MEC - Earnings call transcript Q2 2021 | Mayville Engineering Company, Inc.

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Operator

Hello, and welcome to the Mayville Engineering Company 2Q 2021 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Nathan Elwell, Investor Relations. Sir, Elwell, please go ahead.

Nathan Elwell

Thank you. you us thank today's and everyone for on joining call. Welcome, begin. quick items few before A we

statements. First, some of note the during the please that of Securities this will that meaning XXXX call results anticipations, hear in amended. Exchange you Act statements and assumptions will involve as XXE expectations, intentions, could materially and those beliefs, actual consist from differ Section Such forward-looking of forward-looking statements within express of forecasts. plans statements the risks, uncertainties, estimates, of the information our Because forward-looking our these

For and Federal please ended and period more with Securities not any update do by Form information forward-looking Exchange regarding our Securities the obligation such for December risks intend except to XX, on and the as forward filing required XX-K see laws. such uncertainties, XXXX. Commission, We statements, our including no filings assume

financial of the measures. Second, to at the this non-GAAP is which certain call mecinc.com. GAAP financial is of available will a measures these press discussion release, measure included Reconciliation involve closest earnings in

Marketing. and the EVP Joining President Kamphuis, of Chairman, Ryan Butz, Executive Sales Officer; Officer; is Todd Strategy, and Bob on call Chief Raber, today Financial me Chief and

Todd First, the With overview our Bob will Bob. and over of will Please results review to that, performance, provide financial call then our turn an guidance. I'll go ahead.

Robert Kamphuis

quarter. part amount this into second that $XXX.X an the positive team, of virtually in of the many trends of prior a which quarter, our produced we to million both Nathan. you, inflationary report efforts of grow on net second improve period. visibility last quarter I'm year many Based in morning, board, drove with sales doubled XX.X%, optimistic Good quarter year-over-year outlined to by continue and future. to improved metric normal and Thank steadily line the the we to conditions. the And million adjusted towards the XXXX. our of every operating continued we pleased performance tremendously everyone. impacted toughest we delivered diligent Thanks end markets back EBITDA XXXX material almost strengthen on of outperformed of to Adjusted the today, $XX the quarter EBITDA Having the pandemic prior as our income and MEC. of continue our as said the of well companies, for the the million general transition ahead things $X.X has in lag with somewhat in and was basis. We the was increases second price the have the about normal year quarter Like compared finished to have remain we bottom line we contractual raw XXXX, on working Across been that, continue volumes pressures. expectations. of

make expect As cover continue to detail will to Todd volumes XX% margins. we our in towards further this more remarks. progress goal his EBITDA of improve, adjusted in

of that It the while of COVID priority. operate a are remaining we we top is are very noting and communities vigilant the our through Going demand particularly and forward, technology of improve seeing the investing Park, and growing potential to in on Michigan. our productivity business worth low that in health many in, Hazel are safety from is workforce. cases launch regarding our in remain This take automation we we focused on our customers,

that a the our the year through X today we to The continue ago, I saw outlook. a order mentioned, compared a backlog with remains to position team much end positive is vehicles market the focus robust As Class healthier quarter. today on have already the truck markets and commercial in aligns flow

meet demand. elevated and to levels. to outdoor continues we for strong, for as continue recreation positive. our coming the continue remain remains to that will anticipate equipment housing demand quarters sports Power that demand freight believe inventories the equipment customers We be at strong, tied rebuild retail construction market strong, will demand that Given construction, in to to remained and to dealer that oriented will access the be The their is show end rental. particularly improvement in that residential and markets continue products

be low with improving lead market, to with restocking our coupled improving volumes to and and oil this to While having for show backlog be for near are bill, are non-residential ag ahead area areas Concluding anticipate the crop customers we and that we U.S. prices, stable solid signs our are market optimistic government in optimistic significant the think military prices, continue which customers infrastructure have and improvement. stable in see to note, of mid-term. better us, us another recovery a markets. stabilized crop oil starting think combined our gas the not segment, with to markets start we a of continues to and inventories, have Between regarding these contracts. the and seen relatively a dealer rising days these On yet, with just will

for to seeing customers. Additionally, vehicle we being implemented due are potential increased the revenues our updates also by

continue As supply be continue side a demand be headwinds to growth. our to limiting positive, trends customers' factor to

minimize they our that get on investment in our as such volumes for which these to every impacts across expect pressure we company manner, our We in temporarily customers, customers. impact something the varying for material, the of are by Like offset disruption material line inflationary to the which is of continue continued the and enhanced currently country, continues to technologies MEC diligently board, right timely a raw potential to price is automation. to MEC increases the on contractual place availability passed and degrees raw has our along impacting future. to labor and facing. work in that minimize new also bottom in supply pricing chain foreseeable seeing need mechanisms impacts see we continue to MEC, rest issues the customers, the component these is turn

during customers into issues third labor top including and the of experienced the short union one a quarter, second strike. addition, In our

our issue in has, turn, the additional has has resolved, schedules, well. that production which has to impacted volumes While now as been been disruption

chain Although are they any managing to expected we proactively not and worse, the challenges are we continue, noticeably issues face. are getting supply

our While increases lag challenging nationwide in seeing contractual the a our other from impact market. ongoing through margins these we the in price temporary the recover costs to passed term. labor are to One customers, issue is expect near

another creative automation. wanted new finding I Our to HR a relationship on to employees second which technology be initiatives issue will are investing of is and strategic in we But U.S.-based return are half fitness company, and in working the recruiting announced well. last focused quarter. which to an redeployable skilled the reason flexible, year, with continue the strategies we leading

U.S.-based naturally capabilities. MEC. And its U.S. in largest service, partnered expand with to looking was client and the as an unmatched reputation with fabricator quality new they production the for Our capability,

will in the of of place, of we spend second in first the are XXXX year, operations, agreement to the our begin as the key With starting production up long-term planned. we quarter components half ready so

plan demand Adding years. As Michigan this lease highly facility add you major relationship, for availability probably because new new skilled our foot June we production in We with Park, customer, partly the saw, open Park, in capacity Hazel in sites employees of workforce align of in connection skilled with manufacturing particular alternative reviewing a to coming facility we signed a to facility. new XXX,XXX the Hazel will and in this the manufacturing and XXX a square the Michigan. for almost area. After selected states, XX-year plans we in this a announced

led You to we demand us of facility, may remember, were the increase foot growing looking size the a at facility considerably. potential XXX,XXX originally square but the

As the part the of million remember, of a from state also incentive we agreement, Michigan. $X.X received package

this XXXX year, half based -- won't strategic million project, of expected deployed This diversification the a with $XX is investment the customer an and XXXX perfect this priority of current But be stated This we new automation projects new impact $XX top million that planned, XX year. is perfect in example for in is strong to to second which we've a a revenue. As our for technology partnership are market projections, also long-term XXXX. a customer be us. expect the on to of

see these product the to ahead. in more types of of expect years opportunities localization We

can't previously but about details customer. to the a As forging we strong be stated, provide additional agreement, are relationship this new blue-chip customer or pleased we we've this with

business. development, this are and the new and building to for looking to addition expand Today, we projects major opportunities and opportunities customer takeover constantly our In we serve. see for sectors relationships base both we

new addition support in award, in our fitness equipment to instance, other our opportunities is product to discussing in customer further market recent areas. For them the

customers. for our also one of our to expand We important share continue commercial vehicle market

design midlife are we relationship up turnaround As our continuing changes. with quick to they models, through expand ramp our their new

vehicles been We launching our have tactical market that expand be of next also years. the over course next-generation the of to we'll couple share able of wheeled

pursued. we future customers a be activity production In have the additional we programs, service across new continues very on which with programs this space seen current strong addition market power new In projects as are over has product as to next quarters. sports programs, Overall, programs gain expect active we their being the us, our current year market. expansion pipeline robust, the customers allowed market expand new orders volume and start to further with to construction coming share actively added for us and recently numerous market, our to well on both products. with customers, on that offerings, seeing business The current remains will have

over quarters. very you and excited We about avenues developments of these latest keep we'll coming new all of the growth, updated the on are

allocation. consistent. capital to This it priority and Turning remains a remains

as is years balance our recent down quarters. Our load debt paid sheet we strong and in very

and and we potential made ability to focused see up on and deals. that pipeline pandemic logical top long-term are we complementary potential when with open offer since a external and have all make new new relationships important opportunities. and else, expansion have end support valuation growth -- customers possibly stronger rational and and extensions, remain we blue-chip fit considering analyzing develop investments new markets, M&A than add review to Today, Above have investment before We to strategic the opportunities, the could the considerations targets consider geographies. continue potential product pursue

Our current very the business positive. recent performance remain on and all outlook

are second the set strong call trends in of As now financial more I'd that the markets, are turn year. manage and like these end detail. supply-related this challenges in trends to seeing to Todd virtually in half to to we our all the Todd? discuss we of continue our results demand the address

Todd Butz

begin I'll guidance. with on our quarter balance sheet, Bob. Thanks, a commentary financial providing our second performance before at liquidity look and

the to million year prior driven period. sales same market for noted The in release, second the as higher year. we the XX% sales volumes compared by press to due was prior of $XXX.X net recorded we approximate in strengthening primarily As quarter $XX.X million increase conditions versus XXXX our

of slightly price permanent the In of the related will and Manufacturing in the period, impacted raw Carolina reduction year by costs contractual our and material increase lack was the be increase current a heavily customers quarter by million of million utilization pandemic, volume second closure as offset in recovered which the $XX.X facility. $X.X year for improvements million shutdowns expect of COVID-XX XXXX. of near X,XXX%. lag the period, investments related restructuring prior and addition, overhead approximately second were The margins Greenwood, aforementioned quarter in These prior in same our we XXXX incurred term. loss of of for were to the which new the increases $X.X compared of operational issues South to the in improvements, in costs an technology the following driven most automation and the the cost sales

the and to second $X.X travel business return $X.X The XXXX, of period. Manufacturing quarter-over-quarter compensation due quarter manufacturing benefits to $X.X addition levels. XXXX the reductions were towards Park, percentages compared of of salary in deferred driven with X.X% with a retirement $X.X related was quarter as for year pandemic. period company accruals, higher $X.X for incurred expenses an prior expenses, increase cost equipment expected and XX.X% to to volumes were the as period. optimization the permanent XX.X%. prior XXXX and sharing artificially year The year. the discretionary rates negative market. year payroll new in quarter was initiatives, Other fitness period. X compared were the entertainment to increase XXth, to general by expense the $X.X of year Michigan the were million approximately for million facility for and current prior our launch expenses in bonus were modest the prior $X.X interest million prior the and new the expenses, COVID-XX as The compared XXXX second as for higher profit due volumes of margins Interest the higher June increase for Additionally, Hazel second of for line of and incremental of million low to $X.X and sales XXXX which activity our cost to the In and million due comparable pre-pandemic the X,XXX%. in million borrowings second same as for ended for million to selling, the costs the to lower $X.X primarily to same compared sales continue customer quarter associated margin months administrative million period bonus for decrease million move the is same is the The

second the expense income pretax $X.X of tax income XXXX, and approximately quarter was million. of million For $X

operating was pretax offset quarter incurred The does prior federal was tax approximately in earning. at be future not end, by million NOL will years. driven carryforward net $XX loss used Our to expire losses and which

We approximately based be XX.X% margin regulations. to XX% to points XXXX as margin prior compared year current to anticipate second the in same $XX incremental the quarter Adjusted increased tax for for XX.X%. XXX quarter to to Adjusted EBITDA compared million percent basis for represented of same long-term and of an the period year period. by tax prior was current X.X% the EBITDA as million rate $X.X continue effective our on

increases this average EBITDA and margin Removing were in XX.X% margin percentage historical would along material adjusted our XX.X%. impacted margin the customers. quarter-over-quarter lag, EBITDA have of our the price compared lag adjusted contractual by to percentages passed been of raw to Our effect our as contractual incremental

address prior were year quarter liquidity me as our balance in second to period. our spending investment million of continued Capital for fitness The the and driven to of which XXXX million support increase, production market. our was the same our line for expenditures $XX.X let strategic and in XXXX $X.X million sheet compared expenditures, Now budget, capital technology automation new and by equipment was the figures. for new with in ramp-up the customer $X.X

million the investment continue full expect our million $XX capital to to $XX in the million to the We Hazel range which needed to be to year of spend million, $XX includes $XX addition. of support Park

than of resulted ratio includes million bank quarter EBITDA end second upon of at XXXX, the adjusted which only than the second threshold the lease capital was compared and of quarter lower million debt, second to As XXXX The a total $XX.X reduction significantly the of quarter dropping debt trailing Xx is in the debt of end million, of obligations, million nearly the in as outstanding substantially based $XX.X $XX.X of and XXXX. to our covenant leverage which lower our of X.Xx X.XXx. $XX.X

climate of our economic performance, quarter. Now last trends, overall slightly are the and modifying we the from be increased million discuss $XXX guidance on million. XXXX between material now expects Due the million million, to provided previous $XXX range to Based $XXX guidance. to I'd the and to price $XXX industry of recent impact market our to like company the up pass-throughs, broader sales

not onetime continues has to $X.XX to EBITDA be and to we million million $XX is market. million momentum have adjusted include the and our to worsen, our remain equipment a this as the costs million between expansion $XX which chain to set $XX recent to built in end half that launch $X.X business remember expected that the stable, million from in The please outlook into of million, narrowed related supply fitness to dramatically year. positively. markets that activity constraints While $XX and With whole appears assumes trend the quarters said, continues the do second our continue

ability material of margins XX% contribute please Despite deliver provide baby line they through to addition, basis passed impact, that our that upwards volumes sales, top simply remain the to EBITDA percentages, to due note margin increases EBITDA margin but dollars and pre-pandemic adjusted in our adjusted return contractual XXX our confident impact and this our no In raw manufacturing levels. we diluted to are production of when points to price short-term customers.

our diligently I'd Finally, health. everyone with financial pleased working we to team to forward. be ensure on And couldn't to thank are current more for positioned like our we succeed going

on for strategic Bob for the Park, production We to in call are our as investments remarks. that making facility, XXXX. closing out said, will focused early ramp over the ready building I and right so we planned new Hazel turn customer to back are up the With Michigan

Robert Kamphuis

to focus of shareholders. Thanks Todd. and ethic safety strong employee you, the Thank MEC's work on

in are and downturn a year. rebound the our world pandemic-related today solid from We as business the to position continues last

the continue overall While inflation demand supply we and all constraints price trends chain, the to of and XXXX. for the green, our people MEC economy limited by showing are being are will and rest customers various that impact

near and and over are to expand navigating and long headwinds improvements position. these are well positioned both market-leading through term the drive We our

pleased and are said, call With beyond. for of the like our Operator? bodes outlook our of to the the with first half I'd year, open results and questions. well the second this We half XXXX for for

Operator

from [Operator Baird. the Dobre Mig question Instructions]. first And with comes

Mircea Dobre

seeing want and from start on about the hearing throughout been we've I obviously, sort of with schedules, discussion supply which, customers, their production to that disruptions your you've highlighted season. guess what I chain earnings as you're to

make your or expect the second the customers changes production from these schedules? curious on worse, quarter? kind as have what then be might a things expect quarter you been fourth is impact to sort quantify don't to, And there production of in quarter in the to but business to first, to able You your of get either do the up I'm in third way and good

Robert Kamphuis

on do was question, guess would but helped would first I I faced that Mig, have say issues, certainly of have wasn't more results impact than it us. days an on they on already won't goes was and side -- people it's happening, and federal see those care on away of what children stabilizing. are the employment the begins unemployment the care for health second the was are some I minimal, we again. school benefits Sure. of not supply our had there We it It on the and and we that better day some we -- or especially for guess side are. pleased think quarter schools results it as I the ahead, there big think But assistance open our been think with and

days we're So to there. looking better forward

the behind think part worst I us. is

people that's So part. the

On our that supply fulfilling the side, customers. become helps of capable suppliers certainly, to domestic obligations more our other their

On better for should they're yet. our the I where are ports side, getting bringing in, import product think they but not be

certain not be headwinds how It up there'll to be forward, and whether From able these I'm as be to that and they so. to So depend on will customer I will make standpoint, one they'll they to a want that going -- volume. on shake think is to looking do out. are able

Mircea Dobre

updated is standpoint? rest Or a sequentially of planned the of seasonality out we that year quarter? of expect from in into thinking sort do should revenue outlook, here kind up for the the here Then do and out your things if fourth you figure to have how trying you revenue I'm be normal

Robert Kamphuis

say at second would half. a I we're Yes. looking solid

output. that and we're capable bit output output, we've real shown that we're a continue and half not -- of will modestly think first up in in the the price-adjusted maybe doing I resources

earnings but adjustments material our largely into increases. accretion they're we because of the that, that, with those And output modest very some. being So improving revenue see to and cost going

Mircea Dobre

quarter parse holiday to a the able into be to But we the as down might shutdowns? thinking quarter? Or this? I'm slows you trying think sequentially different thinking just about fourth is If the versus maybe third then third there it that to here. revenue the fourth you should builds with be how are out way of in and

Robert Kamphuis

in bit little when the it pass-throughs third Mig, at of fills quarter. a quarters, look fourth the really, because you price So third that and happened

stabilizes. they're the fourth you than you similar And really when so when take And at and holiday the very off the third it impact sales line really fourth perspective in look very other shutdown. quarter much top from for quarters, a

So really, in and stabilized very back that consistent. much production the is half very

Mircea Dobre

I understand different -- bit pass-through that relative for guidance, me. I'm question top line raise, you're maybe a than the I how want of expected? about what that If of markets make previously to themselves performing some talking at sure end last much the looking Then pricing your just versus you $XX that little million this was

Robert Kamphuis

Yes.

related So would we on that of pass-through. $XX price X/X approximately million was to that about lift, say

market of is just strengthening it Some conditions.

Operator

And from Citi. the Kaplowitz next question Andrew comes with

Eitan Buchbinder

fitness your how runway have Buchbinder demand Andy. chain their potential old Eitan new to go? would trend from localize customers reshoring QX? is and seen This much a has to to on new for further supply And Similar during both customer, that you say you

Todd Butz

Yes.

cause -- both I Obviously, opportunities and we domestically reevaluate customers the chain to think supply globally situation. we're continue their see there. to constraints,

international can't put for then outsourced reshoring, say pursue But using means. supply number I can both on as an opportunities, really what that but continue that an folks on we about chain. So you I are additional onshoring think domestically, also basis to a

Eitan Buchbinder

opportunities And and you've mentioned warehousing regarding packaging. potential previously

what potentially coming over that to business So contributing are in you of the revenue seeing quarters? terms

Todd Butz

space, it least grow. at continue was that mean, guess, now a years customers of -- to X.X some I which couple brought that years in Yes, new I or on we

We continue freight movement, and about our cetera, the warehouses, to all calls, up haven't impact Overall, our but across we goods, you market the of those change good consumer in being market. et tied. just it's X the sit we when the past truck when in of end spend strength for about docks, commercial highlighted have in think kind necessarily and definitely the build those think few to

about good feel we So customers we the have.

other and could be things. themselves the We also in see that the carts ways warehouses many additional within multiple to conveyors in and opportunities automation

that continue in that, to us. So for grow will we're optimistic future the

Eitan Buchbinder

I can. if one, last one And

are and Given of you how launch price realization thinking costs, and lag ramping cadence of margin QX impact the QX? about in the

Robert Kamphuis

in the have will So basis QX like stated, sort to compared and of dilution, our XXX rate. drag QX on. We points effect margins normal think that about run I same

going little and fourth bit third dilutive have second is that a to a quarters. So in -- effect of the and

do slightly it beneath with be But upon to second we I improve expect in timing, where we were So quarter. could again, think that. I

Operator

And the William question Maria Larry next from comes with De Blair.

Larry De Maria

obviously, reiterated year. to EBITDA -- EBITDA the target return levels, margin on pre-pandemic you adjusted sales So your XX% which next presumably happens

wanted this or are. Just further understand to from how in go confidence our that's to those expectations we to your year or where XX%, confidence those XX% obviously so numbers, hitting getting just numbers, in because

Robert Kamphuis

I'll Yes. to and couple ask I perhaps. things, guess will some further better. be But color, a our Todd margins provide of

will overhead better higher and margins direct our that be absorption with Our volume.

but additional factors should we there depends pick that prices remain on don't we along, on be contributing high, It pass up raw sit. X that material prices also where to margin improvement. So material If raw that.

in had that. impact plus on that in the have same and second the we'll has impact half. So ramifications own its the and It's quarter lag, the its second

Todd Butz

Yes.

when bottom that line improvement. back you million when $XX sales, were level pricing, levels, 'XX, So of we of And all if to we as XX% about would talked we think about at reset mentioned, about once have no right, Bob material that $XXX created occurring push today's further you of we've million. were with XXXX pre-pandemic that And in into of think volume. sort additional

volume. that it's really, production So

standpoint estimates impact. million, run pre-pandemic look you that and still well our favorable year of $XXX you our that production we're at $XXX this So absorption million when overhead a at when from rate beneath to think

prices material a bulk QX. we that stabilizing a very have quarter. the from when impact. stabilized you in second you percent. confident that expectation So and the this prices and QX. compare lag, step-up of QX, XXXX, increase Again, There'll be large that short-term in took kind when modest We're with to pathway of very it's the done, to impact in because down margin, of back overhead We or we've in we I'd couple come quarter, stabilize QX a cost that. to we to XX-plus the material say, reductions had is And the already that absorption

Larry De Maria

of That's about is targeting year not of XX% is if think -- should considering material is so don't could an bogey we're better XX%, to more, prices point, will a about, kind $XX my to volatile? absolute but million or material cooperate, number going thinking be happen. we that cost It be next so

Ryan Raber

Well, material we quarter-to-quarter don't can costs still see and from quarter-to-quarter, the that if adjusted -- EBITDA. stabilize XX% cost impact, reach material have you that we won't so volatility

higher But we that drags that right, our just kind it's even volatility from -- we that because impact. material, Now sales next need it, a to have you on XXX say, year, we can't of with let's price, level margins, because achieve, a quarter-to-quarter a volume were higher just sales in XX% pass-through. volume, it's again We of EBITDA. and think short-term quarter-to-quarter to material still a there's can have achieve if

Larry De Maria

or that understand to the outside all? track of how to, supply new want on And you on then Have concerns with you are. a you're chain track? track? looked just at into are on they comments Any customer, there with regards Is you confident I supplier.

Robert Kamphuis

with first, we're right internally on expectations we I our focusing our guess, track on cost the the on and preparedness. internally. And to path schedule, the to commitments to are

those certainly really look but those things, The there's on and of taking eye as nothing when our other going responsible things, to into we're It what we report focused or try stay care all we'll be expected. there look either. on to for keep those, into to appears

Operator

Bob return at would for else like I to and CEO, is closing there If present the Instructions]. this [Operator concludes time, question-and-answer nothing Chairman, session. comments. Kamphuis, call President the any the to

Robert Kamphuis

Thank with you today talking continued you. at the your time interest MEC. some Conference. and today to all Jefferies We for of look your later forward you Thank in

thanks, with attention today. we'll goodbye. But say again, So that, for your Appreciate it.

Operator

you. Thank concluded. for attending today's Thank presentation. now has you conference The

disconnect You now your may lines.

Mayville Engineering (MEC) 7 Aug 212021 Q2 Earnings call transcript