• Revenue: Fourth quarter revenue decreased 18.4% year-over-year to $121.3 million.
• Free Cash Flow: Generated $78 million in 2024, including $25.5 million from a legal settlement; fourth quarter free cash flow was $35.6 million.
• Net Leverage Ratio: Reduced to 1.3 times at year-end 2024.
• Debt Repayment: Repaid over $31 million in debt during the fourth quarter.
• Adjusted EBITDA: Fourth quarter adjusted EBITDA was $9.2 million, with a margin of 7.6%.
• Manufacturing Margin: Fourth quarter manufacturing margin was $10.8 million, with a margin rate of 8.9%.
• SG&A Expenses: $7.9 million for the fourth quarter of 2024.
• Interest Expense: $2 million for the fourth quarter of 2024.
• Stock Repurchase: Repurchased nearly $4 million worth of common stock in the fourth quarter; $5.9 million for the full year 2024.
• 2025 Guidance: Net sales expected between $560 million and $590 million; adjusted EBITDA between $60 million and $66 million; free cash flow between $43 million and $50 million.

• Warning! GuruFocus has detected 5 Warning Sign with MEC.

Release Date: March 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Mayville Engineering Co Inc (NYSE:MEC) achieved significant year-over-year growth in free cash flow, generating nearly $78 million in 2024.
• The company successfully reduced its net leverage to 1.3 times by year-end, below the targeted range of 1.5 to 2 times.
• MEC repurchased $5.9 million of its common stock in 2024, with $19 million remaining under the existing authorization for future repurchases.
• The company secured over $100 million in new business wins in 2024, marking a 12% increase year-over-year.
• MEC's MBX framework led to operational efficiencies, including a 5% reduction in manufacturing space and a 12% reduction in headcount, contributing to robust free cash flow generation.

Negative Points

• MEC experienced an 18% year-over-year decline in revenue for the fourth quarter due to lower customer program activity and demand softness.
• The company's manufacturing margin rate decreased by 340 basis points in the fourth quarter compared to the prior year, reflecting lower fixed cost absorption.
• Adjusted EBITDA for the fourth quarter was $9.2 million, down from $17.7 million in the same period the previous year, with a margin decrease of 430 basis points.
• The agricultural market, representing 8% of MEC's revenues, saw a 46.5% year-over-year decline in the fourth quarter, with no recovery expected until 2026.
• MEC anticipates continued softness in demand across most end markets in the first half of 2025, impacting year-over-year growth and margin expansion.

Q & A Highlights

Q: Can you update us on the progress of MBX initiatives and how they are reflected in your 2025 margin guidance? A: Todd Butz, CFO: We anticipate $1 million to $3 million of improvement driven by MBX and pricing, net of inflation. The impact is muted due to lower volume in the first half, but we expect substantial benefits in the second half of 2025 and into 2026. Jagadeesh Reddy, CEO: We continue to drive cost reduction and productivity improvement projects across our plant network.

Q: How is the company exposed to potential tariffs, and what are the sensitivities if tariffs remain in place? A: Jagadeesh Reddy, CEO: We are primarily a domestic manufacturer with 95% of inputs sourced domestically. Less than 5% of inputs are subject to tariffs, mainly aluminum from Canada. Steel and aluminum costs are passed through to customers, so we expect limited impact from tariffs.

Q: Could changes in tariff structures benefit MEC by encouraging customers to bring manufacturing back to the US? A: Jagadeesh Reddy, CEO: Yes, if tariffs stick, we expect some manufacturing to return to the US, benefiting MEC. We've seen increased interest from customers to dual-source components to US manufacturers like MEC, which could be a long-term tailwind.

Q: Can you provide guidance for the powersports and agriculture markets for 2025? A: Todd Butz, CFO: We expect the powersports market to decline in the low-single-digits and the agriculture market to decline by 20% to 25% year-over-year.

Q: How are you achieving your robust free cash flow guidance for 2025? A: Jagadeesh Reddy, CEO: We've improved inventory performance and net working capital management, along with changing payment terms with customers and suppliers. Todd Butz, CFO: We're also reducing capital expenditures, contributing to a 72% to 76% free cash flow conversion rate for 2025.

Q: What is the outlook for M&A, and how are target valuations affected by current market dynamics? A: Jagadeesh Reddy, CEO: We target acquisitions between $50 million and $150 million in revenues, focusing on margin accretive and market-diversifying opportunities. Multiples have been stable, and we continue to engage with potential targets.

Q: How are you progressing towards the 14% to 16% EBITDA margin targets set at your Investor Day? A: Jagadeesh Reddy, CEO: We see these targets as achievable by 2026, contingent on market recovery. Higher volumes in 2026, especially in the commercial vehicle market, will aid in achieving these margins. Todd Butz, CFO: We expect margins to improve in the second half of 2025, setting a solid pathway to the target range.

Q: Can you provide an update on the Hazel Park ramp and its impact on revenues? A: Jagadeesh Reddy, CEO: Hazel Park remains on track with new product launches, and while current demand impacts top-line sales, we expect meaningful bottom-line improvements as markets recover.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.