“From a capital allocation perspective, debt reduction remains our top near-term priority, followed by the opportunistic open-market purchase of our common stock under our share repurchase authorization,” continued Reddy. “We generated a record $16.1 million in free cash flow in the third quarter, allowing us to repay $17.1 million of debt from the MSA acquisition, while also repurchasing $1.0 million of stock. As previously communicated, we intend to reduce our net leverage to between 1.5x to 2.0x by year-end 2024. At the same time, we continue to build a longer-term pipeline of acquisition targets that provide us entry into high-value market adjacencies, including those equipped to capitalize on energy transition, reshoring and outsourcing themes.”
PERFORMANCE SUMMARY
Net sales increased by 16.1% on a year-over-year basis in the third quarter 2023, driven in part by the recent acquisition of Mid-States Aluminum (“MSA”) and increased organic volumes in our commercial vehicle, military and powersports end markets, partially offset by softening demand in our construction and agriculture end markets. Excluding the impact of the MSA acquisition, net sales increased organically by 6.2% year-over-year.
Manufacturing margin was $19.0 million in the third quarter 2023, or 12.0% of net sales, versus $15.5 million, or 11.3% of net sales, in the prior year period. The year-over-year increase in manufacturing margin was driven by the increased organic volumes, MBX initiatives and the MSA acquisition, partially offset by unabsorbed fixed costs associated with new project launches and non-recurring inventory step-up expense associated with the MSA acquisition.
Profit sharing, bonus and deferred compensation expense increased $2.2 million to $2.3 million in the third quarter of 2023. Other selling, general and administrative expenses were $8.6 million in the third quarter of 2023 as compared to $6.5 million for the same prior year period. The increase in these expenses during the third quarter primarily reflects the lower stock-based compensation expense in the prior year due to forfeitures of unvested awards, transaction costs associated with the acquisition of MSA, an increase in legal costs associated with litigation against a former customer and increased salaries, wages and benefits.
Interest expense was $3.9 million in the third quarter of 2023, as compared to $0.8 million in the prior year period, due to higher interest rates and an increase in borrowings. The increase in borrowings relative to the prior year is due to the acquisition of MSA, which closed on July 1, 2023.
Net income for the third quarter of 2023 was $1.4 million, or $0.07 per diluted share, versus $6.6 million, or $0.32 per diluted share, in the prior-year period.
MEC reported Adjusted EBITDA of $19.2 million in the third quarter 2023, or 12.1% of net sales, versus $16.1 million, or 11.8% of net sales, in the prior-year period. Third quarter 2023 Adjusted EBITDA reflects $1.7 million of losses associated with the ramp-up of production at our Hazel Park facility as compared to $1.3 million of losses in the prior year period. Excluding the impact of the ramp-up of the Hazel Park facility, Adjusted EBITDA margin for the third quarter of 2023 would have been 13.2%.
Adjusted net income for the third quarter of 2023 was $4.2 million, or $0.21 per diluted share, versus $6.7 million, or $0.33 per diluted share, in the prior year period. The decrease in adjusted net income reflects an increase in selling, general and administrative costs, the impact of unabsorbed fixed costs from new project launches and higher interest expense, which offset an increase in manufacturing margins.
Free cash flow during the third quarter 2023 was $16.1 million as compared to $5.2 million in the prior year period. The increase in free cash flow was primarily attributable to an $8.9 million decrease in capital expenditures associated with the completion of the Hazel Park facility and an increase in net cash provided by operating activities.