Yahoo Finance Mayville Engineering Co Inc (MEC) (Q1 2024) Earnings Call Transcript Highlights: Robust Growth ...
Total Sales: Increased 13.1% year-over-year to $161.3 million.
Net Sales Growth: Projected between 5% and 9% for full-year 2024.
Free Cash Flow: Grew to $7.9 million in Q1 2024; full-year projection between $35 million and $45 million.
Adjusted EBITDA: Increased to $18.5 million in Q1 2024; full-year forecast between $72 million and $76 million.
Manufacturing Margin: Rose to $20.9 million in Q1 2024 from $16.4 million in the prior year.
Net Leverage Ratio: Reduced to 1.98 times by end of Q1 2024.
Commercial Vehicle Revenue: Decreased by 0.3% year-over-year.
Construction and Access Revenue: Increased by 7.3% year-over-year.
Powersports Market Revenue: Increased by 25.7% year-over-year.
Agricultural Market Revenue: Increased by 3.5% year-over-year.
MSA Acquisition Impact: Contributed to 9.8% of top-line growth year-over-year.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Robust net sales growth, margin expansion, and free cash flow generation highlighted a strong start to the year.
Successful execution of MVX framework and continuous improvement culture, leading to a $1.6 million year-over-year adjusted EBITDA improvement.
Significant opportunities identified for further plant utilization and operating leverage improvements.
Strong strategic execution with a multiyear demand outlook, maintaining confidence in achieving future revenue and EBITDA margin targets.
Effective capital allocation strategy focusing on debt reduction and opportunistic share repurchases, enhancing financial stability.
Negative Points
Commercial vehicle market revenue decreased by 0.3% year-over-year due to softening demand.
Anticipated decline in Class 8 vehicle production by 10.4% year-over-year in 2024, indicating potential challenges in the commercial vehicle segment.
Increased interest expenses due to higher rates and borrowings, impacting financial costs.
Some end markets expected to show softening demand, requiring careful management and strategic adjustments.
Operational challenges in ramping up new projects and integrating acquisitions such as MSA, necessitating focused management attention.
Q & A Highlights
Q: Can you discuss the 3% organic sales growth in Q1 and how it breaks down between new project wins and end market headwinds? A: Todd Butz, CFO, explained that the growth was driven by strong performance in the commercial vehicle (CV) market and significant wins in powersports, which began ramping up in Q4 of the previous year. Jagadeesh Reddy, CEO, added that despite a projected 10% decline in the CV market, MEC's performance remained robust due to new project launches.
Q: What are the expectations for organic sales for the remainder of the year given the new project wins and selective softening of end markets? A: Jagadeesh Reddy noted that while demand in agricultural markets is expected to be fluid, growth in powersports and construction, driven by non-residential and infrastructure projects, should remain strong. He anticipates the CV market to soften mid-year but recover in Q4, with MEC's project launches helping to sustain sales levels.
Q: Can you provide more details on the EBITDA margin improvement and any potential headwinds? A: Todd Butz highlighted that there were no significant headwinds affecting the core EBITDA margin expansion, which was supported by the MSA acquisition and ongoing MBX initiatives. He emphasized the integration of MSA and its strong performance in Q1.
Q: Regarding the value-based pricing initiatives, how much of your portfolio has transitioned to this model, and what are the expectations for future pricing impacts? A: Jagadeesh Reddy explained that the value-based pricing model was implemented in the last six months and currently applies to less than 10% of the portfolio. He anticipates $1 million to $2 million in net pricing benefits in 2024 and expects the impact to grow as more of the portfolio transitions to this pricing model.
Q: Could you update us on the capacity utilization at MSA and other facilities, and your strategy for M&A in light of your debt reduction goals? A: Jagadeesh Reddy reported that capacity utilization at MSA is around 70% due to efficiency improvements. He reaffirmed the focus on debt reduction for 2024, with M&A activities continuing but not expected to culminate in transactions within the year. The priority remains on achieving a lower leverage ratio while keeping an active M&A pipeline.
Q: What are the plans for investments in automation and technology to improve productivity and capacity utilization across your facilities? A: Jagadeesh Reddy discussed investing in cobots and replacing old equipment with more automated solutions to enhance productivity and capacity utilization, particularly in operations that can run continuously, thereby improving throughput and reducing labor costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
