Methode Electronics, Inc. — FY2024 Form 10-K
Reporting period: Fiscal year ended April 27, 2024 (52 weeks), compared with fiscal 2023 ended April 29, 2023. This is an annual filing, not a fiscal-quarter report. Methode supplies engineered electronic and electromechanical products to transportation, industrial, data-center, appliance and other markets.
Financial performance
| Metric | FY2024 | FY2023 |
|---|---|---|
| Net sales | $1,114.5 million | $1,179.6 million |
| Gross profit / margin | $178.8 million / 16.0% | $264.1 million / 22.4% |
| Operating income (loss) | $(112.0) million | $90.4 million |
| Net income (loss) | $(123.3) million | $77.1 million |
| Diluted EPS | $(3.48) | $2.10 |
| Cash from operations | $47.5 million | $132.8 million |
| Capital expenditures | $50.2 million | $42.0 million |
Operating cash flow less capital expenditures was approximately negative $2.7 million, versus approximately positive $90.8 million in FY2023. The $105.9 million non-cash goodwill impairment was a major contributor to the reported operating and net losses; it fully impaired goodwill in the North American and European Automotive reporting units. Interest expense rose to $16.7 million from $2.7 million, reflecting higher borrowings and interest rates. The income-tax benefit was $4.8 million, with a 3.7% effective tax rate.
Segments and changes from the prior year
- Automotive: Sales fell 18.7% to $598.2 million; gross margin declined to 5.1% from 17.1%. Segment operating loss was $140.2 million, including the $105.9 million goodwill impairment. Lower volumes from program roll-offs and operational problems—including planning deficiencies, inventory shortages, unrecoverable spot buys, premium freight and delayed shipments—were key factors.
- Industrial: Sales rose 19.5% to $460.1 million, primarily because Nordic Lights contributed $85.1 million after its acquisition. Excluding Nordic Lights, currency effects and customer cost recoveries, sales declined 2.0%; operating income fell to $88.8 million from $93.1 million. Gross margin decreased to 29.9% from 33.2%.
- Interface: Sales decreased 2.0% to $53.8 million; operating income increased to $6.9 million from $5.5 million.
- Medical: The segment consisted of Dabir Surfaces. Methode began discontinuing the business in FY2024, sold certain assets and contracts for $1.5 million, and exited the business. The sale resulted in a $0.6 million loss including transaction costs.
Consolidated sales declined 5.5%. Excluding Nordic Lights, foreign currency translation and customer cost recoveries, management reported a decrease of 11.7%. Nordic Lights became wholly owned in October 2023.
Financial position, debt and liquidity
- At April 27, 2024, cash and cash equivalents were $161.5 million; accounts receivable were $262.6 million and inventory was $186.2 million. Total assets were $1,403.5 million and shareholders’ equity was $766.0 million.
- Debt was $333.0 million outstanding under the revolving facility, plus $1.5 million of other debt before unamortized issuance costs; reported total debt was $330.9 million. Cash exceeded reported debt by approximately $169 million, on a simple balance-sheet comparison.
- The company reported compliance with its debt covenants at April 27, 2024, after an earlier-quarter leverage-covenant breach was waived and the covenant amended. Management said liquidity was expected to be sufficient for at least twelve months, but cautioned that prolonged economic pressures or covenant noncompliance could materially affect liquidity.
- A July 9, 2024 post-year-end credit amendment reduced revolving commitments from $750 million to $500 million, secured substantially all personal property of the company and specified subsidiaries, revised financial covenants and increased borrowing costs during specified periods. It also requires monthly lender financial statements through July 2025 and, subject to exceptions, repayment of debt if cash on hand exceeds $65 million for 10 consecutive business days during the specified period.
- Cash dividends were $19.9 million, or $0.56 per share. A new $200 million share-repurchase authorization began June 17, 2024; use of repurchases and dividends is subject to board discretion and debt restrictions.
Outlook, risks and unusual matters
- No numeric financial guidance is provided in the supplied filing text. Management identifies inflation, incomplete recovery of cost increases, geopolitical uncertainty and supply-chain disruption as ongoing pressures. Semiconductor supply conditions improved in FY2024, but further disruption remains possible.
- Management cited lower-than-anticipated EV adoption and OEM adjustments to spending, volumes and launch timing. A significant program for a major EV customer rolled off in FY2024; a major automotive center-console program was expected to roll off before FY2025 ends.
- Customer concentration is significant: the five largest customers generated approximately 40% of FY2024 sales, and one Automotive customer represented 14.6%. Many customer arrangements lack minimum purchase commitments and may be terminated or reduced.
- Leadership turnover is a risk. The former CEO resigned May 1, 2024; an interim CEO was appointed, and Jon DeGaynor was announced as CEO effective July 15, 2024. The CFO’s planned retirement in July 2024 was also disclosed.
- Management concluded disclosure controls were ineffective at year-end. Material weaknesses involved IT general controls, goodwill impairment review controls and accounting for non-routine events and conditions. A prior revenue-control weakness was remediated. Management reported no material identified financial-statement misstatements from the weaknesses; the auditor issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting.
- The long-running Hetronic/Fuchs litigation produced an affirmed final judgment of approximately $22.5 million on state-law claims; further proceedings remain on Lanham Act remedies, and collection is uncertain. Environmental remediation accruals were $0.9 million; costs could exceed accruals.
Important facts for investors to verify
- Whether Automotive execution, launch costs and program roll-offs improve enough to restore segment margins and cash generation.
- Progress on remediation and independent testing of the three year-end material weaknesses, and whether future filings report effective controls.
- Compliance with revised credit covenants, borrowing costs, available revolver capacity and the practical effect of the $65 million cash-prepayment provision.
- Actual performance and valuation assumptions for Nordic Lights, whose remaining goodwill was $43.9 million and whose fair value exceeded carrying value by less than 10% in the annual assessment.
- Customer volume changes, replacement awards for programs ending, and exposure to the major customer representing 14.6% of sales.
- Developments in the Hetronic judgment and collectability, as well as execution of the CEO transition and CFO succession.