Q4 2022 Mayville Engineering Company Inc Earnings Call

Speaker 2: Good morning. Thank you for attending today's Mayville Engineering Company 4th quarter, 2022 earnings conference call. My name is Alicia and I'll be your moderator for today's call. All lines will be muted in 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 1 or your telephone keypad.

Speaker 3: I would now like to pass the conference over to your host, Noel Ryan, with Valum, you may not proceed. Thank you, operator. On behalf of our entire team, I'd like to welcome you to our fourth quarter 22 results conference call. Leading the call today is Max President and CEO , Jag Reddy, and Todd Buds, Chief Financial Officer. Today's discussion contains four looking statements about future business and financial expectations.

Speaker 3: Actual results made differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risk described in our periodic reports filed with the Security and Exchange Commission. Except that is required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non- GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at macink.com. Following our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to Jack.

Speaker 4: Today, I will provide a high-level review of our fourth quarter and fully a performance. This will be followed by an update on demand conditions across each of our end markets and the progress update on our MBX initiative. During the fourth quarter, we continue to build on the momentum evident across our business highlighted by 13.8% ERO Rear, MF sales growth, and 26.2% ERO Rear adjusted EBG growth. Total sales volumes increased 13.3% on ERO Rear bases in the fourth quarter, driven by broad-based demand across most end markets.

Speaker 4: but partially offset by continued disruptions in our customer supply chains. We also benefited from targeted commercial price increases in the period, which more than offset general inflationary pressures on labor and other product content. For the fourth quarter, our adjusted EBD margin increased to 240 basis points to 10.5% when compared to the year ago period, when excluding the impact of the planned production ramp at our Hazel Park Facility. For the fully at 2022, we delivered significant year-to-year growth in net sales, adjusted EBD and net income. These improvements were driven by a combination of volume growth, fixed cost absorption, commercial price discipline, and operational improvements. We achieved these strong, fully at results, despite the continued supply chain disruptions impacting our customer's production schedules.

Speaker 4: which resulted in the first sales volumes for MAC throughout 2022. Our team remains committed to improving business transparency through robust external reporting. Following recent discussions with cover-genalous and investors, we have begun to provide revenue mixed data by end-market, detailed revenue and even averages that highlight our period of our period performance and the broken-out of the revenue impact of raw material past

Speaker 4: We believe these incremental disclosures should prove helpful to understand our business and performance better. Turning now to a review of our market conditions across our five primary and markets. Let's begin with commercial vehicle market, which represented 39% of 2022 revenues.

Speaker 4: Commercial vehicle revenue increased 36% on a year-to-hour basis driven by freight strength and fleet upgrades. Based on current customer demand requirements, we expect steady demand during the first half of 2023, followed by a slowing in the second half of the year, going into 2024, as the industry navigates in emissions regulation change. While the potential for pre-by exists, we believe this will be of moderate impact to 2023. Currently, ACP research forecasts the classic vehicle production to decline 3.1% euro-rear in 2023.

Speaker 4: to 35,259 units. While supply chain constraints have continued to impact some commercial vehicle customers, we expect to see this continue to improve during the next several quarters. OEM still have sizable backlogs and used equipment prices have remained elevated, which gives us confidence in our current production schedules. We continue to monitor a potential softening in freight fundamentals and remain ready to adapt to any market changes. Next is the construction and access market, which represented 21% of 2022 revenues. Construction and access revenues increased 21% on a year-old rear basis.

Speaker 4: driven by a fleet restarting demand amid lower dealer inventories. Our construction and access end market is currently experiencing the impact of higher interest rates on the residential housing market. Looking out to the remainder of 2023, we believe soft residential new construction demand will be partially offset by volume growth across our non-residential infrastructure and energy markets. No dealer inventories, aging equipment and the growing need to restart fleets are factors that play in our favor, providing a volume growth offset to softening residential construction.

Speaker 4: The power sports market represented 16% of 2022 revenues and declined 3% on euro-rear basis. This decline was primarily the result of softening of demand due to the discretionary nature of consumer spending offset somewhat by dealer-restocking. However, customer inventories remain low and some level of restocking of the dealer channel will occur in 2023. As we have mentioned previously, we expect recent share gains within power sports will position us to outpace potential softness that may occur in this market or the coming year. Our agricultural market represented 11% of 2022 revenues and increased 15% on euro-rear basis. Global food stocks remain tight.

Speaker 4: leading to elevator crop prices, meanwhile, the inventory of both new and used machinery remains low. Given elevator crop prices, we believe producer demand will increase in 2023, supporting further large ag at certain demand.

Speaker 4: Small AG is expected to be flat to a modest decline with ample inventory and sewing demand after higher volumes the last couple of years. Our military market represented 5% of 2022 revenues and increased 3% on a year-old rear basis driven by new program winds and new vehicle introductions. Our consumers have solid contractual backlogs with the US government.

Speaker 4: and we continue to see good volumes based on new vehicle introductions and related programs. Customer coding activity and order rates remain strong, though we remain mindful of the potential for softening in the broader macroeconomic outlook this year.

Speaker 4: volumes based on new vehicle introductions and related programs. Customer coding activity and order rate remains strong, though we remain mindful of the potential for softening in the broader macroeconomic outlook this year. However,

Speaker 4: Currently, we are seeing no indications of slowing in our customer space of activity. While supply chain disruptions continue to impact several of our customers, we anticipate these issues will ease as we move through 2023. Shifting now to an update on the recent progress we have made with our MBX initiative. We announced the launch of our MBX initiative during the 3rd quarter of 2022.

Speaker 4: But in score, MBX is an operating system that we're leveraging to drive both operational and commercial excellence. MBX represents a key area of strategic focus for our team as we position MAC to achieve consistent, above market performance through the cycle.

Speaker 4: MBX is founded on achieving commercial and operational excellence through continuous improvement. Operationally, our focus is to achieve increased standardization, mean manufacturing, and automation of our various production processes, which in turn need to improve execution, better productivity, and the reduction of cost.

Speaker 4: across our value chain. Additionally, we plan to leverage MBX in other areas that support our operations such as sales, purchasing, and finance. We continue to hold our quarterly President's caizons. In the fourth quarter, we hold an event at our Byron Center facility in Michigan.

Speaker 4: Dedicated teams grow multiple lead events focused on improving operational value streams, increasing utilization of stamping capital and enhancing procurement strategy.

Speaker 4: At the commercial level, we continue to see meaningful opportunities to capitalize on multi-year trends toward reshoring and outsourcing by OEMs. Not only will these trends benefit us from your volume and utilization perspective, they also position us to be more strategic in our approach to pricing.

Speaker 4: As customers pivot toward domestic skill-related pools, that can provide an on-time quality product. At the same time, we are focused on commercial expansion, which for us amounts to targeted expansion within high growth, adjacent markets.

Speaker 4: while continuing to build our share of wallet with existing customers who value or full suite of design, prototyping, manufacturing, and aftermarket services. We made significant progress during the second half of 2022 as we grew our share of wallet with existing customers and explored emerging growth opportunities with new customers. We also further improve our productivity as we seek to better optimize our capacity.

Speaker 4: Allow me to share some of the commercial progress we have made in recent months. During the fourth quarter, we continue to make significant progress working with a large public company customer, making components for thermal management of electric vehicle batteries and battery enclosures. We continue to win new business and expand with this recently acquired customer.

Speaker 4: We're also engaged in an outsourcing project of current business with the same customer that involves support for building infrastructure. We expect this project work to continue to grow and evolve in 2023.

Speaker 4: during the next 12 months. We believe these new launches position make to gain additional share of wallet representing an important organic growth catalyst.

Speaker 4: In addition to the upcoming emissions changes, many of our commercial vehicle customers are continuing to develop their battery electric vehicle offerings. I would say that our current components being used on these vehicles, we are working on battery electric vehicle specific parts and expect to expand our content per vehicle.

Speaker 4: In summary, we remain focused on driving above market growth through Radable EBITDA more to expansion.

Speaker 4: Our walking growth comes from existing and new customers and in new and adjacent markets. We expect to achieve margin expansion through productivity improvements, including capacity optimization and improved price discipline.

Speaker 4: From a capital allocation perspective, our top priorities include inorganic growth and debt repayment followed by investments in organic growth. In 2023, capital expenditures are expected to be between 20 to 25 million dollars, representing in more than 50% decline from the fully year 2022.

Speaker 4: Given a decline in expected cap-ax, we anticipate an increase in free cash flow generation during 2023, positioning us to self-fund smaller strategic growth investments.

Speaker 4: While today our publication expertise is mainly within steel, we will look to expand our expertise within lightweight next generation materials such as aluminum plastics and composites.

Speaker 4: As a vertically integrated, tier 1 supplier of scale, MAC remains uniquely equipped to deliver a one-stop solution that combines design, prototyping, manufacturing, and aftermarket services expertise across the entire product-like cycle.

Speaker 4: Before turning the call over to Todd, I want to provide an update on our Hazel Park facility on the ongoing litigation with our former fitness customer. As we announce last quarter, we commence production at our Hazel Park facility on time and in line with our plans.

Speaker 4: We will continue the ramp up of production at Hazel Park to 2023 and into 2024. While we expect the facility will be a margin headwind for us while production ramps up in 2023, Hazel Park represents an important and exciting component of our growth strategy.

Speaker 4: The facility provides us with state-of-the-art operations, the market with a stable labor pool, and the much needed capacity to support incremental customer demand. We're also leveraging the facility as part of our operational excellence initiatives. You know, it refers to realign or manufacturing footprint to better meet customer needs and improve efficiencies.

Speaker 4: As we look forward to 2024, we expect the facility will no longer be a drag on our margins and will exit the year with a run rate of $100 million in annual revenues, half of which will come from new customers and the other half coming from new and existing programs with current customers.

Speaker 4: On August 4, 2022, the company filed a lawsuit against Alejandro Interactive Inc. in the Supreme Court of the State of New York, New York County. In the lawsuit, the company alleges that Peloton breached the March 2021 supply agreement between the parties pursuant to which Mac was to manufacture and supply.

Speaker 4: Custom component parts for certain of Pelotons exercise bikes. In January 2023, in response to Pelotons motion to dismiss, the court allowed the companies breach of contract claim to proceed. The lawsuit is ongoing and these in the discovery phase.

Speaker 4: With that, I will now turn the call over to Todd to review our financial results for the fourth quarter and fully.

Speaker 3: Thank you, Jay. I'll begin my prepared remarks with a detailed overview of our fourth quarter and full year financial performance and update on our balance sheet and liquidity and conclude with an overview of our financial guidance for the full year 2023. Total sales for the fourth quarter increased 13.8% on a year over your basis to 128.5 million dollars.

Speaker 5: during by a combination of improved sales volumes and continued price discipline.

Speaker 5: Our manufacturing margin was $13 million in the fourth quarter. Ask the product at $9.4 million in the prior year period. The increase with germ-by-improved demand, increased commercial pricing, and better absorption of manufacturing overhead costs. All set by $900,000 declined its crap income.

Speaker 5: Our manufacturer, Martin Rates, was 10.1% for the fourth quarter of 2022. Ask the credit 8.3% for the prior year period.

Speaker 5: The increase of 184 AESAs points was primarily due to the reasons discussed above. Proper sharing, bonus and deferred compensation expenses were $4.1 million for the fourth court of 2022, which is above the $3.5 million recorded for the same prior year period, primarily due to the decision to provide additional profit sharing to employees.

Speaker 5: versus contributions to the E-SOT plan. Other selling, general, and administrative expenses were $6 million for the fourth quarter of 2022. Asked a bear to $5 million for the same prior year period. The increase is primarily due to increased professional fees, wages, and other expenses.

Speaker 5: Interest expense was $1.2 million for the fourth quarter of 2022, as compared to $440,000 in the prior year period, primarily due to higher interest rates.

Speaker 5: We anticipate that at current interest rates, interest expense should remain at a similar quarterly level for the foreseeable future.

Speaker 5: Adjust its EBITDA increased to $11.6 million, versus $9.2 million for the same prior year

Speaker 5: Adjust if even a margin percent increased by 90 basis points to 9% in the quarter, ask you for 8.1% for the same prior year period.

Speaker 5: The increase is attributed to improved volumes, offset by Azo Park launch costs, and lower scrap income.

Speaker 5: Excluding the impact of Hazel Park Launch Cost, adjusted EBITDA margin was 10.5% in the fourth quarter of 2022, turning out to full year performance.

Speaker 5: Total sales for the Folier 2022 increased 18.6% on a year-over-year basis to $539.4 million.

Speaker 5: German by customer raw material price pass-throughs, volume increases, improved price capture, and end market demand resulting from customer inventory replenishment.

Speaker 5: Excluding raw material prep through total sales increased 12.4% on a year-over-year basis in 2022. As Jake mentioned, the strong revenue growth came despite continued disruptions within our customer supply chain. Manufacturing margin was $61.1 million.

Speaker 5: for the year and December 31st, 2022. As compared to 51.4 million for the same prior year period, the 18.9% increase was driven by volume increases, commercial pricing increases, and improved absorption of manufacturing overhead costs.

Speaker 5: offset by Hazel Park transition and launch costs, continued customer supply chain issues, and a $1.8 million decline to scrap income in the second half of the year. Our manufacturing margin rate finished at 11.3%, consistent with the prior year period. Profit sharing bonus and deferred compensation expenses for the year were $8 million.

Speaker 5: $2.4 million during 2021. Driven by higher consulting, legal, and professional fees.

Speaker 5: CEO transition costs and wages and benefits due to continued inflationary pressures.

Speaker 5: Interest expense for 2022 was $3.4 million. Asked prepared to $2 million for 2021 due to higher borrowing levels and interest rates. Income tax expense was $3.7 million on pre-tax income of $22.4 million, as compared to an income tax benefit.

Speaker 5: of $1.9 million on a pre-tax loss of $9.4 million for 2021.

Speaker 5: Our federal net operating law scary board was $21.2 million as of December 31, 2022.

Speaker 5: The ANALLEL does not expire, it will be used to offset our future pre-tax earnings.

Speaker 5: Adjusted EBITDA finished in line with our guidance for the year at $60.8 million after adding back the first half of repositioning impact from our Hazel Park facility, our CEO transition costs, and legal expenses related to our former fitness customer versus $46.2 million for 2021.

Speaker 5: Adjust it even to margin for the year increased by 110 basis points to 11.3%. As compared to 10.2% for the same prior year period.

Speaker 5: The increase will be driven by greater demand and improved commercial pricing, offset by $3.3 million dollars unfavorable impact from the ramp-up of Hazel Park facility and a $1.8 million dollar decline in scrap income during the third and fourth quarters.

Speaker 5: Next, I will cover cash flow and liquidity figures. No expenditures for 2022 were $58.6 million as compared to $39.3 million during 2021.

Speaker 5: The increase is due to the repurposing of assets that are Hazel Park facility, with the remainder being for continued investments in technology and automation for new customer wins and existing production processes.

Speaker 5: During the fourth quarter capital expenditures were $19.8 million, as we've heard it's $12.7 million during the fourth quarter of 2021.

Speaker 5: The increase in CAPEX during the quarter relates to investments in our Asia Park Michigan facility. As of the end of 2022, our total low-standing debt, which includes bank debt, finance and agreements, and finance lease obligations, was $74.9 million.

Speaker 5: to ask a breeder 71.4 million at the end of 2021. The increase in debt from sported relate to the increasing capital spending discussed above.

Speaker 5: Furthermore, as of December 31st, our net leverage ratio was 1.3 times, which is below our long-term net leverage target of at or below 2.5 times.

Speaker 5: Turning now to a discussion of our full year 2023 financial guidance, which is current as of the time provided. Although customer supply chain challenges persist, we anticipate sales volumes will increase on a year-rear basis in 2023.

Speaker 5: Our new business pipeline are being sawed as we build new relationships and strengthen our existing relationships with customers that Jag highlighted earlier on the call.

Speaker 5: As a result, we currently expect full year 2023 net sales of between $540 million and $580 million.

Speaker 5: a excessive EBITDA of between $62 million and $71 million. In capital expenditures of between $20 and $25 million. Please know that our risk adjusted outlook assumes general stability and end market demand, but also takes into account the potential for some macro-sophoning as your progress is.

Speaker 5: Also included in our 2023 guidance are the following assumptions. For net sales, our guidance assumes that raw material pass-throughs will be climbed by 4 to 5% relative to 2022.

Speaker 5: As compared to growing, 5 to 6% in 2022, do the stabilized steel market prices. In addition, our adjusted EBIT guidance reflects scrap income of $7 to $9 million. It detries the $4 to $6 million as compared to 2022.

Speaker 5: Our guidance also assumes that the Hazel Park facility will have a diluted impact to our results of $4 to $6 million due to underabsorbed overhead costs related to the ramp-up of production throughout the year.

Speaker 5: Lastly, our guidance also reflects a 40 to 70 basis point improvement and adjusted even to margins associated with our MDX initiatives.

Speaker 5: Operator that concludes our prepared remarks, please open the line for questions as we begin our question and answer session.

Speaker 2: 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. Again, to ask the question, press star one. As a reminder, if you're using the speaker phone, please remember to pick up your handstand before asking your question. We'll pause here briefly as questions are registered.

Speaker 2: The first question comes from the line of Ming Debrae with RWBaird. He may now proceed.

Speaker 6: Hey, good morning guys. It's Joe Grabowski on from MIG this morning. Hey, good morning. I wanted to mention the slide deck and the new disclosures were very helpful, so thank you very much for that. I guess my first question would be, and again with the slide deck there was a waterfall reconciling Q4 EBITDA with the prior year.

Speaker 6: I was wondering if maybe directionally you could talk about Q4 EBITDA versus Q3 EBITDA. Because you know the way I looked at it, the revenues quarter over quarter were down 7.7 million, but the EBITDA was down 4.6 million. You know, and I know there's a lot of moving pieces in there, but you know what was kind of the delta again with the EBITDA, Q3.

Speaker 4: down days that obviously resulted in us under absorbing and last minute we can't just take the cost out. That's, I would say, primarily one of the reasons why Q4 EBITDA margins were those softer. But overall, I'm going to let Todd to help you with the bridge.

Speaker 4: But I'm really proud of the team that executed exceptionally well in a really challenging environment in 2022, what we're all as we indicated right. We had a tremendous performance, both in top line and EBITDA margin improvement and also EBITDA dollar improvement. We were able to transform our business in the second half.

Speaker 4: into a better performing business coming into 2023. And more importantly, right, trying to ramp up Hazel Park and repurpose Hazel Park after what happened in late 2021. So with that, let me turn it over to Todd. So certainly, Joel, when you think of Q3 to Q4 sequentially, just in the normal course, the fourth quarter does have the holidays. If you do end up going mid to mid labor as you tell it, but after 15 years as an culturally impaired truck, be myself or me the vast majority of the infinite number ofMrs will be in.

Speaker 5: We also ramped up quite a bit of headcount as it relates to Hazel Park. And so as you saw between Q3 to Q4, those costs went up. It was about a $2 million impact in Q4 versus about half of that in Q3. And then you coupled the scrap income decline. So you factor in those three things and that's really what drove down the dollars and the percentage when you think of Q4 to Q3.

Speaker 6: Got it. Okay, great. Thank you. That's very helpful. I guess my next question, your sales guidance is for 2023 sales would be anywhere from flat to up 40 million. I guess kind of two questions related to that. First of all, you mentioned Hazel Park is a $100 million run rate exiting the year, but how much do you think through the course of the year?

Speaker 4: a run rate exiting the year is for 2024, not 2020. Okay. Right for Hazel biopiologies. So that's number one. You know, we are actively ramping, as we said, in Hazel Park, right? The biggest challenge for us is really customer qualifications. Every single part we have to put through Hazel Park.

Speaker 4: in Hazel Park. So that's number one. Number two, the guidance 540 to 580 that we're providing on our top line for 2023 includes a couple of things. Number one, it is risk adjusted. What does that mean? Well, the midpoint is risk adjusted. If the economy continues to be soft and the supply chain is soft, it's going to be a little bit more difficult to get to the top line.

Speaker 4: You know, continues to be disruptive to our customers. We'll end up at the lower end of that range. If things improve dramatically in terms of supply chain disruptions, go away, and you know, economy is stable, volumes are stable, we could be at the higher end of that guidance. Also, as Todd mentioned in his prepare remarks, right? No, the raw material.

Speaker 6: on top of that, right? So hopefully that answers your question. It does. That's very helpful. And then I guess my final question. This is the first time I remember you guys talking about scrap income. Maybe I'm just not remembering correctly, but can you kind of talk about the dynamics around scrap income and how it kind of flows through the P&L?

Speaker 5: Certainly, so that ends up being a contra expense, so it doesn't end up in our revenue lines. And the reason why we call that out, and you are correct, we have not historically called that out directly, but it changed so much and so quickly we felt it was prudent to kind of isolate that incident in the second half.

Speaker 5: because it went from over 20 some cents a pound, you know, in almost half that in the third and fourth quarters, and it was a very steep and precipitous decline. You know, in a normal course, scrap income is probably more than that, I call it 14 to 16 cents a pound. So we are unusually high in the beginning half of the year, but then it dropped really below what we would call normal market conditions.

Speaker 5: in the second half. So that's why we felt that it made sense to call it out specifically in the last quarter. Got it. Okay, thanks for taking my questions. Good luck the rest of the quarter. Thank you, Mr. Joe.

Speaker 7: The next question comes from the line of Andy Keplowitz with City Group. You may now proceed. Good morning, everyone. Andy. I just want to understand more of what you're saying. You know, at an end market level, you said you expect power sports.

Speaker 7: to be a higher percentage of sales in 23 versus 22 in construction and I think you have down a little bit in terms of percentages yet you have the power sports market down construction flat ag up. Are you basically saying you expect power sports to grow much higher than the market given the share gains you've had and maybe construction we should model conservatively and not sure what to make from the ag.

Speaker 4: and given interest rates, right? We expect the market as a whole to be down, but we have had significant program wins with a couple of our major customers. We also added a new customer in 2023 that will come online in the second half of 2023.

Speaker 4: Given the new program wins, we're gaining significant share in the sports market, and that's the reason why we expect that the sales in that segment to be up in 2023. In regards to construction, construction, most of our exposure right is in construction access.

Speaker 4: residential is gonna be down as we indicated, but we are seeing green shoots if you will, in non-residential construction areas and applications, particularly with some of the infrastructure investments flowing through, so that gives us a little bit of confidence on the construction market that even though residential might be down, it might be partially offset by non-residential.

Speaker 4: as well talking about these sub-segments, their significant inventory in the channel. And we're seeing that softness come through in the small ag and turf care applications, whereas the large ag continues to be strong, or customers are indicating strong demand signals, and we continue to expect that sub-segment to grow for us.

Speaker 7: Got it very helpful. Okay, and then just flipping over to margins for a second. Maybe a little more color about incremental margins in 23 and what MBX can in this country. I know you gave us that for your study-based point. So you cited fair amount of headwinds on the business. Yet I think you're still going to high 20% incremental at the midpoint. You can correct me if I'm wrong.

Speaker 4: passed as a program like MBX takes some time to get really rooted as our daily operating system.

Speaker 4: So we've been on this journey for about six months now and I can tell you the entire organization is excited, enthused. In this year, in 2023, it will probably do between three times to four times as many kaisans as we would have done in 2020.

Speaker 4: right? Just the scale of our activity has significantly increased within the company. Having said that, the biggest concern I have after living through this type of programs for 20 plus years in my own, almost 30 years in my career, right? The sustainability of those improvements is really where I am focused.

Speaker 4: It's not the number of guys that we're going to do. It's really how much of those improvements can we sustain or along periods of time. So given that, we're being really conservative on our margin impact in 2023, because I really need to see our we as a company, sustain those improvements. That's why when we say 40 to 70 basis points of,

Speaker 4: You know, creation, you know, EBITDA margins for 2023. That's a really risk adjusted conservative number that we're putting out there, right? We're going to expand by that range with the expectation that, you know, we want to continue to push that number higher. As we see the MBAX program, we take root in every plan, in every function, including.

Speaker 5: finance, and sales, and marketing, and supply chain. I think that's where we are in terms of our MBX drive within the company. Do you want to talk about the incremental margins? Yes, historically, you are correct. We've been in that 21.5% range historically. Like Jake mentioned, we would expect in the longer term, once the MBX really takes hold that that incremental margin should improve.

Speaker 5: And certainly, when you think of next year, we're very happy with the fact that you go with the mid ranges, the incrementals are very strong. Despite some continued expected headlines, when you think of next year, we did talk about continued potential supply chain issues. We have the ASAPARC launch that is ongoing throughout the year. That'll have a negative $4.6 million impact.

Speaker 7: And you've coupled that into the scrap decline, right? So despite all those kind of headlines, we're still seeing nice progress on our incremental margins, you will regret the good point. Right, and Todd, you're, to be clear, you're talking about 23 when you say next year, right? Just to be clear. Correct. Yeah. So let me just ask one other followup on Hazel Park. So Jack, I think you mentioned, you know, the ramp up, the run rate, exiting 24. Just thinking about the four to six million of incremental costs this year. You're equally clear.

Speaker 5: Yeah, I was going to say that it is a little more fun unloaded, but you still have that ramp happens throughout the year. And then you get into Q4, certainly volumes in timing of days, it has a little bit of an impact there. So I think the 60-40 split is a fair.

Speaker 4: And then for the 25 to 30 million revenue, we're pushing to get through Hazel Park this year, right? We might be, you know, slightly, you know, negative, right? So our goal obviously used to be, at least, either the positive, our case break even rather. But you know, that'll be a bit of a challenge in 2023.

Speaker 7: Okay, helpful guys. Thank you, Mr. Capable-Wood.

Speaker 2: There are no further questions, register. So at this time, I will pass the conference back to Mr. Jagd, ready? Excuse me. We do have a question from the line of Larry.

Speaker 7: Day Marie with William Blair, you may now proceed. Excuse me, thanks, good morning everybody. Just, I want to stay with Hazel Park for a minute here. Hi guys, so 25 to 35 million in 23, break even maybe selling negative EBITDA. Growth in 24 and then 100 million plus presumably in 2025.

Speaker 8: cannibalizing any other plants or is this all incremental and you know finally how much of this is go get versus what you have this ability on

Speaker 4: Yeah, okay. Thank you, Larry. On the 100 million ex-red work we talked about in 2024. Obviously, we're not providing any guidance for 2024 having said that. We expect Paisel Park to be...

Speaker 4: EBITDA created, or positive rather, in 2024. We expect perhaps approximately 65 to 70 million-ish in revenues for 2024 out of Hazel Park with an exit run rate of 100 million, and it will be EBITDA positive. And in 2025, obviously 100 million or more, as you mentioned.

Speaker 4: current customers with some new programs and some existing programs, right? So what that means is, out of the hundred, let's say approximately 25 or so percent of that number is some of the volume that we're moving from other plants into Hazel Park to optimize our plant network, right? So hopefully that answers your question.

Speaker 5: The other comment I would be at, Larry, when you think of the margin profile, when we get to the 2025 and we're at $100 million a run rate, our expectation would be that even a margin would be in line with our expectation of a 15% or even hopefully even a creative from there. That is our goal, our expectation.

Speaker 5: And as Jack mentioned, there is a really cannibalization app in AppLance. It's opening up capacity that was needed for us to bring in incremental business. So when you think of that $100 million, that will be all incremental business.

Speaker 8: Okay, that's very clear and that's what I was looking for. And then the second question, I think it's recently in December , you guys talked about the 15% EBITDA margins that you just referenced. You know, if we look at the guidance for 23, we have presumably obviously a much more stable year. But the material pass throughs, you get some benefit there.

Speaker 8: But then even if we adjust out from the under resorption in Hazel, some of the headwinds from Hazel, we're still nowhere near the 15%. So can you sort of help us bridge the gap between 15% target, which is it realistic or not, and the timeframe, and then where we're entering now, even if we adjust for some of those headwinds, what's the gap?

Speaker 4: Yeah, so we stand by our medium term goal of 15% of adjusted EBITDA margins. The bridge to where we are in 2023, our guidance, and where we would like to be in a couple of years.

Speaker 4: is really threefold, right? And it's approximately 72, 90 basis points, some of the 100 basis points of each of those items. One is a little park as we indicated. Although it's a crapping from ASP indicator. The third one is customer supply chain disruptions. We continue to see that. That's been, you know, we talked about UNNQ4.

Speaker 5: of all 11.2%. As Jake mentioned, you have 5 to 300 basis points of headwinds. On the high end, we're at 12 to 12.5%. So we really factor that it potentially gets us near that 15% goal. Okay, so realistically,

Speaker 8: You know, medium term is probably around 20th, 2025 when we're operating a much more productive run rate hazel park.

Speaker 5: Without really providing further guidance at this point, I would say that there is a point potentially in 24 or 25. We are expecting to have an analyst day later this year, and our expectation within that meeting would obviously be providing a bridge to our future even emergent.

Speaker 8: Okay, that's very helpful. Thank you very much. Good luck. Thank you, Mr. DiMari.

Speaker 2: As a reminder, if you would like to ask a question, star 1 on your telephone keypad.

Speaker 2: There are no further questions registered at this time, so I will pass the conference back to Mr. Jagger. You may now proceed.

Speaker 4: Thank you, Alicia. Once again, thank you for joining our call. Should you have any questions, please contact Noel Ryan or Steppen-Millie at Valum, our investor relations counsel. This concludes our call today. You may now disconnect. Back in conclusion today's conference call. Thank you for your participation. You may now disconnect your line.