Q4 2021 Mayville Engineering Company Inc Earnings Call
Hello, and welcome to today's lethal Engineering company fourth quarter and full year earnings call. My name is Bailey and I will be the operator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star followed by one on your telephone keypad I would now like to pass the conference over to Nathan Elwell Investor Relations they've been please go ahead.
Thank you David welcome everyone and thank you for joining us on today's call.
A few quick items before we begin.
Please note that some of the information you'll hear during this call will consist of forward looking statements within the meaning of section 21 of the Securities Exchange Act of 19, so that people would have imagined.
Such statements Express our expectations anticipations beliefs estimates intentions plans and forecasts.
Because these forward looking statements involve risks assumptions and uncertainties, our actual results could differ materially from those in the forward looking statements.
Information regarding such risks and uncertainties, please see our filings with the SEC, including us.
Filing on Form 10-K for the period ended December 31st 2000.
We assume no obligation and do not intend to update any such forward.
We're looking statements, except as required by federal Securities laws.
Second this call will involve a discussion of certain non-GAAP financial measures reconciliation of these measures to the closest GAAP financial measure is included in the earnings press release, which is available or Mec, Inc.
Joining me on the call today are Bob kind of has chairman President and Chief Executive Officer.
Chief Financial Officer, Ryan EVP of strategy.
Okay.
Bob will provide an overview of our performance.
I will review, our financial results and guidance with that I'll hand, the call up to vote. Please go ahead.
Thank you Nathan good morning, everyone.
Let's start with 2021 we've effectively executed throughout 'twenty, one and produce significantly better results than the previous year. Despite the inflationary pressures and labor challenges that we all experienced compounded by labor and supply chain disruptions.
Affecting our customers' production schedules.
As we look back at 2021, we are pleased with the way we navigated through these challenges and continue to see strong medium and long term demand trends across all the end markets we serve.
We have added new takeover business and new customers in the power sports and market we'd.
We look forward to delivering on the 2021 deferred customer volumes in 2022 and stand ready to successfully execute on the strong demand for our services for the current year and beyond.
For the fourth quarter, we produced net sales of 113 million a 19% increase of $17 7 million was primarily driven by contractual raw material prices.
And Paas service to customers improve volumes and commercial pricing increases.
We delivered adjusted EBITDA of $9 2 million as supply chain disruptions impacted our customers' schedules during the quarter and led to some of our volumes being deferred into 2022.
Our fourth quarter performance internally was particularly impacted by significant supply.
The changes that class eight truck Oems, which stems from their supply chain issues and micro chip shortages.
For US. This also resulted in operational choppiness and inefficiencies impacting our profitability.
As we navigated these challenges it was important to maintain our skilled labor force. So we are ready to address the strong demand as supply chain issues start to improve.
Although recruiting quality employees remains a challenge we have been able to cost effectively grow our capacity through investments in flexible redeploy of all automation.
And process improvements.
We also expect to recover general inflationary pressures on raw materials labor and other product content through contractual material price adjustments and increased commercial pricing.
As volumes have only been deferred from 'twenty. One we are confident that our volumes will increase as the customer supply chain issues start to subside during 2022. Additionally.
Additionally, Max supply chain is 98% concentrated in the U S. We have maintained our supply of raw materials and components and are prepared to effectively execute as our customers step up their volumes.
The end markets, we serve continue to forecast strong demand outlooks over the mid and long term.
More specifically by market the commercial.
So vehicle market continues to show strong market demand, but has seen the most impact from supply chain disruption, which is predicted to continue during 2022, particularly during the first half of the year how.
However, the ongoing strong freight demand and strong backlogs at the Oems leads us to believe this will continue to be a strong market for Mac over the medium to long term.
Turning to power sports our sports continues to be a strong and growing end market for Mac with elevated volumes due to overall strength of retail demand for outdoor recreational products, coupled with mol dealer inventories that we expect to be restocked over 2022.
The construction and the access end markets have continued to show strength in residential construction with non res starting to see some signs of improvement. We believe that will continue to see further signs of volume improvement and with low dealer inventories further demand requirements.
To restock fleets.
The AG market.
Continues to see loan machine inventory and strengthening demand.
Advancements in equipment productivity combined with low global crop inventories and strong crop prices will continue to drive improving volumes over the mid to long term.
Concluding with our military segment, which continues to be a stable market for us with customers, having a solid backlog for U S. Government contracts, we continue to see potential for increased revenues due to vehicle updates plus new opportunities for service related demand.
While supply chain disruptions persist pandemic related problems have stabilized and declined somewhat and we anticipate volumes will gradually improve as 2022 progresses further our new business pipeline remains very strong we continue to build and ships.
And convert on new opportunities to expand our customer base and the markets we serve.
During 2021, and we expanded business opportunities with new and existing customers looking to expand capacity to support strong end market demands. These came through new product and new model launches.
Takeover business with several top power sports customers.
Aftermarket programs and new product line offerings by customers.
As well as re shoring and outsourcing by Oems.
I'll walk through some of the more exciting and noteworthy opportunity as we see today.
The commercial vehicle market has continued to launch new products, which has led to market share gains for us we have been focused on cross selling our products during the model changeovers and we expect to continue to grow as customers launch their next generation of products.
The power sports market continues to be a very active space for us we are growing our market share with current customers by adding new programs and with new and takeover programs with new customers, which has led to power sports accounting for 20% of our 2021.
Revenues are.
Our expansion in power sports means we now work with all the major players on the UTV power sports market.
And the military end market our market share on tactical wheeled vehicles continues to expand with our customers launching their next generation of products plus expansion in the service parts demand and new product development activities that have the potential to bolster revenues in the coming years.
Overall, our new business pipeline remains robust with numerous products being actively pursued we're excited about all of the avenues of growth with current and potential new customers and we will keep you updated on the latest developments over the coming quarters.
Turning to our fitness customer as you probably saw on February nine we provided a business update which included commentary regarding our new customer in the fitness market.
In that update we noted that due to circumstances beyond our control we would not go into production for this customer on the original planned date. We had however remained on track with the investment and build out for this fitness customer and would have been ready to begin production when originally.
Plant.
As you saw in our earnings release from last night, there have been some new developments on February 18th we received an update from the customer which informed us that it does not forecast any demand for any products or parts that are subject.
Two our agreement for the remainder of the Agreement's term, which ends in March of 2026.
Needless to say we are disappointed with how this has unfolded in recent months.
As such we have taken and will continue to take steps to reduce operating costs and capital investments for those project where appropriate from.
From an accounting standpoint. This update also resulted in an impairment charge recorded in fourth quarter of 2021 results of $16 9 million.
Todd will be covering this topic in more detail on his segment.
But it's important to reiterate that we remain confident in the protections provided by our agreement with the customer and we will vigorously pursue this matter to ensure the terms are honored.
Our new facility in Haynesville Park, Michigan as other important activities going on beyond those related to the fitness customer.
As mentioned in our last quarterly earnings call.
We are putting in place additional state of the art flexible redeploy of all automation and capacity to support the growth of our base business, we will be ramping up in the second half of this year and into 2023 to support meaningful volume from new projects and market.
With customers in the markets, we already serve Haynesville.
Hazel part will continue to be an important part of our future growth story.
The location allows us to hire the technology skilled workforce, we need in an excellent location in southeast Michigan.
While leveraging our experience and world class process, Knowhow and continuing to demonstrate <unk> agility adaptability and realignment for serving these market leading customers.
As we look further into 'twenty, two and beyond we continue to see a good pipeline of M&A opportunities and focus on analyzing potential targets that could open new end markets develop new relationships with potential new blue chip customers and possibly add new geographies.
Strategic fit and rational valuation the top considerations when considering opportunities and we continue to review and pursue logical potential leads.
In summary, our fourth quarter performance reflected the supply change challenges faced by our customers, but we are seeing very positive demand signals across all end markets and significant potential new business opportunities and we will remain ready to increase our production volumes as.
<unk> needed.
We have invested in the right technologies facilities and Workforces that allow us to successfully address this demand and our 2022 outlook look which Todd will talk through shortly shows we are rapidly working back towards exceeding our record 2019 perform.
<unk>.
I would now like to turn the call over to Todd to discuss our financial results in more detail.
Todd.
Thanks.
I'll begin with a look at our full year financial performance and discuss our fourth quarter before providing commentary on our balance sheet liquidity.
Items.
As we noted in our press release, we reported full year net sales of $454 8 million.
As compared to $357 6 million for the same prior year period, 27% increase was driven by increased volume due to improved market conditions in commercial pricing increases implemented in the fourth quarter to combat inflationary pressures.
These increases were slightly offset by customer supply chain issues and the timing lag related to contractual raw material pricing pass throughs to our customers.
And in fact, your margins were $51 4 million for the year ended December 31 2021.
As compared to $31 5 million for the same prior year period.
Proven of approximately 63% was primarily driven by production volume increases higher scrap income.
The absorption of manufacturing overhead costs as well as the efficiencies gained from the closure of the Greenwood South Carolina facility in 2020.
These favorable impacts were partially offset by the timing of raw material pricing pass through to our customers and inflationary pressures on wages benefits material and other general manufacturing supply and during the year.
Additionally, the company incurred approximately $2 $9 million in launch costs $700000 inventory write off related to the agreement with the new business customer during 2021.
The prior year period was impacted by customer shutdowns related to COVID-19 and along.
Along with lower demand related destocking activity, particularly in the commercial vehicle agricultural construction and access equipment end markets.
Manufacturing margin percentages increased 250 basis points from eight 8% in 2023.
3% for 2021 based upon improved operating conditions and other factors already mentioned.
Profit sharing bonuses and deferred compensation expenses were $11 5 million for the year ended December 31 2021.
As compared to $8 3 million in the prior year.
The increase of $3 2 million was principally driven by the return of normalized discretionary for lung cancer and bonus accrual.
Business activity sales volumes improved in 2021.
Other selling general and administrative expenses were $24 million for the year ended December 31, 2021, as compared to $19 million for the prior year stemming from higher salary travel and entertainment expenses, which were artificially low in the prior year due to the pandemic.
Income tax benefit of $1 $9 billion on a pretax loss of $9 4 million for the full year 2021, as compared to a tax benefit of $2 1 million on a pre tax loss of $9 2 million for the same prior year periods.
Net operating loss carry forward was $18 $5 million as of December 31, 2021.
The NOL does not expire and will be used to offset future pre tax earnings.
Continue to anticipate our long term effective tax rate to be approximately 26% based on current tax regulations.
2021, adjusted EBITDA finished in line with our prior guidance of $46 2 million.
After adding back the recent impairment charge recorded in the fourth quarter, and which was well above the prior year of $32 8 million.
Adjusted EBIT margin percent increased by 100 basis points to 10, 2% in the current year as compared to nine 2% for the same prior year period.
Our adjusted EBITDA margins and margin percentages were favorably impacted by increased sales, but negatively impacted by the timing of raw material pricing pass through inflationary pressures.
People are during the year.
I'll provide an update on the financial performance of our fourth quarter.
We recorded fourth quarter net sales of approximately $113 million as compared to $95 million for the same prior year period.
A 19% increase was primarily driven by contractual raw material pricing pass throughs improve volume commercial price increases at comparative prior year.
Manufacturing margins were $9 4 million for the fourth quarter of <unk> as compared to $11 million for the same prior year period.
Decrease was driven by continued inflationary pressures along with the timing of contractual raw material price increases pass through to our customers in the current period.
The company also incurred $2 million in Warsaw, and so on.
$100000 inventory write off related to the agreement with the new fitness customer during the fourth quarter.
These items were moderately offset by increased production volume commercial price increases.
<unk> income and approved improved absorption of manufacturing overhead.
Manufacturing margin percentages were eight 3% for the fourth quarter of 2021 as compared to 11, 6% for three months ended December 31, 2020 <unk>.
Decline of 330 basis points.
Yes.
This decrease was due primarily to the timing of material price pass throughs.
Is it inventory costs related to the new Haynesville part facility labor variances caused by production disruptions related to customer supply chain issues and increases in the cost of labor.
When the impact of these temporary items are removed or not.
Malaise manufacturing margin percentage would have been 12, 8%.
Profit sharing bonuses and deferred compensation expenses were $3 5 million for the fourth quarter of 2021.
In line with the $3 $4 million per quarter for the same prior year period.
Other selling general and administrative expenses were $5 million for the fourth quarter of 2041 as compared to $4 4 million for the same prior year period. The increase was principally attributable to higher salary travel and entertainment expenses, which were again were artificially lower than the prior year due to the pandemic.
Adjusted EBITDA after adding back the impairment finished at $9 2 million for the fourth quarter of 2021.
As compared to $9 3 million for the same prior year period.
Adjusted EBITDA margin percentage declined by 170 basis points to eight 1% in the quarter.
As compared to nine 8% for the same prior year period and represented a negative incremental margin of 1%.
Again, if we remove the aforementioned temporary items, our adjusted EBITDA would've been approximately $12 5 million or.
Incremental margins would've been in line with our historical averages of 22, 5%.
Now, let me address our capital expenditures balance sheet liquidity figures.
Overall capital plans for 2021 or $39 3 million as.
As compared to $7 8 million during 2020.
The increase is primarily due to the $19 $7 million investment in the new Haynesville part facility with the remainder being for the continued investment in technology and automation.
Full versus focusing on preserving cash what are the heights.
As of the end of 'twenty, one total outstanding debt, which includes bank debt and capital lease obligations was $68 8 million.
Yes, it could grow to 48 million at the end of 2020.
The increase in definitely working capital increases due to rising steel prices.
Higher production levels, which have rebounded from the pandemic what was in 2020 and increased capital expenditures related to the new Haynesville part facility.
Turning to the impairment charge related to the business customer.
Given the recent communication from the customer as Bob outlined earlier.
U S generally accepted accounting principles require us to assess where the assets are typically purchased to meet obligations under the agreement with the customer were impaired.
As a result, we recorded an impairment charge of $16 9 million.
This impairment is comprised of $700000 of inventory, which is three quarters. The cost of goods sold $16 2 million leasehold improvements and equipment related asset.
Additionally, in accordance with U S. GAAP, we have not met all the requirements at this point that are necessary to allow us to report a loss recovery or a gain contingency is.
It's important to reiterate that we remain confident in the protections provided by our agreement with the customer and we will vigorously pursuing this matter to ensure the terms are higher.
Now I'd like to discuss guidance.
As Bob stated earlier, although supply chain uncertainties continue we anticipate volumes will gradually improve as we move through 2022.
Business pipeline remained strong as we continue to build relationships and convert on new opportunities.
<unk> you want to existing customers looking to expand capacity in support of robust end market demand.
As a result of the end market dynamics currently expect net.
Net sales between $480 million and $530 million.
The generally stable material pricing and adjusted EBITDA between $58 million 17.
Additionally, based on the recent events with our fitness customer we are still assessing our full year capital plan and as such are not in any position to offer updated capital guidance for the year at this time.
We can say is at 22 capital expenditures are expected to be above 21 level.
Make the final payments for capital commitment previously made to meet contractual obligations related to our business customers as.
As well as our continued investment in new technology and automation Rfps business.
Items will enhance our production capabilities allow us to take on more business in the years ahead.
Please note this outlook assumes no revenues associated with our business customers.
End markets remain stable.
Supply chain constraints does that dramatically worsen that business activity continued to trend positive.
On a positive note, we would expect to return a record year of adjusted EBIT performance in 2022.
I'll now turn the call back over to Bob.
Thank you Todd.
With our solid balance sheet ongoing operational improvements and solid customer relationships favorable outsourcing and reassuring trends and encouraging demand dynamics in the end markets. We serve we have a positive outlook.
Our business model is strong.
Zillions and agile.
We are well positioned to execute our growth plans, which is demonstrated by the projected growth and record performance implied by our 2022 outlet.
We believe our volumes will improve as the customers supply chain disruptions continue to subside and they work to meet the vigorous demand in their respective end markets, particularly in the second half of 2022.
With that operator, we'd like to open the calls for questions now thank.
Thank you. Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
The first question today comes from Stephen Volkmann of Jeffries. Steven. Please go ahead. Your line is now open.
Great Good morning, guys.
Maybe my first question maybe for <unk>.
Maybe for Todd.
Can you just tell us sorry, if I missed this or a little hard to hear but what was the difference in price versus volume in the fourth quarter.
Well one of the fourth quarter, we were impacted by it.
Hi.
Good.
$400000 when you think of material lag.
We did have some peripheral pricing activity that went into place during the fourth quarter that were a positive.
The flip side, although it came in this quarter and so we did have some inflationary pressures we think of supplies wages.
<unk> and things of that nature to increase.
As well so really when you look at it.
Volumes were better than the fourth quarter, even if you strip out versus the prior year, if you strip out the <unk>.
Virtual material pass through but again, we did have a little bit of a lag on the timing of commercial pricing and a little bit on material Patrick.
I think the choppiness of the of the quarter in the commercial vehicle market also.
Didn't help our performance.
Okay right I was just trying to kind of think about how much price kind of continues to help us in 'twenty two from a topline perspective.
But maybe that's enough so I can back into it.
Can you talk a little bit about the cadence of 'twenty, two and your plan like as each quarter, a little better than the last one from a revenue and profit perspective or is there some other different seasonality that you view.
Well, what we can say as we come into the first quarter.
The market is we assume will be a little more robust in the latest finished in fourth quarter. We are optimistic that supply chain initiatives will continue to get better and you look at the rest of the year. We do expect that the second quarter was a little bit of lift third quarter as well as the market continues to hopefully improve.
And the demand remained robust like it is today and with fourth quarter, just because of the timing of days shut.
<unk> that are typically.
Planned by our customers, we would expect fourth quarter to be down slightly we think of seasonality, but otherwise really we come out of the first quarter probably in that 8%.
Here.
And then we kind of state level, we will have a little bit modestly progressed during the year and then a little bit of a downturn in the fourth quarter.
Okay, Alright Thats helpful. Thanks, and then my final one and I'll pass. It on is can you say anything more about the protections and recoveries that you've mentioned a couple of times relative to Haynesville Park and this customer that is.
That can end up buying anything and I guess I'm trying to figure out like what types of.
Is it like they reimburse you for some of the equipment or something or a part of the building or just any color on what that might look like and related is is this one of those things that's going to drag out for like years or do you think that this is something that we can kind of.
Wrap up at some point in 2022.
I'll answer a question on 2022 at first sight I believe that it will be resolved this year.
Okay, but I also obviously will be in the midst of discussions with the customer it's new news and so a new discussions taking place.
But we do we are confident in our contract and how it protects us so.
I think we have to leave it at that at this point.
Okay. Thank you.
Youre welcome.
Thank you Steven the next question today comes from Mig <unk> from Baird. Please.
Please go ahead. Your line is now open.
Good morning, everyone. Thanks for that.
The time here I guess I wanted to follow up my next question.
Well.
Follow up on Steve's question on the cadence of the year and I just want to clarify here that you.
You expect revenue to be up sequentially in Q1 relative to Q4, So you think youre going to be able to ramp production.
In Q1, and then you know.
Also how should we think about manufacturing margins in Q1 relative to Q4.
Well, we do expect to see improvements on that front beginning right away in the first quarter now.
We would have.
And on the commercial pricing activity and for of course as we begin the year allows us inflationary things are neutral.
Let's call it but we do have the material lag meeting we purchased items during the fourth quarter at a higher steel price as we kind of work through that inventory in the first quarter, there could be a little bit of a.
The lag with data or drag a little bit on the manufacturing margin, but I do expect with that we would have improvement over the fourth quarter and as we progress throughout the year, we would expect to see that generally increase.
Sequentially throughout the year.
Okay.
No you you, obviously separated commercial pricing from the material sort of pass throughs can you give us a sense for what is going on with commercial pricing and.
How are those actions relative to the inflationary pressures that youre seeing in your business, whether it's wages or.
Really anything else that you have to deal with.
So as I mentioned in the in the fourth quarter with Brian and his team implemented pricing strategies with our customers that really made up for allows inflationary pressures. So as we look into 'twenty two today.
Today, as we stand assuming that.
Inflation is generally stable doesn't increase.
Quite dramatically from this point you should be covered in all of our commercial pricing activities for this year.
And so I feel very good about those activities now that material pass through.
Youll get a net neutral to EBITDA.
A little bit of a dilutive impact on the EBITDA and margin percentages as steel prices hopefully.
<unk> declined this year, we should see the inverse of that we should see positive news coming on the P&L in dollars as well as see that percentage increase.
But that can drive the volume to change a little bit even at our current guidance. If you take all of the material pass through we still believe 2019 production level. When you think of the Pes are level rate. The number of units, we're producing but yet you can see that we're returning are much much improved bottom line. So I think a lot of it.
Things we've put in place in 2019 are operating effectively we just got.
Get rid of like box governance Choppiness.
And good.
Stable material pricing and inflationary pressures kind of subside a bit.
Okay.
My final question is on Hazel Park facility.
<unk> like you're continuing to invest I mean, youre not providing a.
Official capex guidance for 'twenty, two but it sounds like you're continuing to do things and Hazel Park and I'm kind of curious.
With this customer being essentially out of the picture. This facility was sort of meant to serve them.
How are you thinking about what the purpose of this facility is going to be longer term and what sort of businesses available to you within within that southeastern Michigan area, where customers that youre pursuing to kind of start filling in whatever volume.
This facility is going to need if you're going to keep it and operate it.
Maybe I guess when we look at Hazel Park, we see a really good workforce, we see higher technology.
Equipment on average compared to other facilities.
We do have the market growth.
Within our current customer groups and markets served to supported a very nice growth level at that facility.
Well, we need all of that space will be studying that in lately.
They have some sub leasing through a period of time, but.
That space will ultimately I hope allow us to.
Even grow back any further than what we initially think here, but likely will be looking for other other things going into this like subletting part of that space.
I'm just curious Bob because you know you you've spoken in the past about how you're.
Locating these facilities strategically around customers right because transportation of of your product and freight and so on you know that that's a kind of strategic consideration in terms of where you are placing these facilities and when I look at South East Michigan.
I think automotive right. So I'm kind of curious are you sort of trying to pursue some of that automotive business or is there something else that youre seeing in that area that that is more consistent with the end markets that you're serving today.
That's it.
No I guess I guess logistically, we have customers in Ohio, Iowa, Illinois.
And the logistics from that site is not all that different than the logistics from where we are in Wisconsin.
No.
We've spoken with our customers about these changes and these opportunities and I think they're excited as well.
Okay. Thank you.
Yeah.
Youre welcome.
Thank you make the next question today comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is now open.
Good morning, everyone.
Morning, Andy.
Can you give us some breakdown of your major end markets and what you thought they would be at the end of 'twenty. One I think in that early February release as you as you think about the low teens revenue growth forecast you have for 'twenty. Two would you expect the sales breakdown of any of your end markets to change significantly.
You see one or multiple end markets growing faster or slower than the rest.
Yeah, I'm going to ask.
And to answer that question is done the math yeah.
I'd say at a macro level, Andy nothing significant shifting.
Year over year, we obviously see the greatest strength in commercial truck.
As well as construction and access so is.
Bottlenecks kind of get loosened up on the supply chain, there was pent up demand for commercial vehicles.
It looks good for 'twenty, two and then honestly carries into some pretty strong 2023 industry forecasts.
Year over year access was still pretty depressed.
Looking back into 2020 that was large growth in 'twenty, one within the fourth quarter and expect it to continue to strengthen through the year, especially as non rose in some of the infrastructure stuff picks up as well in our power sports market.
We expect that to continue to have constraints.
The dealer side, just with the ability to always to produce but eventually there's going to be some good demand for restocking. In addition to the strong retail backdrop that that's already out there.
Ryan that's good color I appreciate it so maybe different way to ask the question also as you know Ryan and Bob you've got sort of these initiatives that you've been working on a new.
New products, obviously, theres some reassuring going on so if you think about sort of market growth versus your market share and again I look at that low teens forecast for 'twenty two how much of that growth do you think is coming either from new customers or existing customers that are sort of expanding their businesses, whether it's reassuring or something else.
Yeah, I mean, I think a lot of it is existing customer expansion, we've seen really over the last year, Andy some pretty significant model.
Reductions in share gains.
For us that have occurred we have had as we noted some nice wins, particularly the power sports market, adding.
New customers into the mix to kind of fill out the portfolio of those where.
Serving the of the.
The re shoring activities and customer outsourcing, we do have some great projects that are in the quote phase in with where we're at today.
Today, maybe revenues late in the year, but a lot of the things. We're working on right now that are more strategic and larger in nature, It would probably not.
Lead to any real material revenues until we get into 2023.
Thanks, and then last question Todd just any more color you can give us on how to think about cash flow in 2002, I know you said.
We can't sort of pin down exact capital expenditures, but tend to be higher than 'twenty, one, but maybe talk about working capital a little bit on what you see there and perfect peak headwinds around supply chain.
Keep working capital higher as they start to subside at all.
Certainly.
It's hard for me to comment too much on free.
Free cash flow, yet until we've kind of.
Finalized our plans on capital, but I can talk about the fact that.
Certainly in 'twenty, one working capital with rising steel prices.
A bit of a.
Detriment to our cash flow and as we begin this year prices are.
Modestly coming down we expect that to continue.
As supply chain, hopefully stabilizes and our production schedules from our customers become more normalized.
To see the flow of our inventory and our turns vaseline this year.
That in itself will lead to a nice.
Moving for us as we think of free cash flow generation.
And really I think that'll be in a favorable position for this year.
Offset by that will be what we end up spending in capital for the future. So in general with more to come on that I guess as we finalize the plan I think as we complete that capital rollout, we'll certainly update you when that is complete and with that I can find a little better color around free cash flow for the year.
Appreciate the color.
Yes.
Thank you Andy.
A reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Question Today comes from Larry de Maria from William Blair. Laurie. Please go ahead. Your line is now open.
Okay.
Alright. Thanks.
Okay.
I know you don't want to touch too much on that.
The credentialing et cetera.
Investment.
And really three course.
Just to level set people on the team.
Are we talking about going up to the $40 million that was planted.
And the last quarter or.
Can you just kind of level.
What expectations should be.
Yeah, I think Larry with the impairment charge that was.
It was put together things or considered around.
Whether there was specific use assets for the customer that they should be.
Reimbursing us for with a return on that.
The product also.
We have commitments that we've made whether it's facilities or people.
That need to help us.
Mitigate these costs.
So it's all all things you can think of running a business and the things that.
We believe they will have responsibilities for.
<unk> is how you do that evaluation beyond that there is and all that's the GAAP accounting side of it and there is the contract side of it.
Regarding <unk>.
What they pay for and what they've already agreed to pay for it so we're going to enforce that and.
And.
Peers that are going to work with us on that.
So.
But we have to wait until that all gets resolved.
Okay. That's helpful. Thanks.
Now ultimately the Haynesville.
Just to clarify is there any bank all of equipment going in there and to build it and they will come or is this all at this point contracted.
It's it's.
The capacity is spoken for I'll say it.
As we develop that and even with the.
Investment side will take place this year as well as in the next year likely.
The markets are in good shape, and we have opportunities to fulfill.
<unk> and beyond even so we're optimistic about it but we're going to be.
Very thoughtful on how we do that with regard to starting a little slower and freeing up capacity at other locations.
That have a more complex capabilities. So we're gonna be thoughtful around that and make sure that we're optimizing the business.
Okay. Thanks, and then last one as it relates to capacity utilization, maybe we can level set there as well I know you guys, maybe think about it differently in terms of labor et cetera, but not only on the new facility and all the square footage how do we think about capacity utilization, maybe how it ended up at <unk>, and maybe where it should be at the end of the year.
Hmm.
I'm trying to I, Larry we're having a little trouble hearing you.
Maybe you could repeat the last part of that question.
Okay. Thanks, I was just trying to understand capacity utilization with the new facility, where it was at year end and where you expect it to be at year end 2002.
Well, obviously, there won't be a fitness capacity that fitness company capacity, there and that will be and capacities that are already in the areas that we know very well.
So that will be a little bit of a shift in technology.
But.
It will be dedicated.
Largely to what we already have for our customers and in the markets that we're already serving.
Yes.
Okay. Thanks, I'll take it offline good luck.
Thank you.
Thank you Larry.
No further questions waiting at the moment, so I'd like to pass the conference back over to Bob Kamphaus, Chairman, President and CEO Bob. Please go ahead.
Okay, well. Thank you everyone for your time today and your continued interest in Mac.
We'll be keeping you updated as things develop in the business continues to grow thanks for your time.
Okay.
That concludes today's conference call. Thank you for your participation you may now disconnect your lines.
Yeah.
Right.
Okay.
Yes.
Yeah.
Okay.