Robust Operating Results in Line with
Internal Expectations; Reaffirming 2019 Outlook
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 second quarter ended June 30, 2019.
Highlights:
- Completed IPO in May generating total net proceeds of $101.8
million
- Produced net sales of $145.1 million
- Net loss of $15.3 million includes $23.2 million of one-time
IPO related charges
- Recorded Adjusted EBITDA of $17.8 million
- Lowered the Company’s total outstanding debt balance by
$90.9 million
- Defiance Metal Products (“DMP”) performance and integration
remain on track
- Company reaffirms 2019 full-year outlook
“Our leading market position and reputation within the industry,
coupled with our operational effectiveness and agility were key
factors in our strong performance this quarter,” noted Robert D.
Kamphuis, Chairman, President and CEO. “With the elimination of our
retiree and diversification repurchase obligations and debt
reduction from the IPO, we have increased financial flexibility and
are well positioned to execute our growth strategy going
forward.”
Second Quarter 2019
Results Net sales were $145.1 million for the
second quarter of 2019 as compared to $91.5 million for the same
prior year period, an increase of $53.6 million, primarily driven
by DMP. Net sales for the legacy business were comparable to the
same quarter last year, noting that the 2018 quarter was a then
record for the Company.
Manufacturing margins were $20.5 million for the second quarter
of 2019 as compared to $15.6 million for the same prior year
period, an increase of $4.9 million, primarily driven by DMP.
Amortization expenses were $2.7 million for the second quarter
of 2019 as compared to $0.9 million for the same prior year period.
The increase was solely driven by the amortization of identifiable
intangible assets related to the DMP acquisition.
Depreciation expenses were $6.0 million for the second quarter
of 2019 as compared to $4.0 million for the same prior year period.
The increase relates to the addition of DMP and continued
investments in new technology and automation.
Profit sharing, bonuses, and deferred compensation expenses were
$22.8 million for the second quarter of 2019 as compared to $1.4
million for the same prior year period. The increase of $21.4
million was primarily driven by a one-time $10.2 million increase
in deferred compensation plan expense and a one-time $9.9 million
increase in long term incentive plan (“LTIP”) expense, both
increases related to the initial public offering (“IPO”).
Other selling, general and administrative expenses were $10.2
million for the second quarter of 2019 as compared to $2.7 million
for the same prior year period. The increase was primarily driven
by $3.0 million of one-time IPO expenses, $2.7 million for the DMP
contingent consideration fair value adjustment, and the remainder
mostly attributable to the DMP acquired entities plus additional
costs associated with being a public company.
Interest expense was $2.0 million for the second quarter of 2019
as compared to $0.9 million for the same prior year period. The
increase is due to additional debt related to the DMP acquisition,
slightly offset by the partial paydown with use of the IPO
proceeds.
Income tax benefits were $3.5 million for the second quarter of
2019. The benefit is the result of the Company’s legacy business
converting to a C corporation on May 12, 2019, in conjunction with
the one-time IPO expenses incurred during the quarter. Prior to the
Company’s IPO, the Company’s legacy business was an S
Corporation.
EBITDA and EBITDA Margin percent were ($8.1) million and -5.6%,
respectively, for the second quarter of 2019 as compared to $13.9
million and 15.1%, respectively, for the second quarter of 2018.
The $22.0 million decline in EBITDA is due to the previously
mentioned one-time increases in LTIP and deferred compensation
expenses, one-time IPO expenses, and the DMP contingent
consideration fair value adjustment. These one-time expenses and
charges were slightly offset by the addition of DMP.
Adjusted EBITDA and Adjusted EBITDA Margin percent were $17.8
million and 12.3%, respectively, for the second quarter of 2019 as
compared to $14.4 million and 15.8%, respectively, for the second
quarter of 2018. The increase in Adjusted EBITDA of $3.4 million
was due to the acquisition of DMP.
Year-to-Date 2019 ResultsNet
sales were $288.9 million for the first half of 2019 as compared to
$178.8 million for the same prior year period, an increase of
$110.1 million. DMP contributed $103.7 million of the increase with
the legacy business contributing the remainder.
Manufacturing margins were $40.1 million for the first half of
2019 as compared to $27.4 million for the same prior year period,
an increase of $12.7 million, primarily driven by DMP.
EBITDA and EBITDA Margin percent were $5.6 million and 1.9%,
respectively, for the first half of 2019 as compared to $24.2
million and 13.5%, respectively, for the same prior year period.
The $18.6 million decline in EBITDA is due to the previously
mentioned one-time IPO related expenses and the DMP contingent
consideration fair value adjustment, slightly offset by the
addition of DMP.
Adjusted EBITDA and Adjusted EBITDA Margin percent were $34.6
million and 12.0%, respectively, for the first half of 2019 as
compared to $24.8 million and 13.9%, respectively, for the first
half of 2018. The increase in Adjusted EBITDA of $9.8 million was
primarily due to the recent acquisition of DMP.
Balance Sheet and
Liquidity Total outstanding debt balance, which
includes long-term debt and bank revolving credit notes, was $89.0
million as of June 30, 2019, compared to $179.9 million as of
December 31, 2018. The $90.9 million decline is attributable to the
repayment of debt from the $101.8 million of IPO proceeds, offset
by one-time IPO related expenses and share repurchases in the
second quarter of 2019.
Capital expenditures were $16.6 million for the first half of
2019. Budgeted capital expenditures for the full year 2019 remain
consistent at approximately $20 million.
Outlook Based on the
Company’s recent performance, the overall economic climate, and
industry trends, the Company is confirming the 2019 financial
outlook previously issued in May 2019:
- 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 explained, “We are comfortable confirming our outlook
for the year based on our current visibility, internal plans and
order book. Of course, we remain focused on macroeconomic and
industry trends and will use our market and operating agility to
adjust our focus as needed in the coming quarters. We continue to
execute our strategy effectively and want to express our
appreciation for the dedication and hard work of our more than
3,000 employee owners who are striving every day to deliver for our
customers.”
Conference Call The
Company will host a conference call on Wednesday, August 7th, 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 plans, estimates and beliefs. Such
statements involve risks and uncertainties. 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
Company 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 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
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 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, non-cash purchase accounting
charges including costs recognized on the step-up of acquired
inventory and contingent consideration fair value adjustments, and
one-time increases in deferred compensation and long term incentive
plan expenses related to the initial public offering. 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)
December 31,
June 30,
2019
2018
ASSETS Cash and cash equivalents
$
1
$
3,089
Receivables, net of allowances for doubtful accounts of $778 as of
June 30, 2019 and $801 as of December 31, 2018
65,220
52,298
Inventories, net
50,582
53,405
Tooling in progress
2,539
2,318
Prepaid expenses and other current assets
3,394
1,649
Total current assets
121,736
112,759
Property, plant and equipment, net
127,721
123,883
Goodwill
72,430
69,437
Intangible assets-net
77,526
82,879
Capital lease, net
1,807
1,953
Other long-term assets
5,441
814
Total
$
406,661
$
391,725
Mayville Engineering Company,
Inc.
Consolidated Balance Sheet (continued) (in thousands
except share data) (Unaudited)
December 31,
June 30,
2019
2018
LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ EQUITY
Accounts payable
$
48,411
$
45,992
Current portion of capital lease obligation
269
281
Current portion of long-term debt
8,392
8,606
Accrued liabilities:
Salaries, wages, and payroll taxes
7,897
7,548
Profit sharing and bonus
6,528
6,124
Other current liabilities
17,291
14,610
Total current liabilities
88,788
83,161
Bank revolving credit notes
41,485
59,629
Capital lease obligation, less current maturities
1,562
1,697
Other long-term debt, less current maturities
39,168
111,675
Deferred compensation and long-term incentive, less current portion
24,602
13,351
Deferred income taxes
19,824
19,123
Other long-term liabilities
100
100
Total liabilities
215,529
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 December 31, 2018
—
133,806
Retained earnings
—
26,842
Treasury stock at cost, 25,180,330 shares at December 31, 2018
—
(57,659
)
Total temporary equity
—
102,989
Common shares, no par value, 75,000,000 authorized, 20,845,693
shares issued at June 30, 2019
—
—
Additional paid-in-capital
180,997
—
Retained earnings
14,017
—
Treasury stock at cost 1,105,397 shares at June 30, 2019
(3,882
)
—
Total shareholders’ equity
191,132
102,989
Total
$
406,661
$
391,725
Share counts give effect to the issuance of a stock dividend of
approximately 1,334.34-for-1 related to the Company’s May 2019 IPO.
There were 45,000 shares authorized, 28,946 shares issued and
18,871 treasury shares at December 31, 2018.
Mayville Engineering Company, Inc. Consolidated Statement
of Income (Loss) (in thousands except share data)
(Unaudited) (Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Net sales
$
145,130
91,535
$
288,862
$
178,757
Cost of sales
124,595
75,986
248,748
151,396
Amortization of intangibles
2,677
939
5,353
1,878
Profit sharing, bonuses, and deferred compensation
22,830
1,365
24,580
3,005
Employee Stock Ownership Plan expense
1,500
1,000
3,000
2,000
Other selling, general and administrative expenses
10,180
2,713
17,772
5,581
Income (loss) from operations
(16,652
)
9,532
(10,591
)
14,897
Interest expense
(1,991
)
(853
)
(4,824
)
(1,760
)
Loss on debt extinguishment
(154
)
(588
)
(154
)
(588
)
Income (loss) before taxes
(18,797
)
8,091
(15,569
)
12,549
Income tax expense (benefit)
(3,513
)
—
(2,744
)
29
Net income (loss) and comprehensive income
$
(15,284
)
$
8,091
$
(12,825
)
$
12,520
Earnings per share – basic and diluted
Net income available to shareholders
$
(15,284
)
$
8,091
$
(12,825
)
$
12,520
Basic and diluted earnings (loss) per share
$
(0.91
)
$
0.56
$
(0.85
)
$
0.87
Basic and diluted weighted average shares outstanding
16,799,915
14,341,538
15,131,012
14,341,538
Tax and share adjusted pro forma information
Net income (loss) available to shareholders
$
(15,284
)
$
8,091
$
(12,825
)
$
12,520
Pro forma provision for income taxes
103
2,104
173
3,226
Pro forma net income (loss)
$
(15,387
)
$
5,987
$
(12,998
)
$
9,294
Pro forma basic and diluted earnings (loss) per share
$
(0.92
)
$
0.42
$
(0.86
)
$
0.65
Pro forma basic and diluted weighted average shares outstanding
16,799,915
14,341,538
15,131,012
14,341,538
Weighted average shares give effect to the issuance of a stock
dividend of approximately 1,334.34-for-1 related to the IPO.
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.
Mayville Engineering Company, Inc. Consolidated Statement
of Cash Flows (in thousands) (Unaudited) Six
Months Ended June 30,
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
$
(12,825
)
$
12,520
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization
16,355
9,902
Stock-based compensation
797
—
Costs recognized on step-up of acquired inventory
395
—
Expense recognized on contingent consideration fair value
adjustment
3,544
—
Gain on sale of property, plant and equipment
(24
)
—
Deferred compensation and long-term incentive
11,251
173
Loss (gain) on extinguishment or forgiveness of debt, net
(367
)
558
Non-cash adjustments
290
103
Changes in operating assets and liabilities - net of effects of
acquisition:
Accounts receivable
(12,417
)
(3,659
)
Inventories
2,296
(2,928
)
Tooling in progress
(221
)
214
Prepaids and other current assets
(1,744
)
(1,129
)
Accounts payable
4,363
1,356
Other long-term assets
(4,730
)
—
Accrued liabilities, excluding long-term incentive
(504
)
(341
)
Net cash provided by operating activities
6,459
16,769
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
(16,637
)
(5,990
)
Acquisitions, net of cash acquired
(2,368
)
—
Proceeds from sale of property, plant and equipment
24
—
Net cash used in investing activities
(18,981
)
(5,990
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit notes
223,835
135,499
Payments on bank revolving credit notes
(241,979
)
(142,919
)
Repayments of other long-term debt
(72,446
)
—
Proceeds from issuance of other long-term debt
—
42,053
Proceeds from IPO, net
101,763
(44,083
)
Purchase of treasury stock
(1,592
)
(753
)
Deferred financing costs
—
(569
)
Payments on capital leases
(147
)
—
Net cash provided by (used in) financing activities
9,434
(10,772
)
Net increase (decrease) in cash and cash equivalents
(3,088
)
7
Cash and cash equivalents at beginning of period
3,089
76
Cash and cash equivalents at end of period
$
1
$
83
Supplemental disclosure of cash flow information:
Cash paid for interest
$
4,524
$
2,349
Mayville Engineering Company, Inc. Reconciliation of Net
Income to EBITDA and Adjusted EBITDA (in thousands)
Three Months Ended Six Months Ended June 30, June 30,
2019
2018
2019
2018
Net income (loss)
$
(15,284
)
$
8,091
$
(12,825
)
$
12,520
Interest expense
1,991
853
4,824
1,760
Provision (benefit) for income taxes
(3,513
)
—
(2,744
)
29
Depreciation and amortization
8,704
4,911
16,355
9,902
EBITDA
(8,102
)
13,855
5,610
24,211
Loss on debt extinguishment
154
588
154
588
Costs recognized on step-up of acquired inventory
—
—
395
—
Contingent consideration fair value adjustment
2,674
—
3,544
—
Deferred compensation expense specific to IPO
10,159
—
10,159
—
Long term incentive plan expense specific to IPO
9,921
—
9,921
—
Other IPO and DMP acquisition related expenses
2,997
—
4,809
—
Adjusted EBITDA
$
17,803
$
14,443
$
34,592
$
24,799
Net sales
$
145,130
$
91,535
$
288,862
$
178,757
EBITDA Margin Percentage
-5.6%
15.1%
1.9%
13.5%
Adjusted EBITDA Margin Percentage
12.3%
15.8%
12.0%
13.9%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190806005934/en/
Nathan Elwell Lincoln Churchill Advisors (847) 530-0249
nelwell@lincolnchurchilladvisors.com
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