Mayville Engineering Company Inc

Previous wording

Adjusted EBITDA represents EBITDA before stock-based compensation expense and legal costs due to the 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 EBITDA, EBITDA Margin, 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.

Current wording

Adjusted EBITDA represents EBITDA before stock-based compensation expense, loss on extinguishment of debt, MSA acquisition related costs, field replacement claim and legal costs due to the 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 EBITDA, EBITDA Margin, 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.

Previous wording

Net Sales. Net sales were $161,269 for the three months ended March 31, 2024 as compared to $142,645 for the three months ended March 31, 2023, an increase of $18,624, or 13.1%. This increase was primarily driven by the acquisition of MSA in the third quarter of 2023 and increased organic sales volumes within our construction & access and powersports end markets, partially offset by softening demand in our legacy agriculture end market and the roll-off of certain military aftermarket programs at the end of 2023.

Current wording

Net Sales. Net sales were $163,636 for the three months ended June 30, 2024 as compared to $138,980 for the three months ended June 30, 2023, an increase of $24,656, or 17.7%. This increase was primarily driven by the acquisition of MSA in the third quarter of 2023 and increased organic sales volumes within our commercial vehicle, construction & access and powersports end markets, partially offset by softening demand in our legacy agriculture end market and the expected roll-off of certain military aftermarket programs at the end of 2023.

Previous wording

Manufacturing Margins. Manufacturing margins were $20,933 for the three months ended March 31, 2024 as compared to $16,377 for the three months ended March 31, 2023, an increase of $4,556, or 27.8%. The increase was primarily driven by the increased organic sales volumes, the MSA acquisition, MEC Business Excellence (MBX) initiatives and commercial pricing actions.

Current wording

Manufacturing Margins. Manufacturing margins were $22,277 for the three months ended June 30, 2024 as compared to $16,095 for the three months ended June 30, 2023, an increase of $6,182, or 38.4%. The increase was primarily driven by the increased organic sales volumes, MSA acquisition, MEC Business Excellence (MBX) initiatives and commercial pricing actions.

Previous wording

Manufacturing margin percentages were 13.0% for the three months ended March 31, 2024, as compared to 11.5% for the three months ended March 31, 2023, an increase of 1.5%. The increase was attributable to the items discussed in the preceding paragraph.

Current wording

Manufacturing margin percentages were 13.6% for the three months ended June 30, 2024, as compared to 11.6% for the three months ended June 30, 2023, an increase of 2.0%. The increase was attributable to the items discussed in the preceding paragraph.

Previous wording

Amortization of Intangibles Assets. Amortization of intangible assets were $1,733 for the three months ended March 31, 2024 as compared to $1,738 for the three months ended March 31, 2023, a decrease of $5, or 0.3%. The slight decrease was due to the full amortization of certain intangibles offset by the amortization expense associated with the identifiable intangible assets from the MSA acquisition. Refer to Note 2 – Acquisition of the Condensed Consolidated Financial Statements for additional information related to the MSA identifiable intangible assets.

Current wording

Amortization of Intangibles Assets. Amortization of intangible assets were $1,733 for the three months ended June 30, 2024 as compared to $1,738 for the three months ended June 30, 2023, a decrease of $5, or 0.3%. The slight decrease was due to the full amortization of certain intangible assets in prior periods, offset by the amortization expense associated with the identifiable intangible assets from the MSA acquisition. Refer to Note 2 – Acquisition of the Condensed Consolidated Financial Statements for additional information related to the MSA identifiable intangible assets.

Previous wording

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit-sharing, bonuses, and deferred compensation expenses were $3,800 for the three months ended March 31, 2024 as compared to $3,003 for the three months ended March 31, 2023, an increase of $797, or 26.5%. The increase was primarily due to the addition of plan participants as a result of the MSA acquisition and higher bonus accruals aligning with Company financial performance.

Current wording

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit-sharing, bonuses, and deferred compensation expenses were $4,133 for the three months ended June 30, 2024 as compared to $2,688 for the three months ended June 30, 2023, an increase of $1,445, or 53.8%. The increase was primarily due to the additional plan participants as a result of the MSA acquisition and higher bonus accruals aligning with Company financial performance.

Previous wording

Interest Expense. Interest expense was $3,356 for the three months ended March 31, 2024 as compared to $1,658 for the three months ended March 31, 2023, an increase of $1,698, or 102.4%. The change is due to higher interest rates and an increase in borrowings. The increase in borrowings relative to the prior year period is due to the acquisition of MSA, which closed on July 1, 2023.

Current wording

Interest Expense. Interest expense was $2,969 for the three months ended June 30, 2024 as compared to $1,968 for the three months ended June 30, 2023, an increase of $1,001, or 50.9%. The change is due to an increase in borrowings. The increase in borrowings relative to the prior year period is due to the acquisition of MSA, which closed on July 1, 2023.

Previous wording

Provision for Income Taxes. Income tax expense was $1,034 for the three months ended March 31, 2024 as compared to $441 for the three months ended March 31, 2023. The increase of $593 is primarily due to higher net income and comprehensive income in the current year period. Refer to Note 8 – Income Taxes of the Condensed Consolidated Financial Statements for further details.

Current wording

Provision for Income Taxes. Income tax expense was $1,399 for the three months ended June 30, 2024 as compared to $475 for the three months ended June 30, 2023. The increase of $924 is primarily due to higher net income and comprehensive income and tax rate in the current year period. Refer to Note 8 – Income Taxes of the Condensed Consolidated Financial Statements for further details.

Previous wording

Other Selling, General and Administrative (SG&A) Expenses. Other selling, general and administrative expenses were $7,769 for the three months ended March 31, 2024 as compared to $6,966 for the three months ended March 31, 2023, an increase of $803, or 11.5%. The increase was predominantly attributable to legal costs associated with the litigation against the former fitness customer, incremental costs associated with the MSA acquisition, higher costs related to compliance requirements and annual wage inflation.

Current wording

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $16,030 for the six months ended June 30, 2024 as compared to $14,363 for the six months ended June 30, 2023, an increase of $1,667 or 11.6%. The increase was predominantly attributable to legal costs associated with the litigation against the former fitness customer, incremental costs associated with the acquisition of MSA, higher costs related to compliance requirements and annual wage inflation.

Previous wording

Operating Activities. Cash provided by operating activities was $10,625 for the three months ended March 31, 2024, as compared to cash used by operating activities of $6,043 for the three months ended March 31, 2023. The $16,668 increase in operating cash flows was primarily due to changes in net working capital items, most notably, an increase in accounts payable as the Company continues to extend payment terms with its suppliers, lesser of an increase in accounts receivable as a result of the Company’s ongoing collections efforts and ability to shorten payment terms with a key customer, and beneficial changes in a variety of other accrued liabilities as compared to the same prior year period.

Current wording

Operating Activities. Cash provided by operating activities was $33,900 for the six months ended June 30, 2024, as compared to cash used by operating activities of $5,865 for the six months ended June 30, 2023. Of the $39,765 increase in operating cash flows, $17,562 is due to a payout of deferred compensation to a retired Company executive made in the prior year period. The remaining increase of $22,203 was primarily due to the favorable impact of higher earnings and changes in net working capital items. The primary favorable changes in working capital include, decreased inventory due to improved inventory efficiencies, increase in accounts payable due to the timing of payments and an increase in general reserves such as bonus, healthcare and payroll.

Previous wording

Investing Activities. Cash used in investing activities was $2,668 for the three months ended March 31, 2024, as compared to $2,255 for the three months ended March 31, 2023. The $413 increase in cash used in investing activities was driven by a slight increase in capital expenditures, prioritizing investments in high-return, capital-light growth and automation advancements.

Current wording

Investing Activities. Cash used in investing activities was $6,767 for the six months ended June 30, 2024, as compared to $6,167 for the six months ended June 30, 2023. The $600 increase in cash used in investing activities is driven by a marginal increase in capital expenditures, prioritizing investments in high-return, capital-light growth and automation advancements.

Previous wording

Financing Activities. Cash used in financing activities was $8,315 for the three months ended March 31, 2024, as compared to cash provided by financing activities of $8,297 for the three months ended March 31, 2023. The $16,612 decrease was mainly due to debt repayments in excess of borrowings during the current year period as compared to borrowings in excess of debt repayments in the prior year period in relation to the Company’s revolving credit facility.

Current wording

Financing Activities. Cash used in financing activities was $27,491 for the six months ended June 30, 2024, as compared to cash provided by financing activities of $102,030 for the six months ended June 30, 2023. The $129,521 decrease is mainly due to the debt repayments in excess of borrowings during the current year period and the withdrawal of funds used to purchase MSA held in escrow as of the end of the prior year period. Additionally, under our share repurchase program, the Company purchased $998 of common stock in the first six months of 2024 as compared to $1,661 of its common stock in the first six months of 2023. The Company’s decision to repurchase additional shares in 2024 will depend on business conditions, free cash flow generation, other cash

Previous wording

At March 31, 2024, the interest rate on outstanding borrowings under the Revolving Loan was 7.68%. We had availability of $110,183 under the revolving credit facility at March 31, 2024.

Current wording

At June 30, 2024, the interest rate on outstanding borrowings under the Revolving Loan was 7.68%. We had availability of $127,937 under the revolving credit facility at June 30, 2024.

Previous wording

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 interest coverage ratio of 3.00 to 1.00. At March 31, 2024, our interest coverage ratio was 4.87 to 1.00. The Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 4.00 to 1.00 (which was increased as of July 1, 2023 from 3.50 to 1.00 in connection with the acquisition of MSA). As of March 31, 2024, our consolidated total leverage ratio was 1.98 to 1.00.

Current wording

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 interest coverage ratio of 3.00 to 1.00. At June 30, 2024, our interest coverage ratio was 4.57 to 1.00. The Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 4.00 to 1.00 (which was increased as of July 1, 2023 from 3.50 to 1.00 in connection with the acquisition of MSA). Starting July 1, 2024, the Company’s consolidated total leverage ratio will decrease to 3.50 to 1.00 as the one-year leverage increase of 0.50 due to the MSA acquisition has ended. As of June 30, 2024, our consolidated total leverage ratio was 1.69 to 1.00.

Previous wording

With the consummation of the MSA acquisition, the Company assumed 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 March 31, 2024 was $2,735, with the short-term and long-term balance of $500 and $1,875, respectively, recorded in other current liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets.

Current wording

With the consummation of the MSA acquisition, the Company assumed 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 June 30, 2024 was $2,375, with the short-term and long-term balance of $500 and $1,875, respectively, recorded in other current liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets.

Previous wording

During the three months ended March 31, 2024 and 2023, our capital expenditures were $2,775 and $2,408 respectively. The increase of $367 was driven by continued investments in technology and automation. Capital expenditures for the full year 2024 are expected to be between $15,000 and $20,000.

Current wording

During the six months ended June 30, 2024 and 2023, our capital expenditures were $6,874 and $6,320 respectively. The increase of $554 was driven by continued investments in technology and automation. Capital expenditures for the full year 2024 are expected to be between $15,000 and $20,000.

Previous wording

We have historically relied upon cash available through credit facilities, in addition to cash from operations, to finance our working capital requirements and to support our growth. At March 31, 2024, we had immediate availability of $110,183 through our revolving credit facility and 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 under our Credit Agreement, subject to the covenants under the Credit Agreement. We regularly monitor potential capital sources, including equity and debt financings, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will be highly dependent on our ability to access outside sources of capital. We will continue to have access to the availability currently provided under the Credit Agreement as long as we remain compliant with the financial covenants. Based on our estimates at this time, we expect to be in compliance with these financial covenants through 2024 and the foreseeable future.

Current wording

We have historically relied upon cash available through credit facilities, in addition to cash from operations, to finance our working capital requirements and to support our growth. At June 30, 2024, we had immediate availability of $127,937 through our revolving credit facility and 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 under our Credit Agreement, subject to the covenants under the Credit Agreement. We regularly monitor potential capital sources, including equity and debt financings, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will be highly dependent on our ability to access outside sources of capital. We will continue to have access to the availability currently provided under the Credit Agreement as long as we remain compliant with the financial covenants. Based on our estimates at this time, we expect to be in compliance with these financial covenants through 2024 and the foreseeable future.