Mayville Engineering Company, Inc. (MEC) Q2 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Mayville Engineering Company Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the call over to Nathan Elwell, Investor Relations. Please go ahead.

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 SEC, including our filing on Form 10-K for the period ended December 31, 2019, and that filing on Form 10-Q for the period ended March 31, 2020. We assume no obligation and do not intend to update any such forward-looking statements, except as required by federal securities law. 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 release, which is available at mecinc.com. Joining me on the call today is Bob Kamphuis, Chairman, President and Chief Executive Officer; Todd Butz, Chief Financial Officer; and Ryan Raber, EVP 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 second quarter earnings call. The second quarter presented our organization with both familiar and unique challenges as we continue to appropriately align our business with the current economic environment. Our top line performance was particularly impacted by the COVID-19 pandemic, but I'm pleased to see the agility and adaptability that is ingrained and MEC's action-oriented culture. I'm especially pleased with the improvements that we implemented regarding facility and process optimization to enhance profitability and position our business for long-term success. Overall, during the period, we generated net sales of $62.6 million and adjusted EBITDA of $2.3 million. Despite both MEC and our key customers holding the essential business designation, many of our customers shut down some or all of their manufacturing facilities for nearly half of the second quarter. Based on the customer shutdowns, we likewise adjusted our production schedules, including temporarily halting production at some facilities. These changes required quick coordination, planning, realignment and action. MEC service and delivery to our customers continued at high levels and I was pleased with our nimble reactions. While we initially increased our inventory safety levels to ensure supply in late March and early April, we are now returning to appropriate levels. As a reminder, our supply chain is heavily centered in the U.S. as our customers all began to restart in May, we are generally seeing a gradual volume increase depending on specific market and inventory conditions, albeit at lower than pre-pandemic levels, which we expect to continue in the near term. Throughout the pandemic, the safety and well-being of our workforce remains our top priority. Our teams have spent considerable time and resources to ensure strong personal hygiene, the cleanliness of our facilities and changing procedures as needed to ensure social distancing. We also benefit greatly from the work sales in our manufacturing facilities being naturally spaced out, which limits the amount of interaction our associates have with each other on the shop floor. Those workers who can work from home are continuing to do so. And those who need to come in the facilities on a regular basis are practicing careful social distancing measures. Given that our facilities are located in more rural areas, we have not seen a significant number of cases amongst our employees and have only seen a handful of people test positive for COVID-19. All in all, I believe that we've developed a process to ensure that our most valuable assets, our people have a safe working environment. Similar to many companies throughout our industry our second quarter top line performance reflects the impact of COVID-related shutdowns, material changes to our customer, production schedules and overall demand combined with ongoing inventory destocking in several of our key end markets. Prior to the COVID-19 pandemic, our organization was performing well. We had essentially integrated DMP, which was translating into new cost savings and revenue opportunities, coupled with emerging benefits from our technology and automation investments made over the past 18 months. In light of the current economic landscape, we continue to adjust our cost structure during the quarter. We have spent countless hours to make our organization more efficient and aligning our structure to enhance our profitability and maximize cash flow for the near and long term. Our largest endeavor undertaken in the second quarter was the consolidation of the capacity from our Greenwood, South Carolina manufacturing facility into other locations. Based on the combination of greater manufacturing capacity and efficiency from our investment in new technology and the resulting smaller footprint requirement, the consolidation of this plant became an action item for us that would deliver both short-term and long term gains. To be perfectly frank with you this move was something being studied before the pandemic and the decision was accelerated as the initial economic impact of the pandemic became apparent. As a result of the capacity consolidation, all components that were manufactured at this facility will now be produced at 5 other manufacturing facilities around the country, allowing us to maintain the same capacity with a smaller, more efficient footprint. While the pandemic has certainly presented us a set of external challenges, our team continues to proactively identify and execute on areas of potential cost savings and continuous improvement opportunities. Throughout the majority of our end markets, we have seen lower demand as a result of the pandemic. Our key commercial vehicles and construction and access equipment markets, in particular, have suffered the most recently. Where many of our customers in these markets shut down production during a large portion of the second quarter. Inventory destocking continues to be a factor. After initially thinking that this issue would start to be resolved by midyear, we now believe it will continue later into the year. While inventory destocking has been an important factor impacting top line performance, I want to reiterate that we have maintained all of our customer relationships and contracts. This means that when our customers' volume returns, our volumes will also return, and we will be ready to deliver on those orders quickly. On a positive note, we've seen build rates for the commercial vehicle markets start to improve in recent weeks, including the July report just received yesterday. As large fleets are continuing to order, and we have reason to believe that we have reached the bottom. We continue to be encouraged by the activity within our military segment, as this served market has stayed relatively stable during the past several months. We believe our military business will continue to trend positively. And are particularly encouraged by the order flow that we are seeing for light vehicle oriented projects. Powersports also continues to be a bright spot as we are seeing lower dealer inventories across the sector as consumer demand outran production. We believe that this end market will continue to be a prosperous one for us as we navigate the current environment where consumers are staying home and engaging in many forms of outdoor recreation closer to their home. In terms of growing into new markets and expanding market share, our team continued to make great progress on new business opportunities during the period. We wrapped up a significant order for PPE related materials during the second quarter. Since we last spoke about this opportunity at our last quarterly call, the annual volume on this order nearly quadrupled. As a result of our success with this contract, we anticipate that there may be follow-up orders of similar magnitude in the coming quarters. We also continue to win takeover business from one of our key customers in the agricultural end market. This initiative is trending positively, and we anticipate that there will be more sizable opportunities to win in the future. Our efforts relating to capturing additional market share in our military end markets are continuing on their upward trajectory. And more substantial activity is on the horizon. We also procured another sizable project with a prominent blue-chip customer in our powersports end market relating to a new product line expansion which is being launched this fall. We continue to make headway regarding the outsourcing, reshoring and takeover projects for both current and prospect customers. These projects will continue to grow share with current customers, in addition to having the potential to add new customers in new markets. We expect to continue to see a growing number of potential new projects in the coming months. We're excited about the potential for the opportunities and look forward to keeping you updated on new developments going forward. On another note, to strengthen MEC's capital structure, we amended our credit agreement during the quarter to provide an extra layer of insurance and the flexibility to navigate the potential impacts of the pandemic. Todd will discuss this topic in more detail in a few minutes. But we believe, this prudent move exemplifies our conservative approach to capital management. We also continue to diligently monitor the competitive landscape for potential acquisition opportunities. That will position the organization to gain market share, offer new products, form new relationships with blue-chip customers and enter new geographic markets. While M&A activity overall has been quite muted due to the pandemic, we believe that there will be more consolidation over the long term. As always, any potential acquisition needs to fulfill a combination of the criteria I just mentioned, and above all else, needs to adhere to our strict return on investment-oriented approach. So while these past several months have not been the easiest to navigate, we continue to be focused on the matters that we can control, notably being ready to deliver best-in-class service to our customers when they need it the most. We have done this for over 75 years, and we continue to do it even in the face of adversity. Speaking to our longevity, I'm proud to say that in June, we were named the nation's largest fabricator, once again by the Fabricator magazine this marks the tenth consecutive year that our organization has led the Fab 40 list. We've been able to stay on the top of this list by always focusing on growth through our commitment to our customers' success. While we and our customers have faced more challenges recently, we have no doubt that this mindset is an important reason why we consistently prosper and will do so over the long term. Before I pass the call to Todd to discuss our financial performance in more detail, I want to take a moment to publicly thank our employee shareholders, for the dedication and resilience that they have displayed during this difficult stretch of time. It takes a team to be successful, and I appreciate your contribution to a safe and efficient workplace. And providing the excellent customer service that makes MEC the best. I know that together, we have come through this experience, a much stronger team and organization. Thank you all. With that, I will now pass on the call to Todd.

Thanks, Bob. I'll begin with a look at our second quarter financial performance before providing commentary on our balance sheet, liquidity and our thoughts on guidance. As noted in our press release, we recorded second quarter net sales of $62.6 million as compared to $145.1 million for the same prior year period, a decrease of 57%. The decline is due to manufacturing volume reductions driven by the pandemic and continued customer destocking activities, particularly in the commercial vehicle, agriculture, construction and access equipment end markets. Even though MEC and our customers are designated as an essential business during this pandemic, many of our customers were forced to shut down production for 5 to 6 weeks on average during the quarter. As a direct result of these customer shutdowns, MEC also temporarily shut down some of its own manufacturing facilities in order to reduce cost and preserve cash flows. Toward the end of the quarter, when our customers reopened their manufacturing facilities, it was at lower production levels. As of quarter end, customer production volumes remain lower than pre-pandemic levels. It is also important to note that during the pandemic, all customer relationships, manufacturing programs and components produced remained intact. Manufacturing margins marked a loss of $1.2 million for the second quarter of 2020 as compared to a $20.5 million gain for the same prior year period. Although we employ various cost reduction efforts in the quarter that helped realign our business and its related cost structures, we are unable to overcome the tremendous reduction in volumes and related underabsorbed overhead. These cost reductions are sustainable. And will provide several hundred basis points of margin improvements when volumes return. Additionally, the company incurred a $1.8 million charge to cost of sales during the quarter related to the Greenwood facility closure and the transfer of production capacity to 5 other facilities. We also expect to incur an additional $0.7 million of cost to finalize these moves in the third quarter. Profit sharing bonus and deferred compensation expenses were $1.2 million for the second quarter of 2020 as compared to $22.8 million for the same prior year period. Of course, second quarter of 2019, included a $20.1 million onetime deferred compensation expense and a long-term incentive plan charge, specific to the IPO. Excluding those onetime items, these expenses decreased by $1.5 million this quarter due to the elimination of bonus and discretionary gain sharing accruals during the quarter. ESOP expense was a $0.7 million gain during the second quarter as compared to a $1.5 million expense for the same prior year period. Similarly, this change was due to the elimination of bonus and discretionary gain sharing accruals during the quarter. Other selling, general and administrative expenses were $4.6 million for the second quarter of 2020 as compared to $7.5 million for the same prior year period, which included $2.6 million of onetime IPO and DMP acquisition-related expenses. Excluding the onetime charges from last year, these expenses decreased $0.3 million due to synergies achieved through the integration of DMP, lower travel expenses due to the pandemic and ongoing cost savings initiatives. Interest expense was $0.6 million for the second quarter of 2020 as compared to $2 million for the same prior year period. The $1.4 million decrease is due to our lower debt levels this quarter as compared to 2019 and securing lower interest rates through the amended and restated credit agreement which was entered into in September of 2019. Income tax benefit was $2.5 million during the second quarter of 2020 due to the $9.5 million pretax loss incurred. Our federal net operating loss carry forward was $23.6 million as of quarter end, which was driven by pretax losses incurred this quarter, along with prior year losses mostly from the onetime IPO and DMP acquisition-related expenses. The NOL does not expire, and we will use -- it will be used to offset future earnings. We continue to anticipate our long-term effective tax rate to be approximately 26%. Adjusted EBITDA was $2.3 million for the second quarter of 2020 as per to $18.3 million for the same prior year period. Now let me address our balance sheet and liquidity figures. Cash flows provided by operating activities were $3.1 million during the first half of 2020 as compared to $6.5 million for the same prior year period. The decline was due to timing of payments of accounts payable, which were offset by reductions in inventory and lower accounts receivables during the current year. Despite a very challenging quarter in first half of the year, due to the aforementioned destocking and pandemic issues. I am pleased that we're able to effectively execute our cost adjustment initiatives while holding our debt level stable. Capital expenditures were $3.7 million during the first half of 2020 as compared to $16.6 million for the same prior year period, a decrease of $12.9 million. The decline was driven by the completion of the 2019 investment cycle, which focused on new technology and automation versus leverage net investment in 2020. Capital expenditures for 2020 are still expected to be in the range of $10 million to $13 million. As previously announced, the company amended its credit agreement during the quarter. We entered in the amendment to secure an added level of insurance against future macroeconomic events, which will allow us to remain focused on serving our customers and growing the business. The amendment increases the maximum leverage ratio from 3.25x to 4.25x through the fourth quarter of 2020. Adjusting quarterly thereafter until returning to the original 3.25x in the fourth quarter of 2021. This relief was providing exchange for modest adjustments to pricing, along with other usual and customary negative covenants. The debt capacity and maturity date of the credit facility agreement was not impacted. As of June 30, 2020, total outstanding net debt was $76.7 million, resulting in a leverage ratio of 2.4x, significantly lower than our covenant threshold of 4.25x. Now I'd like to briefly discuss our outlook for the remainder of 2020. Based on the ongoing uncertainty of the COVID pandemic, the related economic and social impact and consistent with most of our top customers, we are not in a position to update guidance today. However, we do believe that the second quarter of 2020 will be the low point for the year. For the second half of the year, we expect to see a general stabilization, followed by gradual improvement in business conditions. When looking at our performance for the first half of the year, we expect to produce fairly similar results in the second half of 2020, but with results more evenly spread across the third and fourth quarters. From a bottom line perspective, while the third quarter will have a tough comparison to the same quarter last year, we do expect an easier comparison in the fourth quarter of 2020 as we reap the rewards of facility optimization. Of course, this assumes that we don't experience additional pandemic-related shutdowns by our customers or a significant deterioration in the current economic environment. With that said, I will turn the call back over to Bob for closing remarks.

Thanks for your report, Todd. Despite the ongoing challenges related to COVID-19 and overall market demand, I'm proud of how quickly and appropriately we took action to take the necessary measures to align our cost structure to meet today's market reality. At MEC, we are built to adapt to all economic circumstances and we will continue to bring an innovative approach to making our organization stronger and more efficient. In addition to maintaining constant communication with our key customers, we'll continue to focus on what we can control and be dedicated towards providing our customers with industry-leading value and service. We will prioritize the safety and well-being of our workforce above all else, and we'll focus our efforts at ensuring that facilities are safe and clean at all times. While these past several months have presented us with both ongoing challenges and expose us to new ones, I continue to have faith in our strategy and our ability to achieve our long-term goals and in turn, generate value for our shareholders. With our prepared comments complete, we'd like to open up the call for questions. Operator, please go ahead.

[Operator Instructions] The first question comes from Mig Dobre with R.W. Baird.

It's Joseph Grabowski on for Mig this morning. I recall that on the last call, you said that April's overall utilization was about 40%. Can you maybe talk about how that trended during the quarter and how July looked?

Well, I guess I'll tell you, you've seen the results here for the second quarter and the type of volume we had with a 57% overall decline. So April and May were tough months. June got a little better and July better again. So that's when we talk about seeing steady improvement, that's what we're expecting.

Great. Okay. And then can you clarify what you mean by the destocking dynamic. Are the OEMs just carrying less of your components in anticipation of production? Or is it just exactly how does destocking work between yourselves and the OEMs?

Well, we're basically talking about our customers' inventory, finished goods inventory and the destocking process that they're going that they're working on to reduce the amount of inventory that they have finished goods inventory that they have in their pipeline. So -- and basically, we support their production activity, which in turn goes into those inventory levels and is either sold out of inventory or not sold out of inventory, and that creates the adjustments that go on.

Got it. And you expect that those adjustments that continue for the rest of the year?

Well, perhaps, at a level that's not making it much worse. But at a level that is fairly consistent until they get their inventory -- their finished goods inventory down, we think we'll continue to see the same relative activity. That the robust activity that results in inventory growth or sales growth on their end.

Understood. Okay. And then maybe one more question for me. As you mentioned in your prepared remarks, Class 8 truck orders have rebounded here the last couple of months. How long does that translate to increase demand for your components from the Class 8 OEMs?

Ryan, would you answer that question?

Yes, Joe. I think as we got into June, the Class 8 manufacturers are beginning to ramp up and kind of increase that into July, fairly stable build rates at this point. I think the April and May numbers were pretty anemic. June was good. July was much better. I think we've got a good trend going here. We would be close to demand, kind of like Bob said, our customers aren't carrying a lot of inventory. We tend to be just-in-time delivery companies. So as they make changes to respond to their end market and hopefully, growing retail sales will follow very closely with them in terms of timing.

The next question comes from Andy Kaplowitz with Citi.

Hope everybody is well. Great. So Bob, just following up on the last question around sort of cadence of sales, just out of curiosity, like versus the 56% decline for the quarter in July, was the sales decline much better than that at that point already? Mean you said improved, but what does improved mean versus a 56% decline for the quarter?

Yes. I guess, that's quarter-to-quarter comparison, when you say 57%, it wasn't 57% even in June. And so July markedly better again. And I think in Todd's comments, when he talked about third and fourth quarter or second half being similar to first half. But more evenly spread, I think that's a good way to think about it.

Okay. And just to clarify, Bob or Todd, does that mean in terms of second half versus first half does that mean similar EBITDA, I assume it means a decent improvement EBITDA. Maybe you can just clarify, Todd, for what you mean by similar in second half. Is that sales? What is that? In terms of that guidance?

That's primarily when you look at the volumes, it would be more consistently spread in the third and fourth quarter. From an EBITDA perspective, we would expect that to follow through to a certain degree, but improve because of all the cost improvements we've made during the second quarter, so we'll yield those benefits. So second half EBITDA should be improved from the first half EBITDA because of those things I just spoke of.

Sure. And Todd, around decremental margins, you did a little bit better than sort of rehab for the quarter. I think, sort of in the high teens. Is that something that's sustainable? Or should it even get better here as you sort of just referred to, given sales declines won't be as drastic in the second half?

Yes. I would expect that to be better, quite honestly, Andy. We finished about 19%. We're doing decremental margin quarter-over-quarter. And historically, we've been in that maybe 17% to 17.5% range. And given all the unique circumstances that -- and challenges we had in the second quarter, based on maybe a more normalized situation, I would expect that decremental margin going forward to be less than our historic levels of 17%. And again, it relates back to all the automation improvements we've made, the integration of Defiance, and certainly, the plant consolidations that we've done over the last 12 months. So we've definitely made some really sustainable, permanent cost reductions into our cost structures.

And then just one more from me. You mentioned, Bob, military, powersports, maybe as bright spots. So I know that powersports is a decent sized portion of the business. Can you give us some more color on the kind of growth or maybe less declines that you've seen in those businesses? And how much they could contribute to sales stabilization in the second half of this year?

Yes. I'll make a couple of general comments, but then I'll ask Ryan to maybe comment more deeply. There was a lot of inventory that was depleted in the second quarter. As consumers bought from inventory, while the facilities that are typically non essential are considered nonessential, we're shutting down or having significant production disruption there. So they chewed up inventory. And now some of that inventory is too low. Demand seems to be at their end, at our customers end at a good level. So there's 2 things. One is the continuing demand from their end customer and the regrowth of inventory, so those 2 things that are going on in those markets.

And Andy, I'd just add a couple of points. A few of our customers have noted, really, their dealer inventories are sitting at like 20-year lows. So there's obviously some demand just to -- we've talked about destocking, this would be more of a restocking in the powersports space. And the pandemic drove not only those that were maybe planning to buy, but a lot of first-time buyers entering the market are those that maybe we're thinking about it sitting on the sidelines, the outdoor recreation for families and such as out a lot of new buyers into the market that is just boosting unit volumes.

The next question is from Steven Fisher with UBS.

I just wanted to follow-up on Andy's question there on the margins. As you guys have taken all the action to reduce costs. Just thinking about not so much the reduction of the decrementals on the downside, but maybe more as we start to come out of this over the next, hopefully, 12 to 24 months what should we think about incremental margins might be on the way up. Todd, you kind have said something about several hundred basis points, but how should we think about the incrementals as we recover here in light of those cost reductions?

So when you think historically, again, we've had incremental margins that were in that low 20% range. Now that we've got these cost reductions and these permanent changes in place, I would expect that going forward, our incremental margin will be in the higher 20% ranges now. So I think as you look at that into the second half of this year, knowing that we are still ramping up the final consolidation of our Greenwood facility in the third quarter. We won't yield all of those benefits initially in the quarter. But when you look at an annualized basis, we're looking at probably 400 to 500 basis points of true margin improvement when volumes return. So -- and when I say volumes return, I look at maybe 2019 as a marker, let's say, a normalized level, let's say, it's at just over $500 million mark. And we finished at around 10%, 10.2% adjusted EBITDA. We have that pathway now getting back to those levels or maybe even less and being at 15% adjusted EBITDA. So we do have that line of sight. And as you look into this year, certainly, we'll get some of that benefit. But obviously, we'll get more of that as the market rebounds.

That's helpful. And then the discussion over a year ago, when we started chatting, was that in a downturn, customers would tend to consolidate suppliers and maybe must position [indiscernible] what are you seeing from a perspective there's any moves towards consolidating that supply base yet?

Yes. Steve, this is Ryan. We've definitely seen what we would call takeover wins, and that came from multiple avenues. I think now there's definitely a heightened awareness at the OEMs about the financial viability of some of our competitors. We have participated in some takeover business in cases where folks just couldn't proceed in business. Now they weren't overly material but definitely build some goodwill and we're the ones that folks trust to take stuff on. So our quote activity in the second quarter in the middle of the pandemic remain very strong, really stronger than last year and incrementally better than the first quarter. So outside of the normal new projects we're working on, I would definitely say we see more opportunities that are kind of situationally driven in the market-based on economic conditions.

The next question comes from Larry de Maria with William Blair.

I know you touched on a few of these things, as -- obviously, markets are weaker and there's this inventory destocking on top of that. I guess I'm unclear about how long you expect this destocking to go on for? It sounds like powersports is in good shape, but perhaps truck is not, for example. So just flash out a little bit of how long? Is it just another quarter? And where the biggest destocking is occurring?

Larry, this is Ryan. I think really the setup for the year here at destocking in CV, construction and ag inventory is down in commercial vehicles. I think the industry metrics would still say it's a little higher than anticipated, but I think with the backdrop of a stronger June and July, order board that's looking up. When we think about really the construction and access equipment market, that's probably the longest or the biggest headwind because that had the most mostly get done coming into the year, and most of our customers wouldn't really even commit if you asked them that same question. So we would anticipate that to still kind of hang out there as a headwind, particularly in construction and access. A little bit on ag, although if you separate large from small retail sales on small ag has gotten a little better. And most of the OEMs were saying they needed some destocking to be done there. So similar to powersports to hobby farmers, small tractors, turf equipment. I think that's in a lot better shape, but large ag still has a little bit of work to do just because volumes have been flat. The good news is the fleets are continuing to age. And at some point, there has to be a stronger replacement cycle out there that will help consume some of that inventory as well.

Okay. That's very helpful. Could we just maybe switch -- mention July, order board is looking up. Can we talk about I know things improved from the bottom in April, and then you just mentioned quoting is getting better, especially for takeover business. But can you just comment on July order boards? Maybe how far they are down year-over-year? Or up sequentially?

I mean, I think we definitely sequentially are stronger from the second quarter. I think this coming into the year, Larry, we knew commercial vehicle was going to be down year-over-year. It got worse through the pandemic and then the destocking really started to turn, let's say, late third quarter last year. So in a normal course, even when out COVID, we were expecting some market declines in those areas. I would say the powersports market is one exception that during the lockdown dealerships and folks were staying at home. So there was, let's call it, a 4 to 6-week lull of no activity in the powersports space. And once folks got out of the lockdown certainly, the dealers were starting to open back up, and that sequentially is certainly stronger and would point to higher or at least flat volumes year-over-year.

Okay. And then last question. Apologies if you answered this already, but I know you obviously incurred restructuring and you consolidated the plans. What's the absolute dollar term savings? I know you're talking about margins getting from 10% and 18% to 15% at those volumes or a little bit lower, but what's the absolute penetrance a what [Technical Difficulty] was in second quarter?

Larry, this is Todd. So looking at that, the closure of the Greenwood facility, there is a lot of fixed overhead. Certainly that we're not replacing into other facilities as we redistribute that work at 5 other locations. I think it's important to note, we haven't lost any of that business. We're retaining all of it. It's just going to be produced at other locations. But we will look at that to be in that probably $3 million to maybe $4 million range on an annualized cost savings really just because of the -- again, the fixed overhead savings as well as the people cost that we're saving.

[Operator Instructions] At this time, we have no further questions. So this concludes our question-and-answer session. I would like to turn the conference back over to Bob Kamphuis, Chairman, President and CEO.

Folks, thank you all for your time today. We appreciate your interest in MEC, and we look forward to virtually seeing some of you during Jefferies Industrial Conference tomorrow. So have a good day, and we'll chat some more as the days go by. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.