of power distribution products for electric vehicle and data centers.

Current wording

The increase in both periods was due to higher sales volumes of power distribution products for data centers, partially offset by lower sales volumes for lighting products in the commercial vehicle and off-road equipment markets.

Previous wording

Industrial segment gross profit decreased $2.8 million, or 7.9%, to $32.8 million in the three months ended July 27, 2024, compared to $35.6 million in the three months ended July 29, 2023. Excluding foreign currency translation, gross profit decreased $2.6 million. Gross profit margins decreased to 29.4% in the three months ended July 27, 2024, compared to 30.8% in the three months ended July 29, 2023. Gross profit margins were impacted by product mix.

Current wording

Industrial segment gross profit increased $0.1 million, or 0.3%, to $38.0 million in the three months ended November 2, 2024, compared to $37.9 million in the three months ended October 28, 2023. Excluding foreign currency translation, gross profit decreased $0.6 million. Gross profit margins decreased to 28.9% in the three months ended November 2, 2024, compared to 31.5% in the three months ended October 28, 2023. Gross profit margins were impacted by product mix and higher operating expenses.

Previous wording

Industrial segment income from operations decreased $7.3 million, or 30.2%, to $16.9 million in the three months ended July 27, 2024, compared to $24.2 million in the three months ended July 29, 2023. The decrease was primarily due to lower gross profit and higher selling and administrative expenses. The increase in selling and administrative expenses was primarily due to higher professional fees and an increase in bad debt expense.

Current wording

Industrial segment income from operations decreased $8.7 million, or 17.4%, to $41.2 million in the six months ended November 2, 2024, compared to $49.9 million in the six months ended October 28, 2023. Excluding foreign currency translation, income from operations decreased $9.0 million. The decrease was primarily due to lower gross profit and higher selling and administrative expenses. The increase in selling and administrative expenses was primarily due to higher legal fees and compensation expense.

Previous wording

Interface segment net sales decreased $3.0 million, or 19.7%, to $12.2 million in the three months ended July 27, 2024, compared to $15.2 million in the three months ended July 29, 2023. The decrease was due to lower sales volumes of touch panels for appliances and transceivers for servers.

Current wording

Interface segment net sales increased $4.0 million, or 34.2% to $15.7 million in the three months ended November 2, 2024, compared to $11.7 million in the three months ended October 28, 2023. The increase was primarily due to higher sales volumes of transceivers for servers and touch panels for appliances.

Previous wording

As of July 27, 2024, we had $111.3 million of cash and cash equivalents, of which $57.4 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, without creating material additional income tax expense.

Current wording

As of November 2, 2024, we had $97.0 million of cash and cash equivalents, of which $49.8 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, without creating material additional income tax expense.

Previous wording

On March 31, 2021, as subsequently amended on June 16, 2022, the Board of Directors authorized the purchase of up to $200.0 million of our outstanding common stock through June 14, 2024 (the “2021 Buyback Authorization”). On June 13, 2024, the Board of Directors approved a new share buyback authorization, commencing on June 17, 2024, for the purchase of up to $200.0 million of our outstanding common stock through June 17, 2026 (the “2024 Buyback Authorization”). Purchases may be made on the open market, including pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions. Prior to its expiration, a total of 3,553,961 shares were purchased under the 2021 Buyback Authorization at a total cost of $134.6 million. No further shares can be purchased under the 2021 Buyback Authorization. In the three months ended July 27, 2024, we did not purchase any shares under the 2024 Buyback Authorization. As of July 27, 2024, the dollar value of shares that remained available to be purchased under 2024 Buyback Authorization was $200.0 million.

Current wording

On March 31, 2021, as subsequently amended on June 16, 2022, the Board of Directors authorized the purchase of up to $200.0 million of our outstanding common stock through June 14, 2024 (the “2021 Buyback Authorization”). On June 13, 2024, the Board of Directors approved a new share buyback authorization, commencing on June 17, 2024, for the purchase of up to $200.0 million of our outstanding common stock through June 17, 2026 (the “2024 Buyback Authorization”). Purchases may be made on the open market, including pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, or in private transactions. Prior to its expiration, a total of 3,553,961 shares were purchased under the 2021 Buyback Authorization at a total cost of $134.6 million. No further shares can be purchased under the 2021 Buyback Authorization. In the three and six months ended November 2, 2024, zero and 136,000 shares were purchased under the 2021 Buyback Authorization and no shares were purchased under the 2024 Buyback Authorization. As of November 2, 2024, the dollar value of shares that remained available to be purchased under 2024 Buyback Authorization was $200.0 million.

Previous wording

As of July 27, 2024, the outstanding balance under the revolving credit facility consisted of $298.6 million (€275.0 million) of euro-denominated borrowings. The Amended Credit Agreement contains various representations and warranties, financial covenants (including covenants requiring us to maintain compliance with a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio, in each case as of the end of each fiscal quarter of the Company), restrictive and other covenants, and events of default. The covenants in the Amended Credit Agreement include an “anti-cash hoarding” requirement, as discussed above. As of July 27, 2024, we were in compliance with all the covenants in the Amended Credit Agreement. For further information, see Note 8, “Debt” to the condensed consolidated financial statements included in this Report.

Current wording

As of November 2, 2024, the outstanding balance under the revolving credit facility consisted of $297.9 million (€275.0 million) of euro-denominated borrowings and $45.0 million of US denominated borrowings. The Amended Credit Agreement contains various representations and warranties, financial covenants (including covenants requiring us to maintain compliance with a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio, in each case as of the end of each fiscal quarter of the Company), restrictive and other covenants, and events of default. The covenants in the Amended Credit Agreement include an “anti-cash hoarding” requirement, as discussed above. As of November 2, 2024, we were in compliance with all the covenants in the Amended Credit Agreement. For further information, see Note 8, “Debt” to the condensed consolidated financial statements included in this Report.

Previous wording

Although we currently anticipate, based on our current projections and analyses, that we will be in compliance with the financial covenants contained in the Amended Credit Agreement, no assurance can be given that we will be and remain in compliance with such covenants in the future. Factors that could increase our risk of future non-compliance include those identified in Part I – Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended April 27, 2024.

Current wording

Although we currently anticipate, based on our current projections and analyses, that we will be in compliance with the financial covenants contained in the Amended Credit Agreement, no assurance can be given that we will be and remain in compliance with such covenants in the future. Factors that could increase our risk of future non-compliance include those identified in Part I – Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended April 27, 2024, as supplemented by subsequent filings with the Securities and Exchange Commission, including under Part II – Item 1A, “Risk Factors” of this Quarterly Report.

Previous wording

Net cash provided by operating activities was $10.9 million in the three months ended July 27, 2024, compared to net cash used in operating activities of $5.6 million in the three months ended July 29, 2023. The improvement was due to higher cash inflows from operating assets and liabilities. The $11.4 million of cash inflows for operating assets and liabilities in the three months ended July 27, 2024 was primarily due to lower accounts receivable and higher accounts payable, partially offset by higher inventory, prepaid expenses and lower other liabilities.

Current wording

Net cash used in operating activities was $37.1 million in the six months ended November 2, 2024, compared to $6.2 million in the six months ended October 28, 2023. The increase was due to a higher net loss adjusted for non-cash items and higher cash outflows from operating assets and liabilities. The $54.7 million of cash outflows for operating assets and liabilities in the six months ended November 2, 2024 was primarily due to higher inventory and lower other liabilities, partially offset by lower accounts receivable.

Previous wording

Net cash used in financing activities was $48.2 million in the three months ended July 27, 2024, compared to net cash provided by financing activities of $12.5 million in the three months ended July 29, 2023. In the three months ended July 27, 2024, we used $1.6 million of cash for the purchase of shares under the 2021 Buyback Authorization, compared to no share repurchases in the three months ended July 29, 2023. We paid cash dividends of $5.1 million in the three months ended July 27, 2024, compared to $5.3 million in the three months ended July 29, 2023. In the three months ended July 27, 2024, we had net repayments of borrowings of $39.1 million, compared to net proceeds from borrowings of $31.9 million in the three months ended July 29, 2023. In the three months ended July 27, 2024, we paid $1.8 million of debt issuance costs associated with the Second Amendment. In the three months ended July 29, 2023, we paid $10.2 million for the purchase of redeemable noncontrolling interests related to Nordic Lights.

Current wording

Net cash used in financing activities was $8.1 million in the six months ended November 2, 2024, compared to net cash provided by financing activities of $1.9 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we used $1.6 million of cash for the purchase of shares under the 2021 Buyback Authorization, compared to $7.8 million in the six months ended October 28, 2023. We paid cash dividends of $10.0 million in the six months ended November 2, 2024, compared to $10.1 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we had net proceeds from borrowings of $5.9 million, compared to net proceeds from borrowings of $34.6 million in the six months ended October 28, 2023. In the six months ended November 2, 2024, we paid $1.8 million of debt issuance costs associated with the Second Amendment. In the six months ended October 28, 2023, we paid $10.9 million for the purchase of redeemable noncontrolling interests related to Nordic Lights.