Mayville Engineering Company, Inc. Q3 FY2024 earnings call

• During Q3, continued strategic priorities despite near-term deceleration in customer order activity. Introduced cost rationalization initiatives including reduction of production days, 12% labor force reduction, permanent closure of Wautoma facility, expected $600k restructuring expenses in Q4, $1M-$3M annualized cost savings. - Adjusted EBITDA margins expected to increase by 50 basis points. - Demand softening in Q3 due to customer destocking, but market share unchanged. - Substantial new business wins in Q3, including engine components for commercial vehicles, heavy duty engines, power generation, aluminum extrusion for public transit, and growth in commercial vehicle market share. - MBX framework for continuous improvement with over 225 Kaizen events. - Legal settlement with former fitness customer resulting in $25.5M cash settlement, used for debt repayment and share repurchases.

Commercial vehicle market represents approximately 38% of trailing 12-month revenues. Revenues decreased by 9.9% year-over-year in Q3. Construction and access market represented approximately 15% of trailing 12-month revenues. Revenues decreased 23.5% year-over-year in Q3. Powersports market represented approximately 16% of trailing 12-month revenues. Decreased by 14.1% year-over-year in Q3. Agricultural market represented approximately 8% of trailing 12-month revenues. Decreased by 31.1% year-over-year in Q3.

• Revised 2024 guidance: Net sales $580M-$590M, adjusted EBITDA $63M-$66M, CapEx $13M-$15M. - Free cash flow guidance remains $45M-$55M. - Expect demand normalization in first half of 2025 as equipment financing rates decline. - Long-term targets: Revenues $750M-$850M, adjusted EBITDA margin 14%-16%, free cash flow $65M-$75M by 2026.

• Near-term deceleration in customer order activity. - Demand softening in various end markets (commercial vehicle, construction, powersports, agriculture). - Impact of interest rates on customer order activity. - Legal and regulatory risks (mentioned in forward-looking statements).

Q: Digging into your fourth quarter outlook, can you maybe break it down a little bit in terms of what your expectations are for manufacturing margin and how you think about SG&A sequentially?

A: Todd Butz and Jag Reddy discuss manufacturing margin expected to be down slightly, SG&A favorable impact, and expectations for margin recovery in 2025.

Q: The $600,000 charge, just out of curious, are we going to see that above or below the operating income line in the Q4? And will it be called out as far as a singular line item or will it just be inside of your SG&A expenses?

A: Todd Butz explains the charge will be above operating income and called out separately.

Q: On the $1 million to $3 million in annual savings, is that something that we should expect to see beginning in, I don't know, the Q1 of '25 or that happened in the Q4 of '25? And then will it I assume it will be something that builds over time or is it will be kind of a onetime shot?

A: Todd Butz says savings will begin in Q1 2025.

Q: Natalia Bak asks about organic net sales growth and reconciling guidance.

A: Todd Butz explains organic growth excludes destocking impact.

Q: Natalia Bak asks about power sports market share gain.

A: Jag Reddy talks about new customer wins and existing customer programs.

Q: Natalia Bak asks about free cash flow generation.

A: Jag Reddy discusses MBX program and working capital optimization.