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Mayville Engineering Company, Inc. (MEC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net sales were $121.3M, down 18.4% year over year; GAAP diluted EPS was $0.76, boosted by a $25.5M lawsuit settlement (≈$0.92 per diluted share), while non-GAAP adjusted diluted EPS was a loss of ($0.07) .
  • Adjusted EBITDA was $9.2M (7.6% margin), down from $17.7M (11.9%) in Q4 2023 and $17.1M (12.6%) in Q3 2024, reflecting demand softness and fixed-cost under-absorption .
  • Free cash flow was $35.6M, aided by the $25.5M settlement; excluding the settlement, FCF would have been $10.1M vs. $19.9M a year ago. MEC repaid ~$31.8M of debt and ended Q4 with net leverage of 1.3x; it also repurchased nearly $4M of stock in the quarter .
  • FY 2025 guidance initiated: net sales $560–$590M, adjusted EBITDA $60–$66M, FCF $43–$50M; management expects muted H1 demand with gradual H2 improvement. Guidance excludes tariff impacts; capex planned at $13–$17M .
  • Management highlighted MBX value creation (pricing, growth, capital efficiency) and opportunities tied to industrial infrastructure and domestic data-center build-outs, positioning MEC for long-term profitable growth .

What Went Well and What Went Wrong

What Went Well

  • Strong free cash flow and deleveraging: Q4 FCF of $35.6M (including settlement) enabled ~$31.8M of debt repayment; net leverage improved to 1.3x, and ~$4M shares were repurchased under the $25M authorization .
  • Strategic positioning and pipeline: “Entering 2025, our business development team is actively engaged… including exposure to industrial infrastructure investment… domestic data-center build-out,” with >$100M new business wins in 2024 (+12% YoY) .
  • End-market mix resilience: “Other” end markets grew 11% YoY in Q4 on aluminum extrusion demand and new customer start-ups .

What Went Wrong

  • Broad-based demand softness: Q4 net sales fell 18.4% YoY on customer de-stocking and lower consumption across core end markets .
  • Margin compression and adjusted loss: Manufacturing margin rate fell to 8.9% from 12.3% YoY; adjusted diluted EPS was ($0.07) vs. $0.21 a year ago, driven by lower fixed-cost absorption and fewer working days .
  • End-market declines: Q4 YoY net sales down in Commercial Vehicle (-10.5%), Construction & Access (-34.5%), Powersports (-29.1%), Agriculture (-46.5%), Military (-16.5%), while “Other” was +11% .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Net Sales ($USD Millions)$148.582 $135.392 $121.306
GAAP Diluted EPS ($)$0.11 $0.14 $0.76
Adjusted Diluted EPS ($)$0.21 $0.21 ($0.07)
Adjusted EBITDA ($USD Millions)$17.703 $17.062 $9.185
Adjusted EBITDA Margin (%)11.9% 12.6% 7.6%
Free Cash Flow ($USD Millions)$19.883 $15.068 $35.614

Segment/end-market net sales

End Market ($USD Thousands)Q4 2023Q3 2024Q4 2024
Commercial Vehicle$52,758 $51,612 $47,215
Construction & Access$25,902 $20,110 $16,972
Powersports$24,552 $21,605 $17,414
Agriculture$14,307 $10,358 $7,660
Military$8,871 $6,968 $7,407
Other$22,191 $24,739 $24,638
Total$148,582 $135,392 $121,306

Key operating metrics

KPIQ4 2023Q3 2024Q4 2024
Manufacturing Margin ($USD Millions)$18.2 $17.1 $10.8
Other SG&A ($USD Millions)$7.2 $7.6 $7.9
Interest Expense ($USD Millions)$3.6 $2.7 $2.0
Net Leverage (x)N/A1.6x 1.3x
Debt Outstanding ($USD Millions)N/A$114.2 $82.3
FCF ex Settlement ($USD Millions)N/AN/A$10.1

Notes: Q4 2024 GAAP EPS includes $25.5M settlement gain; adjusted EPS excludes it . Q4 2024 FCF benefited from the settlement .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Millions)FY 2025N/A$560–$590 Initiated
Adjusted EBITDA ($USD Millions)FY 2025N/A$60–$66 Initiated
Free Cash Flow ($USD Millions)FY 2025N/A$43–$50 Initiated
Capex ($USD Millions)FY 2025N/A$13–$17 Initiated
End-Market OutlookFY 2025N/ACV flat/slightly down; Construction & Access flat/low-single-digit ↑; Powersports low-single-digit ↓; Agriculture low-to-mid‑20% ↓; Military comparable; Other low-to-mid single-digit ↑ Initiated
Adjusted EBITDA cost improvementsFY 2025N/A$1–$3M MBX/pricing, net of inflation Initiated
Net leverageFY 2025 YEN/ABelow 1x (ex M&A) Initiated
Net Sales ($USD Millions)FY 2024$620–$640 (Aug) $580–$590 (Nov) Lowered
Adjusted EBITDA ($USD Millions)FY 2024$72–$76 (Aug) $63–$66 (Nov) Lowered
Free Cash Flow ($USD Millions)FY 2024$45–$55 (Aug) $45–$55 (Nov) Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
MBX/Operational excellence~65 kaizen events; $0.9M sourcing/labor savings; pricing adds $0.6M adj. EBITDA YoY 100+ kaizen events; margin resilience amid destocking; cost actions (12% headcount, shutdowns) 275+ MBX kaizens since 2022; ongoing productivity and cost reductions; expect $1–$3M 2025 cost improvements Strengthening; ongoing cost-out
Demand/de-stockingAnticipated H2 softening in CV/powersports/ag Broad destocking; Q4 a low point; extended shutdowns to reduce costs H1’25 muted; H2’25 gradual improvement expected Bottoming then recovery
CV/EPA 2027Expect CV recovery into 2025–2026; 2025 +1%, 2026 +11% (ACT) CV down ~10% YoY; aligns with Class 8 decline; 2026 recovery CV flat to slightly down in 2025; share gains tied to next-gen models and EPA changes Transitional; positioned for 2026
Data centers/industrial infraPursuing power generation/cooling programs; leveraging MSA Expanded content in power generation tied to data centers Active BD in domestic data-center build-out; potential revenue diversification Growing opportunity set
Tariffs/macroGeneral risk flagged in forward-looking statements —Limited exposure (<5% inputs); steel/aluminum pass-through; potential positive reshoring effect Manageable; possible tailwind
Free cash flow/working capitalRaised FCF guide to $45–$55; strong WC execution Q3 FCF $15.1M; reiterated FCF guidance Q4 FCF $35.6M; 2025 FCF $43–$50; conversion 72–76%; capex $13–$17M Sustained focus; robust
Hazel Park rampImproving utilization; progress toward margin goals Continued ramp; pipeline healthy On track; positioned for bottom-line improvement as markets recover Steady ramp
Share repurchases/debt$1M repurchased; leverage <1.7x $1M repurchased; pro-forma leverage <1.25x with settlement ~$4M repurchased; leverage 1.3x; prioritizing balance sheet discipline Accelerating buybacks as leverage falls

Management Commentary

  • “During a period of softer demand within our core vertical markets, our team maintained focused execution… delivered stable margins, consistent profitability, disciplined net working capital management, and significant year-over-year growth in free cash flow generation” — Jag Reddy, CEO .
  • “MBX continues to drive EBITDA margin expansion, positioning us to become a leaner, more efficient organization equipped to capitalize on a future demand recovery” — Jag Reddy .
  • “We repaid more than $31 million in debt, reducing our net leverage to 1.3x at year-end, and repurchased nearly $4 million of our common stock… Looking ahead, we intend to further prioritize balance sheet discipline… while remaining opportunistic acquirors of complementary assets” — Jag Reddy .
  • “We expect demand to gradually improve entering the second half of the year… supported by expectations for improved customer order activity and a more favorable business environment for domestic manufacturers” — Jag Reddy .

Q&A Highlights

  • MBX savings cadence: Management expects $1–$3M of 2025 cost improvement from MBX and pricing (net of inflation), with greater pull-through as volumes recover in H2’25 and into 2026 .
  • Tariffs exposure limited: ~95% inputs domestically sourced; <5% (mostly aluminum from Canada) potentially exposed; steel/aluminum are pass-through to customers; tariffs more likely to affect margin percentage than dollars .
  • Margin path: First half 2025 margins expected ~8–10%, improving to ~11–13% in second half; supports longer-term 14–16% EBITDA margin targets as volume recovers .
  • Free cash flow mechanics: Working capital turns improved (inventory turns from 6.2 in 2022 to 9.1 in 2024), tighter terms with customers/suppliers; 2025 FCF conversion targeted at 72–76% with capex $13–$17M .
  • M&A pipeline and multiples: Target revenue size $50–$150M; margin-accretive, diversifying into secular growth markets (power infrastructure/data centers); valuation multiples stable; balance sheet capacity improved .

Estimates Context

  • S&P Global consensus EPS/revenue/EBITDA for Q4 2024 could not be retrieved due to provider daily request limits. As a result, beat/miss vs. Wall Street was not assessable at this time (S&P Global consensus unavailable via GetEstimates). Values retrieved from S&P Global were unavailable due to API limits.

Where estimates may need to adjust:

  • Given the magnitude of GAAP EPS benefit from the $25.5M settlement in Q4, we expect analysts to focus on adjusted EPS/EBITDA and H1’25 demand softness, with potential downward adjustments to early-2025 margins offset by H2’25 normalization embedded in company guidance .

Key Takeaways for Investors

  • Near-term demand softness persists, but management guides to H2’25 improvement; use adjusted metrics (not GAAP EPS) to gauge underlying trajectory given the Q4 settlement distortion .
  • Cost actions and MBX execution should support sequential margin recovery in 2025, with explicit $1–$3M cost improvements and volume leverage as destocking fades .
  • Strong cash generation and deleveraging (1.3x) enable ongoing buybacks and optionality for bolt-on M&A in secular growth areas like data-center infrastructure; monitor capital deployment pace .
  • End-market mix matters: “Other” is growing (aluminum extrusion/new projects), while Agriculture remains a headwind into 2026; Powersports is most rate-/inventory-sensitive; CV positioned for EPA-driven recovery by 2026 .
  • 2025 guide embeds muted H1; targeting FCF $43–$50M with capex $13–$17M and sub‑1x net leverage by YE (ex M&A); track FCF conversion and WC metrics quarterly .
  • Tariff risk appears limited and potentially a reshoring tailwind; steel/aluminum largely pass-through, limiting dollar margin impact .
  • Tactical trading: Watch for H1 macro/sector prints (CV builds, dealer inventory movements) and any data-center program awards; H2 narrative inflection could be a catalyst, especially if MBX cost pull-through accelerates .