Hello and welcome to today's Mayville Engineering Company's Fourth Quarter and Full Year Earnings Call. My name is Bailey, and I'll be the operator for today’s call. . I would now like to pass the conference over to, Nathan Elwell, Investor Relations. Nathan, please go ahead..

Thank you, Bailey. 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 and 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.

More information regarding such risks and uncertainties, please see our filings with the SEC, including our filings on Form 10-K for the period ended December 31, 2020. We assume no obligation and do not intend to update any such forward-looking statements, except as required by Federal Securities laws.

Second, this call will involve a discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in the earnings press release, which is available at mecinc.com.

Joining me on the call today are Bob Kamphuis, Chairman, President and Chief Executive Officer; Todd Butz, Chief Financial Officer; and Ryan Raber, EVP of Strategy, Sales & 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.

Please go ahead..

Thank you, Nathan. Good morning, everyone. Going to start with 2021. We’ve effectively executed throughout ’21 and produced significantly better results than the previous year despite the inflationary pressures and labor challenges that we all experienced. Compounded by labor and supply chain disruptions, affecting our customers production schedules.

As we look back at 2021, we are pleased with the way we navigated through these challenges and continue to see strong, medium and long-term demand trends across all the end markets we serve. We have added new takeover business and new customers in the powersports end market.

We look forward to delivering on the 2021 deferred customer volumes in 2022 and stand ready to successfully execute on the strong demand for our services for the current year and beyond. For the fourth quarter, we produced net sales of $113 million.

The 19% increase of $17.7 million was primarily driven by contractual raw material prices and pass throughs to customers, improve volumes and commercial pricing increases.

We delivered adjusted EBITDA of $9.2 million as supply chain disruptions impacted our customers’ schedules during the quarter and led to some of our volumes being deferred into 2022.

Our fourth quarter performance internally was particularly impacted by significant supply changes that Class A Truck OEMs, which stems from their supply chain issues and microchip shortages. For us, this also resulted in operational choppiness and efficiencies impacting our profitability.

As we navigate these challenges, it was important to maintain our skilled labor force. So we are ready to address the strong demand as supply chain issues start to improve.

Although recruiting quality employees remains a challenge, we have been able to cost effectively grow our capacity through investments and flexible redeployable automation and process improvements.

We also expect to recover general inflationary pressures on raw materials, labor and other product content through contractual material price adjustments and increased commercial pricing. As volumes have only been deferred from ‘21, we are confident that our volumes will increase as the customers supply chain issues start to subside during 2022.

Additionally, MEC supply chain is 98% concentrated in the U.S. We have maintained our supply of raw materials and components, and are prepared to effectively execute as our customers step up their volumes. The end markets we serve continue to forecast strong demand outlooks over the mid and long-term.

More specifically by market, the commercial vehicle market continues to show strong market demand, but has seen the most impact from supply chain disruption, which is predicted to continue during 2022, particularly during the first half of the year.

However, the ongoing strong freight demand and strong backlogs at the OEMs leads us to believe this will continue to be a strong market for MEC over the medium to long-term. Turning to powersports.

Powersports continues to be a strong and growing end market for MEC with elevated volumes due to overall strength of retail demand for outdoor recreational products, coupled with low dealer inventories that we expect to be restocked over 2022.

The construction and access end markets have continued to show strength in residential construction with non-res starting to see some signs of improvement. We believe that we'll continue to see further signs of volume improvement and with low dealer inventories, further demand requirements to restock fleets.

The ag market continues to see low machine inventory and strengthening demand, advancements and equipment productivity combined with low global crop inventories and strong crop prices will continue to drive improving volumes over the mid to long term.

Concluding with our military segment, which continues to be a stable market for us with customers having a solid backlog for U.S. government contracts. We continue to see potential for increased revenues due to vehicle updates, plus new opportunities for service related demand.

While supply chain disruptions persist, pandemic related problems have stabilized and declined somewhat, and we anticipate volumes will gradually improve as 2022 progresses. Further, our new business pipeline remains very strong. We continue to build relationships and convert on new opportunities to expand our customer base and the markets we serve.

During 2021, we expanded business opportunities with new and existing customers looking to expand capacity to support strong end market demands.

These came through new product and new model launches, takeover business with several top powersports customers, after market programs, and new product line offerings by customers, as well as reshoring and outsourcing by OEMs. I'll walk through some of the more exciting and noteworthy opportunities we see today.

The commercial vehicle market has continued to launch new products, which has led to market share gains for us. We have been focused on cross selling our products during the model changeovers, and we expect to continue to grow as customers launch their next generation of products. The powersports market continues to be a very active space for us.

We are growing our market share with current customers by adding new programs and with new and takeover programs with new customers which has led to powersports accounting for 20% of our 2021 revenues. Our expansion in powersports means we now work with all the major players in the UTD powersports market.

In the military end market, our market share on tactical wheeled vehicles continues to expand with our customers, launching their next generation of products, plus expansion in the service parts, demand and new product development activities that have the potential to bolster revenues in the coming years.

Overall, our new business pipeline remains robust with numerous products being actively pursued. We're excited about all of the avenues of growth with current and potential new customers. And we'll keep you updated on the latest developments over the coming quarters.

Turning to our fitness customer, as you probably saw on February 9, we provided a business update, which included commentary regarding our new customer in that fitness market. In that update, we noted that due to circumstances beyond our control, we would not go into production for this customer on the original plan date.

We have however remained on track with the investment and build out for this fitness customer and would've been ready to begin production when originally planned. As you saw in our earnings release from last night, there have been some new developments.

On February 18, we received an update from the customer, which informed us that it does not forecast any demand for any products or parts that are subject to our agreement for the remainder of the agreements term, which ends in March of 2026. Needless to say, we are disappointed with how this has unfolded in recent months.

As such, we have taken and will continue to take steps to reduce operating costs and capital investments for this project, where appropriate. From an accounting standpoint, this update also resulted in an impairment charge, recorded in fourth quarter 2021 results of $16.9 million. Todd will be covering this topic in more detail on his segment.

But it's important to reiterate that, we remain confident in the protections provided by our agreement with the customer, and will vigorously pursue this matter to ensure that terms are honored. Our new facility in Hazel Park, Michigan has other important activities going on beyond those related to the fitness customer.

As mentioned in our last quarterly earnings call, we are putting in place additional state-of-the-art flexible redeployable automation and capacity to support the growth of our base business.

We will be ramping up in the second half of this year and into 2023 to support meaningful volume for new projects and market growth with customers in the markets we already serve. Hazel Park will continue to be an important part of our future growth story.

The location allows us to hire the technologies skilled workforce we need in an excellent location in Southeast Michigan, while leveraging our experience and world-class process know-how, and continuing to demonstrate MEC's agility, adaptability and realignment for serving these market-leading customers.

As we look further into '22 and beyond, we continue to see a good pipeline of M&A opportunities, and focus on analyzing potential targets that could open new end markets, develop new relationships with potential new blue chip customers and possibly add new geographies, strategic fit and rational valuation are the top considerations when considering opportunities and we continue to review and pursue logical potential leads.

In summary, our fourth quarter performance reflected the supply change challenges faced by our customers, but we are seeing very positive demand signals across all end markets, and significant potential new business opportunities, and we will remain ready to increase our production volumes as needed.

We have invested in the right technologies, facilities and workforces that allow us to successfully address this demand, and our 2022 outlook, which Todd will talk through shortly shows we are rapidly working back towards exceeding our record 2019 performance. I'd now like to turn the call over to Todd to discuss our financial results in more detail.

Todd?.

Thanks, Bob. I'll start with review of our full year financial performance, then discuss our fourth quarter before providing commentary on our balance sheet, liquidity and thoughts on guidance. As we noted in our press release, we recorded full-year net sales of $454.8 million as compared to $357.6 million for the same prior year period.

27% increase was driven by increased volume due to improved market conditions and commercial pricing increases implemented in fourth quarter to combat inflationary pressures. These increases were slightly upset by customer supply chain issues and the timing related to contractual, raw material pricing pressures to our customers.

Manufacturing margins were $51.4 million for the year ended December 31, 2021, as compared to $31.5 million for the same prior year period.

The improvement of approximately 63% was primarily driven by production volume increases, higher scrap income, improved absorption of manufacturing overhead costs, as well as efficiency gains in the closure of the Greenwood South Carolina facility in 2020.

These favorable impacts were partially upset by the timing of raw material pricing passed to our customers and inflationary pressures on wages, benefits, materials, and other general manufacturing supply during the year.

Additionally, the company incurred approximately $2.9 million in launch costs and $700,000 in inventory write-off related to the agreement with the new business customer during 2021.

The prior year period was impacted by customer shutdowns related to COVID-19 pandemic along with lower demand and related destocking activities particularly in the commercial vehicle, agricultural, construction and access equipment end markets.

Manufacturing market percentages increased 250 basis points from 8.8% in 2020 or 11.3% for 2021 based upon improved operating conditions and other factors already mentioned. Profit sharing bonus and deferred compensation expenses were $11.5 million for the year ended December 31, 2021 as compared to $8.3 million in the prior year.

The increase of $3.2 million was principally driven by the return of normal life, discretionary 401-k, and bonus accrual as business activity and sales volumes improved in 2021.

Other selling, general and administrative expense were $20.4 million to the year ended December 31, 2021, as compared to $19 million for the prior year, extending from higher salary, travel and entertainment expenses, which are artificially well in the prior year due the pandemic.

EBITDA tax benefits was $1.9 million on a pretax loss of $9.4 million for the full-year 2021, as compared to a tax benefit of $2.1 million on a pretax loss of $9.2 million as same prior year period. Our federal net operating loss carryforward was $18.5 million as of December 31, 2021.

The NOL does not expire and will be used to offset future pretax earnings. We continue to anticipate our long-term reflected tax rate to be approximately 26% based on current tax regulation. 2021 adjusted EBITDA finished in line with our prior guidance at $46.2 million.

After adding back the recent impairment charge recorded for the quarter and was well above the prior year of $32.8 million. Adjusted EBITDA margins percent increased by 100 basis points to 10.2% in the current year, as compared to 9.2% for the same prior year period.

Our adjusted EBITDA margin and margin percentages were favorably impacted by increased sales, but negatively impacted by the timing of raw material pricing pass throughs, inflationary pressures and lock stocks during the year. I will now provide an update on the financial performance of our fourth quarter.

We recorded fourth quarter net sale of approximately $113 million, as compared to $95 million for the same prior year period. The 19% increase was primarily driven by contractual raw material pricing pass throughs, include volumes, commercial price increases as compared prior years.

Manufacturing margins were 9.4 million for the fourth quarter 2021 as compared to $11 million for the same prior year period. The decrease was driven by continued inflationary pressures along with the timing of contractual law material price increases faster to our customers in the current period.

The company also incurred 2 million in launch costs and $700 of inventory write-off related to the agreement with the new fitness customer during the fourth quarter. These items were moderately offset by increased production volume, commercial price increases, higher scrap income and improved absorption of manufacturing overhead.

Manufacturing margin percentages were 8.3% for the fourth quarter of 2021 as compared 11.6% for the three months end December 31, 2020, decline of 330 basis points.

This decrease was driven primarily to the material price pass-throughs, launching inventory cost related to the new Hazel Park facility, labor variances cost by production disruptions related to customer supply chain issues and increases in the cost of labor.

When the impacts of these temporary items are removed, our normalized manufacturing margin percentage would've been 12.8%. Profit sharing bonus and deferred compensation expenses were $3.5 million for fourth quarter 2021, which would be in line with the $3.4 million reported for the same prior year period.

Other selling, general and administrative expenses were $5 million for the fourth quarter of 2021 as compared to $4.4 million for the same prior year period. The increase was principally attributable to higher salary, travel and entertainment expenses, which were again were artificially lower in the prior year due to the pandemic.

Adjusted EBITDA after adding back the impairment finish at $9.2 million for the fourth quarter of 2021, as compared to $9.3 million for the same prior year period. Adjusted EBITDA margin percentage decline by 170 basis points to 8.1% in the quarter, as compared to 9.8% for the same prior year period, and represent a negative incremental margin of 1%.

Again, if we remove the information and temporary items, our adjusted EBITDA would've been approximately $12.5 million. Our incremental margins would've been in line with a historical average of 22.5%. Now let me address our capital expenditures, balance sheet, liquidity figures.

Overall capital expenditures 2021 were $39.3 million as compared to $7.8 million during 2020. The increase is primarily due with the $19.7 million investment in the new Hazel Park facility, but the remainder being for the continuing investment in technology and automation of the pandemic.

As of the end of 2021, total outstanding debt, which includes bank debt and capital lease obligations was $68.8 million as compared to $48 million end of 2020.

The increase in debt relates to working capital increases to the rising steel prices, higher production levels, which have rebounded from the pandemic closing 2020, and increased capital expenditures relates to the new Hazel Park facility. Turning to the impairment charge related to the business customers.

Given the recent communication with the customer that Bob outlined earlier, U.S. generally accepted accounting principles require us to assess whether the assets specifically purchased lease obligations under the agreement with the customer were impaired. As a result, we recorded an impairment charge of $16.9 million.

This impairment comprised of $700,000 of inventory, which was recorded the cost of goods sold, $16.2 million lease hold improvement in equipment related assets. Additionally, in accordance with U.S. GAAP, we have not met all the requirements at this point that are necessary to allow us to record a loss recovery or a gain contingency.

It's important to reiterate that we remain confident in protections provided by our agreement with the customer and we will rigorously pursue this matter, which show. Now I'd like to discuss 2022 guidance. As Bob talked earlier, our goal is to -- supply chain uncertainty continuing. We anticipate volume to gradually improve as go through during 2022.

Our new business pipeline remains strong as we continue to build relationships and convert on new opportunities with new and existing customers looking to expand capacity and support robust end market demand.

As a result of the end market dynamics, we currently expect net sales between $480 million and $530 million with generally stable material pricing and adjusted EBITDA between $58 million and $70 million. Additionally, based on a recent event with our fitness customer, we are still assessing our full year capital plan.

And as thus, are not in a position to offer updated capital guidance for the year at this time.

What we can say is that, 2022 capital expenditures are expected to be above 2021 levels, as we make the final payment for capital commitment, previously made to meet contractual obligations related to our business customers, as well as our continued investments in new technology and automation in our base business.

These items will enhance our production capabilities and allow us to take on more business in the years ahead. Please note this outlook assumes no revenue associated with our business customer and our end markets remains stable, supply chain constraints automatically worsen as business activity continues to turn positive.

On a positive note, we do expect to return a record year of adjusted EBITDA performance in 2022. I will now turn the call back over to Bob..

Thank you, Todd. With our solid balance sheet, ongoing operational improvements, solid customer relationships, favorable outsourcing and re-shoring trends, and encouraging demand dynamics in the end markets we serve we have a positive outlook. Our business model is strong, resilient and agile.

We are well-positioned to execute our growth plans, which is demonstrated by the projected growth and record performance, implied by our 2022 outlook.

We believe our volumes will improve as the customers' supply chain disruptions continue to subside and they work to meet the vigorous demand in their respective end markets, particularly in the second half of 2022. With that, operator, we'd like to open the call for questions now. Thank you..

. The first question today comes from Stephen Volkmann of Jefferies. Steven, please go ahead. Your line is now open..

Great. Good morning, guys. Maybe my first question, maybe for Todd is, can you just tell us -- sorry if I missed this here a little hard to hear.

But what was the difference in price versus volume in the fourth quarter?.

Well, for the fourth quarter, we were impacted about $4,000 when you think of material lag. We did have some commercial pricing activity that went into place during the fourth quarter that were a positive, but on the flip side, will came in this quarter.

And so we did have some inflationary pressures when we think of supplies, wages, benefits and things of that nature to increase as well. So really when you look at it, volumes were better than the fourth quarter, even if you strip out versus the prior year, even if you strip out the commercial -- the material pass-through.

But again, we did have a little bit of a lag on the timing of commercial pricing and a little bit on the material path-through. .

And I think the choppiness of the quarter and the commercial vehicle market also develop our performance. .

I was just trying to kind of think about how much price kind of continues to help us in ‘22 from a top-line perspective. But maybe that's enough, so I can back into it.

Can you talk a little bit about the cadence of ‘22 in your plan? Like is each quarter a little better than the last one from a revenue and profit perspective, or is there some other different seasonality that you view?.

Well, what we can say is, we come into the first quarter, the markets we assume will be a little more robust and maybe finish in fourth quarter. We're supply chain issues will continue to get better.

As you look at the rest of the year, we do expect to see -- second quarter with a little bit of lift third quarter as well as the market continues to hopefully improve, and the demand remains as robust like it is today.

And then in the fourth quarter, just because of timing of days to shut down that are typically planned by our customers, we wouldn't expect fourth quarter to be down slightly. We think it's seasonality, but otherwise, really we come out of the first quarter probably in that 8% higher volumes.

And then we kind of say, well, we go a little bit, obviously progress of the year and then a little bit of a downturn in the fourth quarter. .

And then my final and then I'll pass it on. Can you say anything more about the protections and recoveries that you've mentioned a couple times relative to Hazel Park and this customer that is not going to end up buying anything.

And I guess I'm trying to figure out like, what types of -- is it like they reimburse you for some of the equipment or something, or part of the building, or just any color on what that might look like? And related is, is this one of those things that's going to drag out for like years? Or do you think that this is something that we can kind of wrap up at some point in 2022?.

I'll answer a question on 2022 first. I believe that it will be resolved this year. But I also -- obviously we'll be in the midst of discussions with that customers, it's new news and so new discussions taking place. But we are confident in our contract and how it protects us. So, I think we have to at that at this point. .

The next question today comes from Mircea Dobre from Baird..

Thanks for the time here. I guess I want to follow-up on Steve's question. Well follow up on Steve's question on the cadence of the year. And I just want to clarify here that you expect revenue to be up sequentially in Q1, relative to Q4.

So you think you're going to be able to ramp production in Q1 and then also how should we think about manufacturing margins in Q1 relative to Q4?.

Well we do expect to see improvements on that front, beginning right away in the first quarter. Now we put in on the commercial pricing activity in fourth quarter, but beginning in the year, a lot of those inflationary things are mutual what I call it. But we do have the material lag meeting.

We purchase items during the fourth quarter at a higher steel price. As we kind of worked through that inventory in the first quarter, there could be a little bit of lag let's say or drag a little bit on the manufacturing margin. But I do expect with that we would have improvement over the four quarter.

And as we progressed throughout the year, we would expect to see that generally increase sequentially throughout the year and improve. .

You obviously separated commercial pricing from the material sort of pass-throughs.

Can you give us a sense for what is going on with commercial pricing and how are those actions relative to the inflationary pressures that you're seeing in your business, whether it's wages or really anything else that you have to deal with?.

So as I mentioned in the fourth quarter, with Ryan and his team implemented pricing strategies with our customers that really made up for a lot of inflationary pressures.

So as we look into ’22, today as we been assuming that -- say generally table doesn't increase quite dramatically from this point, we should be covered on all of our commercial pricing activities for this year. And so I feel very good about those activities.

Now, the material pass through that is neutral to EBITDA has a little of impact on the EBITDA and margin percentages. As steel prices hopefully declined this year. We should see the inverse of that.

We should see positive news coming on the few million dollars, and as well as few bet percentage increase, but that can drive the volume to change a little bit even at our current guidance, if you take out the material pass through, we're still these 2019 production level, when you think of the piece part level, right? The number of units we're producing, but you can see that we're returning a much improved bottom line.

So I think a lot of the things we put in place in 2019 are operating effectively, , some of the choppiness, and get stable material pricing and see the inflationary pressures kind of subsid it. .

Okay. My final question is on Hazel Park facility. Sounds like you're continuing to invest. I mean, you're not providing a official CapEx guide for ‘22, but it sounds like you're continuing to do things in Hazel Park. And I'm kind of curious with this customer being essentially out of the picture, this facility was sort of meant to serve them.

How are you thinking about what the purpose of this facility is going to be longer term, and what sort of business is available to you within that Southeastern Michigan area or customers that you're pursuing to kind of start filling in whatever volume this facility is going to need if you're going to keep it and operate it?.

Mircea, I guess when we look at Hazel Park, we see a really good workforce. We see higher technology equipment on average compared to our other facilities. We do have the market growth within our current customer group and market served to support a very nice growth level at that facility.

Will we need all of that space, we will be studying that and likely have some subleasing for a period of time. But that space will ultimately, I hope allow us to even grow back any further than what we initially think here. But likely we will be looking for other things going into this, like subletting part of that space..

I'm just curious, Bob, because you have spoken in the past about how you are locating these facilities, strategically around customers, right, because transportation of your product and freight and so on, that's a kind of strategic consideration in terms of where you are placing these facilities.

And when I look at Southeastern Michigan, I think automotive, right. So I'm kind of curious, are you sort of trying to pursue some of that automotive business or is there something else that you are seeing in that area that, that is more consistent with the end markets that you are serving today? That's it..

No. I guess logistically, we have customers in Ohio, Iowa, Illinois, and the logistics from that site is not all that different than the logistics from where we are in Wisconsin. So we have spoken with our customers about these changes and these opportunities and I think they are excited as well..

Next question today comes from Andy Kaplowitz from Citigroup. Andy, please go ahead. Your line is now open. .

Good morning, everyone. Give us a breakdown of your major end markets and what you thought they would be at the end of '21.

I think in that early February release, as you think about the low teens revenue growth forecast you have for '22, would you expect the sales breakdown of any of your end markets to change significantly, mean that you see one or multiple end markets going faster or slower than the rest?.

Yes. I'm going to ask Ryan to answer that question. He has done the math..

Yes. I would say that, at a macro level, Andy, nothing significant shifting. Year-over-year, we obviously see the greatest strength in commercial truck, as well as construction and access. So as bottlenecks kind of get loosened up on the supply chain, there was pent-up demand for commercial vehicle that looks good for a '22.

And then honestly carries into some strong 2023 industry forecasts. Year-over-year, access was still pretty depressed. Looking back into 2020, that was large growth in '21 in the fourth quarter and expected to continue to strengthen through the year, especially as non-res and some of the infrastructure stuff picks up as well.

And in our powersports market we expect that to continue to have constraints at the dealer side just with the ability to always to produce. But eventually there's going to be some good demand for restocking in addition to the strong retail backdrop that's already out there. .

Ryan that's good color. Appreciated. So maybe a different way to ask the question also is, Ryan or Bob, you've got sort of these initiatives that you've been working on, new products, obviously there's some reassuring going on.

So if you think about sort of market growth versus your market share, and again, I look at that low-teens, forecast ‘22, how much of that growth do you think is coming either from new customers or existing customers that are sort of expanding their businesses, whether it's reassuring or something else?.

Yes, I mean, I think a lot of it is existing customer expansion we've seen really over the last year, Andy, some pretty significant model introductions and share gains for us that have occurred.

We have had as we noted some nice wins, particularly in the powersports market, adding new customers into the mix to kind of fill out the portfolio of those we're serving, the reassuring activities and customer outsourcing, we do have some great project that are in the quote phase and with where we're at today, maybe revenues late in the year, but a lot of the things we're working on right now that are more strategic and larger in nature would probably not lead to any real material revenues until we get into 2023.

.

So last question, Todd, just any more color you can give us on how to think about cash flow in 2022.

I know you said, we can't sort of pin down exact capital experiments years, but to be higher than ‘21, but maybe talk about working capital a little bit and what you see there and sort of have peak headwinds around supply chain having to capital higher, they start to subside at all?.

Yes, certainly. It's hard for me to comment too much on free cash flow yet until we've kind of finalized our plans on the capital. But I can talk about the fact that certainly in ‘21, working capital with supply and fuel prices with a bit of a detriment to our cash flow. And as we begin this year, prices are modestly coming down.

We expect that to continue as supply chain, hopefully stabilizes in our production, schedules from our customers become more normalized. I would expect to see the flow of our inventory and our terms fastly through this year.

And just that in itself can lead to a nice boom for us when we think of free cash flow generation and really, I think that'll be in a favorable position for this year. Offset by that will be what we end up spend in capital for the future.

So in general, more to come on that, I guess, as we finalize the plan, I think as we complete that capital low level certainly update you when that completed. With that, I can find a little better color around the free cash over the year. .

The next question today comes from Larry De Maria from William Blair. .

I know you don't want to touch too much on the comprehensive, et cetera on the in investment.

But release recourse -- just a level to people understanding, are we talking about going up with the $40 million that was spent or what was written off in last quarter or can you just kind of level with what expectations should be?.

Yes, I think, Larry would the impairment charge that was put together, things were considered around whether there was specific used assets for the customer that they should reimbursing us for with a return on that product. Also, we have commitments that we've made, whether it's facilities or people that need to help mitigate these costs.

So it's all of all things you can think of that go into running a business and the things that we believe they will have responsibilities for is how you do that evaluation. Beyond that there's -- that's the gap accounting side of it, then there's the contract side of it regarding what they pay for and what they've already agreed to pay for.

So we're going to enforce that and it would appear that they're going to work with us on that. So -- but we have to wait until that all gets resolved. .

Okay. That's helpful. Thanks for that. Now also to Hazel Park.

Just to clarify, is there any special equipment going in there, and to build it and they'll come or is this all is this point contracted?.

The capacity is spoken for I'll say, as we develop that and even with the investments that'll take place this year, as well as in the next year, likely. The markets are in good shape, and we have opportunities to fill that and beyond even. So we're optimistic about it.

We're going to be very thoughtful in how we do that with regard to starting a little slower and freeing up capacities at other locations that have more complex capabilities. So we're going to be thoughtful around that and make sure that we're optimizing the business. .

Okay. Thanks. And then last one relates to capacity utilization. Maybe we can level there as well.

I know you guys maybe think about differently in terms of labor, et cetera, but now that we have a new facility and square footage, how do we think about capacity utilization, maybe how it ended up in 4Q, and maybe where it be as the end of the year?.

I'm trying to -- Larry, we're having a little trouble hearing you. Maybe you could repeat the last part of that question. .

Okay.

I was just trying to understand capacity utilization with the new facility where it was at year-end and where you expected to be at year-end ’22?.

Well, obviously, there won't be a fitness capacity that fitness company capacity there, and it will be in capacities that are already in the areas that we know very well. So that will be a little bit of a shift in technology, but it will be dedicated largely to what we already have for customers and in the markets that we're already serving..

There are no further questions waiting at the moment. So I'd like to pass the conference back over to Bob Kamphuis, Chairman, President, and CEO. Bob, please go ahead..

Okay. Well, thank you everyone for your time today and your continued interest in MEC. We'll be keeping you updated as things develop and the business continues to grow. Thanks for your time. .

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines..