Mayville Engineering Company (NYSE: MEC) (the “Company” or
“MEC”), a leading value-added provider of design, prototyping and
manufacturing solutions serving diverse end-markets, today
announced results for the three months ended March 31, 2023.
FIRST QUARTER 2023 RESULTS
(All comparisons versus the prior-year period)
- Net sales of $142.6 million, or +4.7% y/y
- Net income of $2.6 million, ($1.3) million y/y
- Diluted EPS of $0.12, including a ($0.10) per share impact from
the Hazel Park facility ramp
- Adjusted EBITDA of $13.8 million, or (6.3%) y/y, including $1.8
million impact from the Hazel Park facility ramp
MANAGEMENT COMMENTARY
"We delivered solid organic sales growth in the first quarter,
highlighted by continued momentum within our commercial vehicle,
military and powersports markets,” stated Jag Reddy, President and
Chief Executive Officer. “Despite stable demand conditions,
near-term supply chain disruptions and cost under-absorption
impacted our margins as we ramp production at our new Hazel Park
facility. As expected, Hazel Park affected first quarter Adjusted
EBITDA and Adjusted EBITDA margin rate by $1.8 million and 120
basis points, respectively. Excluding the impact of Hazel Park,
Adjusted EBITDA increased 5.6% on a year-over-year basis, while
Adjusted EBITDA margin increased to 10.9%.”
“Our first quarter results demonstrate continued progress on our
MBX-driven commercial and operational priorities, with a long-term
focus on margin expansion and profitable growth,” stated Reddy. “We
continue to drive MBX adoption across each of organizational
centers of excellence and intend to provide MBX-led, multi-year
performance targets at our first-ever Investor Day in late
2023.”
“Today, we are reiterating our full-year 2023 financial
guidance,” continued Reddy. “While first quarter operating cash
flow was impacted by the timing of capital payments, we continue to
anticipate MEC will generate significant year-over-year growth in
free cash flow this year, positioning us to reduce net leverage,
while investing in new capabilities that further enhance the full
suite of integrated solutions we provide our customers. As before,
we see the potential to expand our fabrication capabilities to
include lightweight materials, such as aluminum, plastics and
composites, the combination of which position us to capitalize on
demand growth within energy transition markets.”
PERFORMANCE SUMMARY
Net sales increased by 4.7% on a year-over-year basis in the
first quarter 2023, driven by a combination of increased commercial
sales volumes and continued price discipline, partially offset by
supply chain challenges affecting some of our customers and
softening demand in our construction & access end market.
Manufacturing margin was $16.4 million in the first quarter
2023, or 11.5% of net sales, versus $14.9 million, or 10.9% of net
sales, in the prior year period. The year-over-year improvement in
manufacturing gross margin was driven by a combination of strong
volume growth resulting from new project starts and strong
commercial vehicle demand, together with targeted commercial price
actions, which partially offset lower scrap income.
Profit sharing, bonus and deferred compensation expense
increased $0.5 million to $3.0 million in the first quarter of 2023
as the Company transitioned to an employer match program for its
401(k) plan. Other selling, general and administrative expenses
were $7.0 million in the first quarter of 2023 as compared to $5.7
million for the same prior year period. The increase was
predominantly attributable to increasing salaries, wages and
benefits, recruiting fees and higher professional fees related to
the Company preparing to be Sarbanes-Oxley Act Section 404(b)
compliant for 2024.
Interest expense was $1.7 million in the first quarter 2023,
compared to $0.6 million in the prior year period, primarily due to
higher interest rates.
MEC reported Adjusted EBITDA of $13.8 million in the first
quarter 2023, or 9.7% of net sales, versus $14.8 million, or 10.8%
of net sales, in the prior-year period. First quarter 2023 Adjusted
EBITDA reflects $1.8 million of cost under-absorption associated
with the ramp-up of production at the Hazel Park facility.
Excluding the impact of the ramp-up of the Hazel Park facility,
Adjusted EBITDA margin would have been 10.9%.
Net income for the first quarter of 2023 was $2.6 million, or
$0.12 per diluted share, versus $3.8 million, or $0.19 per diluted
share, in the prior-year year period. The 32.7% year-over-year
decline in net income in the first quarter of 2023 reflects a $1.8
million, or $0.10 per diluted share, impact from the ramp-up of the
Hazel Park facility and a $1.2 million, or $0.06 per diluted share,
non-recurring gain in the prior-year period resulting from an
impairment on long-lived assets and a gain on contracts associated
with the former fitness customer.
Net cash used in operations during the first quarter of 2023 was
$6.0 million, compared to $0.4 million in the prior year period.
Net cash used in operations during the quarter reflects a $7.8
million use of cash for working capital purposes.
END-MARKET UPDATE
Three Months Ended
March 31,
2023
2022
Commercial Vehicle
$
59,155
$
50,865
Construction & Access
26,507
29,744
Powersports
24,098
22,575
Agriculture
14,451
15,248
Military
8,569
5,171
Other
9,866
12,649
Net Sales
$
142,645
$
136,252
Commercial Vehicles
MEC is a Tier 1 supplier to many of the country’s top original
equipment manufacturers (OEM) of commercial vehicles providing
exhaust & aftertreatment, engine components, cooling, fuel and
structural systems for both heavy- and medium-duty commercial
vehicles.
Net sales to the commercial vehicle market were $59.2 million in
the first quarter of 2023, an increase of 16.3% versus the
prior-year period. The increase in sales was primarily the result
of volume increases and strengthened end market demand due to a 17%
year-over-year increase in the class 8 commercial vehicle build
schedule.
Construction & Access
MEC manufactures thousands of parts for the construction &
access market including fenders, hoods, supports, frames,
platforms, frame structures, doors and tubular products such as
exhaust & aftertreatment, engine components, cooling system
components, handrails and full electro-mechanical assemblies.
Net sales to the construction & access market were $26.5
million in the first quarter 2023, a decrease of 10.9% versus the
prior-year period. The decrease in sales was primarily driven by
decelerating residential construction demand.
Powersports
MEC manufactures stampings and complex metal assemblies and
coatings for the marine propulsion, all-terrain vehicles (ATV),
multi-utility vehicles (MUV) and motorcycle markets. MEC’s
powersports expertise includes axle housings, steering columns,
swing arms, fenders, suspension components, ATV/MUV racks, cowl
assemblies and vehicle frames.
Net sales to the powersports market were $24.1 million in the
first quarter of 2023, an increase of 6.7% versus the prior-year
period. The increase in sales was the result of an increase in
volumes from new project wins and share gains from both new and
existing customers.
Agriculture
MEC is an integral partner in the supply chain of the world’s
leading agriculture OEMs manufacturing thousands of parts including
fenders, hoods, supports, frames, platforms, frame structures,
doors and tubular products such as exhaust, engine components,
cooling system components, handrails and full electro-mechanical
assemblies.
Net sales to the agriculture market were $14.5 million during
the first quarter of 2023, a decrease of 5.2% versus the prior-year
period. The decrease in sales was driven mostly by a decline in
small-ag equipment demand.
Military
MEC holds the International Traffic in Arms Regulations (ITAR)
certification and produces components for the United States
military. Products include exhaust, engine components, cooling,
fuel, suspension, structural systems and chemical agent resistant
coating (CARC) painting capabilities.
Net sales to the military market were $8.6 million in the first
quarter of 2023, an increase of 65.7% versus the prior-year period.
Contributions from new programs, new vehicle introductions and
demand associated with the conflict in Ukraine contributed to the
year-over-year sales growth.
Other
MEC also produces a wide variety of components and assemblies
for customers in the power generation, industrial equipment,
mining, forestry, communications, and medical markets.
Net sales to other end markets for the first quarter of 2023
were $9.9 million, a decrease of 22.0% year-over-year. Sales in
this market primarily relate to MEC Outdoors, tooling and
additional miscellaneous markets.
STRATEGIC UPDATE
During the first quarter, MEC continued the rigorous
implementation of its MEC Business Excellence (MBX) initiative, a
value-creation framework designed to drive sustained operational
and commercial excellence execution across all aspects of the
organization. Upon full implementation, MEC expects MBX to drive
improved margin capture, free cash generation and profitability
over a multi-year period. For the full-year 2023, MEC expects to
deliver between 40-70 basis points of manufacturing margin benefit
related to MBX.
- Drive a High-Performance Culture. The Company is focused
on effectuating cultural change across its organization by
implementing performance-based metrics, daily lean management and
other process-oriented strategies. Through these efforts, the
Company intends to create a high-performance culture capable of
driving improved performance, asset utilization and cost
optimization. During the first quarter, the Company finalized the
implementation and alignment of processes and best-practices across
the enterprise to drive strategic execution.
- Drive Operational Excellence. The Company is focused on
leveraging technologies and capabilities to increase productivity
and reduce costs across the value chain. The Company intends to
achieve this objective through the implementation of lean
initiatives such as value stream mapping, sales, inventory and
operations (SIOP) planning, and further optimization of its supply
chain and procurement strategies. During the first quarter, the
Company held a number of kaizen events to drive continuous
improvement in plant operations and commercial pricing
processes.
- Drive Commercial Expansion. The Company is focused on
driving commercial growth through an integrated, solutions-oriented
approach that leverages its full suite of design, prototyping and
aftermarket services; an expansion of its fabrication capabilities
beyond steel, within an emphasis on lightweight aluminum, plastics
and composites; diversification within high-growth energy
transition markets; further market penetration within existing
end-markets; and the implementation of value-based pricing. For
example, during the first quarter, MEC continued to grow its share
of wallet in products supporting thermal management of electric
vehicle (EV) batteries. In addition, the company continued to
expand market share within the EV category within its commercial
vehicle market to meet consumer demand as OEMs launch new EV
platforms. MEC continues to increase engagement in the EV markets
and will continue to collaborate with new and potential customers
to bring products to market.
- Drive Human Resource Optimization. The Company remains
focused on the recruitment and retention of skilled, experienced
employees to support the growth of its business. This component of
the MBX value creation framework is designed to provide
competitive, performance-based incentives; develop high-potential
candidates for internal development and advancement; ensure
business continuity through multi-tiered succession planning; and
to ensure a stable recruiting pipeline. During the first quarter,
the Company announced the appointment of Rachele Lehr as Chief
Human Resources Officer to spearhead the Company’s strategic human
resource efforts.
BALANCE SHEET UPDATE
As of March 31, 2023, MEC had net debt outstanding of $83.8
million and total cash and availability on its senior secured
revolving credit facility of $196.31 million. At the end of the
first quarter, the ratio of net debt to trailing twelve-month
Adjusted EBITDA was 1.4x, consistent with its long-term net
leverage target of at or below 2.5x.
FINANCIAL GUIDANCE
The Company issued financial guidance for the full year 2023.
All guidance is current as of the time provided and is subject to
change.
FY 2022
FY 2023
(in Millions)
Actual
Forecast
Net Sales
$539.4
$540 - $580
Adjusted EBITDA
$60.8
$62 - $71
Capital Expenditures
$58.6
$20 - $25
_____________
1 This amount is reduced to approximately
$114.7 million after taking into account the $81.6 million of
outstanding borrowings under the credit facility as of March 31,
2023.
The underlying assumptions behind the Company’s financial
guidance have not changed. The Company continues to expect net
sales for 2023 to reflect raw material pass-through costs of
between negative 4% to negative 5% of total net sales for the year,
as compared to positive 5% to 6% of net sales for the full year
2022. The Company’s Adjusted EBITDA guidance reflects scrap income
of between $7 million and $9 million, compared to $13 million in
the full year 2022. Full-year 2023 Adjusted EBITDA guidance also
reflects $4 million to $6 million of under-absorbed overhead costs
associated with the ramp-up of production at the Company’s Hazel
Park, Michigan manufacturing facility. The Company expects that the
unfavorable impact from the ramp-up of production at Hazel Park
will be partially offset by a 40 to 70 basis point improvement in
manufacturing margins resulting from the MBX initiatives, which
will directly benefit Adjusted EBITDA.
FIRST QUARTER 2023 RESULTS CONFERENCE CALL
The Company will host a conference call on Wednesday, May 3,
2023 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time).
For a live webcast of the conference call and to access the
accompanying investor presentation, please visit www.mecinc.com and
click on the link to the live webcast on the Investors page.
For telephone access to the conference, call (833) 470-1428
within the United States, or call (833) 950-0062 within Canada and
please use the Access Code: 993353.
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:
macroeconomic conditions, including inflation, rising interest
rates and recessionary concerns, as well as ongoing supply chain
challenges, labor availability and cost pressures, and the COVID-19
pandemic, have had, and may continue to have, a negative impact on
our business, financial condition, cash flows and results of
operations (including future uncertain impacts); risks relating to
developments in the industries in which our customers operate;
risks related to scheduling production accurately and maximizing
efficiency; our ability to realize net sales represented by our
awarded business; failure to compete successfully in our markets;
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; geopolitical
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, 2022, 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, 2022. 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, Mayville Engineering Company (MEC) is a leading
U.S.-based, vertically integrated, value-added manufacturing
partner providing a full suite of manufacturing solutions from
concept to production, including design, prototyping and tooling,
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 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.
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
expense, Hazel Park transition and legal 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. 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 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. 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, 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)
March 31,
December 31,
2023
2022
ASSETS
Cash and cash equivalents
$
126
$
127
Receivables, net of allowances for
doubtful accounts of $572 at March 31, 2023 and $545 at December
31, 2022
74,239
58,001
Inventories, net
68,948
71,708
Tooling in progress
8,039
7,938
Prepaid expenses and other current
assets
3,470
3,529
Total current assets
154,822
141,303
Property, plant and equipment, net
142,956
145,771
Assets held for sale
81
83
Goodwill
71,535
71,535
Intangible assets, net
42,071
43,809
Operating lease assets
34,787
36,073
Other long-term assets
1,749
2,007
Total assets
$
448,001
$
440,581
LIABILITIES AND SHAREHOLDERS’
EQUITY
Accounts payable
$
52,376
$
53,735
Current portion of operating lease
obligation
4,894
4,857
Accrued liabilities:
Salaries, wages, and payroll taxes
7,320
7,288
Profit sharing and bonus
1,137
6,860
Current portion of deferred
compensation
17,802
18,062
Other current liabilities
12,645
11,646
Total current liabilities
96,174
102,448
Bank revolving credit notes
81,576
72,236
Operating lease obligation, less current
maturities
30,648
31,891
Deferred compensation, less current
portion
3,229
3,132
Deferred income tax liability
12,136
11,818
Other long-term liabilities
895
1,189
Total liabilities
$
224,658
$
222,714
Commitments and contingencies
Common shares, no par value, 75,000,000
authorized, 21,779,959 shares issued at March 31, 2023 and
21,645,193 at December 31, 2022
—
—
Additional paid-in-capital
202,011
200,945
Retained earnings
28,845
26,274
Treasury shares at cost, 1,357,929 shares
at March 31, 2023 and 1,472,447 at December 31, 2022
(7,513
)
(9,352
)
Total shareholders’ equity
223,343
217,867
Total
$
448,001
$
440,581
Mayville Engineering Company,
Inc.
Consolidated Statement of Net
Income
(in thousands, except share
amounts and per share data)
(unaudited)
Three Months Ended
March 31,
2023
2022
Net sales
$
142,645
$
136,252
Cost of sales
126,268
121,370
Amortization of intangible assets
1,738
1,738
Profit sharing, bonuses, and deferred
compensation
3,003
2,548
Employee stock ownership plan expense
—
490
Other selling, general and administrative
expenses
6,966
5,725
Impairment of long-lived assets and gain
on contracts
—
(1,183
)
Income from operations
4,670
5,564
Interest expense
(1,658
)
(567
)
Income before taxes
3,012
4,997
Income tax expense
441
1,175
Net income and comprehensive
income
$
2,571
$
3,822
Earnings per share:
Basic
$
0.13
$
0.19
Diluted
$
0.12
$
0.19
Weighted average shares
outstanding:
Basic
20,315,338
20,398,933
Diluted
20,749,948
20,549,326
Mayville Engineering Company,
Inc.
Consolidated Statement of Cash
Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
2023
2022
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income
$
2,571
$
3,822
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
6,142
5,468
Amortization
1,738
1,738
Allowance for doubtful accounts
27
106
Inventory excess and obsolescence
reserve
11
174
Stock-based compensation expense
1,066
1,257
Gain on disposal of property, plant and
equipment
(138)
(62)
Impairment of long-lived assets and gain
on contracts
—
(1,183)
Deferred compensation
(163)
(2,176)
Non-cash lease expense
1,286
1,266
Other non-cash adjustments
83
77
Changes in operating assets and
liabilities – net of effects of acquisition:
Accounts receivable
(16,265)
(17,088)
Inventories
2,749
(2,317)
Tooling in progress
(100)
(1,246)
Prepaids and other current assets
110
(216)
Accounts payable
(2,290)
10,526
Deferred income taxes
441
1,155
Operating lease obligations
(1,206)
(1,160)
Accrued liabilities
(2,105)
(566)
Net cash used in operating activities
(6,043)
(425)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant and
equipment
(2,408)
(12,979)
Proceeds from sale of property, plant and
equipment
153
359
Net cash used in investing activities
(2,255)
(12,620)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank revolving credit
notes
119,700
118,156
Payments on bank revolving credit
notes
(110,360)
(102,436)
Repayments of other long-term debt
(286)
(272)
Purchase of treasury stock
(661)
(2,323)
Payments on finance leases
(96)
(78)
Net cash provided by financing
activities
8,297
13,047
Net increase (decrease) in cash and cash
equivalents
(1)
2
Cash and cash equivalents at beginning of
period
127
118
Cash and cash equivalents at end of
period
$
126
$
120
Mayville Engineering Company,
Inc.
Reconciliation of Net Income
to EBITDA and Adjusted EBITDA
(in thousands)
(unaudited)
Three Months Ended
March 31,
2023
2022
Net income and comprehensive income
$
2,571
$
3,822
Interest expense
1,658
567
Provision for income taxes
441
1,175
Depreciation and amortization
7,880
7,207
EBITDA
12,550
12,771
Stock-based compensation expense
1,066
1,257
Hazel Park transition and legal costs due
to former fitness customer
224
1,927
Impairment of long-lived assets and gain
on contracts
—
(1,183
)
Adjusted EBITDA
$
13,840
$
14,772
Net sales
$
142,645
$
136,252
EBITDA Margin
8.8
%
9.4
%
Adjusted EBITDA Margin
9.7
%
10.8
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230502005410/en/
INVESTOR CONTACT Stefan Neely or Noel Ryan (615) 844-6248
MEC@val-adv.com
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