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Press release content from Business Wire. The AP news staff was not involved in its creation.

Mayville Engineering Company, Inc. Announces Third Quarter 2021 Results

November 2, 2021 GMT

MAYVILLE, Wis.--(BUSINESS WIRE)--Nov 2, 2021--

Mayville Engineering Company (NYSE: MEC) (the “Company” or “MEC”), a leading U.S.-based value-added manufacturing partner that provides a broad range of prototyping and tooling, production fabrication, coating, assembly and aftermarket components, today announced results for the third quarter ended September 30, 2021.

Third Quarter Highlights:

  • Produced net sales of $109.0 million
  • Recorded net income of $0.3 million
  • Generated Adjusted EBITDA of $10.0 million
  • Expanding investment in new Hazel Park, MI facility; Initial phase remains on track to open in 1H22, second phase planned for 2H22
  • Modifying 2021 financial outlook back to original projections based on short-term volume changes

“We continue to see strong medium- and long-term demand trends across the end markets we serve today and are seeing increased interest in our services from a broadening range of companies in some of these markets,” said Bob Kamphuis, Chairman, President and CEO. “Our customers’ supply chain constraints have resulted in near-term volume deferments. We continue to encounter inflationary pressures on manufacturing costs and raw materials, which we expect to recover through price pass throughs. Recruiting quality employees remains a challenge although the continued investment in flexible, redeployable automation and process improvements is allowing us to cost effectively grow our capacity. As we manage through these external headwinds, we are maintaining and growing our skilled labor force, despite the short-term impact on margins, to remain prepared for the forecasted strong customer demand when these supply chain issues are resolved.”

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Kamphuis added, “I am pleased to report that we remain on track with the plans at our new facility in Hazel Park, Michigan to support our new customer in the fitness market. We are now also adding more manufacturing capacity at this location to support overall positive demand trends for other customers. We continue to expect the initial phase of capacity to be ready during the first half of 2022 and the second phase to be ready in the second half of 2022.”

Third Quarter 2021 Results

Net sales were $109.0 million for the third quarter of 2021, as compared to $91.1 million for the same prior year period. Approximately half of the $17.9 million improvement was driven by contractual raw material price pass through to customers, with the remaining increase attributable to improved demand.

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Manufacturing margins were $10.9 million for the third quarter of 2021, as compared to $9.7 million for the same prior year period. The increase was primarily attributable to increased production volumes and higher scrap income resulting from better market pricing for scrap material in the current period. These items were partially offset by inflationary pressures on the costs of labor, benefits, materials, and general manufacturing supplies. The improvement in absorbed manufacturing overhead costs was primarily due to strong demand tempered by customer supply chain constraints in the current period, and the pandemic related operational shutdowns in the prior year period. The Company incurred $0.8 million in launch costs related to the new Hazel Park, MI facility in the current period, and $0.7 million of restructuring costs related to the Greenwood, SC facility closure in the prior year period.

Profit sharing, bonuses, and deferred compensation expenses were $1.9 million for the third quarter of 2021, as compared to $2.3 million for the same prior year period. The decrease of $0.4 million was primarily driven by the prior year’s accelerated accrual amounts as the Company re-established discretionary employer 401(k) and bonus accruals.

Other selling, general and administrative expenses were $5.3 million for the third quarter of 2021, as compared to $4.5 million for the same prior year period. The increase was mainly attributable to higher salary, payroll, travel, and entertainment expenses, which were unusually low in the prior year period due to the pandemic.

Income tax expense was $0.1 million for the third quarter of 2021 as compared to $0.7 million for the same prior year period. Federal income tax expenses will be offset against our federal net operating loss carryforward of approximately $11.7 million until it is fully utilized.

Balance Sheet and Liquidity

Net debt was $56.9 million as of September 30, 2021, resulting in a leverage ratio of 1.2x as compared to a covenant maximum of 3.50x.

Capital expenditures were $26.6 million for the nine-month period ended September 30, 2021, as compared to $5.4 million for the same prior year period. The Company continues to invest in technology and automation as planned versus focusing on preserving cash during the height of the pandemic which impacted the prior year period. Additionally, the Company invested approximately $6.5 million in the new Hazel Park, MI facility during the quarter in preparation for the ramp-up of production for the new strategic customer, which is set to begin in the first half of 2022. Overall, capital expenditures for 2021 are expected to be in the range of $52 to $57 million, with $35 to $40 million specifically focused on investments in the new Hazel Park, MI facility.

Outlook

Based on the recent labor challenges and customer supply chain constraints, which have impacted volumes in the near-term, the overall economic climate, and industry trends, the Company is modifying its 2021 financial outlook back to its original projections:

  • Net sales are expected to be between $450 million to $470 million.
  • Adjusted EBITDA is expected to be between $46 million and $52 million, net of the launch costs associated with the new customer relationship of $3.7 million to $4.3 million.

The outlook assumes end markets remain stable, supply chain constraints do not dramatically worsen, and that business activity as a whole continues to trend positively.

Kamphuis explained, “Based on the information and visibility we have today, we are returning to our original guidance range and remain confident in our long-term growth potential once external headwinds subside. We are in constant contact with our customers and are working diligently to help them address their supply chain challenges and meet the strong demand for their products. Due to our U.S. based supply chain, we remain confident in our preparedness to meet our customers volume demands and take on new business opportunities as our demand outlook for 2022 continues to be strong.”

Conference Call

The Company will host a conference call on Wednesday, November 3 rd, 2021, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time).

For a live Internet webcast of the conference call, visit www.mecinc.com and click on the link to the live webcast on the Investors page.

For telephone access to the conference, call (888) 349-0091 within the United States, call (855) 669-9657 within Canada, or +1 (412) 317-0780 from outside the United States and Canada.

Forward Looking Statements

This press-release includes forward-looking statements that reflect plans, estimates and beliefs. Such statements involve risk and uncertainties. Actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors. Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to: the negative impacts the coronavirus (COVID-19) has had and will continue to have on our business, financial condition, cash flows, results of operations and supply chain (including future uncertain impacts); failure to compete successfully in our markets; risks relating to developments in the industries in which our customers operate; our ability to maintain our manufacturing, engineering and technological expertise; the loss of any of our large customers or the loss of their respective market shares; risks related to scheduling production accurately and maximizing efficiency; our ability to realize net sales represented by our awarded business; our ability to successfully identify or integrate acquisitions; risks related to entering new markets; our ability to develop new and innovative processes and gain customer acceptance of such processes; our ability to recruit and retain our key executive officers, managers and trade-skilled personnel; risks related to our information technology systems and infrastructure; manufacturing risks, including delays and technical problems, issues with third-party suppliers, environmental risks and applicable statutory and regulatory requirements; political and economic developments, including foreign trade relations and associated tariffs; volatility in the prices or availability of raw materials critical to our business; results of legal disputes, including product liability, intellectual property infringement and other claims; risks associated with our capital-intensive industry; risks related to our treatment as an S Corporation prior to the consummation of our initial public offering; risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan; and other factors described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, which may be amended or supplemented by subsequent Quarterly Reports on Form 10-Q or other reports filed with the Securities and Exchange Commission. This discussion should be read in conjunction with our audited consolidated financial statements included in the Company’s previously filed Annual Report on Form 10-K for the year ended December 31, 2020. We undertake no obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by federal securities laws.

About Mayville Engineering Company

Founded in 1945, MEC is a leading U.S.-based value-added manufacturing partner that provides a broad range of prototyping and tooling, production fabrication, coating, assembly and aftermarket components. Our customers operate in diverse end markets, including heavy- and medium-duty commercial vehicle, construction & access equipment, powersports, agriculture, military, fitness equipment and other end markets. Along with process engineering and development services, MEC maintains an extensive manufacturing infrastructure with 19 facilities across seven states. These facilities make it possible to offer conventional and computer numerical control (CNC) stamping, shearing, fiber laser cutting, forming, drilling, tapping, grinding, tube bending, machining, welding, assembly and logistic services. MEC also possesses a broad range of finishing capabilities including shot blasting, e-coating, powder coating, wet spray and military grade chemical agent resistant coating (CARC) painting.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated in a manner other than in accordance with U.S generally accepted accounting principles (“GAAP”).

The non-GAAP measures used in this press release are EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin.

EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation, and amortization. EBITDA Margin represents EBITDA as a percentage of net sales for each period. Adjusted EBITDA represents EBITDA before stock-based compensation expenses and restructuring expenses related to the closure of the Greenwood facility. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of net sales for each period. These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP. These measures should not be considered as an alternative to net income (loss), or any other performance measure derived in accordance with GAAP as an indicator of our operating performance. We present Adjusted EBITDA and Adjusted EBITDA Margin as management uses these measures as key performance indicators, and we believe they are measures frequently used by securities analysts, investors and other parties to evaluate companies in our industry. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP.

Our calculation of EBITDA, EBITDA Margin, Adjusted EBIDTA and Adjusted EBITDA Margin may not be comparable to the similarly named measures reported by other companies. Potential differences between our measures of EBITDA and Adjusted EBITDA compared to other similar companies’ measures of EBITDA and Adjusted EBITDA may include differences in capital structure and tax positions.

Please reference our reconciliation of net income (loss), the most directly comparable measure calculated in accordance with GAAP, to EBITDA and Adjusted EBITDA, and the calculation of EBITDA Margin and Adjusted EBITDA Margin included in this press release.

Mayville Engineering Company, Inc.

Consolidated Balance Sheet

(in thousands, except share amounts)

(unaudited)

 

 

 

September 30,
2021

 

December 31,
2020

ASSETS

 

 

 

 

Cash and cash equivalents

 

$

127

 

 

$

121

 

Receivables, net of allowances for doubtful accounts of $1,346 at September 30, 2021 and $1,298 at December 31, 2020

 

 

58,841

 

 

 

42,080

 

Inventories, net

 

 

62,914

 

 

 

41,366

 

Tooling in progress

 

 

3,436

 

 

 

3,126

 

Prepaid expenses and other current assets

 

 

3,066

 

 

 

2,555

 

Total current assets

 

 

128,384

 

 

 

89,248

 

Property, plant and equipment, net

 

 

120,150

 

 

 

106,688

 

Assets held for sale

 

 

 

 

 

3,552

 

Goodwill

 

 

71,535

 

 

 

71,535

 

Intangible assets-net

 

 

53,437

 

 

 

61,467

 

Capital lease, net

 

 

2,115

 

 

 

2,581

 

Other long-term assets

 

 

3,595

 

 

 

3,462

 

Total

 

$

379,216

 

 

$

338,533

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Accounts payable

 

$

49,814

 

 

$

33,495

 

Current portion of capital lease obligation

 

 

648

 

 

 

626

 

Accrued liabilities:

 

 

 

 

Salaries, wages, and payroll taxes

 

 

10,459

 

 

 

10,190

 

Profit sharing and bonus

 

 

4,538

 

 

 

3,089

 

Other current liabilities

 

 

6,924

 

 

 

5,340

 

Total current liabilities

 

 

72,383

 

 

 

52,740

 

Bank revolving credit notes

 

 

54,718

 

 

 

45,257

 

Capital lease obligation, less current maturities

 

 

1,572

 

 

 

2,061

 

Deferred compensation and long-term incentive, less current portion

 

 

25,373

 

 

 

25,631

 

Deferred income tax liability

 

 

12,928

 

 

 

11,887

 

Other long-term liabilities

 

 

100

 

 

 

100

 

Total liabilities

 

 

167,074

 

 

 

137,676

 

Common shares, no par value, 75,000,000 authorized, 21,386,382 shares issued at September 30, 2021 and 21,093,035 at December 31, 2020

 

 

 

 

 

 

Additional paid-in-capital

 

 

195,994

 

 

 

190,793

 

Retained earnings

 

 

21,110

 

 

 

14,998

 

Treasury shares at cost, 949,663 shares at September 30, 2021 and 1,033,645 at December 31, 2020

 

 

(4,962

)

 

 

(4,934

)

Total shareholders’ equity

 

 

212,142

 

 

 

200,857

 

Total

 

$

379,216

 

 

$

338,533

 

Mayville Engineering Company, Inc.

Consolidated Statement of Income (Loss)

(in thousands, except share amounts and per share data)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2021

 

2020

 

2021

 

2020

Net sales

 

$

109,018

 

 

$

91,075

 

 

$

341,851

 

 

$

262,262

 

Cost of sales

 

 

98,109

 

 

 

81,340

 

 

 

299,885

 

 

 

241,838

 

Amortization of intangibles

 

 

2,677

 

 

 

2,677

 

 

 

8,030

 

 

 

8,030

 

Profit sharing, bonuses, and deferred compensation

 

 

1,939

 

 

 

2,288

 

 

 

8,013

 

 

 

4,807

 

Employee stock ownership plan expense

 

 

124

 

 

 

 

 

 

825

 

 

 

 

Other selling, general and administrative expenses

 

 

5,305

 

 

 

4,490

 

 

 

15,365

 

 

 

14,642

 

Income (loss) from operations

 

 

864

 

 

 

280

 

 

 

9,733

 

 

 

(7,055

)

Interest expense

 

 

(526

)

 

 

(647

)

 

 

(1,562

)

 

 

(2,110

)

Income (loss) before taxes

 

 

338

 

 

 

(367

)

 

 

8,171

 

 

 

(9,165

)

Income tax expense (benefit)

 

 

63

 

 

 

733

 

 

 

2,059

 

 

 

(1,101

)

Net income (loss) and comprehensive income (loss)

 

$

275

 

 

$

(1,100

)

 

$

6,112

 

 

$

(8,064

)

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

(0.05

)

 

$

0.30

 

 

$

(0.41

)

Diluted

 

$

0.01

 

 

$

(0.05

)

 

$

0.29

 

 

$

(0.41

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

20,520,985

 

 

 

20,077,039

 

 

 

20,385,732

 

 

 

19,838,701

 

Diluted

 

 

20,961,470

 

 

 

20,077,039

 

 

 

20,812,382

 

 

 

19,838,701

 

Mayville Engineering Company, Inc.

Consolidated Statement of Cash Flows

(in thousands)

(unaudited)

 

Nine Months Ended
September 30,

 

 

2021

 

2020

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income (loss)

 

$

6,112

 

 

$

(8,064

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

Depreciation

 

 

15,520

 

 

 

16,304

 

Amortization

 

 

8,030

 

 

 

8,030

 

Stock-based compensation expense

 

 

3,771

 

 

 

3,719

 

Allowance for doubtful accounts

 

 

48

 

 

 

767

 

Inventory excess and obsolescence reserve

 

 

(511

)

 

 

279

 

Loss (gain) on disposal of property, plant and equipment

 

 

(1,311

)

 

 

688

 

Deferred compensation and long-term incentive

 

 

(258

)

 

 

234

 

Other non-cash adjustments

 

 

236

 

 

 

262

 

Changes in operating assets and liabilities – net of effects of acquisition:

 

 

 

 

Accounts receivable

 

 

(16,809

)

 

 

(9,233

)

Inventories

 

 

(21,037

)

 

 

7,449

 

Tooling in progress

 

 

(310

)

 

 

(2,053

)

Prepaids and other current assets

 

 

(989

)

 

 

338

 

Accounts payable

 

 

13,819

 

 

 

(4,016

)

Deferred income taxes

 

 

1,152

 

 

 

(1,189

)

Accrued liabilities, excluding long-term incentive

 

 

5,330

 

 

 

5,776

 

Net cash provided by operating activities

 

 

12,793

 

 

 

19,291

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Purchase of property, plant and equipment

 

 

(26,588

)

 

 

(5,354

)

Proceeds from sale of property, plant and equipment

 

 

5,348

 

 

 

1,920

 

Net cash used in investing activities

 

 

(21,240

)

 

 

(3,434

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Proceeds from bank revolving credit notes

 

 

276,568

 

 

 

209,857

 

Payments on bank revolving credit notes

 

 

(267,108

)

 

 

(222,443

)

Deferred financing costs

 

 

 

 

 

(206

)

Purchase of treasury stock

 

 

(653

)

 

 

(2,510

)

Payments on capital leases

 

 

(467

)

 

 

(446

)

Proceeds from the exercise of stock options

 

 

139

 

 

 

 

Other financing activities

 

 

(26

)

 

 

 

Net cash provided by (used in) financing activities

 

 

8,453

 

 

 

(15,748

)

Net increase (decrease) in cash and cash equivalents

 

 

6

 

 

 

109

 

Cash and cash equivalents at beginning of period

 

 

121

 

 

 

1

 

Cash and cash equivalents at end of period

 

$

127

 

 

$

110

 

Mayville Engineering Company, Inc.

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA

(in thousands)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2021

 

2020

 

2021

 

2020

Net income (loss)

 

$

275

 

 

$

(1,100

)

 

$

6,112

 

 

$

(8,064

)

Interest expense

 

 

526

 

 

 

647

 

 

 

1,562

 

 

 

2,110

 

Provision (benefit) for income taxes

 

 

63

 

 

 

733

 

 

 

2,059

 

 

 

(1,101

)

Depreciation and amortization

 

 

7,961

 

 

 

7,894

 

 

 

23,550

 

 

 

24,334

 

EBITDA

 

 

8,825

 

 

 

8,174

 

 

 

33,283

 

 

 

17,279

 

IPO stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,029

 

Stock based compensation expense

 

 

1,182

 

 

 

978

 

 

 

3,771

 

 

 

2,690

 

Greenwood restructuring charges

 

 

 

 

 

687

 

 

 

 

 

 

2,524

 

Adjusted EBITDA

 

$

10,007

 

 

$

9,839

 

 

$

37,054

 

 

$

23,522

 

Net sales

 

$

109,018

 

 

$

91,075

 

 

$

341,851

 

 

$

262,262

 

EBITDA Margin

 

 

8.1

%

 

 

9.0

%

 

 

9.7

%

 

 

6.6

%

Adjusted EBITDA Margin

 

 

9.2

%

 

 

10.8

%

 

 

10.8

%

 

 

9.0

%

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20211102006350/en/

CONTACT: Nathan Elwell

Lincoln Churchill Advisors

(847) 530-0249

nelwell@lincolnchurchilladvisors.com

KEYWORD: WISCONSIN UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: AUTOMOTIVE MANUFACTURING MANUFACTURING OTHER MANUFACTURING ENGINEERING CHEMICALS/PLASTICS

SOURCE: Mayville Engineering Company

Copyright Business Wire 2021.

PUB: 11/02/2021 06:00 PM/DISC: 11/02/2021 06:02 PM

http://www.businesswire.com/news/home/20211102006350/en