Delivered Significant Top- and Bottom-Line
Year-over-Year Improvements Across All Metrics; Commenced
Production at state-of-the-art Hazel Park, Michigan Facility as
Planned
Mayville Engineering Company (NYSE: MEC) (the “Company” or
“MEC”), a leading U.S.-based value-added manufacturing partner that
provides a full suite of services from concept to production today
announced results for the third quarter ended September 30,
2022.
Third Quarter 2022
Highlights (all metrics compared to third quarter
2021)
- Net sales grew approximately 25% to $136.3 million
- Net income increased significantly from $0.3 million to $6.6
million
- Basic earnings per share increased by $0.31 to $0.32
- Delivered Adjusted EBITDA of $16.1 million, up from $10.0
million
- Commenced production at Hazel Park, Michigan facility as
planned
- Launched MEC Business Excellence (MBX), focused on driving
operational and commercial excellence
- Refining full year 2022 financial outlook originally provided
in February
Jag Reddy, President and Chief Executive Officer explained,
“Over the past 100 days since I joined the Company, I have learned
a lot by collaborating with many of our key internal and external
stakeholders and am now even more excited about both the near- and
long-term prospects for the business. MEC is poised to benefit from
several long-term macroeconomic trends such as reshoring and
outsourcing in the years ahead. Our relationships with top OEM
customers have never been stronger and we are developing new growth
opportunities in both current and new end markets, such as electric
vehicles.”
Reddy added, “Our team executed effectively this quarter,
producing strong improvements across the board when compared to the
same quarter last year. This was achieved all while commencing
production at our state-of-the-art facility in Hazel Park,
Michigan, and launching MBX. The team overseeing MBX is focused on
driving lean initiatives such as standardization, kaizens, and
productivity improvements across the Company and will be a vital
part of achieving our top- and bottom-line growth potential in the
years ahead.”
Third Quarter 2022 Financial
Results (all metrics compared to third quarter
2021)
Net sales were $136.3 million for the third quarter of 2022, as
compared to $109.0 million. The 25% increase was primarily driven
by improved volumes, commercial pricing increases, and contractual
raw material price pass-throughs.
Manufacturing margins were $15.5 million as compared to $10.9
million. The increase was driven by increased volumes, improved
absorption of manufacturing costs, and commercial pricing
increases, slightly offset by lower scrap income and Hazel Park
launch costs.
Other selling, general and administrative expenses were $6.5
million for the third quarter of 2022 as compared to $5.3 million.
The $1.2 million increase was principally attributable to CEO
transition costs, higher consulting, legal and professional fees,
as well as continued inflationary pressures on wages and
benefits.
Profit sharing, bonuses, and deferred compensation expenses were
$0.2 million for the third quarter of 2022, a decrease from $1.9
million. The $1.7 million decrease is primarily related to
decreases in deferred and stock-based compensation expense.
Income tax expense was $1.5 million for the third quarter of
2022 as compared to $0.1 million. Federal income tax expenses will
be offset against our federal net operating loss carryforward of
approximately $18.5 million until it is fully utilized.
Despite best efforts, the Company was unable to reach an
amicable resolution with its former fitness customer and therefore
filed a breach of contract lawsuit in the Supreme Court of the
State New York on August 4, 2022. The Company remains confident in
the protections afforded by the contract provisions. The total
amount of damages claimed is substantial, but the amount and timing
of the ultimate recovery is uncertain. As a result, any recovery
from this litigation or settlement of these claims is a contingent
gain and will be recognized if, and when, realized or
realizable.
Balance Sheet and
Liquidity
As of September 30, 2022, the Company’s net debt was $74.1
million, with a leverage ratio of 1.3x.
Capital expenditures were $38.8 million through the third
quarter of the year, as compared to $26.6 million in the same
period of last year. The higher capital expenditures in 2022 are
based on necessary investments in new technology and automation and
the build out and repurposing of assets at the Hazel Park, Michigan
facility.
Full Year 2022
Outlook
The Company is refining its 2022 financial outlook and has
adjusted its expectations as follows:
- Net sales of between $480 million and $530 million has been
updated to between $520 million and $540 million.
- Adjusted EBITDA between $58 million and $70 million has been
updated to between $58 and $65 million.
- 2022 capital expenditures of between $55 million and $65
million with an expected return to traditional levels in 2023 of
$20 million to $25 million.
- This outlook assumes no recoveries associated with the former
fitness customer.
Reddy noted, “Despite the general macroeconomic concerns, demand
for our services remains strong in the near-term across most of the
end markets we serve, which has allowed us to stay within our
original guidance for the year. We continue to monitor industry
trends and are working with our customers to ensure our capacity is
as closely aligned as possible with their needs going into the
final two months of 2022 and beyond. We are maintaining a flexible
posture and will be ready to take action quickly and as needed. Our
investments to augment our manufacturing capabilities and our focus
on lean initiatives through MBX mean we are well positioned to
drive long-term profitable growth in the years ahead.”
Conference
Call
The Company will host a conference call on Wednesday, November
2nd, 2022 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time).
For a live webcast of the conference call and to access the
accompanying investor presentation, please 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: 834814.
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 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 CEO transition costs,
stock-based compensation, Hazel Park transition costs due to the
former fitness customer and impairment charges on long-lived assets
and gain on contracts specifically purchased to meet obligations
under the agreement with our former 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)
September 30,
December 31,
2022
2021
ASSETS
Cash and cash equivalents
$
112
$
118
Receivables, net of allowances for
doubtful accounts of $602 at September 30, 2022 and $631 at
December 31, 2021
67,408
55,417
Inventories, net
74,921
70,157
Tooling in progress
6,695
3,950
Prepaid expenses and other current
assets
3,964
2,924
Total current assets
153,100
132,566
Property, plant and equipment, net
137,210
120,746
Assets held for sale
81
—
Goodwill
71,535
71,535
Intangible assets, net
45,547
50,761
Operating lease assets
37,318
—
Other long-term assets
1,929
3,865
Total assets
$
446,720
$
379,473
LIABILITIES AND SHAREHOLDERS’
EQUITY
Accounts payable
$
60,097
$
50,119
Current portion of operating lease
obligation
4,806
—
Accrued liabilities:
Salaries, wages, and payroll taxes
9,190
8,684
Profit sharing and bonus
6,972
5,289
Current portion of deferred
compensation
16,828
—
Other current liabilities
13,109
13,280
Total current liabilities
111,002
77,372
Bank revolving credit notes
71,371
67,610
Operating lease obligation, less current
maturities
33,100
—
Deferred compensation, less current
portion
2,921
25,117
Deferred income tax liability
12,395
8,641
Other long-term liabilities
1,349
2,462
Total liabilities
$
232,138
$
181,202
Commitments and contingencies
Common shares, no par value, 75,000,000
authorized, 21,645,193 shares issued at September 30, 2022 and
21,386,382 at December 31, 2021
—
—
Additional paid-in-capital
200,040
197,186
Retained earnings
23,894
7,547
Treasury shares at cost, 1,472,447 shares
at September 30, 2022 and 1,050,448 at December 31, 2021
(9,352
)
(6,462
)
Total shareholders’ equity
214,582
198,271
Total
$
446,720
$
379,473
Mayville Engineering Company,
Inc.
Consolidated Statement of Net
Income
(in thousands, except share
amounts and per share data)
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Net sales
$
136,276
$
109,018
$
410,865
$
341,851
Cost of sales
120,812
98,109
362,782
299,885
Amortization of intangible assets
1,738
2,677
5,214
8,030
Profit sharing, bonuses, and deferred
compensation
166
1,939
3,921
8,013
Employee stock ownership plan expense
(income)
(152
)
124
1,668
825
Other selling, general and administrative
expenses
6,533
5,305
18,653
15,365
Impairment of long-lived assets and gain
on contracts
(1,737
)
—
(4,346
)
—
Income from operations
8,916
864
22,973
9,733
Interest expense
(830
)
(526
)
(2,163
)
(1,562
)
Income before taxes
8,086
338
20,810
8,171
Income tax expense
1,490
63
4,464
2,059
Net income and comprehensive
income
$
6,596
$
275
$
16,346
$
6,112
Earnings per share:
Basic
$
0.32
$
0.01
$
0.80
$
0.30
Diluted
$
0.32
$
0.01
$
0.80
$
0.29
Weighted average shares
outstanding:
Basic
20,390,221
20,520,985
20,457,001
20,385,732
Diluted
20,394,386
20,961,470
20,545,983
20,812,382
Mayville Engineering Company,
Inc.
Consolidated Statement of Cash
Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2022
2021
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income
$
16,346
$
6,112
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
16,342
15,520
Amortization
5,214
8,030
Allowance for doubtful accounts
(29
)
48
Inventory excess and obsolescence
reserve
(2
)
(511
)
Stock-based compensation expense
2,854
3,771
Loss (gain) on disposal of property, plant
and equipment
11
(1,311
)
Impairment of long-lived assets and gain
on contracts
(4,346
)
—
Deferred compensation
(5,368
)
(258
)
Non-cash lease expense
3,006
—
Other non-cash adjustments
259
236
Changes in operating assets and
liabilities – net of effects of acquisition:
Accounts receivable
(11,961
)
(16,809
)
Inventories
(4,762
)
(21,037
)
Tooling in progress
(2,745
)
(310
)
Prepaids and other current assets
(1,093
)
(989
)
Accounts payable
10,241
13,819
Deferred income taxes
5,491
1,152
Operating lease obligations
(2,698
)
—
Accrued liabilities
6,555
5,330
Net cash provided by operating
activities
33,315
12,793
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant and
equipment
(38,808
)
(26,588
)
Proceeds from sale of property, plant and
equipment
7,736
5,348
Net cash used in investing activities
(31,072
)
(21,240
)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank revolving credit
notes
327,170
276,568
Payments on bank revolving credit
notes
(323,410
)
(267,108
)
Repayments of other long-term debt
(825
)
—
Purchase of treasury stock
(4,947
)
(653
)
Payments on finance leases
(237
)
(467
)
Proceeds from the exercise of stock
options
—
139
Other financing activities
—
(26
)
Net cash provided by (used in) financing
activities
(2,249
)
8,453
Net increase (decrease) in cash and cash
equivalents
(6
)
6
Cash and cash equivalents at beginning of
period
118
121
Cash and cash equivalents at end of
period
$
112
$
127
Mayville Engineering Company,
Inc.
Reconciliation of Net Income
to EBITDA and Adjusted EBITDA
(in thousands)
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Net income and comprehensive income
$
6,596
$
275
$
16,346
$
6,112
Interest expense
830
526
2,163
1,562
Provision for income taxes
1,490
63
4,464
2,059
Depreciation and amortization
7,105
7,961
21,556
23,550
EBITDA
16,021
8,825
44,529
33,283
CEO transition costs
861
—
1,512
—
Hazel Park transition costs due to former
fitness customer
862
—
4,678
—
Stock based compensation expense
141
1,182
2,855
3,771
Impairment of long-lived assets and gain
on contracts
(1,737
)
—
(4,346
)
—
Adjusted EBITDA
$
16,148
$
10,007
$
49,228
$
37,054
Net sales
$
136,276
$
109,018
$
410,865
$
341,851
EBITDA Margin
11.8
%
8.1
%
10.8
%
9.7
%
Adjusted EBITDA Margin
11.8
%
9.2
%
12.0
%
10.8
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221101006141/en/
Nathan Elwell Lincoln Churchill Advisors (847) 530-0249
nelwell@lincolnchurchilladvisors.com
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