Thank you all for joining. I'd like to welcome you to the Mayville Engineering Company Third Quarter 2023 Earnings Call. My name is Brica, and I will be the moderator for today's call. I would now like to pass the conference over to your host, Stefan Neely, to begin. Sir Stefan, please go ahead.

Thank you, operator. On behalf of our entire team, I'd like to welcome you to our third quarter 2023 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 risks 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 will open the line for questions. With that, I would like to turn the call over to Jag.

Thank you, Stefan, and welcome to those joining our call and webcast. As anticipated, our third quarter results demonstrated significant year-over-year growth in revenues, adjusted EBITDA, and free cash flow. These strong results were the product of continued steady end market demand and targeted market share gains, particularly in our commercial vehicle, military, and power sports markets. Early in the third quarter, we closed on the acquisition of Mid-States Aluminum or MSA, which was also a contributor to our revenue and earnings growth in the third quarter. In addition to the cross-selling opportunities afforded by MSA's aluminum fabrication and extrusion capabilities, our core business continues to enjoy a robust sales pipeline entering 2024. Even as we look forward into a potentially more muted environment for end market growth, we are optimistic about our ability to deliver above-market growth through the cycle by expanding our share of wallet with our current customers and improving the utilization of our existing assets. Importantly, our operational and commercial self-help initiatives are continuing to deliver improved profitability and cash generation through improved cost absorption, value-based pricing, and enhanced working capital efficiency. During the third quarter, we generated a record $16.1 million of free cash flow, representing cash conversion in excess of 80%, a new record for our business. Consistent with our capital allocation priorities, we reduced our outstanding borrowings by more than $17 million in the third quarter, while repurchasing $1 million worth of common equity, leaving $17 million under our existing $25 million authorization as of September 30. This year alone, we have repurchased $2 million worth of shares under our existing authorization. In September, we hosted our inaugural Investor Day event at our Hazel Park facility outside of Metro Detroit. At the event, we introduced a 3-year roadmap for MEC, one that leverages the key pillars of our MBX framework to drive long-term value creation for our shareholders. We underscored how we intend to drive organic sales growth, adjusted EBITDA margin, and improve free cash flow generation while continuing to develop a leading manufacturing platform of scale within key growth markets such as energy transition. As a team, we are committed to excellence through accountability and introduced new 3-year financial targets at the event, which our entire team is focused on achieving. By the year-end 2026, we expect to deliver between $105 million and $135 million of annual adjusted EBITDA, along with annual net sales between $750 million and $850 million, adjusted EBITDA margins between 14% to 16%, and annual free cash flow generation of $65 million to $75 million. While these are ambitious targets, they are entirely achievable. Our third quarter results demonstrate early progress towards this plan. We remain focused on delivering ratable, consistent growth into 2024, building upon our track record of execution. While we are very pleased with our third quarter performance, it is important to highlight that these results include continued cost under absorption associated with planned ramp-ups at our Hazel Park and Atkins facilities. Fixed costs under absorption at Hazel Park alone impacted the third quarter adjusted EBITDA and adjusted EBITDA margin by $1.7 million and 110 basis points, respectively. Excluding the impact of the Hazel Park ramp-up, our normalized adjusted EBITDA was 13.2%. We continue to expect that Hazel Park will ramp up fully by the end of 2024, contributing $100 million in annual revenues with adjusted EBITDA margins of approximately 15% in 2025. As of September 30, we currently had commitment for all but approximately $25 million of the projected $100 million in annual revenue contribution of that facility. Turning now to a view of market conditions across our 5 primary end markets. Let's begin with the commercial vehicle market, which represents approximately 40% of our trailing 12-month revenues. During the third quarter, commercial vehicle revenue increased 6.6% on a year-over-year basis driven by strong demand and elevated build rates. Customer demand requirements continue to indicate slowing demand going into the end of the year and into 2024, as the industry navigates regulatory changes as well as a general slowing in economic activity. Currently, ACT Research forecasts the Class 8 vehicle production to increase 6.6% year-over-year in 2023 to 336,000 units. The current projection indicates that build rates will slow during the fourth quarter and decline by nearly 4% on a year-over-year basis. For 2024, ACT projections reflect a deeper softening in demand through the middle of the year with current production estimates reflecting an 18.5% decline for the full year 2024. Furthermore, we are currently experiencing volume disruptions associated with the United Auto Workers strike with one of our customers. This has impacted our volumes for their products so far during the fourth quarter, and will continue to do so until an agreement is reached. Next is the construction and access market, which represented approximately 18% of our trailing 12-month revenues. Construction and access revenue declined 2.3% on a year-over-year basis in the third quarter, given weaker fundamentals within the residential housing market, which continues to be impacted by the elevated interest rate environment. While residential construction trends appear to have troughed, and infrastructure and energy market demand remained stable, we still expect to see demand softness year-over-year through the remainder of 2023 and into 2024 with the potential for modest improvement later in 2024. The power sports market represented approximately 16% of our trailing 12-month revenues and increased by 7.7% on a year-over-year basis in the third quarter. We continue to benefit from market share gains, which include new customer programs, which were partially offset by cooling in consumer discretionary spending. Given current market conditions, we anticipate customers will seek to bolster demand through rebates and incentives going into the holiday season. As we look forward into 2024, indications are that continued slowing in demand would result in growth deceleration as dealer inventory levels have normalized. Our agriculture market represented approximately 10% of trailing 12-month revenues and increased 4.6% on a year-over-year basis during the third quarter. The increase during the quarter was primarily driven by growth in large agriculture demand, along with the contribution of MSA's agriculture-related sales, which offset continued overall softness in our legacy small agriculture market. This trend is in line with our expectations as global food stocks remain tight and crop prices remain elevated. Given elevated crop prices, we believe producer demand will increase through the end of the year and into 2024 with some deceleration going into the middle of 2024. The demand tailwinds in large agriculture going into 2024 should mostly offset softness in small agriculture demand. Our military market represented approximately 6% of trailing 12-month revenues and increased 70% on a year-over-year basis in the third quarter, driven by new program wins and bill rate increases. Our customers have solid contractual backlogs with the U.S. government, and we continue to see good volumes based on new vehicle introductions and related programs. However, we foresee volume growth moderating during the fourth quarter and into 2024 due to the expected expiration of some legacy projects. I would also point out that with the completion of the MSA acquisition during the quarter, the majority of MSA revenues are represented within our other end market category, which grew by over $12 million year-over-year in the third quarter. The MSA acquisition closed on July 1. And since then, our teams have been hard at work with integration and cross-selling activities. Overall, the MSA integration is going well and we are on track to have them fully integrated by the end of the year, as expected. Importantly, as we highlighted at our Investor Day, we see MSA generating over $100 million of sales by 2026 with at least $25 million coming from revenue synergies with legacy MEC customers. As of the end of September, we are progressing as expected towards the target, as well as the expected cost synergies that we are targeting through the implementation of our MBX lean manufacturing framework at MSA. Shifting now to an update on our MBX initiative. During the third quarter, we continued to progress in the implementation of our MBX value creation framework. I am pleased to report that we are on track to achieve the objectives we laid out last fall when we first announced the MBX framework. As we highlighted at our Investor Day, MBX is rooted in organic commercial growth, improved cost absorption through lean manufacturing practices, value-based pricing, and working capital efficiency. These key areas of self-help initiatives will allow us to create sustainable value and deliver above-market growth through the cycle. Commercially, we are targeting growth in higher-value, high-growth adjacent markets, including clean technologies and energy transition in addition to expanding our share of wallet among our current customer base. Achieving this goal is dependent on good utilization of our equipment through better labor productivity as well as utilizing existing capacity at MSA and Hazel Park. Allow me to share some of the commercial milestones we achieved during the third quarter. Starting out, we are pleased to report that we have been awarded purchase orders for our first cross-selling win after the acquisition of MSA. Our first award was in the commercial vehicle space, which was the largest market opportunity within our cross-selling targets. We have continued to build momentum in our core activity, and we expect to continue to win awards for the coming quarters. During the third quarter, we continued the expansion of our customer relationship to supply battery thermal management products to multiple end customers as the EV transition continues to progress. This relationship will continue to expand as our customer grows their electric vehicle battery systems while we also are starting to work on significant outsourcing programs with this customer. In the quarter, we further expanded a new customer relationship in the power sports market with new program wins on new products. We expect to see continued significant growth with this new customer relationship as we look ahead into 2024. We also made progress on securing additional market share within our large agriculture and construction customer. These new parts were related to next-generation products and continue to build momentum on winning new business with the capacity we have installed in Hazel Park. We have continued to gain additional market share as our commercial vehicle customers plan for their vehicle updates, both on next-generation products and battery electric vehicle platforms. We expect to continue to grow share over the next two years with the amount of change that will occur in this industry. As we highlighted during our Investor Day, our 2026 net sales targets are dependent on capturing incremental customer commitments of $65 million to $125 million, including MSA cross-selling synergies. Based on our current level of sales activity and recent wins, we remain confident that this is achievable. The other pillar of MBX is commercial excellence, where our focus is to implement strategic and value-based pricing models across our customer programs. Year-to-date, the teams have been working tirelessly to implement a programmatic pricing model. On the operational excellence front, we have continued our rigorous implementation approach centered around our quarterly President Kaizen, supplemented by monthly operational and commercial excellence guidance. During the third quarter, we completed 25 Kaizens with a focus on sustainability of cost savings measures identified. Overall, our team has performed over 100 MBX lean events through the end of the third quarter. These savings put us on track to achieve the 40 to 70 basis points of margin improvement reflected in our 2023 guidance, as well as the 100 to 150 basis points of margin improvement we expect to achieve by 2026. Given the current demand environment, the execution we have achieved with our MBX initiatives and the ongoing ramp-up of new program launches, we continue to expect consistent margin performance and free cash flow conversion to close off the year. Looking ahead to 2024, we anticipate some modest softening across our end markets given broader expectations for a general slowing in U.S. economic growth next year. However, we anticipate ongoing operational and commercial growth initiatives will position us to deliver above-market growth. Our ability to deliver above-market growth into 2024 depends in part on driving improved asset optimization across our system, continued price discipline, and sustained cost management, all of which we are on pace to deliver. 2024 will be a year of ratable progress for us, one where we expect to begin to fully realize the benefits of MBX initiatives, which are expected to support sustained organic growth, margin expansion, and improved working capital efficiency. As before, we intend to prioritize cash generation towards the aggressive reduction in outstanding borrowings, putting us on pace to achieve a net leverage ratio between 1.5x and 2.0x by the end of 2024. Since the announcement of the MSA acquisition, we have received numerous indications of interest from potential acquisition candidates, many of which fit nicely within our acquisition criteria for lightweight materials and high-growth end market exposure. While we will continue to build a solid funnel of high-quality acquisition candidates, our chief focus over the near term will be on using net leverage to ensure continued balance sheet optionality through the cycle. In summary, as I have highlighted today, we delivered on several important strategic growth milestones during the third quarter, all of which play a role in building a leading integrated solutions platform equipped to take share in higher-value, underserved growth markets. As a team, we remain highly focused on delivering a high say/do ratio, one where a continued focus on program execution is at the center of all we do. Collectively, we remain focused on delivering a superior return on invested capital, whether through organic investments, acquisitions, or the repurchase of our own common equity. As we look to the coming year, we will continue to hone and refine our approach to capital allocation as we seek to maximize value for all of our shareholders. With that, I will now turn the call over to Todd to review our financial results.

Thank you, Jag. I'll begin my prepared remarks with an overview of our third quarter financial performance, followed by an update on our balance sheet and liquidity. Total sales for the third quarter increased 16.1% on a year-over-year basis to $158.2 million, driven by a combination of the MSA acquisition and improved organic sales volumes, partially offset by softening demand in our construction and agricultural end markets. When excluding the MSA acquisition, organic net sales growth was 6.2% on a year-over-year basis. Our manufacturing margin was $19 million in the third quarter as compared to $15.5 million in the same prior year period. The increase was primarily driven by increased organic volumes, MBX initiatives, and the acquisition of MSA, offset by unabsorbed fixed costs associated with new project launches and an $891,000 negative impact from the inventory valuation step-up associated with MSA. Our manufacturing margin rate was 12% for the third quarter of 2023 as compared to 11.3% from the prior year period, reflecting an increase of 70 basis points. When excluding the impact of the unabsorbed fixed costs and the inventory adjustment, our manufacturing margin would have been 13.7%, which represents an increase of 240 basis points compared to the prior year period. Profit sharing, bonus, and deferred compensation expenses increased by $2.2 million to $2.3 million for the third quarter of 2023, which was driven by lower stock-based compensation expense in the prior year period due to forfeitures of unvested awards. Other selling, general, and administrative expenses were $8.6 million for the third quarter of 2023 as compared to $6.5 million for the same prior year period. The increase was driven by $1 million of legal expenses related to our former fitness customer, $500,000 of transaction costs associated with the MSA acquisition, and increased salaries, wages, and benefits. As we highlighted at our Investor Day in September, we believe that SG&A expenses in the near term will be between 4.5% to 5.5% of net sales as our public company costs increase as we work through meeting SOC compliance requirements. In the longer term, we expect operating leverage will drive our SG&A down to between 4.5% and 5% of net sales by 2026. Interest expense was $3.9 million for the third quarter of 2023 as compared to $830,000 in the prior year period due to higher interest rates and higher borrowings under our credit facility. The increases in borrowings are due to the acquisition of MSA, which closed on July 1, 2023. Given our current net leverage, we are subject to a higher spread on our floating rate debt, combined with higher interest rates resulting in the elevated interest expense during the quarter. As we continue to pay down our debt, we expect that interest expense will continue to decline, not only due to lower borrowings, but also because of the step-down in our spread as a result of declining net leverage. Adjusted EBITDA increased to $19.2 million versus $16.1 million for the same prior year period. Adjusted EBITDA margin percentage increased by 30 basis points to 12.1% in the current quarter as compared to 11.8% for the same prior year period. The increase in our adjusted EBITDA margin was primarily due to increased organic volumes, MBX initiatives, and the MSA acquisition, partially offset by $0.5 million of higher underabsorbed fixed costs at Hazel Park. Adjusted EBITDA margin progression is evident and demonstrates early advancement towards our 2026 goal of 14% to 16%. Turning now to our statement of cash flows and balance sheet. Free cash flow during the third quarter of 2023 was $16.1 million as compared to $5.2 million in the prior year period. As Jag mentioned, free cash flow generation for the quarter was the highest in any quarter since the IPO and represented a conversion rate of 84% of adjusted EBITDA. The improvement in free cash flow year-over-year was primarily due to the $8.9 million decrease in capital expenditures resulting from the completion of the Hazel Park facility and improved inventory turns as we continue to implement lean inventory management processes. With the heavy capital investment cycle in 2022 behind us, we are focused on improving working capital, and we were able to generate strong free cash flow results that put us on pace to meet our second-half free cash flow goal of $25 million to $35 million and show significant progress towards our 2026 free cash flow target of $65 million to $75 million. As of the end of the third quarter of 2023, our net debt was $169.6 million as compared to $74 million at the end of the third quarter of 2022, resulting in a net leverage ratio of 2.46x as of September 30. As we have stated previously, it's our intention to use free cash flow generation to reduce our net leverage ratio to between 1.5 and 2x by the end of 2024. In light of our third quarter results and the outlook for the rest of the year, we are reiterating our financial guidance for the full year 2023. For the full year 2023, we continue to expect net sales of between $580 million and $610 million, adjusted EBITDA of between $66 million and $71 million, and capital expenditures of between $15 million and $20 million. Our current full-year 2023 guidance does not include any impact from the ongoing strikes within the commercial vehicle and auto industries. Beginning in November, we estimate these strikes could negatively impact net sales by approximately $6 million to $7 million per month and adjusted EBITDA by $1 million to $2 million per month. With that, operator, that concludes our prepared remarks. Please open the line for questions as we begin our question-and-answer session.

We have the first question from Vlad Bystricky from Citigroup.

So thanks for the information and the update today. Maybe just since you've given some initial thoughts on '24 here, any color on how we should be thinking about raw material pass-throughs impacting '24 just given where raws are today?

Sure. A week ago, I would have said that there were no changes, as steel prices were stable and had remained relatively calm over the past year. However, recent market developments show that as steelmakers reduce supply, we are experiencing a slight increase in our steel prices. While we don't anticipate this trend to continue through 2024, we have noticed this recent uptick over the past week or so. We expect things to stabilize in 2024.

And Vlad, I would just comment that we wouldn't expect it to have the impact that it did in '21 and '22. Certainly, there's been a little bit of an uptick, but the fluctuation isn't as steep as previously. So again, as we look into '24, we don't see that as a real large impact. But again, it's a pass-through, and we'll disclose it going forward each quarter.

Okay. Great. That's helpful. And then just on the quarter and into year-end here. You talked about supply chain constraints still impacting some customers. So can you just talk about sort of how you'd characterize visibility from your OEM customers in the current environment? And if you're seeing changes in their order patterns or any increasing stability that could be helpful to your own manufacturing operations?

In Q3, we did not experience any major disruptions in customer supply chains, indicating that things have stabilized. We noticed a return to normal order flow. As we approach Q4, we do not anticipate significant changes in this regard. However, we do have exposure to some customers affected by UAW strike disruptions, but as of the end of October, the impact on us has been minimal. Our exposure in the auto sector for the rest of Q4 is expected to remain minimal, as the strikes appear to be resolving. Other commercial vehicle customers are still experiencing challenges due to the UAW strike. We are hopeful that with the conclusion of negotiations among the major three automakers, our commercial vehicle customers will resolve their contract negotiations soon. Should this situation persist, we might experience some impact in Q4, as mentioned by Todd. Aside from these factors, we do not foresee any supply chain disruptions heading into 2024. We have not detected any signs of reduced demand in orders, purchase orders, or EDI feeds that we typically monitor. However, discussions with some of our customers have been somewhat subdued, despite consistent order flows and demand levels. Given the current discourse surrounding macroeconomic conditions, high interest rates, and weakened consumer demand, we are entering 2024 with caution. Nevertheless, we anticipate our revenue growth to outperform market growth next year, thanks to our market share gains, new program wins, and the initiation of several long-term programs in Hazel Park, Atkins, and other company locations.

We now have the next question comes from Mig Dobre of Baird.

I want to talk on the last point that you made there, Jag, about '24 and about your specific outgrowth drivers. Is there a way to update us or kind of quantify knowing what you know today in terms of business that you guys have booked or programs, incremental programs that you have booked as to what the revenue benefit in '24 relative to '23 would be from the business that you already kind of have visibility on?

Yes, Mig, we were not in a position to provide any guidance on 2024 at this point. Having said that, we remain committed to the three-year revenue, EBITDA, and cash flow targets we laid out recently at our Investor Day. We continue to expect progress towards the goals even with a perhaps muted 2024 growth picture. So we expect 2024 to be a growth year for MEC. We expect to grow above market next year, both top line and margin expansion and cash flow generation as well. So we're pretty optimistic about 2024, but we're not in a position to provide any particular guidance at this point.

I appreciate that. I wasn't looking for specific guidance for 2024. I just wanted to understand that since it's November, you likely have a good sense of the new programs that will contribute to 2024. Your overall outlook seems more cautious than before, so we are all trying to determine what MEC can do to navigate this tougher economic environment.

On Slide 5 in our presentation, we project that most of our end markets will be either down or slightly flat. However, we anticipate significant growth in our power sports market due to new program starts that we've discussed in previous quarters and at our Investor Day. For the commercial vehicles sector, although the market is projected to decline by approximately 18% next year, we expect our performance to at least remain flat in 2024. Regarding construction, we allocate our revenues as 60% construction and 40% access. We expect the access market to perform well in 2024 based on recent positive customer feedback. While residential construction is down, we are confident in our ongoing programs that suggest we will maintain at least flat performance next year. In agriculture, while small residential farms are currently down, larger agricultural markets and revenue contributions from MSA should also allow us to maintain a flat outlook next year. The military segment is small but we expect it to grow due to some new program wins. Overall, despite the anticipated decline in end markets, we are confident that we will perform above average relative to those markets.

Okay. And sort of sticking with the Slide 5 and the way the mix, the revenue mix is going to be evolving between these verticals. Is there any insight to be gained in terms of what that looks like from a margin standpoint? And like military friends, if it's growing quite a bit. Is that positive for margin for mix or now?

It's, I would say, generally speaking, maybe slightly accretive when the mix change for next year, Mig.

And I would just add that generally speaking, our margin performance in each segment is very similar. Maybe within 1 or 2 points, it is in place getting 35% margin in one market, 15% in another. So it's very similar across the board.

Okay. Understood. And last question, just a clarification around the UAW strike. So your guidance for the fourth quarter, does that assume any drag from the strike, like for instance, in the month of November or not, you're just sort of quantifying it, but it's not factored into the numbers yet?

It has not been factored into the guidance. In a normal course, we would expect to be within our original guidance. Now the strike, which we're optimistic and hopefully, they get settled here in the near term. If that is prolonged, that would most likely result in about $6 million to $7 million of lost sales and about $1 million to $2 million of EBITDA impact. Again, has not been factored into our guidance.

To emphasize, in October, even though the customer was not operating their production lines for most of the month, we managed to compensate for our October volumes with aftermarket production and other efforts, allowing us to maintain our production lines. If the situation is resolved in the coming week, I believe we will be fine. However, if it extends into the second and third weeks of November, we anticipate that it will impact our offline production by then.

Your next question comes from Ted Jackson of Northland Securities.

I have a couple of questions. You just answered one regarding the UAW, but I have two more. When you mention growth in 2024, are you referring to organic growth? Or is this growth related to MSA and the overall business combined compared to 2023? Are you talking about organic growth excluding the MSA acquisition, or are you referring to the overall figure?

Yes. So it's a really good question, Ted. We're expecting organic growth in addition to the lapping of MSA first half revenues.

I didn't want to assume that, but I did want to clarify. Could you provide more insight into the commercial vehicle market? I know you previously shared the macro outlook for 2023, and now we’re looking at 2024. I understand the demand has been influenced by regulatory changes for emissions, and there have been some new product wins in the commercial market. Can you discuss where you see that business heading as we move through 2024? You're indicating that you think you can maintain flat revenue. So, if I use your commercial vehicle revenue from 2023 as a baseline worst-case scenario, does that mean you expect no growth? If there were potential for growth beyond 2023, what factors could drive that? Is there something in your backlog or discussions with customers that suggests it could become a growth area? Since this is your largest vertical, a bit more discussion on this would be beneficial.

Yes, that's a good question as well, Ted. As we said, or ACT said, the commercial vehicle volumes will be down 18.5% in 2024. That's our current expectations. Given our new program wins, including new tank production volume that's going to come online in Q1 of next year and this outsourcing that we talked about. And then other program wins, we expect to be flat in our commercial vehicle revenues next year. That's our current expectation.

Okay. And remind me, I've seen this before a long time ago. It's not the first time we've experienced a situation in commercial vehicles where regulations change and lead to forward buying. This occurs every time rates change. How long does it typically take for the market to return to normal? If we ignore other economic factors and consider that we get through 2024, how much demand is usually pulled forward when the government implements those changes?

Yes. I would say that typically, it's about a year when the markets sort of go down and then cut back to normal levels. We're expecting, obviously, right, 2024 to be the down year. Even looking at quarter-by-quarter, we expect the softness to sort of hit mid-year and second half to be a little lower than first half of next year. And then 2025, the volumes are expected to come back up to normalized levels. So I don't think we have a number from ACT yet. But our expectation is going to be somewhere north of 300,000 in 2025. Actually, I do have a number from ACT. The numbers are in 2025 are expected to be around 316,000 units. 2022 was 316,000. 2023 is the 336,000, and 2024 is the 274,000, right? So you can see that dip.

We now have Tim Moore of EF Hutton.

Thanks for the Investor Day goals and those incredible bridges for your roadmap for EBITDA margin expansion and free cash flow. I just had a hypothetical question to start out here. Regarding the auto worker strikes, and if something like this occurs next year for a different end market or even a large customer disruption, then maybe there's a mild recession in the spring or something, how much flexibility do you have to maybe shift some of the capacity or installed work to other end markets to backfill that in and cut overtime costs? Because I think you might have said on Investor Day about 20% overtime mix, but maybe you could flex it to 10%?

Yes. Great question, Tim. Yes, we were averaging approximately 20% of overtime in many of our plants. Our long-term goal, our target is to be around 15% or so flex time or overtime rather. So immediately, we can shut off overtime. And also, we have the flexibility to freeze hiring. We still have about 100 job openings across the company as we speak today, and we can quickly freeze some of those hiring plans. But also, we have the flexibility to switch our operations from producing from one end market to another end market, given that majority of our plans, in fact, outside of two plants or a majority of our plants, 18-plus plants, we can make parts for any end market. So that gives us the flexibility to quickly switch our customer focus or end market utilization of those assets. So those are the levers we have. No one expects any Black Swan events or anything like that in the near term, at least we don't know. But if something like that happens, we have the ability to quickly switch gears and shift our focus.

Great, Jack. That's good contingency planning. And nice to hear a lot of companies actually can't do that, but were as easily. What about Jag, now that you mentioned Kaizen, you spend time on all your plans to implement MBX, how would you kind of quantify maybe what inning your value base and strategic pricing is? Is it mostly implemented for contract pricing fresh start in January? Or do you feel like you won't really fully achieve that maybe to the next summer?

We are just starting our MBX implementation, and our Kaizens are ongoing each quarter and month at all our plants. This is a journey, and I’m very excited about it. In a few weeks, we will hold our Q4 President Kaizen, during which we plan to conduct 4 to 6 Kaizens across the company. We have some exciting events coming up. Regarding pricing, we have implemented a programmatic approach to value-based pricing through our commercial excellence initiatives. This means we now have a new framework for our pricing strategies that considers factors such as cost to serve, customers' payment terms, product complexity, and manufacturing processes. The ease of doing business with our customers varies; some require more support than others. We used numerous criteria to develop a complex matrix that will guide our pricing for all new projects. However, this does not apply to our current business. We continue our quarterly account reviews, assessing profitability on a SKU-by-SKU basis to determine what our profitability is and what it should be for each account and project we handle. This is a long-term effort, and eventually, everything will transition over the next couple of years. All new business we are quoting in the latter half of this year will be based on the new pricing framework moving forward.

Great, Jack. That's helpful to hear. The rolling basis plus, the existing in the future being implemented already. At Investor Day, I believe you might have stated that there's about $115 million of new sales opportunities, I guess, signed or won in the last 18 months, maybe averaging about $20 million per quarter. Everyone is familiar with your battery thermal management win, and it sounds like there might be another customer there for Hazel Park. But if you kind of look at your wins and maybe that $20 million a quarter the last few quarters, would you say that a lot of that is in EV-related charging? Or is it more also beyond that battery thermal management into wind, solar, energy grid infrastructure? What are the kind of recent conversations you've been having in potential customers for emerging technologies revenues?

Yes, it's a good question as well, Tim. We continue to focus on energy transition as a secular team within the company. And then we're continuing to look for opportunities where we can now win additional business, whether it's in charging infrastructure, whether it's solar, or other renewables. But I can say so far, majority of the wins have been in battery electric vehicle management applications, whether it is through that one customer we talked about or through our existing customers in commercial vehicles and power sports and others where they're electrifying their platform. So the majority of the wins have been in battery electric vehicles, whereas we continue to pursue opportunities in both charging infrastructure and also solar and other renewables.

Great. So one last question, and this is more so maybe for Todd. So if this year has $5 million to $7 million maybe of underabsorbed costs turning on EBITDA from the Hazel Park ramp-up, is it fair to assume that next year might be only $1 million to $2 million with none in the second half as you kind of reach that $100 million sales run rate in the fourth quarter possibly next year as utilization plans?

As Jag mentioned earlier, we were not at a point yet to provide specific guidance on '24. But certainly, a lot of the projects that we have won really don't launch until mid even in the back half of next year. So there will continue to be a drag in the first half, I would say. But as we exit the year, we're confident we're going to exit at that $100 million run rate. And at that point, I wouldn't expect to see any sort of negative impact on that facility. But at this point, again, we're not in a position to really give more specific guidance as to the cadence of that. But I think your comments are fair. Generally speaking, I do expect it to be better next year from an underabsorbed position. But at what point is still we have to go through the details.

Do you think, Todd, just given maybe the macro slowdown, that you won't move as much stuff over to Hazel Park from some of your other facilities in the first half of the year besides the contract wins, but just existing business you might move?

No, I wouldn't characterize it in that frame. A lot of the new business won again that was specifically quoted and estimated to be at Hazel Park doesn't really launch until midyear and even to the back half. And some of those volumes really don't hit their maturity until even the beginning of 2025. The work that we slated internally to move is still on pace. It's moving in the right cadence. And so we wouldn't make any changes on that front.

We now have Larry De Maria, William Blair.

A few questions. First, maybe dress is, I don't think so, but $5 million to $7 million underabsorbed overhead costs, that's up from, I think, $3 million to $5 million previously. What is driving that delta?

Yes, it did change lately. Certainly, there's been some timing changes from a customer launch perspective. A few of them we thought were going to start sooner rather than later. And so some of that's moved a little further into 2024. And we have a couple of large ones that are really set to launch in the back half of '24. But even some of the smaller ones, unfortunately, the timing from the customer has in the line, and that's why we've seen a little more drag on the P&L here in the coming quarter or two.

So does that present any kind of risk next year that we see continued push-out, especially if the macro is soft? Or how good do we feel about executing on, a, the run rate? And b, remind us what the full year number should be that we should be modeling?

We feel very good about the situation. Some of it is related to the timing of sources and the transition from other suppliers, as they manage their supply chain. This has been a key factor. Additionally, when products are moved, there are often improvements and changes made. I believe a lot of this is behind us, so I am confident that the launches we are seeing will be successful. During our Investor Day, we mentioned that we anticipate next year's sales to be between $50 million and $60 million for the full year, which will be more heavily weighted towards the second half. We expect to end 2024 with an annual run rate of $100 million.

Great. Jag mentioned growth for 2024, but the significant challenge is that commercial vehicle sales are down 18%. You could bring that to flat revenue with the outsourcing, new tank production, and other wins. So, are we expecting commercial vehicle revenue to be flat from a high level next year, and then adding the $50 million to $60 million from Hazel Park on top of that? Please help us connect these numbers, as we understand you don't have guidance, but there are many figures involved, and we want to ensure there's no overlap.

Yes. The $50 million to $60 million is in that number, Larry. That's not on top. The only thing I would say on top is really the lapping of the first half revenues of MSA.

Okay. So commercial vehicle and as this Hazel Park, the $50 million to $60 million Hazel Park that we're using to offset the commercial vehicle declines. Some portion of that is non-commercial vehicle also, right? So how much of the $50 million to $60 million is offsetting the commercial vehicle declines? And how much of the $50 million to $60 million is non-commercial vehicle?

We're not providing that level of detail at this point in the cycle, Larry. But we're happy to discuss our 2024 guidance.

I think we're mixing different elements, but we are all aiming for a fair estimate. We are committed to growth in 2024, which includes MSA and Hazel Park. While commercial vehicle sales may be down by 18%, as some forecasts suggest, this decline is being balanced out by Hazel Park and other factors. Regardless, we are confident in achieving growth next year, assuming that the overall macroeconomic situation remains stable.

Larry, let me clarify. We're expecting to grow overall MEC revenues next year outside of MSA.

Outside of MSA what? Sorry.

Yes, outside of MSA lapping, right, the happier MSA revenues coming into next year. In addition to that, we expect to grow MEC revenues overall.

Okay. Fair enough. We'll start with some clarification. Is the $57 million that includes $27 million and $1 million to $2 million EBITDA from the potential UAW issue specific to one customer, or is it a gross number before all these matters are resolved?

It's specific to one customer. In October, we managed most of our challenges related to the overall UAW strike. We have some exposure to auto in MSA, and today’s discussion addresses the one commercial vehicle customer. Overall, I think we handled October quite well. In November and December, it will focus solely on that one customer in the commercial vehicle sector.

As we have no further questions, I'd like to hand it back to Jag Reddy, President and CEO, for any closing remarks. We do have a question. We have a follow-up from Ted Jackson.

I just jumped in at the last minute with a couple of detailed questions for Todd because he's my favorite person to engage with. Regarding SG&A, the number this quarter was higher than what I had projected. It's not a major issue as we have MSA, and there are clearly many moving parts within the business. What should I consider for the other SG&A expense line for the fourth quarter? I'm trying to establish a reset in my model. Is there some one-time expense in there that would lead to a decrease, or should we consider the $86 million as the new baseline to build upon?

Keep in mind, the $86 million includes $1 million of legal fees related to our former fitness customer, and that continues to evolve. So I expect that to continue into the fourth quarter. And then $0.5 million of transaction costs, which I don't expect to continue. That's kind of behind us. We incurred those costs in Q3. But I do expect to have ongoing legal fees, unfortunately, in the near term until there's an ultimate resolution on our claims. So we've said 4.5% to 5.5% in the near term. Next year, as we've talked about, we do have the SOC compliance requirements now that we'll no longer be considered an emerging growth company. I feel like we're in a great position to do that. But certainly, unfortunately, I'd rather, audit fees and other related things go up. And from there, we'll continue to delever. Delever, I would say, as our sales continue to grow.

Okay. Okay. That's helpful. And then on my second question on the nitpick for you is on amortization of intangibles. I mean will you have an updated table for amortization in your Q, I assume? Because clearly, with MSA and everything and now that's in your balance sheet, that's all going to change. But in the interim, can you give me some kind of color with what you think amortization of intangibles would be in the fourth quarter and then maybe in the aggregate for 2024?

We're not quite there yet. You will see in our upcoming quarterly report, which will be filed shortly. You’ll notice the increase, and there are details about the acquisition. I suggest taking that number and applying it by quarter for next year. I don’t expect significant changes; most of the items we are amortizing are in the range of 5% to 7%, with some lasting a bit longer. It should remain very consistent in the near future.

Okay. And will you file your Q at the end of today? Or when do you plan to put that in?

The expectation is that we'll file it by the end of the day today.

Once again, thank you for joining our call. We appreciate your continued support of MEC, and we look forward to updating you on our progress next quarter. Should you have any questions, please contact Noel Ryan or Stefan Neely at Vale, our Investor Relations Council. This concludes our call today. You may now disconnect.

Thank you. I can confirm today's conference call has concluded. You may now disconnect your line.