# Methode Electronics Inc: Form 10-Q for the period ended Jan 27, 2024

- Company: [Methode Electronics Inc](/companies/mei.md) (CIK 65270)
- Form: 10-Q
- Filed: 2024-03-07
- Accepted by EDGAR: Mar 7, 2024, 12:01 ET
- Period: 2024-01-27
- Accession: 0000950170-24-027579
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/65270/000095017024027579/mei-20240127.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/65270/000095017024027579/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-01-27.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-29 to 2024-01-27 | $259.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-04-30 to 2024-01-27 | $837.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-10-29 to 2024-01-27 | $222.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-04-30 to 2024-01-27 | $693.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-10-29 to 2024-01-27 | $37.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-04-30 to 2024-01-27 | $143.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-10-29 to 2024-01-27 | $33.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-04-30 to 2024-01-27 | $119.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-10-29 to 2024-01-27 | −$3.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-04-30 to 2024-01-27 | −$50.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-10-29 to 2024-01-27 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-04-30 to 2024-01-27 | $1.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-29 to 2024-01-27 | −$11.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-04-30 to 2024-01-27 | −$66.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-29 to 2024-01-27 | −$0.33 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-04-30 to 2024-01-27 | −$1.86 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-29 to 2024-01-27 | −$0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-04-30 to 2024-01-27 | −$1.86 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-29 to 2024-01-27 | 35,327,995 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-04-30 to 2024-01-27 | 35,562,513 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-04-30 to 2024-01-27 | $22.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-04-30 to 2024-01-27 | $41.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-10-29 to 2024-01-27 | $4.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2023-04-30 to 2024-01-27 | $15.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-04-30 to 2024-01-27 | $10.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-01-27 | $122.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-01-27 | $629.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-01-27 | $1.49bn | us-gaap:Assets |
| Current liabilities | at 2024-01-27 | $229.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-01-27 | $656.5m | us-gaap:Liabilities |
| Long-term debt | at 2024-01-27 | $331.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-01-27 | $200.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-01-27 | $835.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,201 characters.

As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc. and its subsidiaries.

### CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or our strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook,” “upcoming,” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

- Dependence on our supply chain, including semiconductor suppliers;
- Impact from pandemics, such as the COVID-19 pandemic;
- Dependence on the automotive and commercial vehicle industries;
- Impact from inflation;
- Dependence on a small number of large customers, including one large automotive customer;
- Risks relating to our use of requirements contracts;
- Failure to attract and retain qualified personnel;
- Risks related to conducting global operations;
- Potential work stoppages;
- Dependence on the availability and price of materials;
- Timing, quality and cost of new program launches;
- Ability to compete effectively;
- Ability to withstand pricing pressures, including price reductions;
- Our lengthy sales cycle;
- Ability to successfully benefit from acquisitions and divestitures;
- Impact from production delays or cancelled orders;
- Investment in programs prior to the recognition of revenue;
- Electric vehicle ("EV") adoption rates;
- Ability to withstand business interruptions;
- Breaches to our information technology systems or service interruptions;
- Ability to keep pace with rapid technological changes;
- Ability to protect our intellectual property;
- Costs associated with environmental, health and safety regulations;
- International trade disputes resulting in tariffs and our ability to mitigate tariffs;
- Impact from climate change and related regulations;
- Ability to avoid design or manufacturing defects;
- Ability to remediate a material weakness in our internal control over financial reporting;
- Recognition of goodwill and other intangible asset impairment charges;
- Ability to manage our debt levels and comply with restrictions and covenants under our credit agreement;
- Interest rate changes and variable rate instruments;
- Currency fluctuations;
- Adjustments to compensation expense for performance-based awards;
- Timing and magnitude of costs associated with restructuring activities;
- Income tax rate fluctuations; and
- Judgments related to accounting for tax positions.

Additional details and factors are discussed under the caption “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended April 29, 2023. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Any forward-looking statements made by us speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

### Overview

We are a leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. We design, engineer and produce mechatronic products for Original Equipment Manufacturers (“OEMs”) utilizing our broad range of technologies for user interface, light-emitting diode (“LED”) lighting system, power distribution and sensor applications.

Our solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment and consumer appliance. Our business is managed on a segment basis, with those segments being Automotive, Industrial, Interface and Medical.

In the first quarter of fiscal 2024, we made the decision to initiate the discontinuation of the Dabir business in the Medical segment. In October 2023, we sold certain assets of the Dabir business, and no longer operate this business. For further information, see Note 3, “Acquisition and Disposition” to the condensed consolidated financial statements included in this Report.

### Impacts of Macroeconomic and Geopolitical Conditions

Adverse macroeconomic conditions, including but not limited to inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, wage and commodity inflation, currency fluctuations and new or increased tariffs, could adversely affect demand for our products. We continue to monitor the Russia-Ukraine war and the associated sanctions and other restrictions. We also are monitoring the Israel-Hamas war. Although we have no operations in Russia, Ukraine or Israel, certain of our customers and suppliers have been negatively impacted by these events, which in turn has impacted markets where we do business, including EMEA and Asia. The economic sanctions imposed on Russia have further increased existing global supply chain, logistics, and inflationary challenges. The full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor the conflicts and assess the related restrictions and other effects on our employees, customers, and business.

### Global Supply Chain Disruptions

Due to various factors that are beyond our control, there continue to be global supply chain disruptions, including a worldwide semiconductor supply shortage. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. The semiconductor supply shortage is due, in part, to increased demand across multiple industries, including the automotive industry, resulting in a slowdown in their production schedules. The semiconductor supply shortage is also impacting our supply chain and our ability to meet demand at some of our non-automotive customers. We expect this semiconductor shortage to have a continued impact on our operating results and financial condition in fiscal 2024.

### Acquisition of Nordic Lights

We acquired 92.2% of the outstanding shares of Nordic Lights on April 20, 2023. We acquired the remaining 7.8% of the outstanding shares of Nordic Lights in the nine months ended January 27, 2024. Accordingly, as of January 27, 2024, we own 100% of Nordic Lights. The results of operations of Nordic Lights are reported within the Industrial segment. For further information, see Note 3, “Acquisition and Disposition” to the condensed consolidated financial statements included in this Report.

### Consolidated Results of Operations

The table below compares our results of operations between the three and nine months ended January 27, 2024 and the three and nine months ended January 28, 2023:

*(in millions)*

|  | Three Months Ended January 27, 2024 | January 28, 2023 | Nine Months Ended January 27, 2024 | January 28, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $259.5 | $280.1 | $837.2 | $878.4 |
| Cost of products sold | 222.5 | 215.2 | 693.9 | 677.6 |
| Gross profit | 37.0 | 64.9 | 143.3 | 200.8 |
| Selling and administrative expenses | 33.9 | 32.9 | 119.3 | 104.8 |
| Goodwill impairment | — | — | 56.5 | — |
| Amortization of intangibles | 6.1 | 4.7 | 18.0 | 14.1 |
| Interest expense, net | 5.0 | 0.8 | 12.2 | 1.3 |
| Other expense (income), net | 2.5 | 3.5 | 2.3 | (1.7) |
| Income tax expense | 1.1 | 3.1 | 1.0 | 13.3 |
| Net (loss) income | (11.6) | 19.9 | (66.0) | 69.0 |
| Net income attributable to redeemable noncontrolling interest | — | — | — | — |
| Net (loss) income attributable to Methode | $(11.6) | $19.9 | $(66.0) | $69.0 |

### Net sales

Net sales decreased $20.6 million, or 7.4%, to $259.5 million in the three months ended January 27, 2024, compared to $280.1 million in the three months ended January 28, 2023. The decrease was primarily due to lower sales volumes in the Automotive segment, partially offset by the acquisition of Nordic Lights, which contributed $21.2 million of net sales to the Industrial segment, and favorable foreign currency translation of $1.5 million. Net sales included customer cost recoveries from spot buys of materials and premium freight costs of $0.6 million in the three months ended January 27, 2024, compared to $1.4 million in the three months ended January 28, 2023. Excluding the impact of Nordic Lights, foreign currency translation and customer cost recoveries, net sales decreased $42.5 million, or 15.2%, mainly due to the roll-off of a major automotive center console program in North America in the Automotive segment.

Net sales decreased $41.2 million, or 4.7%, to $837.2 million in the nine months ended January 27, 2024, compared to $878.4 million in the nine months ended January 28, 2023. The decrease was primarily due to lower sales volumes in the Automotive segment, partially offset by the acquisition of Nordic Lights, which contributed $63.3 million of net sales to the Industrial segment, and favorable foreign currency translation of $5.5 million. Net sales included customer cost recoveries from spot buys of materials and premium freight costs of $1.9 million in the nine months ended January 27, 2024, compared to $18.3 million in the nine months ended January 28, 2023. Excluding the impact of Nordic Lights, foreign currency translation and customer cost recoveries, net sales decreased $93.6 million, or 10.9%, mainly due to the roll-off of a major automotive center console program in North America in the Automotive segment.

### Cost of products sold

Cost of products sold increased $7.3 million, or 3.4%, to $222.5 million (85.7% of net sales) in the three months ended January 27, 2024, compared to $215.2 million (76.8% of net sales) in the three months ended January 28, 2023. The acquisition of Nordic Lights and foreign currency translation accounted for $15.8 million and $1.0 million, respectively, of the increase. Excluding Nordic Lights and foreign currency translation, cost of products sold decreased $9.5 million. The decrease was primarily due to lower material costs as a result of a decrease in sales volumes, partially offset by higher salary and operating expenses.

Cost of products sold increased $16.3 million, or 2.4%, to $693.9 million (82.9% of net sales) in the nine months ended January 27, 2024, compared to $677.6 million (77.1% of net sales) in the nine months ended January 28, 2023. The acquisition of Nordic Lights and foreign currency translation accounted for $46.6 million and $3.9 million, respectively, of the increase. Excluding Nordic Lights and foreign currency translation, cost of products sold decreased $34.2 million. The decrease was primarily due to lower material costs as a result of a decrease in sales volumes, partially offset by higher salary, freight and operating expenses. Restructuring costs were $0.9 million in the nine months ended January 27, 2024, compared to $0.1 million in the nine months ended January 28, 2023.

### Gross profit margin

Gross profit margin was 14.3% of net sales in the three months ended January 27, 2024, compared to 23.2% of net sales in the three months ended January 28, 2023. The decrease in gross profit margin was primarily a result of lower sales and higher costs in the Automotive segment related to operational inefficiencies and upcoming product launches.

Gross profit margin was 17.1% of net sales in the nine months ended January 27, 2024, compared to 22.9% of net sales in the nine months ended January 28, 2023. The decrease in gross profit margin was primarily a result of lower sales and operational inefficiencies in the Automotive segment. The operational inefficiencies were caused mainly by labor and vendor issues which led to planning deficiencies, inventory shortages, unrecoverable spot purchases and premium freight, and delayed shipments.

### Selling and administrative expenses

Selling and administrative expenses increased $1.0 million, or 3.0%, to $33.9 million (13.1% of net sales) in the three months ended January 27, 2024, compared to $32.9 million (11.7% of net sales) in the three months ended January 28, 2023. The acquisition of Nordic Lights and foreign currency translation accounted for $2.4 million and $0.2 million, respectively, of the increase. Excluding Nordic Lights and foreign currency translation, selling and administrative expenses decreased $1.6 million primarily due to lower stock-based compensation expense, partially offset by higher professional fees, incentive compensation and salary expense. Stock-based compensation expense was lower due to a $3.6 million reversal of expense due to forfeitures in the period.

Selling and administrative expenses increased $14.5 million, or 13.8%, to $119.3 million (14.2% of net sales) in the nine months ended January 27, 2024, compared to $104.8 million (11.9% of net sales) in the nine months ended January 28, 2023. The acquisition of Nordic Lights and foreign currency translation accounted for $7.0 million and $1.6 million, respectively, of the increase. Excluding Nordic Lights and foreign currency translation, selling and administrative expenses increased $5.9 million. The increase was primarily due to higher professional fees, outbound freight expense and salary expense, partially offset by lower stock-based compensation expense. Stock-based compensation expense was lower due to a $3.6 million reversal of expense due to forfeitures in the three months ended January 27, 2024.

### Goodwill impairment

In the nine months ended January 27, 2024, we recognized a goodwill impairment of $56.5 million in the Automotive segment. For further information, see Note 6, "Goodwill and Other Intangible Assets" to the condensed consolidated financial statements included in this Report.

### Amortization of intangibles

Amortization of intangibles was $6.1 million in the three months ended January 27, 2024, compared to $4.7 million in the three months ended January 28, 2023. Amortization of intangibles was $18.0 million in the nine months ended January 27, 2024, compared to $14.1 million in the nine months ended January 28, 2023. The increase in both periods was due to the recognition of amortization expense associated with the acquisition of Nordic Lights.

### Interest expense, net

Interest expense, net was $5.0 million in the three months ended January 27, 2024, compared to $0.8 million in the three months ended January 28, 2023. Interest expense, net was $12.2 million in the nine months ended January 27, 2024, compared to $1.3 million in the nine months ended January 28, 2023. The increase in both periods was due to a higher level of borrowings and increased interest rates.

### Other expense (income), net

Other expense, net was $2.5 million in the three months ended January 27, 2024, compared to $3.5 million in the three months ended January 28, 2023. Net foreign exchange loss was $2.8 million in the three months ended January 27, 2024, compared to $3.9 million in the three months ended January 28, 2023.

Other expense, net was $2.3 million in the nine months ended January 27, 2024, compared to other income, net of $1.7 million in the nine months ended January 28, 2023. Net foreign exchange loss was $2.2 million in the nine months ended January 27, 2024, compared to $3.1 million in the nine months ended January 28, 2023. In the nine months ended January 27, 2024, we received $0.3 million of international government assistance, compared to $4.6 million in the nine months ended January 28, 2023. In the nine months ended January 27, 2024, we recognized a $0.6 million loss on the sale of certain assets of Dabir.

### Income tax expense

Income tax expense was $1.1 million (-10.5% effective tax rate) in the three months ended January 27, 2024, compared to $3.1 million (13.5% effective tax rate) in the three months ended January 28, 2023. Income tax expense was $1.0 million (-1.5% effective tax rate) in the nine months ended January 27, 2024, compared to $13.3 million (16.2% effective tax rate) in the nine months ended January 28, 2023.

The effective tax rate for the three months ended January 27, 2024 was lower than the U.S. federal statutory tax rate of 21% primarily due to the impact of 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. The effective tax rate for the nine months ended January 27, 2024 was lower than the U.S. federal statutory tax rate of 21% primarily due to the impact of an impairment of goodwill which is non-deductible for tax purposes, 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. The effective tax rate for the three and nine months ended January 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 non-deductible expenses.

### Net (loss) income

Net loss was $11.6 million in the three months ended January 27, 2024, compared to net income of $19.9 million in the three months ended January 28, 2023. The acquisition of Nordic Lights contributed $0.9 million of net income and the impact of foreign currency translation increased net income by $0.3 million. Excluding Nordic Lights and foreign currency translation, net income decreased $32.7 million as a result of the reasons described above.

Net loss was $66.0 million in the nine months ended January 27, 2024, compared to net income of $69.0 million in the nine months ended January 28, 2023. The acquisition of Nordic Lights contributed $2.8 million of net income and the impact of foreign currency translation increased net income by $0.3 million. Excluding Nordic Lights and foreign currency translation, net income decreased $138.1 million as a result of the reasons described above.

### Reportable Operating Segments

### Automotive

*($ in millions)*

| Net sales | Three Months Ended January 27, 2024 | January 28, 2023 | Nine Months Ended January 27, 2024 | January 28, 2023 |
| --- | ---: | ---: | ---: | ---: |
| North America | $56.7 | $82.9 | $194.4 | $275.4 |
| Europe, the Middle East & Africa ("EMEA") | 52.0 | 56.3 | 153.9 | 162.3 |
| Asia | 31.0 | 37.3 | 104.0 | 112.3 |
| Net sales | 139.7 | 176.5 | 452.3 | 550.0 |
| Gross profit | $4.5 | $32.0 | $31.4 | $99.7 |
| As a percent of net sales | 3.2% | 18.1% | 6.9% | 18.1% |
| (Loss) income from operations | $(11.0) | $18.7 | $(75.3) | $56.8 |
| As a percent of net sales | (7.9)% | 10.6% | (16.6)% | 10.3% |
| Customer cost recoveries: |  |  |  |  |
| North America | $— | $0.2 | $— | $9.6 |
| EMEA | 0.3 | 0.5 | 0.8 | 1.8 |
| Asia | — | — | — | 0.6 |
| Total | $0.3 | $0.7 | $0.8 | $12.0 |

30

#### Net sales

Automotive segment net sales decreased $36.8 million, or 20.8%, to $139.7 million in the three months ended January 27, 2024, compared to $176.5 million in the three months ended January 28, 2023. Excluding foreign currency translation and customer cost recoveries, net sales decreased $37.5 million, or 21.3%.

Net sales in North America decreased $26.2 million to $56.7 million in the three months ended January 27, 2024, compared to $82.9 million in the three months ended January 28, 2023. Excluding customer cost recoveries, net sales decreased $26.0 million primarily due to lower sales volumes from program roll-offs. Net sales in EMEA decreased $4.3 million to $52.0 million in the three months ended January 27, 2024, compared to $56.3 million in the three months ended January 28, 2023. The stronger euro, relative to the U.S. dollar, increased net sales in EMEA by $1.8 million. Excluding foreign currency translation and customer cost recoveries, net sales in EMEA decreased $5.9 million primarily due to lower sales volumes of sensor products. Net sales in Asia decreased $6.3 million to $31.0 million in the three months ended January 27, 2024, compared to $37.3 million in the three months ended January 28, 2023. The weaker Chinese renminbi, relative to the U.S. dollar, decreased net sales in Asia by $0.7 million. Excluding foreign currency translation and customer cost recoveries, net sales in Asia decreased $5.6 million due to a program roll-off and lower sales volumes of overhead consoles and lead-frame assemblies.

Automotive segment net sales decreased $97.7 million, or 17.8%, to $452.3 million in the nine months ended January 27, 2024, compared to $550.0 million in the nine months ended January 28, 2023. Excluding foreign currency translation and customer cost recoveries, net sales decreased $89.8 million, or 16.7%.

Net sales in North America decreased $81.0 million to $194.4 million in the nine months ended January 27, 2024, compared to $275.4 million in the nine months ended January 28, 2023. Excluding customer cost recoveries, net sales decreased $71.4 million primarily due to lower sales volumes from program roll-offs, including a major center console program. Net sales in EMEA decreased $8.4 million to $153.9 million in the nine months ended January 27, 2024, compared to $162.3 million in the nine months ended January 28, 2023. The stronger euro, relative to the U.S. dollar, increased net sales in EMEA by $7.7 million. Excluding foreign currency translation and customer cost recoveries, net sales in EMEA decreased $15.1 million due to lower sales volumes of sensor products. Net sales in Asia decreased $8.3 million to $104.0 million in the nine months ended January 27, 2024, compared to $112.3 million in the nine months ended January 28, 2023. The weaker Chinese renminbi, relative to the U.S. dollar, decreased net sales in Asia by $4.4 million. Excluding foreign currency translation and customer cost recoveries, net sales in Asia decreased $3.3 million primarily due to a program roll-off and lower sales volumes of overhead consoles.

#### Gross profit

Automotive segment gross profit decreased $27.5 million, or 85.9%, to $4.5 million in the three months ended January 27, 2024, compared to $32.0 million in the three months ended January 28, 2023. Excluding the impact of foreign currency translation, gross profit decreased $28.0 million. Gross profit margins decreased to 3.2% in the three months ended January 27, 2024, compared to 18.1% in the three months ended January 28, 2023.

Automotive segment gross profit decreased $68.3 million, or 68.5%, to $31.4 million in the nine months ended January 27, 2024, compared to $99.7 million in the nine months ended January 28, 2023. Excluding the impact of foreign currency translation, gross profit decreased $69.3 million. Gross profit margins decreased to 6.9% in the nine months ended January 27, 2024, compared to 18.1% in the nine months ended January 28, 2023.

The decrease in gross profit margins in both periods was due to lower sales volumes and operational inefficiencies in North America caused mainly by labor and vendor issues which led to planning deficiencies, inventory shortages, unrecoverable spot purchases and premium freight, and delayed shipments.

#### (Loss) income from operations

Automotive segment loss from operations was $11.0 million in the three months ended January 27, 2024, compared to income of $18.7 million in the three months ended January 28, 2023. Excluding the impact of foreign currency translation, income from operations decreased $29.9 million.

Automotive segment loss from operations was $75.3 million in the nine months ended January 27, 2024, compared to income of $56.8 million in the nine months ended January 28, 2023. Loss from operations in the nine months ended January 27, 2024, includes goodwill impairment of $56.5 million. Excluding goodwill impairment and the impact of foreign currency translation, income from operations decreased $75.2 million.

The decrease in both periods was primarily due to lower gross profit and higher selling and administrative expenses. Selling and administrative expenses increased due to higher salary and incentive compensation expense, and outbound freight expense, partially offset by lower stock-based compensation expense.

### Industrial

*($ in millions)*

|  | Three Months Ended January 27, 2024 | January 28, 2023 | Nine Months Ended January 27, 2024 | January 28, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $107.1 | $91.0 | $342.9 | $286.9 |
| Gross profit | $30.3 | $30.7 | $103.8 | $94.4 |
| As a percent of net sales | 28.3% | 33.7% | 30.3% | 32.9% |
| Income from operations | $18.9 | $22.3 | $68.8 | $69.7 |
| As a percent of net sales | 17.6% | 24.5% | 20.1% | 24.3% |
| Customer cost recoveries | $0.3 | $0.3 | $0.7 | $4.2 |

#### Net sales

Industrial segment net sales increased $16.1 million, or 17.7%, to $107.1 million in the three months ended January 27, 2024, compared to $91.0 million in the three months ended January 28, 2023. The increase was primarily due to the acquisition of Nordic Lights, which contributed $21.2 million of net sales, and favorable foreign currency translation of $0.4 million. Excluding the impact of Nordic Lights and foreign currency translation, net sales decreased $5.5 million, or 6.1%, primarily due to lower demand for power distribution products in the electric vehicle and data center markets.

Industrial segment net sales increased $56.0 million, or 19.5%, to $342.9 million in the nine months ended January 27, 2024, compared to $286.9 million in the nine months ended January 28, 2023. The increase was primarily due to the acquisition of Nordic Lights, which contributed $63.3 million of net sales, and favorable foreign currency translation of $2.2 million, partially offset by lower customer cost recoveries from spot buys of materials and premium freight costs of $3.5 million. Excluding the impact of Nordic Lights, foreign currency translation and customer cost recoveries, net sales decreased $6.0 million, or 2.1%, primarily due to lower demand for power distribution products in the electric vehicle and data center markets, partially offset by higher sales volumes of commercial vehicle lighting solutions products.

#### Gross profit

Industrial segment gross profit decreased $0.4 million, or 1.3%, to $30.3 million in the three months ended January 27, 2024, compared to $30.7 million in the three months ended January 28, 2023. The acquisition of Nordic Lights and favorable foreign currency translation accounted for $5.4 million and $0.1 million, respectively, of gross profit. Excluding the impact of Nordic Lights and foreign currency translation, gross profit decreased $5.9 million. Gross profit margins decreased to 28.3% in the three months ended January 27, 2024, compared to 33.7% in the three months ended January 28, 2023. Gross profit margins were impacted by product mix and higher operating expenses.

Industrial segment gross profit increased $9.4 million, or 10.0%, to $103.8 million in the nine months ended January 27, 2024, compared to $94.4 million in the nine months ended January 28, 2023. The increase was due to the acquisition of Nordic Lights, which contributed $16.7 million of gross profit, and $0.6 million of favorable foreign currency translation. Excluding the impact of Nordic Lights and foreign currency translation, gross profit decreased $7.9 million. Gross profit margins decreased to 30.3% in the nine months ended January 27, 2024, compared to 32.9% in the nine months ended January 28, 2023. Gross profit margins were impacted by lower sales volumes of commercial vehicle lighting solutions products and higher operating expenses.

#### Income from operations

Industrial segment income from operations decreased $3.4 million, or 15.2%, to $18.9 million in the three months ended January 27, 2024, compared to $22.3 million in the three months ended January 28, 2023. The acquisition of Nordic Lights accounted for $1.6 million of income from operations. Excluding Nordic Lights, income from operations decreased $5.0 million due to lower gross profit, partially offset by lower selling and administrative expenses. The decrease in selling and administrative expenses was primarily due to lower salary expense and professional fees.

Industrial segment income from operations decreased $0.9 million, or 1.3%, to $68.8 million in the nine months ended January 27, 2024, compared to $69.7 million in the nine months ended January 28, 2023. The acquisition of Nordic Lights and favorable foreign currency translation accounted for $5.6 million and $0.4 million, respectively, of income from operations. Excluding Nordic Lights and the impact of foreign currency translation, income from operations decreased $6.9 million. The decrease was primarily due to lower gross profit, partially offset by lower selling and administrative expenses. The decrease in selling and administrative expenses was primarily due to lower professional fees and $0.4 million of restructuring costs recognized in the nine months ended January 28, 2023.

### Interface

*($ in millions)*

|  | Three Months Ended January 27, 2024 | January 28, 2023 | Nine Months Ended January 27, 2024 | January 28, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $12.7 | $12.0 | $39.6 | $39.1 |
| Gross profit | $2.2 | $1.9 | $7.7 | $6.6 |
| As a percent of net sales | 17.3% | 15.8% | 19.4% | 16.9% |
| Income from operations | $1.5 | $1.0 | $5.4 | $4.2 |
| As a percent of net sales | 11.8% | 8.3% | 13.6% | 10.7% |
| Customer cost recoveries | $— | $0.4 | $0.4 | $2.1 |

#### Net sales

Interface segment net sales increased $0.7 million, or 5.8% to $12.7 million in the three months ended January 27, 2024, compared to $12.0 million in the three months ended January 28, 2023. Excluding customer cost recoveries, net sales increased $1.1 million, or 9.5%. The increase was primarily due to higher sales volumes of appliance products, partially offset by lower sales volumes of data solution products.

Interface segment net sales increased $0.5 million, or 1.3%, to $39.6 million in the nine months ended January 27, 2024, compared to $39.1 million in the nine months ended January 28, 2023. Excluding customer cost recoveries, net sales increased $2.2 million, or 5.9%. The increase was primarily due to higher sales volumes of appliance products, partially offset by lower sales volumes of data solution products.

#### Gross profit

Interface segment gross profit increased $0.3 million, or 15.8%, to $2.2 million in the three months ended January 27, 2024, compared to $1.9 million in the three months ended January 28, 2023. Gross profit margins increased to 17.3% in the three months ended January 27, 2024, compared to 15.8% in the three months ended January 28, 2023. The increase in gross profit margins was primarily due to higher sales volumes of appliance products.

Interface segment gross profit increased $1.1 million, or 16.7%, to $7.7 million in the nine months ended January 27, 2024, compared to $6.6 million in the nine months ended January 28, 2023. Gross profit margins increased to 19.4% in the nine months ended January 27, 2024, compared to 16.9% in the nine months ended January 28, 2023. The increase in gross profit margins was primarily due to higher sales volumes of appliance products.

#### Income from operations

Interface segment income from operations increased $0.5 million, or 50.0%, to $1.5 million in the three months ended January 27, 2024, compared to $1.0 million in the three months ended January 28, 2023. The increase was due to higher gross profit and lower selling and administrative expenses.

Interface segment income from operations increased $1.2 million, or 28.6%, to $5.4 million in the nine months ended January 27, 2024, compared to $4.2 million in the nine months ended January 28, 2023. The increase was primarily due to higher gross profit.

### Medical

*(in millions)*

|  | Three Months Ended January 27, 2024 | January 28, 2023 | Nine Months Ended January 27, 2024 | January 28, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $- | $0.6 | $2.4 | $2.4 |
| Gross profit | $(0.1) | $(0.2) | $(0.2) | $(0.5) |
| Loss from operations | $(0.1) | $(1.8) | $(3.0) | $(4.7) |

In the first quarter of fiscal 2024, we made the decision to initiate the discontinuation of the Dabir business (which accounts for all of the Medical segment's financial results). Towards the end of the second quarter of fiscal 2024, we sold certain assets of the Dabir business and have now exited this business, which accounts for the variances in the table above.

### Financial Condition, Liquidity and Capital Resources

Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements, dividends and stock repurchases. Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement. We believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months. However, if economic conditions remain impacted for longer than we expect due to supply chain disruptions, inflationary pressure or other geopolitical risks, including the Russia-Ukraine war and Israel-Hamas war, our liquidity position could be severely impacted.

As of January 27, 2024, we had $122.9 million of cash and cash equivalents, of which $93.9 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.

### Share Buyback Program

The Board of Directors authorized a program to purchase up to $200.0 million of our outstanding common stock through June 14, 2024. Purchases may be made in private transactions or on the open market, including pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. As of January 27, 2024, a total of 3,243,746 shares have been purchased at a total cost of $130.1 million since the commencement of the share buyback program. As of January 27, 2024, the dollar value of shares that remained available to be purchased under this share buyback program was $69.9 million.

### Credit Agreement

On October 31, 2022, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders and other parties named therein. The Credit Agreement amended and restated the Amended and Restated Credit Agreement, dated September 12, 2018 and as previously amended (the “Prior Credit Agreement”), with Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, and the Lenders and other parties named therein. Among other things, the Credit Agreement (i) increased the multicurrency revolving credit commitments under the Prior Credit Agreement to $750,000,000, (ii) refinanced in full and terminated the term loan facility under the Prior Credit Agreement, and (iii) made certain other changes to the covenants, terms, and conditions under the Prior Credit Agreement. In addition, the Credit Agreement permits us to increase the revolving commitments and/or add one or more tranches of term loans under the Credit Agreement from time to time by up to an amount equal to (i) $250,000,000 plus (ii) an additional amount so long as the leverage ratio would not exceed 3.00:1.00 on a pro forma basis, subject to, among other things, the receipt of additional commitments from existing and/or new lenders. The Credit Agreement matures on October 31, 2027.

As of January 27, 2024, the Company was not in compliance with the original consolidated leverage ratio covenant contained in the Credit Agreement for the quarter ended January 27, 2024. On March 6, 2024, we entered into a First Amendment to Second Amended and Restated Credit Agreement (the “Amendment”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, the other Lenders party thereto and other parties thereto. Among other things, the Amendment (i) amended the consolidated leverage ratio covenant for the quarter ended January 27, 2024 and each subsequent quarter through the quarter ending October 26, 2024, (ii) amended certain interest rate provisions and (iii) waived any default or event of default that may have occurred due to the non-compliance with the consolidated leverage ratio covenant for the quarter ended January 27, 2024 that was in effect prior to the Amendment. Following the effectiveness of the Amendment, we were in compliance with the consolidated leverage ratio covenant for the quarter ended January 27, 2024.

As of January 27, 2024, $332.6 million was outstanding under the revolving credit facility. As of January 27, 2024, after giving effect to the Amendment, including the changes it made to the consolidated leverage ratio covenant for the quarter ended January 27, 2024, we were in compliance with all covenants under the Credit Agreement. For further information, see Note 8, “Debt” to the condensed consolidated financial statements included in this Report.

Although we currently anticipate, based on our current projections and analyses, that we will be in compliance with the financial covenants contained in the Credit Agreement, as amended by the Amendment, 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 29, 2023.

### Cash Flows

*(in millions)*

| Operating activities: | Nine Months Ended January 27, 2024 | January 28, 2023 |
| --- | ---: | ---: |
| Net (loss) income | $(66.0) | $69.0 |
| Non-cash items | 99.2 | 48.4 |
| Changes in operating assets and liabilities | (10.6) | (33.6) |
| Net cash provided by operating activities | 22.6 | 83.8 |
| Net cash used in investing activities | (39.0) | (27.3) |
| Net cash used in financing activities | (15.0) | (63.6) |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | (2.7) | (0.2) |
| Decrease in cash and cash equivalents | (34.1) | (7.3) |
| Cash and cash equivalents at beginning of the period | 157.0 | 172.0 |
| Cash and cash equivalents at end of the period | $122.9 | $164.7 |

34

#### Operating activities

Net cash provided by operating activities was $22.6 million in the nine months ended January 27, 2024, compared to $83.8 million in the nine months ended January 28, 2023. The decrease was due to lower net income adjusted for non-cash items. The $10.6 million of cash outflows for operating assets and liabilities in the nine months ended January 27, 2024 was primarily due to higher inventory, prepaid expenses and lower other liabilities, partially offset by lower accounts receivable and higher accounts payable.

#### Investing activities

Net cash used in investing activities was $39.0 million in the nine months ended January 27, 2024, compared to $27.3 million in the nine months ended January 28, 2023. Capital expenditures were $41.1 million in the nine months ended January 27, 2024, compared to $30.8 million in the nine months ended January 28, 2023.

#### Financing activities

Net cash used in financing activities was $15.0 million in the nine months ended January 27, 2024, compared to $63.6 million in the nine months ended January 28, 2023. In the nine months ended January 27, 2024, we used $10.8 million of cash for the purchase of shares under our share buyback program, compared to $39.6 million in the nine months ended January 28, 2023. We paid cash dividends of $15.0 million in the nine months ended January 27, 2024, compared to $14.9 million in the nine months ended January 28, 2023. In the nine months ended January 27, 2024, we had net borrowings of $25.7 million, compared to net repayments of borrowings of $6.6 million in the nine months ended January 28, 2023. In addition, we paid $10.9 million for the purchase of redeemable noncontrolling interests related to Nordic Lights.

### Recent Accounting Pronouncements

See Note 1, “Description of Business and Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in Item 1.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined under SEC rules.

### Legal Matters

For several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the “Fuchs companies”) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. We became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, we terminated all of our agreements with the Fuchs companies. On June 20, 2014, we filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, we amended our complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties.

A trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in favor of the Company. The verdict included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 22, 2020, the District Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic’s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the District Court held defendants in contempt for violating the permanent injunction and entered the final judgment. Defendants appealed entry of the final monetary judgment as well. The appeal of the permanent injunction and the appeal of the final judgment were consolidated into a single appeal before the U.S. Court of Appeals for the Tenth Circuit. On August 24, 2021, the Tenth Circuit issued a decision affirming the lower court’s ruling with the exception that it instructed the District Court to modify the injunction from the entire world to all of the countries in which Hetronic sells its products. On April 20 and 21, 2022, the District Court held a hearing related to modifying the injunction pursuant to the Tenth Circuit’s opinion, and the parties have filed post-hearing briefs. The defendants also filed a petition for certiorari with the United States Supreme Court seeking to further appeal the extraterritorial application of the Lanham Act in this case. We opposed that petition. The Supreme Court requested the views of the Solicitor General on the petition for certiorari, and the Solicitor General recommended granting the petition. On November 4, 2022, the Supreme Court granted the petition. The Supreme Court heard arguments in this matter on March 21, 2023. On June 29, 2023, the Supreme Court vacated the Tenth Circuit’s August 2021 decision and remanded the matter back to the Tenth Circuit for further proceedings. On September 1, 2023, the Tenth Circuit requested supplemental briefing from the parties regarding the effect of the Supreme Court’s decision on the appeal and the proper course of further proceedings. That briefing was thereafter submitted, and the Tenth Circuit heard argument in this matter on January 24, 2024.

Like any judgment, particularly a judgment involving defendants outside of the United States, there is no guarantee that we will be able to collect all or any portion of the judgment. Furthermore, defendants Abitron Germany and Hetronic Germany filed for insolvency in German court in September and October 2023 respectively, and the Germany insolvency court then appointed a receiver. These insolvency proceedings could potentially adversely impact our ability to enforce or collect upon the judgment or portions of the judgment or otherwise pursue or enforce claims or rights against those defendants.

In the nine months ended January 27, 2024 and January 28, 2023, we incurred Hetronic-related legal fees of $1.5 million and $2.5 million, respectively. These amounts are included in the selling and administrative expenses in the Industrial segment.

## Market risk

As filed, 708 characters.

We are exposed to market risks from foreign currency exchange, interest rates, and commodity prices, which could affect our operating results, financial position and cash flows. We manage a portion of these risks through use of derivative financial instruments in accordance with our policies. We do not enter into derivative financial instruments for speculative or trading purposes.

There has been no significant change in our exposure to market risk during the nine months ended January 27, 2024. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended April 29, 2023.

## Controls and procedures

As filed, 3,680 characters.

#### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, we performed an evaluation under the supervision and with the participation of the Company’s management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s applicable rules and forms. As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of January 27, 2024 due to the previously reported material weakness that was disclosed in our Annual Report on Form 10-K for the year ended April 29, 2023.

Notwithstanding the identified material weakness, management, including our CEO and CFO, believe that the condensed consolidated financial statements contained in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal period presented in conformity with GAAP.

#### Previously Disclosed Material Weakness

As previously disclosed in our Annual Report on Form 10-K for the year ended April 29, 2023, our management concluded that our internal controls over financial reporting were not effective as of April 29, 2023 due to a material weakness. The material weakness related to revenue at a business unit in our Automotive segment. Specifically, we did not maintain effective review, approval and validation controls over pricing data entered into the business unit's financial system and non-standard contract terms.

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that this material weakness is remediated as soon as possible. We believe we have made progress towards remediation and continue to implement our remediation plan for the material weakness in internal control over financial reporting. Remediation efforts to date include the following:

- Adding additional internal controls over the review, approval and validation of customer pricing data and non-standard contract terms.
- Developing and deploying additional training programs around the operation and importance of internal controls.

As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above. When fully implemented and operational, we believe the controls we have designed or plan to design will remediate the control deficiency that has led to the material weakness we have identified and strengthen our internal controls over financial reporting. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

#### Changes in Internal Control over Financial Reporting

Except as described above, there have been no changes in our internal control over financial reporting during the three months ended January 27, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 383 characters.

Our business, financial condition, results of operations and cash flows are subject to various ‎risks which could cause actual results to vary from recent results or from anticipated future results. There have ‎been no material changes to the risk factors previously disclosed in Part I - Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the ‎year ended April 29, 2023.‎

Filed Mar 7, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-027579. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.