Good morning. Thank you for joining the Mayville Engineering Company Fourth 2022 Earnings Conference Call. My name is Alisha and I will be your moderator today. I will now hand the conference over to your host, Noel Ryan with Vallum. You may proceed.

Thank you, operator. On behalf of our entire team, I'd like to welcome you to our fourth quarter '22 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy, and Todd Butz, Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risk described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we'll open the line for questions. And with that, I would like to turn the call over to Jag.

Thank you, Noel, and welcome to those joining us. Today, I will provide a high-level review of our fourth quarter and full year performance. This will be followed by an update on demand conditions across each of our end markets and a progress update on our MBX initiative. During the fourth quarter, we continued to build on the momentum evident across our business, highlighted by 13.8% year-over-year net sales growth and 26.2% year-over-year adjusted EBITDA growth. Total sales volumes increased 13.3% on a year-over-year basis in the fourth quarter, driven by broad-based demand across most end markets, but partially offset by continued disruptions in our customer supply chains. We also benefited from targeted commercial price increases in the period, which more than offset general inflationary pressures on labor and other product content. For the fourth quarter, our adjusted EBITDA margin increased 240 basis points to 10.5% when compared to the year-ago period, when excluding the impact of the planned production ramp at our Hazel Park facility. For the full year 2022, we delivered significant year-over-year growth in net sales, adjusted EBITDA, and net income. These improvements were driven by a combination of volume growth, fixed cost absorption, commercial price discipline, and operational improvements. We achieved these strong full-year results despite the continued supply chain disruptions impacting our customer's production schedules, which resulted in deferred sales volumes for MEC throughout 2022. Our team remains committed to improving business transparency through robust external reporting. Following recent discussions with coverage analysts and investors, we have begun to provide revenue mixed data by end market, detailed revenue, and EBITDA bridges that highlight our period-over-period performance and broken out the revenue impact of raw material pass-throughs. We believe these incremental disclosures should prove helpful to understand our business and performance better. Turning now to a review of our market conditions across our five primary end markets; let's begin with the commercial vehicle market, which represented 39% of 2022 revenues. Commercial vehicle revenue increased 36% on a year-over-year basis, driven by freight strength and fleet upgrades. Based on current customer demand requirements, we expect steady demand during the first half of 2023, followed by a slowing in the second half of the year, going into 2024 as the industry navigates an emissions regulation change. While the potential for pre-buy exists, we believe this will be of moderate impact to 2023. Currently, ACT Research forecasts the Class 8 vehicle production to decline 3.1% year-over-year in 2023 to 305,259 units. While supply chain constraints have continued to impact some commercial vehicle customers, we expect to see this continue to improve during the next several quarters. OEMs still have sizable backlogs, and used equipment prices have remained elevated, which gives us confidence in our current production schedules. We continue to monitor a potential softening in freight fundamentals and remain ready to adapt to any market changes. Next is the construction and access market, which represented 21% of 2022 revenues. Construction and access revenues increased 21% on a year-over-year basis, driven by fleet restocking demand amid lower dealer inventories. Our construction access end market is currently experiencing the impact of higher interest rates on the residential housing market. Looking out to the remainder of 2023, we believe soft residential new construction demand will be partially offset by volume growth across our non-residential infrastructure and energy markets. Low dealer inventories, aging equipment, and the growing need to restart fleets are factors that play in our favor, providing a volume growth offset to softening residential construction. The powersports market represented 16% of 2022 revenues and declined 3% on a year-over-year basis. This decline was primarily the result of softening demand due to the discretionary nature of consumer spending offset somewhat by dealer restocking. However, customer inventories remain low, and some level of restocking of the dealer channel will occur in 2023. As we have mentioned previously, we expect recent share gains within powersports will position us to outpace potential softness that may occur in this market over the coming year. Our agricultural market represented 11% of 2022 revenues and increased 15% on a year-over-year basis. Global full stocks remain tight, leading to elevated crop prices. Meanwhile, the inventory of both new and used machinery remains slow. Given elevated crop prices, we believe producer demand will increase in 2023 supporting further large Ag equipment demand. Small Ag is expected to be flat to a modest decline with ample inventory and slowing demand after higher volumes over the last couple of years. Our military market represented 5% of 2022 revenues and increased 3% on a year-over-year basis driven by new program wins and new vehicle introductions. Our consumers have solid contractual backlogs with the US government and we continue to see good volumes based on new vehicle introductions and related programs. Customer coding activity and order rates remain strong, though we remain mindful of the potential for softening in the broader macroeconomic outlook this year. However, currently we are seeing no indications of slowing in our customer space of activity. While supply chain disruptions continue to impact several of our customers, we anticipate these issues will ease as we move through 2023. Shifting now to an update on the recent progress we have made with our MBX initiative. We announced the launch of our MBX initiative during the third quarter of 2022. At its core, MBX is an operating system that we're leveraging to drive both operational and commercial excellence. MBX represents a key area of strategic focus for our team as we position MEC to achieve consistent above-market performance through the cycle. MBX is founded on achieving commercial and operational excellence through continuous improvement. Operationally, our focus is to achieve increased standardization, lean manufacturing, and automation of our various production processes, which in turn lead to improved execution, better productivity, and the reduction of cost across our value chain. Additionally, we plan to leverage MBX in other areas that support our operations such as sales, purchasing, and finance. We continue to hold our quarterly president Kaizen. In the fourth quarter, we held an event at our Byron Center facility in Michigan. Dedicated teams drove multiple lean events focused on improving operational value streams, increasing utilization of stamping capital, and enhancing procurement strategies. At the commercial level, we continue to see meaningful opportunities to capitalize on multi-year trends toward reshoring and outsourcing by OEMs. Not only will these trends benefit us from a volume and utilization perspective, they also position us to be more strategic in our approach to pricing as customers pivot toward domestic skilled labor pools that can provide an on-time, quality product. At the same time, we are focused on commercial expansion, which for us amounts to targeted expansion within high-growth adjacent markets while continuing to build our share of wallet with existing customers who value our full suite of design, prototyping, manufacturing, and aftermarket services. We made significant progress during the second half of 2022 as we grew our market share with existing customers and explored emerging growth opportunities with new customers. We also further improved our productivity as we seek to better optimize our capacity. Allow me to share some of the commercial progress we have made in recent months. During the fourth quarter, we continued to make significant progress working with a large public company customer, making components for thermal management of electric vehicle batteries and battery enclosures. We continue to win new business and expand with this recently acquired customer. We're also engaged in an outsourcing project with our current business with the same customer that involves support for building infrastructure. We expect this project work to continue to grow and evolve in 2023. Given the impending changes to vehicle emissions regulations beginning in 2024, we are working on multiple projects with current commercial vehicle customers supporting vehicle updates that are slated to occur during the next 12 months. We believe these new launches position MEC to gain additional share of wallet representing an important organic growth catalyst. In summary, we remain focused on driving above-market growth through rateable EBITDA margin expansion. Our volume growth comes from existing and new customers and in new and adjacent markets. We expect to achieve margin expansion through productivity improvements, including capacity optimization and improved price discipline. From a capital allocation perspective, our top priorities include inorganic growth and debt repayment, followed by investments in organic growth. In 2023, capital expenditures are expected to be between $20 million and $25 million, representing more than a 50% decline from the full year 2022. Given a decline in expected CapEx, we anticipate an increase in free cash flow generation during 2023, positioning us to self-fund smaller strategic growth investments. While today our fabrication expertise is mainly within steel, we will look to expand our expertise within lightweight next-generation materials such as aluminum, plastics, and composites. As a vertically integrated tier one supplier of scale, MEC remains uniquely equipped to deliver a one-stop solution that combines design, prototyping, manufacturing, and aftermarket services expertise across the entire product lifecycle. Before turning the call over to Todd, I want to provide an update on our Hazel Park facility and the ongoing litigation with our former fitness customer. As we announced last quarter, we commenced production at our Hazel Park facility on time and in line with our plans. We will continue the ramp-up of production at Hazel Park through 2023 and into 2024. While we expect the facility will be a margin headwind for us while production ramps up in 2023, Hazel Park represents an important and exciting component of our growth strategy. The facility provides us with state-of-the-art operations in a market with a stable labor pool and much-needed capacity to support incremental customer demand. We're also leveraging the facility as part of our operational excellence initiatives in our efforts to realign our manufacturing footprint to better meet customer needs and improve efficiencies. As we look forward to 2024, we expect the facility will no longer be a drag on our margins and will exit the year with a run rate of $100 million in annual revenues, half of which will come from new customers and the other half from new and existing programs with current customers. On August 4, 2022, the company filed a lawsuit against Peloton Interactive Inc. in the Supreme Court of the State of New York, New York County. In the lawsuit, the company alleges that Peloton breached the March 2021 supply agreement between the parties pursuant to which MEC was to manufacture and supply custom component parts for certain of Peloton's exercise bikes. In January 2023, in response to Peloton's motion to dismiss, the court allowed the company's breach of contract claim to proceed. The lawsuit is ongoing and is in the discovery phase. With that, I will now turn the call over to Todd to review our financial results for the fourth quarter and full year.

Thank you, Jag. I'll begin my prepared remarks with a detailed overview of our fourth quarter and full year financial performance, an update on our balance sheet and liquidity, and conclude with an overview of our financial guidance for the full year 2023. Total sales for the fourth quarter increased 13.8% on a year-over-year basis to $128.5 million, driven by a combination of improved sales volumes and continued price discipline. Our manufactured margin was $13 million in the fourth quarter as compared to $9.4 million in the prior year period. The increase was driven by improved demand, increased commercial pricing, and better absorption of manufacturing overhead costs, offset by a $900,000 decline in scrap income. Our manufactured margin rate was 10.1% for the fourth quarter of 2022 as compared to 8.3% for the prior year period. The increase of 180 basis points was primarily due to the reasons discussed above. Profit sharing, bonus, and deferred compensation expenses were $4.1 million for the fourth quarter of 2022, which was above the $3.5 million recorded for the same prior year period, primarily due to the decision to provide additional profit sharing to employees versus contributions to the ESOP plan. Other selling, general and administrative expenses were $6 million for the fourth quarter of 2022 as compared to $5 million for the same prior year period. The increase is primarily due to increased professional fees, wages, and other expenses. Interest expense was $1.2 million for the fourth quarter of 2022 as compared to $440,000 in the prior year period, primarily due to higher interest rates. We anticipate that at current interest rates, interest expense should remain at a similar quarterly level for the foreseeable future. Adjusted EBITDA increased to $11.6 million versus $9.2 million for the same prior year period. Adjusted EBITDA margin percent increased by 90 basis points to 9% in the quarter, as compared to 8.1% for the same prior year period. The increase is attributed to improved volumes offset by Hazel Park launch costs and lower scrap income. Excluding the impact of Hazel Park launch costs, adjusted EBITDA margin was 10.5% in the fourth quarter of 2022. Turning now to full year performance, total sales for the full year 2022 increased 18.6% on a year-over-year basis to $539.4 million driven by customer raw material price pass-throughs, volume increases, improved price capture, and end market demand resulting from customer inventory replenishment. Excluding raw material pass-throughs, total sales increased 12.4% on a year-over-year basis in 2022. As Jag mentioned, the strong revenue growth came despite continued disruptions within our customers' supply chains. Manufacturing margin was $61.1 million for the year ended December 31, 2022, as compared to $51.4 million for the same prior year period. The 18.9% increase was driven by volume increases, commercial pricing increases and improved absorption of manufacturing overhead costs, offset by Hazel Park transition and launch costs, continued customer supply chain issues, and a $1.8 million decline in scrap income in the second half of the year. Our manufacturing margin rate finished at 11.3%, consistent with the prior year period. Profit sharing, bonus, and deferred compensation expenses for the year were $8 million as compared to $11.5 million for the prior year period. The decrease of $3.5 million is primarily due to a reduction in deferred compensation expense. Other selling, general and administrative expenses were $24.7 million as compared to $20.4 million during 2021, driven by higher consulting, legal, and professional fees, CEO transition costs, and wages and benefits due to continued inflationary pressures. Interest expense for 2022 was $3.4 million as compared to $2 million for 2021 due to higher borrowing levels and interest rates. Income tax expense was $3.7 million on pre-tax income of $22.4 million, as compared to an income tax benefit of $1.9 million on a pre-tax loss of $9.4 million for 2021. Our federal net operating loss carry forward was $21.2 million as of December 31, 2022. The NOL does not expire and will be used to offset our future pre-tax earnings. We continue to anticipate our long-term effective tax rate to be approximately 27% based on current tax regulations. Adjusted EBITDA finished in line with our guidance for the year at $60.8 million after adding back the first half of repositioning impacts from our Hazel Park facility, our CEO transition costs, and legal expenses related to our former fitness customer versus $46.2 million for 2021. Adjusted EBITDA margin for the year increased by 110 basis points to 11.3% as compared to 10.2% for the same prior year period. The increase was driven by greater demand and improved commercial pricing, offset by a $3.3 million unfavorable impact from the ramp up of the Hazel Park facility and a $1.8 million decline in scrap income during the third and fourth quarters. Next I will cover cash flow and liquidity figures. Capital expenditures for 2022 were $58.6 million as compared to $39.3 million during 2021. The increase is due to the repurposing of assets at our Hazel Park facility, with the remainder being for continued investments in technology and automation for new customer wins and existing production processes. During the fourth quarter, capital expenditures were $19.8 million as compared to $12.7 million during the fourth quarter of 2021. The increase in CapEx during the quarter relates to investments in our Hazel Park, Michigan facility. As of the end of 2022, our total outstanding debt, which includes bank debt, finance agreements, and finance lease obligations was $74.9 million as compared to $71.4 million at the end of 2021. The increase in debt principally relates to the increase in capital spending discussed above. Furthermore, as of December 31, our net leverage ratio was 1.3 times, which is below our long-term net leverage target of at or below 2.5 times. Turning now to a discussion of our full year 2023 financial guidance, which is current as of the time provided. Although customer supply chain challenges persist, we anticipate sales volumes will increase on a year-over-year basis in 2023. Our new business pipeline remains solid as we build new relationships and strengthen our existing relationships with customers that Jag highlighted earlier on the call. As a result, we currently expect full year 2023 net sales of between $540 million and $580 million, adjusted EBITDA of between $62 million and $71 million, and capital expenditures of between $20 million and $25 million. Please note that our risk-adjusted outlook assumes general stability and end market demand, but also takes into account the potential for some macro softening as the year progresses. Also included in our 2023 guidance are the following assumptions. For net sales, our guidance assumes that raw material pass-throughs will decline by 4% to 5% relative to 2022 as compared to growing 5% to 6% in 2022, due to stabilized steel market prices. In addition, our adjusted EBITDA guidance reflects scrap income of $7 million to $9 million, a decrease of $4 million to $6 million as compared to 2022. Our guidance also assumes that the Hazel Park facility will have a dilutive impact on our results of $4 million to $6 million due to unabsorbed overhead costs related to the ramp-up of production throughout the year. Lastly, our guidance reflects a 40 basis point to 70 basis point improvement in adjusted EBITDA margins associated with our MBX initiatives.

The first question comes from Mig Dobre with RW Baird. You may proceed.

Good morning, everyone. It's Joe standing in for Mig this morning. I wanted to mention that the slide deck and the new disclosures were very helpful, so thank you for that. My first question is regarding the slide deck, specifically the waterfall that reconciles Q4 EBITDA with the prior year. Could you discuss the differences between Q4 EBITDA and Q3 EBITDA? I noticed that revenues decreased by $7.7 million quarter-over-quarter, but EBITDA only decreased by $4.6 million. I understand there are many moving parts, but could you clarify the changes in EBITDA from Q3 to Q4, which might have resulted in the margin being slightly below our expectations?

Yeah, so I'm going to let Todd jump in. Joe, I think one of the challenges we had in Q4 was customer supply chain disruptions. We had multiple customers that took unexpected line down days that obviously resulted in us under absorbing and last minute, we can't just take the cost out, right? So that's, I would say primarily one of the reasons why Q4 EBITDA margins were all softer, but overall, I'm going to let Todd help you with the bridge, but I'm really proud of the team that executed exceptionally well in a really challenging environment in 2022. Overall, as we indicated, right, we had a tremendous performance both in top line and EBITDA margin improvement and also EBITDA dollar improvement, right? And we were able to transform our business in the second half into a better performing business coming into 2023 and more importantly, right, trying to ramp up Hazel Park and repurpose Hazel Park after what happened in late 2021. So, with that, let me turn over to Todd. So, certainly Joe, and when you think of Q3 to Q4 sequentially, just in the normal course, the fourth quarter does have the holidays. You do end up with a little under absorption. So naturally, even if volumes would say are similar, you're going to see a little bit of dilutive impact because of fewer working days. You couple that with what Jag mentioned on the supply chain issues within our customer base and taking out a few extra days that adds a little more pressure to under absorption. We also ramped up quite a bit of headcount as it relates to Hazel Park. And so as you saw between Q3 to Q4, those costs went up. It was about a $2 million impact in Q4 versus about half of that in Q3, and then you couple the scrap income decline. So, you factor in those three things and that's really what drove down the dollars and the percentage when you think of Q4 to Q3.

Got it. Okay. Great. Thank you. That's very helpful. I guess my next question, your sales guidance is for 2023 sales would be anywhere from flat up $40 million. I guess kind of two questions related to that. First of all, you mentioned Hazel Park is a $100 million run rate exiting the year, but how much do you think through the course of the year Hazel Park will contribute? And then related to that, any thoughts on quarterly guidance or I'm sorry, quarterly cadence for the top line through the year?

So let me, let me take that, Joe. First of all, let me correct your statement that the $100 million dollar run rate exiting the year is for 2024, not 2023, for Hazel Park. That's number one. We are actively ramping, as we said in Hazel Park, right? The biggest challenge for us is really customer qualifications. Every single part we have to put through Hazel Park needs to go through detailed QP and other quality certifications by our customers. That's the biggest bottleneck. Having said that, we expect that revenue approximately between $25 million and $30 million for 2023 in Hazel Park. So that's number one. Number two, the guidance, $540 million to $580 million that we're providing on our top line for 2023 includes a couple of things, right? Number one, it is risk adjusted, right? What does that mean? Well, the midpoint is risk adjusted. If the economy continues to be soft and the supply chain continues to be disrupted to our customers, we will end up at the lower end of that range. If things improve dramatically in terms of supply chain disruptions going away and the economy is stable, volumes are stable, we could be at the higher end of that guidance. Also, as Todd mentioned in his prepared remarks, right now, the raw material pass throughs are 4% to 5% down in 2023. So what that means is, take your $540 million-ish in 2022 and take out between 4% and 5% of that sales and then add back, right, our volume growth on top of that. Right? So hopefully that answers your question.

It does. That's very helpful. And then I guess my final question, this is the first time I remember, are you guys talking about scrap income? Maybe I'm just not remembering correctly, but can you kind of talk about the dynamics around scrap income and how it kind of flows through the P&L?

Certainly. So that ends up being a contra expense. So it doesn't end up in our revenue lines. And the reason why we called that out, and you are correct, we have not historically called that out directly, but it changed so much and so quickly we felt it was prudent to isolate that incident in the second half because it went from over $0.20 some a pound and almost half that in the third and fourth quarters. And it was a very steep and precipitous decline. In a normal course, scrap income was probably more than that. I call it $0.14 to $0.16 a pound. So we were unusually high in the beginning half of the year, but then it dropped really below what we would call normal market conditions in the second half. So that's why we felt that it made sense to call that out specifically in the last quarter.

Got it. Okay. Thanks for taking my questions. Good luck the rest of the quarter.

Thank you, Mr. Joe. The next question comes from the line of Andy with Citigroup. You may now proceed.

I just want to understand more of what you're saying at an end-market level, you've said you expect powersports to be a higher percentage of sales in '23 versus '22 in construction Ag. I think you have down a little bit in terms of percentages, yet. The powersports market down construction flat ag up. Are you basically saying you expect customers to grow much higher than the market given the share gains you've had, maybe construction we should model conservatively? And I'm not sure sort of what to make from the Ag comments because I think you talked about small Ag being down and large Ag being up, so more color would be helpful.

Absolutely. In powersports, as we mentioned previously, the market is influenced by discretionary spending and the impact of interest rates, leading us to anticipate a decline in the market overall. However, we've achieved significant program wins with a few of our key customers and have onboarded a new customer in 2023, which will start to contribute in the latter half of the year. These program wins are allowing us to capture a considerable share of the sports market, so we expect sales in that segment to increase in 2023. Regarding construction, our main focus is on construction access. As we indicated, residential is expected to decline. However, we are witnessing positive signs in non-residential construction, especially with infrastructure investments starting to flow. This gives us some confidence that while residential might be down, the growth in non-residential construction could help offset that impact. In agriculture, our sales are split roughly evenly between large and small agriculture, including turf care. In the small agriculture and turf care segments, there is significant inventory in the channel, which is contributing to the softness we've observed. In contrast, large agriculture remains strong, with our customers reporting robust demand signals, and we continue to anticipate growth in that sub-segment.

Got it. Very helpful. Okay. And then just flipping over to margins for a second, maybe a little more color about incremental margins in '23 and what MBX can and is contributing. I know you gave us, that 40 basis points to 70 basis points, but you cited a fair amount of headwinds on the business yet I think you're still going to high 20% incrementals at the midpoint. You can correct me if I'm wrong, but maybe how are you thinking about MBX contributing now? Like what that means for your normalized incrementals because I think, Todd, you had talked about load 20s being normalized in the past.

That's a great question. As you've noticed from previous experience, a program like MBX takes time to truly integrate into our daily operations. We have been on this journey for about six months, and I can assure you that our entire organization is excited and motivated this year. In 2023, we anticipate conducting three to four times as many Kaizens compared to 2022, which indicates a significant increase in our activity level within the company. However, my main concern, given my experience of over 20 years with such programs and nearly 30 years in my career, is the long-term sustainability of these improvements. It's not about the number of Kaizens we conduct; it’s about how many of those improvements we can maintain over an extended period. Therefore, we are being quite conservative regarding our margin impact in 2023, as we need to ensure that we can sustain these improvements as a company. When we project an accretion of 40 to 70 basis points for EBITDA margins in 2023, we are presenting a carefully considered and conservative estimate. We stand firmly by that range with the goal of increasing that number further as we see the MBX program take hold across all plants and functions, including finance, sales, marketing, and supply chain. This sums up our MBX initiative's status within the company.

Yeah. So historically, you are correct. We've been in that 21.5% range historically, and like Jag mentioned, we would expect in the longer term, once the MBX really takes hold, that that incremental margin should improve. And certainly when you think of next year, we're very happy with the fact that you look at the midranges, the incrementals are very strong despite some continued expected headwinds. When you think of next year, we did talk about continued potential for supply chain issues. We have the Hazel Park launch that is ongoing throughout the year that'll have a negative, $4 million to $6 million impact, and then you couple that with the scrap decline, right? So despite all those kinds of headwinds, we're still seeing nice progression on our incremental margins year-over-year at the midpoint.

Right. And Todd, you're to be clear, you're talking about '23 when you say next year, right? Just to be clear.

Yeah. Correct.

So let me just ask one other follow up on Hazel Park. So Jag, I think you mentioned the ramp up, the run rate exiting '24, just thinking about the $4 million to $6 million of incremental costs this year. Is that sort of front-end loaded so that by the end of the year, you're probably at breakeven or better, or how do we think about that sort of improvement possibility?

Yeah, so if we were to think about it, right, it's probably a 60-40 split, Andy, between first half and second half. It's sitting here, right? That's how our current estimate.

Yeah, I would completely agree with that. It is a little more front-loaded, but you still have that ramp happening throughout the year, and then you get into Q4, certainly volumes and timing of days has a little bit of an impact there. So, I think the 60-40 split is a fair number.

And then for the $25 million to $30 million revenue, we're pushing to get through Hazel Park this year, right? We might be slightly negative, right? So our goal obviously is to be at least EBITDA positive, at least breakeven rather, but that'll be a bit of a challenge in 2023.

There are no further questions registered. So at this time I'll pass the conference back to Mr. Jag Reddy? Excuse me. We do have a question from the line of Larry De Maria with William Blair. You may now proceed.

Just, I want to stay with Hazel Park for a minute here. So the $25 million to $35 million in '23 breakeven it may be fairly negative EBITDA growth in '24 and then a $100 million plus presumably in 2025. Can you help us on sort of the margin bridge, '24, we swing positive presumably on some number in between those sales brackets and what does it look like at a $100 million the EBITDA margin, and are we cannibalizing any other plants or is this all incremental? And finally, how much of this is go get versus what you have visibility on?

Yeah. Okay. Thank you, Larry. On the a $100 million exit where we talked about in 2024 obviously, right? We're not providing any guidance for 2024. Having said that, we expect Hazel Park to be EBITDA accretive or positive rather in 2024. We expect perhaps approximately $65 million to $70 million-ish in revenues for 2024 out of Hazel Park, with an exit run rate of $100 million and it'll be EBITDA positive. And in 2025, obviously a $100 million or more as you mentioned, we agree with that. In terms of out of the $100 million, approximately 50% of that $100 million will be new customers and new programs that we currently do not have. And then approximately 50% of the revenues would be current customers with some new programs and some existing programs, right? So what that means is, out of the $100 million, let's say approximately 25% or so of that number is some of the volume that we're moving from other plans into Hazel Park to optimize our plant network, right? So hopefully that answers your question.

The other comment I would make, Larry, when we think of the margin profile, when we get to the 2025 and we're at a $100 million run rate, our expectation would be that that EBITDA margin would be in line with our expectation of the 15% or even hopefully even accretive from there. So that is our goal, our expectation. And as Jag mentioned, keep in mind there isn't really cannibalization happening at plant. It's opening up capacity that was needed for us to bring in incremental business. So when you think of that $100 million, that will be all incremental business.

Okay. That's very clear and that's what I was looking for. And then the second question, I think is recently is December, you guys talked about the 15% EBITDA margins that you just referenced. If we look at the guidance for '23, and we have presumably obviously a much more stable year, I think the material pass throughs, you get some benefit there. But then even if we adjust out some of the under absorption and Hazel, some of the headwinds from Hazel, we're still nowhere near the 15%. So can you sort of help us bridge the gap between 15% target, which is it realistic or not, and timeframe, and then where we're entering now, even if we adjust for some of those headwinds. What's the gap?

Yeah, yeah. So we stand by our medium term goal of 15% of adjusted EBITDA margins. The bridge to where we are in 2023, our guidance, and where we would like to be in a couple of years is really, threefold, right? And it's approximately 70 basis points to 90 basis points, 70 basis points to 100 basis points of each of those items. One is his little pork, as we indicated. Other is scrap income as we indicated. And the third one is customer supply chain disruptions, right? We continue to see that, that's being, we talked about even in Q4 and in 2023 right? So those are the three items. Approximately 70 basis points to 100 basis points each is what we're battling to get to that 15% adjusted EBITDA launch target.

And the other comment I would make is, you look at the low end, the low end of the guidance kind of reflects about 11%, 11.2%. Yeah, as Jack mentioned, you have probably about 200 basis points to 300 basis points of headwinds and we're at 12% to 12.5%. So when you really factor that in, that potentially gets us near that 15% goal.

Okay? So realistically, medium term is probably around 2025 when we're operating at a much more productive run rate in Hazel Park.

Without providing further guidance at this point, I would say that's fair to say at some point, potentially in '24 or '25. We are expecting to have an Analyst Day later this year. And our expectation within that meeting would obviously be providing a bridge to our future EBITDA margins.

Okay. Pretty helpful. Thank you very much. Good luck.

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.