Mayville Engineering Company (MEC) Q4 2023 earnings summary

Executive summary

• Q4 net sales rose 15.6% YoY to $148.6M, including 6.1% organic growth; Adjusted EBITDA increased 53.2% to $17.7M, with an 11.9% margin.

• Record Q4 free cash flow of $19.9M supported $21.8M of debt repayment; year-end net leverage was 2.1x.

• MBX transformation advanced through commercial focus, automation and process efficiency; MSA expanded aluminum fabrication capabilities.

Financial highlights

• FY2023 net sales increased 9.1% to $588.4M, including 4.3% organic growth; Adjusted EBITDA rose 8.7% to $66.1M, with an 11.2% margin.

• FY2023 net income was $7.8M, diluted EPS was $0.38 and Adjusted diluted EPS was $0.79, versus $1.12 Adjusted diluted EPS in FY2022.

• Q4 net income was $2.2M, diluted EPS was $0.11 and Adjusted diluted EPS was $0.21, up 40.5% YoY.

• FY2023 free cash flow was $23.8M, compared with negative $6.2M in FY2022; Q4 free cash flow rose $20.6M YoY.

• Hazel Park ramp-up reduced FY2023 Adjusted EBITDA by $6.2M; Q4 Adjusted EBITDA included $1.3M of ramp-up losses and an estimated $1.6M UAW strike impact.

Outlook and guidance

• FY2024 guidance: net sales of $620M–$640M, Adjusted EBITDA of $72M–$76M and free cash flow of $35M–$45M.

• 2024 organic net sales growth is projected at 1.5%–2.5%; MSA is expected to contribute $20M–$30M of sales and $4M–$6M of Adjusted EBITDA pro rata.

• MBX initiatives are expected to add $3M–$6M of Adjusted EBITDA, net of inflation; assumptions also include $1M–$2M from strategic pricing and $2M–$4M from MBX/labor productivity.

• 2024 capital expenditures are forecast at $15M–$20M; Hazel Park is expected to approach $100M in annualized sales in Q4 2024.

• 2026 targets: $750M–$850M sales, $105M–$135M Adjusted EBITDA at a 14%–16% margin, and $65M–$75M free cash flow; annual MSA synergies are expected to reach at least $20M.