Effective Execution Delivers Top and
Bottom-Line Growth
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, 2022.
First Quarter 2022
Highlights:
- Net sales increased approximately 21% to $136.3 million as
compared to prior year period
- Recorded net income of $3.8 million, a 50% increase over the
prior year period
- Basic earnings per share increased $0.06 to $0.19 as compared
to prior year period
- Delivered Adjusted EBITDA of $14.8 million, up from $13.0
million for the same prior year period
- Repurposing and growing Hazel Park, Michigan capacities for
current customers underway
- CEO Robert D. Kamphuis announced plans to retire on September
30, 2022
- Company reiterates 2022 guidance
Robert D. Kamphuis, Chairman, President, and Chief Executive
Officer noted, “We are proud to deliver significantly improved
performance this quarter, despite the ongoing macroeconomic
headwinds. We continue to execute effectively and manage through
the ongoing supply chain constraints that are impacting many of our
customers. We are also moving quickly to adapt, realign and grow
our Hazel Park, Michigan capacity for current customers that are
looking to expand their business with MEC.”
First Quarter Financial
Results
Net sales were $136.3 million for the first quarter of 2022, as
compared to $112.6 million for same prior year period. The 21%
increase was primarily driven by contractual raw material price
pass-throughs to customers, commercial pricing increases, and
improved volumes.
Manufacturing margins were $14.9 million for the first quarter
of 2022, in line with the $14.8 million for the same prior year
period. The slight increase was driven by the impact of higher
demand and commercial pricing, offset by Hazel Park transition
costs of $1.9 million in the quarter.
Profit sharing, bonuses, and deferred compensation expenses were
$2.6 million for the first quarter of 2022, a decrease from the
$2.9 million recorded for the same prior year period. The $0.3
million decrease is primarily related to a decrease in deferred
compensation expense offset by increases in expected annual
discretionary retirement benefit contributions and bonus
expense.
Other selling, general and administrative expenses were $5.7
million for the first quarter of 2022 as compared to $4.7 million
for the same prior year period. The $1.0 million increase was
principally attributable to higher consulting and professional
fees, wages and benefits, information technology and travel and
entertainment expenses.
Interest expense was $0.6 million for the first quarter of 2022
and $0.5 million for the same prior year period due to higher
average borrowings.
Income tax expense was $1.2 million for the first quarter of
2022 and $1.0 million for the same prior year period. Federal
income tax expenses will be offset against our federal net
operating loss carryforward of approximately $18.5 million until it
is fully utilized.
Balance Sheet and
Liquidity
Net debt was $86.8 million as of March 31, 2022, which is
comprised of the outstanding balance on the Company’s revolver,
finance lease liabilities, and equipment financing agreements.
The Company adopted the annual reporting guidance under ASC 842
Leases on January 1, 2022. As a result, the Company has
approximately $39.1 million in right-of-use assets, $4.7 million in
current liabilities and $34.7 million in long term liabilities
related to operating leases as of March 31, 2022.
Capital expenditures were in line with internal expectations at
$13.0 million for the first quarter, as compared to $5.6 million in
the same period of last year. The increase relates to ongoing
investment in new technology and automation and repurposing of
assets at the Company’s Hazel Park, Michigan facility, which is
expected to continue throughout 2022.
During the quarter, the Company amended its credit agreement to
expand its capital expenditure plans of up to $65.0 million during
2022 as it continues to invest in technology and automation to
drive efficiency improvements and secure new business
opportunities.
Outlook
The Company is reiterating its 2022 financial outlook provided
earlier this year and continues to expect:
- Net sales of between $480 million and $530 million,
- Adjusted EBITDA between $58 million and $70 million.
- This outlook assumes no revenues associated with the fitness
customer.
In addition, the Company expects capital expenditures for 2022
to be in between $55 and $65 million, which will be focused
primarily on investments in new technology and automation, adding
equipment relating to new programs with existing customers, and the
repurposing of assets at the new Hazel Park, Michigan facility.
Kamphuis commented, “While pandemic and supply chain disruptions
persist, demand dynamics remain robust, and we anticipate our
volumes will gradually improve as we move through the second half
of 2022 and our customers’ supply chain challenges start to
improve. We continue to expand our existing relationships and
convert new business opportunities as companies look to avail
themselves of our market leading operational expertise and
unparalleled flexible production capabilities. Our future prospects
remain bright with the low end of our 2022 outlook representing
considerable projected growth over recent years’ results.”
Conference Call
The Company will host a conference call on Wednesday, May 4th,
2022 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 (844) 200-6205
within the United States, call (833) 950-0062 within Canada, or +1
(929) 526-1599 from outside the United States and Canada and please
use the Access Code: 865776.
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 COVID-19 pandemic has had and will continue to
have on our business, financial condition, cash flows, results of
operations and supply chain, including the supply chain issues
encountered by our original equipment manufacturer customers, the
current inflationary pressures on wages, benefits, components, and
manufacturing supplies and future uncertain impacts; risks relating
to developments in the industries in which our customers operate;
risks related to scheduling production accurately and maximizing
efficiency; failure to compete successfully in our markets; our
ability to realize net sales represented by our awarded business;
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
entering new markets; our ability to recruit and retain our key
executive officers, managers and trade-skilled personnel;
volatility in the prices or availability of raw materials critical
to our business; manufacturing risks, including delays and
technical problems, issues with third-party suppliers,
environmental risks and applicable statutory and regulatory
requirements; our ability to successfully identify or integrate
acquisitions; our ability to develop new and innovative processes
and gain customer acceptance of such processes; risks related to
our information technology systems and infrastructure; political
and economic developments, including foreign trade relations and
associated tariffs; 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, 2021, as
such may be amended or supplemented in our subsequently filed
Quarterly Reports on Form 10-Q. 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, 2021. 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 vehicles,
construction & access equipment, powersports, agriculture,
military, and other end markets. Along with process engineering and
development services, MEC maintains an extensive manufacturing
infrastructure with 20 facilities, of which 19 are 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
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,
Hazel Park transition costs due to the fitness customer and
impairment charges on long-lived assets specifically purchased to
meet obligations under the agreement with our fitness customer.
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)
(unaudited)
March 31,
December 31,
2022
2021
ASSETS
Cash and cash equivalents
$
120
$
118
Receivables, net of allowances for
doubtful accounts of $737 at March 31, 2022 and $631 at December
31, 2021
72,399
55,417
Inventories, net
72,300
70,157
Tooling in progress
5,196
3,950
Prepaid expenses and other current
assets
3,188
2,924
Total current assets
153,203
132,566
Property, plant and equipment, net
124,363
120,746
Assets held for sale
2,788
—
Goodwill
71,535
71,535
Intangible assets, net
49,023
50,761
Operating lease assets
39,058
—
Other long-term assets
3,472
3,865
Total
443,442
379,473
LIABILITIES AND SHAREHOLDERS’
EQUITY
Accounts payable
59,826
50,119
Current portion of operating lease
obligation
4,747
—
Accrued liabilities:
Salaries, wages, and payroll taxes
8,387
8,684
Profit sharing and bonus
2,787
5,289
Other current liabilities
13,039
13,280
Total current liabilities
88,786
77,372
Bank revolving credit notes
83,330
67,610
Operating lease obligation, less current
maturities
34,697
—
Deferred compensation and long-term
incentive, less current portion
21,913
25,117
Deferred income tax liability
9,536
8,641
Other long-term liabilities
2,096
2,462
Total liabilities
240,358
181,202
Commitments and contingencies
Common shares, no par value, 75,000,000
authorized, 21,614,018 shares issued at March 31, 2022 and
21,386,382 at December 31, 2021
—
—
Additional paid-in-capital
198,443
197,186
Retained earnings
11,369
7,547
Treasury shares at cost, 1,112,502 shares
at March 31, 2022 and 1,050,448 at December 31, 2021
(6,728
)
(6,462
)
Total shareholders’ equity
203,084
198,271
Total
$
443,442
$
379,473
Mayville Engineering Company,
Inc.
Consolidated Statement of Net
Income
(in thousands, except share
amounts and per share data)
(unaudited)
Three Months Ended
March 31,
2022
2021
Net sales
$
136,252
$
112,620
Cost of sales
121,370
97,844
Amortization of intangible assets
1,738
2,677
Profit sharing, bonuses, and deferred
compensation
2,548
2,865
Employee stock ownership plan expense
490
473
Other selling, general and administrative
expenses
5,725
4,695
Impairment of long-lived assets and gain
on contracts
(1,183
)
—
Income from operations
5,564
4,066
Interest expense
(567
)
(532
)
Income before taxes
4,997
3,534
Income tax expense
1,175
989
Net income and comprehensive
income
$
3,822
$
2,545
Earnings per share:
Basic
$
0.19
$
0.13
Diluted
$
0.19
$
0.12
Weighted average shares
outstanding:
Basic
20,398,933
20,177,900
Diluted
20,549,326
20,667,684
Mayville Engineering Company,
Inc.
Consolidated Statement of Cash
Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
2022
2021
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income
$
3,822
$
2,545
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation
5,468
5,074
Amortization
1,738
2,677
Allowance for doubtful accounts
106
49
Inventory excess and obsolescence
reserve
174
(405
)
Stock-based compensation expense
1,257
1,200
Loss (gain) on disposal of property, plant
and equipment
(62
)
84
Impairment of long-lived assets and gain
on contracts
(1,183
)
—
Deferred compensation and long-term
incentive
(2,176
)
(490
)
Non-cash lease expense
1,266
—
Other non-cash adjustments
77
66
Changes in operating assets and
liabilities – net of effects of acquisition:
Accounts receivable
(17,088
)
(14,560
)
Inventories
(2,317
)
(4,191
)
Tooling in progress
(1,246
)
325
Prepaids and other current assets
(216
)
475
Accounts payable
10,526
7,722
Deferred income taxes
1,155
738
Operating lease obligations
(1,160
)
—
Accrued liabilities, excluding long-term
incentive
(566
)
2,885
Net cash provided by (used in) operating
activities
(425
)
4,194
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant and
equipment
(12,979
)
(5,559
)
Proceeds from sale of property, plant and
equipment
359
304
Net cash used in investing activities
(12,620
)
(5,255
)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank revolving credit
notes
118,156
71,604
Payments on bank revolving credit
notes
(102,436
)
(70,386
)
Repayments of other long-term debt
(272
)
—
Purchase of treasury stock
(2,323
)
—
Payments on finance leases
(78
)
(154
)
Net cash provided by financing
activities
13,047
1,064
Net increase in cash and cash
equivalents
2
3
Cash and cash equivalents, beginning of
year
118
121
Cash and cash equivalents, end of year
$
120
$
124
Mayville Engineering Company,
Inc.
Reconciliation of Net Income
to EBITDA and Adjusted EBITDA
(in thousands)
(unaudited)
Three Months Ended
March 31,
2022
2021
Net income
$
3,822
$
2,545
Interest expense
567
532
Provision for income taxes
1,175
989
Depreciation and amortization
7,207
7,751
EBITDA
12,771
11,817
Hazel Park transition costs due to fitness
customer
1,927
—
Stock based compensation expense
1,257
1,200
Impairment of long-lived assets and gain
on contracts
(1,183
)
—
Adjusted EBITDA
$
14,772
$
13,017
Net sales
$
136,252
$
112,620
EBITDA Margin
9.4
%
10.5
%
Adjusted EBITDA Margin
10.8
%
11.6
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220503006272/en/
Nathan Elwell Lincoln Churchill Advisors (847) 530-0249
nelwell@lincolnchurchilladvisors.com
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