Positive Operating Results and Progress with
Integration of DMP Acquisition; Successfully Completed IPO on
May 13, 2019
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 services, today
announced results for the first quarter ended March 31, 2019.
Highlights:
- Produced net sales of $143.7
million.
- Generated net income of $2.5
million.
- Recorded Adjusted EBITDA of $16.8
million.
- Substantial progress with
integration of Defiance Metal Products Co. (“DMP”), acquired in
December 2018.
- Completed IPO in May generating
total net proceeds of $101.8 million.
“We are pleased with our performance this quarter, which
reflects the ongoing strength of our diverse markets served and
agile operations combined with the addition of DMP near the end of
last year,” noted Robert D. Kamphuis, Chairman, President and CEO
of Mayville Engineering Company. “Our recent IPO and subsequent
debt reduction provided a significant increase in financial
flexibility and we are well positioned to execute our growth
strategy going forward. We are excited to partner our new
shareholders with our ESOP shareholders whereby alignment and
commitment to achieving our goals is a competitive advantage.”
First Quarter 2019
ResultsNet sales were $143.7 million for the first
quarter of 2019 compared to $87.2 million for the same prior year
period, an increase of $56.5 million, or 64.8%. DMP contributed
$50.2 million, or 57.5%, of the increase. The remaining $6.3
million, or 7.3% of the increase, was due to organic growth of our
legacy business, mostly driven by increased volumes.
Manufacturing margins were $19.6 million for the first quarter
of 2019 compared to $11.8 million for the same prior year period,
an increase of $7.8 million, or 65.8%. DMP accounted for $5.6
million, or 47.5%, of the increase. The remaining $2.2 million was
driven by improved utilization in our legacy business mostly due to
increased volumes.
Depreciation and amortization expenses were $7.7 million for the
first quarter of 2019 compared to $5.0 million for the same prior
year period, an increase of $2.7 million, or 53.2%. DMP accounted
for $0.7 million of the $0.9 million increase in depreciation
expense with the remaining $0.2 million attributable to the legacy
business’ investments in technology. The $1.7 million increase in
amortization expense was solely driven by amortization of
identifiable intangible assets related to the DMP acquisition.
Other selling, general and administrative expenses were $7.6
million for the first quarter of 2019 compared to $2.9 million for
the same prior year period. The increase of $4.7 million was
primarily driven by one-time expenses including $1.8 million
related to the Company’s initial public offering (“IPO”) and the
DMP acquisition along with $0.9 million related to the DMP
contingent consideration fair value adjustment. The DMP acquired
entities accounted for another $1.5 million of the increase with
the remainder mostly attributable to personnel additions needed to
enhance the company’s structure of being a publicly traded company
and support future growth.
Income tax expenses were $0.8 million for the first quarter of
2019, compared to $29 thousand for the same prior year period. The
increase of $0.7 million is due to the acquisition of the DMP
entities, which are taxable under the provisions of the Internal
Revenue Code and certain state statutes. Prior to the Company’s
IPO, the Company’s legacy business was an S Corporation, where
substantially all taxes were passed to the shareholders and the
Company did not pay federal or state corporate income taxes on its
taxable income. In connection with the IPO, the Company’s legacy
business converted to a C Corporation. As a result, the
consolidated business will be subject to paying federal and state
corporate income taxes on its taxable income from May 12, 2019
forward.
EBITDA and EBITDA Margin percent were $13.7 million and 9.5%,
respectively, for the first quarter of 2019, compared to $10.4
million and 11.9%, respectively, for the first quarter of 2018. The
$3.3 million increase in EBITDA was due to the acquisition of DMP
as well as the organic growth of our legacy business. The decline
in EBITDA Margin percentage from 11.9% to 9.5% was primarily due to
one-time expenses incurred during the first quarter of 2019. These
one-time expenses included $0.4 million of expenses related to the
DMP inventory fair value step-up, $1.8 million of one-time expenses
related to the IPO and the DMP acquisition, and $0.9 million
related to the DMP contingent consideration fair value
adjustment.
Adjusted EBITDA and Adjusted EBITDA Margin percent were $16.8
million and 11.7%, respectively, for the first quarter of 2019,
compared to $10.4 million and 11.9%, respectively, for the first
quarter of 2018. The increase in Adjusted EBITDA of $6.4 million
was due to our recent acquisition of DMP and growth in our legacy
business.
Balance Sheet and
LiquidityOur total outstanding debt balance, which
includes long-term debt and bank revolving credit notes, was $186.6
million as of March 31, 2019 compared to $179.9 million as of
December 31, 2018. Funds provided by the $6.7 million debt increase
were primarily used for capital expenditures.
As previously announced, the Company completed its IPO on May
13, 2019 generating approximately $101.8 million of total proceeds
net of underwriting discounts and commissions. All of these
proceeds have been used to pay down debt balances.
OutlookBased on the
Company’s 2018 performance, the overall economic climate, and
industry trends, the Company is outlining its 2019 financial
outlook as follows:
- Net sales are expected to be between
$558 million to $570 million
- Adjusted EBITDA is expected to be
between $66 million and $72 million
Kamphuis added, “As we approach mid-year, we are providing
annual financial guidance for 2019, which represents a strong
improvement over last year based on the acquisition of DMP and
organic growth across our business. As we look to the second half
of the year, we have quickly adapted to life as a public company
and remain confident in our ability to execute our strategy and
partner with our customers to provide meaningful value to their
operations.”
Conference CallThe Company
will host a conference call on Wednesday, May 29th, 2019 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 (866) 652-5200
within the United States, call (855)-669-9657 within Canada, or +1
(412) 317-6060 from outside the United States and Canada.
Forward Looking
StatementsThis press-release includes forward-looking
statements that reflect our plans, estimates and beliefs. Such
statements involve risks and uncertainties. Our actual results may
differ materially from those contemplated by these forward-looking
statements as a result of various factors, including those set
forth in “Risk Factors” and “Cautionary Statement Regarding
Forward-Looking Statements” in the Company’s previously filed
registration statement on Form S-1. 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: 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 the initial public offering; risks related to our
employee stock ownership plan’s treatment as a tax-qualified
retirement plan; and our ability to remediate the material
weaknesses in internal control over financial reporting identified
in preparing our audited consolidated financial statements and to
subsequently maintain effective internal control over financial
reporting. This discussion should be read in conjunction with our
audited consolidated financial statements included in the Company’s
previously filed registration statement on Form S-1. 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.
About Mayville Engineering
CompanyMEC 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 vehicles,
construction, powersports, agriculture, military and other end
markets. We have developed long-standing relationships with our
blue-chip customers based upon a high level of experience, trust
and confidence.
Our one operating segment focuses on producing metal components
that are used in a broad range of heavy- and medium-duty commercial
vehicles, construction, powersports, agricultural, military and
other products.
Use of Non-GAAP Financial
MeasuresThis 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 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 transaction fees
incurred in connection with the DMP acquisition and our initial
public offering, the loss on debt extinguishment relating to our
December 2018 credit agreement, and non-cash purchase accounting
charges including costs recognized on the step-up of acquired
inventory and contingent consideration fair value adjustments.
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 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 EBITDA 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, 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 data)
(Unaudited)March 31,
December 31, 2019 2018 ASSETS Cash and cash equivalents $ 28 $
3,089 Receivables, net of allowances for doubtful accounts of $759
as of March 31, 2019 and $801 as of December 31, 2018 67,759 52,298
Inventories, net 53,480 53,405 Tooling in progress 2,672 2,318
Prepaid expenses and other current assets 2,563 1,649
Total current assets 126,502 112,759 Property, plant
and equipment, net 125,577 123,883 Goodwill 70,534 69,437
Intangible assets-net 80,203 82,879 Capital lease, net 1,880 1,953
Other long-term assets 762 814 Total assets $ 405,459
$ 391,725 LIABILITIES AND TEMPORARY EQUITY Accounts payable $
50,327 $ 45,992 Current portion of capital lease obligation 275 281
Current portion of long-term debt 10,549 8,606 Accrued liabilities:
Salaries, wages, and payroll taxes 7,894 7,548 Profit sharing and
bonus 3,563 6,124 Other current liabilities 14,840
14,610 Total current liabilities 87,449 83,161 Bank
revolving credit notes 66,389 59,629 Capital lease obligation, less
current maturities 1,630 1,697 Other long-term debt, less current
maturities 109,669 111,675 Deferred compensation and long-term
incentive, less current portion 14,498 13,351 Deferred income taxes
20,275 19,123 Other long-term liabilities 100 100
Total liabilities 300,010 288,736 Redeemable common
shares, no par value, stated at redemption value of outstanding
shares, 60,045,300 authorized*, 38,623,806 shares issued* at March
31, 2019 and December 31, 2018 133,806 133,806 Retained earnings
29,301 26,842 Treasury stock at cost, 25,180,330 shares* at March
31, 2019 and December 31, 2018 (57,659 ) (57,659 )
Total temporary equity 105,449 102,989
Total liabilities and temporary equity
$ 405,459 $ 391,725
* Giving effect to the issuance of a stock
dividend of approximately 1,334.34-for-1 related to the IPO, as if
the IPO occurred at the beginning of 2018. There were 45,000 shares
authorized, 28,946 shares issued and 18,871 treasury shares at
March 31, 2019 and December 31, 2018.
Mayville Engineering Company,
Inc.Consolidated Statement of Income(in thousands
except share data)
(Unaudited)Three Months Ended
March 31, 2019 2018 Net sales $ 143,732
$
87,221
Cost of sales
124,153 75,411
Amortization of intangibles
2,677 939 Profit sharing, bonuses, and deferred compensation 1,750
1,640 Employee Stock Ownership Plan expense 1,500 1,000 Other
selling, general and administrative expenses 7,599 2,875
Income from operations
6,054 5,356
Interest expense
(2,832 ) (906 ) Other income (loss) 7 8
Income before taxes
3,229 4,458 Income tax expense 769 29
Net income and comprehensive income
$ 2,459 $ 4,430 Earnings per share – basic and diluted Net
income available to shareholders $ 2,459 $ 4,430 Earnings per share
$ 0.18 $ 0.31 Weighted average shares outstanding 13,443,476
14,117,317 Tax and share adjusted pro forma information Net
income available to shareholders $ 2,459
$
4,430 Pro forma provision for income taxes 70 1,130
Pro forma net income $ 2,389
$
3,300 Pro forma earnings per share $ 0.18 $ 0.23 Weighted average
shares outstanding 13,443,476 14,117,317
Tax adjusted pro forma amounts reflect
income tax adjustments as if the Company was a taxable entity as of
the beginning of 2018 using a 26% effective tax rate.
Weighted average shares give effect to the
issuance of a stock dividend of approximately 1,334.34-for-1
related to the IPO, as if the IPO occurred at the beginning of
2018.
Mayville Engineering Company,
Inc.Consolidated Statement of Cash Flows(in
thousands)
(Unaudited)
Three Months Ended
March 31, 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net
income $ 2,459 $ 4,430
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 7,650 4,992 Costs recognized on
step-up of acquired inventory 395 — Expense recognized on
contingent consideration fair value adjustment 869 — Gain on sale
of property, plant and equipment (10 ) — Deferred compensation and
long-term incentive 1,147 666 Non-cash adjustments 54 63
Changes in operating assets and
liabilities - net of effects of acquisition:
Accounts receivable (15,419 ) (7,552 ) Inventories (470 ) (2,837 )
Tooling in progress (354 ) 129 Prepaids and other current assets
(914 ) (608 ) Accounts payable 5,892 3,795 Accrued liabilities,
excluding long-term incentive (2,799 ) (1,405 ) Net
cash used in operating activities (1,500 ) 1,673 CASH
FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and
equipment (8,151 ) (2,488 ) Proceeds from sale of property, plant
and equipment 9 — Net cash used in investing
activities (8,142 ) (2,488 ) CASH FLOWS FROM
FINANCING ACTIVITIES Proceeds from bank revolving credit notes
117,666 38,951 Payments on bank revolving credit notes (110,906 )
(36,195 ) Repayments of other long-term debt — — Proceeds from
issuance of other long-term debt (107 ) (1,983 ) Payments on
capital leases (73 ) — Net cash provided by financing
activities 6,580 773 Net increase (decrease) in cash
and cash equivalents (3,061 ) (42 ) Cash and cash equivalents at
beginning of period 3,089 76 Cash and cash
equivalents at end of period $ 28 $ 34 Supplemental
disclosure of cash flow information: Cash paid for interest $ 2,966
$ 992
Mayville Engineering Company,
Inc.Reconciliation of Net Income to EBITDA and Adjusted
EBITDA(in thousands)
(Unaudited)Three Months EndedMarch
31,
2019 2018 Net income $ 2,459 $ 4,430 Interest expense
2,832 906 Income tax expense 769 29 Depreciation and amortization
7,650 4,992 EBITDA 13,710 10,357 Costs recognized on
step-up of acquired inventory 395 — Contingent consideration fair
value adjustment* 869 — DMP acquisition and IPO related expenses
1,814 — Adjusted EBITDA $ 16,788 $ 10,357 Net
sales $ 143,732 $ 87,221 EBITDA Margin Percentage 9.5% 11.9%
Adjusted EBITDA Margin Percentage 11.7% 11.9%
* Adjustment relating to the fair value of
the contingent consideration recorded as part of the DMP
acquisition.
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version on businesswire.com: https://www.businesswire.com/news/home/20190528005765/en/
Nathan ElwellLincoln Churchill Advisors(847)
530-0249nelwell@lincolnchurchilladvisors.com
Mayville Engineering (NYSE:MEC)
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