Mayville Engineering Company, Inc. Announces Second Quarter 2021 Results | Financial Buzz

Mayville Engineering Company, Inc. Announces Second Quarter 2021 Results

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 components, today announced results for the second quarter ended June 30, 2021.

Second Quarter Highlights:

  • Produced net sales of $120.2 million
  • Recorded net income of $3.3 million
  • Generated Adjusted EBITDA of $14.0 million
  • Completed agreement for new 450,000 sq. ft. facility in Hazel Park, MI
  • Net debt of $46.2 million, down $1.7 million from December 31, 2020
  • Company confirms and narrows 2021 guidance ranges

“I am pleased to report that we continue to see strong demand trends across almost all of the end markets we focus on today, which is reflected in our excellent results this quarter,” noted Bob Kamphuis, Chairman, President and CEO. “While finding quality employees, inflationary pressures, and supply chain constraint factors continue to be challenges in 2021, we have fared better than many similar companies and continue to find creative solutions to the issues that arise. We recently began work building out our new facility in Hazel Park, Michigan, which will include state of the art technology and automation and are on track to begin production for our new customer in early 2022 as planned.”

Second Quarter 2021 Results

Net sales were $120.2 million for the second quarter of 2021, as compared to $62.6 million for the same prior year period. The $57.6 million improvement was driven by increased sales volumes due to the strengthening of market conditions in the current period and the impact of customer facility shutdowns caused by the COVID-19 pandemic during the prior year period.

Manufacturing margins were $16.3 million of income for the second quarter of 2021, as compared to a loss of $1.2 million for the same prior year period. The increase was primarily attributable to the sales volume increases in the current period, coupled with the utilization of investments in new technology and automation. In addition, reduced overhead costs following the closure of the Greenwood, SC facility in 2020, resulted in a significant improvement in absorbed manufacturing overhead costs and $0.4 million related to the reversal of inventory obsolescence and healthcare reserves specific to the estimated potential impacts of COVID-19. This was offset by the lag in contractual raw material price increases passed through to customers in the current period. The Company incurred $0.1 million in launch costs related to the new Hazel Park, MI facility for our new customer in the fitness equipment market. Additionally, the prior year period included $1.8 million of restructuring costs charged to cost of sales related to the Greenwood, SC facility closure.

Profit sharing, bonuses, and deferred compensation expenses were $3.2 million for the second quarter of 2021, as compared to $1.2 million for the same prior year period. The increase of $2.0 million was primarily driven by the return of normalized discretionary employer 401(k) and bonus accruals as business activity and sales volumes move towards pre-pandemic levels.

Other selling, general and administrative expenses were $5.4 million for the second quarter of 2021, as compared to $4.6 million for the same prior year period. The increase was mainly attributable to higher salary and payroll expenses and higher travel and entertainment expenses, which were artificially low in the prior year period due to the COVID-19 pandemic.

Interest expense was $0.5 million for the second quarter of 2021, as compared to $0.6 million for the same prior year period due to lower debt levels in the current period and comparative interest rates in the prior year period.

Income tax expense was $1.0 million for the second quarter of 2021 as compared to income tax benefit of $2.5 million for the same prior year period. Federal income tax expenses will be offset against our federal net operating loss carryforward of approximately $11.8 million until it is fully utilized.

Balance Sheet and Liquidity

Net debt was $46.2 million as of June 30, 2021, resulting in a leverage ratio of 1.0x as compared to a covenant maximum of 3.75x.

Capital expenditures were $17.0 million during the first half of 2021, as compared to $3.7 million for the same prior year period. The Company continues to invest in technology and automation versus focusing on preserving cash during the pandemic impacted prior year period. Additionally, the Company invested $5.3 million in the new Hazel Park, MI facility during the quarter in preparation for the ramp-up of production for our new strategic customer in the fitness equipment market in early 2022. Overall, capital expenditures for 2021 are expected to be in the range of $55 to $65 million, with $35 to $45 million specifically focused on investments in the new Hazel Park, MI facility.

Outlook

Based on the Company’s recent performance, the overall economic climate, and industry trends, the Company is confirming its 2021 financial outlook, and slightly increasing its revenue range based on the impact of increased material price pass throughs:

  • Net sales are expected to be between $470 million to $490 million.
  • Adjusted EBITDA is expected to be between $48 million and $52 million net of the launch costs of between $3.5 million to $5.1 million associated with the new customer relationship.

Kamphuis commented, “As we look into the second half of the year, we are well positioned to sustain our momentum and are confident in our ability to meet our current guidance assuming the economy remains relatively consistent and supply chain issues do not deteriorate significantly. We remain flexible and are focused on working with our customers as they strive to meet burgeoning demand for their products and work around shortages.”

Conference Call

The Company will host a conference call on Wednesday, August 4th, 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, 2020, which may be 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 the Company’s previously 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 components. 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 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 (loss) 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 stock-based compensation expenses 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 (loss) 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 (loss), 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)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

119

 

 

$

121

 

Receivables, net of allowances for doubtful accounts of $1,347 at June 30, 2021 and $1,298 at December 31, 2020

 

 

58,362

 

 

 

42,080

 

Inventories, net

 

 

50,939

 

 

 

41,366

 

Tooling in progress

 

 

2,093

 

 

 

3,126

 

Prepaid expenses and other current assets

 

 

3,400

 

 

 

2,555

 

Total current assets

 

 

114,913

 

 

 

89,248

 

Property, plant and equipment, net

 

 

114,695

 

 

 

106,688

 

Assets held for sale

 

 

3,552

 

 

 

3,552

 

Goodwill

 

 

71,535

 

 

 

71,535

 

Intangible assets-net

 

 

56,114

 

 

 

61,467

 

Capital lease, net

 

 

2,278

 

 

 

2,581

 

Other long-term assets

 

 

3,185

 

 

 

3,462

 

Total

 

$

366,272

 

 

$

338,533

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

49,254

 

 

$

33,495

 

Current portion of capital lease obligation

 

 

641

 

 

 

626

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Salaries, wages, and payroll taxes

 

 

12,014

 

 

 

10,190

 

Profit sharing and bonus

 

 

3,569

 

 

 

3,089

 

Other current liabilities

 

 

5,369

 

 

 

5,340

 

Total current liabilities

 

 

70,847

 

 

 

52,740

 

Bank revolving credit notes

 

 

43,854

 

 

 

45,257

 

Capital lease obligation, less current maturities

 

 

1,736

 

 

 

2,061

 

Deferred compensation and long-term incentive, less current portion

 

 

25,461

 

 

 

25,631

 

Deferred income tax liability

 

 

12,994

 

 

 

11,887

 

Other long-term liabilities

 

 

100

 

 

 

100

 

Total liabilities

 

 

154,992

 

 

 

137,676

 

Common shares, no par value, 75,000,000 authorized, 21,378,578 shares issued at June 30, 2021 and 21,093,035 at December 31, 2020

 

 

 

 

 

 

Additional paid-in-capital

 

 

194,754

 

 

 

190,793

 

Retained earnings

 

 

20,835

 

 

 

14,998

 

Treasury shares at cost, 902,663 shares at June 30, 2021 and 1,033,645 at December 31, 2020

 

 

(4,309

)

 

 

(4,934

)

Total shareholders’ equity

 

 

211,280

 

 

 

200,857

 

Total

 

$

366,272

 

 

$

338,533

 

Mayville Engineering Company, Inc.

Consolidated Statement of Income (Loss)

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

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

120,213

 

 

$

62,582

 

 

$

232,833

 

 

$

171,187

 

Cost of sales

 

 

103,933

 

 

 

63,736

 

 

 

201,777

 

 

 

160,497

 

Amortization of intangibles

 

 

2,677

 

 

 

2,677

 

 

 

5,353

 

 

 

5,353

 

Profit sharing, bonuses, and deferred compensation

 

 

3,210

 

 

 

1,194

 

 

 

6,074

 

 

 

2,519

 

Employee stock ownership plan (income) expense

 

 

228

 

 

 

(675

)

 

 

701

 

 

 

 

Other selling, general and administrative expenses

 

 

5,362

 

 

 

4,552

 

 

 

10,059

 

 

 

10,153

 

Income (loss) from operations

 

 

4,803

 

 

 

(8,902

)

 

 

8,869

 

 

 

(7,335

)

Interest expense

 

 

(504

)

 

 

(637

)

 

 

(1,036

)

 

 

(1,463

)

Income (loss) before taxes

 

 

4,299

 

 

 

(9,539

)

 

 

7,833

 

 

 

(8,798

)

Income tax expense (benefit)

 

 

1,007

 

 

 

(2,525

)

 

 

1,996

 

 

 

(1,834

)

Net income (loss) and comprehensive income (loss)

 

$

3,292

 

 

$

(7,014

)

 

$

5,837

 

 

$

(6,964

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

(0.35

)

 

$

0.29

 

 

$

(0.35

)

Diluted

 

$

0.16

 

 

$

(0.35

)

 

$

0.28

 

 

$

(0.35

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,454,541

 

 

 

19,902,912

 

 

 

20,316,936

 

 

 

19,718,222

 

Diluted

 

 

20,864,531

 

 

 

19,902,912

 

 

 

20,685,741

 

 

 

19,718,222

 

Mayville Engineering Company, Inc.

Consolidated Statement of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,837

 

 

$

(6,964

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

10,236

 

 

 

11,086

 

Amortization

 

 

5,353

 

 

 

5,353

 

Stock-based compensation expense

 

 

2,588

 

 

 

2,741

 

Allowance for doubtful accounts

 

 

49

 

 

 

591

 

Inventory excess and obsolescence reserve

 

 

(589

)

 

 

1,413

 

Loss on disposal of property, plant and equipment

 

 

66

 

 

 

618

 

Deferred compensation and long-term incentive

 

 

(170

)

 

 

(86

)

Other non-cash adjustments

 

 

151

 

 

 

168

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(16,331

)

 

 

(35

)

Inventories

 

 

(8,984

)

 

 

3,936

 

Tooling in progress

 

 

1,033

 

 

 

(1,463

)

Prepaids and other current assets

 

 

(1,094

)

 

 

(222

)

Accounts payable

 

 

14,324

 

 

 

(14,356

)

Deferred income taxes

 

 

1,484

 

 

 

(1,895

)

Accrued liabilities, excluding long-term incentive

 

 

4,277

 

 

 

2,226

 

Net cash provided by operating activities

 

 

18,230

 

 

 

3,111

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(16,986

)

 

 

(3,652

)

Proceeds from sale of property, plant and equipment

 

 

414

 

 

 

1,766

 

Net cash used in investing activities

 

 

(16,572

)

 

 

(1,886

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from bank revolving credit notes

 

 

157,388

 

 

 

158,643

 

Payments on bank revolving credit notes

 

 

(158,791

)

 

 

(156,743

)

Deferred financing costs

 

 

 

 

 

(200

)

Purchase of treasury stock

 

 

 

 

 

(2,510

)

Payments on capital leases

 

 

(310

)

 

 

(296

)

Proceeds from the exercise of stock options

 

 

80

 

 

 

 

Other financing activities

 

 

(27

)

 

 

 

Net cash used in financing activities

 

 

(1,660

)

 

 

(1,106

)

Net increase (decrease) in cash and cash equivalents

 

 

(2

)

 

 

119

 

Cash and cash equivalents at beginning of period

 

 

121

 

 

 

1

 

Cash and cash equivalents at end of period

 

$

119

 

 

$

120

 

Mayville Engineering Company, Inc.

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

(in thousands)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

3,292

 

 

$

(7,014

)

 

$

5,837

 

 

$

(6,964

)

Interest expense

 

 

504

 

 

 

637

 

 

 

1,036

 

 

 

1,463

 

Provision (benefit) for income taxes

 

 

1,007

 

 

 

(2,525

)

 

 

1,996

 

 

 

(1,834

)

Depreciation and amortization

 

 

7,838

 

 

 

8,159

 

 

 

15,589

 

 

 

16,439

 

EBITDA

 

 

12,641

 

 

 

(743

)

 

 

24,458

 

 

 

9,104

 

IPO stock based compensation expense

 

 

 

 

 

304

 

 

 

 

 

 

1,029

 

Stock based compensation expense

 

 

1,388

 

 

 

855

 

 

 

2,588

 

 

 

1,712

 

Greenwood restructuring charges

 

 

 

 

 

1,838

 

 

 

 

 

 

1,838

 

Adjusted EBITDA

 

$

14,029

 

 

$

2,254

 

 

$

27,046

 

 

$

13,683

 

Net sales

 

$

120,213

 

 

$

62,582

 

 

$

232,833

 

 

$

171,187

 

EBITDA Margin

 

 

10.5

%

 

 

-1.2

%

 

 

10.5

%

 

 

5.3

%

Adjusted EBITDA Margin

 

 

11.7

%

 

 

3.6

%

 

 

11.6

%

 

 

8.0

%

 

Contacts

Nathan Elwell

Lincoln Churchill Advisors

(847) 530-0249

nelwell@lincolnchurchilladvisors.com

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