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Mayville Engineering Company, Inc. Announces First Quarter 2019 Results

MAYVILLE, Wis.--(BUSINESS WIRE)--

Positive Operating Results and Progress with Integration of DMP Acquisition; Successfully Completed IPO on May 13, 2019

Mayville Engineering Company (MEC) (the “Company” or “MEC”), a leading U.S.-based value-added manufacturing partner that provides a broad range of prototyping and tooling, production fabrication, coating, assembly and aftermarket services, today announced results for the first quarter ended March 31, 2019.

Highlights:

  • Produced net sales of $143.7 million.
  • Generated net income of $2.5 million.
  • Recorded Adjusted EBITDA of $16.8 million.
  • Substantial progress with integration of Defiance Metal Products Co. (“DMP”), acquired in December 2018.
  • Completed IPO in May generating total net proceeds of $101.8 million.

“We are pleased with our performance this quarter, which reflects the ongoing strength of our diverse markets served and agile operations combined with the addition of DMP near the end of last year,” noted Robert D. Kamphuis, Chairman, President and CEO of Mayville Engineering Company. “Our recent IPO and subsequent debt reduction provided a significant increase in financial flexibility and we are well positioned to execute our growth strategy going forward. We are excited to partner our new shareholders with our ESOP shareholders whereby alignment and commitment to achieving our goals is a competitive advantage.”

First Quarter 2019 Results
Net sales were $143.7 million for the first quarter of 2019 compared to $87.2 million for the same prior year period, an increase of $56.5 million, or 64.8%. DMP contributed $50.2 million, or 57.5%, of the increase. The remaining $6.3 million, or 7.3% of the increase, was due to organic growth of our legacy business, mostly driven by increased volumes.

Manufacturing margins were $19.6 million for the first quarter of 2019 compared to $11.8 million for the same prior year period, an increase of $7.8 million, or 65.8%. DMP accounted for $5.6 million, or 47.5%, of the increase. The remaining $2.2 million was driven by improved utilization in our legacy business mostly due to increased volumes.

Depreciation and amortization expenses were $7.7 million for the first quarter of 2019 compared to $5.0 million for the same prior year period, an increase of $2.7 million, or 53.2%. DMP accounted for $0.7 million of the $0.9 million increase in depreciation expense with the remaining $0.2 million attributable to the legacy business’ investments in technology. The $1.7 million increase in amortization expense was solely driven by amortization of identifiable intangible assets related to the DMP acquisition.

Other selling, general and administrative expenses were $7.6 million for the first quarter of 2019 compared to $2.9 million for the same prior year period. The increase of $4.7 million was primarily driven by one-time expenses including $1.8 million related to the Company’s initial public offering (“IPO”) and the DMP acquisition along with $0.9 million related to the DMP contingent consideration fair value adjustment. The DMP acquired entities accounted for another $1.5 million of the increase with the remainder mostly attributable to personnel additions needed to enhance the company’s structure of being a publicly traded company and support future growth.

Income tax expenses were $0.8 million for the first quarter of 2019, compared to $29 thousand for the same prior year period. The increase of $0.7 million is due to the acquisition of the DMP entities, which are taxable under the provisions of the Internal Revenue Code and certain state statutes. Prior to the Company’s IPO, the Company’s legacy business was an S Corporation, where substantially all taxes were passed to the shareholders and the Company did not pay federal or state corporate income taxes on its taxable income. In connection with the IPO, the Company’s legacy business converted to a C Corporation. As a result, the consolidated business will be subject to paying federal and state corporate income taxes on its taxable income from May 12, 2019 forward.

EBITDA and EBITDA Margin percent were $13.7 million and 9.5%, respectively, for the first quarter of 2019, compared to $10.4 million and 11.9%, respectively, for the first quarter of 2018. The $3.3 million increase in EBITDA was due to the acquisition of DMP as well as the organic growth of our legacy business. The decline in EBITDA Margin percentage from 11.9% to 9.5% was primarily due to one-time expenses incurred during the first quarter of 2019. These one-time expenses included $0.4 million of expenses related to the DMP inventory fair value step-up, $1.8 million of one-time expenses related to the IPO and the DMP acquisition, and $0.9 million related to the DMP contingent consideration fair value adjustment.

Adjusted EBITDA and Adjusted EBITDA Margin percent were $16.8 million and 11.7%, respectively, for the first quarter of 2019, compared to $10.4 million and 11.9%, respectively, for the first quarter of 2018. The increase in Adjusted EBITDA of $6.4 million was due to our recent acquisition of DMP and growth in our legacy business.

Balance Sheet and Liquidity
Our total outstanding debt balance, which includes long-term debt and bank revolving credit notes, was $186.6 million as of March 31, 2019 compared to $179.9 million as of December 31, 2018. Funds provided by the $6.7 million debt increase were primarily used for capital expenditures.

As previously announced, the Company completed its IPO on May 13, 2019 generating approximately $101.8 million of total proceeds net of underwriting discounts and commissions. All of these proceeds have been used to pay down debt balances.

Outlook
Based on the Company’s 2018 performance, the overall economic climate, and industry trends, the Company is outlining its 2019 financial outlook as follows:

  • Net sales are expected to be between $558 million to $570 million
  • Adjusted EBITDA is expected to be between $66 million and $72 million

Kamphuis added, “As we approach mid-year, we are providing annual financial guidance for 2019, which represents a strong improvement over last year based on the acquisition of DMP and organic growth across our business. As we look to the second half of the year, we have quickly adapted to life as a public company and remain confident in our ability to execute our strategy and partner with our customers to provide meaningful value to their operations.”

Conference Call
The Company will host a conference call on Wednesday, May 29th, 2019 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 (866) 652-5200 within the United States, call (855)-669-9657 within Canada, or +1 (412) 317-6060 from outside the United States and Canada.

Forward Looking Statements
This press-release includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors, including those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in the Company’s previously filed registration statement on Form S-1. 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: 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 the initial public offering; risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan; and our ability to remediate the material weaknesses in internal control over financial reporting identified in preparing our audited consolidated financial statements and to subsequently maintain effective internal control over financial reporting. This discussion should be read in conjunction with our audited consolidated financial statements included in the Company’s previously filed registration statement on Form S-1. 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.

About Mayville Engineering Company
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, powersports, agriculture, military and other end markets. We have developed long-standing relationships with our blue-chip customers based upon a high level of experience, trust and confidence.

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

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 (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 transaction fees incurred in connection with the DMP acquisition and our initial public offering, the loss on debt extinguishment relating to our December 2018 credit agreement, and non-cash purchase accounting charges including costs recognized on the step-up of acquired inventory and contingent consideration fair value adjustments. 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 data)

   

 

(Unaudited)
March 31,

December 31,
2019 2018
ASSETS
Cash and cash equivalents $ 28 $ 3,089
Receivables, net of allowances for doubtful accounts of $759 as of March 31, 2019 and $801 as of December 31, 2018 67,759 52,298
Inventories, net 53,480 53,405
Tooling in progress 2,672 2,318
Prepaid expenses and other current assets   2,563   1,649
Total current assets   126,502   112,759
Property, plant and equipment, net 125,577 123,883
Goodwill 70,534 69,437
Intangible assets-net 80,203 82,879
Capital lease, net 1,880 1,953
Other long-term assets   762   814
Total assets $ 405,459 $ 391,725
LIABILITIES AND TEMPORARY EQUITY
Accounts payable $ 50,327 $ 45,992
Current portion of capital lease obligation 275 281
Current portion of long-term debt 10,549 8,606
Accrued liabilities:
Salaries, wages, and payroll taxes 7,894 7,548
Profit sharing and bonus 3,563 6,124
Other current liabilities   14,840   14,610
Total current liabilities   87,449   83,161
Bank revolving credit notes 66,389 59,629
Capital lease obligation, less current maturities 1,630 1,697
Other long-term debt, less current maturities 109,669 111,675
Deferred compensation and long-term incentive, less current portion 14,498 13,351
Deferred income taxes 20,275 19,123
Other long-term liabilities   100   100
Total liabilities   300,010   288,736
Redeemable common shares, no par value, stated at redemption value of outstanding shares, 60,045,300 authorized*, 38,623,806 shares issued* at March 31, 2019 and December 31, 2018 133,806 133,806
Retained earnings 29,301 26,842
Treasury stock at cost, 25,180,330 shares* at March 31, 2019 and December 31, 2018   (57,659 )   (57,659 )
Total temporary equity   105,449   102,989

Total liabilities and temporary equity

$ 405,459 $ 391,725
 

* Giving effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the IPO, as if the IPO occurred at the beginning of 2018. There were 45,000 shares authorized, 28,946 shares issued and 18,871 treasury shares at March 31, 2019 and December 31, 2018.

 
 

Mayville Engineering Company, Inc.
Consolidated Statement of Income
(in thousands except share data)

 

(Unaudited)
Three Months Ended

March 31,
2019   2018
Net sales $ 143,732

$

87,221

 

Cost of sales

124,153 75,411
 

Amortization of intangibles

2,677 939
Profit sharing, bonuses, and deferred compensation 1,750 1,640
Employee Stock Ownership Plan expense 1,500 1,000
Other selling, general and administrative expenses 7,599 2,875
 

Income from operations

6,054 5,356
 

Interest expense

(2,832 ) (906 )
Other income (loss) 7 8
 

Income before taxes

3,229 4,458
Income tax expense   769   29
 

Net income and comprehensive income

$ 2,459 $ 4,430
 
Earnings per share – basic and diluted
Net income available to shareholders $ 2,459 $ 4,430
Earnings per share $ 0.18 $ 0.31
Weighted average shares outstanding 13,443,476 14,117,317
 
Tax and share adjusted pro forma information
Net income available to shareholders $ 2,459

$

4,430
Pro forma provision for income taxes   70   1,130
Pro forma net income $ 2,389

$

3,300
Pro forma earnings per share $ 0.18 $ 0.23
Weighted average shares outstanding 13,443,476 14,117,317
 

Tax adjusted pro forma amounts reflect income tax adjustments as if the Company was a taxable entity as of the beginning of 2018 using a 26% effective tax rate.

 

Weighted average shares give effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the IPO, as if the IPO occurred at the beginning of 2018.

 
 

Mayville Engineering Company, Inc.
Consolidated Statement of Cash Flows
(in thousands)

 
(Unaudited)

Three Months Ended

March 31,
2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,459 $ 4,430

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

Depreciation and amortization 7,650 4,992
Costs recognized on step-up of acquired inventory 395
Expense recognized on contingent consideration fair value adjustment 869
Gain on sale of property, plant and equipment (10 )
Deferred compensation and long-term incentive 1,147 666
Non-cash adjustments 54 63

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

Accounts receivable (15,419 ) (7,552 )
Inventories (470 ) (2,837 )
Tooling in progress (354 ) 129
Prepaids and other current assets (914 ) (608 )
Accounts payable 5,892 3,795
Accrued liabilities, excluding long-term incentive   (2,799 )   (1,405 )
Net cash used in operating activities   (1,500 )   1,673
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (8,151 ) (2,488 )
Proceeds from sale of property, plant and equipment   9  
Net cash used in investing activities   (8,142 )   (2,488 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit notes 117,666 38,951
Payments on bank revolving credit notes (110,906 ) (36,195 )
Repayments of other long-term debt
Proceeds from issuance of other long-term debt (107 ) (1,983 )
Payments on capital leases   (73 )  
Net cash provided by financing activities   6,580   773
Net increase (decrease) in cash and cash equivalents (3,061 ) (42 )
Cash and cash equivalents at beginning of period   3,089   76
Cash and cash equivalents at end of period $ 28 $ 34
 
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,966 $ 992
 
 

Mayville Engineering Company, Inc.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(in thousands)

 

(Unaudited)
Three Months Ended
March 31,

2019     2018
Net income $ 2,459 $ 4,430
Interest expense 2,832 906
Income tax expense 769 29
Depreciation and amortization   7,650   4,992
EBITDA 13,710 10,357
Costs recognized on step-up of acquired inventory 395
Contingent consideration fair value adjustment* 869
DMP acquisition and IPO related expenses   1,814  
Adjusted EBITDA $ 16,788 $ 10,357
 
Net sales $ 143,732 $ 87,221
EBITDA Margin Percentage 9.5% 11.9%
Adjusted EBITDA Margin Percentage 11.7% 11.9%
 

* Adjustment relating to the fair value of the contingent consideration recorded as part of the DMP acquisition.

 

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