Mayville Engineering Company, Inc.

Hello everyone, and thank you for joining the Mayville Engineering Company first quarter 2025 learning school. My name is Sammy and I'll be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad to remove yourself from a question queue. I would now like to hand over to your host, Stefan Neely, with Valum Advisors to begin. Stefan, please go ahead.

Thank you, operator. On behalf of our entire team, I'd like to welcome you to our first quarter 2025 results conference call. Leading the call today is Micks President and CEO, Jack Reddy, and Rochelle Lair, 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 MECCinc.com. Following our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Jack.

Thank you, Stefan, and good morning, everyone. Our first quarter results reflected the team's strong execution and operational discipline. This allowed us to deliver 12% sequential sales growth, margin expansion, and positive pre-cash flow despite softer customer demand amid continued inventory de-stocking. Our team's commitment to the MBX framework, culture of continuous improvement, and cost discipline contributed 140 basis points in sequential adjusted EBITDA margin improvement. These efforts to create a leaner cost structure allows us to operate more efficiently in this dynamic demand environment and create a platform to respond better when customer demand returns. Rochelle will discuss the outlook in more detail shortly, but I would like to mention that we are maintaining our full-year guidance. Our outlook is driven by strong -to-date execution and stronger than expected demand within our less cyclical military and other end markets. That said, we are closely monitoring the evolving regulatory and macroeconomic environment, which could impact demand in the second half of the year. At MEC, we are proud to be the largest domestic metal fabricator with approximately 95% of our sales and 92% of our sourcing coming from within the United States. As we await more clarity on the long-term direction of US trade policy, our business is well positioned to remain highly competitive as policy shifts occur and should be relatively insulated from the direct impact of tariffs. Our domestic footprint also enables us to benefit from OEM reshoring activity, a trend that is being accelerated by the ongoing changes in US trade policy. We have recently been engaged with numerous new and existing customers who are exploring options to reposition their supply chain. Given the dynamic nature of our current trade policy, we expect that this trend will take time to develop. Turning now to a more detailed review of market conditions across our primary end markets. Let's begin with our commercial vehicle market, which represents approximately 38% of our trailing 12-month revenues. Net sales to this market were $50.9 million in the first quarter, a decrease of .7% versus the prior year period. Our net sales outperformed the broader commercial vehicle market by 300 basis points, as evidenced by a reported .7% -over-year decrease in North American class 8 truck production according to ACT research. Our outperformance was driven primarily by new project launches. As we look forward to 2025, ACT research currently forecasts the class 8 vehicle production to decrease .9% -over-year in 2025 to approximately 256,000 units. Uncertainty around the impact of tariffs, possible regulation changes, and freight rates are expected to weigh on demand in 2025, pushing out the recovery into 2026. That said, both our current guidance and ACT's forecast for 2025 do not fully reflect the potential impact of the commercial vehicle demand that would result from a recession or the repeal of EPA emissions requirements. Looking out to 2026, the latest ACT forecast also continues to show full-year production growing by .3% relative to 2025. This is driven by demand for new vehicles ahead of the deadline for compliance with EPA emissions regulations in 2027. The power sports market represented approximately 16% of our trailing 12-month revenues and decreased by .5% on a -over-year basis in the first quarter. Performance during the quarter continues to be driven by customer channel inventory destocking and soft customer demand. This was partially offset by the impact of new project ramp-ups. Due to the current economic landscape and uncertainty around tariffs, we remain cautious on spend for high-ticket customer discretionary items. Next is the construction and access market, which represented approximately 15% of our trailing 12-month revenues. Our construction and access revenue decreased .4% on a -over-year basis in the first quarter. This reflects soft demand across both non-residential and public infrastructure markets, partially offset by ongoing new customer wins. We are closely monitoring non-residential and infrastructure demand trends if a -than-anticipated economic environment or lower interest rates can drive a recovery in construction activity, we would expect demand to recover. We do see the risk that an economic downturn could possibly prolong the current softness that we are seeing in this end market. Our agricultural market represented approximately 8% of trailing 12-month revenues and decreased by .9% on a -over-year basis during the first quarter. Our results reflect weakness in both large and small agricultural markets. The outlook for ag remains increasingly uncertain, as interest rates and inventory destocking have slowed demand. While agriculture customers are farther along with inventory destocking than customers in other segments, the impact of trade policy on crop demand has created uncertainty for farmers and the outlook for equipment demand. Turning now to an overview of substantial new business wins during the first quarter. Our team continues to execute well on our commercial growth initiatives and are already progressing well toward our annual goal of $100 million in new business wins. We have continued to expand our share with our commercial vehicle customers as they launch their next-generation models, leading into the EPA regulation changes. Many of these products support future growth and will be launching in 2026 and 2027. After some strategic wins last quarter, we continue to expand our market share with our access customer as they continue to evaluate their global supply base. Our U.S. manufacturing facilities located near the customer remains a key differentiator, consistently delivering the best value within their supply chain. In the quarter, we were able to secure a significant program update from our aluminum exclusions business, extending a multi-year contract. This project is priced utilizing our updated value pricing model, which will expand profitability over the life of the program. Within our power sports market, we are seeing customers focus on introducing their next-generation products, which we expect will be a catalyst for additional commercial growth in the coming quarters. In the quarter, we secured multiple new model update wins with the primary construction customer as we further expand share with this customer across multiple product lines. Our team's execution of the MBX framework continues to deliver measurable results. We have been focused on implementing pricing improvements and disciplined cost management to strengthen our overall financial profile. The effectiveness of our MBX initiatives is particularly evident in our working capital efficiency, which has resulted in consistent operating cash flow generation. During the first quarter, we generated $5.4 million in free cash flow, resulting in free cash flow conversion of 44% of adjusted EBITDA. This comes during a quarter where we typically experience net working capital pressure. For the past few years, we have instilled lean manufacturing practices into our business, focusing on high-return, capital-light automation advancements, supporting our planned growth and improved efficiency. These enhancements, combined with our other MBX initiatives, drove consistent profitability. This helped us execute on our capital allocation strategy, which prioritizes debt repayment, opportunistic share repurchases, and strategic accretive acquisitions. During the first quarter, our net leverage was 1.4 times. Excluding any M&A activity, we expect to be below one-times net debt leverage by the end of 2025. Additionally, we repurchased $1.7 million of our common stock under our share repurchase program. Over the course of the last two years, we have returned $9.6 million of capital to shareholders through repurchases, totaling more than 646,000 shares. With more than $17 million remaining under the existing authorization, we remain committed to consistent share repurchases. At a minimum, we plan to repurchase $5 to $6 million to offset the dilution from our annual stock compensation awards. Beyond our minimum repurchase threshold, we will evaluate additional repurchases using a returns-based approach that takes into consideration opportunities to grow our business and create value through acquisitions. M&A remains a cornerstone of our value creation strategy as we seek to expand into high-growth adjacent end markets and diversify our customer base. Our team has cultivated a pipeline of acquisition targets that align with our strategic criteria. While we are actively pursuing these opportunities to build upon our market-leading capabilities, we remain disciplined and committed to driving long-term shareholder value. In summary, I am extremely proud of our team's strategic execution as seen by our strong first quarter performance. We have adapted to shifting end market demands by recalibrating our cost structure and improving our operational efficiency. As the largest vertically integrated value-added manufacturing partner in the U.S., we offer a comprehensive suite of solutions that make us a true one-stop partner. We support our customers throughout the entire product lifecycle from concept to full-scale production. With a strong presence in the industrial heartland and robust -to-end capabilities, we are uniquely positioned to support OEMs accelerating their onshore efforts in response to shifting U.S. trade policies and the global rebalancing of supply chains. Despite a dynamic and uncertain macroeconomic environment, I remain confident in our ability to expand market share, capitalize on emerging tailwinds such as domestic manufacturing incentives and tariff structures, and maintain disciplined execution. Importantly, as we continue to work closely with our OEM partners, we remain acutely focused on monitoring macroeconomic and regulatory developments across our end markets. In anticipation of potential demand shifts, our teams have developed a comprehensive set of contingency plans that can be deployed swiftly to preserve profitability and operational agility. These plans include flexible production scheduling, targeted fixed-cost reductions, and the consolidation of certain manufacturing processes to improve efficiency. Should we begin to see material regulatory changes or recessionary pressures, we are well positioned to take decisive action to manage through the cycle while safeguarding our margin profile. Our continued focus remains on driving consistent, profitable growth and creating sustainable long-term value for our shareholders. With that, I will now turn the call over to Rochelle to review our financial results.

Thank you, Jag, and good morning, everyone. Total sales for the first quarter decreased .9% year over year to $135.6 million. This decrease was due to softer customer demand across the majority of the company's key end markets and customer channel inventory de-stocking. This is partially offset by volume from new projects in our other end market and increased aftermarket demand in our military end market. Our manufacturing margin was $15.3 million in the first quarter as compared to $20.9 million in the same prior year period. The decrease was primarily driven by the corresponding decrease in net sales. Our manufacturing margin rate was .3% for the first quarter of 2025 compared to 13% for the prior year period. The decrease in our manufacturing margin rate was attributable to lower fixed cost absorption from lower customer sales partially offset by cost reduction actions. Other selling, general, and administrative expenses were $8.7 million for the first quarter of 2025 or .4% of net sales as compared to $7.8 million for the same prior year period or .8% of net sales. The increase in these expenses during the first quarter primarily reflects normal wage inflation and higher costs related to compliance requirements, market analysis studies, and other consulting expenses. These costs will ease as the year progresses and as customer demand returns, we expect that our SG&A will revert to our long-term targetter range of between .5% to .5% of sales. Interest expense was $1.6 million for the first quarter of 2025 as compared to $3.4 million in the prior year period due to a reduction in borrowings and lower interest rates relative to the first quarter of last year. Adjusted EBITDA for the first quarter was $12.2 million versus $18.5 million for the same prior year period. Adjusted EBITDA margin percent decreased by 250 basis points to 9% in the current quarter as compared to .5% for the same prior year period. Our adjusted EBITDA margin decrease was attributable to lower sales partially offset by cost rationalization initiatives. Turning now to our statement of cash flows and balance sheet. Free cash flow during the first quarter of 2025 was $5.4 million as compared to $7.9 million in the prior year period. The decrease in free cash flow as compared to the prior year reflects the impact of lower sales offset partially by networking capital efficiencies. As of the end of the first quarter of 2025, our debt, which includes bank debt, financing agreements, and finance lease obligations was $80.6 million, down from $143.1 million at the end of the first quarter of 2024, and resulted in a net leverage ratio of 1.4 times as of March 31. Now turning to review of our 2025 financial guidance. We are maintaining our 2025 financial guidance, which we introduced earlier this year. We continue to expect net sales of between $560 million and $590 million. Adjusted EBITDA of between $60 million and $66 million. And free cash flow between $43 million and $50 million. This guidance incorporates shifting market expectations as the outlook has improved for some, but softened for others. For our commercial vehicle end market, we expect sales to decrease low single digits. The construction and access market to be flat to down low single digits. The power sports market is expected to decrease mid single to low double digits. The agriculture market to be down by mid 20%. The military market is now expected to be a mid teens increase. And we expect our other end markets to be a high teens increase. As Jake mentioned, there are many evolving dynamics within our end markets. We recognize the rising degree of uncertainty in these markets individually and across the broader economic environment. While we are continuing to monitor developments closely with our OEM customers, our guidance currently does not reflect a potential recessionary environment later in the year or any commercial vehicle emissions rule changes that could impact demand later in the year. In anticipation of the potential for recession or possible changes in the commercial vehicle regulations, we have created a playbook to navigate each of these scenarios. For each, we have plans to swiftly scale our operating activities in response to demand and tactically reduce our fixed costs to preserve our margins. With respect to tariffs, we expect minimal direct financial impact to MEC as our contracts and pricing mechanisms enable us to pass through increases in raw material costs to our customers. While these pass throughs are expected to be modestly margin dilutive, the impact is minimal and has been fully contemplated within our current guidance. Furthermore, embedded within our 2025 adjusted EBITDA guidance is $1 million to $3 million of cost improvement driven by our MBX operational excellence and strategic value-based pricing initiative, Net of Inflationary Pressures. As it relates to free cash flow guidance, we expect that our capital expenditures for the year will be in a range between $13 million and $17 million. Based on our free cash flow guidance and excluding any M&A activity, we expect to be below one-times net debt leverage by year end. With that, operator, that concludes our prepared remarks. Please open the line for questions as we begin our question and answer session.

Thank you very much. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Ross Sparrenbleck from William Blair. Your line is open. Please go ahead. Good morning,

guys. Good morning, Ross.

Let me just kick it off here. As we think about the cadence of the end markets for the second half, can you maybe just walk us through anything that stands out? It looks like maybe commercial vehicles had a slight ramp in the second half, whereas PowerSports AG may be more steady on the

guidance. As we indicated earlier in March when we released our guidance, includes a slight uptick in the CD market in the second half. That is related to potential 2027 regulation changes and pre-buys in both 2025 and 2026. We also said in March that our first half is going to be approximately equal to the second half of last year, 2024, and that we expect a modest increase with potential pre-buys and also potential interest rate changes in the second half of 2025. Okay. As it relates to PowerSports, that market continues to be highly interest rate dependent, and we don't expect any significant changes in demand forecast in PowerSports. Similarly, in agriculture, we do not expect any recovery in 2025 and expect the recovery to take some shape in 2026.

Okay. Maybe just touching on tariffs and potential for reshoring, seeing opportunities, and if so, if there are any markets that stand out?

We continue to have good discussions with both existing customers and new customers as it relates to tariffs. We have provided a number of customers with codes and pricing on potential opportunities. Given the dynamic nature of current tariff discussions, our customers are being very conservative, and they are not in a position yet to make significant decisions because the tariffs magically go away in three months. They don't want to be stuck with a different price structure in their supply chain. I think just like all of us, our customers are watching day to day the developments. If there is a significant tariff impact, I think MAC is well positioned to capture those opportunities. As we mentioned in our prepared remarks, we're 100% domestic manufacturer. 92% plus percent of our inputs are US sourced. If you some of the Canadian purchases of aluminum that we get, which we're actively sourcing back to the US, it's almost 95% to 96% of our inputs are domestically sourced. Given that, and our locations that are really favorable to our customers' operations, we're really well positioned to take advantage of any increased tariff regime we might see in the long run.

Okay. If we were to assume that tariffs are structural, what is the average onboarding timeline for a customer? Just so you know, if it could be 2025 or if it would be 2026.

I think by the middle of the year, we see some really structural tariff regimes in place. We could start up a program as quickly as three to four months. Depending on the size of the program, it could even be shorter than that. There is a potential if we see a static tariff regime by the middle of the year, there is a potential for us, certainly late Q3, early Q4, for us to see some incremental benefit and tailwind to make.

Okay. Thank you for that. I'll jump back in queue.

All right. Thanks, Ross.

Our next question comes from Ted Jackson from Northland Securities. Your line is open. Please go ahead.

Thanks. First of all, congratulations on just being able to control the things that you can control. You know, it's a question. My question is, good morning. Sorry, I'm in an airport, so it's a little noisy in here. When you went through the outlook for your different segments, I didn't catch quite everything. What did you say for agriculture and what did you say for power sports?

Yeah, agriculture, we expect ag market, actually our revenues to be down mid-20s. And power sports, we expect to be down somewhere between low single digits, sorry, mid single digits to mid teens.

Okay. The guide surprised me. I mean, you know, the color coming out of anyone who has any exposure within the commercial vehicle marketplace is, I mean, it's terrible. And I think that the tenor is that it's perhaps going to get worse before it gets better. And the ability for you to offset with things like military and others is impressive. So with that in mind, could you maybe provide a little more color about which driving we include outlook for both of those segments?

Yeah. So let me address the CV market first, Ted. As we mentioned in our prepared remarks, we are qualifying our guidance maintenance on two factors. Given that CV is almost 40% of our revenues, first one is recession. We're not building in any recession in the second half into our guidance. In fact, as we said, we're expecting a slight pickup in the second half revenues. That's number one. Number two is we're not building in any potential impact of potential cancellation of EPA regulation changes. So let me get into that a little bit more. The current guidance incorporates some level of pre-buys in the change. The new regulations that are set to come in in 2027, there are two effects to that regulation change. The first one is called what's called the GHG changes, level three GHG number three changes. That really doesn't impact any of our commercial vehicle customer volumes. That GHG three regulations, phase three regulations imply that the industry has to produce more electrical vehicles. So if that gets canceled, we don't expect our customers to see any significant volume impact. That means we won't see any significant volume impact. The second part of 2027 regulation changes is what's called as NOx changes. Today, the current engines are allowed to produce up to 200 milligrams of NOx emissions, whereas the 2027 regulations require the engine makers and the CV OEMs to get down to about 35 milligrams of NOx emissions. That is currently set in law to go into effect in 2027. That is a significant lift for the administration to change that. It has to go and change the law and then suspend the 2027 regulation changes. If that happens, that is a material event for the industry. So I want to caution that, you know, it's a heavy lift to change that. But if it does happen, then it's a material change to the industry that will affect the pre-bys in 2025, that will affect the pre-bys in 2026. But if you take a long arc of a three-year period, right, the volumes are just going to normalize. The volumes are not going to disappear, it's just they're going to normalize versus these peaks and valleys we normally see in the CV market. Right. So that is really where we are. So as we sit here, we're maintaining our guidance with those caveats of no recession in the second half and no 2027 NOx changes from EPA. If we find that, you know, these changes are going to happen in the coming months, we're happy to revisit our guidance and we're happy to inform all of you what the impact might be on our 2025 and 2026 revenues.

And I would just add, this goes back to your opening statement, Ted, control what we can and control. And so that's where we have developed our playbook of the different scenarios. And so should any of these events take place, we have the playbook lined out so we can execute swiftly and control our margins, manage our margins.

And I was remiss in not welcoming you to the quarterly call. I look forward to working with you.

Thank you, Ted.

Our next question comes from Andrew Kaprowicz from City Group. Your line is open. Please go ahead.

Hi, good morning. This is Natalia Bach on behalf of Andy Kapowicz.

Morning, Natalia.

So I guess first question that I want to ask is like based on your teams, based on your commercial teams engagement, how would you characterize the tone of customer conversations today versus three to six months ago? Are customers in a more reactive wait and see mode or are they still proactively exploring your project?

I would say that the customers in certain end markets like ag and power spores, they are continuing to focus on de-stocking and continue to alter their production volumes to make sure that the channel inventories get cleared out. So in those end markets, the conversations have been slightly muted even though in our prepared remarks we talked about winning new business in construction, winning new business in power spores, et cetera. So we are actively engaged with every one of our customers, but we also recognize that our OEMs have their own challenges that they are trying to deal with and we are standing by them to support their activities, whether it is new product introductions, whether it is channel inventory reductions, or preparing for 2027 launches. As we said also in our remarks, we are on track to win approximately $100 million of new business. In fact, as I said here, end of April, we are ahead of our schedule in terms of winning new business even in this environment. But mind you that a lot of those programs we are winning right now are either 2026 starts or even 2027 starts. So we are always focused on long-term business development and long-term growth for the company while, as Rochelle mentioned, trying to control what we can control in the short term. When it comes to commercial vehicle customers, we all follow ACT forecasts. ACT forecasts have been more conservative than what our OEMs have indicated both publicly and what we see in our forecast from them. So we are taking a cautious approach to the CVN market because we know that there are some unanswered questions, particularly around EPA regulations that we just talked about. With all of that, we are continuing to work with our customers, continuing to look for opportunities to support them. We are engaged with a couple of PowerSports customers where they are evaluating how much of their Asia-made components they want to bring back to the US. Our teams have been extremely busy in answering inquiries around reshoring and on-shoring opportunities. So it is an exciting time for us because, yes, there seem to be some dark clouds on the horizon, but our team is highly engaged with our customers. We are trying to control our cost structure and we are cautiously optimistic about some sort of settlement towards this tariff regime, whether structural or not. We will have some clarity in the coming months. We are still planning on our second half being slightly positive compared to our first half.

That is helpful. Then just two follow-up questions to that. First question as a follow-up, could you help us understand your revenue mix in terms of long-term and your current programs for short-cycle or project-based work? Has that mix shifted over time and does it influence your visibility into the second half of this year and slash-4 2026?

Generally speaking, depending on the size of the program, it might take us three months to start up a small program to 18 months to start up a really large program. So given the mix of new business we are winning, a significant portion of the new business we are winning right now is perhaps 26 or 27 startups. The rule of thumb is if we do not have that business in our bag by the middle of the year, that is generally a 2026 startup. Having said that, the tariff regime has opened up some opportunities for us. We are actively working with them as we speak. That could be potential second half startups. We are encouraged by some of those activities. As they materialize more, we will be happy to share more about them. Some of those opportunities are in power sports, some of them are in electrical infrastructure, some of them are related to data centers. Some of these non-legacy end markets as well are coming to floor where we are really excited to support these new customers.

Those new opportunities are the place where we are able to put in our strategic value-based pricing model. As we look to the long-term in 26, 27, you will see more of that in place as you look to our margins versus what you are seeing now because probably now only 5 to 10% of our programs are under that and we will have far more in 26 and 27.

Last question for me, just focusing on the agricultural end market, acting down mid-20s this year that you are forecasting, how should we think about timing for recovery? Are you modeling 2026 as a bounce back year or expecting more of a gradual return?

It still continues to be a dynamic environment. Current tariff regime doesn't really help. As farmers are looking at potential recovery in crop prices and exports, current high tariffs from countries like China do not really help US farmers. Having said all of that, the latest Purdue University Ag survey for the first time in a long time indicated a positive uptick in farmer sentiment. That is something that really for us to watch as we go through 2025. Our initial assumption is that 2026 will be a gradual recovery for ag. But given the changes in global trade policy and potentially some increased farmer sentiment, it is possible that we could see a bounce back, but that is not something that we are planning at this point, but we are closely watching it.

Okay, got it. That is super helpful. Thank you.

Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Ross Sparrenbleck from William Blair. Your line is open. Please go ahead.

Hey guys, just a couple more here if you don't mind. Thinking on the new business opportunities and Outer Million Target, can you just update us on the progress here today and what the mix has been between new and existing customers?

I think we are on by end of April, Ross, we are somewhere between 35 and 40 million of new business booked. That is a little bit ahead and to do the linear math, it is a little bit ahead timeline wise to our $100 million target. Our sales teams are really active with existing customers. That is our first focus. We continue to see a good set of wins in the CV market and also power sports. We have mentioned as well construction and access markets. I would say that in all of these end markets, we are making good progress. What I call as forming versus hunting. Our team is excellent in forming. We are from the Midwest and we know how to do that really well. At the same time, we have had a significant focus since last year to look at new opportunities and new customers and new end markets. We continue to engage with new customers in data center and electrical infrastructure and other end markets that are seeing secular growth. Those are the end markets we are excited about. We are having good conversations with them. I would say the 35 to 40 million I just mentioned to you, a significant portion of that is existing customers with a sprinkling of new customers. Our pipeline is really strong and I am fully confident that our teams will hit the $100 million new business target this year. I do expect as we go into the second half that we will see some new customers added to our list.

That is great to hear. Maybe just kind of conceptualizing this growing program funnel. Do you think there will be some momentum here? Is there a chance we could exit here at 120, 160 or is this more of a seasonality to the start of the year?

It is hard to tell. As you mentioned earlier, if the tariffs are going to be structural, that is a huge advantage for Mac. We will wait and see. Of course, like many of us, we want more U.S. manufacturing. We want a certain level of competitiveness for U.S. companies. Given all of that, I am optimistic that with even some small structural changes, we will be able to gain ground and gain more business in the second half.

I understand the potential for a lower for longer scenario here in some of the core markets. It would be great to gauge your confidence level today around maybe achieving just the lower end of the 2026 revenue targets. The contribution of new business opportunities versus what would be required for the macro recovery?

That is a great question. As we talked about in last earnings call, our view has not changed about 2026. We still see a line of sight to low end of our 2026 range, revenue range at the same time. Unless the bottom falls off and there is a huge recession and a significant change to EPA regulations, those are the two caveats I will mention. If we do not see those two things, then we still see a line of sight to low end of the range in 2026.

Okay. With the push out of the regulation, but it is maybe $50 million of business, $700 million is still a win in this environment.

Yes, I would agree with you. At the same time, no one has asked us, I will just volunteer. We continue to look for M&A opportunities. We continue to be active and given our balance sheet and given our pre-catch flow generation capabilities. We will see how the rest of the year materializes. There is a good possibility that we could enter some end markets that could provide additional growth for us through M&A as well.

Yes, that is actually a great segue here. Just thinking about the pipeline for M&A, how are you guys prioritizing in market diversification versus maybe geographic reach or additional manufacturing capabilities? Is there a top time for you right now?

Yes, great question. I think first and foremost for us, priority is diversification. Particularly given many of our end markets went into the same down cycle this year that really opened our eyes to the need for further diversification of our end markets. That is probably our number one. Not probably. That is our number one priority, is diversification. Number two priority for us is creative margin profile. Then I would say the third priority is being close to our customers with perhaps a different geographic exposure within the US. We are not going out to the US. We are still a US-based manufacturing company. So perhaps southern states, all of that as we mentioned in our M&A strategy slide that is on our website. That is still our focus. We have enough number of targets in our pipeline that match those criteria. We are really excited about what we can do here in the coming year.

That is great to hear. Thanks again, guys. Congrats.

Thanks, Ross.

We currently have no further questions. I would like to hand back to Jag Reddy. Some closing remarks.

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 Valum, our Investors Relations Council. This concludes our call today. You may now disconnect.

Thank you very much for joining. You may now disconnect your lines.