Company Produces Significant Bottom Line Growth
and Reiterates 2022 Guidance
Mayville Engineering Company (NYSE: MEC) (the “Company” or
“MEC”), a leading U.S.-based value-added manufacturing partner that
provides a full suite of prototyping and tooling, production
fabrication, coating, assembly and aftermarket services, today
announced results for the second quarter ended June 30, 2022.
Second Quarter 2022
Highlights:
- Net sales grew approximately 15% to $138.3 million
- Net income increased 80% to $5.9 million
- Basic earnings per share increased $0.13 to $0.29 as compared
to prior year period
- Delivered Adjusted EBITDA of $18.2 million, up from $14.0
million for the same prior year period
- Successfully subleased approximately one-third of the Hazel
Park facility
- Company reiterates 2022 guidance
- Jag Reddy named President and CEO, as well as director and
Timothy Christen named non-executive Chair of the Board of
Directors effective July 19, 2022
Jag Reddy, President and Chief Executive Officer noted, “I am
excited to have joined MEC at such an interesting time in its proud
77-year history, with macroeconomic trends such as reshoring and
the global realignment of supply chains creating significant new
opportunities for growth. The MEC team delivered a solid
performance this quarter and our outlook for the rest of the year
remains positive. We are executing on our commitment to innovation,
investments in manufacturing capabilities, and lean initiatives,
and I firmly believe we are ideally positioned to take advantage of
the growing market opportunities for our products and services. I
am energized by my first few weeks at MEC, and the team is focused
on leveraging the Company’s strengths to enhance our industry
leading position.”
Second Quarter Financial
Results
Net sales were $138.3 million for the second quarter of 2022, as
compared to $120.2 million for same prior year period. The 15%
increase was primarily driven by contractual raw material price
pass-throughs to customers, commercial pricing increases, and
improved volumes.
Manufacturing margins were $18.3 million for the second quarter
of 2022, as compared to $16.3 million for the same prior year
period. The increase was driven by the impact of increased
commercial pricing and greater demand, offset by Hazel Park
transition costs of $1.9 million and other inflationary costs in
the quarter.
Profit sharing, bonuses, and deferred compensation expenses were
$1.2 million for the second quarter of 2022, a decrease from the
$3.2 million recorded for the same prior year period. The $2.0
million decrease is primarily related to a decrease in deferred
compensation expense due to fluctuations within the financial
markets.
Other selling, general and administrative expenses were $6.4
million for the second quarter of 2022 as compared to $5.4 million
for the same prior year period. The $1.0 million increase was
principally attributable to higher consulting and professional
fees, as well as inflationary pressures on wages and benefits.
Interest expense was $0.8 million for the second quarter of 2022
and $0.5 million for the same prior year period due to higher
average debt levels as compared to the prior year period.
Income tax expense was $1.8 million for the second 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 $79.1 million as of June 20, 2022, which is
comprised of the outstanding balance on the Company’s revolver,
finance lease liabilities, and equipment financing agreements. Our
leverage ratio was 1.52 to 1.00 at the end of the second
quarter.
The Company adopted the annual reporting guidance under ASC 842
Leases on January 1, 2022. As a result, the Company has
approximately $37.8 million in right-of-use assets, $4.8 million in
current liabilities and $33.5 million in long term liabilities
related to operating leases as of June 30, 2022.
Capital expenditures were in line with internal expectations at
$26.4 million through the first half of the year, as compared to
$17.0 million in the same period of last year. The increase relates
to our ongoing commitment to investing in new technologies and
automation and the build out and repurposing of assets at the
Company’s Hazel Park, Michigan facility, which is expected to
continue throughout the remainder of 2022.
Outlook
The Company is reiterating its 2022 financial outlook 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.
The Company continues to expect capital expenditures for 2022 to
be between $55 and $65 million, focused primarily on investments in
new technology and automation, the addition of equipment relating
to new programs with existing customers, and the repurposing of
assets at the new Hazel Park, Michigan facility.
Reddy commented, “Our demand outlook remains positive through
the end of the year as we continue to expand our relationships with
current customers and explore opportunities with new customers. We
expect our volumes will continue to steadily improve as we move
through the second half of 2022 as supply chain issues constraining
our customers start to subside.”
Conference
Call
The Company will host a conference call on Wednesday, August
3rd, 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: 768578.
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 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)
June 30,
December 31,
2022
2021
ASSETS
Cash and cash equivalents
$
105
$
118
Receivables, net of allowances for
doubtful accounts of $799 at June 30, 2022 and $631 at December 31,
2021
71,223
55,417
Inventories, net
74,103
70,157
Tooling in progress
5,317
3,950
Prepaid expenses and other current
assets
4,580
2,924
Total current assets
155,328
132,566
Property, plant and equipment, net
129,509
120,746
Assets held for sale
1,288
—
Goodwill
71,535
71,535
Intangible assets, net
47,285
50,761
Operating lease assets
37,842
—
Other long-term assets
3,497
3,865
Total assets
$
446,284
$
379,473
LIABILITIES AND SHAREHOLDERS’
EQUITY
Accounts payable
$
58,679
$
50,119
Current portion of operating lease
obligation
4,803
—
Accrued liabilities:
Salaries, wages, and payroll taxes
9,670
8,684
Profit sharing and bonus
6,329
5,289
Current portion of deferred
compensation
17,531
—
Other current liabilities
13,495
13,280
Total current liabilities
110,507
77,372
Bank revolving credit notes
76,063
67,610
Operating lease obligation, less current
maturities
33,531
—
Deferred compensation, less current
portion
2,949
25,117
Deferred income tax liability
11,040
8,641
Other long-term liabilities
1,725
2,462
Total liabilities
$
235,815
$
181,202
Commitments and contingencies
Common shares, no par value, 75,000,000
authorized, 21,645,193 shares issued at June 30, 2022 and
21,386,382 at December 31, 2021
—
—
Additional paid-in-capital
199,899
197,186
Retained earnings
17,298
7,547
Treasury shares at cost, 1,112,502 shares
at June 30, 2022 and 1,050,448 at December 31, 2021
(6,728
)
(6,462
)
Total shareholders’ equity
210,469
198,271
Total
$
446,284
$
379,473
Mayville Engineering Company,
Inc.
Consolidated Statement of Net
Income
(in thousands, except share
amounts and per share data)
(unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Net sales
$
138,337
$
120,213
$
274,589
$
232,833
Cost of sales
120,079
103,933
241,449
201,777
Amortization of intangible assets
1,738
2,677
3,476
5,353
Profit sharing, bonuses, and deferred
compensation
1,208
3,210
3,755
6,074
Employee stock ownership plan expense
1,330
228
1,820
701
Other selling, general and administrative
expenses
6,396
5,362
12,121
10,059
Impairment of long-lived assets and gain
on contracts
(906
)
—
(2,089
)
—
Income from operations
8,492
4,803
14,057
8,869
Interest expense
(765
)
(504
)
(1,332
)
(1,036
)
Income before taxes
7,727
4,299
12,725
7,833
Income tax expense
1,798
1,007
2,974
1,996
Net income and comprehensive
income
$
5,929
$
3,292
$
9,751
$
5,837
Earnings per share:
Basic
$
0.29
$
0.16
$
0.48
$
0.29
Diluted
$
0.29
$
0.16
$
0.47
$
0.28
Weighted average shares
outstanding:
Basic
20,581,945
20,454,541
20,490,944
20,316,936
Diluted
20,650,551
20,864,531
20,807,677
20,685,741
Mayville Engineering Company,
Inc.
Consolidated Statement of Cash
Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
2022
2021
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income
$
9,751
$
5,837
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
10,975
10,236
Amortization
3,476
5,353
Allowance for doubtful accounts
168
49
Inventory excess and obsolescence
reserve
87
(589
)
Stock-based compensation expense
2,714
2,588
Loss (gain) on disposal of property, plant
and equipment
(625
)
66
Impairment of long-lived assets and gain
on contracts
(2,089
)
—
Deferred compensation
(4,637
)
(170
)
Non-cash lease expense
2,482
—
Other non-cash adjustments
176
151
Changes in operating assets and
liabilities – net of effects of acquisition:
Accounts receivable
(15,973
)
(16,331
)
Inventories
(4,033
)
(8,984
)
Tooling in progress
(1,367
)
1,033
Prepaids and other current assets
(1,561
)
(1,094
)
Accounts payable
9,275
14,324
Deferred income taxes
2,504
1,484
Operating lease obligations
(2,270
)
—
Accrued liabilities
6,631
4,277
Net cash provided by operating
activities
15,684
18,230
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant and
equipment
(26,351
)
(16,986
)
Proceeds from sale of property, plant and
equipment
5,228
414
Net cash used in investing activities
(21,123
)
(16,572
)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank revolving credit
notes
218,867
157,388
Payments on bank revolving credit
notes
(210,414
)
(158,791
)
Repayments of other long-term debt
(547
)
—
Purchase of treasury stock
(2,323
)
—
Payments on finance leases
(157
)
(310
)
Proceeds from the exercise of stock
options
—
80
Other financing activities
—
(27
)
Net cash provided by (used in) financing
activities
5,426
(1,660
)
Net decrease in cash and cash
equivalents
(13
)
(2
)
Cash and cash equivalents at beginning of
period
118
121
Cash and cash equivalents at end of
period
$
105
$
119
Mayville Engineering Company,
Inc.
Reconciliation of Net Income
to EBITDA and Adjusted EBITDA
(in thousands)
(unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Net income and comprehensive income
$
5,929
$
3,292
$
9,751
$
5,837
Interest expense
765
504
1,332
1,036
Provision for income taxes
1,798
1,007
2,974
1,996
Depreciation and amortization
7,245
7,838
14,451
15,589
EBITDA
15,737
12,641
28,508
24,458
Hazel Park transition costs due to former
fitness customer
1,889
—
3,816
—
Stock based compensation expense
1,456
1,388
2,714
2,588
Impairment of long-lived assets and gain
on contracts
(906
)
—
(2,089
)
—
Adjusted EBITDA
$
18,176
$
14,029
$
32,949
$
27,046
Net sales
$
138,337
$
120,213
$
274,589
$
232,833
EBITDA Margin
11.4
%
10.5
%
10.4
%
10.5
%
Adjusted EBITDA Margin
13.1
%
11.7
%
12.0
%
11.6
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220802006030/en/
Nathan Elwell Lincoln Churchill Advisors (847) 530-0249
nelwell@lincolnchurchilladvisors.com
Mayville Engineering (NYSE:MEC)
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