MEC Mayville Engineering Company Inc

Strong Fourth Quarter Financial Performance Driven by Generally Improved Operating Conditions and Profitability Improvements; Utilized Strong Cash Flow Generation to Further Reduce Debt

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 fourth quarter and full year ended December 31, 2020.

Fourth Quarter 2020 Highlights:

• Produced net sales of $95.3 million
• Recorded net income of $1.0 million
• Generated Adjusted EBITDA of $9.3 million, or 9.8% of net sales
• Reduced total funded debt to $47.9 million, resulting in a leverage ratio of 1.5x

“We executed effectively in the fourth quarter and were pleased with our performance, which, in many aspects, was a significant improvement over our fourth quarter 2019 results,” noted Robert D. Kamphuis, Chairman, President and CEO. “As we look back at 2020, we are pleased with the way we reacted as the pandemic took hold and our continued focus on optimizing our cost structure through facility and process improvements, as well as fortifying our financial position. With market conditions continuing to stabilize, we are confident in our ability to execute our strategy in 2021 as we pursue further productivity gains thru new technologies and automation and explore growth opportunities.”

Fourth Quarter Results Net sales were $95.3 million for the fourth quarter of 2020, as compared to $102.3 million for same prior year period. The decrease of $7.0 million was primarily attributable to manufacturing volume reductions across all end markets served, primarily related to the pandemic. Despite the lower volumes, all customer relationships and manufacturing programs remain intact.

Manufacturing margins were $11.0 million for the fourth quarter of 2020, as compared to $4.0 million for the same prior year period. The increase of $7.0 million was driven by the successful implementation of cost reduction initiatives throughout the year, combined with leveraging recent investments in technology and automation.

Profit sharing, bonuses, and deferred compensation expenses were $3.4 million for the fourth quarter of 2020 as compared to $(0.2) million for the same prior year period. The increase in current year expense was primarily driven by the re-establishment of discretionary 401(k) accruals based on improving business conditions.

Other selling, general and administrative expenses were $4.4 million for the fourth quarter of 2020 compared to $5.2 million for the same prior year period, which included $0.5 million of one-time initial public offering and Defiance Metal Products (DMP) acquisition related expenses. Excluding the one-time items from the prior year, these expenses decreased by $0.3 million due to synergies achieved through the integration of DMP, lower travel expenses related to the pandemic, and other cost savings initiatives.

Interest expense was $0.6 million for the fourth quarter of 2020 as compared to $0.9 million for the same prior year period. The decline was driven by lower debt levels and lower interest rates in the current period.

Adjusted EBITDA and Adjusted EBITDA margin were $9.3 million and 9.8% for the fourth quarter of 2020, as compared to $5.5 million and 5.4% for the same prior year period, respectively. These increases are directly attributable to permanent cost reduction initiatives, particularly the consolidation of the Greenwood, SC facility, and leveraging recent investments in technology and automation.

Balance Sheet and Liquidity During 2020, the Company further strengthened its balance sheet by paying down debt by $28.0 million, which resulted in year-end total funded debt of $47.9 million, and a leverage ratio of approximately 1.5x, considerably lower than the current covenant threshold of 4.25x.

Capital expenditures were $7.8 million for the full year 2020, as compared to $25.8 million for the full year 2019. The $18.0 million decrease is due to a focus on debt reduction and to leveraging our previous investments in new technology and automation.

CFO, Todd Butz stated, “As market dynamics improved during the second half of 2020, we methodically paid down debt, further strengthening our balance sheet. From a financial and operating perspective, we are well positioned to execute our strategy in 2021 and beyond.”

Outlook Based on the ongoing economic uncertainty related to the pandemic, and consistent with most of our customers, the Company is not providing a financial outlook for 2021.

Kamphuis commented, “We are encouraged by the generally improving conditions in our end markets, and have made significant strides over the past year, through cost optimization and our investments in automation and technology. These improvements are sustainable, providing a clear path to our goal of 15% Adjusted EBITDA margins when manufacturing volumes return to pre-pandemic levels in the years ahead. We believe that we are in a strong position to sustain our recent performance in the coming quarters and improve upon our full year 2020 results in 2021. Of course, if 2020 taught us anything, it is to expect the unexpected, and our plans are dependent on a stable economic environment, and improving pandemic conditions as the year unfolds. We would like to commend our dedicated employees who battled through a tough year and ensured we responded quickly and effectively during the second half of the year as conditions started to improve.”

Conference Call The Company will host a conference call on Wednesday, March 3rd, 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, 2019, as such were previously supplemented and amended in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 and which may be further 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 our previously filed Annual Report on Form 10-K for the year ended December 31, 2019 and in our to be 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 component. Our customers operate in diverse end markets, including heavy- and medium-duty commercial vehicle, construction & access equipment, powersports, agriculture, military and other end markets. Along with process engineering and development services, MEC maintains an extensive manufacturing infrastructure with 19 facilities in operation across seven states. These facilities make it possible to offer conventional and CNC (computer numerical control) 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 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 (IPO), 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 IPO, stock-based compensation 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 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 amounts)

 

 

 

December 31,

 

 

December 31,

 

2020

2019

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

121

 

 

$

1

 

Receivables, net of allowances for doubtful accounts of $1,298 as of December 31, 2020 and $526 as of December 31, 2019

 

 

42,080

 

 

 

40,188

 

Inventories, net

 

 

41,366

 

 

 

45,692

 

Tooling in progress

 

 

3,126

 

 

 

1,589

 

Prepaid expenses and other current assets

 

 

2,555

 

 

 

3,007

 

Total current assets

 

 

89,248

 

 

 

90,477

 

Property, plant and equipment, net

 

 

106,688

 

 

 

125,063

 

Assets held for sale

 

 

3,552

 

 

 

—

 

Goodwill

 

 

71,535

 

 

 

71,535

 

Intangible assets-net

 

 

61,467

 

 

 

72,173

 

Capital lease, net

 

 

2,581

 

 

 

3,227

 

Other long-term assets

 

 

3,462

 

 

 

1,107

 

Total

 

 

338,533

 

 

 

363,582

 

LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

 

33,495

 

 

 

32,173

 

Current portion of capital lease obligation

 

 

626

 

 

 

598

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Salaries, wages, and payroll taxes

 

 

10,190

 

 

 

5,752

 

Profit sharing and bonus

 

 

3,089

 

 

 

6,229

 

Other current liabilities

 

 

5,340

 

 

 

3,439

 

Total current liabilities

 

 

52,740

 

 

 

48,191

 

Bank revolving credit notes

 

 

45,257

 

 

 

72,572

 

Capital lease obligation, less current maturities

 

 

2,061

 

 

 

2,687

 

Deferred compensation and long-term incentive, less current portion

 

 

25,631

 

 

 

24,949

 

Deferred income tax liability

 

 

11,887

 

 

 

14,188

 

Other long-term liabilities

 

 

100

 

 

 

100

 

Total liabilities

 

 

137,676

 

 

 

162,687

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Common shares, no par value, 75,000,000 authorized, 21,093,035 shares issued at December 31, 2020 and 20,845,693 at December 31, 2019

 

 

—

 

 

 

—

 

Additional paid-in-capital

 

 

190,793

 

 

 

183,687

 

Retained earnings

 

 

14,998

 

 

 

22,090

 

Treasury shares at cost, 1,033,645 shares at December 31, 2020 and 1,213,482 at December 31, 2019

 

 

(4,934

)

 

 

(4,882

)

Total shareholders’ equity

 

 

200,857

 

 

 

200,895

 

Total

 

$

338,533

 

 

$

363,582

 

 

 

 

 

 

 

Mayville Engineering Company, Inc.

Consolidated Statement of Net Income (Loss)

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

 

 

 

Three Months Ended

 

 

Twelve Months Ended

 

December 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

95,344

 

 

$

102,331

 

 

$

357,606

 

 

$

519,704

 

Cost of sales

 

 

84,267

 

 

 

98,297

 

 

 

326,105

 

 

 

460,986

 

Amortization of intangibles

 

 

2,676

 

 

 

2,677

 

 

 

10,706

 

 

 

10,706

 

Profit sharing, bonuses, and deferred compensation

 

 

3,443

 

 

 

(153

)

 

 

8,250

 

 

 

25,105

 

Employee stock ownership plan expense

 

 

—

 

 

 

953

 

 

 

—

 

 

 

5,453

 

Other selling, general and administrative expenses

 

 

4,402

 

 

 

5,170

 

 

 

19,043

 

 

 

25,466

 

Contingent consideration revaluation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,054

)

Income (loss) from operations

 

 

556

 

 

 

(4,613

)

 

 

(6,498

)

 

 

(1,958

)

Interest expense

 

 

(558

)

 

 

(918

)

 

 

(2,668

)

 

 

(6,728

)

Loss on extinguishment of debt

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(154

)

Loss before taxes

 

 

(2

)

 

 

(5,530

)

 

 

(9,166

)

 

 

(8,840

)

Income tax benefit

 

 

(973

)

 

 

(3,857

)

 

 

(2,074

)

 

 

(4,088

)

Net income (loss) and comprehensive income (loss)

 

$

971

 

 

$

(1,673

)

 

$

(7,092

)

 

$

(4,753

)

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to shareholders

 

$

971

 

 

$

(1,673

)

 

$

(7,092

)

 

$

(4,753

)

Basic and diluted earnings (loss) per share

 

$

0.05

 

 

$

(0.08

)

 

$

(0.36

)

 

$

(0.27

)

Basic and diluted weighted average shares outstanding

 

 

20,451,203

 

 

 

19,711,921

 

 

 

19,898,122

 

 

 

17,447,464

 

Tax-adjusted pro forma information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to shareholders

 

$

971

 

 

$

(1,673

)

 

$

(7,092

)

 

$

(4,753

)

Pro forma provision for income taxes

 

 

—

 

 

 

—

 

 

 

—

 

 

 

173

 

Pro forma net income (loss)

 

$

971

 

 

$

(1,673

)

 

$

(7,092

)

 

$

(4,926

)

Pro forma basic and diluted earnings (loss) per share

 

$

0.05

 

 

$

(0.08

)

 

$

(0.36

)

 

$

(0.28

)

Basic and diluted weighted average shares outstanding

 

 

20,451,203

 

 

 

19,711,921

 

 

 

19,898,122

 

 

 

17,447,464

 

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 2019 using a 26% effective tax rate.

Mayville Engineering Company, Inc.

Consolidated Statement of Cash Flows

(in thousands)

 

 

 

Twelve Months Ended

 

December 31,

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(7,092

)

 

$

(4,753

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

21,383

 

 

 

22,296

 

Amortization

 

 

10,706

 

 

 

10,706

 

Allowance for doubtful accounts

 

 

772

 

 

 

284

 

Inventory excess and obsolescence reserve

 

 

80

 

 

 

(60

)

Stock-based compensation expense

 

 

4,732

 

 

 

3,486

 

Costs recognized on step-up of acquired inventory

 

 

 

 

 

 

395

 

Contingent consideration revaluation

 

 

 

 

 

 

(6,054

)

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

 

 

667

 

 

 

(62

)

Deferred compensation and long-term incentive

 

 

682

 

 

 

11,598

 

Loss (gain) on extinguishment or forgiveness of debt

 

 

—

 

 

 

(367

)

Non-cash adjustments

 

 

358

 

 

 

(237

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,664

)

 

 

11,853

 

Inventories

 

 

4,246

 

 

 

8,886

 

Tooling in progress

 

 

(1,537

)

 

 

729

 

Prepaids and other current assets

 

 

500

 

 

 

(1,358

)

Accounts payable

 

 

515

 

 

 

(11,010

)

Deferred income taxes

 

 

(4,857

)

 

 

(5,992

)

Accrued liabilities, excluding long-term incentive

 

 

8,032

 

 

 

(6,938

)

Net cash provided by operating activities

 

 

36,523

 

 

 

33,402

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(7,794

)

 

 

(25,797

)

Proceeds from sale of property, plant and equipment

 

 

2,020

 

 

 

76

 

Acquisitions, net of cash acquired

 

 

 

 

 

 

(2,369

)

Net cash used in investing activities

 

 

(5,774

)

 

 

(28,090

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from bank revolving credit notes

 

 

267,169

 

 

 

442,154

 

Payments on bank revolving credit notes

 

 

(294,484

)

 

 

(429,211

)

Proceeds from issuance of other long-term debt

 

 

—

 

 

 

—

 

Repayments of other long-term debt

 

 

—

 

 

 

(120,046

)

Deferred financing costs

 

 

(207

)

 

 

—

 

Proceeds from IPO, net

 

 

—

 

 

 

101,763

 

Purchase of treasury stock

 

 

(2,509

)

 

 

(2,591

)

Payments on capital leases

 

 

(598

)

 

 

(469

)

Net cash provided by (used in) financing activities

 

 

(30,629

)

 

 

(8,400

)

Net increase (decrease) in cash and cash equivalents

 

 

120

 

 

 

(3,088

)

Cash and cash equivalents, beginning of year

 

 

1

 

 

 

3,089

 

Cash and cash equivalents, end of year

 

$

121

$

1

 

 

Mayville Engineering Company, Inc.

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

(in thousands)

 

 

 

Three Months Ended

 

 

Twelve Months Ended

 

December 31,

December 31,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

971

 

 

$

(1,673

)

 

$

(7,092

)

 

$

(4,753

)

Interest expense

 

 

558

 

 

 

918

 

 

 

2,668

 

 

 

6,728

 

Benefit for income taxes

 

 

(973

)

 

 

(3,857

)

 

 

(2,074

)

 

 

(4,088

)

Depreciation and amortization

 

 

7,755

 

 

 

8,350

 

 

 

32,089

 

 

 

33,002

 

EBITDA

 

 

8,311

 

 

 

3,738

 

 

 

25,591

 

 

 

30,890

 

Loss on the extinguishment of debt

 

 

—

 

 

 

—

 

 

 

—

 

 

 

154

 

Costs recognized on step-up of acquired inventory

 

 

—

 

 

 

—

 

 

 

—

 

 

 

395

 

Contingent consideration revaluation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,054

)

Deferred compensation expense specific to IPO

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,159

 

Long term incentive plan expense specific to IPO

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9,921

 

Other IPO and DMP acquisition related expenses

 

 

—

 

 

 

456

 

 

 

—

 

 

 

5,744

 

IPO stock-based compensation expense

 

 

—

 

 

 

725

 

 

 

1,029

 

 

 

1,871

 

Stock based compensation expense

 

 

1,013

 

 

 

627

 

 

 

3,703

 

 

 

1,616

 

Greenwood restructuring charges

 

 

—

 

 

 

—

 

 

 

2,524

 

 

 

—

 

Adjusted EBITDA

 

$

9,324

 

 

$

5,546

 

 

$

32,847

 

 

$

54,696

 

Net sales

 

$

95,344

 

 

$

102,331

 

 

$

357,606

 

 

$

519,704

 

EBITDA Margin

 

 

8.7

%

 

 

3.7

%

 

 

7.2

%

 

 

5.9

%

Adjusted EBITDA Margin

 

 

9.8

%

 

 

5.4

%

 

 

9.2

%

 

 

10.5

%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210302005965/en/

Nathan Elwell Lincoln Churchill Advisors (847) 530-0249 nelwell@lincolnchurchilladvisors.com