Company Also Confirms 2019 Financial
Outlook
Mayville Engineering Company, Inc. (the “Company” or “MEC”)
today announced the company’s financial and market outlook for
2020, and confirmed its financial outlook for the year ended
December 31, 2019.
2020 Financial Outlook
Based on the Company’s internal projections, the overall
economic climate, and industry trends, the Company is providing the
following financial outlook for 2020:
- Net sales are expected to be between $425 million and $465
million.
- Adjusted EBITDA is expected to be between $39 million and $50
million, which excludes stock-based compensation for 2020.
In addition, the Company is providing the following
commentary:
- Net debt at December 31st, 2019 was approximately $73 million,
a decrease of approximately $14 million from the balance as of
September 30, 2019.
- The Company’s previously stated position that no earnout amount
is due to Defiance Metal Products former shareholders has been
confirmed.
- The Company made significant Capital Expenditures in new
automation and technologies of approximately $26 million during
2019.
- 2020 Capital Expenditures will continue to focus on adding new
technologies as well as equipment upgrades. The Company expects to
invest between $12 million and $16 million during the year.
- Free cash flow for 2020 is expected to remain strong, and is
estimated to be greater than 50% of adjusted EBITDA.
- While the Company is constantly considering acquisition
opportunities, it expects to maintain its stated goal of
debt-to-EBITDA leverage ratio of three times EBITDA or less.
“Despite the rapidly shifting market demand dynamics, our
long-term business prospects remain strong and we are well
positioned for success in our served markets given our customer
focus, market leading position, and strong balance sheet,” noted
Robert D. Kamphuis, Chairman, President and CEO. “As we look at our
projections for 2020, we see relative strength from new orders in
the Power Sports and our Military markets being offset by declines
in our Agriculture and Other markets. In addition, we expect the
Construction and Commercial Vehicle markets will be significantly
lower in 2020 when compared to 2019 results based on market demand
dynamics.”
2020 Outlook by Market
The Company is also providing its 2020 expectations for the
approximate breakdown of its business by market. This information
is directional and will likely change by several percentage points
as the year progresses and new programs ramp up while other
programs may be reduced or discontinued.
Market
Approximate % of 2020 Net
Sales
Approximate % Change Compared
to 2019 Net Sales
Commercial Vehicle
32%
-25% to -35%
Construction
22%
-8% to -12%
Power Sports
20%
5% to 9%
Agriculture
8%
-6% to -9%
Military
8%
1% to 3%
Other
10%
-4% to -8%
- The Company’s business focused on the Commercial Vehicle
(CV) market is expected to be down approximately 25% - 35%
in 2020 as compared to 2019, as the slowdown in Class 8 truck
market continues to take hold.
- Products produced for the Construction market are
expected to fall by approximately 8% - 12% in 2020 when compared to
the previous year, based upon lower general market demand and
continued de-stocking expectations for the first half of 2020.
- In addition, products produced for the Power Sports
market are expected to increase 5% - 9% due to further market
penetration and the addition of a meaningful new OEM partnership in
the utility terrain vehicle (UTV) market.
- This trend is also expected to impact sales to the
Agriculture market, which are expected to be approximately
6% - 9% lower in 2020, as compared to the previous year.
- The Company’s sales to the Military market are expected
to increase by approximately 1% - 3% in 2020 based on new product
wins and increased production demands.
- Sales to the Other markets category are expected to be
down approximately 4% - 8% due to generally softer market demand
across a number of different markets including mining, rail and
power generation.
Kamphuis added, “While we were already expecting a significant
reduction in our CV business, the pace and depth of the demand
reductions has been greater than we originally predicted. The CV
business is also the hardest to realign given the longer lead times
necessary for higher volume more complex products and OEM schedules
with more dedicated capacity. Outside of the CV market, our
flexible and agile selling and production processes are being
implemented as planned. We have and will continue to adjust our
cost structure to align with market conditions, which is consistent
with our historical practices.”
Confirming 2019 Financial
Outlook
The Company also confirmed its 2019 financial outlook as
follows:
- Net sales are expected to be between $515 million and $525
million.
- Adjusted EBITDA is expected to be between $52 million and $56
million.
“As we finalize our financials for 2019, we expect our results
will fall within our predicted ranges,” noted Todd M. Butz, CFO.
“Net sales are expected to come in towards the middle of the
current outlook range, while adjusted EBITDA is expected to be
closer to the lower end of the range. The fourth quarter unfolded
generally as expected, with the exception of some additional costs
related to the finalization of plant and operational consolidation
plans implemented in the fourth quarter. In addition, we continued
to pay down debt during the fourth quarter and ended the year with
a very strong balance sheet. Our net debt at the end of 2019 was
approximately $73 million, which equates to a debt-to-adjusted
EBITDA leverage ratio of approximately 1.4 based on the lower end
of our expected 2019 EBITDA range. We look forward to providing our
full 2019 financial results as planned in late February.”
About MEC 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 services. Our
customers operate in diverse markets, including heavy- and
medium-duty commercial vehicle, construction, powersports,
agriculture, military and other markets. Along with process
engineering and development services, MEC maintains an extensive
manufacturing infrastructure in 21 facilities across eight states.
These facilities make it possible to offer conventional and 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.
Forward Looking
Statements
This 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” in Part II, Item 1A of the Company’s previously filed
Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
Additional 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. Except as
required by the federal securities laws, 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.
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 measure used in this press release is Adjusted
EBITDA. EBITDA represents net income before interest expense,
provision (benefit) for income taxes, depreciation, and
amortization. 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,
one-time increases in deferred compensation and long term incentive
plan expenses related to the initial public offering and, for 2020,
stock-based compensation. This metric is a supplemental measure of
our operating performance that is neither required by, nor
presented in accordance with, GAAP. This measure 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 as management
uses this measure as a key performance indicator, and we believe
this is a measure frequently used by securities analysts, investors
and other parties to evaluate companies in our industry. This
measure has limitations as an analytical tool and should not be
considered in isolation or as substitutes for analysis of our
results as reported under GAAP.
Our calculation of Adjusted EBITDA may not be comparable to the
similarly named measure reported by other companies. Potential
differences between our measure of Adjusted EBITDA compared to
other similar companies’ measures of Adjusted EBITDA may include
differences in capital structure and tax positions.
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version on businesswire.com: https://www.businesswire.com/news/home/20200129005126/en/
Nathan Elwell Lincoln Churchill Advisors (847) 530-0249
nelwell@lincolnchurchilladvisors.com
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