Q1 2024 Mayville Engineering Company Inc Earnings Call

Participants

Stefan Neely; Investor Relations; Vallum Advisors

Jagadeesh Reddy; President, Chief Executive Officer, Director; Mayville Engineering Company Inc

Todd Butz; Chief Financial Officer; Mayville Engineering Company Inc

Joe Grabowski; Analyst; Robert W. Baird & Co.

Vlad Bystricky; Analyst; Citi

Ted Jackson; Analyst; Northland Securities, Inc.

Tim Moore; Analyst; EF Hutton

Presentation

Operator

Good morning, everyone, and welcome to the Mayville Engineering Company first quarter 2024 earnings conference call. My name is Chad, and I'll be your moderator today. (Operator Instructions) I'd now like to pass the conference over to your host, Stefan Neely, to begin, Stefan, please Yes.

Stefan Neely

Thank you, operator. On behalf of our entire team, I'd like to welcome you to our first quarter 2024 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 a discussion of certain non-GAAP financial measures. A 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.

Jagadeesh Reddy

Thank you, Stefan, and good morning, everyone. Thank you for joining us today. The first quarter was a strong start to the year for our team. One highlighted by robust net sales growth, margin expansion and free cash flow generation.
Our first quarter results continue to reflect the success of our MVX framework and the impact of our culture of continuous improvement demand within our end markets remains healthy, supporting organic sales growth, while our teams execute on new project startups in our commercial vehicle, powersports and other end markets for the last year, our team has demonstrated measurable progress with sourcing optimization and our labor utilization, resulting in $1.6 million off year over year self-help adjusted EBITDA improvement during the first quarter alone.
We continue to see significant opportunities to further increase plant utilization, while driving improved operating leverage. For example, at our Hazel Park facility, we expect to achieve a $100 million annual revenue run rate by year end 2024, consistent with our prior expectations.
Looking to the remainder of 2024, I am encouraged by the opportunities we see to further improve our commercial reach and operational productivity. However, given broader market volatility, we continue to manage our business with discipline and conservatism through this lens of cautious optimism.
We anticipate a steady ratable cadence of growth and margin improvement through the balance of the year, all of which reflects the expected timing of new project starts together with pockets of demand softness in select end markets.
With that in mind, we are reiterating our 2024 financial guidance, which projects full-year net sales growth of between 5% and 9% and growth in total free cash flow of between approximately $11 million to $21 million when compared to 2023.
Turning now to a review of market conditions across our five primary end markets. Let's begin with our commercial vehicle market, which represents approximately 37% of our trailing 12-month revenues. During the first quarter, commercial vehicle revenue decreased by 0.3% on a year-over-year basis. This is primarily due to softening end market demand.
As ACT Research reported North American Class 8 production fell 1.9% year over year in the first quarter. Our performance during the quarter reflects softening overall demand on weaker freight markets as well as general slowing in economic activity. However, this was offset by new project launches, which we expect will be a tailwind for MEC through the rest of this year.
Currently, ACT Research forecasts the Class 8 vehicle production to decrease 10.4% year over year in 2024 to 305,000 units. ACT expects billed rent declines of nearly 10% during this second quarter and falling to over 15% during the second half of the year.
For MEC, we expect our new CV project launches to continue ramping into the middle of this year, which will help us maintain comparable sales to this end market relative to 2023. It is also worth highlighting that ACT currently expects Class 8 production to recover in 2025, growing 5.1% compared to 2024 with continued growth of 8.1% from 2025 to 2026, which supports our organic growth expectations over the next two years.
Next is the construction and access market, which represented approximately 18% of our trailing 12-month revenues. Construction and access revenues increased 7.3% on a year-over-year basis in the first quarter. This reflects the steady demand in nonresidential and public infrastructure markets, which more than offset softness within residential markets.
We expect this trend to continue through 2024, supporting our overall outlook for flat net sales to this end market, supported by the demand from infrastructure related projects, new customer wins. The powersports market represented approximately 17% of our trailing 12 month revenues and increased by 25.7% on a year-over-year basis in the first quarter.
We continue to benefit from market share gains, which include new customer programs on high-end models and were modestly offset by a cooling in customer discretionary spending. We continue to expect growth in net sales to this end market to moderate somewhat through the year, but still remain positive compared to 2023 due to the momentum from market share gains.
Our agricultural market represented approximately 10% of trailing 12-month revenues and increased 3.5% on a year-over-year basis. During the first quarter. Our first quarter results for this end market reflect market share growth and contributions from the MSA acquisition, offset by softening demand within large ag and turf markets.
As we move through the year, we expect that new project wins will continue to firm up any potential softness in this end market. As you will recall, we acquired Mid-States Aluminum at the beginning of the third quarter of 2023. And as of the beginning of the current year, MSA has been fully integrated into the MEC platform.
During the first quarter, revenues associated with MSA drove 9.8% of our top line growth year over year, with the majority of these revenues being in our other end market. For 2024 as a whole, we continue to see MSA generating between $20 million to $30 million of incremental net sales, with revenue synergies beginning to ramp up in the second half of the year.
On the commercial front, our sales team continues to have success cross-selling MSA's capabilities. We have earned multiple supplier quotes from legacy met customers, and our core pipeline continues to grow with multiple strategic projects being negotiated.
On the pricing front, our commercial team has been working tirelessly over the last year to implement our programmatic value-based pricing model during the first quarter, we continued to see the fruits of these efforts as commercial pricing initiatives, net of inflationary pressures yielded $0.8 million in year-over-year adjusted EBITDA growth, particularly as new project volumes come online, we expect to see continued margin expansion from our pricing initiatives through the rest of the year.
A few substantial new wins during the first quarter include the following, we were able to win significant content with one of our top military customers for the JLTV product line, expecting incremental growth during the program transition between OEM.s during the first quarter, we continued to expand share with one of our key powersports customers supporting their next-generation product lines as well as expansion into some of their other product offerings. These wins support additional growth for the next two years and expect further organic and cross-selling opportunities in the quarters ahead.
In the quarter, we expanded share within our primary EV customer related to battery thermal management products, which continues to be driven by our available capacity at Hazel Park. During the quarter, we received significant awards for Engine two products with multiple customers driven by expected regulatory emissions changes that will be occurring in the years ahead.
We have continued to gain additional market share as our commercial vehicle customers plan for their vehicle updates, both our 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 I mentioned earlier, our operations team has been very focused on sourcing optimization, improving labor utilization and improving overall inventory efficiency. These initiatives have been driven by our rigorous approach to X lean implementation, highlighted by over 150 MDX Kaizen events since launching the MBX. program in late 2022.
In summary, the execution of our commercial and operational excellence initiatives remain on track, and we are confident in our ability to recognize near and long-term benefits from these various self-help initiatives call that by the year end 2026, we expect to deliver between $750 million and $850 million in revenues, expand our adjusted EBITDA margin to between 14% and 16% and generate free cash flow of between $65 million and $75 million. Given our strong strategic execution on the current multiyear demand outlook, we remain confident in our ability to achieve these targets.
In terms of capital allocation, we remain very focused on aggressively reducing our outstanding borrowings to achieve our previously stated goal of a net leverage ratio of between 1.5 times and 2 times by the end of 2024.
Given the strong free cash flow generation during the first quarter, we were able to reduce our net leverage to 1.98 times. Going forward in the year, we remain committed to continued debt repayment with free cash flow generation as our top priority for capital deployment. In addition, we are also continuing to evaluate opportunistic share repurchases under our existing [$25 million] authorization.
Strategic M&A remains a key part of our multiyear growth and business transformation strategy. As we look to expand our capabilities to meet the rapidly growing demand for lightweight materials fabrication. As we are able to achieve our targeted net leverage levels, we will be selective in pursuing accretive M&A that continues to build on our market-leading capabilities and positions the Company to further capitalize on multiyear secular growth trends in energy transition and OE. and outsourcing.
In summary, I am very proud of our team's ongoing commitment to excellence and strategic execution. We have come a long way as an organization over the last 18 months. I continue to expect that our execution positions us well for ratable growth for the remainder of 2024 and above-market growth as we move through the cycle. With that, I will now turn the call over to Todd to review our financial results.

Todd Butz

Thank you, Jag. I'll begin my prepared remarks with an overview of our first quarter financial performance, followed by an update on our balance sheet and liquidity. Total sales for the first quarter increased 13.1% on a year-over-year basis to $161.3 million.
This increase was driven by a combination of the MSA acquisition and improved organic sales volumes, partially offset by expected softening demand in our legacy agriculture end market and the expected falloff of certain military aftermarket programs at the end of 2023. When excluding the MSA acquisition, organic net sales growth was 3.3% on a year-over-year basis,
Our manufacturing margin was $20.9 million in the first quarter as compared to $16.4 million in the same prior year period. The increase was primarily driven by increased organic volume, MBX commercial pricing initiatives and the acquisition of MSA. Our manufacturing margin rate was 13% for the first quarter of 2024 as compared to 11.5% for the prior year period or an increase of 150 basis points.
Other selling, general, and administrative expenses were $7.8 million for the first quarter of 2024 as compared to $7 million for the same prior year period. The increase was primarily driven by an additional $0.3 million of legal expenses related to our former fitness customer. Incremental costs related to the acquisition of MSA increased costs related to compliance requirements and annual wage inflation.
Interest expense was $3.4 million for the first quarter of 2024 as compared to $1.7 million in the prior year period due to higher interest rates and higher borrowings under our credit facility. The increase in borrowings is due to the acquisition of MSA which closed on July 1, 2023.
We continue to expect debt reduction during 2024, which may provide for further interest rate step-downs as we achieve our net leverage goal of between 1.5 times to 2 times by year-end. Adjusted EBITDA increased to $18.5 million versus $13.8 million for the same prior year period.
Adjusted EBITDA margin percent increased by 180 basis points to 11.5% in the current quarter as compared to 9.7% for the same prior year period. The increase in our adjusted EBITDA margin was primarily due to the increased organic volumes, the MSA acquisition, MBX initiatives, and the benefit from our commercial pricing activities. Our first quarter results demonstrate the continued progress towards our 2026 adjusted EBITDA margin goal of 14% to 16%.
Turning now to our statement of cash flows and the balance sheet. Free cash flow during the first quarter of 2024 was a positive $7.9 million as compared to a negative $8.5 million in the prior year. Period. The improvement free cash flow year over year was primarily due to the $14.3 million increase in cash from net working capital.
The progress of our MBX program can be seen in many parts of our financial statements. On a year-over-year basis, direct MBX savings generated 100 basis points of manufacturing margin improvement and the team we focus has improved our working capital free cash flow by $14.3 million and has allowed us to increase the capacity and utilization of existing assets.
Please note that we continue to expect our full year MBX savings to be between $2 million and $4 million as year over year comparisons moderate throughout the year as of the end of the first quarter of 2024. Our net debt, which includes bank debt, financing agreements, finance lease obligations, and cash, and cash equivalents was $142.8 million as compared to $83.7 million at the end of the first quarter of 2023. That resulted in a net leverage ratio of 1.98 times as of March 31.
In light of our first quarter result and our current outlook for the rest of the year, we are reiterating our financial guidance for the full year 2024. For 2024 we continue to expect the following net sales of between $620 million and $640 million, adjusted EBITDA of between $72 million and $76 million, free cash flow of between $35 million and $45 million.
The assumptions behind our risk adjusted guidance for the year are also unchanged and reflect organic growth of between 1.5% and 2.5% due to the new project launches, including the ramp up of Hazel Park, offset by expected end-of-life projects and slowing of macro economic demand in a few of our end markets. With that, operator, that concludes our prepared remarks. Please open the line for questions as we begin our question-and-answer session.

Question and Answer Session

Operator

(Operator Instructions) Mig Dobre, Baird.

Joe Grabowski

Hey, good morning, guys. It's Joe Grabowski on for Mig this morning. So I guess my first question, 3% organic sales growth in the first quarter. Maybe how does that break down between you've got a park ramping up, you've gotten and customer and project wins, but then maybe some end market headwinds, how to kind of the moving pieces and split out is to get to 3% organic sales you had in the first quarter?

Todd Butz

Thanks, Joe. Yes, so when you look at the 3% organic growth, a big driver, that certainly is a continued strong CV market relative to last year that in powersports wins, we really started launching in the back in the fourth quarter of last year, and we've seen the benefit of it.
And you can see that now a pretty significant year over year. Incremental lift in sales as it relates to powersports have been up 25%-plus in the quarter versus last year. So it's really a new project wins in the market itself is kind of behaving or as we had expected in the first quarter. So there wasn't many surprises that occurred in back I think things are as we look forward are really shaping up as we expected. We came out with guidance feel just a few months ago.

Jagadeesh Reddy

Yeah, just to add to that, CV market, as you know, is expected to be down over 10% this year. It's a huge testament to our commercial team and our operations teams that you know, were basically flat in CV in Q1 and versus a market decline of 10%, right for the year? Right. Similarly, powersports, as Todd mentioned, our significant wins and start-ups and ramp-ups in powersports are continuing to propel our sales forward in the quarter.

Joe Grabowski

Great. And maybe I'm going to ask similar question for the remainder of the year your assumption is that organic sales moderate a little bit the final three quarters of the year, but so but stay positive in them in aggregate over the three quarters so again, as you look through the remainder of the year and how much the new project wins in Hazel Park offset, maybe some as you mentioned in the slide deck, some selective softening of end markets?

Jagadeesh Reddy

Yeah, I think that in all ad markets, as an example, right, the demand in that market continues to be fluid, and we do expect that and certainly to continue rest of the year. In terms of powersports, we keep a we feel pretty good about the trajectory of the ramp. And similarly, in access and construction, mostly to access that we are seeing a good uptick in demand.
And construction continues to be driven by mostly non residential and infrastructure demand, even though the residential continues to be soft, right so given all those dynamics right now, we feel pretty good about these end markets for CV in particular, we expect CV to softens somewhere in a market in the middle of the year and pick back up in Q4 as end market. But given our product launches and ramp-ups throughout the year, we continue to expect to remain flat and two last year in the CV end market.

Joe Grabowski

Okay. And then if I could sneak in one more on the EBITDA margin on a really nice EBITDA margin from MSA. It looks like from the waterfall, maybe mid 20% EBITDA margin from MSA. And if you back out MSA, maybe 40 basis points, 50 basis points of year-over-year EBITDA margin improvement. So maybe any headwinds in the quarter that may be limited to the core EBITDA margin expansion that may be dissipate as we progress through the year.

Todd Butz

I wouldn't call that any headwinds in remaining MSA or core businesses. Also, let me remind you that, you know, MSA's fully integrated, right? So yes, we're calling it out separately as we roll to the second quarter right now, then we'll lap that. And then we'll continue to show our remaining core business margin expansion. Yes, MSA had a fantastic Q1. No doubt about that at the same time, right, every single one of our other parts of the business continued to show margin progression even Hazel Park, right?
Yes, it was a slight headwind in Q1, but that's much better than in our last couple of quarters. Last year. I will continue on Hazel park to continue to get better. Rest of the businesses continue to expand margin sitting here right now, we feel very good about our core business and how we're performing and how we continue to expand margin and remain on track to our 14% to 16% and margin targets in the coming years.

Joe Grabowski

Okay. Thanks and good luck in the quarter.

Operator

Vlad Bystricky, Citigroup.

Vlad Bystricky

Morning, guys. Thanks for taking my call and thanks for the color here today. First, the commentary and updates around the value-based pricing initiatives. We're quite positive. So can you talk about -- is there a way to think about how much of your overall portfolio today has made that transition to value-based pricing and sort of the runway that you see for continued value-based pricing tailwinds going forward, if you will?

Jagadeesh Reddy

Yeah, I would say it, it really took rate probably in mid to third quarter of last year where we started really implementing that took us a while to get going, to be honest. So I would say that in the last six months or so, right, every new program win would be under that framework. So a lot of those wins, right, we haven't really started producing those products, right, so that means we haven't really seen that impact in our margin profile.
So that means there's less than 5%, I would say or maybe 10% at max right now is under that framework. It will take some time for rest of the business to catch up to that framework, right. You know, these are annual wins right that will continue to lap and maybe it takes couple of years for us to continue to implement the value-based pricing framework across our portfolio.
Having said that, and for 2024, we expect $1 million to $2 million of pricing -- price capture on net of inflation, right? So it's a really good start and net of inflation, $1 million to 2 million in this environment is a pretty good start for, you know, for us on that journey. And I expect that to continue to get better as we progress.

Vlad Bystricky

That's really helpful coverage. I appreciate it. And then on just on the capital allocation side, can you talk about the the $7 million to $10 million of investment in high return capital light growth advancements that you've called out on the slide. Can you give some examples of what these investments entail and how we should think about potential pace of these kinds of investments looking beyond 2024?

Jagadeesh Reddy

Yeah. I'll give you a couple of examples. This year, in particular, we are focusing on cobots right and our cobots are all they are similar to robots, but in all this sort of work with nonhuman. So a lot more flexibility than a regular robot, right? So when we think about automation, we're looking to deploy numerous instances where we could actually use a cobot and that could eliminate not only a human operator, but also the cobot can run lights-out right in all 24/7. So we're trialing that technology in multiple locations in multiple plants and multiple applications. That would be one example.
The second example would be as we look to replace old equipment, we will look to automate our use newer technology and continue to look for productivity improvements and in terms of labor, but also in terms of capacity utilization, right?
How can we run the machine 24/7 is really how we think about these automation investments. Many times these are not expensive a cobot it's just the gear itself is like [$70,000] right? And it fully implemented in maybe [$100,000] to even push it even to [$120,000] right? That [$120,000] cobot can eliminate one operator, right in three shifts, right? It's a quick payback, right? So that's how we think about these automation investments and the continuing to deploy automation to drive productivity and I'll expand capacity.

Vlad Bystricky

I appreciate the examples, Jag. I'll hop back. Thank you.

Operator

(Operator Instructions) Ted Jackson, Northland Securities.

Ted Jackson

Congratulations on the quarter. Good morning. Next on my kind of easy questions. Were all asked or actually been answered in your presentation. So let's ask more like kind of conceptual things. And so let's start with MSA. And you did talk a bit about the customer cross-pollinization, but can you give us an update in terms of the capacity utilization at M&A today? I mean, we bought the company, it was at 80%. You had about 20% of that to fill? And where does that stand now? And when do you think you'll get that at 100%?

Jagadeesh Reddy

When you think of MSA initially that led that utilization rate was around that 80%. We've opened up access capacity through our MVX over the last, let's call it three quarters. So I would say today that's more like 70% strong, provides us even more opportunity to cross-pollinate that facility in our pipeline remains very strong. We're very encouraged by the number of opportunities that we're seeing on it.
Unfortunately takes a little more time in some circumstances when customers feel the model changeovers and just their timing of launch doesn't always align with what our where we'd like it to see it. But generally speaking, everything there is really shaping up as we expected. And again, you can see by the performance in the quarter, they're all performing even our initial expectation and a lot of that is surrounded by and we're really adapting that MBX culture.

Ted Jackson

Okay. Then getting away from MSA and also Hazel Park, the rest of your facilities, can you give us an update in terms of where your utilization rates are in there and where you think you can get them in the next one year and two years?

Jagadeesh Reddy

As we discussed at Hazel Park, will be $100 million revenue planned for us in 2025. We have the demand to fill that plant. And we continue to ramp our on product launches in the plant, and we are optimistic that we'll hit that target by end of this year going into 2025 to make Hazel park a $100 million plant for MEC in 2025 and beyond.
And after that how much more can we expand capacity at at Hazel park with MBX and productivity initiatives ,we'll focus on that once we get into 2025. But at this point, we're focused on ramping the plant to hit our targeted revenue for 2025.

Ted Jackson

Well, Jag, actually, I was asking for the non Hazel Park plants are the ones that you've been very upfront with regard to Hazel park itself, although that does beg the question as I think I recall with maybe it was, I think was the last call that you were on track for $100 million, $75 million of what you expected to run through there like in the books and you had $25 million more to go.
So I'm just since we're on Hazel Park is it fair to assume that you've kind of circled on the rest of that business that you needed to fill that plant in terms of your guidance? And then again, I'm kind of more questioning how where is capacity outside of Hazel Park and MSA and kind of where you see the trend lines for that? Thanks.

Jagadeesh Reddy

Yeah, we continue to look at that $25 million pipeline, if you will. Our pipeline is very strong. Going into 2025, I'm confident that we will be able to fill that revenue gap in Hazel Park, outside of Hazel Park, Ted. The demand continues to be strong. We continue to open capacity even on per ship side. If you recall, we were full up in first shifts. We were approximately 79% full on second shift and in our third and fourth ships.
Right and on much lower from. So what we've done over the past year is to continue to open up capacity with MBX initiatives. We have done about 150 Kaizen events in the last 12 months -- sorry, last five quarter. With all of those activities, we continue to expand capacity and productivity both on first and second and second shifts.
So given that we continue to go after new business for every single plant. I can't think of any plant that we're not able to fill at this point. So given even in a softer end market year. We continue to grow, and that's a testament to our pipeline. That's a testament to the value we provide to our customers and our ability to continue to grow with not only our existing customers. We're also continuing to bring in new customers to MEC.

Ted Jackson

So I have one more question, but before I ask it, I'm going to summarize what you just said to make sure I listened to it correctly is what you're telling me is that essentially I would say that maybe utilization rates today are not a good metric because your utilization your capacity across your network of facilities is increasing as you're making them more efficient, which means that your fixed cost is staying the same or improving margins but you even have more room for margin improvement as you fill this capacity because you have more capacity with the same fixed cost and you have a better runway in terms of realizing your goals as we think about your longer-term forecast that kind of what you're telling me, Jag?

Jagadeesh Reddy

I think you summarized it better than I could have Ted. Thank you for that. And I just have one more comment on that, right. Some of our large plants such as Mayville and Defiance have had just historically and impressive volumes, revenues and EBITDA margins and EBITDA dollars in our history of 79 years, right? So that's a testament to how we're continuing to put additional volumes into our plants.
But also we're able to take cost out and make these large what we call as battleships, right, continue to be more efficient and being able to produce more And back to your point of, yes, it's the same fixed costs, right? If we can stuff more into some of these large plants, right? The drop through is just incredible. So that's where majority of our MBX initiatives are focused on is to continue to expand productivity, expand capacity in some of our large plants so that we can show to our customer side.
With that, we can take more volume even when we're ramping up new capacity, Hazel Park, we continue to fill our home existing plants with a lot more volume.

Ted Jackson

Great. Now my last question and then I could I'm taking up too much time. I want to circle back to the M&A strategy and progress. And I know that in the ideal world, what you really want to do is kind of payoff and say, get the delevering in place and then be able to I'll go and pick up whatever it might be, you know, something in plastics composites win new customers and the existing businesses.
That being said, when you think about M&A, it's not necessarily you get to pick your timing when your opportunities come, they come and you've got to have to just sort of dance finance, where are you in terms of your funnel? Is there any it seems that you'd have now you have to get into too much specifics, but is there any chance that any of the opportunities that you are in discussions with or evaluating could come into play during this fiscal year and next? That's my last question.

Jagadeesh Reddy

Yeah, great question, Ted. We continue to prioritize debt reduction for 2024. As you've seen the free cash flow generation in Q1. We continue to focus on inventory reduction, improving inventory turns, reducing our working capital. With all of these activities, we're confident that we can reduce our debt and a leverage by end of this year, and we will target the low end of that range, to be honest to get to before end of this year with our increased focus on free cash flow generation, having said that we have not slowed down on our approaches in our evaluations of potential M&A targets.
We have a list of targets that in what we call as a must-do right we will continue to engage with those targets. We'll continue to wait for the appropriate time for these transactions to materialize. But with the first priority on debt reduction to get down to 1.5 times leverage by end of this year as we approach that low end of that range, 1.5 times to 2 times as we laid out, we will get more active in terms of what we can do next with our M&A capacity.
Having said all that, the chance of a transaction closing in 2024 is small. You never say never, but it will be small because we're laser focused on debt reduction, but we will continue to engage with potential targets. We will continue to look for ways to fill our skills gap and our offerings to our end customers.

Ted Jackson

Okay. Thanks very much, Jag, congrats on the quarter and I was impressed with your free cash flow. I mean I kind of like free cash flow, you know, talk to you later.

Operator

Tim Moore, EF Hutton.

Tim Moore

Good morning. I just want to reiterate it's always nice to see free cash flow. It's really what I think stocks are based on our long terms of great work there. And I think you'll see in our organic sales growth be to maybe 2%. Powersports is very impressive.
Jag, I was wondering maybe if you can give one or two examples of maybe wins over the last year or so. Our incremental work from current customers where you're doing more of the value added steps in the process is like painting and coating and tackling some more of the complex assemblies, which are higher margin.
And to remind me, if it's I think from a year ago when we met up for months. I might have written this down wrong. But yes, I thought maybe like 75% of your value added steps, processes were being done at only two of your plants? Or is that still the case and kind of what's the plan for that?

Jagadeesh Reddy

Thanks for your question, Tim. We continue to look for opportunities where we can do more complex on fabrications for our customers. We continue to look for where we can do more, whether it is finishings and subassemblies, logistics, aftermarket. So all of those activities right is something that in the forefront of our commercial processes and approaches.
So I would say that every single opportunity that we look for and more importantly, one in our prepared remarks we talked about a quite a number of wins in the quarter, right? I would say pretty much on all of them have and multiple offerings, not just metal fabrication, but also finishing and subassemblies, et cetera, right? So every opportunity we look for will continue to have a lot of value addition and that so we can show to our customers that we are the preferred supplier to our end markets.

Tim Moore

That's helpful. And maybe just switching here to Kaizens, which never stopped. It's continuing improvement definition, but I'm it seems like you have you uncovered a noticeable amount of extra capacity or maybe worker shifts. Optimization is a major kind of towards all the plants the past year. And I got to imagine some of those supervisors and managers we met a year ago thinking they were at full capacity, but they weren't just kind of wondering if you could talk about that for maybe incremental margins in unlocking capacity.

Jagadeesh Reddy

Yeah, as I just talked about Defiance and Mayville as an example, right, we continue to find great opportunities to reduce our labor content, increase our capacity and continue to grow in every single plant. So a lot of that comes from our focused efforts in operations to standardize too take cost out and have really good discipline, whether it's in our lean daily management, whether it is the supervisors and operate ops managers and the plant managers running Kaizen.
So I me and my leadership team, we spent two weeks ago a full week on the plant floor and I was in jeans and steel toe shoes and safety glasses all week. And I'm working on a plan case and where we moved our machines around, we really laid out the workflow.
We did time studies and in the end, right that each shift needed prior prepays and each ship needed three operators post case and right we were able to consolidate on all the steps and we were able to eliminate one operator and we can still run the sell more efficiently, more throughput than pre-COVID them with only two operators, right? I mean that is sort of the focus that we have in every plant and every sell.
So we're driving that level of discipline. So we did six Kaizen events during that week in Wisconsin. And no, I won't give you the numbers, but he has a significant amount of savings that we were able to unlock, right. But the same time all the key is not what we did during that week payments.
You know, the key is to sustain those savings for rest of the year and then beyond so we have also put in a pretty disciplined processes where we're able to monitor those savings on a monthly basis. And if they continue to remain strong, we'll continue to monitor if they fall back right than we have countermeasures and to get those savings back up back online.
So it's a very focused effort across the company. And I'm really proud of our MBX team. I'm really proud of the entire Mac team who who is energized by our MBX program, but more importantly, right, driving day-to-day, not just when me and the leadership team are on the plant floor, right, but day-to-day driving improvements, and that's in or reading out in our results.

Tim Moore

Jag, that's really helpful. I'm going to say my fourth and final three questions for offline when we talk in an hour, but thank you.

Operator

We have no further questions. I'd like to hand back to Jag Reddy for closing remarks.

Jagadeesh Reddy

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 Vallum, our Investor Relations Counsel. This concludes our call today. You may now disconnect.

Operator

This concludes today's call, and thank you for joining. You may now disconnect your lines.