mec(MEC) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total sales for Q3 2024 decreased by 14.4% year-over-year to $135.4 million, reflecting softening customer demand across key end markets [30] - Manufacturing margin was$ 17.1 million, down from $19 million in the prior year, with a manufacturing margin rate of 12.6%, an increase of 60 basis points from 12% [31] - Adjusted EBITDA for Q3 was$ 17.1 million, compared to $19.2 million in the prior year, with an adjusted EBITDA margin increase of 50 basis points to 12.6% [34] - Free cash flow for Q3 was$ 15.1 million, down from $16.1 million in the prior year [36] Business Line Data and Key Metrics Changes - Commercial vehicle revenues decreased by 9.9% year-over-year, driven by an 11.1% decrease in North American Class 8 truck demand [15] - Construction and access revenues decreased by 23.5% year-over-year, reflecting softening demand across nonresidential and public infrastructure markets [17] - Powersports market revenues decreased by 14.1% year-over-year, impacted by customer inventory destocking and softening consumer demand [18] - Agricultural market revenues decreased by 31.1% year-over-year, reflecting softening demand across both large and small agricultural markets [20] Market Data and Key Metrics Changes - The commercial vehicle market represents approximately 38% of trailing 12-month revenues, with a forecasted decrease in Class 8 vehicle production by 7.1% in 2024 [15] - The construction and access market, representing about 15% of revenues, is expected to see demand softness through 2024 and into 2025 [17] - The powersports market, accounting for 16% of revenues, is anticipated to recover as interest rates decline [19] - The agricultural market, representing 8% of revenues, is expected to remain in a downturn due to higher interest rates and lower crop prices [20] Company Strategy and Development Direction - The company has implemented cost rationalization initiatives, including a 12% reduction in the labor force and the permanent closure of the Wautoma facility [7] - The company aims to achieve$ 750 million to $850 million in revenues and expand adjusted EBITDA margins to between 14% and 16% by the end of 2026 [12] - The MBX framework continues to drive strategic pricing improvements and overall cost discipline, positioning the company for long-term financial improvements [25] Management's Comments on Operating Environment and Future Outlook - Management noted a marked near-term deceleration in customer order activity due to destocking actions by customers [6] - The outlook for 2024 has been revised to reflect reduced order activity, with expectations for a normalization in customer order activity beginning in the first half of 2025 [11] - Management remains confident in achieving long-term targets despite near-term demand softness, emphasizing that market share has not changed [12][48] Other Important Information - The company has booked approximately$ 80 million in new project wins this year, with launches occurring over the next two years [14] - A legal settlement with former fitness customers will result in a gross cash settlement of $25.5 million, which will be used for debt repayment and share repurchases [26][27] Q&A Session Summary Question: Can you break down your expectations for manufacturing margin and SG&A sequentially in Q4? - Manufacturing margin is expected to be down slightly compared to Q3, with SG&A seeing a favorable impact due to cost reduction activities [41][42] Question: What is the expected revenue for Q4, and how does it align with customer orders? - The expected revenue midpoint for Q4 is around$ 125 million, based on firm orders and not backlog [47] Question: Can you clarify the organic net sales growth of 1.5% to 2.5% for 2024 despite revised guidance? - This growth reflects new wins and opportunities, separated from the impact of destocking [62] Question: What initiatives are being taken to gain market share in the powersports market? - The company has gained market share through new customer wins and expanded programs with existing customers [63] Question: What is driving the strong free cash flow generation? - The strong free cash flow is attributed to the MBX program, focusing on reducing working capital and improving inventory management [64]