Mayville Engineering Company Inc

Previous wording

The broader market dynamics over the past few years have resulted in impacts to the Company, including supply chain constraints affecting some of our customers, material cost inflation and inflationary pressures on wages and benefits due to labor availability. The Company expects some of these dynamics to continue in 2024 and could continue to have an impact on demand, material costs and labor.

Current wording

The broader market dynamics over the past few years have resulted in impacts to the Company, material cost inflation and inflationary pressures on wages and benefits due to labor availability. The Company expects some of these dynamics to continue in 2024 and could continue to have an impact on demand, material costs and labor. Specifically for the three months ended September 30, 2024, net sales reflected a significant decline in demand across all the Company’s key end markets as customers implemented channel inventory de-stocking activities to reduce from near historic high levels and is expected to continue for the remainder of 2024.

Previous 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.

Current wording

Adjusted EBITDA represents EBITDA before stock-based compensation expense, loss on extinguishment of debt, Mid-States Aluminum (MSA) acquisition related costs, field replacement claim, legal costs due to the former fitness customer and costs recognized on step-up of MSA acquired inventory. 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

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.

Current wording

Manufacturing Margins. Manufacturing margins were $17,095 for the three months ended September 30, 2024 as compared to $19,020 for the three months ended September 30, 2023, a decrease of $1,925, or 10.1%. The decrease was primarily driven by the lower end market demand, partially offset by the Company’s MEC Business Excellence (MBX) initiatives, commercial pricing actions and cost reduction actions, most notably a 12% reduction in the Company’s labor force.

Previous 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.

Current wording

Manufacturing margin percentages were 12.6% for the three months ended September 30, 2024, as compared to 12.0% for the three months ended September 30, 2023, an increase of 0.6%. The increase was attributable to the offsetting items discussed in the preceding paragraph.

Previous 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.

Current wording

Amortization of Intangibles Assets. Amortization of intangible assets were $1,733 for the three months ended September 30, 2024 as compared to $2,173 for the three months ended September 30, 2023, a decrease of $440, or 20.2%. The decrease was due to the full amortization of certain intangible assets in prior periods.

Previous wording

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit-sharing, bonuses, and deferred compensation expenses were $7,933 for the six months ended June 30, 2024 as compared to $5,690 for the six months ended June 30, 2023, an increase of $2,243, or 39.4%. 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 $2,076 for the three months ended September 30, 2024 as compared to $2,346 for the three months ended September 30, 2023, a decrease of $270, or 11.5%. The decrease was primarily driven by lower bonus accruals aligning with Company financial performance, slightly offset by deferred compensation expense during the current year period versus deferred compensation income during the prior year period due to fluctuations in the financial markets.

Previous 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.

Current wording

Interest Expense. Interest expense was $2,653 for the three months ended September 30, 2024 as compared to $3,907 for the three months ended September 30, 2023, a decrease of $1,254, or 32.1%. The change is due to a decrease in borrowings and lower interest rates relative to the prior year period.

Previous wording

Provision for Income Taxes. Income tax expense was $2,433 for the six months ended June 30, 2024 as compared to $916 for the six months ended June 30, 2023. The increase of $1,517 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.

Current wording

Provision for Income Taxes. Income tax expense was $100 for the three months ended September 30, 2024 as compared to $554 for the three months ended September 30, 2023. The decrease of $454 is primarily due to a lower effective tax rate in the current year period as a result of increased excess tax benefit associated with stock-based compensation items, partially offset by 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.

Previous wording

Due to the factors described in the preceding paragraphs, net income, comprehensive income, EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin increased during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Current wording

Due to the factors described in the preceding paragraphs, net income and comprehensive income, EBITDA Margin and Adjusted EBITDA Margin increased during the three months ended September 30, 2024, while EBITDA and Adjusted EBITDA decreased, as compared to the three months ended September 30, 2023.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Previous wording

Net Sales. Net sales were $324,905 for the six months ended June 30, 2024 as compared to $281,626 for the six months ended June 30, 2023 for an increase of $43,279, or 15.4%. The increase was primarily driven by the acquisition of MSA in third quarter of the prior year and increased organic sales volume within our commercial vehicle, construction & access and powersports end markets. These items were slightly offset by softening demand in our legacy agriculture and the foreseen roll-off of certain military aftermarket programs at the end of 2023.

Current wording

Net Sales. Net sales were $460,298 for the nine months ended September 30, 2024 as compared to $439,843 for the nine months ended September 30, 2023 for an increase of $20,455, or 4.7%. The increase was primarily driven by the acquisition of MSA in the third quarter of the prior year and incremental volumes from new program wins. These items were partially offset by softening demand within all key end markets, customer de-stocking channel inventory and the foreseen roll-off of certain military aftermarket programs at the end of 2023.

Previous wording

Manufacturing Margin. Manufacturing margins were $43,209 for the six months ended June 30, 2024 as compared to $32,472 for the six months ended June 30, 2023, an increase of $10,737, or 33.1%. The increase was primarily driven by the increased organic sales volumes, MSA acquisition, MBX initiatives and commercial pricing actions.

Current wording

Manufacturing Margin. Manufacturing margins were $60,305 for the nine months ended September 30, 2024 as compared to $51,492 for the nine months ended September 30, 2023, an increase of $8,813, or 17.1%. The increase was primarily driven by increased sales volumes, MSA acquisition, MBX initiatives, commercial pricing actions and the 12% reduction in the Company’s labor force.

Previous wording

Manufacturing margin percentages were 13.3% for the six months ended June 30, 2024 as compared to 11.5% for the six months ended June 30, 2023, an increase of 1.8%. This increase was attributable to the items discussed in the preceding paragraph.

Current wording

Manufacturing margin percentages were 13.1% for the nine months ended September 30, 2024 as compared to 11.7% for the nine months ended September 30, 2023, an increase of 1.4%. This increase was attributable to the items discussed in the preceding paragraph.

Previous wording

Amortization of Intangibles Assets. Amortization of intangible assets were $3,466 for the six months ended June 30, 2024 as compared to $3,476 for the six months ended June 30, 2023, a decrease of $10. The marginal 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

Current wording

Amortization of Intangibles Assets. Amortization of intangible assets were $5,200 for the nine months ended September 30, 2024 as compared to $5,649 for the nine months ended September 30, 2023, a decrease of $449. The decrease was due to the full amortization of certain intangible assets in prior periods, slightly offset by the amortization expense associated with the identifiable intangible assets from the MSA acquisition.

Previous 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.

Current wording

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit-sharing, bonuses, and deferred compensation expenses were $10,010 for the nine months ended September 30, 2024 as compared to $8,037 for the nine months ended September 30, 2023, an increase of $1,973, or 24.5%. The increase was primarily due to higher bonus accruals aligning with Company financial performance in the current year period.

Previous 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.

Current wording

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $23,589 for the nine months ended September 30, 2024 as compared to $22,969 for the nine months ended September 30, 2023, an increase of $620 or 2.7%. The increase was predominantly attributable to higher costs related to compliance requirements and annual wage inflation, partially offset by lower legal fees associated with the litigation against the former fitness customer and non-recurring professional fees related to the MSA acquisition during the prior year period.

Previous wording

Interest Expense. Interest expense was $6,324 for the six months ended June 30, 2024 as compared to $3,626 for the six months ended June 30, 2023, an increase of $2,698, or 74.4%. The change is due to higher interest rates and average debt levels as compared to the prior year period. The increase in debt level is due to the acquisition of MSA, which closed July 1, 2023.

Current wording

Interest Expense. Interest expense was $8,977 for the nine months ended September 30, 2024 as compared to $7,533 for the nine months ended September 30, 2023, an increase of $1,444, or 19.2%. The change is due to higher average interest rates and debt levels as compared to the prior year period. The increase in debt level is due to the acquisition of MSA which closed during the third quarter of the prior year period.

Previous 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.

Current wording

Provision for Income Taxes. Income tax expense was $2,532 for the nine months ended September 30, 2024 as compared to $1,471 for the nine months ended September 30, 2023. The increase of $1,061 is primarily due to higher net income and comprehensive income in the current year period, partially offset by an increased tax benefit associated with stock-based compensation items. Refer to Note 8 – Income Taxes of the Condensed Consolidated Financial Statements for further details.

Previous wording

Due to the factors described in the preceding paragraphs, net income, comprehensive income, EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin increased during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Current wording

Due to the factors described in the preceding paragraphs, net income and comprehensive income, EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin increased during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Previous 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.

Current wording

Operating Activities. Cash provided by operating activities was $51,847 for the nine months ended September 30, 2024, as compared to $13,696 for the nine months ended September 30, 2023. Of the $38,151 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 $20,589 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 a decrease in accounts receivable due to the Company’s ongoing collection efforts, an increase in accounts payable due to the timing of payments and improved inventory turns.

Previous 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

Current wording

Financing Activities. Cash used in financing activities was $42,696 for the nine months ended September 30, 2024, as compared to cash provided by financing activities of $86,136 for the nine months ended September 30, 2023. The $128,832 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 in the prior year period. Additionally, the Company purchased $1,996 of common stock in the first nine months of 2024 as compared to $2,661 in the prior year period. The Company’s decision to repurchase additional shares in 2024 will depend on business conditions, free cash flow generation, other cash requirements and stock price. Refer to Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional information regarding share repurchases.

Previous 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.

Current wording

At September 30, 2024, the interest rate on outstanding borrowings under the Revolving Loan was 7.22%. We had availability of $138,955 under the revolving credit facility at September 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 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.

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 September 30, 2024, our interest coverage ratio was 4.92 to 1.00. The Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 3.50 to 1.00. As of September 30, 2024, our consolidated total leverage ratio was 1.59 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 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.

Current wording

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 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 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.

Current wording

During the nine months ended September 30, 2024 and 2023, our capital expenditures were $9,753 and $9,814 respectively. The marginal decrease of $61 was driven by the Company controlling its spend due to the end market demand softening. In turn, capital expenditures for the full year 2024 are expected to be between $13,000 and $15,000.

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 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.

Current wording

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.