MEC - Earnings call transcript Q2 2022 | Mayville Engineering Company, Inc.

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Operator

Good morning. Thank you for attending today’s Mayville Engineering Company Second Quarter 2022 Earnings Conference Call. My name is Francis, and I’ll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Nathan Elwell, Investor Relations.

Nathan Elwell

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

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

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

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

Jag. me Jag and Todd Jag new are to Ryan Please, company’s Officer; begin by the With go Marketing. guidance. Executive discussing our remarks followed Officer; Sales opening Reddy, Chief financial his Strategy, the on and over with Financial of Chief Ryan Butz, call Then and will end ahead. President business and markets the Todd and Raber, Joining outlook. EVP results review hand will that, call today I’ll

Jag Reddy

to are continues here. I excitement There many joining for weeks my two morning, grow. you, on so I Thank am role Nathan, just company now, good have excited reasons been my everyone. be in and the and to

and XX MEC share strong a legacy just a has built Let me over years. few. business

I performance ability innovation, impressive grow we on renewed With our use for help achieve growth. rest will upon a both our industry teams our more of what on will locations value profitably their as and I initial With another our in be with positive. of that are leader congratulate is am customer-first customers and help But assets. in offerings initiatives priority competitive grow. trends the advantages are could base see uniquely deliver people goals. improvement. the by innovation. Macroeconomic highly my and this continue needs will to do significant and focus report to for continue to as want year our such am to our customer I technology to great and positioned our the nimble, team quarter, accelerating focus our be we meeting outsourcing major reshoring to first to mindset be favor. the are differentiated pleased what offerings. to to to in on really, visiting our drive said, expand lean possible to footprint, manufacturing I remains our them want customers with confident I with the skilled OEMs be listen and undisputed and We and and coming meet I months understand what many learn. that well working of My build profitable and is partners outlook to and as and our

markets like call our would outlook. and Ryan new I Raber discuss to end Now to to turn business the over

Ryan Raber

forecast with continue freight forecasts of units We The disruptions throughout everyone. to Thank currently strong ACT XXXX. all through weakening demand per despite produced five year demand XXXX, is of expected our strong predict Current continue some along major vehicle are and that the chain serve recent fundamentals. commercial being to continues XXX,XXX supply end which markets, largest to you, market forecast Jag, and good morning, outlooks. market

to continues due volumes. improvement sequential OEMs. increased inventories in Powersports market for to a retail leading be demand, We see have dealer with Overall continued are coupled to robust low robust to strength us. at backlogs

satisfy term this sensitive interest and discretionary start and have which industry some near to is on volumes are pressures. but that we powersports gas of striving dealer also with show XXXX. expected for as improvement. both signs rates, low to construction are steady we markets on market customers restock in to demand to a We eye the to into and Our continue and rates, strength. and projects increase Residential to and access rise inventories the to The slightly and spending the this continued fleets. half second will continued interest is in down restock, nonresidential close are will The recent we keeping showing of end with based seeing the believe need XXXX construction stretch oil see inflationary and the

drive We future. continue strengthening inventory, will the machine volume strong the for with low crop ag low and market, productivity, see combined in to to crop prices demand foreseeable in growth advancements equipment inventories continue global

stable for a remains segment military market Our us.

have customers continue vehicle U.S. contracts, Our to near-term for updates. opportunities backlogs see solid on planned and government we based

customer volumes persist disruptions will throughout improve as anticipate chain our base, supply we progresses. gradually While XXXX

new remains business pipeline our Importantly, strong.

new reshoring build several and top to with, including on and by we business model projects program outsourcing product line convert OEMs, to new markets relationships takeover by OEMs the new expand serve. There customers, multiple opportunities by in business are base sources new and we’re offerings customers. continue our We customer launches, of involved with

the opportunities are Let pursuing. few of exciting me through we walk a

chain realign program the of with We North stages their a is final for that major are a and currently reshoring closing ATV supply focus. working powersports customer components side-by-side a to on in American strategically to

next-generation opportunity, relationship will for of customer. these X on this multiple projects Combining content just won In more opportunities, X addition the restoring years. products the significant double next we powersports over size same with the we than to our

them DMP our their synergy are investing to in capacity capital This a market-leading a which more next removing opportunity will outsourcing XXXX become the acquisition. program support build truck MEC We project to our cross-selling in this and XXXX from vehicles a program, this new begin new from allow significant particular to for has expenditure production year. is capital A awarded for a in-house in will included manufacturer, Class project which program outsourcing This great is guidance. us leverage and beyond. component or customer currently

been historically on focused to commercial further has market, truck within through engine and vehicle program business MEC the will market-leading award new diversification that for a a heavy a While continue new provide manufacturer our more secured market significant medium-duty recently the market. light-duty truck on we

These building on in our to relationship and successfully a side-by-side were are relationship. generate early of in additional opportunities, variety using Reshoring added recently many new powersports we which to we a opportunities We customer our also that markets new secure engineering continues new expertise currently of the us but are customers. grow of to negotiation. XXXX. We this model significant are awarded serve the with for quickly manufacturing stages of in opportunities content a are new share

in steps. we work part we’ve some making In new are And our customers to continuing industries. new addition cases, in of to markets, as with developmental current started prototypes

we plus shift. have we existing of with of clear projects and electrification look with of seen the the our customers, current new traditional continues in Overall, that XXXX. customers markets in to is it half both further and expect our We potential both towards EV, primarily as business and traction strong remain pipeline engagement our second powersports, as commercial industry vehicle very also on

Now I a quarter of second results. turn call review to the for will over our Todd financial

Todd Butz

in of million. a million increased $XXX.X primarily second our the to productivity prior was $X compared Thanks, XX.X%, net prior million, current totaled as percentage $X cost as net is to XXX These which but contractual $X fees. related to have does of XXX to we nearly SG&A to But which other points increased same impact keep attributable increases and Manufacturing prior basis We the and a inflationary principally quarter. compared raw improvement percentages to professional pass-throughs for improvements and were recorded XX% the sales look at as period. as not expenses increase for to by of million the in increase the period. costs to margin year second line commercial year, facilities that year, margin year from million same by year dilution quarter dollars. was margins the transition in increases The customers, for commercial begin driven and XX.X% recorded our volumes Ryan. higher I’ll partially higher The our had material sales $XX.X the million million mind material Park which with quarter cost million. well labor pricing versus the the $X.X $X.X with $XX.X pass-throughs consulting at were Manufacturing customers, were $X improvements quarter were prior stems volumes. same of price million offset Hazel the second over that activities period. our pricing improved prior

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

to margin which Our by Basic expire of XX% $X.XX pretax $XX.X million XXX we right of pretax quarter a to our approximately current our XX.X%, increased which path basis XX% goal. to effective Adjusted federal goal that losses we and will were does $XX.X is driven our NOL EBITDA average same carryforward is earnings. and to slightly end, an The earnings operating tax Adjusted on for increased taking last rate over to stated last based versus net historical the was years. XX.X%, The year. on of hold, reach million approximately future tax quarter in long-term share representing incremental loss be year. per be margin We million the regulations. by of above points offset was progression incurred as prior are $X.XX, anticipate used EBITDA increase not confident EBITDA to XX.X%. the $XX percent are

to approximately expenditures, balance figures. continued of address facility liquidity increase half and our and capital for million automation. same our with the prior repurposing expenditures investment $XX.X technology our were line in Michigan sheet Now $XX year in let first relates Hazel at Park period. of as year compared and me the build-out to The our the primarily expectations the for million and Capital

the customers support investments finalizing projects of the our in to with to facility of and Park repurposing are that growth base are our current Hazel We the transferring business. facility

meaningful support fourth to ramp volume up We are in track on the in beyond. production and XXXX quarter to

pleased and in intend am skilled approximately hiring We own lease and progress workforce are a of bullish remain the mitigation. we already. to pleased I the than remaining projects $X.X term, million are our with use addition, provide [sell-leased] facility Park to the will X/X facility we’ve more X/X we cost of with which location, the the have made Hazel report of In the lease with annual X-year already

lease and finance million debt, of and were same higher As bank compared The obligation total capital XXXX, which June point to outstanding debt, spending. due as at to production $XX.X to working debt steel million financing prices increase XX, in as the increases as levels well capital year. agreements includes $XX.X relates last

continue Finally, to solid we interesting pipeline see of M&A a opportunities.

relationships focused customers remain on targets valuation markets, our reach. that develop top expand potential possibly and geographic fit new end introduce can our We rational blue to new are chip new Strategic with considerations.

as pursue year We deals will logical to continue progresses. the

to Now XXXX discuss I’d guidance. like

adjusted We revenues and fitness assumes sales it’s we in $XX that associated of $XXX first outlook repeating no worth million, continue million, million, Again, the net million. financial $XX or with between are EBITDA reiterating customer. recoveries the $XXX to and outlook February provided our and expect between

customers we continue repurposing year to related the in Michigan of be be million, our million, $XX investments spending addition new between the which of For will new Hazel equipment primarily XXXX, $XX expect and and programs the on automation, new focused to to and capital existing the facility. full at assets with technology Park,

improved to to important XXXX implemented results. note high of we months the to our steadily expect increases second it’s In quarter led normalized conjunction pricing CapEx unusually are with summary, X improving the we has the return spending cycle nearing commercial model. reflect in continue more think I volume this past trends, results and over to end that to which,

half pressures subside. the persist, signals end as to customers improve of and start term, medium supply supply as XXXX disruptions facing our volumes through move and chain market we continue gradually the While over believe will second remain strong chain our the inflationary demand to challenges we

to and significant pursue and opportunities needed. production investing remain time, will same to allow are our address I the demand. comments, facilities volumes as call successfully to new continue in the over We this we technologies At right that increase back will ready That Jag. my now concludes the to turn business and us

Jag Reddy

uniquely outsourcing is to their Thank supply that convinced and as they help positioned Todd. initiatives. I our am MEC you, with customers streamline chains OEM reshoring

competitiveness. new innovation platforms, growth very focused to on and the with excited our lean future initiatives am profitable are about company. drive margin expansion of We into I

the any open lines questions. let’s for Now

Operator

the Our [Operator Dobre line Baird. Instructions] first question comes Mig from of with

Joe Grabowski

on be what curious to attracted Grabowski this MEC. your you morning. and know company? to the I’d days, Jag, Joe I prepare but Mig to more it’s It’s for to about you welcome early the experiences company prior lead hear how

Jag Reddy

you, OEM to and excited grow and potential to customers Joe. exciting here, What expand be company space, in me the to outsourcing thank really trends of I’m our the into for our by and continue Joe. attracted new the and industry leadership Well, platforms. to MEC reshoring opportunities the

in, and operates last many right? these my well. customers works years, have over as industries worked in the that worked past of general MEC many with MEC in have with XX-plus I that aero I worked currently I other industrial automotive, Now currently defense,

was training, I do, education. and it manufacturing any walk a engineer really mechanical company proud look grow work and to help fit. of feel the MEC to engineer continue great a to into their help our time the I of that Every achieve So I’m I a goals. has, forward the right, continuing customers we by factories by

Joe Grabowski

there’s question forward forward. welcome, Again, working sales of you some that half, million A which Todd, versus sense? great. about above we million, is the If that range for first guidance math, higher there $XXX end the guidance, doing half second $XX $XXX to kind is we going Well, high end does just reason million. of [drop] look but and the of the any [Technical know I Difficulty] Todd. year-to-date are with seasonality

Todd Butz

mind, in Keep in Joe. prices variance are question, a that Good steel big range.

think about million first So almost customers. of you passed half $XX through year, our the we material the price inflation when about to of have

as compared continue to up the pricing that line line performance. down, customer the into bottom expectation historically have give XXXX, second back that, half, sales And yet steel to cost. that’s you to look will you dollars with again, that in to without driving then So any providing price the really is our now come we’ll our look which

woods or if So in bit quicker is expect a there risk if does it’s chains that be on that still which improve, not keep there’s improve, to continue the us we’re guidance. there, further our we front we that wouldn’t that issues guidance. yet. out little say I that still than could dollars lower, But drops And the the out supply sales wouldn’t that if of on of be higher will end

Joe Grabowski

there of Got it. along for of same pass-through quarter was strongest quarter? on through quarterly the final you sort in me. lines, And years. pass-throughs that? No, a Kind that margin makes the the the margin That’s in question in several then cost sense. caught EBITDA Were any up the drags have Or XX%. --

Todd Butz

inflationary pressures. quarter. the on, in we’re and sit in from volatility of we a level chain, at at But think we customer perspective, disruptions We’ve good those up our end very good really job driving plants. think our position is the some done a caught I supply cost a

So of inefficiencies plant. quarter there bit improve that a continuing QX, in still is does rate though but it cost the drive a even little the little bit at from did

mind, XXX dilution in there’s our I inflation. getting keep basis at from XXX And pass-through, helpful. because the customers normal-wise of be pattern also So a noted, will order there material was to of as XX%, but points

increase covered sales so commercial also the in but we’ve increases line. that bottom And doesn’t that pricing

state, progression normalized feel EBITDA. XX% our I very a in of So about good adjusted

Jag Reddy

Joe. add to me that, Let

inflation, -- our price in of our the We services sell right, right? fully confident products with value value, capture done to job team and done feel fantastic a have price. pass-throughs, has We our customers and to ability covering the our through

Operator

De Larry from Blair. with comes question next The Maria William

Larry De Maria

that adjusted guys cost back As Park when own Hazel -- on a mitigation. relates of -- million then from And more to it the visibility financial said how then already that Was if the the your filling you does out think X/X with what’s in $X.X impact begin? of you EBITDA? that I flow? do business? sublease that the other little detail, some And And

Todd Butz

Yes.

and half at cost is end June, the this So $X.X of term. year. Again, the million, annually in the rental lease mitigation which of lease that X-year a begins let’s income, it’s began say, second it’s

We’re confident some products. at have in we’ll on and and that in on up depending $XXX begin production of this we think we half volume meaningful mix year, excess million the And XXXX. filling produce the and we other in back X/X to total think in capacity point, facility of space, could ramp that here

So pleased phenomenal so with far what it’s again, location. The hiring has that and expected. we’re very been we’ve

Ryan Raber

to this there. Larry, -- just Ryan, add maybe is something

I think out. we described starting

just We get other manage facilities work risk in are some their from on them there and putting to feet.

the As we Hazel discussed we’ve won targeted the in the are already new significant that to and process we some or Park business in today go prepared of some talked opportunities remarks, negotiating either are that there facility. in

So we plant that the next few remain X/X our ability years. in of to confident fulfill over

Larry De Maria

Okay.

then a some from and So where you we know can million, for $XX year? million, an we bank wins. extra $XX number? you’re can other already sales that business back facilities some stand getting into from in on But there you’re $XX is now, million next moving new net I incremental

Ryan Raber

guiding year think certainly, of about we anything we I mean that next still yet, we’re And a as transitions. demand. Yes. today, what market have say solid -- I’ll backdrop but really into not we evaluating we’re

in settle So internal the customers, bit be moves will moves, the fluid say, those over little internal, time. of things product I’ll as a

others, the softens to push market the throttle getting new on us be really that’s versus So Hazel filled delineate what the we If business stays the transferred would but can’t or Park continue strong, activities. market from business we’ll new for up. really

Jag Reddy

The Just the well. to only reequip on out that, core pivoting Hazel has mitigate team our to and X/X costs February rental to Park of done not businesses, phenomenal job also, as lease since add right, to about refocus but Larry. a facility

up I think to in bring of in and business Park great and we’re next So overall, into this a business new to Hazel year. really second ramp half continuing year shape production core some with

Larry De Maria

next that, appreciate weakening. year, oriented, that just don’t mean, are strength orders truck talk is or maybe I further I comments just for is And guidance then then look, There’s And you softness. Ryan’s Resi, some powersports but year, And next ahead. know level, high for I weakening. Jag. which have we’re seeing consumer

can still So you any some will grow year? maybe about anywhere? of you talk takes? seeing core feel you next puts feel softness the Are -- do and volume your could like And markets you

Ryan Raber

But I mean, Larry, here July coming customers. for commercial There today, constant I a, truck. and with a sit communication say, low the that. orders, as slowdown think we’re pretty in we we’ve I in previous was months our will off some been orders to

We’re orders where limited the a some price OEMs concerned they X of have out ‘XX. backlog really at the of there. and cost would Obviously, there’s point take months been and about for about actually

know that truck, remain customers. watch. with at there’s commercial and I our level, we’ll an inflationary that, trend. we pressures So in vigilant a don’t Certainly, But reviewing makes point one that overall discussing

I’m you around point, softening. I retail, XX% of to But change think discussion gas sure up. models non-res one of expected that’s the there’ll a in will But that’s some little lot point of and make And in pick down also the dealer a rates. doesn’t we pre-COVID put as well that oil have inventory being some think levels, as that interest pipeline. yes, retail down, as are business and was to description XX% trend. to I back certainly at bit. and a Powersports, and then start inventory, But seeing with change mentioned, resi, be

So but on. I know buffering if don’t those going other, each some completely will certainly offset there’s

last to in one And thing level. as amount the business customer different end their low we downturn their the our is talk the to we that of the a a as the we and describe is mind customers I here, to keep important at existed downturn, impetus cycle downturn. I’ll inventory think and they -- way think as dramatically to big last through, about today say, inventory was listen it’s that than potential

Larry De Maria

Okay. Good luck, Jag.

Jag Reddy

taken, well we is point vigilant. Larry. your But Yes. And are

trends. the are demand We watching

softness production We’re actions we’re we cost coming talking right, in to schedules take with customers. adjust prepared to our And we’re our if prepared through, customer our to any line and to see be demand.

Operator

from Vlad comes Bystricky next The Citigroup. with question

Vlad Bystricky

probably at as what around days? you capital just a maybe you priorities maybe Jag. capital to high capital it’s allocation approach the you some company in can But on plans. how here early the for know talk allocation level So specific you and ask see key thoughts I early thinking about for allocation too

Jag Reddy

Sure.

refocusing laid Vlad, Todd our we away continues this that of as given year. spend customer, the initial Hazel but fitness from in think Park we’re right? big Park the investments So are capital Hazel I spend out, middle also -- our

times a And given the will things peak. if around a little replacement would next infrastructure that, like long We’re way there the like any exclude of these small next some we maintenance particularly are of allocation, of investments, chunk overall. some bit things and there’s a safety capital at is would smart those year around like are leakage of really automation bit capital a that. really these lead manufacturing, right? be So for drive, and rather, I invoices into that investments, and of investment equipment about us that, probably repair, capital think make to say we of of I But really the right? of

this rate are of a on significantly that is guidance put right? basis if much we coming provided that we together, we in run than be to on has have the years. where than higher run lower the So year, what So rate a all we basis expect

Todd Butz

million point, run in make I’ll range. comment Jag’s one is rate Vlad, that to normal is And we’ve that always -- $XX at that there, historically, probably commented

that be -- spoke think to, really from capital perspective. Jag we So invoice year where a the next excluding we’ll that that tail that’s

Jag Reddy

think any we Yes, that. on our more on about I potential right? capital back spend, will open these not we’re prepared If things up pulling that. comments sheet balance allocation, you high and right, for make capital right, about acquisitions it of broadly, think further to some mentioned like But that as

cash our effectively capital We right? generation EBITDA So work and for fine-tuning convert flow to we dollars, of how I we’ll next on are allocation fully think our continue focused our year. on

Vlad Bystricky

Okay. color. maybe That’s helpful really then a And follow-up. as just

in go terms think kind the In I talk customers next how question more are activities? just it with powersports heard of meaningful to is, for correctly, if does and growth -- begin broadly Or phase? guess the reshoring I be reshoring And for highlighted the of is you soon planning actually help more tailwind the bid out a I you can those of reshoring going still crux discussion customer and activities, you to to MEC? plans But some activity with into the seeing about year. execute begin

Ryan Raber

increased think and is XXXX. would talked now, reshoring described it the Yes. about the and I And we’ve something few course inquiries a say the I for I’ve definitely of quotation throughout as quarters generally

the As customers. supply purchase we orders we are midyear sit point, with agreements, executing here in

thing. eyes, there’s our definitely on too. a certainly I with been from mentioned others one it’s other multiple the real customers, So call,

there’ll inventories the into as new that in It event. next move offshore. reshoring year have just given tied coming to customers us definitely tooling a this activities ‘XX, and won’t we to lead be until specifically revenue incremental to just materialize for isolated is us. But times of business really singular, revenues to related not from making So

Operator

Instructions] questions There are time. this [Operator at no waiting

CEO, to So and any remarks. Reddy, I’ll over pass the President conference further Jag back for

Jag Reddy

work half of forward Thank interest growth the your in opportunities MEC. continued to you for the I first and with and of and time like the I am of closing, In MEC you. would the in today proud year to for working about all say excited accomplished at your look

Operator

That Company XXXX for Earnings concludes Quarter the your Thank Engineering Mayville Conference participation. Second you Call.

disconnect may lines. your You now

Mayville Engineering (MEC) 7 Aug 222022 Q2 Earnings call transcript