Q1 2025 Mayville Engineering Co Inc Earnings Call

Jagadeesh Reddy: We are proud to be the largest domestic metal fabricator with approximately 95% of our sales and 92% of our sourcing coming from within the United States. As we await more clarity on the long-term direction of U.S. trade policy, our business is well-positioned to remain highly competitive as policy shifts occur and should be relatively insulated from the direct impact of tariffs. Our domestic footprint also enables us to benefit from OEM reshoring activity, a trend that is being accelerated by the ongoing changes in U.S. trade policy. We have recently been engaged with numerous new and existing customers who are exploring options to reposition their supply chain.

Domestic metal fabricator with approximately 95% of our sales and 92% of our sourcing coming from within the United States as we await more clarity on the long term direction of U S trade policy or business is well positioned to remain high.

Really competitive.

Policy shifts occur and should be relatively insulated from the direct impact of tariffs.

Our domestic footprint also enables us to benefit from OEM re shoring activity a trend that is being accelerated by the ongoing changes in U S trade policy.

We have recently been engaged with numerous new and existing customers, who are exploring options to reposition their supply chain given the dynamic nature of our current trade policy. We expect that this trend will take time to develop.

Jagadeesh Reddy: Given the dynamic nature of our current trade policy, we expect that this trend will take time to develop.

Jagadeesh 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. Net sales to this market were $50.9 million in the first quarter, a decrease of 13.7% versus the prior year period. Our net sales outperformed the broader commercial vehicle market by 300 basis points, as evidenced by a reported 16.7% year-over-year decrease in North American Class VIII truck production, according to ACT Research. Our outperformance was driven primarily by new project launch. As we look forward to 2025, ACTA research currently forecast that Class VIII vehicle production to decrease 22.9% year-over-year in 2025 to approximately 256,000 units.

Turning now to a more detailed review of market conditions across our primary end markets.

Let's begin with our commercial vehicle market, which represents approximately 38% of our trailing 12 month revenues.

Net sales to this market were $59 million in the first quarter.

Decrease of 13, 7% versus the prior year period our.

Our net sales outperformed the broader commercial vehicle market by 300 basis points as evidenced by our reported 16, 7% year over year decrease in North American class eight truck production. According to <unk> research.

Our outperformance was driven primarily by new project launches.

As we look forward to 2025 ACD research currently forecasts a class eight vehicle production to decrease 22, 9% year over year in 2025% to approximately 256000 units.

Jagadeesh Reddy: Uncertainty around the impact of tariffs, possible regulation changes, and freight rates are expected to weigh on demand in 2025, pushing up the recovery into 2026. That said, both our current guidance and ACT's forecast for 2025 do not fully reflect the potential impact of the commercial vehicle demand that would result from a recession or the repeal of EPA emissions requirements. Looking out to 2026, the latest ACT forecast also continues to show full year production growing by 18.3% relative to 2025. This is driven by demand for new vehicles ahead of the deadline for compliance with EPA emissions regulations in 2027.

Uncertainty around the impact of tariffs possible regulation changes and freight rates are expected to weigh on demand in 2025 pushing.

Pushing out the recovery into 2026.

That said, both our current guidance and Acp's forecast for 2025 do not fully reflect the potential impact of the commercial vehicle demand that would result from a recession or the repeal of EPA emissions requirements.

Looking out to 2026, the latest ACD forecast also continues to show full year production growing by 18, 3% relative to 2025.

This is driven by demand for new vehicles ahead of the deadline for compliance with EPA emissions regulations in 2027.

Jagadeesh Reddy: The power sports market represented approximately 16% of our trailing 12-month revenues and decreased by 26.5% on a year-over-year basis in the first quarter. Performance during the quarter continues to be driven by customer channel inventory de-stocking and soft customer demand. This was partially offset by the impact of new project ramp.

The power sports market represented approximately 16% of our trailing 12 months revenues and decreased by 26, 5% on a year over year basis in the first quarter.

Performance during the quarter continues to be driven by customer channel inventory destocking and soft customer demand.

This was partially offset by the impact of new project ramp ups due to the current economic landscape and uncertainty around tariffs, we remain cautious on spend for high ticket customer discretionary items.

Jagadeesh Reddy: Due to the current economic landscape and uncertainty around tariffs, we remain cautious on spend for high-ticket customer discretionary items. Next is the construction and access market, which represented approximately 15% of our trailing 12-month revenue. Our construction and access revenue decreased 31.4% on a Euro rear basis in the first quarter. This reflects soft demand across both non-residential and public infrastructure markets, partially offset by ongoing new customer projects. © The Bulletproof Executive 2013 We are closely monitoring nonresidential and infrastructure demand trends. If a better than anticipated economic environment or lower interest rates can drive a recovery in construction activity, we would expect demand to recover.

Next phase of construction and access market, which represented approximately 15% of our trailing 12 month revenues are construction and access revenue decreased 31, 4% on a year over year basis in the first quarter. This reflects soft demand across both nonresidential.

And public infrastructure markets, partially offset by ongoing new customer wins.

We are closely monitoring nonresidential and infrastructure demand trends.

Better than anticipated economic environment or lower interest rates can drive a recovery in construction activity, we would expect demand to recover.

Jagadeesh Reddy: We do see the risk that an economic downturn could possibly prolong the current softness that we're seeing in this end market.

We do see the risks that an economic downturn could possibly prolong the current softness that we're seeing in this end market.

Jagadeesh Reddy: Our agricultural market represented approximately 8% of trailing 12-month revenues and decreased by 26.9% on a year-on-year basis during the first quarter. Our results reflect weakness in both large and small agricultural markets. The outlook for ag remains increasingly uncertain as interest rates and inventory destocking have slowed demand. While agriculture customers are farther along with inventory destocking than customers in other segments, the impact of trade policy on crop demand has created uncertainty for farmers and the outlook for equipment demand.

Our agricultural market represented approximately 8% of trailing 12 month revenues and decreased by 26, 9% on a year over year basis during the first quarter our.

Our results reflect weakness in both large and small agricultural markets.

Outlook for AG remains increasingly uncertain as interest rates and inventory destocking have slowed demand.

While agriculture customers are farther along with inventory destocking than customers in other segments. The impact of trade policy on crop demand has created uncertainty for farmers and the outlook for equipment demand.

Jagadeesh Reddy: Turning now to an overview of substantial new business wins during the first quarter. Our team continues to execute well on our commercial growth initiatives and are already progressing well toward our annual goal of $100 million in new business 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 and will be launching in 2026 and 2027. After some strategic wins last quarter, we continue to expand our market share with our access customer as they continue to evaluate their global supply base.

Turning now to an overview of substantial new business wins during the first quarter.

Our team continues to execute well on our commercial growth initiatives and are already progressing well towards our annual goal of $100 million in new business wins.

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 and we'll be launching in 2026 and 2027.

After some strategic wins last quarter, we continued to expand our market share with our access customer as they continue to evaluate their global supply base.

Jagadeesh Reddy: Our U.S. manufacturing facilities located near the customer remains a key differentiator, consistently delivering the best value within their supply chain. In the quarter, we were able to secure a significant program update from our aluminum extrusions business, extending a multi-year contract. This project is priced utilizing our updated value pricing model, which will expand profitability or the life of the program. Within our power sports market, we are seeing customers focus on introducing their next generation products, which we expect will be a catalyst for additional commercial growth in the coming quarter. In the quarter, we secured multiple new model update wins with the primary construction.

Our U S manufacturing facilities located near the customer remains a key differentiator consistently delivering the best value within their supply chain.

In the quarter, we were able to secure a significant program update from our aluminum extrusion business extending a multiyear contract. This project is priced utilizing our updated value pricing model, which will expand profitability over the life of the program.

Within our power sports market, we are seeing customers focus on introducing their next generation products, which we expect will be a catalyst for additional commercial growth in the coming quarters.

In the quarter, we secured multiple new model update wins with their primary construction customer as we further expand share with this customer across multiple product lines.

Jagadeesh Reddy: As we further expand share with this customer across multiple product lines. Our team's execution of the MBX framework continues to deliver measurable results. We have been focused on implementing pricing improvements and disciplined cost management to strengthen our overall financial profile. The effectiveness of our MBX initiatives is particularly evident in our working capital efficiency. which has resulted in consistent operating cash flow generation. During the first quarter, we generated $5.4 million in free cash flow, resulting in free cash flow conversion of 44% of adjusted EBITDA. This comes during a quarter where we typically experience net working capital pressure.

Our team's execution of the Mdx framework continues to deliver measurable results.

<unk> been focused on implementing pricing improvements and disciplined cost management to strengthen our overall financial profile the effectiveness of our mdx initiatives is particularly evident in our working capital efficiency, which has resulted in consistent operating cash flow generation.

During the first quarter, we generated $5 $4 million in free cash flow, resulting in free cash flow conversion of 44% of adjusted EBITDA.

This comes during a quarter, where we typically experience net working capital pressure.

Jagadeesh Reddy: For the past few years, we have instilled lean manufacturing practices into our business, focusing on high-return, capital-light, automation-advanced Supporting our planned growth and improved efficiency. These enhancements, combined with our other MBX initiatives, draw consistent profitability. This helped us execute on our capital allocation strategy, which prioritizes debt repayment, opportunistic share repurchases, and strategic accretive acquisition. During the first quarter, our net leverage was 1.4 times. Excluding any M&A activity, we expect to be below one-time net debt leverage by the end of 2025. Additionally, we repurchased $1.7 million of our common stock under our share repurchase program. Over the course of the last two years, we have returned $9.6 million of capital to shareholders through repurchases, totaling more than 646,000 shares.

Over the past few years, we have instilled lean manufacturing practices into our business focusing on high return capital light automation advancements supporting our planned growth and improved efficiency.

These enhancements combined with our other mdx initiatives drove consistent profitability.

This helped us execute on our capital allocation strategy, which prioritizes debt repayment opportunistic share repurchases and strategic accretive acquisitions.

During the first quarter.

Our net leverage was one four times, excluding any M&A activity, we expect to be below one times net debt leverage by the end of 2025. Additionally, we repurchased one $7 million of our common stock under our share repurchase program or the <unk>.

Course of the last two years, we have returned $9 $6 million of capital to shareholders through repurchases totaling more than 646000 shares.

Jagadeesh Reddy: With more than $17 million remaining under the existing authorization, we remain committed to consistent share repurchase. At a minimum, we plan to repurchase $5 to $6 million to offset the dilution from our annual stock compensation awards. Beyond our minimum repurchase threshold, we will evaluate additional repurchases using a returns-based approach that takes into consideration opportunities to grow our business and create value through acquisition. M&A remains a cornerstone of our value creation strategy, as we seek to expand into high growth adjacent end markets and diversify our customer base. Our team has cultivated a pipeline of acquisition targets that align with our strategic criteria.

With more than $17 million remaining under the existing authorization, we remain committed to consistent share repurchases at a minimum we plan to repurchase $5 million to $6 million to offset the dilution from our annual stock compensation awards beyond our minimum repurchase.

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We'll evaluate additional repurchases using a returns based approach that takes into consideration opportunities to grow our business and create value through acquisitions.

M&A remains a cornerstone of our value creation strategy as we seek to expand into high growth adjacent end markets and diversify our customer base.

Our team has cultivated a pipeline of acquisition targets that align with our strategic criteria.

Jagadeesh Reddy: While we are actively pursuing these opportunities to build upon our market leading capabilities, we remain disciplined and committed to driving long term shareholder value.

While we are actively pursuing these opportunities to build upon our market leading capabilities, we remain disciplined and committed to driving long term shareholder value.

Jagadeesh Reddy: In summary, I am extremely proud of our team's strategic execution as seen by our strong first quarter performance. We have adapted to shifting end market demands by recalibrating our cost structure and improving our operational efficiency. As the largest vertically integrated, value-added manufacturing partner in the U.S., we offer a comprehensive suite of solutions that make us a true one-stop partner. We support our customers throughout the entire product lifecycle, from concept to full scale production. With a strong presence in the industrial heartland and robust end-to-end capabilities, we are uniquely positioned to support OEMs accelerating their on-shoring efforts in response to shifting U.S.

In summary, I am extremely proud of our team's strategic execution as seen by our strong first quarter performance.

We have adapted to shifting end market demands by Recalibrating, our cost structure and improving our operational efficiency.

As the largest vertically integrated value added manufacturing partner in the U S. We offer a comprehensive suite of solutions that make us a true one stop heartburn.

We support our customers throughout the entire product lifecycle from concept to full scale production with a strong presence in the industrial heartland and robust end to end capabilities we have.

<unk> uniquely positioned to support Oems accelerating their onshoring efforts in response to shifting U S trade policies and the global rebalancing of supply chains.

Jagadeesh Reddy: trade policies and the global rebalancing of supply For more information visit www.fema.gov Despite a dynamic and uncertain macroeconomic environment, I remain confident in our ability to expand market share, capitalize on emerging tailwinds such as domestic manufacturing incentives and tariff structures, and maintain disciplined execution. Importantly, as we continue to work closely with our OEM partners, we remain acutely focused on monitoring macroeconomic and regulatory developments across our end market. In anticipation of potential demand shifts, our teams have developed a comprehensive set of contingency plans that can be deployed swiftly to preserve profitability and operational agility. These plans include flexible production scheduling, targeted fixed cost reductions, and the consolidation of certain manufacturing processes to improve efficiency.

Despite a dynamic and uncertain macroeconomic environment I remain confident in our ability to expand market share and capitalize on emerging tailwind such as domestic manufacturing incentives and tariff structures and maintain disciplined execution.

Importantly, as we continue to work closely with our OEM partners, we remain acutely focused on monitoring macroeconomic and regulatory developments across our end markets in anticipation of potential demand shifts our teams have developed a comprehensive set of contingency plan.

<unk> that can be deployed swiftly to preserve profitability and operational agility. These plans include flexible production scheduling targeted fixed cost reductions and the consolidation of certain manufacturing processes to improve efficiency should we begin to see material regulatory.

Jagadeesh Reddy: Should we begin to see material regulatory changes or recessionary pressures, we are well positioned to take decisive action to manage through the cycle while safeguarding our margin profile.

<unk> or discretionary pressures, we are well positioned to take decisive action to manage through the cycle, while safeguarding our margin profile.

Jagadeesh Reddy: Our continued focus remains on driving consistent, profitable growth and creating sustainable, long-term value for our shareholders.

Our continued focus remains on driving consistent profitable growth and creating sustainable long term value for our shareholders with that I will now turn the call over to Rochelle to review our financial results.

Rochelle: With that, I will now turn the call over to Rochelle to review our financial. Thank you, Jag, and good morning, everyone. Total sales for the first quarter decreased 15.9% year over year to $135.6 million. This decrease was due to softer customer demand across the majority of the company's key end markets and customer channel inventory destocking. This is partially offset by volume from new projects in our other end market and increased aftermarket demand in our military end market. Our manufacturing margin was $15.3 million in the first quarter, as compared to $20.9 million in the same prior year period.

Rochelle: Thank you Jack and good morning, everyone.

Rochelle: Total sales for the first quarter decreased 15, 9% year over year to $135 $6 million.

Rochelle: This decrease was due to softer customer demand across the majority of the company's key end markets and customer channel inventory Destocking.

Rochelle: This is partially offset by volume from new projects in our other end market and increased aftermarket demand in our military end market.

Rochelle: Our manufacturing margin was $15 3 million in the first quarter as compared to $20 9 million in the same prior year period.

Rochelle: The decrease was primarily driven by the corresponding decrease in net sales. Our manufacturing margin rate was 11.3% for the first quarter of 2025, compared to 13% for the prior year period. The decrease in our manufacturing margin rate was attributable to lower fixed cost absorption from lower customer sales, partially offset by cost reduction. Other selling general and administrative expenses were $8.7 million for the first quarter of 2025 or 6.4 percent of net sales as compared to $7.8 million for the same prior year period or 4.8 percent of net sales. The increase in these expenses during the first quarter primarily reflects normal wage inflation and higher costs related to compliance requirements, market analysis studies, and other consulting expenses.

Rochelle: The decrease was primarily driven by the corresponding decrease in net sales.

Rochelle: Our manufacturing margin rate was 11, 3% for the first quarter of 2025% compared to 13% for the prior year period.

Rochelle: The decrease in our manufacturing margin rate was attributable to lower fixed cost absorption from lower customer sales, partially offset by cost reduction actions.

Rochelle: Other selling general and administrative expenses were $8 $7 million for the first quarter of 2025 or six 4% of net sales as compared to $7 $8 million for the same prior year period or four 8% of net sales.

Rochelle: The increase in these expenses during the first quarter, primarily reflects normal wage inflation and higher costs related to compliance requirements.

Rochelle: Market analysis studies and other consulting expenses.

Rochelle: These costs will ease as the year progresses. And as customer demand returns, we expect that our SG&A will revert to our long term targeted range of between four and a half to five and a half percent of sales. Interest expense was $1.6 million for the first quarter of 2025 as compared to $3.4 million in the prior year period due to a reduction in borrowings and lower interest rates relative to the first quarter of last year. Adjusted EBITDA for the first quarter was $12.2 million versus $18.5 million for the same prior year period. Adjusted EBITDA margin percent decreased by 250 basis points to 9% in the current quarter as compared to 11.5% for the same prior year period.

Rochelle: These costs will ease as the year progresses.

Rochelle: And as customer demand returns, we expect that our SG&A will revert to our long term targeted range of between four five to five 5% of sales.

Rochelle: Interest expense was $1 $6 million for the first quarter of 2025 as compared to $3 4 million in the prior year period due to a reduction in borrowings and lower interest rates relative to the first quarter of last year.

Rochelle: Adjusted EBITDA for the first quarter was $12 2 million versus $18 $5 million for the same prior year period.

Rochelle: Adjusted EBITDA margin percent decreased by 250 basis points to 9% in the current quarter as compared to 11, 5% for the same prior year period.

Rochelle: Our adjusted EBITDA margin decrease was attributable to lower sales partially offset by cost rationalization initiatives.

Rochelle: Our adjusted EBITDA margin decrease was attributable to lower sales, partially offset by cost rationalization initiatives.

Rochelle: Turning now to our Statement of Cash Flows and Balance Sheet. Free cash flow during the first quarter of 2025 was $5.4 million, as compared to $7.9 million in the prior year period. The decrease in free cash flow, as compared to the prior year, reflects the impact of lower sales, offset partially by net working capital efficiency. As of the end of the first quarter of 2025, our debt, which includes bank debt, financing agreements, and finance lease obligations, was $80.6 million, down from $143.1 million at the end of the first quarter of 2024, and resulted in a net leverage ratio of 1.4 times as of March 31st.

Rochelle: Turning now to our statement of cash flows and balance sheet.

Rochelle: Free cash flow during the first quarter of 2025 was five $4 million as compared to seven $9 million in the prior year period.

Rochelle: The decrease in free cash flow as compared to the prior year reflects the impact of lower sales offset partially by net working capital efficiencies.

Rochelle: As of the end of the first quarter of 2025, our debt, which includes bank debt financing agreement and finance lease obligations with $86 million down from $143 $1 million at the end of the first quarter of 2024 and resulted in a net loss.

Rochelle: Ratio of one four times as of March 31.

Rochelle: Now turning to a review of our 2025 financial guidance. We are maintaining our 2025 financial guidance, which we introduced earlier this year. We continue to expect net sales of between $560 million and $590 million. Adjusted EBITDA of between $60 million and $66 million, and free cash flow between $43 million and $50 million. This guidance incorporates shifting market expectations as the outlook has improved for some, but softened for others. For our commercial vehicle and market, we expect sales to decrease low single digits. The construction and access market to be flat to down low single digit. The power sports market is expected to decrease mid-single to low-double digits.

Rochelle: Now turning to a review of our 2025 financial guidance we.

Rochelle: We are maintaining our 2025 financial guidance, which we introduced earlier this year we continue.

Rochelle: To expect net sales of between $560 million and $590 million adjusted.

Rochelle: Adjusted EBITDA of between 60 million and $66 million and free cash flow between $43 million and $50 million.

Rochelle: This guidance incorporates shifting market expectations as the outlook has improved for some but softened for others.

Rochelle: For our commercial vehicle end market, we expect sales to decrease low single digits.

Rochelle: The construction and access market to be flat to down low single digits.

Rochelle: The power sports market is expected to decrease mid single to low double digits.

Rochelle: The agricultural market to be down by mid 20%. The military market is now expected to be a mid-teens increase. And we expect our other end markets to be a high teens increase. As Jag mentioned, there are many evolving dynamics within our end market. We recognize the rising degree of uncertainty in these markets individually and across the broader economic environment. While we are continuing to monitor developments closely with our OEM customers, our guidance currently does not reflect a potential recessionary environment later in the year or any commercial vehicle emissions rule changes that could impact demand later in the year.

Rochelle: The agricultural market to be down by mid 20%.

Rochelle: The military market is now expected to be in mid teens entries.

Rochelle: And we expect our other end markets to be a high teens increase.

Rochelle: As Jay mentioned, there are many evolving dynamics within our end markets. We recognize the rising degree of uncertainty in these markets individually and across the broader economic environment. While we are continuing to monitor developments closely with our OEM customers. Our guidance currently does not reflect a potential recession.

Rochelle: Free environment later in the year or any commercial vehicle emissions rule changes that could impact demand later in the year.

Rochelle: In anticipation of the potential for a recession or possible changes in the commercial vehicle regulations, we have created a playbook to navigate each of these scenarios. For each, we have plans to swiftly scale our operating activities in response to demand and tactically reduce our fixed costs to preserve our margins. With respect to tariffs, we expect minimal direct financial impact to MEC as our contracts and pricing mechanisms enable us to pass through increases in raw material costs to our customers. While these pass-throughs are expected to be modestly margin dilutive, the impact is minimal and has been fully contemplated within our current guidance.

Rochelle: In anticipation of the potential for a recession or possible changes in the commercial vehicle regulations, we have created a playbook to navigate each of these scenarios.

Rochelle: For each we have plans to swiftly scale, our operating activities in response to demand and tactically reduce our fixed cost to preserve our margins.

Rochelle: With respect to tariffs, we expect minimal direct financial impact to Mac as our contracts and pricing mechanisms enable us to pass through increases in raw material cost to our customers.

Rochelle: Well. These pass throughs are expected to be modestly margin dilutive the impact is minimal and has been fully contemplated within our current guidance.

Rochelle: Furthermore, embedded within our 2025 adjusted EBITDA guidance is $1 million 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 free cash flow guidance, we expect that our capital expenditures for the year will be in a range between $13 million and $17 million. Based on our free cash flow guidance and excluding any M&A activity.

Rochelle: Furthermore, embedded within our 2025 adjusted EBITDA guidance is 1 million to $3 million of cost improvement driven by our mdx operational excellence and strategic value based pricing initiatives net of inflationary pressures.

Rochelle: As it relates to free cash flow guidance, we expect that our capital expenditures for the year will be in a range between $13 million and $17 million.

Rochelle: Based on our free cash flow guidance and excluding any M&A activity.

Operator: We expect to be below one times net debt leveraged by year With that, Operator, that concludes our prepared remarks.

Rochelle: We expect to be below one times net debt leverage by year end.

Rochelle: With that operator that concludes our prepared remarks. Please open the line for questions as we begin our question and answer session.

Operator: Please open the line for questions as we begin our question and answer session. Thank you very much. To ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally.

Rochelle: Thank you very much to ask a question. Please press star followed by one on your telephone keypad now.

Rochelle: If you change your mind, Please press star followed by <unk>.

Rochelle: To ask a question please ensure devices on music locally.

Ross Sparenblek: Our first question comes from Ross Sparenblek from William Blair. Your line is open. Please go ahead. Hey, good morning, guys. Hey, just to kick it off here, as we think about kind of, you know, the cadence of the end markets for the, you know, second half, can you maybe just kind of walk us through anything that stands out? It looks like maybe commercial vehicles have a slight ramp in the second half, whereas power sports ag may be more steady on the top line. Yeah, that is correct, Ross. You know, our current guidance, as we indicated earlier in March, when we released our guidance, includes a slight uptick in the CV market in the second half.

Ross: Our first question comes from Ross <unk> from William Blair.

Rochelle: Your line is open. Please go ahead.

Speaker Change: Hey, good morning, guys.

Ross: Good morning Ross.

Speaker Change: Okay.

Speaker Change: Maybe just to kick it off here as we think about kind of the cadence of the end markets.

Speaker Change: Second half.

Speaker Change: Let me just kind of walk us or anything that stands out it.

Speaker Change: It looks like maybe commercial vehicles on a slight ramp in the second half or as power sports and maybe more steady on the top line.

Ross: Yes that is correct Ross our current guidance as we indicated.

Speaker Change: Earlier in March when we released our guidance.

Ross: Includes.

Ross: A slight uptake in the CV market in the second half.

Jagadeesh Reddy: That is related to potential 2027 regulation changes and and pre buys in both 2025 and 2026. We also said in March that Our first half is going to be approximately equal to the second half of last year, 2024, and that we expect a modest increase with potential prebuys and also potential interest rate changes in the second half of In relation, as it relates to power sports, right, that market continues to be highly interest rate dependent. And we don't expect any significant changes in demand forecast in power sports. And similarly, in agriculture, we do not expect any recovery in 2025.

Ross: That is related to potential 2027 regulation changes.

Ross: Pre buys in both 2025 and 2026.

Ross: We also said in March that.

Ross: Our first half is going to be approximately equal to the second half of last year 'twenty 'twenty four and that we expect a modest increase.

Ross: With potential, but pre buys and also potential interest rate changes in the second half of 2025.

Ross: And related.

Ross: As it relates to power sports right that market continues to be highly interest rate dependent and we don't expect any significant changes in demand forecast and power sports and similarly in agriculture, we do not expect any recovery in 2025 and <unk>.

Jagadeesh Reddy: And expect the recovery to take some shape in Okay, maybe just touching on tariffs and the potential for reshoring, are you seeing opportunities? And if so, you know, are there any markets that stand out? We continue to have good discussions with both existing customers and new customers as it relates to tariffs. We have provided a number of customers with quotes and pricing on potential opportunities. Given the dynamic nature of current tariff discussions, our customers are being very conservative, and they are not in a position yet to make significant decisions because the tariffs sort of magically go away in three months.

Ross: The recovery to take some shape in 2026.

Ross: Okay.

Ross: Maybe just a question on tariffs and the potential for reassuring.

Ross: Seeing opportunities and if so are there any end markets that stand out.

Ross: We continue to.

Ross: Have good discussions with both existing customers and new customers as it relates to tariffs we have provided.

Number of customers with.

Ross: Coats and pricing potential opportunities.

Ross: Given the dynamic.

Ross: Nature of current tariff discussions.

Ross: Our customers are being very conservative and they are not in a position yet to make significant decisions because the tariffs sort of magically go away in three months right. They don't want to be stuck with a different price structure in their supply chain. So I think just like all of US our customers are also watching day to day.

Jagadeesh Reddy: They don't want to be stuck with a different price structure in their supply chain. So I think just like all of us, our customers are also watching day-to-day the developments. And if there is a significant tariff impact, I think MECC is well-positioned to capture those opportunities. As we mentioned in our prepared remarks, we're a 100% domestic manufacturer. 92-plus percent of our inputs are U.S.-sourced. If you include some of the Canadian purchases of aluminum that we get, which we're actively sourcing back to the U.S., it's almost 95-96% of our inputs are domestically sourced. Given that, and our locations that are really favorable to our customers' operations, we're really well-positioned to take advantage of any increased tariff regime we might see in the long run.

Ross: <unk> the developments.

Ross: If if there is a significant tariff impact I think matthews.

Ross: Well positioned to capture those opportunities as we mentioned.

Ross: Third remarks, we're 100% domestic manufacturer 92 plus percent of our inputs our U S sourced.

Ross: If you include some of the Canadian purchases of aluminum that we get which we're actively sourcing back to the U S. It's almost 95% to 96% of our inputs are domestically sourced given that and our locations that are really favorable to our customers.

Ross: Operations were really well positioned to take advantage of any increased tariff regime, we might see in the long run.

Ross: Yeah.

Jagadeesh Reddy: Okay, so if we were just, you know, assume that tariffs are structural, you know, what are what is like the average, you know, onboarding timeline for a customer? Just so you get a sense if it's going to be 2025 or if it would be 2026. I think I think by let's say by middle of the year, we see some really structural tariff regimes in place. We could start up a program as quickly as three to four months. And depending on the size of the program, I could even be shorter than that. So there is a potential, if we see a static tariff regime by middle of the year, there is a potential for us, certainly late Q3, early Q4, for us to see some incremental benefit and tailwind to that.

Ross: Okay.

Ross: We're just now assume that tariffs are structural.

Ross: What is like the average onboarding timeline for our customer.

Ross: Yes.

Ross: What's kind of 25, okay when the contract stage.

Ross: I think by let's say by middle of the year.

Ross: We see some really structural tariff regimes and plays.

Ross: We could start up a program as quickly as three to four months.

Ross: And depending.

Ross: Depending on the size of the program I could even be shorter than that so there is a potential.

Ross: If we see a static.

Ross: Tariff regime by middle of the year, there is a potential for US certainly late Q3 early Q4 for us to see some incremental benefit and tailwind to make.

Ross Sparenblek: Okay, thank you for that. I'll jump back in queue. All right. Thanks, Ross.

Ross: Okay. Thank you for that I'll jump back in queue.

Speaker Change: Alright, Thanks Ross.

Yes.

Ted Jackson: Our next question comes from Ted Jackson from Northland Securities.

Speaker Change: Our next question comes from production from Northland Securities. Your line is open. Please go ahead.

Ted Jackson: Your line is open, please go ahead. Thanks. First of all, congratulations on the award. Thank you. being able to control the things that you can control.

Speaker Change: Thanks first of all congratulations.

Speaker Change: Being able to control the formulation for control.

Speaker Change: Questions.

Ted Jackson: My question is, good morning. Sorry, I'm in an airport, so it's a little noisier in here. When you went through the outlook for your different segments, I didn't catch quite everything. What did you say for agriculture and what did you say? Yeah, agriculture, we expect ag market, at least our revenues to be down mid 20s. And power sports, we expect to be down somewhere between low single digits, sorry, mid single digits to mid teens. Thank you guys for making it safe. Okay.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Good morning assortment of airports.

Speaker Change: We're hearing here.

Speaker Change: When you went through the <unk>.

Speaker Change: Outlook for your different segments, I Didnt catch quite everything where did you say for agricultural what this is favorable for sports.

Speaker Change: Yes, agriculture, we expect AG market.

Speaker Change: <unk> revenues to be down mid twenties.

Speaker Change: Power sports, we expect to be down somewhere between the low single digits, sorry, mid single digits to mid teens.

Speaker Change: Yes.

Speaker Change: Okay.

Ted Jackson: The guide surprised me. I mean, you know, the the color coming out of anyone who has any exposure within a commercial vehicle marketplace. It's just, honestly, it's terrible. think that the tenor is, is that it's perhaps going to get worse before it gets better. And the ability for you to offset with things like military and others is impressive.

Speaker Change: The guidance surprise me I mean.

Speaker Change: Propeller coming out of anyone who has any exposure within the commercial vehicle.

Speaker Change: Marketplaces.

Speaker Change: It's just honestly it's terrible.

Speaker Change: The tender is Australia, perhaps kind of get worse before it gets better.

Speaker Change: And the ability for you to offset with things like military and others across it so.

Jagadeesh Reddy: So with that in mind, could you maybe provide a little more color about which driving the improved outlook for both of those segments? Yeah, so let me address CV market first, Ted. As we mentioned in our prepared remarks, we are qualifying our guidance maintenance on two factors, given that CV is almost 40% of our revenues. First one is recession. We're not building in any recession in the second half into our guidance. In fact, as we said, we're expecting a slight pickup in the second half revenues. That's number one. Number two is we're not building in any potential impact of potential cancellation of EPA regulation changes.

Speaker Change: With that in mind.

Speaker Change: You may be provide a little more color about what's driving we include both of those segments.

Speaker Change: Yes, So let me address CV market first Ted.

Speaker Change: As we.

Speaker Change: <unk> mentioned in our prepared remarks.

Speaker Change: We are qualifying our guidance maintenance on two factors.

Speaker Change: Given that Cvs almost 40% of our revenues.

Speaker Change: First one is a recession, we're not building in any recession in the second half into our guidance in fact, as we said we're expecting a slight pickup in the second half revenues. That's number one number two is we're not building in any potential impact off of.

Speaker Change: Potential cancelation of EPA regulation changes, so let me get into that a little bit more the current guidance.

Jagadeesh Reddy: So let me get into that a little bit more. The current guidance incorporates some level of pre-buys in second half of this year and also going into 2026. If, for any reason, EPA decides to change the new regulations that are set to come in in 2027, there are two effects to that regulation change. The first one is called what's called the GHG changes, level three GHG, number three changes. That really doesn't impact any of our commercial vehicle customer volumes. That regulation only requires that industry produce. Sorry, that DHG 3 regulations, Phase 3 regulations imply that the industry has to produce more electrical vehicles.

Speaker Change: Incorporate some level of pre buys.

Speaker Change: In second half of this year and also going into 2026.

Speaker Change: If for any reason EPA decides to change that.

Speaker Change: New regulations that are set to come in in 2027, there are two effects to that regulation change. The first one is called let's call. It the ghd.

Speaker Change: Changes level III ghd number three changes that really doesn't impact any of our commercial vehicle customer volumes that regulation only required by law.

Speaker Change: And the industry.

Speaker Change: Eight producers.

Speaker Change: Okay.

Speaker Change: Sorry, the DHT G III regulations phase.

Speaker Change: Phase III regulations imply that the industry has to produce more electrical vehicles.

Jagadeesh Reddy: So if that gets canceled, we don't expect our customers to see any significant volume impact. That means we won't see any significant volume. The second part of the 2027 regulation changes is what's called as NOx changes. Today, the current engines are allowed to produce up to 200 milligrams of NOx emissions, whereas the 2027 regulations require the engine makers and the CV OEMs to get down to about 35 milligrams of NOx emissions. That is currently set in law. So let me repeat that, that is currently set in law to go into effect in 2027. That is a significant lift for the administration to change that.

Speaker Change: Vehicles, so that gets cancelled.

Speaker Change: I expect our customers to see any significant volume impact that means we won't see any significant volume back. The second part of the 2027 regulation changes is what's called less Nox changes today. The current engines are allowed to produce up to 200 milligrams of Nox emissions.

Speaker Change: We're at the 2027 regulations require the engine makers on the CV Oems to get down to about 35 milligrams of Nox emissions that is currently set in law. So let me repeat that that is currently set in law to go into effect in 2027.

Speaker Change: That is a significant.

Speaker Change: Lift for the administration to change that it has to go and change the law and then suspend the 2027.

Jagadeesh Reddy: It has to go and change the law and then suspend the 2027 regulation changes. If that happens, that is a material event for the industry. So I wanna caution that, you know, it's a heavy lift to change that. But if it does happen, then it's a material change to the industry that will affect the pre-Bison 2025, that'll affect the pre-Bison 2026. But if you take a long arc of a three-year period, right, the volumes are just gonna normalize. The volumes are not gonna disappear, it's just they're gonna normalize versus this, you know, peaks and valleys we normally see in the CV market, right?

Speaker Change: Regulation changes if that happens that is a material event for the industry. So I want to caution that it's a heavy lift to change that but if it does happen then it's a material change to the industry that will affect the pre buys in 2025 that will affect the pre buys in 2026, but if you take a long arc of it.

Speaker Change: Three year period, but the volumes are just going to normalized volumes are not going to disappear. Its just theyre going to normalize versus us this peaks and valleys, we normally see in the CV market right. So.

Jagadeesh Reddy: So that is really where we are.

Speaker Change: So that is really where we are so as we sit here, we're maintaining our guidance with those two caveats south notice session on the second half and no 2027 Max changes.

Jagadeesh Reddy: So as we sit here, we're maintaining our guidance with those two caveats of no recession in the second half and no 2027 NOx changes from EPA. If we find that, you know, these changes are gonna happen in the coming months, we're happy to revisit our guidance and we're happy to inform all of you what the impact might be on our 2025 and 2026. And I would just add, this goes back to your opening statement, Ted, control what we can control. And so that's where we have developed our playbook of the different scenarios. And so should any of these events take place, we have the playbook lined out so we can execute swiftly and control our margins, manage our margins.

Speaker Change: From EPA.

Speaker Change: If we find that.

Speaker Change: These changes are going to happen in the coming months, we are happy to revisit our guidance and were happy to.

Speaker Change: Form all of you what the impact might be on.

Speaker Change: According to <unk> in 2026 revenues and I would just add this goes back to your opening statement CAD control, what we can control and so that's why we have developed our playbook of the different scenarios and so should any of these events take place we have the playbook lagged Alex that we can execute swiftly and.

Speaker Change: We control our margins manage our margins.

Jagadeesh Reddy: And I was remiss in not welcoming you to the quarterly call, so I look forward to working with you. Thank you, Ted.

Speaker Change: And I was remiss in not.

Speaker Change: Youre not welcoming you to the quarterly calls I look forward to working with.

Ted: Thank you Ted.

Natalia Bak: Our next question comes from Andrew Kaplowicz from Citigroup. Your line is open, please go ahead. Hi, good morning. This is Natalia Bak on behalf of Andy Capitalist. Morning, Natalia.

Speaker Change: Our next question comes from Andrew Kaplowitz from Citigroup. Your line is open. Please go ahead.

Speaker Change: Hi, Good morning. This is metallic block on behalf of Andy Kaplowitz.

Speaker Change: Good morning Italia Italia.

Natalia Bak: Um, so I guess first question that I want to ask is, like, based on your team's, based on your commercial team's engagement, how would you characterize the tone of customer conversations today versus three to six months ago? Are customers in a more reactive wait and see mode, or are they still proactively exploring your project? I would say that the customers in certain end markets like ag and power sports, they are continuing to focus on de-stocking and continue to alter their production volumes to make sure that the channel inventories get cleared out. So in those end markets, the conversations have been slightly muted, even though in our prepared remarks, we talked about winning new business in construction, winning new business in power sports, etc.

Speaker Change: So I guess the first question that I want to ask like based on your teams.

Speaker Change: Based on your commercial teams engagement, how would you characterize the tone of customer conversations today versus six months ago. Our customers were reactivated simona are they still proactively exploring new projects.

Speaker Change: I would say that the customers in certain end markets like AG and power scores.

Speaker Change: They are continuing to focus on Destocking and continue to.

Speaker Change: Alter their production volumes to make sure that the channel inventories get cleared out so in those end markets that conversations have been slightly muted even though in our prepared remarks, we talked about winning new business and construction, winning new business in power sports et cetera.

Jagadeesh Reddy: So we are actively engaged with every one of our customers, but we also recognize that our OEMs have their own challenges that they're trying to deal with. And we're standing by them to support their activities, whether it's new product introductions, whether it is channel inventory reductions, or preparing for 2027 launches. As we said, also in our remarks, we're on track to win approximately $100 million of new business. In fact, as I sit here, end of April, we're ahead of our schedule in terms of winning new business, even in this environment. But mind you that a lot of those programs we're winning right now are either 2026 starts or even 2027 starts, right?

Speaker Change: So we we are actively engaged with every one of our customers, but we also recognize that our Oems have their own challenges that they're trying to deal with and we're standing by them to support their activities, whether it's new product introductions, whether it is.

Speaker Change: Our channel inventory reductions or preparing for 2027.

Speaker Change: Launches as we said also in our remarks, we're on track to win approximately $100 million of new business in fact as I sit here end of April.

Speaker Change: We're ahead of our schedule in terms of winning new business, even in this environment, but mind you that.

Speaker Change: A lot of those programs, we're winning right now are either 2026 starts or even 2027 2027 starts right. So we're always focused on long term business development and long term growth for the company while.

Jagadeesh Reddy: So we're always focused on long-term business development and long-term growth for the company, while, as Rochelle mentioned, trying to control what we can control in the short term. When it comes to commercial vehicle customers… We all follow ACT forecasts. ACT forecasts have been more conservative than what our OEMs have indicated, both publicly and what we see in our forecasts from them, right? So, we're taking a cautious approach to the CV and market because we know that there are some unanswered questions, particularly around EPA regulations that we just talked about. So, with all of that, we're continuing to work with our customers, continuing to look for opportunities to support them, and we're engaged with a couple of PowerSports customers where they're evaluating how much of their Asia-made components they want to bring back to the U.S., right?

Richard: Richard mentioned.

Richard: Trying to control what we can control in the short term when it comes to commercial vehicle customers.

Richard: We all follow ACP.

Richard: Forecast.

Richard: Forecasts.

Richard: <unk> being more conservative than what our Oems have indicated both publicly and what we see in our forecast from them right. So we're taking a cautious approach to the CV and market because we know that there are some unanswered questions, particularly around EPA regulations, but we just.

Richard: Talked about so with all of that we're continuing to work with our customers continuing to look for opportunities to support them.

Richard: And we're engaged with a couple of police force customers, where they are evaluating how much of there.

Richard: Asia made a components they want to bring back to the U S right. So.

Jagadeesh Reddy: And our teams have been extremely busy in answering inquiries around re-shoring and on-shoring opportunities. So, it's an exciting time for us because, yes, there seem to be some dark clouds on the horizon, but our team is highly engaged with our customers. We're trying to control our cost structure, and we're cautiously optimistic about some sort of settlement towards this tariff regime, whether it's structural or not. We'll have some clarity in the coming months, and we're still planning on our second half being slightly positive compared to our first half.

Richard: And we our teams have been extremely busy in answering inquiries around.

Richard: Re shoring and onshoring opportunities. So it's an exciting time for us because yes, there seem to be some dark.

Richard: Dark clouds on the horizon, but our team is highly engaged with our customers who are trying to control our cost structure and we're cautiously optimistic about of some sort of settlement tours. This tariff regime, while there is structural or not we will have some clarity in the coming months.

Richard: And we're still planning on.

Richard: Our second half being slightly positive compared to our first half.

Natalia Bak: That's helpful. And then just 2 follow up questions to that.

Speaker Change: That's helpful. And then just two follow up questions. I guess first question is a follow up could you help us understand like your revenue mix in terms of long term recurring program for short cycle or project based work.

Jagadeesh Reddy: I guess 1st question as a follow up, could you help us better understand your revenue mix in terms of long term or your current program for a short cycle or project-based work? Has that mix shifted over time and does it influence your visibility into the 2nd half of this year and slash forward to 2026? Um... So generally speaking, you know, depending on the size of the program, it might take us, you know, three months to start up a small program to 18 months to start up a really large program. So given the mix of new business we're winning, a significant portion of the new business we're winning right now is perhaps 26 or 27 startups.

Speaker Change: Mix shifted over time and does that influence your according to the second half of this year and completion of our 2026.

Speaker Change:

Speaker Change: So generally speaking you know depending on the size of the program.

Speaker Change: It might take us three months to start up a small program to 18 months with startup had read a large program.

Speaker Change: So given the mix of new business, we're winning a significant portion of the new business. We're winning right now is perhaps in 'twenty six 'twenty seven startups.

Jagadeesh Reddy: And the rule of thumb is if we don't have that business in our bag by middle of the year, that's generally a 20, 26 startup, right? So having said that, the tariff regime has opened up some opportunities for us. We're actively working them as we speak that could be potential second half startups. We're encouraged by some of those activities and as they materialize more, we'll be happy to share more about them. And by the way, so some of those opportunities, as I said, are in power sports, some of them are in electrical infrastructure, some of them are related to data centers.

Speaker Change: And.

Speaker Change: The rule of thumb is if we don't have that business.

Speaker Change: Bag by middle of the year, because generally as you know 2026 startup right. So having said that the tariff regime has opened up some opportunities for us we're actively working them as we speak that could.

Speaker Change: B potential second half startups.

Speaker Change: Encouraged by some of those activities and as they materialize more and I will be happy to share more about them and by the way. So some of those opportunities as I said, our empower sports some of them are in electrical infrastructure. Some of them are related to data centers. So some of these non <unk>.

Natalia Bak: So some of these non-legacy end markets as well are coming to fore where we're really excited to support these new customers. And those new opportunities are the place where we're able to put in our strategic value based pricing model. And so as we look to the long term in 26, 27, you'll see more of that in place as you look to our margins, versus what you're seeing now, because probably now only, you know, 5 to 10% of our programs are under that and we'll have far more in 26 and 27. Okay, got it. That's really helpful.

Speaker Change: Legacy end markets are slow are coming to floor, where we're real et cetera to support these new customers and new opportunities are the place where we're able to put in our strategic value based pricing model and so as we look to the long term in 'twenty six 'twenty seven you will see more of that in place as you look to our margins.

Speaker Change: Versus what Youre seeing now because probably now only 5% to 10% of our program to under that and we will have far more in 2006 and 27.

Speaker Change: Okay got it that's really helpful. And then last question for me.

Jagadeesh Reddy: And then last question for me, just focusing on the agricultural and market, you know, ag being down mid-20s this year that you are forecasting, how should we think about timing for recovery? Are you modeling 2026 as a bounce back year or expecting more of a gradual return? It still continues to be a dynamic environment. Current tariff regime doesn't really help. As farmers are looking at potential recovery in crop prices and exports, current high tariffs from countries like China do not really help U.S. farmers. Having said all of that, the latest Purdue University Ag Survey, for the first time in a long time, indicated a positive uptick in farmer sentiment.

Speaker Change: Just focusing on the agricultural end market.

Speaker Change: Art Intown mid twenties. This year that you are forecasting how should we think about timing for recovery are you modeling 2026, and the bounce back here, we're expecting more of a gradual return.

Speaker Change: It still continues to be a dynamic environment.

Speaker Change: Current tariff regime doesn't really help as farmers are looking at.

Speaker Change: The potential recovery in crop prices and.

Speaker Change: Exports.

Speaker Change: Hi, tariffs from countries like China, do not really help U S. Farmers, having said all of that the latest Purdue University AG survey for the first time in a long time indicated a positive uptick in farmer sentiment.

Jagadeesh Reddy: That is something that, you know, really for us to watch as we go through 2025. Our initial assumption is that 2026 will be a gradual recovery for ag. But you know, given the changes in global trade policy and potentially some increased farmer sentiment, it is possible that we could see a bounce back, but that's not something that we are planning at this point, but we're closely watching. Okay, got it. That's super helpful.

Speaker Change: That is something that really for us to watch as we go through 2025. Our initial assumption is that 2026 will be a gradual recovery for AG, but given the changes in global trade policy and potentially some increased.

Speaker Change:

Speaker Change: Farmer sentiment it is possible that we could see a bounce back but that's not something that we are planning at this point, but were closely watching it.

Speaker Change: Okay got it that's super helpful. Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star followed by 1 on your telephone keypad.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question. Please press star followed by one on your telephone keypad.

Ross Sparenblek: Our next question comes from Ross Sparenblek from William Blair. Your line is open. Please go ahead. Hey, guys, just a couple more here, if you don't mind.

Speaker Change: Our next question comes from Ross <unk>.

Speaker Change: Your line is open.

Speaker Change: Correct.

Speaker Change: Hey, guys just a couple more here.

Jagadeesh Reddy: You know, thinking on the new business opportunities in 100 Million Target, can you just update us on the progress here to date? And you know, what the mix has been between new and existing customers? I think we're on by end of April, Ross, we're somewhere between 35 and 40 million of new business booked. That's a little bit ahead to do the linear math, right? You know, it's a little bit ahead, you know, timeline wise to our $100 million target. Our sales teams are, you know, really active with existing customers. That is our first focus. And we're continuing to see a good set of wins in the CV market, and also power sports.

Speaker Change: Yes, taking on the new business opportunities in the hundred million target can you just update us on the progress year to date and what the mix has been between new and existing customers.

Speaker Change: I think we're on by end of April Ross, we're somewhere between $30 $40 million of new business booked.

Speaker Change: That's a little bit I had an answer just do the linear math right its a little bit ahead.

Speaker Change: Timeline wise to over $100 million target. Our sales teams are really act too.

Speaker Change: With <unk>.

Speaker Change: Existing customers that is our first focus.

Speaker Change: We're continuing to see good.

Speaker Change: Set of wins.

Speaker Change: In the CV market.

Jagadeesh Reddy: And we've mentioned, as well, construction and access markets. So I would say that in all of these end markets, we're making good progress. What I call is forming versus hunting. Our team is excellent in forming. We're from the Midwest, right? We know how to do that really well. But at the same time, we have had a significant focus since last year to look at new opportunities and new customers in UN markets. So we're continuing to engage with new customers in data center and electrical infrastructure and other end markets that are seeing secular growth. So those are the end markets we're excited about.

Speaker Change: And also power sports.

Speaker Change: And we've mentioned as well construction and access market. So I would say that in all of these end markets, we're making good progress.

Speaker Change: What I call Us <unk>.

Speaker Change: <unk> versus hunting.

Speaker Change: Our team is excellent informing we're from the Midwest right, we know how to do that really well.

Speaker Change: But at the same time, we have had a significant focus since last year to look at new opportunities and new customers and new end markets. So we continuing to engage with new.

Speaker Change: New customers in datacenter and electrical infrastructure and other end markets that are seeing.

Speaker Change: Secular growth. So those are the end markets. We're excited about we're having good conversations with them I will say the $35 million to $40 million I just mentioned to you a significant portion of that is existing customers with a sprinkling of new customers, but our pipeline is.

Jagadeesh Reddy: We're having good conversations with them. I would say the 35 to 40 million I just mentioned to you, a significant portion of that is existing customers with a sprinkling of new customers, but our pipeline is really strong and I'm fully confident that our teams will hit the $100 million new business target this year. And I do expect, as we go into the second half, that we will see some new customers added to our list.

Speaker Change: Really strong and I'm fully confident that our teams will hit the $100 million.

Speaker Change: New business target this year and then I do expect as we go into the second half that we will see some new customers added to our our list.

Ross Sparenblek: Yeah, no, that's great to hear. Maybe just kind of conceptualizing this, you know, growing program funnel. Do you think that it would be some momentum here? I mean, is there a chance we could exit the era, you know, 120, 160? Or was this just more of a, you know, seasonality to the start of the year? It's hard to hard to tell. Look, you know, as you mentioned earlier, right, if if the tariffs are going to be structural. That's a huge advantage for for Mac. So we will wait and see, of course, right? Like many of us, we want more us manufacturing, we want certain level of competitiveness for us companies.

Speaker Change: No no that's great to hear.

Maybe just kind of conceptualizing this drilling program funnel.

Speaker Change: Hi.

Speaker Change: He.

Speaker Change: There will be some momentum here I mean is.

Speaker Change: Is there a chance we collected $121 60 or was this is more of a.

Speaker Change: Seasonality to the start of the year.

Speaker Change: It's hard to hard to tell look as Hugh mentioned earlier.

Speaker Change: If the tariffs are going to be structural right. That's a huge advantage for format.

Speaker Change: So we will wait and see of course right like many of US we want more U S manufacturing, we want certain level of competitiveness for U S companies. So given all of that I'm optimistic that with us even some small structural changes.

Jagadeesh Reddy: So given all of that, I'm optimistic that, you know, with even some small structural changes, we will be able to gain ground and gain more business Okay, well, yeah, just understanding the potential for kind of a lower for longer scenario here in some of the core markets. I mean, it'd be great to gauge your confidence level today, around maybe achieving just the lower end of the 2026 revenue targets. You know, thinking of kind of contribution of new business opportunities versus what would be required for the macro recovery. That's a great question. As we talked about in our last earnings call, our view has not changed about 2026.

Speaker Change: We will be able to gain ground and gain more business in the second half.

Speaker Change: Okay.

Speaker Change: Just understanding the potential for kind of a lower for longer scenario here and some of the core markets I mean, it'd be great to gauge your confidence level today around maybe achieving just the lower end of the 2026 revenue targets.

Speaker Change: Sticking with content contribution.

Speaker Change: New business opportunities versus what would be required from a macro recovery.

Speaker Change: That's a great question.

Speaker Change: As we talked about in our last earnings call.

Ross Sparenblek: We still see a line of sight to low-end of our 2026 range, revenue range, at the same time, right, unless the bottom falls off and there's a huge recession and a significant change to EPA regulation. Those are the two caveats I'll continue to mention. If we don't see those two things, then, yeah, we still see a line of sight to low-end of the range in 2026. Okay, but even with like the, you know, push out of the regulations, I mean, it's maybe 50 million a business. So, you know, 700 still kind of a win in this environment.

Speaker Change: Our view has not changed about 'twenty 'twenty six we still see <unk>.

Speaker Change: Line of sight to low end of our 2026.

Speaker Change: Range revenue range at the same time right unless the bottom falls off and there's a huge recession in a significant change to EPA regulation. Those are the two caveats I'll continue to mention.

Speaker Change: If we don't see those two things then yes, we still see a line of sight to low end of the range in 2026.

Speaker Change: Okay.

Speaker Change: Push.

Speaker Change: Push out of the regulation, but and Thats, maybe $50 million of business.

Speaker Change: 700, still kind of a win in this environment.

Jagadeesh Reddy: Yeah, I would agree with you. At the same time, we also, no one has asked us, I'll just volunteer. We continue to look for M&A opportunities. We continue to be active and given our balance sheet and given our free cash flow generation capabilities, and we'll see how the rest of the year materializes. There's a good possibility that we could enter some end markets that could provide additional growth for us through M&A as well.

Speaker Change: Yes, I would agree with you at the same time. We also no. One has asked US all just volunteer right. We continue to look for M&A opportunities.

Speaker Change: We continue to be active.

Speaker Change: And given our balance sheet and given our free cash flow generation capabilities.

Speaker Change: And we'll see how the rest of the year.

Speaker Change: Materializes, there's a good possibility that we could enter some end markets that could provide.

Speaker Change: Additional growth for us through M&A as well.

Jagadeesh Reddy: Yeah, that's actually a great segue here. Just, you know, thinking about kind of the pipeline for M&A, how are you guys prioritizing in market diversification versus maybe geographic reach or additional manufacturing capabilities? Is there a top 10 for you right now? Yeah, great question. I think first and foremost for us, priority is diversification, particularly given, you know, many of our end markets sort of went into the same down cycle this year that really, you know, opened our eyes to the need for further diversification of our end markets. So that's probably our number one. Not probably.

Speaker Change: Yes.

Speaker Change: A great segue here.

Speaker Change: Just thinking about kind of the pipeline for M&A, how are you guys prioritizing.

Speaker Change: And market diversification versus maybe geographic reach or additional manufacturing capabilities.

Speaker Change: Is there a top tier.

Speaker Change: But.

Speaker Change: Yes, great question.

Speaker Change: <unk>.

Speaker Change: I think <unk>.

Speaker Change: First and foremost for us priority is diversification.

Speaker Change: Particularly given many of our end market sort of went into the same down cycle. This year that really.

Speaker Change: Opened our eyes to the need for further diversification of our end markets.

Speaker Change: That's probably our number one not probably that is our number one priority is diversification number two priority for us is.

Jagadeesh Reddy: That is our number one priority is diversification. Number two priority for us is accretive margin profile. And then I would say the third priority is being close to our customers with perhaps a different geographic exposure within the U.S. We're not going outside the U.S. We're still a U.S.-based company, a U.S.-based manufacturing company. So, you know, perhaps southern states, all of that, as we mentioned in our M&A strategy slide that's on our website. That is still our focus. And we have enough number of targets in our pipeline that match those criteria. And we're really excited about, you know, what we can do here in the coming years.

Speaker Change: <unk> margin profile.

Speaker Change: Then I would say the third party is.

Speaker Change: Being close to our customers with.

Speaker Change: <unk>.

Speaker Change: Is it different geographic exposure within the U S. We're not going onto the U S. Who are still are U S based company U S based manufacturing company. So.

Speaker Change: Perhaps southern states all of that as we mentioned in our M&A.

Speaker Change: M&A strategy slide Thats on our website.

Speaker Change: That is still our focus.

Speaker Change: And we have enough number of targets in our pipeline that match those criteria and we're really excited about what we can do here in the coming year.

Ross Sparenblek: That's great to hear. Thanks again, guys. Congrats. Thanks.

Speaker Change: That's great to hear thanks again guys congrats.

Ross: Thanks Ross.

Operator: We currently have no further questions, so I'd like to hand back to Jag and 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: We currently have no further questions or would like to hand back to John Rodi, Some closing remarks.

Speaker Change: 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 should you have any questions. Please contact Noel Ryan our Stefan Neely at Vallum, Our investors Relations Council. This concludes our call today.

Operator: Should you have any questions, please contact Noel Ryan or Stephan Neely at Valum, our Investors Relations Council.

Operator: This concludes our call today. You may now disconnect. Thank you very much for joining. You may now disconnect your lines.

Speaker Change: You may now disconnect.

Speaker Change: Thank you very much for joining you may now disconnect your lines.

Speaker Change: Yeah.