Mayville Engineering Company, Inc.

Good day, and welcome to Mayville Engineering Company's first quarter 2020 earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one on your touchtone phone. If you would like to withdraw a question, please press star then 2. Please note that today's event is being recorded. At this time, I would like to turn the call over to Nathan Elwell, Investor Relations. Please proceed.

Thank you. Welcome, everyone, and thank you for joining us on today's call. A few quick items before we begin. First, please note that some of the information that you will hear during this call will consist of forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. Such statements express our expectations, anticipations, beliefs, estimates, intentions, plans, and forecasts. Because these forward-looking statements involve risks, assumptions, and uncertainties, our actual results could differ materially from those in the forward-looking statements. For more information regarding such risks and uncertainties, please see our filings with the Securities and Exchange Commission including our filing on Form 10-K for the period ended December 31, 2019. We assume no obligation and do not intend to update any such forward-looking statements except as required by federal securities laws. Second, this call will involve a discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in the earnings press release, which is available at mechinc.com. Joining me on the call today is Bob Campos, Chairman, President, and Chief Executive Officer, and Todd Butts, Chief Financial Officer, and Ryan Raber, Executive Vice President of Strategy, Sales, and Marketing. First, Bob will provide an overview of our performance, then Todd will review our financial results and guidance. With that, I'll hand the call over to Bob.

Thank you, Nathan. Good morning, everyone, and welcome to our first quarter 2020 earnings call. While the first quarter of 2020 got off to a positive start and we were on track delivering results in line with our internal expectations through January and February. Of course, March introduced a whole set of new COVID-19 pandemic related challenges which impacted our performance. But overall, we generated net sales of 108 , and adjusted EBITDA of $11.4 million. These figures also speak to the preparation and adjustments late last year and into this year to continuously realign our cost structure with new demand levels and managing the ongoing production schedule changes from our key customers in the commercial vehicle, construction, and agricultural markets. I'm encouraged by the strides that we made to improve our operating performance on a sequential basis despite market demand challenges. We have been able to effectively adjust our cost structure and coupled with a small sequential improvement in demand helped us generate a 700 basis point increase in manufacturing margin in this quarter compared to the fourth quarter of 2019. We are also realizing tangible benefits from last year's capital investments in automation and technology, which have already led to stronger labor productivity. I've said this before, but it's especially true now. We are committed to focus our attention on factors within our control. The positive impacts of these investments reinforce our confidence that they will be important to best position MECC for sustained future success. The new challenge for everyone in 2020 is how we navigate the ongoing impact of the COVID-19 pandemic. At MECC, we are used to responding to change. Agility, adaptability, and realignment are part of our business culture. This crisis has created a broad sense of uncertainty and complexity for our customers that we must and will respond to as their plans unfold. On the topic of controlling what we can, I am especially proud of how well our company wide safety and operations teams have executed to ensure precautions and procedures have been implemented to protect the health of our employees at our facilities across the U.S. While we must remain vigilant in our efforts, I'm pleased to say that we have not had and any MEC employees test positive for COVID-19 at this point in time. From the first stages of the breakout, we have steadfastly communicated with our teams as we've implemented safety protocols and emphasized extreme hygiene. This means that all of our 21 facilities across the U.S. remain operational, albeit at lower production levels. Our employees are able to social distance somewhat naturally as a result of being separated in their respective work cells and with increased use of technology and automation, which means fewer people are needed and social distancing is naturally accomplished. We have made every effort to increase cleanliness in our workstations and common areas and have cleaning crews on call ready to disinfect any equipment or facilities when and as needed. Of course, everyone who can work from home is doing so. The well-being of our employees will continue to be one of our top priorities as we navigate through these challenges. As MECC has proven time and time again over the years, our agility and adaptability coupled with our commitment to succeed by providing service quality and reliability to our customers along with a strong balance sheet is what will help us weather this storm, grow our market position, and come out the other side stronger over the long term. However, as you would expect, this pandemic will continue to impact our performance in the months ahead. In the first quarter specifically, our net sales were negatively affected by the customer shutdowns related to COVID during the last two weeks of the quarter. Nevertheless, MEC and many of our customers remain and continue to maintain the essential services designation and we stand ready to assist our customers in any way that we can as we have over the past 75 years. We continue to be attentive to our customers' needs and remain in constant communication with them. However, there is no doubt that as a result of the uncertainty, Our customers are facing there's much more uncertainty regarding production schedules. Combined with the overall economic uncertainty, we are temporarily withdrawing our 2020 guidance. At this time, our aim is to provide updated guidance as the economic outlook becomes clearer from our customers. Todd will discuss our expectations related to guidance in more detail in a couple of minutes. While we lack the usual level of certainty from our customers, we still have visibility. And in the near term, it's important to remember that our orders follow production schedules, and no contracts or customer relationships have been lost. That means when our customers' volumes come back, our volumes will come back with them, and we are ready to service their needs. Despite the short-term disruption, we made positive traction across our end markets during the quarter. We wanted to take a few moments to update you on the progress that we are making with several key programs and customer relationships. We continue to see increased volume with certain military projects for light vehicles, and we are encouraged by the order flow so far in 2020. Last quarter, we added a new blue chip customer and are assisting their team with warehouse conveyors and package management. I am pleased to say that we continue to grow and expand our relationship with this customer during the first quarter and are excited about the long-term potential of this partnership. We were also able to launch quickly the outsourcing project secured from one of our largest Power Sports customers at the end of 2019. Overall, we continue to see growth in outsourcing opportunities as a result of reshoring efforts by our OEM customers to manufacture and source products and components where they are sold and avoid supply disruption. The pandemic has placed pre-existing supply chain disruption directly in the spotlight and we will benefit from that. In the commercial vehicle market, our customers are focused on their next generation products. Our active involvement in this process helped us secure some key wins late in 2019 to position our organization to grow market share over the long run. While the commercial vehicle and market in particular had presented us with its fair share of volume challenges, The long-term upside potential of this market for our organization remains very positive. Our commitment to cross-selling in both 2020 and in future years has not changed, and we look forward to the opportunity of utilizing the greater organization's extensive capabilities with the prior DMP customer base. With the legacy MEC business and DMP business now operating as one company, I'm excited about the long-term growth proposition for our entire organization. So although the current pandemic has added an extra level of complexity in the short term, I am very encouraged by the opportunities and the long-term potential to expand market share and form new partnerships with new customers in new industries as a result of these endeavors. Throughout our industry, COVID-19 has already had a wide reaching impact, especially on our small competitors. As such, we will maintain our open attitude towards potential M&A opportunities. Our approach remains the same. We will carefully evaluate and maintain our disciplined approach, examine both current and future market dynamics, and assess each potential opportunity with a rigorous ROI focus. On the CapEx front and in light of the current economic environment, we continue to find the right balance between methodically determining which capital expenditures are absolutely essential in the near term while remaining committed to our longer-term vision of implementing flexible, redeployable automation for our competitive benefit. As a reminder and as a result of implementing the higher than normal capital expenditures related to investment and automation and technology during 2019, we had previously forecasted lower capital expenditures in 2020. As you also know, last fall we announced a share repurchase program for up to $25 million through 2021. We have already begun to utilize the capital available under this program, but will exercise caution related to share buybacks in order to conserve cash as we navigate through this short-term adversity. Finally, I just wanted to reiterate that we maintain a very strong financial position. The new five-year credit agreement we completed in September 2019 provides ample liquidity for a strong balance sheet. The combination of a strong financial health, the solid free cash flow that our business generates, and the benefits that we continue to see from our capital investments means we are better positioned than most to weather this and any economic storm. Now I'll hand the call to Todd to discuss our financial results and guidance.