Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38894

Mayville Engineering Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

Wisconsin	39-0944729
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

135 S. 84th Street, Suite 300 Milwaukee, Wisconsin	53214
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (414) 381-2860

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		MEC		New York Stock Exchange

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, no par value

MEC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2024, the registrant had 20,644,333 shares of common stock, no par value per share, outstanding.

Table of Contents

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	5

Item 1.	Financial Statements (Unaudited)	5

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Comprehensive Income	6

	Condensed Consolidated Statements of Cash Flows	7

	Condensed Consolidated Statements of Shareholders’ Equity	9

	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION	32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

Signatures		34

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements related to future events, business strategy, future performance, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. Mayville Engineering Company, Inc. (MEC, the Company, we, our, us or similar terms) believes the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon.

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, those described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the SEC) on March 6, 2024, as such may be amended or supplemented in Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q (including this report) and the following:

●

Macroeconomic conditions, including inflation, elevated interest rates and recessionary concerns, labor availability and material cost pressures, have had, and may continue to have, a negative impact on our business, financial condition, cash flows and results of operations (including future uncertain impacts);

●

risks relating to developments in the industries in which our customers operate;

●

risks related to scheduling production accurately and maximizing efficiency;

●

our ability to realize net sales represented by our awarded business;

●

failure to compete successfully in our markets;

●

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, including cybersecurity risks and data leakage risks;

●

geopolitical and economic developments, including foreign trade relations and associated tariffs;

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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 of common stock; and

●

risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan.

These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. 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.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)


	September 30,		December 31,
	2024		2023
ASSETS
Cash and cash equivalents	$	178	$	672
Receivables, net of allowances for doubtful accounts of $430 at September 30, 2024 and $685 at December 31, 2023		54,345		57,445
Inventories, net		61,173		67,782
Tooling in progress		5,626		5,457
Prepaid expenses and other current assets		4,932		3,267
Total current assets		126,254		134,623
Property, plant and equipment, net		163,713		175,745
Goodwill		92,650		92,650
Intangible assets, net		53,467		58,667
Operating lease assets		28,536		32,233
Other long-term assets		1,382		2,743
Total assets	$	466,002	$	496,661
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	47,990	$	46,526
Current portion of operating lease obligation		4,646		5,064
Accrued liabilities:
Salaries, wages, and payroll taxes		6,042		6,368
Profit sharing and bonus		3,182		3,107
Other current liabilities		9,517		10,644
Total current liabilities		71,377		71,709
Bank revolving credit notes		111,045		147,493
Operating lease obligation, less current maturities		25,570		28,606
Deferred compensation, less current portion		4,603		3,816
Deferred income tax liability		12,847		12,606
Other long-term liabilities		2,204		2,453
Total liabilities	$	227,646	$	266,683
Commitments and contingencies (see Note 9)
Common shares, no par value, 75,000,000 authorized, 22,302,151 shares issued at September 30, 2024 and 21,853,477 at December 31, 2023		—		—
Additional paid-in-capital		205,750		205,373
Retained earnings		44,115		34,118
Treasury shares at cost, 1,657,818 shares at September 30, 2024 and 1,542,893 at December 31, 2023		(11,509)		(9,513)
Total shareholders’ equity		238,356		229,978
Total liabilities and shareholders' equity	$	466,002	$	496,661

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

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

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Net sales	$	135,392	$	158,217	$	460,298	$	439,843
Cost of sales		118,297		139,197		399,993		388,351
Amortization of intangible assets		1,733		2,173		5,200		5,649
Profit sharing, bonuses, and deferred compensation		2,076		2,346		10,010		8,037
Other selling, general and administrative expenses		7,559		8,608		23,589		22,969
Income from operations		5,727		5,893		21,506		14,837
Interest expense		(2,653)		(3,907)		(8,977)		(7,533)
Loss on extinguishment of debt		—		—		—		(216)
Income before taxes		3,074		1,986		12,529		7,088
Income tax expense		100		554		2,532		1,471
Net income and comprehensive income	$	2,974	$	1,432	$	9,997	$	5,617

Earnings per share:
Basic	$	0.14	$	0.07	$	0.49	$	0.28
Diluted	$	0.14	$	0.07	$	0.48	$	0.27

Weighted average shares outstanding:
Basic		20,715,275		20,439,602		20,601,702		20,416,914
Diluted		21,123,494		20,622,864		20,893,316		20,644,915

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,997	$	5,617
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		22,927		19,849
Amortization		5,200		5,649
Allowance for doubtful accounts		(255)		127
Inventory excess and obsolescence reserve		(30)		277
Stock-based compensation expense		3,847		3,755
Gain on disposal of property, plant and equipment		(177)		(342)
Deferred compensation		752		(17,433)
Loss on extinguishment of debt		—		216
Non-cash lease expense		4,034		3,348
Other non-cash adjustments		447		202
Changes in operating assets and liabilities:
Accounts receivable		3,355		(6,819)
Inventories		6,639		7,818
Tooling in progress		(169)		2,348
Prepaids and other current assets		(1,694)		(769)
Accounts payable		534		(4,134)
Deferred income taxes		1,454		1,017
Operating lease obligations		(3,792)		(3,119)
Accrued liabilities		(1,222)		(3,911)
Net cash provided by operating activities		51,847		13,696
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(9,753)		(9,814)
Proceeds from sale of property, plant and equipment		108		753
Payment for acquisition, net of cash acquired		—		(88,593)
Net cash used in investing activities		(9,645)		(97,654)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit notes		514,466		454,587
Payments on bank revolving credit notes		(550,914)		(358,411)
Repayments of other long-term debt		(306)		(5,877)
Payments of financing costs		—		(1,206)
Shares withheld for employees' taxes		(3,816)		—
Purchase of treasury stock		(1,996)		(2,661)
Payments on finance leases		(475)		(296)
Proceeds from the exercise of stock options		345		—
Net cash provided by (used in) financing activities		(42,696)		86,136
Net increase (decrease) in cash and cash equivalents		(494)		2,178
Cash and cash equivalents at beginning of period		672		127
Cash and cash equivalents at end of period	$	178	$	2,305

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	8,032	$	7,209
Cash paid for taxes	$	1,205	$	508
Non-cash property, plant & equipment, net	$	1,376	$	1,981
Non-cash 401(k) contribution of treasury stock	$	—	$	2,500
In conjunction with the acquisition, assets acquired and liabilities assumed were as follows:
Fair value of assets acquired, net of cash acquired	$	—	$	102,356
Liabilities assumed		—		(13,763)
Cash paid for acquisition, net of cash acquired	$	—	$	88,593

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands)

(unaudited)


	Shareholders' Equity
	Additional		Treasury		Retained
	Paid-in-Capital		Shares		Earnings		Total
Balance as of December 31, 2023	$	205,373	$	(9,513)	$	34,118	$	229,978
Net income		—		—		3,241		3,241
Stock-based compensation		1,157		—		—		1,157
Stock options exercised net of employee tax withholding		185		—		—		185
Restricted stock units net of employee tax withholding		(524)		—		—		(524)
Balance as of March 31, 2024	$	206,191	$	(9,513)	$	37,359	$	234,037
Net income		—		—		3,782		3,782
Purchase of treasury stock		—		(998)		—		(998)
Stock-based compensation		1,338		—		—		1,338
Stock options exercised net of employee tax withholding		(75)		—		—		(75)
Balance as of June 30, 2024	$	207,454	$	(10,511)	$	41,141	$	238,084
Net income		—		—		2,974		2,974
Purchase of treasury stock		—		(998)		—		(998)
Stock-based compensation		1,352		—		—		1,352
Stock options exercised net of employee tax withholding		(2,771)		—		—		(2,771)
Restricted stock units net of employee tax withholding		(285)		—		—		(285)
Balance as of September 30, 2024	$	205,750	$	(11,509)	$	44,115	$	238,356

	Shareholders' Equity
	Additional		Treasury		Retained
	Paid-in-Capital		Shares		Earnings		Total
Balance as of December 31, 2022	$	200,945	$	(9,352)	$	26,274	$	217,867
Net income		—		—		2,571		2,571
401(k) plan contribution		—		2,500		—		2,500
Purchase of treasury stock		—		(661)		—		(661)
Stock-based compensation		1,066		—		—		1,066
Balance as of March 31, 2023	$	202,011	$	(7,513)	$	28,845	$	223,343
Net income		—		—		1,614		1,614
Purchase of treasury stock		—		(1,000)		—		(1,000)
Stock-based compensation		1,354		—		—		1,354
Stock options exercised net of employee tax withholding		58		—		—		58
Balance as of June 30, 2023	$	203,423	$	(8,513)	$	30,459	$	225,369
Net income		—		—		1,432		1,432
Purchase of treasury stock		—		(1,000)		—		(1,000)
Stock-based compensation		1,336		—		—		1,336
Restricted stock units net of employee tax withholding		(115)		—		—		(115)
Stock options exercised		20		—		—		20
Balance as of September 30, 2023	$	204,664	$	(9,513)	$	31,891	$	227,042

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Mayville Engineering Company, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

(unaudited)

Note 1. Basis of presentation

The interim unaudited Condensed Consolidated Financial Statements of Mayville Engineering Company, Inc. and subsidiaries (MEC, the Company, we, our, us or similar terms) presented here have been prepared in accordance with the accounting principles generally accepted in the United States of America (GAAP) and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations and financial position for the interim unaudited periods presented. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These interim unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K. A summary of the Company’s significant accounting policies is included in the Company’s 2023 financial statements in the Annual Report on Form 10-K. The Company followed these policies in preparation of the interim unaudited Condensed Consolidated Financial Statements except for new accounting pronouncements adopted as described below.

Nature of Operations

MEC is a leading U.S.-based, vertically-integrated, value-added manufacturing partner providing a full suite of manufacturing solutions from concept to production, including design, prototyping and tooling, fabrication, aluminum extrusion, 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. Founded in 1945 and headquartered in Milwaukee, Wisconsin, we are a leading Tier I U.S. supplier of highly engineered components to original equipment manufacturer (OEM) customers with leading positions in their respective markets. The Company operates 23 facilities located in Arkansas, Michigan, Mississippi, Ohio, Pennsylvania, Virginia, and Wisconsin. Our engineering expertise and technical know-how allow us to add value through every product redevelopment cycle (generally every three to five years for our customers).

Our one operating segment focuses on producing metal components that are used in a broad range of heavy- and medium-duty commercial vehicles, construction & access equipment, powersports, agricultural, military and other products.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures, amending Accounting Standards Codification (ASC) 740, Income Taxes. The amendment is intended to enhance the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments require that on an annual basis, entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments require that entities disclose additional information about income taxes paid as well as additional disclosures of pretax income and income tax expense and remove the requirement to disclose certain items that are no longer considered cost beneficial or relevant. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is evaluating the potential impact of adopting this guidance on the consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, amending ASC 280, Segment Reporting. The amendment is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and for interim periods after December 15, 2024. The Company has evaluated the impact of the guidance and will adopt during the period ended December 31, 2024. The Company does not expect this adoption to have a material impact on its consolidated financial statements.

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Note 2. Acquisition

On July 1, 2023, the Company completed its acquisition of Mid-States Aluminum (MSA). The acquisition was consummated in accordance with terms and conditions of the certain Unit Purchase Agreement, dated as of June 19, 2023, among the Company and shareholders of MSA. The purchase price of the acquisition was $95,945, subject to adjustments for the amount of cash, indebtedness, net working capital and certain expenses of MSA as of the closing. At the closing of the acquisition, the Company applied an estimate of the adjustments and paid total net consideration of $90,002. The Company financed the acquisition by borrowing under its amended and restated credit agreement, as described in Note 4 – Debt in the Notes to Condensed Consolidated Financial Statements.

Located in Fond du Lac, WI, MSA is an industry leading, vertically-integrated manufacturer of custom aluminum extrusions and fabrications that also offers related services including design, engineering, anodizing and finishing, assembly and packaging. The acquisition enables MEC to secure an attractive entry point within light-weight materials fabrication, while providing significant new cross-selling opportunities with both new and existing customers.

The aggregate purchase price has been allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values at the acquisition date. The estimate of the excess purchase price over the preliminary estimated fair value of net tangible assets acquired was allocated to identifiable intangible assets and goodwill. The Company engaged an independent third party to assist with the identification and valuation of these intangible assets. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows, useful lives, attrition rates, royalty rates and growth rates. These measures are based on significant Level 3 inputs (see Note 13) not observable in the market.

The following table is a summary of the assets acquired, liabilities assumed and net cash consideration paid for MSA during 2023:


	Opening Balance		Estimated
	Sheet Allocation		Useful Life
Cash	$	324
Accounts receivable, net		7,381
Inventory		9,698
Property, plant and equipment		41,271
Other assets		291
Intangible assets
Developed technology		4,900	7 Years
Customer relationships		17,700	17 Years
Goodwill		21,115	Indefinite
Total assets acquired		102,680
Accounts payable		(2,386)
Accrued expenses		(1,509)
Other liabilities		(1,984)
Debt		(7,884)
Total consideration	$	88,917

Inventory was valued at its estimated fair value, which is defined as expected sales price, less costs to sell, plus a reasonable margin for selling effort. The valuation resulted in an inventory fair value step-up of $891 and was fully expensed and reflected in cost of sales on the Condensed Consolidated Statements of Comprehensive Income during the three months ended September 30, 2023.

Property, plant and equipment was valued at its estimated fair value using the cost, market and sales comparison approaches. The valuation resulted in a property, plant and equipment fair value step-up of $21,157. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the respective assets.

The Company also recorded $17,700 of customer relationships intangible assets with an estimated useful life of 17 years and $4,900 of developed technology intangible assets with an estimated useful life of 7 years. The purchase price allocated to these assets

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was based on management’s forecasted cash inflows and outflows and using a relief from royalty method for developed technologies and the multi-period excess earnings method for customer relationships. Amortization expense related to these intangible assets is recorded on a straight-line basis and reflected in amortization of intangible expenses on the Condensed Consolidated Statements of Comprehensive Income.

The purchase price of MSA exceeded the preliminary estimated fair value of identifiable net assets and accordingly, the difference was allocated to goodwill, which is not tax deductible.

As of December 31, 2023, the Company finalized the net working capital adjustment in conjunction with the fair value estimates for assets acquired, liabilities assumed, identifiable assets and the net income tax provision. Since its preliminary estimates, the Company adjusted the purchase price by ($1,084) related to working capital adjustments. The offsetting adjustment was primarily related to goodwill. As of June 30, 2024, the Company finalized the estimates of assets and acquired liabilities assumed.

Pro Forma Financial Information (Unaudited)

In accordance with ASC 805, the following unaudited pro forma combined results of operations have been prepared and presented to give effect to the MSA acquisition as if it had occurred on January 1, 2023, the beginning of the comparable period, applying certain assumptions and pro forma adjustments. These pro forma adjustments primarily relate to the estimated depreciation expense associated with the fair value of the acquired property, plant and equipment, amortization of identifiable intangible assets, interest expense related to additional debt needed to fund the acquisition, and the tax impact of these adjustments. Additionally, the pro forma adjustments include non-recurring expenses related to transaction costs and the sale of stepped-up inventory. The unaudited pro forma consolidated results are provided for illustrative purposes only, are not indicative of the Company’s actual consolidated results of operations or consolidated financial position and do not reflect any revenue and operating synergies or cost savings that may result from the acquisition.


	Nine Months Ended
	September 30,
	2023
Net sales	$	470,799
Net income	$	3,523

Note 3. Select balance sheet data

Inventory

Inventories are stated at the lower of cost, determined on the first-in, first-out method, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Work-in-process and finished goods are valued at production costs consisting of material, labor, and overhead.

Inventories as of September 30, 2024 and December 31, 2023 consist of:


	September 30,		December 31,
	2024		2023
Finished goods and purchased parts	$	27,560	$	31,489
Raw materials		24,963		25,929
Work-in-process		8,650		10,363
Total	$	61,173	$	67,782

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Property, plant and equipment

Property, plant and equipment as of September 30, 2024 and December 31, 2023 consist of:


	Useful Lives		September 30,		December 31,
	Years		2024		2023
Land		Indefinite	$	2,587	$	2,640
Land improvements		15-39		4,291		4,378
Building and building improvements		15-39		82,207		79,682
Machinery, equipment and tooling		3-10		306,907		295,960
Vehicles		5		4,405		4,571
Office furniture and fixtures		3-7		22,846		21,325
Construction in progress		N/A		5,528		9,779
Total property, plant and equipment, gross				428,771		418,335
Less accumulated depreciation				265,058		242,590
Total property, plant and equipment, net			$	163,713	$	175,745

Depreciation expense was $7,748 and $7,434 for the three months ended September 30, 2024 and 2023, respectively, and $22,927 and $19,849 for the nine months ended September 30, 2024 and 2023, respectively.

Goodwill

There were no changes to the goodwill balance of $92,650 between December 31, 2023 and September 30, 2024.

Intangible Assets

The following is a listing of definite-lived intangible assets, the useful lives in years (amortization period) and accumulated amortization as of September 30, 2024 and December 31, 2023:


			September 30, 2024
	Useful Lives		Gross Carrying		Accumulated
	Years		Amount		Amortization			Net
Amortizable intangible assets:
Customer relationships and contracts		9-17	$	96,040	$	56,643	$	39,397
Trade name		10		14,780		8,555		6,225
Non-compete agreements		5		8,800		8,800		—
Developed technology		7		4,900		875		4,025
Patents		19		24		15		9
Total intangible assets, net			$	124,544	$	74,888	$	49,656


			December 31, 2023
	Useful Lives		Gross Carrying		Accumulated
	Years		Amount		Amortization			Net
Amortizable intangible assets:
Customer relationships and contracts		9-17	$	96,040	$	53,078	$	42,962
Trade name		10		14,780		7,446		7,334
Non-compete agreements		5		8,800		8,800		—
Developed technology		7		4,900		350		4,550
Patents		19		24		14		10
Total intangible assets, net			$	124,544	$	69,688	$	54,856

Additionally, the Company reported an indefinite lived non-amortizable brand name asset with a balance of $3,811 as of September 30, 2024 and December 31, 2023.

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Changes in intangible assets between December 31, 2023 and September 30, 2024 consist of:


Balance as of December 31, 2023	$	58,667
Amortization expense		(5,200)
Balance as of September 30, 2024	$	53,467

Amortization expense was $1,733 and $2,173 for the three months ended September 30, 2024 and 2023, respectively, and $5,200 and $5,649 for the nine months ended September 30, 2024 and 2023, respectively.

Future amortization expense is expected to be as followed:


Year ending December 31,
2024 (remainder)	$	1,733
2025	$	6,933
2026	$	6,933
2027	$	6,933
2028	$	6,877
Thereafter	$	20,247

Note 4. Debt

Bank Revolving Credit Notes

On June 28, 2023, we entered into an amended and restated credit agreement (the Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, as administrative agent (the Agent). The Credit Agreement provides for a $250,000 revolving credit facility, with a letter of credit sub-facility, and a swingline facility in an aggregate amount of $25,000. The Credit Agreement also provides the availability of incremental facilities to the greater of $100,000 and 125% of the Company’s twelve month trailing Consolidated EBITDA through an accordion feature. All amounts borrowed under the credit agreement mature on June 28, 2028.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on our ability to, subject to certain exceptions, create, incur or assume indebtedness; create, incur, assume or suffer to exist liens; make certain investments; allow our subsidiaries to merge or consolidate with another entity; make certain asset dispositions; pay certain dividends or other distributions to shareholders; enter into transactions with affiliates; enter into sale leaseback transactions; and exceed the limits on annual capital expenditures. The Credit Agreement also requires us to satisfy certain financial covenants, including a minimum consolidated interest coverage ratio of 3.00 to 1.00 as well as a consolidated total leverage ratio not to exceed 3.50 to 1.00.

The Company incurred deferred financing costs of $1,248 associated with executing the Credit Agreement, which was recorded as an other long-term asset in the Condensed Consolidated Balance Sheets and will be amortized over the duration of the agreement.

At September 30, 2024, our consolidated total leverage ratio was 1.59 to 1.00 as compared to a covenant maximum of 3.50 to 1.00 under the Credit Agreement.

At September 30, 2024, our consolidated interest coverage ratio was 4.92 to 1.00 as compared to a covenant minimum of 3.00 to 1.00 under the Credit Agreement.

Under the Credit Agreement, interest is payable quarterly at the adjusted secured overnight financing rate (SOFR) plus an applicable margin based on the current consolidated total leverage ratio. The interest rate was 7.22% and 7.71% as of September 30, 2024 and December 31, 2023, respectively. Additionally, the agreement has a fee on the average daily unused portion of the aggregate unused revolving commitments. This fee was 0.25% as of September 30, 2024 and 0.30% as of December 31, 2023.

Prior to June 28, 2023, the Company maintained a credit agreement (Former Credit Agreement) with certain lenders and the Agent. The Former Credit Agreement provided for a $200,000 revolving credit facility, with a letter of credit sub-facility in an

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aggregate amount not to exceed $5,000, and a swingline facility in an aggregate amount of $20,000. The Former Credit Agreement also provided for an additional $100,000 of debt capacity through an accordion feature.

The Company was in compliance with all financial covenants of its credit agreements as of September 30, 2024 and December 31, 2023. The amount borrowed on the revolving credit notes was $111,045 and $147,493 as of September 30, 2024 and December 31, 2023, respectively.

Other Debt

Additionally, the Company has a Fond du Lac County and Fond du Lac Economic Development Corporation term note (Fond du Lac Term Note). The Fond du Lac Term Note is secured by a security agreement, payable in annual installments of $500 plus interest at 2.00% and is due in full in December 2028. The balance outstanding as of September 30, 2024 and December 31, 2023 was $2,375. The short-term and long-term balance of $500 and $1,875, respectively, are recorded in other current liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets.

Note 5. Leases

The Company has real property operating leases for office and manufacturing space. Operating leases for the Company’s personal property consist of leases for office equipment, vehicles, forklifts and storage tanks for bulk gases. The Company recognizes a right-of-use (ROU) asset and a lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense for the Company’s operating leases is recognized on a straight-line basis over the lease term, including renewal periods that are considered reasonably certain.

The Company has finance leases for equipment used throughout its office and manufacturing facilities. The Company recognizes an ROU asset and a lease liability for finance leases based on the net present value of future minimum lease payments. Lease expense for the Company’s finance leases is comprised of the amortization of the ROU asset and interest expense recognized based on the effective interest method.

Variable lease expense is related to certain of the Company’s real property leases and personal property leases, and it generally consists of property tax and insurance components that are for the benefit of the lessor (real property leases) and variable overage fees (personal property leases) that are remitted as part of the Company’s lease payments.

The components of lease expense were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Finance lease cost:
Amortization of finance lease assets	$	130	$	122	$	353	$	310
Interest on finance lease liabilities		12		14		32		35
Total finance lease expense

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