Q4 2024 Mayville Engineering CoInc Earnings Call
Operator: Hello and welcome everyone to the Mayville Engineering Company fourth quarter 2024 earnings conference call. My name is Becky and I'll be your operator today. During the presentation you can register a question by pressing star followed by one on your keypad. If you change your mind please press star followed by two.
Hello, and welcome everyone to the Mayville Engineering company fourth quarter 'twenty 'twenty four earnings conference call.
Becky: My name is Becky and I'll be off break say.
Becky: During the presentation you can register your question bankruptcy stuff slipped by one on your keypad. If you changed your mind. Please press star followed by cheap.
Stephan Neely: I will now hand over to your host, Stephan Neely, with Valum Advisors, to begin. Please go ahead. Thank you, Operator.
I will now hand over to your highest Stefan Neely with all the advisors to begin <unk>.
Becky: Go ahead.
Speaker Change: Thank you operator on behalf of our entire team I'd like to welcome you to our fourth quarter and full year 2024 results conference call.
Stephan Neely: On behalf of our entire team, I'd like to welcome you to our fourth quarter and full year 2024 results conference call.
Stephan Neely: Leading the call today is MEC's President and CEO, Jack Reddy, Todd Butz, Chief Financial Officer, and Rochelle Lair, our Chief Human Resources Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission.
Jack Ready: Leading the call today is <unk>, president and CEO, Jack ready, Todd Butz, Chief Financial Officer, and Michelle <unk>, Our Chief Human Resources Officer. Today's discussion contains forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward looking statements due to various risks and.
Jack Ready: Certainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission, except as 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.
Stephan Neely: Except as required by law, we undertake no obligation to update our forward-looking statements.
Stephan Neely: 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 MECInc.com.
Jack Ready: The earnings press release, which is available at Mec, Inc. Dot com following our prepared remarks, we will open the line for questions with that I would like to turn the call over to Jack.
Stephan Neely: Following our prepared remarks, we will open the line for questions.
Stephan Neely: With that, I would like to turn the call over to Chad.
Jag Reddy: Thank you, Stephan, and good morning, everyone. During a period of softer demand within our core vertical market, our team maintained focused execution in 2024. We delivered consistent profitability, disciplined networking capital management, and significant year-over-year growth in free cash flow generation when compared to 2023.
Jack Ready: Thank you Stephan and good morning, everyone.
During a period of softer demand within our core vertical markets. Our team maintained focused execution in 2024.
Jack Ready: We delivered consistent profitability disciplined net working capital management and significant year over year growth in free cash flow generation when compared to 2023.
Jag Reddy: Similar to the third quarter, our fourth quarter performance was impacted by lower customer program activity as OEM customers continue to drive normalization in channel inventory. Lower demand contributed to an 18 percent year-over-year decline in revenue, which resulted in reduced overhead absorption and lower utilization. During the first half of 2025, we anticipate that the ongoing softness in demand will persist across most of our end markets, consistent with what we have seen during the second half of 2024. Based on current customer discussions, together with new projects and backlog, we expect demand conditions to gradually recover during the second half of 2025.
Jack Ready: Similar to the third quarter, our fourth quarter performance was impacted by lower customer program activity as OEM customers continue to drive normalization in channel inventory.
Jack Ready: Lower demand contributed to an 18% year over year decline in revenue, which resulted in reduced overhead absorption and lower utilization.
Jack Ready: During the first half of 2025, we anticipate that the ongoing softness in demand will persist.
Jack Ready: Most of our end markets consistent with what we have seen during the second half of 'twenty 'twenty four <unk>.
Jack Ready: Based on current customer discussions together with new projects and backlog, we expect demand conditions to gradually recover.
Jack Ready: During the second half of 2025.
Jag Reddy: Our business development team is actively engaged in discussions with both new and current customers within high-value emerging end markets, and particularly those that capture multi-year investable teams. These new opportunities, which include exposure to industrial infrastructure investments, such as the ongoing domestic data center build out, have the potential to increase our revenue base across growing, less cyclical, and more. Our business continues to generate strong free cash flow, positioning us to execute on our capital allocation strategy that includes continued debt reduction, along with opportunistic repurchases of our common stock. In 2024, we generated free cash flow of nearly $78 million, including $25.5 million from a recently announced legal settlement.
Jack Ready: Our business development team is actively engaged in discussions with both new and current customers within high value imaging end markets and particularly those that capture multiyear investable teams.
Jack Ready: These new opportunities, which include exposure to industrial infrastructure investments such as the ongoing domestic data center build out have the potential to increase our revenue base across growing less cyclical end markets our.
Jack Ready: Our business continues to generate strong free cash flow positioning us to execute on our capital allocation strategy that includes continued debt reduction along with opportunistic repurchases of our common stock.
Jack Ready: In 2024, we generated free cash flow of nearly 78 million, including $25 5 million from our recently announced legal settlement.
Jag Reddy: Excluding the settlement, organic free cash flow more than doubled versus 2023 levels. During the fourth quarter, we repaid more than $31 million in debt, reducing our net leverage to 1.3 times at year end. This is well below our stated targeted net leverage ratio range of between one and a half times and two times by the end of 2024. As we have continued to reduce our net leverage ratio, we have been increasingly committed to a systematic approach to share repurchases under our existing $25 million authorization. To that end, during the quarter, we repurchased nearly $4 million worth of company common stock.
Jack Ready: Excluding the settlement organic free cash flow more than doubled versus 2023 levels.
Jack Ready: During the fourth quarter, we repaid more than $31 million in debt, reducing our net leverage to one three times at year end.
Speaker Change: This is well below our stated.
Speaker Change: Targeted net leverage ratio range of between one five times and two times by the end of 2024.
Speaker Change: As we have continued to reduce our net leverage ratio, we have been increasingly committed to a systematic approach to share repurchases under our existing $25 million authorization.
Speaker Change: And during the quarter, we repurchased nearly $4 million for the company common stock.
Jag Reddy: For the full year 2024, we repurchased $5.9 million of company common stock, partially offsetting the dilution from the shares awarded in 2024, relating to our stock-based compensation program. With $19 million remaining under the existing authorization, we will continue to repurchase shares on a regular basis going forward. With respect to commercial growth, our team remains actively engaged in efforts to expand our serviceable market across both new and existing verticals. In 2024, we booked more than $100 million in new business wins, an increase of 12% year-over-year, and remain focused on driving continued order growth across a broad array of end markets over the coming year.
Speaker Change: Our full year 2024, we repurchased five $9 million of company common stock partially offsetting the dilution from the shares awarded in 2024 relating to our stock based compensation program.
Speaker Change: With $19 million remaining under the existing authorization, we will continue to repurchase shares on a regular basis going forward.
Speaker Change: With respect to commercial growth our team remains actively engaged in efforts to expand our serviceable market across both new and existing vertical.
Speaker Change: In 2024, we booked more than $100 million in new business wins and increase of 12% year over year and remain focused on driving continued order growth across a broad array of end markets over the coming year.
Jag Reddy: Importantly, even as current demand conditions have evolved, we have had no unexpected customer contract cancellation.
Speaker Change: Importantly, even as current demand conditions have evolved we have had no unexpected customer contract cancellation.
Jag Reddy: A testament to the durability of our customer relationship. Looking ahead, we continue to seek diversification across less cyclical, higher value opportunities. through a combination of existing business development activities together with targeted inorganic growth.
Speaker Change: Testament to the durability of our customer relationships.
Speaker Change: Looking ahead, we continue to seek diversification across less cyclical higher value opportunities through a combination of existing business development activities.
Speaker Change: Together with targeted inorganic growth.
Jag Reddy: Todd will discuss the outlook in more detail shortly, but I would highlight that our assumption is that entering 2025, customer demand will remain muted as channel inventory destocking continues. While each customer and end market are slightly different, we broadly expect that the inventory destocking trend will be a headwind for year-over-year growth and margin expansion in the first half of the year. Current expectations are that customer channel inventories will begin to normalize entering the third quarter. Consequently, we anticipate that we will begin to experience rateable demand improvement during the second half of 2025 relative to the first half.
Speaker Change: Todd will discuss the outlook in more detail shortly but I would highlight that our assumption is that entering 2025 customer demand will remain muted as channel inventory Destocking continues.
Speaker Change: While each customer and end market are slightly different we broadly expect that the inventory destocking trend will be a headwind for a year over year growth and margin expansion in the first half of the year.
Speaker Change: Current expectations are that customer channel inventories will begin to normalize entering the third quarter.
Consequently, we anticipate that we will begin to experience the ratable demand improvement.
Speaker Change: During the second half of 2025 relative to the first half.
Jag Reddy: Turning now to a more detailed review of market conditions across our primary and market. Let's begin with our commercial vehicle market, which represents approximately 38% of our trailing 12-month revenue. During the fourth quarter. Commercial vehicle revenue decreased by 10.5% on a year-over-year basis. Our net sales to this end market were relatively comparable to the broader commercial vehicle market, as evidenced by a reported 10.4% year-over-year decrease in North American Class VIII truck production, according to ACT Research. As we look forward into 2025, ACT research currently forecasts that Class VIII vehicle production to decrease 4.8% year-over-year in 2025 to approximately 316,000 units.
Speaker Change: Turning now to a more detailed review of market conditions across our primary end markets.
Speaker Change: Let's begin with our commercial vehicle market, which represents approximately 38% of our trailing 12 month revenues.
Speaker Change: During the fourth quarter.
Speaker Change: Commercial vehicle revenue decreased by 10, 5% on a year over year basis.
Speaker Change: Our net sales for this end market were relatively comparable to the broader commercial vehicle market.
Speaker Change: As evidenced by our reported 10, 4%.
Speaker Change: Decrease in North American class eight truck production according to <unk> research.
Speaker Change: As we look forward into 2025 ACD research currently forecasts a class eight vehicle production to a decreased four 8% year over year in 2025 to approximately 316000 units.
Jag Reddy: Trends in vocational truck demand and continued demand in truck orders suggest fleets are preparing for 2027 EPA regulations. These factors are driving demand to modestly increase through most of 2025 prior to a recovery in 2026. The latest forecast shows ACT projecting 2026 full year demand to increase by 11.7% relative to 2025. The power sports market represented approximately 17% of our trailing 12-month revenues and decreased by 29.1% on euro-rare basis in the fourth quarter. Performance during the quarter continues to be driven by customer channel inventory destocking. Soft Consumer Demand Due to Elevated Financing Rates and Production This was partially offset by the impact of incremental volumes from new project startups.
Speaker Change: Strength in vocational truck demand and continued demand in truck orders suggest.
Speaker Change: Fleets that are preparing for 2027 EPA regulation.
Speaker Change: These factors are driving demand to modestly increase through most of 2025 prior to a recovery in 2026.
Speaker Change: The latest forecast shows ACP projecting 2026 full year demand to increase by 11, 7% relative to 2025.
Speaker Change: The power sports market represented approximately 17% of our trailing 12 month revenues and decreased by 29, 1% on a year over year basis in the fourth quarter.
Performance during the quarter continues to be driven by customer channel inventory destocking.
Soft consumer demand due to elevated financing rates and production cuts.
Speaker Change: This was partially offset by the impact of incremental volumes from new project startups.
Jag Reddy: Given the current market conditions, we anticipate elevated rates will continue to weigh on demand. However, new product launches should provide incremental improvements to our performance. Next is the construction and access market, which represented approximately 16% of our trailing 12-month revenue. construction and access revenues decreased 34.5% on a year-over-year basis in the fourth quarter. This reflects continued soft demand across both non-residential and public infrastructure markets. We expect demand to remain soft through the first half of 2025. Entering the second half of 2025, we anticipate demand to increase based upon increased activity in public infrastructure and non-residential construction.
Speaker Change: Given the current market conditions.
Speaker Change: Anticipate elevated rates will continue to weigh on demand.
Speaker Change: Our new product launches should provide incremental improvements to our performance.
Speaker Change: Next is the construction and access market, which represented approximately 16% of our trailing 12 month revenues construction and access revenues decreased 34 points.
Speaker Change: 5% on a year over year basis in the fourth quarter.
Speaker Change: This reflects continued soft demand across both nonresidential and public infrastructure markets, we expect demand to remain soft through the first half of 2025.
Speaker Change: Entering the second half of 2025, we anticipate demand to increase based upon increased activity in public infrastructure and nonresidential construction.
Jag Reddy: Our agricultural market represented approximately 8% of trailing 12-month revenues and decreased by 46.5% on a year-over-year basis during the fourth quarter. Our results reflect weakness in both large and small agricultural markets. The outlook remains uncertain due to interest rates, continued inventory destocking, and crop prices.
Speaker Change: Our agricultural market represented approximately 8% of trailing 12 month revenues and decreased by 46, 5% on a year over year basis during the fourth quarter.
Speaker Change: Our results reflect weakness in both large and small agricultural markets.
Speaker Change: The outlook remains uncertain due to interest rates continued inventory destocking and crop prices.
Jag Reddy: Due to these factors, we are not anticipating a recovery until 2026.
Speaker Change: Due to these factors, we are not anticipating a recovery until 2026.
Jag Reddy: Turning now to an overview of substantial new business wins during the fourth quarter. We have continued to expand our share with our commercial vehicle customers as they launch their next generation models leading into the EPA regulation changes. Many of these products support future growth, launching in 2026 and 2027. We are continuing to see growth in our thermal management market share, picking up additional new products during the quarter as our customer continues to grow their market share. We remain focused on diversifying our end markets by targeting content related to power generation, supporting the rapid expansion of data In the quarter, we secure a new aluminum extrusion program with one of our large PowerSports customers.
Speaker Change: Turning now to an overview of substantial new business wins during the fourth quarter.
Speaker Change: We have continued to expand our share with our commercial vehicle customers as they launch their next generation models, leading into the EPA regulation changes many of these products support future growth launching in 2026 and 2027.
Speaker Change: We are continuing to see growth in our care.
Speaker Change: Management market share picking up additional new products during the quarter as our customer continues to grow their market share.
Speaker Change: We remain focused on diversifying our end markets.
Speaker Change: By targeting content related to power generation supporting the rapid expansion of data centers.
Speaker Change: In the quarter, we secured a new aluminum extrusion program.
Speaker Change: One of our large power sports customers. This program leveraged existing relationships at Mac and will lead to future growth over the coming years.
Jag Reddy: This program leveraged existing relationships at MECC and will lead to future growth over the coming years. We have continued to gain additional market share for our access customer as they evaluate their global supply base. Our U.S. manufacturing plants, located in close proximity to customer facilities, continue to provide the best value in their supply chain as they look to increase their volume. Our sales team is continuing to prioritize the diversification of our end market exposure and customer base. As we have mentioned before, we are in active discussions with new and existing customers to support potential programs in the data center space, including, but not limited to, cooling, electrical infrastructure, and standby power applications, which could come into fruition in the next 12 to 18 months.
Speaker Change: We have continued to gain additional market share, but our access customer as they evaluate their global supply base.
Speaker Change: Our U S manufacturing plants located in close proximity to customer facilities continue to provide the best value in their supply chain as they look to increase their volumes.
Speaker Change: Our sales team is continuing to prioritize the diversification of our end market exposure and customer base.
Speaker Change: As we have mentioned before we are in active discussions with new and existing customers to support potential programs in the datacenter space, including but not limited to cooling electrical infrastructure and standby power applications, which could come into fruition in the next 12 to 18.
Speaker Change: Months.
Jag Reddy: As before, our MBX framework continues to guide our value creation priority. Even as demand conditions remain soft, we continue to deploy targeted initiatives around strategic pricing, commercial growth, and capital efficiency that over time have positioned Mac to outperform the broader market. Since September 2022, our team has completed over 275 MBX Kaizen events. As a result of these events, the company was able to reduce its legacy manufacturing square footage space by 5% and headcount by 12%, along with removing over $5 million in other costs. Additionally, the success of our MDX efforts were evident in our robust free cash flow generation.
Speaker Change: As before our Mdx framework continues to guide our value creation priorities, even as demand conditions remained soft we continue to deploy targeted initiatives around strategic pricing commercial growth and capital efficiency that overtime have position.
Speaker Change: And Mac to outperform the broader market.
Speaker Change: Since September 2022, our team has completed over 275 Mdx kaizen events.
Speaker Change: As a result of these events the company was able to reduce its a legacy manufacturing square footage space by 5% and head count by 12% along with removing over $5 million in other costs.
Speaker Change: Additionally, the success of our Mdx efforts were evident in our robust free cash flow generation.
Jag Reddy: During the fourth quarter, our free cash flow was over $35 million. Even when excluding the recent $25.5 million settlement with a former fitness customer, our free cash flow conversion for the quarter exceeded 100% of adjusted EBITDA. The strength in our free cash conversion is owed to improving efficiency and networking capital management. This execution positions us for long-term improvement in our financial profile to drive sustainable shareholder value throughout the cycle. We are positioning ourselves to become a leaner, more efficient organization equipped to capitalize on a future demand recovery. Our healthy financial position enables our team to focus on executing our long-term strategy.
Speaker Change: During the fourth quarter, our free cash flow was over $35 million.
Speaker Change: Even when excluding the recent $25 5 million settlement with a former fitness customer our free cash flow conversion for the quarter exceeded 100% of adjusted EBITDA.
Speaker Change: The strength in our free cash conversion is owed to improving efficiency and net working capital management.
Speaker Change: This execution positions us for long term improvements in our financial profile to drive sustainable shareholder value throughout the cycle.
Speaker Change: We are positioning ourselves to become a leaner more efficient organization.
Speaker Change: To capitalize on future demand recovery.
Speaker Change: Our healthy financial position enables our team to focus on executing our long term strategy.
Jag Reddy: We will remain disciplined in our capital allocation, prioritizing debt repayment, opportunistic share repurchases, and the creative strategic acquisition. M&A remains a key part of our long term strategy as we look to accelerate our expansion into high growth adjacent end markets. Our team has built a pipeline of acquisition targets that meet our criteria.
Speaker Change: We will remain disciplined in our capital allocation prioritizing debt repayment.
Speaker Change: Opportunistic share repurchases and accretive strategic acquisitions.
Speaker Change: M&A remains a key part of our long term strategy as we look to accelerate our expansion into high growth adjacent end markets.
Speaker Change: Our team has built a pipeline of acquisition targets that meet our criteria.
Jag Reddy: While we plan to pursue M&A. Building on our market-leading capabilities, we will remain disciplined and ensure that we are positioned to capitalize on multi-year secular growth trends in front of us.
Speaker Change: While we plan to pursue M&A.
Speaker Change: Building on our market leading capabilities, we will remain disciplined and ensure that we are positioned to capitalize on multiyear secular growth trends in front of us.
Jag Reddy: Finally, I would like to briefly comment on our longer-term outlook. As we first highlighted at our 2023 Investor Day, MECC has been on a multi-year value creation journey, one that prioritizes a combination of commercial growth, operational discipline, and high return capital deployment. Since that time, we have demonstrated the organic growth potential of the business, realized sustained operational efficiencies, and continue to deploy capital through a combination of reinvestment in the business and share repurchase. While our team has successfully executed on our strategic plan, demand conditions within our core markets have been challenged and remain in flux.
Speaker Change: Finally, I would like to briefly comment on our longer term outlook.
Speaker Change: As we first highlighted at our 2023 Investor Day Mac has been on a multiyear value creation journey, one that prioritizes a combination of commercial growth operational discipline and high return capital.
Speaker Change: Deployment.
Speaker Change: Since that time, we have demonstrated the organic growth potential of the business.
Speaker Change: Realized sustained operational efficiencies and continue to deploy capital through a combination of reinvestment in the business and share repurchases.
Speaker Change: While our team has successfully executed on our strategic plan demand conditions within our core markets have been challenged and remain in flux.
Jag Reddy: While a recovery in the second half of 2025 is likely, given what we see from our customers today, the pace of a full demand inflection could take longer. We remain committed to the targets introduced back in 2023. However, the precise timing of achieving those targets remains subject to how demand conditions shape or determine quarter. Our 2025 guidance reflects our customer conversation and the MBX-related efficiencies that we continue to realize across the organization. I am confident that the actions we have taken to reposition the business during a transitional period have created a foundation for growth that will deliver value to our shareholders over the long term.
Speaker Change: While a recovery in the second half of 2025 is likely.
Speaker Change: Given what we see from our customers today, the pace full demand inflection could take longer.
Speaker Change: We remain committed to the targets introduced back in 2023, however, the precise timing of achieving those targets remain subject to how demand conditions shape over the coming quarters.
Speaker Change: Our 2025 guidance reflects our customer conversation.
Speaker Change: The mdx related efficiencies that we continue to realize across the organization.
Speaker Change: I am confident that the actions we have taken to reposition the business during the transitional period have created a foundation for growth that will deliver value to our shareholders over the long term.
Jag Reddy: Before I turn the call over to Todd, I want to thank him for his hard work and dedication in leading and building a strong finance organization. Todd's leadership has been instrumental in Mac's growth for the past 17 years, and we wish him well in his next chapter.
Speaker Change: Before I turn the call over to Todd I want to thank him for his hard work and dedication in leading and building a strong finance organization.
Speaker Change: <unk> leadership has been instrumental in Mexico growth over the past 17 years, and we wish him well in his next chapter with that I will now turn the call over to Todd to review our financial results.
Todd Butz: With that, I will now turn the call over to Todd to review our financial results. Thank you, Jag. I'll begin my prepared remarks with an overview of our fourth quarter and four-year financial performance, followed by an update on our balance sheet and liquidity, and I will conclude with a discussion of our 2025 guidance.
Todd: Thank you Jay I'll begin my prepared remarks, with an overview of our fourth quarter and full year financial performance, followed by an update on our balance sheet and liquidity and I will conclude with a discussion of our 2025 guidance.
Todd Butz: Total sales for the fourth quarter decreased 18.4% on a year-over-year basis to $121.3 million. The decline in net sales is driven by customer de-stocking activities and weaker end-user demand, which was partially offset by new project launches. Our manufacturing margin was $10.8 million in the fourth quarter, as compared to $18.2 million in the same prior year period. The decrease was primarily driven by the corresponding decline in net sales. Our manufacturing margin rate was 8.9% for the fourth quarter of 2024, as compared to 12.3% for the prior year period, or a decrease of 340 days. The decrease in our manufacturing margin rate reflects the impact of lower fixed cost absorption from lower customer sales, fewer working days in the quarter, and the completion of cost reduction activities that will yield future margin benefits.
Todd: Total sales for the fourth quarter decreased 18, 4% on a year over year basis to $121 $3 million decline in net sales was driven by customer destocking activities.
Todd: <unk> end user demand.
Todd: Was partially offset by new project launches.
Todd: Our manufacturing margin was $10 $8 million in the quarter as compared to $18 2 million prior year period.
Todd: The decrease was primarily driven by the corresponding decline in net sales.
Todd: Our manufacturing margin rate was eight 9% for the fourth.
Todd: Quarter of 2024.
Todd: As compared to 12, 3% for the prior year period, or a decrease of 340 basis points.
Todd: The decrease in our manufacturing margin rate reflects the impact of lower fixed cost absorption from lower customer sale.
Todd: We're working days in the quarter and the completion of cost reduction activities that will yield future margin benefit.
Todd Butz: Other selling, general, and administrative expenses were $7.9 million for the fourth quarter of 2024, as compared to $7.2 million in the same prior year period. The increase was primarily driven by higher costs related to compliance requirements and annual wage inflation, partially offset by a reduction in legal expenses relating to our former fitness customers. Interest expense was $2 million for the fourth quarter of 2024, as compared to $3.6 million in the prior year period due to a reduction in borrowings relative to the fourth quarter of last year. The decrease of $67.9 million in borrowings over the past year reflects our continued strong free cash flow generation.
Todd: Other selling general and administrative expenses were $7 9 million for the fourth quarter of 2024 as compared to $7 $2 million for the same prior year period.
Todd: The increase was primarily driven by higher costs related to compliance requirements and annual wage inflation, partially offset by a reduction in legal expenses relating to our former fitness customers.
Todd: Interest expense was $2 million for the fourth quarter of 2024 as compared to $3 6 million in the prior year period due to reduction in borrowings relative to the fourth quarter of last year.
Todd: The decrease of $67 9 million and borrowings over the past year reflects our continued strong free cash flow generation.
Todd Butz: Our adjusted EBITDA for the fourth quarter was $9.2 million versus $17.7 million for the same prior year period. Adjusted EBITDA margin decreased by 430 basis points to 7.6% in the current quarter as compared to 11.9% in the same prior year period.
Todd: Adjusted EBITDA for the fourth quarter was $9 2 million versus $17 7 million for the same prior year period.
Todd: EBITDA margin decreased by 430 basis points to seven 6% in the current quarter as compared to 11, 9% the same prior year period.
Todd Butz: Our fourth quarter adjusted EBITDA margin is a low point in the cycle and should begin to improve sequentially as we enter 2025.
Todd: Fourth quarter, adjusted EBIT margin with a low point in the cycle and should begin to improve sequentially as we enter 2025.
Todd Butz: Now, I'd like to provide a brief summary of our full year 2024 results. Net sales for the full year were $581.6 million, a decrease of 1.2% as compared to the prior year. Our 2024 manufacturing margin was $71.1 million, as compared to $69.7 million in 2023. This reflects a manufacturing margin rate of 12.2% or an increase of 40 basis points as compared to 11.8% in 2023. 2024 adjusted EBITDA was $64.4 million, as compared to $66.1 million in 2023, which resulted in adjusted EBITDA margin for 2024 of 11.1%, as compared to 11.2% in 2020.
Todd: Now I'd like to provide a brief summary of our full year 2020 results net sales for the full year were $581 6 million a decrease of one 2% as compared to the prior year. Our 2024 manufacturing margin was $71 1 million as compared to $69 seven.
Todd: In 2023.
Todd: This reflects a manufacturing margin rate of 12, 2% or an increase of 40 basis points as compared to 11, 8% in 2023.
Todd: 2024, adjusted EBITDA was $64 4 million as.
Todd: As compared to $66 1 million in 2023.
Todd: Which resulted in adjusted EBITDA margin for 2024 of 11, 1% as compared to 11, 2% in 2023.
Todd Butz: Turning now to our statement of cash flows and balance. Free cash flow during the fourth quarter of 2024 was $35.6 million, as compared to $19.9 million in the prior year period. The increase in free cash flow, as compared to the prior year, reflects the $25.5 million received from the recently announced legal settlement and our continued focus on networking capital efficiency.
Todd: Turning now to our statement of cash flows and balance sheet free.
Todd: Free cash flow during the fourth quarter of 2024 or $35 6 million.
Todd: As compared to $19 $9 million in the prior year period.
The increase in free cash flow as compared to the prior year reflects the $25 $5 million received from the recently announced legal settlement and our continued focus on net working capital efficiency.
Todd Butz: As of the end of the fourth quarter of 2024, our debt, which includes bank debt, financing agreements, and finance lease obligations, was $82.3 million, as compared to $150.2 million at the end of the fourth quarter of 2024, resulting in a net leverage ratio of just under 1.3 times acting Now turning to a review of our 2025 financial guide. For 2025, we now expect the following. Net sales are between $560 million and $590 million. Adjusted EBITDA are between $60 million and $66 million. And free cash flow is between $43 million and $50 million. Please note that our midpoints assume demand conditions gradually recover during the second half of 2025 as customer destocking activities and consumer demand normalize.
Todd: As of the end of the fourth quarter of 2024, our debt, which includes bank debt financing agreements and finance lease obligation was $82 3 million as compared to $152 million at the end of the fourth quarter 2024.
Todd: It resulted in a net leverage ratio of just under one three times at year end.
Todd: Now turning to a review of our 2025 financial guidance.
Todd: For 2025, we now expect the following.
Todd: Net sales of between $560 million and $590 million adjusted EBITDA of between 60 million and $66 million and free cash flow of between $43 million $50 million.
Todd: Please note that our midpoint assume demand conditions gradually recover during the second half of 2025 customer destocking activities.
Todd: Tumor demand normalizes.
Todd Butz: Additionally, embedded in this guidance is a following view of our current end market as compared to 2024. Commercial vehicle, flat to slightly down. Construction and access led to a low single-digit income. Power sport, low single-digit decrease. Agriculture, low to mid-20th percentile decline. Military, comparable to the prior year. And other end markets, low to mid-single-digit increase. Due to its high interest rate sensitivity and current channel inventory level, we believe our power sports market bears the most uncertainty. If our end markets were to perform below these expectations, it would push our guidance to the lower end of the range.
Todd: Additionally, embedded in this guidance is the following view of our current end markets as compared to 2024.
Todd: Commercial vehicle flat to slightly down.
Todd: Construction and access flat to a low single digit increase.
Todd: Our sport low single digit decrease.
Todd: Agriculture low to mid 20 percentile decline mill.
Todd: Military comparable to the prior year and other end market low to mid single digit increase.
Todd: Due to its high interest rate sensitivity and current channel inventory level, we believe our power sports market, there's the most uncertainty.
If our end markets were performed below these expectations it would push our guidance to the lower end of the range.
Todd Butz: Conversely, if the second half market conditions improve at a faster pace than expected, we would anticipate to be near the higher end of our guidance.
Todd: Inversely the second half market conditions improve at a faster pace than expected, we would anticipate to be near the higher end of our guidance.
Todd Butz: Given the uncertainty of the current demand cycle, we will continue to monitor and report throughout the year any material changes to this outline. Furthermore, embedded within our 2025 Adjusted EBITDA Guidance is $1 to $3 million of cost improvement driven by our MBX Operational Excellence and Strategic Value-Based Pricing Initiative net of inflationary pressure. As it relates to pre-cash flow guidance, we expect that our capital expenditures for the year will be in a range of between $13 million and $17 million, and we'll continue to focus on high-return, capital-led automation advances. payback periods of less than 18 months.
But given the uncertainty of the current demand cycle, we will continue to monitor and report throughout the year any material changes to this outlook.
Todd: Furthermore, embedded within our 2025 adjusted EBITDA guidance is $1 million to $3 million cost improvement driven by our mdx operational excellence et cetera.
Todd: Value based pricing initiatives net of inflationary pressures.
Todd: As it relates to free cash flow guidance, we expect that our capital expenditures for the year will be in a range of between $13 million and $17 million and we will continue to focus on high return capital light automation advancements with payback periods of less than 18 months.
Todd Butz: for the support in our planned role in increasing efficiency.
Todd: Further supporting our planned growth and increasing efficiencies.
Todd Butz: Based on our free cash flow guidance and excluding any M&A activity, we expect to be below one times net debt leveraged by year For more information visit www.fema.gov Lastly, I would like to reiterate that our financial position enables the team to focus on executing our long-term strategy. We will remain disciplined in our capital allocation, prioritizing debt repayment, opportunistic share repurchase, and accretive strategic acquisition, positioning the company to capitalize on the multi-year secular growth trend ahead of us.
Todd: And our free cash flow guidance and excluding any M&A activity, we expect to be below one times net debt leverage by year end.
Todd: Lastly, I would like to reiterate that our financial position enables us to focus on executing our long term strategy.
Todd: We will remain disciplined in our capital allocation prioritizing debt repayment opportunistic share repurchases and accretive strategic acquisitions.
Todd: And the company to capitalize in a multiyear secular growth trends.
Operator: With that, Operator, that concludes our prepared remarks. Please open the line for questions as we begin our question and answer session. Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If for any reason you want to remove your question from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally.
Todd: With that operator that concludes our prepared remarks. Please open the line for questions as we begin our question and answer session.
Todd: Thank you.
Speaker Change: You wish to ask a question. Please press star followed by one on your telephone keypad now if any reason you want to remove your question from the queue. Please press star followed by <unk>.
Speaker Change: I'm trying to ask a question. Please ensure your device is on mute locally.
Ross Sparenblek: Our third question comes from Ross Sparenblek from William Blair. Your line is now open, please go ahead. Hey, good morning.
Ross: Our first question comes from Ross <unk> from William Blair. Your line is now open. Please go ahead.
Sam Karlov: This is Sam Karlov on for Ross. Thanks for taking my question. Morning, everyone.
Sam carload: Hey, Good morning. This is Sam carload on for Ross, Thanks for taking my questions.
Ross: Good morning, Sam.
Sam Karlov: I want to touch on your margin guidance for 2025. I know you'd planned to use your plant shutdowns in the fourth quarter as an opportunity to execute on some additional MBX initiatives. I was wondering if you could update us on the progress that you've made and then give us a sense of how much of this progress is contemplated in your 2025 margin guidance. Yeah, as it relates to, you know, Q4, certainly we had a lot of activity, we closed a facility. And like we indicated on our remarks that, you know, that is the low point.
Ross: I wanted to touch on your margin guidance for 2025, I know you'd plan to use your plant shutdowns in the fourth quarter as an opportunity to execute on some additional mdx initiatives.
Speaker Change: Was wondering if you could update us on the progress that you've made and then give us a sense of how much of this progress is contemplated in your 2000 22025 margin guidance.
Speaker Change: As it relates to Q4, certainly we had a lot of activity we closed the facility.
Speaker Change: And like we indicated on our remarks that that is the low point when you look at 2025.
Sam Karlov: When you look at 2025, you know, we anticipate 1 to 3 million of improvement driven by MBX, as well as pricing, and that is net of inflation. So you got to keep that in mind, the gross number is a bit higher. But that impact is somewhat muted, meaning that our volume in the first half, you know, continues to be in a depressed, you know, situation, our low point. And so the pull through, when you think about all these MBX and cost saving initiatives, gets a little bit muted.
Speaker Change: We anticipate $1 million to $3 million of improvement driven by mdx as well as pricing and that is net of inflation.
Speaker Change: Got to keep that in mind. The gross number is a bit higher but that impact is somewhat muted, meaning that our volume in the first half. It continues to be in a depressed situation, our low point and fill the pull through when you think about all these MBS and cost savings initiatives give us a little bit muted and so as we began in the second half.
Sam Karlov: And so as we begin in the second half, and even into 2025, all these cost initiatives that we've done, we'll really, we'll see the benefit of that, and that pull through in a much more substantial manner, as we enter 20, you know, the back half of 2025 and into Just to add to that, Sam, we conducted a significant number of MBX Kaizans in Q4, as we indicated in our prepared remarks. We also started Q1 with significant activity in many of our plans. We continue to drive cost reduction, productivity improvement projects across our plant network. We have not put off the gas pedal, I guess.
Speaker Change: Even in the 25 all of them.
Speaker Change: These cost initiatives that we've done will really we'll see the benefit of that and that pull through in a much more substantial manner as we enter 'twenty back half of 'twenty five and into 'twenty. So.
Speaker Change: Just to add to that Sam we conducted a significant number of <unk> in Q4.
Speaker Change: As we indicated.
Speaker Change: Our prepared remarks.
Speaker Change: We also started Q1 with significant activity in many of our plants, we continue to drive cost reduction productivity improvement projects across our plant network, we have not.
Speaker Change:
Speaker Change: Good.
Sam Karlov: We continue to drive additional productivity measures across the plant network. Got it. That's super helpful.
Speaker Change: Gas pedal.
Outside.
Speaker Change: Put up the gas pedal I guess right and we continue to drive additional productivity measures across the enterprise.
Speaker Change: Okay.
Sam Karlov: And then given your 2025 guidance does not reflect any impact from tariffs, can you help us frame where the company's most exposed to potential tariffs from an end market perspective? And then I know the situation is still fluid, but maybe help us frame the sensitivities, what the sensitivities could look like if the proposed tariffs remain in place for an extended period of time. Absolutely.
Speaker Change: Got it that's super helpful.
Speaker Change: And then given your 225 guidance does not reflect any impact from tariffs can you help us frame, where the companys loss exposed to potential tariffs from an end market perspective, and then I know that the situation is still fluid, but maybe help us frame the sensitivities what the sensitivity sensitivities could look like if the proposed tariffs remain in place for an extended period of time.
Sam Karlov: First, I want to remind everyone that we are as pure play domestic manufacturer as it can get. All of our manufacturing footprint is U.S. based. 95% of our inputs are domestically sourced, less than 5% of our inputs, i.e., hardware, some castings, some forgings, aluminum, etc., are subject to any potential tariffs. So if you think about that, within that 5% or less, majority of that is really the aluminum we get from Canada. And all of our steel and aluminum costs are passed through to our customers. So we're pretty confident that the current tariff regime, at least what was announced yesterday, will have limited impact on MEC as a whole.
Speaker Change: Absolutely.
Speaker Change: First I want to remind everyone that we are as pure play a domestic.
Speaker Change: And in fact, our asset can get.
Speaker Change: All of our manufacturing footprint is U S based.
Speaker Change: 95% of our inputs are domestically sourced.
Speaker Change: Less than 5% of our inputs I E hardware.
Speaker Change: Casting some forgings.
Speaker Change: Aluminum.
Speaker Change: Et cetera are subject to any potential tariffs. So if you think about that within that.
Speaker Change: 5% or less majority of that is really the aluminum we get from Canada.
Speaker Change: And.
Speaker Change: All of our steel and aluminum.
Speaker Change: Costs are passed through to our customers. So we're pretty confident that the current tariff regime at least what was.
Speaker Change: As announced yesterday, we will.
Speaker Change: Have limited impact on Mac as a whole.
Sam Karlov: Of course, we will continue to try to mitigate any impact to our customers by finding additional sources, alternative sources, to reduce any tariff impact. But on the steel and aluminum as a whole, it is a pass-through expense for us. So we don't expect any dollar margin impact from these tariffs. But obviously, if the steel prices go up, aluminum prices go up, that will have an impact on our margin percentage rather than dollar impact. Got it. That's helpful. I'll leave it there. Thanks, guys. Thank you.
Speaker Change: Of course, we will continue to try to mitigate any impact or customers by finding additional sources.
Speaker Change: Two sources to reduce any tariff impact, but on the steel and aluminum as a whole. It is a pass through expense for us. So we don't expect any dollar margin impact from these tariffs, but obviously if the steel prices go up aluminum prices go up that will have a impact on our margin percentage.
Speaker Change: Rather than dollar impact.
Speaker Change: Got it that's helpful I'll leave it there thanks guys.
Speaker Change: Thanks, Dan.
Ted Jackson: Our next question is from Ted Jackson from Northland Capital Markets.
Speaker Change: Thank you next.
Speaker Change: Next question is from Todd Jackson from Northland Capital Markets. Your line is now open. Please go ahead.
Ted Jackson: Your line is now open, please go ahead. Thanks very much.
Ted Jackson: Hey, Todd, first of all, I want to tell you that I'm sad that you're leaving. I've really enjoyed working with you and I look forward to hopefully keeping in touch and the great things that you're going to do with the rest of your life. Thank you.
Speaker Change: Thanks very much.
Speaker Change: Todd first of all I want to tell you that I'm sad, which are leaving.
Speaker Change: I enjoyed working with you and I look forward to.
Speaker Change: Keeping in touch and the great things that you are going to do with the rest of your life.
Ted Jackson: I have a couple of questions. So one of them is, you talk fast and I write slow. Can you provide the guidance you gave for power sports and ag? PowerSports, we had the market declining, you know, small single digits. And then A, we had in the 20th percentile decline, meaning 20 to 25% year over Does that clarify your point? That is it.
Speaker Change: Thanks.
Speaker Change: A question I have a couple of questions. So one of them is you just you talked fast and I write slow can you provide the guidance you gave for power sports in aggregate. Please.
Speaker Change: Power Sports, we had on the market.
Speaker Change: Declining.
Speaker Change: Okay.
Speaker Change: Small single digits.
Speaker Change: And then.
Speaker Change: We add in the 20th percentile decline, meaning 20% to 25% year over year.
Speaker Change: Does that clarify your point.
Speaker Change: Glenn.
Ted Jackson: Then jumping over to tariffs, is there a case to be made that over the longer term that the change in tariff structures could be good for you? And where I'm going with that is as many of your customers might be forced to bring some of the manufacturing that they do overseas back into this country, that they're going to need partners like Mayville to make that kind of stuff. And, you know, does that resonate with you?
Speaker Change: That is it.
Speaker Change: Jumping over to <unk>.
Speaker Change: Tariffs.
Speaker Change: Is there a case to be made that over the longer term that the change in tariff structures could be good for you.
Speaker Change: And where I'm going with that is as many of your customers might be forced to bring some of the manufacturing that they do overseas.
Speaker Change: Back into this country that theyre going to need it's Neil partners like.
Speaker Change: May though to make that kind of stuff and.
Ted Jackson: Have you had any kind of dialogue with any of your customers or any potential customers as they start rethinking their supply chains and how they might be able to reconfigure them to meet this kind of new dynamic that Trump is bringing into force? Yeah, Ted, great question. We've said this before, there are parts of our end markets and customers that have the flexibility to outsource to low cost countries and regions. And primarily those components are in the power sports market. We've seen some of our customers go to Asia, as an example, or Mexico, to manufacture some of these components.
Speaker Change: Does that resonate with you have you had any kind of dialog with any of your customers or any potential customers as they start rethinking their supply chains and how they might be able to reconfigure them to meet this kind of a new dynamic that trump is bringing into proportion.
Speaker Change: Yes.
Speaker Change: Great question.
Speaker Change: Said this before there are parts of our end markets.
Speaker Change: Customers.
Speaker Change: That have the flexibility to outsource to.
Speaker Change: Low cost countries and regions and primarily those components are in the power sports market.
Speaker Change: We have seen.
Speaker Change: Some of our customers go to Asia as an example.
Speaker Change: All Mexico.
Ted Jackson: So we do anticipate if these tariffs stick, we don't know, right, it changes day to day, hour to hour. But if these tariffs stick, we do expect some level of return to the US. So we will be a beneficiary of that trend if the tariffs remain. At the same time, we have seen a reasonable amount of interest from many of our existing customers to start thinking about completely changing or at least dual sourcing their components to US manufacturers like MEC. We have seen increased activity on our coding team. And we anticipate that will be in the long run, a tailwind for MEC.
Speaker Change: To manufacture some of these components. So we do anticipate if these tariffs.
Speaker Change: Stick.
Speaker Change: We don't know right it changes day to day hour to hour, but if these tariffs stick we do expect.
Speaker Change: Some level of a return to.
Speaker Change: To the U S. So we will be a beneficiary of that trend.
Speaker Change: Tariffs remain at the same time, we have seen.
Speaker Change: Reasonable amount of interest from many of our existing customers to.
Speaker Change: Start thinking about completely changing or at least dual sourcing there are components to U S manufacturers like Mac.
Speaker Change: We have seen increased activity in our on our coding team and we anticipate that we will be in the long run a tailwind for <unk>.
Ted Jackson: Yeah, that's how I would think about it myself. I mean, I understand this disruption.
Speaker Change: Yes, that's how I would think about it myself and I understand there is disruptions but.
Ted Jackson: You know, I think over the longer term, anything is probably a positive for the Third question, just kind of when you gave the free cash flow guidance, 425, it's a, it's a, honestly, it's a robust number. I wonder if you could kind of walk through some of the mechanics to how that you're getting there. I assume a lot of it's working capital oriented. How are you, how are you driving that free cash flow guidance? And then I have one more follow up after that. Yeah, I'll start and then pass it on to Todd. In end of 2022, Ted, we had 6.2 turns of inventory performance.
I think over.
Speaker Change: The longer term if anything it's probably a positive for the company.
Speaker Change: Third question, just kind of when you gave the free cash flow guidance for 2005.
Speaker Change: Honestly, it's a robust number I wonder if you could kind of walk through some of the mechanics of how that youre getting there I assume a lot of its working capital oriented how are you. How are you driving that free cash flow guidance and then I have one more follow up that I believe.
Speaker Change: Yeah, I'll start and then pass on to Todd.
Speaker Change: In 2000 to end of 2022, Ted we had six two turns of inventory performance.
Ted Jackson: We ended 2024 at 9.1 of inventory. That just shows you the power of MBX and then how we are driving down our working process inventories and our planning of our raw material purchases, etc. So, net working capital reduction has been a huge lever for us, in addition to working with our customers and our suppliers to change payment terms. So, those are some of the actions that we have taken over the last couple of years to drive this level of performance, and we continue to drive similar activities coming into 2021. And as Jag mentioned, I mean, certainly, working capital is a big driver.
Speaker Change: We ended 2024 at $9 one terms.
Speaker Change: Up inventory.
Speaker Change: Just shows you the power of Mdx and then how we are driving down our work in process inventories and our planning.
Speaker Change: Our raw material purchases et cetera, So net working capital reduction has been a huge lever for us in addition to working with our customers and our suppliers to change payment terms. So those are some of the actions that we've taken over the last couple of years to drive this level of performance and we continue to draw.
Speaker Change: Similar activities going in or coming into 2025.
Speaker Change: And as Jack mentioned, certainly working capital is a big driver in that really as a result of MBS initiative, but not only inventory, but as Jay mentioned, our terms with suppliers, we've changed things with our customers to collect quicker. In addition to that we've also we're reducing a bit on.
Todd Butz: And that really is the result of MBX initiative. But, you know, not only inventory, but as Jag mentioned, you know, our terms with suppliers, we've changed things with our customers, we collect quicker. In addition to that, we've also, you know, we're reducing a bit on our capital expenditure, 13 to 17 million versus last year. So all those factors are playing into why we expect to be at that, you know, 72 to 76% conversion rate as it relates to 2025. Now, certainly, you know, the first quarter will probably be a bit muted, but you'll see, as we historically have done, you'll see quarters two, three and four, we'll see that nice free cash flow generation.
Speaker Change: Our capital expenditure $13 million to $17 million versus last year. So all of those factors are playing into why we expect to be at that 72% to 76% conversion rate as it relates to 2025 and I'll certainly the first.
Speaker Change: First quarter will probably be a bit but youll see as we historically have done you'll see quarters, two three and four we will see that nice free cash flow generation.
Ted Jackson: Okay.
Ted Jackson: And then my last question, just on the M&A side, I know it's something, you know, you talk about it a lot. It's nice to know that you have a good pipeline in place. You know, the balance sheet is as strong as it's been in years, you know, you're below target in terms of your leverage. I have to imagine that . Some of the market dynamics that are impacting the top line are, you know, hopefully impacting some of the, you know, the valuation metrics for the targets that you have on that list. Can you talk a little bit about, you know, the areas that, you know, kind of When you look at that list, you know, like, I guess I go to, you know, the areas that are kind of the higher on the list in terms of the possibilities, the likelihood we see something in 25, and what you're seeing in terms of, you know, kind of .
Speaker Change: Okay and then my last question just on the M&A side I know, it's something you've talked about it a lot. It's nice to know that you have a good pipeline in place.
Speaker Change: The balance sheet is as strong as it's been in years.
Speaker Change: Low target in terms of your leverage I have to imagine that.
Some of the market dynamics that are impacting the top line or.
Speaker Change: Hopefully impacting some of.
Speaker Change: The.
Speaker Change: The valuation metrics for the targets that you have on that list can you talk a little bit about the areas that kind of.
Speaker Change: When you look at that list.
Speaker Change: I guess I would go to the areas that are kind of the higher on the list in terms of the possibilities the likelihood we see something in 'twenty, five and what Youre seeing in terms of kind of.
Ted Jackson: target values for the values for the kind of acquisitions that you're looking at? How about that and size? That's my last one. Yeah. Um, as we laid out, Ted, last quarter, I believe. Our targeted range would be somewhere between $50 and $150 million in revenues, and we want these acquisitions to be margin accretive on day one and provide market diversification for us. As we have mentioned, many of our end markets are highly cyclical, so we're looking for more secular growth end markets. Some of them we'll include, and we're actively pursuing them, are in the power infrastructure, standby power, related to new investments in data centers.
Speaker Change: Target values for the acquisition of values for the kind of acquisitions that youre looking at how about that and seismic.
Speaker Change: That's my last one yeah.
Speaker Change: As we laid out last quarter I believe.
Speaker Change: Our targeted range would be somewhere between 50 and $150 million in revenues and.
Speaker Change: And we won these acquisitions to be margin accretive on day one.
Speaker Change: And.
Speaker Change: Provide market diversification for us as we have mentioned many of our end markets are highly cyclical. So we're looking for more <unk>.
Speaker Change: Secular growth end markets. So some of them will include and were actively pursuing them are in the power infrastructure standby power.
Speaker Change: Related to new investments in data centers.
Todd Butz: And similarly. long-term, highly profitable, and growth-oriented end markets. So having said that, we can never predict the timing of any of these transactions. Our M&A team continues to be very active, engaging with potential targets, working with investment banks, and continuing to generate our list of relevant targets based on our framework. At the same time, we have not seen any changes to the multiples. I would say that the multiples have been stable. Part of the reason is the interest rate regime, which remains high, helps us in terms of multiples, even though our interest expense might be higher, but certainly our purchase price will be slightly lower given the current interest rate regime we're having to deal with.
Speaker Change: And similarly.
Speaker Change: Yeah.
Speaker Change: Long term highly profitable and growth oriented end markets.
Speaker Change: Having said that we can never predict the timing of any of these transactions. Our M&A team continues to be very active engaging with potential targets.
Speaker Change: Working with investment banks.
Speaker Change: And continuing to generate our list.
Relevant targets based on a framework.
Speaker Change: But at the same time, we have not seen any changes to the multiples I would say that the multiples have been stable part of the reason is the interest rate regime, which means high helps us.
Speaker Change: In terms of multiples, even though our interest expense might be higher but suddenly radar purchase price will be.
Speaker Change: Slightly lower given the current interest rate regime.
Speaker Change: Sure.
Speaker Change: Having to deal with.
Ted Jackson: Okay. All right.
Ted Jackson: Well, thanks for the time. Talk to you soon. Thanks, Tony. Thank you.
Speaker Change: Okay, alright, well thanks for the time.
Speaker Change: Talk to you soon.
Operator: As a reminder to ask a question that is star followed by one on your telephone keypad.
Speaker Change: Thanks, Jonathan.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question about the star followed by one on your telephone keypad.
Andy Kaplowitz: Our next question is from Andy Kaplowitz from City. Your line is now open, please go ahead. Hey, good morning, guys.
Speaker Change: Our next question is from Andy Kaplowitz from Citi. Your line is now open. Please go ahead.
Jose: This is actually Jose on for Andy. Good morning. Both on your room. Yeah, both on your release and during the call, you've mentioned the muted demand conditions and the expectation for the first half to be weaker and for gradual improvements in the second half.
Jose: Hey, Good morning, guys. This is actually Jose on for Andy.
Speaker Change: Good morning.
Jose: Both on your room.
Speaker Change: Yeah, both on your release and during the call you have mentioned the muted demand conditions in the expectation for the first half to be weaker and for gradual improvement in the second half could you comment, though on how youre seeing the path to the 14% to 16% EBITDA.
Jose: Would you comment, though, on how you're seeing the path to the 14 to 16 percent EBITDA margin targets you had set at your investor day when your 25 guidance at the midpoint looks to be around 11 percent? And obviously, with the understanding that revenues haven't really grown at the levels you had initially expected back then. It's a great question. As we mentioned in our prepared remarks, we continue to see the 2023 invested-in targets for 2026 as achievable. At the same time, the current base business needs to come back to a normalized level. So those targets are based on those assumptions.
Speaker Change: EBITDA margin targets, you had said at your Investor day, when you're 25 guidance at the midpoint looks to be around 11% and obviously with the understanding that revenues haven't really grown at the levels. You had initially expected back then.
Speaker Change: It's a great question as we mentioned in our prepared remarks, we continue to see the 2023.
Speaker Change: Yesterday targets for 2026.
As achievable.
Speaker Change: At the same time, the current base business needs to come back to a normalized level. So those targets are based on those assumptions given the current market conditions.
Jose: Given the current market conditions, we are I'm expecting the timeline of achievement of those targets will take a little longer. At the same time, we continue to drive significant productivity within our manufacturing network. And 2026. The CV and market will be much higher than 2025. That's a significant volume given it is 38% of our overall sales. Higher volumes will help us absorb better and volume leverage will help us get into that range in 2025.
Speaker Change: <unk>.
Speaker Change: Expecting the timeline of acute achievement of those.
Speaker Change: Target will take little longer.
Speaker Change: Longer but.
Speaker Change: At the same time, we continue to drive significant productivity within our.
Speaker Change: Manufacturing network.
Speaker Change: And 2026.
Speaker Change: The CV and markets.
Speaker Change: We will be much higher than 2025, that's a significant volume given it is 38% of our overall sales higher volumes will help us absorb.
Speaker Change: <unk> and volume leverage will help us.
Jose: Yeah, the other comment I would make was, as you look at, you know, our annual 2025 guidance, you know, not to look at it in a silo, meaning we talked about first half, second half, and this really is a first half versus second half story, we expect, you know, volumes to be down in the first half, as we stated, and that's going to have an impact on our margin rate. And so we look at first half, we're probably in that 8 to 10% range. But second half, we're growing to that 11, 13% range. And so when you think about how that, you know, margin cadence and build up as we enter 2026, you know, we still see a very solid pathway to achieving that 14 to 16%.
Speaker Change: Get into that range in 2026, and the other comment I would make as you look at our annual 2025 guidance.
Speaker Change: Not to look at it in a silo, meaning we talked about first half second half and this really is a first half versus a second half story, we expect.
Speaker Change: Volumes to be down in the first half as we stated and that's going to have an impact on our margin rate until you look at first half, we're probably in that 8% to 10% range for the second half, we're growing to that 11%, 13% range and so when you think about how that margin cadence in buildup as we enter 2026, we still see a very solid <unk>.
Jose: It's really just a market volume dependent, you know, timing situation. I appreciate the call, guys.
Speaker Change: The way to achieving that 14% to 16%.
Speaker Change: Really the same market volume dependent timing situation.
Jose: And then just as a follow up, I did want to touch on Hazel Park and see if you could provide us an update on how that ramp has been progressing for you guys.
Speaker Change: I appreciate the color guys and then.
Speaker Change: Just as a follow up I did want to touch on Hazel Park and see if you could provide us an update on how that ramp has been progressing for you guys sort of exit run rate that you're close to <unk> 24, with and how should we be thinking about revenues and 25 versus before.
Jose: Sort of exit run rate that you closed 2024 with and how should we be thinking about revenues in 2025 versus 2024? Yeah, nothing has changed with our expectations of Hazel Park. Certainly current end market demand has impacted top line sales. But we remain on track with our new product launches and that we're well positioned to meaningful bottom line improvements as markets recover.
Speaker Change: Yes.
Nothing has changed with our expectations of Hazel Park.
Speaker Change: Certainly current end market demand has impacted topline sales, but we remain on track with our new product launches and that we're well positioned to meaningful bottom line improvements as markets recover.
Jose: Got it.
Jose: Thanks for the time, everyone.
Jag Reddy: Thank you.
Speaker Change: Got it thanks for the time, Iran.
Jag Reddy: We currently have no further questions, so I'll hand back to Jag Reddy for closing remarks. Once again, thank you for joining our call. We appreciate your continued support of MEC, and we look forward to updating you on our progress next quarter.
Speaker Change: Thank you.
Speaker Change: Thank you. We currently have a nice all the questions I'll hand back to Jack <unk> for closing remarks.
Jack Ready: Once again, thank you for joining our call. We appreciate your continued support of Mac and we look forward to updating you on our progress next quarter.
Jag Reddy: Should you have any questions, please contact Noel Ryan or Stephan Neely at Valum, our Investors Relations Council.
Speaker Change: Should you have any questions. Please contact Noel Ryan our Stefan Neely at Vallum, Our investors Relations Council. This concludes our call you may now disconnect.
Jag Reddy: This concludes our call.
Operator: You may now disconnect.
Operator: Thank you for joining.
Operator: You may now disconnect your lines.
Speaker Change: Thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].