UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission File Number: 001-38894

 

Mayville Engineering Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Wisconsin

39-0944729

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

715 South Street

Mayville, Wisconsin

53050

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (920) 387-4500

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, no par value

 

MEC

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 30, 2019,May 3, 2020, the registrant had 19,740,29619,827,016 shares of common stock, no par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

 

 

 

 

 

Page

 

 

 

PART  I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Financial Statements (Unaudited)

5

 

 

 

 

Condensed Consolidated Balance Sheets

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

 

Condensed Consolidated Statements of Shareholders Equity

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2221

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2926

 

 

 

Item 4.

Controls and Procedures

2927

 

 

 

PART II.

OTHER INFORMATION

3129

 

 

 

Item 1.

Legal Proceedings

3129

 

 

 

Items 1A.

Risk Factors

31   29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3130

 

 

 

Item 6.

Exhibits

3231

 

 

 

Signatures

 

3332

 

 

 

 

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

ThisCertain matters discussed in this Quarterly Report on Form 10-Q containscontain forward-looking statements that involve risks and uncertainties, such as statements related to future events, business strategy, future performance, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. We believeMayville Engineering Company, Inc. (MEC, the Company, we, our, us or similar terms) believes the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon.

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, those described in “Risk Factors” in Part II,I, Item 1A of our QuarterlyAnnual Report on Form 10-Q10-K for the quarteryear ended June 30,December 31, 2019, filed with the Securities and Exchange Commission (the SEC) on August 9, 2019,March 2, 2020, as such may be amended or supplemented in Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q (including this report), and the following:

the uncertain negative impacts the coronavirus (COVID-19) will have on our business, financial condition, cash flows and results of operations;

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 our initial public offering of common stock (IPO);

risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan;

the possibility that the previous shareholders of Defiance Metal Products Co., which we acquired in December 2018, disagree with our calculations of whether the contingent consideration in such acquisition is payable and an arbitrator decides that some or all of such contingent consideration is payable; and

our ability to remediate the material weaknessesweakness in internal control over financial reporting identified in preparing our financial statements included in our final prospectus, dated May 8, 2019 (the Prospectus), filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on May 10, 2019 (included as part of our Registration StatementAnnual Report on Form S-1, Registration No. 333-230840),10-K for the year ended December 31, 2019, and to subsequently maintain effective internal control over financial reporting.

These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. All forward-looking statements attributable to us are

3


qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no

3


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.

4


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except shares)share amounts)

(unaudited)

 

 

September 30,

2019

 

 

December 31,

2018

 

 

March 31,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

 

$

3,089

 

 

$

13,001

 

 

$

1

 

Receivables, net of allowances for doubtful accounts of $540 as of September 30, 2019

and $801 as of December 31, 2018

 

 

62,565

 

 

 

52,298

 

Receivables, net of allowances for doubtful accounts of $1,119 at March 31, 2020

and $526 at December 31, 2019

 

 

49,449

 

 

 

40,188

 

Inventories, net

 

 

50,653

 

 

 

53,405

 

 

 

45,824

 

 

 

45,692

 

Tooling in progress

 

 

1,493

 

 

 

2,318

 

 

 

3,118

 

 

 

1,589

 

Prepaid expenses and other current assets

 

 

3,282

 

 

 

1,649

 

 

 

2,392

 

 

 

3,007

 

Total current assets

 

 

117,994

 

 

 

112,759

 

 

 

113,784

 

 

 

90,477

 

Property, plant and equipment, net

 

 

128,098

 

 

 

123,883

 

 

 

121,696

 

 

 

125,063

 

Goodwill

 

 

70,922

 

 

 

69,437

 

 

 

71,535

 

 

 

71,535

 

Intangible assets-net

 

 

74,850

 

 

 

82,879

 

 

 

69,497

 

 

 

72,173

 

Capital lease, net

 

 

3,267

 

 

 

1,953

 

 

 

3,064

 

 

 

3,227

 

Other long-term assets

 

 

4,976

 

 

 

814

 

 

 

1,024

 

 

 

1,107

 

Total

 

 

400,107

 

 

$

391,725

 

 

$

380,600

 

 

$

363,582

 

LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

42,494

 

 

$

45,992

 

 

$

33,433

 

 

$

32,173

 

Current portion of capital lease obligation

 

 

573

 

 

 

281

 

 

 

605

 

 

 

598

 

Current portion of long-term debt

 

 

83

 

 

 

8,606

 

Accrued liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages, and payroll taxes

 

 

8,136

 

 

 

7,548

 

 

 

7,530

 

 

 

5,752

 

Profit sharing and bonus

 

 

7,246

 

 

 

6,124

 

 

 

1,548

 

 

 

6,229

 

Other current liabilities

 

 

4,452

 

 

 

14,610

 

 

 

2,976

 

 

 

3,439

 

Total current liabilities

 

 

62,985

 

 

 

83,161

 

 

 

46,092

 

 

 

48,191

 

Bank revolving credit notes

 

 

87,000

 

 

 

59,629

 

 

 

87,793

 

 

 

72,572

 

Capital lease obligation, less current maturities

 

 

2,738

 

 

 

1,697

 

 

 

2,532

 

 

 

2,687

 

Other long-term debt, less current maturities

 

 

 

 

 

111,675

 

Deferred compensation and long-term incentive, less current portion

 

 

24,743

 

 

 

13,351

 

 

 

24,265

 

 

 

24,949

 

Deferred income taxes

 

 

20,324

 

 

 

19,123

 

Deferred income tax liability

 

 

14,895

 

 

 

14,188

 

Other long-term liabilities

 

 

100

 

 

 

100

 

 

 

100

 

 

 

100

 

Total liabilities

 

 

197,890

 

 

 

288,736

 

 

 

175,677

 

 

 

162,687

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

Redeemable common shares, no par value, stated at redemption value of

outstanding shares, 60,045,300 authorized, 38,623,806 shares issued at

December 31, 2018

 

 

 

 

 

133,806

 

Retained earnings

 

 

 

 

 

26,842

 

Treasury shares at cost, 25,180,330 shares at December 31, 2018

 

 

 

 

 

(57,659

)

Total temporary equity

 

 

 

 

 

102,989

 

Common shares, no par value, 75,000,000 authorized, 20,845,693 shares issued at

September 30, 2019.

 

 

 

 

 

 

Common shares, no par value, 75,000,000 authorized, 20,845,693 shares issued at

March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Additional paid-in-capital

 

 

182,336

 

 

 

 

 

 

187,643

 

 

 

183,687

 

Retained earnings

 

 

23,763

 

 

 

 

 

 

22,140

 

 

 

22,090

 

Treasury shares at cost, 1,105,397 shares at September 30, 2019

 

 

(3,882

)

 

 

 

Treasury shares at cost, 1,018,677 shares at March 31, 2020 and 1,213,482 at

December 31, 2019

 

 

(4,860

)

 

 

(4,882

)

Total shareholders’ equity

 

 

202,217

 

 

 

 

 

 

204,923

 

 

 

200,895

 

Total

 

$

400,107

 

 

$

391,725

 

 

$

380,600

 

 

$

363,582

 

Share counts as of December 31, 2018 give effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the Company’s May 2019 IPO. There were 45,000 shares authorized, 28,946 shares issued and 18,871 treasury shares at December 31, 2018.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except sharesshare amounts and per share data)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

128,511

 

 

$

84,338

 

 

$

417,373

 

 

$

263,095

 

Cost of sales

 

 

113,941

 

 

 

71,517

 

 

 

362,689

 

 

 

222,913

 

Amortization of intangibles

 

 

2,677

 

 

 

939

 

 

 

8,030

 

 

 

2,817

 

Profit sharing, bonuses, and deferred compensation

 

 

678

 

 

 

2,340

 

 

 

25,258

 

 

 

5,346

 

Employee Stock Ownership Plan expense

 

 

1,500

 

 

 

1,000

 

 

 

4,500

 

 

 

3,000

 

Other selling, general and administrative expenses

 

 

6,068

 

 

 

2,855

 

 

 

20,296

 

 

 

8,435

 

Contingent consideration revaluation

 

 

(9,598

)

 

 

 

 

 

(6,054

)

 

 

 

Income (loss) from operations

 

 

13,246

 

 

 

5,688

 

 

 

2,655

 

 

 

20,584

 

Interest expense

 

 

(987

)

 

 

(846

)

 

 

(5,811

)

 

 

(2,606

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

(154

)

 

 

(588

)

Income (loss) before taxes

 

 

12,259

 

 

 

4,841

 

 

 

(3,310

)

 

 

17,390

 

Income tax expense (benefit)

 

 

2,512

 

 

 

17

 

 

 

(231

)

 

 

46

 

Net income (loss) and comprehensive income (loss)

 

$

9,746

 

 

$

4,824

 

 

$

(3,079

)

 

$

17,344

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to shareholders

 

$

9,746

 

 

$

4,824

 

 

$

(3,079

)

 

$

17,344

 

Basic and diluted earnings (loss) per share

 

$

0.49

 

 

$

0.36

 

 

$

(0.18

)

 

$

1.24

 

Basic and diluted weighted average shares outstanding

 

 

19,740,296

 

 

 

13,453,285

 

 

 

16,684,337

 

 

 

14,042,200

 

Tax-adjusted pro forma information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to shareholders

 

$

9,746

 

 

$

4,824

 

 

$

(3,079

)

 

$

17,344

 

Pro forma provision for income taxes

 

 

 

 

 

1,254

 

 

 

173

 

 

 

4,488

 

Pro forma net income (loss)

 

$

9,746

 

 

$

3,570

 

 

$

(3,252

)

 

$

12,856

 

Pro forma basic and diluted earnings (loss) per share

 

$

0.49

 

 

$

0.27

 

 

$

(0.19

)

 

$

0.92

 

Basic and diluted weighted average shares outstanding

 

 

19,740,296

 

 

 

13,453,285

 

 

 

16,684,337

 

 

 

14,042,200

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net sales

 

$

108,605

 

 

$

143,732

 

Cost of sales

 

 

96,762

 

 

 

124,153

 

Amortization of intangibles

 

 

2,677

 

 

 

2,677

 

Profit sharing, bonuses, and deferred compensation

 

 

1,325

 

 

 

1,750

 

Employee stock ownership plan expense

 

 

675

 

 

 

1,500

 

Other selling, general and administrative expenses

 

 

5,599

 

 

 

6,723

 

Contingent consideration revaluation

 

 

 

 

 

869

 

Income from operations

 

 

1,567

 

 

 

6,060

 

Interest expense

 

 

(826

)

 

 

(2,832

)

Income before taxes

 

 

741

 

 

 

3,228

 

Income tax expense

 

 

691

 

 

 

769

 

Net income and comprehensive income

 

$

50

 

 

$

2,459

 

Earnings per share

 

 

 

 

 

 

 

 

Net income available to shareholders

 

$

50

 

 

$

2,459

 

Basic and diluted earnings per share

 

$

0.00

 

 

$

0.18

 

Basic and diluted weighted average shares outstanding

 

 

19,533,533

 

 

 

13,443,484

 

Tax-adjusted pro forma information

 

 

 

 

 

 

 

 

Net income available to shareholders

 

$

50

 

 

$

2,459

 

Pro forma provision for income taxes

 

 

 

 

 

70

 

Pro forma net income

 

$

50

 

 

$

2,389

 

Pro forma basic and diluted earnings per share

 

$

0.00

 

 

$

0.18

 

Basic and diluted weighted average shares outstanding

 

 

19,533,533

 

 

 

13,443,484

 

 

Weighted average shares in 2019 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 2018.2019.

Tax adjusted pro forma amounts reflect income tax adjustments as if the Company was a taxable entity as of the beginning of 20182019 using a 26% effective tax rate.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Nine Months Ended

September 30,

 

 

Three Months Ended

March 31,

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(3,079

)

 

$

17,344

 

Net income

 

$

50

 

 

$

2,459

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,652

 

 

 

14,865

 

Depreciation

 

 

5,603

 

 

 

4,973

 

Amortization

 

 

2,677

 

 

 

2,677

 

Stock-based compensation expense

 

 

2,135

 

 

 

 

 

 

1,582

 

 

 

 

Allowance for doubtful accounts

 

 

594

 

 

 

(42

)

Inventory excess and obsolescence reserve

 

 

712

 

 

 

 

Costs recognized on step-up of acquired inventory

 

 

395

 

 

 

 

 

 

 

 

 

395

 

Contingent consideration revaluation

 

 

(6,054

)

 

 

 

 

 

 

 

 

869

 

Gain on disposal of property, plant and equipment

 

 

(74

)

 

 

(10

)

 

 

(82

)

 

 

(10

)

Deferred compensation and long-term incentive

 

 

11,392

 

 

 

190

 

 

 

(684

)

 

 

1,147

 

Loss (gain) on extinguishment or forgiveness of debt

 

 

(367

)

 

 

558

 

Non-cash adjustments

 

 

1,786

 

 

 

2,401

 

Other non-cash adjustments

 

 

85

 

 

 

96

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,524

)

 

 

(4,234

)

 

 

(9,855

)

 

 

(15,419

)

Inventories

 

 

3,700

 

 

 

(6,668

)

 

 

(844

)

 

 

(470

)

Tooling in progress

 

 

826

 

 

 

615

 

 

 

(1,529

)

 

 

(354

)

Prepaids and other current assets

 

 

(1,633

)

 

 

(897

)

 

 

615

 

 

 

(914

)

Accounts payable

 

 

(1,175

)

 

 

1,544

 

 

 

1,538

 

 

 

5,892

 

Other long-term assets

 

 

(4,266

)

 

 

 

Deferred income taxes

 

 

706

 

 

 

 

Accrued liabilities, excluding long-term incentive

 

 

(2,290

)

 

 

2,861

 

 

 

1,465

 

 

 

(2,799

)

Net cash provided by operating activities

 

 

16,424

 

 

 

28,570

 

Net cash provided by (used in) operating activities

 

 

2,633

 

 

 

(1,500

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(22,820

)

 

 

(13,329

)

 

 

(2,376

)

 

 

(8,151

)

Proceeds from sale of property, plant and equipment

 

 

76

 

 

 

10

 

 

 

104

 

 

 

9

 

Non cash adjustments

 

 

(1,656

)

 

 

 

Acquisitions, net of cash acquired

 

 

(2,368

)

 

 

 

Net cash used in investing activities

 

 

(26,768

)

 

 

(13,319

)

 

 

(2,272

)

 

 

(8,142

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from bank revolving credit notes

 

 

367,364

 

 

 

180,061

 

 

 

87,118

 

 

 

117,666

 

Payments on bank revolving credit notes

 

 

(339,993

)

 

 

(179,592

)

 

 

(71,897

)

 

 

(110,906

)

Proceeds from issuance of other long-term debt

 

 

 

 

 

42,053

 

Repayments of other long-term debt

 

 

(119,963

)

 

 

(45,226

)

 

 

 

 

 

(107

)

Deferred financing costs

 

 

 

 

 

(705

)

Proceeds from IPO, net

 

 

101,763

 

 

 

 

Purchase of treasury stock

 

 

(1,592

)

 

 

(11,833

)

 

 

(2,435

)

 

 

 

Payments on capital leases

 

 

(323

)

 

 

 

 

 

(147

)

 

 

(73

)

Net cash provided by (used in) financing activities

 

 

7,256

 

 

 

(15,242

)

Net cash provided by financing activities

 

 

12,639

 

 

 

6,580

 

Net increase (decrease) in cash and cash equivalents

 

 

(3,088

)

 

 

8

 

 

 

13,000

 

 

 

(3,061

)

Cash and cash equivalents at beginning of period

 

 

3,089

 

 

 

76

 

 

 

1

 

 

 

3,089

 

Cash and cash equivalents at end of period

 

$

1

 

 

$

84

 

 

$

13,001

 

 

$

28

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

6,288

 

 

$

2,349

 

 

$

1,596

 

 

$

2,966

 

Cash paid for taxes

 

$

15

 

 

$

140

 

Non-cash construction in progress in accounts payable

 

$

474

 

 

$

2,004

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Equity

(in thousands)

(unaudited)

 

 

 

Shareholder’s Equity

 

 

 

Additional

Paid-in-Capital

 

 

Treasury

Shares

 

 

Retained

Earnings

 

 

Total

 

Balance as of December 31, 2018

 

$

 

 

$

 

 

$

 

 

$

 

Balance as of March 31, 2019

 

$

 

 

$

 

 

$

 

 

$

 

Transfer from Temporary Equity (see Note 16)

 

 

133,806

 

 

 

(57,659

)

 

 

29,302

 

 

 

105,449

 

Net loss post IPO

 

 

 

 

 

 

 

 

 

 

(15,284

)

 

 

(15,284

)

Share issuance – IPO

 

 

101,763

 

 

 

 

 

 

 

 

 

 

 

101,763

 

Stock-based compensation

 

 

797

 

 

 

 

 

 

 

 

 

 

 

797

 

Share repurchases

 

 

 

 

 

 

(1,592

)

 

 

 

 

 

 

(1,592

)

Cancellation of Treasury Stock

 

 

(55,369

)

 

 

55,369

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

$

180,998

 

 

$

(3,881

)

 

$

14,017

 

 

$

191,133

 

Net Income

 

 

 

 

 

 

 

 

 

 

9,746

 

 

 

9,746

 

Stock-based compensation

 

 

1,338

 

 

 

 

 

 

 

 

 

 

 

1,338

 

Balance as of September 30, 2019

 

$

182,336

 

 

$

(3,881

)

 

$

23,763

 

 

$

202,217

 

 

 

Shareholder’s Equity

 

 

 

Additional

Paid-in-Capital

 

 

Treasury

Shares

 

 

Retained

Earnings

 

 

Total

 

Balance as of December 31, 2019

 

$

183,687

 

 

$

(4,882

)

 

$

22,090

 

 

$

200,895

 

Net Income

 

 

 

 

 

 

 

 

50

 

 

 

50

 

Purchase of treasury stock

 

 

 

 

 

(2,435

)

 

 

 

 

 

(2,435

)

ESOP contribution

 

 

2,374

 

 

 

2,457

 

 

 

 

 

 

4,831

 

Stock-based compensation

 

 

1,582

 

 

 

 

 

 

 

 

 

1,582

 

Balance as of March 31, 2020

 

$

187,643

 

 

$

(4,860

)

 

$

22,140

 

 

$

204,923

 

Note 17 includes information on Temporary Equity for the three months ended March 31, 2019.

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

8


Mayville Engineering Company, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands except shares andshare amounts, per share amounts)data, years and ratios)

(unaudited)

Note 1. Basis of presentation

The interim unaudited consolidated unaudited financial statements of Mayville Engineering Company, Inc. and subsidiaries (MEC, the Company, we, our, us or similar terms) presented here have been prepared in accordance with the accounting principles generally accepted in the United States of America (GAAP) and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results and position for the interim unaudited periods presented. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These interim unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2018,2019, included in the Company’s Prospectus.Annual Report on Form 10-K. A summary of the Company’s significant accounting policies is included in the Company’s 20182019 financial statements in the Prospectus.Annual Report on Form 10-K. The Company followed these policies in preparation of the interim unaudited Condensed Consolidated Financial Statements.

Nature of Operations

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. Along with process engineering and development services, MEC maintains an extensive manufacturing infrastructure with 20 facilities across eight states. These facilities make it possible to offer conventional and CNC 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.

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.

On December 14, 2018, we acquired Defiance Metal Products Co., a leading U.S. based manufacturer of component parts for the heavy-and medium-duty commercial vehicles, construction, and agriculture and military markets.

In May 2019, we completed our initial public offering (IPO). In conjunction with the IPO, the Company’s legacy business converted from an S corporation to a C corporation. As a result, the consolidated business is subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), specific to the principles for recognizing revenue. This guidance replaces most existing revenue recognition guidance. It provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. As amended, this new revenue guidance will be effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. For as long as the Company remains an Emerging Growth Company (EGC), the new guidance is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods beginning after December 15, 2019. Early adoption is permitted for annual periods beginning after December 15, 2016. The Company has elected to adopt the standard using a modified retrospective approach and has determined that the standard does not have a material impact on the consolidated financial statements.

9


Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, creating Topic 842, which requires lessees to record the assets and liabilities arising from all leases in the statement of financial position. Under ASU 2016-02, lessees will recognize a liability for lease payments and a right-of-use asset. When measuring assets and liabilities, a lessee should include amounts related to option terms, such as the option of extending or terminating the lease or purchasing the underlying asset, that are reasonably certain to be exercised. For leases with a term of 12 months or less, lessees are permitted to make an accounting policy election to not recognize lease assets and liabilities. This guidance retains the distinction between finance leases and operating leases and the classification criteria remains similar to existing guidance. For financing leases, a lessee will recognize the interest on a lease liability separate from amortization of the right-of-use asset. In addition, repayments of principal will be presented within financing activities, and interest payments will be presented within operating activities in the statement of cash flows. For operating leases, a lessee will recognize a single lease cost on a straight-line basis and classify all cash payments within operating activities in the statement of cash flows. For public companies, this guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For as long as the Company remains an EGC,“emerging growth company”, the new guidance is effective for annual reporting periods beginning after December 15, 2019,2020, and interim periods within fiscal years beginning after December 15, 2020.2021. Early adoption is permitted. The Company is evaluating the potential impact of this guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, this guidance is effective for annual or any interim goodwill impairment test in annual reporting periods beginning after December 15, 2018. For as long as the Company remains an EGC, the new guidance is effective for any annual or interim goodwill impairment test in annual reporting periods beginning after December 15, 2021. During the period ended March 31, 2020, the Company elected to early adopt this guidance. This adoption had no impact on the financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes, creating Topic 740, which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public companies, this guidance will be effective for fiscal years beginning after December 15, 2020. For as long as the Company remains an “emerging growth company”, the new guidance is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is evaluating the potential impact of this guidance on the consolidated financial statements.

A summary of the Company’s evaluation of other recent accounting pronouncements is included in the Company’s 20182019 financial statements in its Annual Report on Form 10-K for the Prospectus.year ended December 31, 2019.

Note 2. IPO

OurThe IPO of shares of ourthe Company’s common stock was completed in May 2019. In connection with the offering, wethe Company initially sold 6,250,000 shares of common stock at $17 per share generating proceeds of $99,344, net of underwriting discounts and commissions. Additional shares were also sold under an option granted to the underwriters that same month, resulting in a sale of an additional 152,209 shares of common stock at $17 per share, generating additional proceeds of $2,419, net of underwriting discounts and commissions. In conjunction with the IPO, the Company issued a stock dividend specific to pre-IPO shares, of approximately 1,334.34-for-1, resulting in the conversion of 10,075 shares in our Employee Stock Ownership Plan to 13,443,484 shares.

IPO proceeds were used to pay down certain indebtedness.

Note 3. Acquisition

On December 14, 2018, the Company acquired Defiance Metal Products Co. (DMP), a full-service metal fabricator and contract manufacturer with two facilities in Defiance, OH, one in Heber Springs, AR, and one in Bedford, PA.

The Company acquired DMP for $117,068, net of cash received, plus contingent consideration of up to $10,000. The Company would pay DMP’s previous shareholders $7,500 if DMP generated $19,748 of earnings before interest expense, income taxes, depreciation and amortization (EBITDA) over the twelve-month period ended September 30, 2019. In addition, the Company would pay one dollar for each additional dollar of EBITDA in excess of $19,748 generated over this period; however, in no event shall the total payment exceed $10,000. Based on our calculations as of September 30, 2019, DMP’s EBITDA for the earnout period fell short of the $19,748 contingent consideration threshold; however, we have not received notification of agreement with the calculation from DMP’s previous shareholders.

The aggregate purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The excess purchase price over the estimated fair value of net tangible assets acquired was allocated to identifiable intangible assets and goodwill. The Company engaged a reputable independent third party to assist with the identification and valuation of the intangible assets. Management made significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows, useful lives, attrition rates, royalty rates, and growth rates. These measures are based on significant Level 3 inputs (see Note 15) not observable in the market.

10


The preliminary estimated fair values of assets acquired, and liabilities assumed are as follows:

 

 

Preliminary

Opening

Balance Sheet

Allocation

 

Cash consideration at acquisition date, net of cash received

 

$

114,700

 

Cash consideration for net working capital adjustment

 

 

2,368

 

Contingent consideration fair value as of acquisition date

 

 

6,076

 

Total purchase price

 

$

123,144

 

Accounts receivable, net

 

$

27,373

 

Tooling in progress

 

 

1,318

 

Inventory, net

 

 

13,237

 

Property, plant and equipment, net

 

 

30,053

 

Other assets, net of cash

 

 

416

 

Intangible assets

 

 

 

 

Trade name

 

 

14,780

 

Customer relationships

 

 

44,550

 

Non-compete

 

 

8,800

 

Goodwill

 

 

30,720

 

Total assets acquired

 

 

171,247

 

Deferred income taxes

 

 

20,221

 

Other liabilities

 

 

27,882

 

Net assets acquired

 

$

123,144

 

 In connection with the DMP acquisition, inventory was valued at its estimated fair value which is defined as expected sales price less costs to sell. The valuation resulted in an inventory fair value step-up of $978. This amount is amortized based on inventory turns, with the amortization resulting in a reduction of inventory and an expense reflected in cost of sales on the Condensed Consolidated Statement of Comprehensive Income (Loss). The Company amortized $395 and $583 of the inventory fair value step-up during the three months ended March 31, 2019 and the year ended December 31, 2018, respectively. The inventory fair value step-up was fully amortized as of March 31, 2019.

The Company recorded $14,780 of trade name intangible assets with an estimated useful life of 10 years, $44,550 of customer relationship intangible assets with an estimated useful life of 12 years, and $8,800 of non-compete agreements with an estimated useful life of 5 years. These intangibles are amortized on a straight-line basis. The Company believes that the estimated useful lives and the straight-line amortization methodology most appropriately reflect when and how the Company expects to benefit from the identifiable intangible assets. Amortization expense related to these intangible assets is reflected in amortization of intangible expenses on the Condensed Consolidated Statement of Comprehensive Income (Loss).

The Company also estimated and recorded the fair value of the contingent consideration payable to be $6,076 as of the acquisition date. The Company remeasured this liability utilizing a Monte Carlo valuation model through the conclusion of the earnout period, September 30, 2019, with the change in value resulting in income or expense and reflected in the Contingent Consideration Revaluation line item on the Condensed Consolidated Statement of Comprehensive Income (Loss). The primary inputs utilized in the Monte Carlo valuation model include actual and projected EBITDA along with a discount rate. Contingent consideration payable was revalued to $0, $9,598, $6,924 and $6,054 as of September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. The change between these balances resulted in (income)/expense of ($9,598), $2,674, $869, and ($21) for the three months ended September 30, 2019, June 30, 2019, March 31, 2019, and the year ended December 31, 2018, respectively.

Based on our calculations as of September 30, 2019, DMP’s EBITDA fell short of the $19,748 contingent consideration threshold. As a result, and in accordance with GAAP, the contingent consideration balance of $9,598 was reduced to zero and reflected as income in the Contingent Consideration Revaluation line item on the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2019. We have communicated the results of our DMP EBITDA calculation to DMP’s previous shareholders; however, we have not received notification of agreement with the calculation. If they disagree with our calculation, the matter will be subject to arbitration per the stock purchase agreement.

The purchase price of DMP exceeded the preliminary estimated fair value of identifiable net assets and accordingly, the difference was allocated to goodwill, which is not tax deductible.

11


The Company has recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the respective valuations. The Company believes that the information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the purchase price allocations are preliminary. The Company is in the process of finalizing the fair value estimates for certain assets acquired and liabilities assumed including income tax balances. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable but no later than one year from the applicable acquisition date.    

As of September 30, 2019, the Company has adjusted the fair value on the opening balance sheet by increasing deferred income taxes by $1,097, increasing inventory by $1,508 and increasing accounts receivable by $473. In addition, the Company finalized the net working capital adjustment during the three month period ended June 30, 2019, resulting in an additional payout of $2,368 by the Company to the seller, bringing the Company’s acquisition of DMP to $117,068 in total cash paid, net of cash acquired. The offsetting entries of these adjustments was to goodwill.

The DMP acquired entities accounted for $51,769 and $155,503 of net sales and $11,299 and $11,531 of net income for the three and nine months ended September 30, 2019, respectively. These net income amounts include the contingent consideration fair value adjustments previously discussed.

Pro Forma Financial Information (Unaudited): In accordance with Accounting Standards Codification 805, the following unaudited pro forma combined results of operations have been prepared and presented to give effect to the DMP acquisition as if it had occurred on January 1, 2018, the beginning of the comparable period, applying certain assumptions and proforma adjustments. These proforma adjustments primarily relate to the depreciation expense on stepped-up fixed assets, amortization of identifiable intangible assets, costs of goods sold expense on the sale of stepped inventory, interest expense related to additional debt needed to fund the acquisition, and the tax impact of these adjustments. The unaudited pro forma consolidated results are provided for illustrative purposes only and are not indicative of the Company’s actual consolidated results of operations or consolidated financial position.

 The unaudited pro forma results of operations do not reflect any operating efficiencies or potential cost savings which may result from the acquisition.

 

 

Three Months

Ended September 30,

2018

 

 

Nine Months

Ended September 30,

2018

 

Net sales

 

$

130,086

 

 

$

395,866

 

Net income

 

 

4,051

 

 

 

14,186

 

Note 4.3. Select balance sheet data

Inventory

Inventories as of September 30, 2019March 31, 2020 and December 31, 20182019 consist of:

 

 

September 30,

2019

 

 

December 31,

2018

 

 

March 31,

2020

 

 

December 31,

2019

 

Finished goods and purchased parts

 

$

31,615

 

 

$

32,589

 

 

$

28,283

 

 

$

28,664

 

Raw materials

 

 

11,983

 

 

 

12,329

 

 

 

11,525

 

 

 

10,834

 

Work-in-process

 

 

7,055

 

 

 

8,487

 

 

 

6,016

 

 

 

6,194

 

Total

 

$

50,653

 

 

$

53,405

 

 

$

45,824

 

 

$

45,692

 

The change in inventory from $53,405 as of December 31, 2018 to $50,653 as of September 30, 2019 includes a $395 reduction related to the amortization of the DMP inventory fair value step-up. The DMP inventory fair value step-up was fully amortized as of March 31, 2019.

1210


Property, plant and equipment

Property, plant and equipment as of September 30, 2019March 31, 2020 and December 31, 20182019 consist of:

 

 

Useful Lives

Years*

 

September 30,

2019

 

 

December 31,

2018

 

 

Useful Lives

Years*

 

March 31,

2020

 

 

December 31,

2019

 

Land

 

Indefinite

 

$

1,264

 

 

$

1,264

 

 

Indefinite

 

$

1,264

 

 

$

1,264

 

Land improvements

 

15-39

 

 

3,051

 

 

 

3,169

 

 

15-39

 

 

3,169

 

 

 

3,169

 

Building and building improvements

 

15-39

 

 

57,021

 

 

 

55,269

 

 

15-39

 

 

58,373

 

 

 

58,021

 

Machinery, equipment and tooling

 

3-10

 

 

198,068

 

 

 

182,045

 

 

3-10

 

 

205,813

 

 

 

204,248

 

Vehicles

 

5

 

 

3,704

 

 

 

3,613

 

 

5

 

 

3,718

 

 

 

3,738

 

Office furniture and fixtures

 

3-7

 

 

15,177

 

 

 

14,253

 

 

3-7

 

 

15,763

 

 

 

15,469

 

Construction in progress

 

N/A

 

 

8,327

 

 

 

6,786

 

 

N/A

 

 

2,875

 

 

 

3,154

 

Total property, plant and equipment, gross

 

 

 

 

286,612

 

 

 

266,399

 

 

 

 

 

290,975

 

 

 

289,063

 

Less accumulated depreciation

 

 

 

 

158,514

 

 

 

142,516

 

 

 

 

 

169,279

 

 

 

164,000

 

Total property, plant and equipment, net

 

 

 

$

128,098

 

 

$

123,883

 

 

 

 

$

121,696

 

 

$

125,063

 

 

Goodwill

Changes in goodwill between December 31, 20182019 and September 30, 2019March 31, 2020 consist of:

 

Balance as of December 31, 2018

 

$

69,437

 

DMP purchase accounting adjustments, net

 

 

(883

)

DMP net working capital true-up

 

 

2,368

 

Impairment

 

 

 

Balance as of September 30, 2019

 

$

70,922

 

Balance as of December 31, 2019

 

$

71,535

 

Impairment

 

 

 

Balance as of March 31, 2020

 

$

71,535

 

 

 Intangible Assets

The following is a listing of intangible assets, the useful lives in years (amortization period) and accumulated amortization as of September 30, 2019March 31, 2020 and December 31, 2018:2019:

 

 

Useful Lives

Years

 

September 30,

2019

 

 

December 31,

2018

 

 

Useful Lives

Years

 

March 31,

2020

 

 

December 31,

2019

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships and contracts

 

9-12

 

$

78,340

 

 

$

78,340

 

 

9-12

 

$

78,340

 

 

$

78,340

 

Trade name

 

10

 

 

14,780

 

 

 

14,780

 

 

10

 

 

14,780

 

 

 

14,780

 

Non-compete agreements

 

5

 

 

8,800

 

 

 

8,800

 

 

5

 

 

8,800

 

 

 

8,800

 

Patents

 

19

 

 

24

 

 

 

24

 

 

19

 

 

24

 

 

 

24

 

Accumulated amortization

 

 

 

 

(30,905

)

 

 

(22,876

)

 

 

 

 

(36,259

)

 

 

(33,582

)

Total amortizable intangible assets, net

 

 

 

 

71,039

 

 

 

79,068

 

 

 

 

 

65,685

 

 

 

68,362

 

Non-amortizable brand name

 

 

 

 

3,811

 

 

 

3,811

 

 

 

 

 

3,811

 

 

 

3,811

 

Total intangible assets, net

 

 

 

$

74,850

 

 

$

82,879

 

 

 

 

$

69,497

 

 

$

72,173

 

 

Non-amortizable brand name is tested annually for impairment.

Changes in intangible assets between December 31, 20182019 and September 30, 2019March 31, 2020 consist of:

 

Balance as of December 31, 2018

 

$

82,879

 

Amortization expense

 

 

(8,029

)

Balance as of September 30, 2019

 

$

74,850

 

Balance as of December 31, 2019

 

$

72,173

 

Amortization expense

 

 

(2,677

)

Balance as of March 31, 2020

 

$

69,497

 

 

Amortization expense was $2,677 and $939$2,677 for each of the three months ended September 30, 2019March 31, 2020 and 2018, respectively, and $8,029 and $2,817 for the nine months ended September 30, 2019 and 2018, respectively.2019.

13Future amortization expense is expected to be as followed:

11


Year ending December 31,

 

 

 

 

2020

 

$

10,706

 

2021

 

$

10,706

 

2022

 

$

6,952

 

2023

 

$

6,866

 

2024

 

$

5,192

 

Note 5.4. Bank revolving credit notes

On September 26, 2019, and as last amended as of December 31, 2019, we entered into an amended and restated credit agreement (A&R Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, as administrative agent (the Agent).agent. The A&R Credit Agreement provides for $200 milliona $200,000  revolving credit facility (the Revolving Loan), with a letter of credit sub-facility in an aggregate amount not to exceed $5.0 million,$5,000, and a swingline facility in an aggregate amount of $20.0 million.$20,000. The A&R Credit Agreement also provides for an additional $100.0 million$100,000 of debt capacity through an accordion feature. All amounts borrowed under the A&R Credit Agreement mature on September 26, 2024.

PriorThe A&R Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, September 26, 2019,restrictions on our ability to, subject to certain exceptions, create, incur or assume indebtedness, create or incur liens, make certain investments, merge or consolidate with another entity, make certain asset dispositions, pay dividends or other distributions to shareholders, enter into transactions with affiliates, enter into sale leaseback transactions or make capital expenditures. The A&R 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, 2020, our interest coverage ratio was 9.21 to 1.00. The A&R Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 3.25 to 1.00, although such leverage ratio can be increased in connection with certain acquisitions. At March 31, 2020, our consolidated total leverage ratio was 1.84 to 1.00. Despite the strength and reputation of our lenders, the Company maintaineddrew down $13,000 from the revolver and deposited it into a creditmoney market account in March 2020 to ensure liquidity due to the uncertainty of the COVID-19 impact on the bank industry in the most extreme of circumstances.  The need for this liquidity will continue to be evaluated and will be modified as the circumstances warrant. Had the $13,000 draw down on the revolver not occurred, our consolidated total leverage ratio would have been 1.58 to 1.00.

Under the agreement, providing for $90 million borrowing capacity through a revolving credit note. Interestinterest is payable monthly at the adjusted London Interbank Offered Rate (LIBOR) plus an applicable margin based on the current funded indebtedness to adjusted EBITDA ratio. The interest rate was 3.56%3.125% and 4.69%3.25% as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Additionally, the agreement has a fee on the average daily unused portion of the aggregate unused revolving commitments. This fee was 0.20% as of September 30, 2019March 31, 2020 and December 31, 2018.2019.

The Company was in compliance with all financial covenants of its credit agreements as of September 30, 2019March 31, 2020 and December 31, 2018.2019. The amount borrowed on the revolving credit notes was $87,000$87,793 and $59,629$72,572 as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.

Note 6. Other long-term debt

Prior to September 26, 2019, the Company maintained a facility financing package with borrowings of $95,000 and a maturity date of December 14, 2023 and a strategic capital loan with borrowings of $25,000 and a maturity date of June 14, 2024. As of September 26, 2019, all long-term debt was paid off in connection with entering into the Amended and Restated Credit Agreement.  

Government loan balances include forgiveness clauses based upon capital spending and headcount increases at the noted manufacturing locations.

As previously disclosed, the Company completed its IPO in May 2019. Proceeds from the IPO were used to pay down debt including $43,000 pay down of the prior Term A loan and $25,000 pay-off of the prior strategic capital loan.

In June 2019, the Company received written notification that the $521 balance remaining of the Smyth County, Virginia loan was forgiven. Due to the nature of the requirements to obtain forgiveness, the gain associated with the forgiveness is reflected in cost of sales on the Condensed Consolidated Statement of Comprehensive Income (Loss).

On September 26, 2019, the Company entered into the Amended and Restated Credit Agreement resulting in the payoff of the real estate term loan and the Term A loan through the new revolving credit facility.

Other long-term debt as of September 30, 2019 and December 31, 2018 consisted of the following:

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Interest

Rate

 

 

Balance

 

 

Interest

Rate

 

 

Balance

 

Term A loans – 2018 financing package

 

N/A

 

 

$

 

 

 

4.69

%

 

$

69,000

 

Real estate term loan – 2018 financing package

 

N/A

 

 

 

 

 

 

4.69

%

 

 

26,000

 

Strategic capital loan

 

N/A

 

 

 

 

 

 

11.78

%

 

 

25,000

 

Wisconsin Economic Development Corporate (Neillsville)

 

 

2.00

%

 

 

83

 

 

 

2.00

%

 

 

406

 

Smyth County, Virginia

 

N/A

 

 

 

 

 

 

0.00

%

 

 

700

 

Total principal outstanding

 

 

 

 

 

 

83

 

 

 

 

 

 

 

121,106

 

Less: Unamortized debt issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

(825

)

Less: Current maturities

 

 

 

 

 

 

(83

)

 

 

 

 

 

 

(8,606

)

Long-term debt, less current maturities, net

 

 

 

 

 

$

 

 

 

 

 

 

$

111,675

 

The Company was in compliance with all financial covenants of its long-term debt agreements as of September 30, 2019.

1412


Note 7.5. Capital lease obligation

Capital leases consist of equipment with a capitalized cost of $3,707$3,825 at March 31, 2020 and December 31, 2019, and accumulated depreciation of $440$761 and $598 at September 30, 2019.March 31, 2020 and December 31, 2019, respectively. Depreciation of $196$161 and $342$73 was recognized on the capital lease assets during the three and nine months ended September 30,March 31, 2020 and 2019, respectively. Capitalized costs of $2,051 and accumulated depreciation of $24 was recognizedNon-cash capital lease transactions amounted to zero for the three-three months ended March 31, 2020 and nine-month periods ended September 30, 2018 respectively.2019. Future minimum lease payments required under the lease are as follows:

 

Year ending December 31,

 

 

 

 

 

 

 

 

2019 (remainder)

 

$

178

 

2020

 

 

712

 

2020 (remainder)

 

$

551

 

2021

 

 

712

 

 

 

734

 

2022

 

 

712

 

 

 

734

 

2023

 

 

712

 

 

 

734

 

2024

 

 

514

 

Thereafter

 

 

702

 

 

 

226

 

Total

 

 

3,728

 

 

 

3,493

 

Less payment amount allocated to interest

 

 

417

 

 

 

356

 

Present value of capital lease obligation

 

$

3,311

 

 

$

3,137

 

Current portion of capital lease obligation

 

 

573

 

 

 

605

 

Long-term portion of capital lease obligation

 

 

2,738

 

 

 

2,532

 

Total capital lease obligation

 

$

3,311

 

 

$

3,137

 

Note 6. Operating lease obligation

Operating leases relate to property, plant and equipment. Future minimum lease payments required under the leases are as follows:

Year ending December 31,

 

 

 

 

2020 (remainder)

 

$

2,299

 

2021

 

 

2,507

 

2022

 

 

1,704

 

2023

 

 

1,560

 

2024

 

 

757

 

Thereafter

 

 

2,094

 

Total

 

$

10,921

 

The Company leases certain office space, warehousing facilities, equipment and vehicles under operating lease arrangements with third-party lessors. These lease arrangements expire at various time through December 2028. Total rent expense under the arrangements was approximately $1,061 and $1,130 for the three months ended March 31, 2020 and 2019, respectively.

Note 8.7. Employee stock ownership plan

Under the Mayville Engineering Company, Inc. Employee Stock Ownership Plan (the ESOP), the Company makes annual contributions to the trust for the benefit of eligible employees in the form of cash or shares of common stock of the Company. ThePrior to December 31, 2019, the annual contribution iswas discretionary except that it must behave been at least 3% of the compensation for all safe harbor participants for the plan year. Beginning on January 1, 2020, all contributions are discretionary. For the three months ended September 30,March 31, 2020 and 2019, and 2018, the Company’s ESOP expense amounted to $1,500$675 and $1,000, respectively. For the nine months ended September 30, 2019 and 2018, the Company’s ESOP expense amounted to $4,500 and $3,000,$1,500, respectively.

At various times following death, disability, retirement or termination of employment, an ESOP participant is entitled to receive their ESOP account balance in accordance with various distribution methods as permitted under the policies adopted by the ESOP. Historically,Prior to the IPO, all distributions have beenwere paid to participants in cash, but that will not be the case following the Company’s May 2019 IPO.

 During the three- and nine-month periods ended September 30, 2019 the ESOP did not acquire any shares from withdrawing participants.cash.

As of September 30, 2019,March 31, 2020, and December 31, 2018,2019, the ESOP shares consisted of 13,443,48411,653,776 and 11,790,113 in allocated shares, after giving effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the Company’s May 2019 IPO.respectively. Prior to its IPO, the Company was obligated to repurchase shares in the trust that were not distributed to ESOP participants as determined by the ESOP trustees, and thus the shares were mandatorily redeemable. Based on the mandatory redemption of these shares, they represented temporary equity on the consolidated balance sheets for periods prior to the IPO. The total estimated fair value of all allocated shares subject to this repurchase obligation approximated $133,806 as of December 31, 2018. The estimated fair value as of December 31, 2018 was based on the most recent available appraisals of the common stock which was approximately $9.95 per share after giving effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the Company’s May 2019 IPO. Subsequent to the IPO, ESOP shares are sold in the public market.

Note 8. Retirement plans

13


The Mayville Engineering Company Inc. 401(k) Plan (the 401(k) Plan) covers substantially all employees meeting certain eligibility requirements. The 401(k) Plan is a defined contribution plan and is intended for eligible employees to defer tax-free contributions to save for retirement. Employees may contribute up to 50% of their eligible compensation plan to the 401(k) Plan, subject to the limits of Section 401(k) of the Internal Revenue Code.

The 401(k) Plan also provides for employer discretionary profit sharing contributions and the Board of Directors may authorize discretionary profit sharing contributions (which are usually approved at the end of each calendar year).

Note 9. Income taxes

On a quarterly basis, the Company estimates its effective tax rate for the full fiscal year and records a quarterly income tax provision based on the anticipated rate. As the year progresses, the Company will refine its estimate based on facts and circumstances by each tax jurisdiction.

15


IncomeFor the three months ended March 31, 2020, income tax expense (benefit) was estimated at $2,512 and ($231),$691 and the effective tax rate (ETR) from continuing operations was 19.60% and 3.50%27.69% for the three and nine months ended September 30, 2019, respectively.March 31, 2020. The following items caused the quarterly ETR to be significantly different from our expected annual ETR at statutory tax rates:

For the three and nine months ended September 30, 2019, we recorded a discrete tax expense of approximately $0 and $84, respectively, as a result of a greater state tax expense than was originally estimated in our tax provision for our year ended DecemberMarch 31, 2018. This decreased the effective tax rate by 0.00% and 1.27% for the three and nine months ended September 30, 2019, respectively.

For the three and nine months ended September 30, 2019,2020, we recorded a discrete tax benefit of approximately $0 and $784, respectively, as a result of establishing an opening deferred tax asset upon MEC’s conversion from an S Corporation to a C Corporation on May 9, 2019. This increased the effective tax rate by 0.00% and 11.9% for the three and nine months ended September 30, 2019, respectively.

For the three and nine months ended September 30, 2019, we recorded a discrete tax expense of approximately $0 and $1,800, respectively$12 as a result of estimated non-deductible executive compensation in excess of the $1,000 per individual limitation under Section 162(m) of the Internal Revenue Code. The removal was in addition to the amount originally estimated in our tax provision for the year ended December 31, 2019. This decreased the effective tax rate by 0.00% and 27.76%1.58% for the three and nine months ended September 30, 2019, respectively.March 31, 2020.

For the three months ended March 31, 2020, we recorded a discrete tax expense of approximately $483 as a result of the removal of a deferred tax asset related to loan fee amortization. This increased the effective tax rate by 65.09%for the three months ended March 31, 2020.

The acquired DMP entities are subject to taxation inFor the United Statesthree months ended March 31, 2019, income tax expense was estimated at $769 and five state jurisdictions. the ETR from continuing operations was 30.35%

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in these jurisdictions. Accounting Standards Codification (ASC) Topic 740, Income Taxes, states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of technical merits.

Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements as of September 30,March 31, 2020 or December 31, 2019.

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 is subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward. Upon the Company’s conversion from a non-taxable entity to a taxable entity, we established an opening deferred tax asset of $784 as a result of evaluating estimated temporary differences that existed on this date.

The Company’s policy for recording interest and penalties associated with potential income tax audits is to record such expense as a component of income tax expense. There were no amounts for penalties or interest recorded as of September 30, 2019.March 31, 2020. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its positions.

Note 10. Contingencies

From time to time, the Company may be involved in various claims and lawsuits, both for and against the Company, arising in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, in management’s opinion, either the likelihood of loss is remote, or any reasonably possible loss associated with the resolution of such proceedings is not expected to have a material adverse impact on the consolidated financial statements.

14


Note 11. Deferred compensation

The Mayville Engineering Deferred Compensation Plan is available for certain employees designated to be eligible to participate by the Company and approved by the Board of Directors. Eligible employees may elect to defer a portion of his or her compensation for any plan year and the deferral cannot exceed 50% of the participant’s base salary and may include the participant’s annual short-term cash incentive up to 100%. The participant’s election must be made prior to the first day of the plan year.

 An employer contribution will be made for each participant to reflect the amount of any reduced allocations to the ESOP and/or 401(k) employer contributions due solely to the participant’s deferral amounts, as applicable. In addition, a discretionary amount may be awarded to a participant by the Company.

Prior to the IPO, all deferrals were deemed to have been invested in the CompanyCompany’s common stock at a price equal to the share value on the date of deferral and the value of the account increased or decreased with the change in the value of the stock. Individual accounts are maintained for each participant. Each participant’s account is credited with the participant’s deferred compensation the Company’s contributions, and investment income or loss, reduced for charges, if any.

16


For the period subsequent to the IPO, deferrals are invested in an investment vehicle based on the options made available to the participant (which does not include Company stock).

The deferred compensation plan provides benefits payable upon separation of service or death. Payments are to be made 30 days after date of separation from service, either in a lump-sum payment or up to five annual installments as elected by the participant when the participant first elects to defer compensation.

The deferred compensation plan is non-funded, and all future contributions are unsecured in that the employees have the status of a general unsecured creditor of the Company and the agreements constitute a promise by the Company to make benefit payments in the future. During the three months ended September 30,March 31, 2020 and 2019, and 2018, eligible employees elected to defer compensation of $10$29 and $16, respectively. During the nine months ended September 30, 2019 and 2018, eligible employees elected to defer compensation of $1,064 and $837,$1,147, respectively. As of September 30, 2019,March 31, 2020, and December 31, 2018,2019, the total amount accrued for all benefit years under this plan was $24,743$24,265 and $13,351,$24,949, respectively, which is included within the deferred compensation and long-term incentive on the Condensed Consolidated Balance Sheets. These amounts include the initial deferral of compensation as adjusted for (a) subsequent changes in the share value of the Company stock pursuant to the IPO or (b) following the IPO in the investment options chosen by the participants. Total expense for the deferred compensation plan for the three months ended September 30,March 31, 2020 and 2019 and 2018 amounted to $141$(607) and $16,$1,147, respectively. Total expense for the deferred compensation plan for the nine months ended September 30, 2019 and 2018 amounted to $10,405 and $310. These expenses are included in profit sharing, bonuses and deferred compensation on the Condensed Consolidated Statements of Comprehensive Income (Loss).

15


Note 12. Long-Term incentive plan

Historically,Prior to the IPO, the Company’s long-term incentive plan (LTIP) was available for any employee who had been designated to be eligible to participate by the Compensation Committee of the Board of Directors. Annually, the LTIP provided for long-term cash incentive awards to eligible participants based on the Company’s performance over a three-year performance period.

The LTIP was non-funded and each participant in the plan was considered a general unsecured creditor of the Company and each agreement constituted a promise by the Company to make benefit payments if the future conditions were met, or if discretion is exercised in favor of a benefit payment.

The qualifying conditions for each award granted under the plan included a minimum increase in the aggregate fair value of the Company of 12% during the three-year performance period and the eligible participants must have been employed by the Company on the date of the cash payment or have retired after attaining age 65, died or become disabled during the period from the beginning of the performance period to the date of payment. If the qualifying conditions were not attained, discretionary payments were made, up to a maximum amount specified in each award agreement. Discretionary payments were determined by the Compensation Committee of the Board of Directors (for payment to the Chief Executive Officer of the Company) and by the Chief Executive Officer (for payments to other participants in the plan).

If a participant was not employed throughout the performance period due to retirement, death or disability, their maximum benefit was prorated based on the number of days employed by the Company during the performance periods.

The LTIP was terminated in May 2019 in conjunction with the IPO, resulting in a total payout of $10,483. The total amount accrued for all grant years under this plan was $1,846 at December 31, 2018. This amount is included within profit sharing and bonus on the Condensed Consolidated Balance Sheets.IPO. Total expense for the long-term incentive plan for the three months ended 2018March 31, 2019 amounted to $969. Total expense for the long-term incentive plan for the nine months ended September 30, 2019 and 2018 amounted to $10,000 and $1,191, respectively.$79. These expenses are included in profit sharing, bonuses and deferred compensation on the Condensed Consolidated Statements of Comprehensive Income (Loss).

Note 13. Self-Funded insurance

The Company is self-funded for the medical benefits provided to its employees and their dependents. Healthcare costs are expensed as incurred and are based upon actual claims paid, reinsurance premiums, administration fees, and estimated unpaid claims. TheAs of March 31, 2020, the Company purchases reinsurancehas consolidated benefit plans with no specific stop loss and an aggregate stop loss to limit the annual risk associated with their multiple medical plans. Under one plan, the Company purchases reinsurance to limit the annual risk per participant to $225 with no aggregate stop loss. Under another plan, the Company purchases reinsurance to limit the annual risk per participant to $200 and to limit the annual aggregate riskrisk. Annual expense related to this contract which was approximately $4,709$5,904 and $4,393$5,163 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively and $14,875 and $14,775 for the nine months ended September 30, 2019 and 2018, respectively. An estimated accrued liability of approximately $1,349$1,492 and $1,730$1,316 was recorded as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, for estimated unpaid claims and is included within other current liabilities on the Condensed Consolidated Balance Sheets.

17


Note 14. Segments

The Company applies the provisions of ASC Topic 280, Segment Reporting. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker (CODM) and for which discrete financial information is available. Based on the provisions of ASC 280, the Company has determined it has one operating segment.

The Company does not earn revenues or have long-lived assetassets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of ASC 280, the Company’s net sales from external customers by main product lines are as follows:

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Outdoor sports

 

$

1,869

 

 

$

1,657

 

 

$

5,839

 

 

$

5,338

 

Fabrication

 

 

84,814

 

 

 

34,311

 

 

 

267,516

 

 

 

107,505

 

Performance structures

 

 

18,010

 

 

 

19,737

 

 

 

57,086

 

 

 

64,040

 

Tube

 

 

16,484

 

 

 

19,603

 

 

 

57,196

 

 

 

60,179

 

Tank

 

 

8,747

 

 

 

9,809

 

 

 

33,452

 

 

 

28,900

 

Total

 

 

129,923

 

 

 

85,117

 

 

 

421,089

 

 

 

265,963

 

Intercompany sales elimination

 

 

(1,412

)

 

 

(779

)

 

 

(3,716

)

 

 

(2,868

)

Total, net sales

 

$

128,511

 

 

$

84,338

 

 

$

417,373

 

 

$

263,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 15. Fair value of financial instruments

Fair value provides information on what the Company may realize if certain assets were sold or might pay to transfer certain liabilities based upon an exit price. Financial assets and liabilities that are measured and reported at fair value are classified into a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data. Long-term debt is classified as a Level 2 fair value input.

Level 3 – Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be the Company’s own data and judgements about assumptions that market participants would use in pricing the asset or liability.

16


The following table lists the Company’s financial assets and liabilities accounted for at fair value by the fair value hierarchy:

 

 

 

 

 

 

Fair Value Measurements at

Report Date Using

 

 

 

Balance at September 30,

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Deferred compensation

 

$

24,743

 

 

$

 

 

$

 

 

$

24,743

 

Contingent consideration payable

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

24,743

 

 

$

 

 

$

 

 

$

24,743

 

 

 

 

 

 

 

Fair Value Measurements at

Report Date Using

 

 

 

Balance at December 31,

2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Deferred compensation

 

$

13,351

 

 

$

 

 

$

 

 

$

13,351

 

Contingent consideration payable

 

 

6,054

 

 

 

 

 

 

 

 

 

6,054

 

Total

 

$

19,405

 

 

$

 

 

$

 

 

$

19,405

 

18


Changes in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) between December 31, 2018 and September 30, 2019 consist of:

 

Balance as of December 31, 2018

 

$

19,405

 

Contingent consideration revaluation

 

 

(6,054

)

Deferred compensation contributions

 

 

1,063

 

Deferred compensation fair value adjustment

 

 

10,404

 

Payments

 

 

(75

)

Balance as of September 30, 2019

 

$

24,743

 

 

 

 

 

 

 

Fair Value Measurements at

Report Date Using

 

 

 

Balance at March 31,

2020

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Deferred compensation

 

$

24,265

 

 

$

3,691

 

 

$

20,574

 

 

$

 

Total

 

$

24,265

 

 

$

3,691

 

 

$

20,574

 

 

$

 

 

 

 

 

 

 

Fair Value Measurements at

Report Date Using

 

 

 

Balance at December 31,

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Deferred compensation

 

$

24,949

 

 

$

2,470

 

 

$

22,479

 

 

$

 

Total

 

$

24,949

 

 

$

2,470

 

 

$

22,479

 

 

$

 

 

Fair value measurements for the Company’s cash and cash equivalents are classified based upon Level 1 measurements because such measurements are based upon quoted market prices in active markets for identical assets.

Accounts receivable, accounts payable, long-term debt and accrued liabilities are recorded in the financial statements at cost and approximate fair value.

Deferred compensation liabilities are recorded at amounts due to participants at the time of deferral. Prior to the IPO, deferrals were deemed to have been invested in the Company stock at a price equal to the share value on the deferral date. Considered Level 3 on the fair value hierarchy, the Company computed the fair value of its stock through the utilization of an independent third-party valuation specialist. For the period subsequent to the IPO, deferralsDeferrals are invested in an investment vehicle based on the options made available to the participant.participant, considered to be Level 1 and Level 2 on the fair value hierarchy, with the majority of the balance as Level 2. The change in fair value is recorded in deferred compensation and long-term incentive liabilities on the Condensed Consolidated Balance SheetsProfit sharing, bonuses, and deferred compensation expense on the Condensed Consolidated Statements of Comprehensive Income (Loss).

On December 14, 2018, the Company acquired DMP for $117,100, net of cash received plus contingent consideration of up to $10,000. The Company would pay DMP’s previous shareholders an additional $7,500 if DMP generated $19,748 of EBITDA over the twelve-month period ended September 30, 2019. In addition, the Company would pay one dollar for each additional dollar of EBITDA in excess of $19,748 generated over this period; however, in no event shall the total payment exceed $10,000. The Company estimated and recorded the fair value of the contingent consideration payable of $6,076 as of the acquisition date. The Company remeasured this liability through the conclusion of the earnout period, September 30, 2019, with the change in value resulting in income or expense reflected in the Contingent Consideration Revaluation line item on the Condensed Consolidated Statement of Comprehensive Income (Loss). Contingent consideration payable was revalued to $0, $9,598, $6,924 and $6,054 as of September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively. The change between these balances resulted in a (income)/expense of ($9,598), $2,674, $869, and ($21) for the three months ended September 30, 2019, June 30, 2019, March 31, 2019, and the year ended December 31, 2018, respectively.

Based on our calculations as of September 30, 2019, DMP’s EBITDA fell short of the $19,748 contingent consideration threshold. As a result, and in accordance with GAAP, the contingent consideration balance of $9,598 was reduced to zero and reflected as income in the Contingent Consideration line item on the Condensed Consolidated Statements of Comprehensive Income (Loss) for. The balance due to participants is reflected on the three months ended September 30, 2019. We have communicatedDeferred compensation and long-term incentive line item on the results of our DMP EBITDA calculation to DMP’s previous shareholders; however, we have not received notification of agreement with the calculation. If they disagree with our calculation, the matter will be subject to arbitration.

The Company does not have any financial assets or liabilities at the Level 2 fair value hierarchy.Condensed Consolidated Balance Sheets.

The Company’s non-financial assets such as intangible assets and property, plant, and equipment are re-measured at fair value when there is an indication of impairment and adjusted only when an impairment charge is recognized.

Note 16 – Common Equity

On May 13, 2019 the Company issued a stock dividend specific to pre-IPO shares, of approximately 1,334.34-for-1. The share dividend was accounted for as a 1,334.34-for-1 stock split and is retroactively reflected in these consolidated financial statements. All share redemption provisions were removed effective with the IPO.

Note 1617 – Temporary Equity

Prior to our IPO in May 2019, our common stock was considered redeemable under GAAP because of certain repurchase obligations related to the Mayville Engineering Company, Inc. ESOP. As a result, all common shares were recorded as temporary equity (redeemable common shares) on the consolidated balance sheets at their redemption valuevalues as of the respective balance sheet dates. Retained earnings on the consolidated balance sheet was adjusted for the changes during the period in the current redemption value of redeemable common shares.

All contractual redemption features were removed at the time of the IPO. As a consequence, all outstanding shares of common stock ceased to be considered temporary equity and were reclassified to Shareholders’ Equity, including the associated balances of

19


retained earnings. As the common shares have no par value, the amounts recorded in temporary equity for the share redemption value were recorded to additional paid-in capital within Shareholders’ Equity upon the transfer.

The following table shows all changes to temporary equity during the ninethree months ended September 30, 2019, excluding net income forMarch 31, 2019.

 

 

Temporary Equity

 

 

 

Redeemable Common Shares

 

 

Treasury Shares

 

 

Retained Earnings

 

As of January 1, 2019

 

$

133,806

 

 

$

(57,659

)

 

$

26,842

 

Net Income

 

 

 

 

 

 

 

 

2,459

 

As of March 31, 2019

 

$

133,806

 

 

$

(57,659

)

 

$

29,301

 


Note 18 – Revenue Recognition

Contract Assets and Contract Liabilities

The Company has contract assets and contract liabilities, which are included in other current assets and other current liabilities on the periodconsolidated balance sheet, respectively. Contract assets include products where the Company has satisfied its performance obligation, but receipt of April 1, 2019payment is contingent upon delivery. Contract liabilities include deferred tooling revenue, where the performance obligation was not met. The performance obligation is satisfied when the tooling is completed and the customer signs off through the dateProduct Part Approval Process (PPAP). At this time, the tool is placed into service and the cost to build the tooling is released from the balance sheet and included in cost of goods sold.

The Company’s contracts with customers are short-term in nature; therefore, revenue is typically recognized, billed and collected within a 12-month period. The following table reflects the IPO.changes in our contract assets and liabilities during the three months ended March 31, 2020.

 

 

 

Temporary Equity

 

 

 

Redeemable

Common

Shares

 

 

Treasury

Shares

 

 

Retained

Earnings

 

Balance as of January 1, 2018

 

$

125,042

 

 

$

(49,826

)

 

$

17,671

 

Net Income

 

 

 

 

 

 

 

 

 

 

4,430

 

Balance as of March 31, 2018

 

 

125,042

 

 

 

(49,826

)

 

 

22,101

 

Net Income

 

 

 

 

 

 

 

 

 

 

8,091

 

Purchase of treasury shares

 

 

 

 

 

 

(753

)

 

 

 

 

Balance as of June 30, 2018

 

 

125,042

 

 

 

(50,579

)

 

 

30,192

 

Net Income

 

 

 

 

 

 

 

 

 

 

4,824

 

Purchase of treasury shares

 

 

 

 

 

 

(11,080

)

 

 

 

 

Balance as of September 30, 2018

 

$

125,042

 

 

$

(61,659

)

 

$

35,016

 

 

 

Temporary Equity

 

 

 

Redeemable

Common

Shares

 

 

Treasury

Shares

 

 

Retained

Earnings

 

Balance as of January 1, 2019

 

$

133,806

 

 

$

(57,659

)

 

$

26,842

 

Net Income

 

 

 

 

 

 

 

 

2,459

 

Balance as of March 31, 2019

 

 

133,806

 

 

 

(57,659

)

 

 

29,301

 

Net income pre IPO

 

 

 

 

 

 

 

 

 

 

397

 

Transfer from temporary equity to common equity

 

 

(133,806

)

 

 

57,659

 

 

 

(29,698

)

Balance as of June 30, 2019

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2019

 

$

 

 

$

 

 

$

 

(in thousands)

 

Contract Assets

 

 

Contract Liabilities

 

As of January 1, 2020

 

$

1,589

 

 

$

914

 

Net Activity

 

 

1,529

 

 

 

328

 

As of March 31, 2020

 

$

3,118

 

 

$

1,242

 

 

Note 17 – Common EquityDisaggregated Revenue

On May 13, 2019 the Company issuedThe following table represents a stock dividend specific to pre-IPO shares,disaggregation of approximately 1,334.34-for-1. The share dividend was accounted for as a 1,334.34-for-1 stock split and is retroactively reflected in these consolidated financial statements. All share redemption provisions mentioned in Note 16, Temporary Equity, were removed effective with the IPO. Therefore, common shares were reclassified from temporary equity to permanent equity as of May 2019.revenue by product category:

As disclosed in Note 2, IPO, our IPO of common stock was effective in May 2019. In connection with the offering, we sold a total of 6,402,209 shares of additional shares of common stock.

On June 28, 2019, the Company cancelled 24,180,421 shares of common stock held in the Company’s treasury and returned those shares to the status of authorized but unissued shares of common stock.

20


 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Outdoor sports

 

$

1,771

 

 

$

1,859

 

Fabrication

 

 

69,793

 

 

 

91,153

 

Performance structures

 

 

16,639

 

 

 

19,807

 

Tube

 

 

14,954

 

 

 

20,857

 

Tank

 

 

6,718

 

 

 

11,605

 

Total

 

 

109,875

 

 

 

145,281

 

Intercompany sales elimination

 

 

(1,270

)

 

 

(1,549

)

Total, net sales

 

$

108,605

 

 

$

143,732

 

 

 

 

 

 

 

 

 

 

Note 1819 – Concentration of major customers

The following customers accounted for 10% or greater of the Company’s recorded net sales and net trade receivables:

 

 

Net Sales

 

 

Accounts Receivable

 

 

Net Sales

Accounts Receivable

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

As of

 

 

As of

 

 

Three Months Ended

March 31,

 

 

As of

 

 

As of

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

September 30, 2019

 

 

December 31, 2018

 

 

2020

 

 

2019

 

 

March 31, 2020

 

 

December 31, 2019

 

Customer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A

 

13.6

%

 

25.3

%

 

15.4

%

 

23.9

%

 

10.5

%

 

<10

%

 

16.2

%

 

17.0

%

 

13.5

%

 

<10

%

B

 

12.4

%

 

20.4

%

 

13.8

%

 

19.9

%

 

<10

%

 

<10

%

 

10.8

%

 

14.1

%

 

<10

%

 

<10

%

C

 

10.1

%

 

16.9

%

 

<10

%

 

17.8

%

 

<10

%

 

<10

%

 

10.2

%

 

<10

%

 

<10

%

 

<10

%

D

 

<10

%

 

<10

%

 

<10

%

 

<10

%

 

<10

%

 

12.6

%

 

11.8

%

 

11.6

%

 

<10

%

 

<10

%

E

 

13.9

%

 

19.8

%

 

12.7

%

 

<10

%

 

<10

%

 

<10

%

 

<10

%

 

<10

%

 

11.1

%

 

10.4

%

F

 

<10

%

 

15.4

%

 

<10

%

 

<10

%

 

14.4

%

 

<10

%

 

<10

%

 

<10

%

 

14.2

%

 

13.5

%

18


Note 1920 – Stock based compensation

In MayThe Mayville Engineering Company, Inc. 2019 weOmnibus Incentive Plan provides the Company the ability to grant monetary payments based on the value of its common stock, up to two million shares.

The Company recognizes stock-based compensation using the fair value provisions prescribed by ASC Topic 718, Compensation – Stock Compensation. Accordingly, compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of grant and are recognized as expense over the vesting period of the share-based instrument.

Cancellations and forfeitures are accounted for as incurred.

On February 27, 2020, the Company granted stock awards, including stock options and restricted stock units and options with a 2-year requisite service period to key employees and outside directors. Theseemployees. Stock awards were also granted on May 8, 2019. There were no stock awards granted prior to this. For units, fair value is equivalent to the stock price at the date of grant. The Black-Scholes option pricing model is utilized to determine fair value for options. Stock awards vest on thetheir annual anniversary dates based on the passage of time. The related compensation expense for each award is recognized on a straight linestraight-line basis over the appropriate vestingrequisite service period.

The fair value of eachCompany’s stock-based compensation expense by award type is summarized as follows:

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

One-time IPO unit awards

 

$

725

 

 

$

 

Unit awards

 

 

564

 

 

 

 

Option awards

 

 

293

 

 

 

 

Stock based compensation expense, net of tax

 

$

1,582

 

 

$

 

Unrecognized stock-based compensation expense was $6,797 as of March 31, 2020. This amount will be expensed over the requisite service period from which individual award values relate, up to February 27, 2022.

Unrecognized stock-based compensation expense specific to the one-time IPO unit awards is established on the datewas $304 as of grant. For grantsMarch 31, 2020, which will be fully expensed as of restricted stock units, the fair value is established based on the market price on the date of the grant.June 30, 2020.

For grants of options, we useused the Black-Scholes option pricing model to estimate the fair value of share-based paymentstock option awards. The fair value of options granted on February 27, 2020 was $2.84. These options have a contractual life of 10 years and a requisite service period of 2-years with 50% vesting on the annual anniversary dates of grant. The determination of the fair value of share-based awards is affected by stock pricethe following assumptions and inputs:

Assumptions

 

Input

 

 

Stock price at date of grant/exercise price

 

$

7.12

 

 

Expected term (in years)

 

 

5.75

 

 

Estimated volatility

 

 

41.2

 

%

Estimated risk-free rate of return

 

 

1.2

 

%

Expected dividend yield

 

0.0

 

%

19


The Company does not have historical option exercise data to estimate the expected term. For the options granted on February 27, 2020, the Company utilized the simplified method prescribed by Staff Accounting Bulletin (SAB) Topic 14 to estimate the expected term, which is calculated as the average of the vesting term and the contractual term. The 2020 option grants have a contractual life of 10 years and a numberrequisite service period, or vesting term, of assumptions. Our assumptions included2 years with 50% vesting on the annual anniversary dates. Applying the simplified method, the Company calculated the expected volatilityterms of 21.3%,each tranche to be 5.5 years and 6.0 years resulting in an average expected risk free rateterm of 2.42%, exercise price of $17 per share, and a ten year period to exercise.

There were 331,436 restricted units granted in May 2019 at a fair value of $17/unit. The total fair value of5.75 years for these award grants was $3,600 and $2,034, which vest over a 1- and 2-year period, respectively.

There were 287,895 options granted in May 2019 at a fair value of $6.07/option. The total fair value of these award grants was $1,748, which vest over a 2-year period.

awards. The Company recognized $1,338will continue to employ the simplified method until more relevant detailed information becomes available from which to make this estimate.

No units or options were vested and $2,135no options were exercisable as of stock-based compensation expenseMarch 31, 2020. The Company’s activity for the three-restricted stock units and nine months ended September 30, 2019, respectively.options is summarized as follows:

 

 

Units

 

 

Options

 

 

 

Number of Units

 

 

Weighted Average Grant Date Fair Value

 

 

Number of Options

 

 

Weighted Average Grant Date Fair Value

 

 

Weighted Average Exercise Price

 

 

Weighted Average Contractual Life Remaining

 

Nonvested, as of December 31, 2019

 

 

326,288

 

 

$

17.00

 

 

 

273,479

 

 

$

6.07

 

 

$

17.00

 

 

 

9.11

 

Grants

 

 

340,177

 

 

$

7.12

 

 

 

718,489

 

 

$

2.84

 

 

$

7.12

 

 

 

9.91

 

Forfeitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested, as of March 31, 2020

 

 

666,465

 

 

$

11.96

 

 

 

991,968

 

 

$

3.73

 

 

$

9.84

 

 

 

9.69

 

Note 20 –21– Subsequent events

On October 28, 2019,The company evaluated events and transactions for potential recognition or disclosure in the interim unaudited Condensed Consolidated Financial Statements through May 6, 2020, the date on which the interim unaudited Condensed Consolidated Financial Statements were available to be issued.

The coronavirus (COVID-19) pandemic has had, and will continue to have, a negative impact on the Company’s Boardbusiness, financial condition, cash flows and results of Directors approvedoperations, although the full extent is uncertain. The Company has taken cost reduction measures in response to the impact of the COVID-19 pandemic on its business including forced vacation, temporary layoffs, permanent layoffs, and other ad-hoc measures, however; nothing has been changed to an increase inextent that would prevent the Company from continuing to adequately serve its customers. The Company is continuing to evaluate its cost structure and may implement additional cost reduction measures as necessary due to economic challenges resulting from the COVID-19 pandemic. As the pandemic continues to rapidly evolve, the extent of the impact on the Company’s share repurchase program from $4 million to $25 million through 2021.business, financial condition, cash flows and results of operations will depend on future developments, all of which are highly uncertain and cannot be predicted at this time.

 

2120


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in the understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. This discussion 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” in Part II,I, Item 1A of our QuarterlyAnnual Report on Form 10-Q10-K for the quarteryear ended June 30,December 31, 2019 and “Cautionary Statement Regarding Forward-Looking Statements” above.and “Risk Factors” in Part II Item 1A. of this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the Company’s Prospectus.year ended December 31, 2019 and our unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item I of this Quarterly Report on Form 10-Q. In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this Management Discussion and Analysis of Financial Condition and Results of Operations. Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.

All amounts are presented in thousands except share amounts, per share data, years and ratios.

Overview

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.

On December 14, 2018, we acquired DMP, a leading U.S. based manufacturer of component parts for the heavy-and medium-duty commercial vehicles, construction, and agriculture and military markets. See Note 3 – Acquisition, in the Notes to the Condensed Consolidated Financial Statements for more specifics.

In May 2019, we completed our IPO. In conjunction with the IPO, the Company’s legacy business converted from an S corporation to a C corporation. As a result, the consolidated business is subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward.

How We Assess Performance

Net Sales. Net sales reflect sales of our components and products net of allowances for returns and discounts. Several factors affect our net sales in any given period, including general economic conditions, weather, timing of acquisitions and the production schedules of our customers. Net sales are recognized at the time of shipment to the customer.

Manufacturing Margins. Manufacturing margins represents net sales less cost of sales. Cost of sales consists of all direct and indirect costs used in the manufacturing process, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other directly related overhead costs. Our cost of sales is directly affected by the fluctuations in commodity prices, primarily sheet steel and aluminum, but these changes are largely mitigated by contractual agreements with our customers that allow us to pass through these price changes based upon certain market indexes.

Depreciation and Amortization. We carry property, plant and equipment on our balance sheet at cost, net of accumulated depreciation and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the asset. Amortization expense is the periodic expense related to leasehold improvements and intangible assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term. Our intangible assets were recognized as a result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets.

Other Selling, General, and Administrative Expenses. Other selling, general and administrative expenses consist primarily of salaries and personnel costs for our sales and marketing, finance, human resources, information systems, administration and other certain managerial employees and certain corporate level administrative expenses such as incentive compensation, audit, accounting, legal and other consulting and professional services, travel, and insurance.

2221


Other Key Performance Indicators

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 of Defiance Metal Products Co., Inc. (DMP) in December 2018 and the IPO, the loss on debt extinguishment relating to our December 2018 credit agreement, non-cash purchase accounting charges including costs recognized on the step-up of acquired inventory and contingent consideration fair value adjustments, and one-time increases in deferredstock-based compensation and long term incentive plan expenses related to the IPO.expense. 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.

Beginning the quarter, we are excluding stock-based compensation expense from adjusted EBITDA. Management excludes this charge when evaluating the performance of the business because it is a non-cash charge, and the Company is able to fund vesting obligations through treasury shares. Further, the exclusion of these charges aligns with the calculation of adjusted EBITDA for purposes of our covenant calculations under the A&R Credit Agreement. And finally, revaluations of grant date fair values can vary significantly with the passage of time without any accounting impact. For example, the fair value of the stock-based compensation awards granted in May 2019 would have been less than one third of that value had they been granted at the end of this quarter.

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.

The following table presents a reconciliation of net income, the most directly comparable measure calculated in accordance with GAAP, to Adjusted EBITDA, and the calculation of Adjusted EBITDA Margin for each of the periods presented.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Three Months Ended

March 31,

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

Net income (loss)

 

$

9,746

 

 

$

4,824

 

 

$

(3,079

)

 

$

17,344

 

Net income

 

$

50

 

 

$

2,459

 

Interest expense

 

 

987

 

 

$

846

 

 

 

5,811

 

 

 

2,606

 

 

 

826

 

 

 

2,832

 

Provision (benefit) for income taxes

 

 

2,512

 

 

$

17

 

 

 

(231

)

 

 

46

 

Provision for income taxes

 

 

691

 

 

 

769

 

Depreciation and amortization

 

 

8,297

 

 

$

4,962

 

 

 

24,652

 

 

 

14,865

 

 

 

8,280

 

 

 

7,650

 

EBITDA

 

 

21,543

 

 

 

10,650

 

 

 

27,153

 

 

 

34,861

 

 

 

9,847

 

 

 

13,710

 

Loss on the extinguishment of debt

 

 

 

 

 

 

 

 

154

 

 

 

588

 

Costs recognized on step-up of acquired inventory

 

 

 

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

395

 

Contingent consideration revaluation

 

 

(9,598

)

 

 

 

 

 

(6,054

)

 

 

 

 

 

 

 

 

869

 

Deferred compensation expense specific to IPO

 

 

 

 

 

 

 

 

10,159

 

 

 

 

Long term incentive plan expense specific to IPO

 

 

 

 

 

 

 

 

9,921

 

 

 

 

Stock based compensation expense

 

 

857

 

 

 

 

IPO stock-based compensation expense

 

 

725

 

 

 

 

Other IPO and DMP acquisition related expenses

 

 

1,625

 

 

 

 

 

 

6,434

 

 

 

 

 

 

 

 

 

1,814

 

Adjusted EBITDA

 

$

13,570

 

 

$

10,650

 

 

$

48,161

 

 

$

35,449

 

 

$

11,429

 

 

$

16,788

 

Net sales

 

$

128,511

 

 

$

84,338

 

 

$

417,373

 

 

$

263,095

 

 

$

108,605

 

 

$

143,732

 

EBITDA Margin

 

 

16.8

%

 

 

12.6

%

 

 

6.5

%

 

 

13.3

%

 

 

9.1

%

 

 

9.5

%

Adjusted EBITDA Margin

 

 

10.6

%

 

 

12.6

%

 

 

11.5

%

 

 

13.5

%

 

 

10.5

%

 

 

11.7

%

 

2322


Consolidated Results of Operations

Three Months Ended September 30, 2019March 31, 2020 Compared to Three Months Ended September 30, 2018March 31, 2019

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Increase (Decrease)

 

 

2020

 

 

2019

 

 

Increase (Decrease)

 

(in thousands)

 

Amount

 

 

% of Net

Sales

 

 

Amount

 

 

% of Net

Sales

 

 

Amount

Change

 

 

% Change

 

 

Amount

 

 

% of Net

Sales

 

 

Amount

 

 

% of Net

Sales

 

 

Amount

Change

 

 

% Change

 

Net sales

 

$

128,511

 

 

 

100.0

%

 

$

84,338

 

 

 

100.0

%

 

$

44,173

 

 

 

52.4

%

 

$

108,605

 

 

 

100.0

%

 

$

143,732

 

 

 

100.0

%

 

$

(35,127

)

 

 

-24.4

%

Cost of sales

 

 

113,941

 

 

 

88.7

%

 

 

71,517

 

 

 

84.8

%

 

 

42,424

 

 

 

59.3

%

 

 

96,762

 

 

 

89.1

%

 

 

124,153

 

 

 

86.4

%

 

 

(27,391

)

 

 

-22.1

%

Manufacturing margins

 

 

14,570

 

 

 

11.3

%

 

 

12,821

 

 

 

15.2

%

 

 

1,749

 

 

 

13.6

%

 

 

11,843

 

 

 

10.9

%

 

 

19,579

 

 

 

13.6

%

 

 

(7,736

)

 

 

-39.5

%

Amortization of intangibles

 

 

2,677

 

 

 

2.1

%

 

 

939

 

 

 

1.1

%

 

 

1,738

 

 

 

185.1

%

 

 

2,677

 

 

 

2.5

%

 

 

2,677

 

 

 

1.9

%

 

 

 

 

 

 

Profit sharing, bonuses and deferred compensation

 

 

678

 

 

 

0.5

%

 

 

2,340

 

 

 

2.8

%

 

 

(1,662

)

 

 

-71.0

%

 

 

1,325

 

 

 

1.2

%

 

 

1,750

 

 

 

1.2

%

 

 

(425

)

 

 

-24.3

%

Employee stock ownership plan expense

 

 

1,500

 

 

 

1.2

%

 

 

1,000

 

 

 

1.2

%

 

 

500

 

 

 

50.0

%

 

 

675

 

 

 

0.6

%

 

 

1,500

 

 

 

1.0

%

 

 

(825

)

 

 

-55.0

%

Other selling, general and administrative expenses

 

 

6,068

 

 

 

4.7

%

 

 

2,855

 

 

 

3.4

%

 

 

3,213

 

 

 

112.6

%

 

 

5,599

 

 

 

5.2

%

 

 

6,723

 

 

 

4.7

%

 

 

(1,124

)

 

 

-16.7

%

Contingent consideration revaluation

 

 

(9,598

)

 

 

-7.5

%

 

 

 

 

 

0.0

%

 

 

(9,598

)

 

N/A

 

 

 

 

 

 

0.0

%

 

 

869

 

 

 

(0.6

)%

 

 

(869

)

 

 

-100.0

%

Income (loss) from operations

 

 

13,246

 

 

 

10.3

%

 

 

5,688

 

 

 

6.7

%

 

 

7,558

 

 

 

132.9

%

 

 

1,567

 

 

 

1.4

%

 

 

6,060

 

 

 

4.2

%

 

 

(4,493

)

 

 

-74.1

%

Interest expense

 

 

(987

)

 

 

0.8

%

 

 

(846

)

 

 

1.0

%

 

 

140

 

 

 

16.6

%

 

 

(826

)

 

 

0.8

%

 

 

(2,832

)

 

 

2.0

%

 

 

(2,006

)

 

 

-70.8

%

Loss on the extinguishment of debt

 

 

 

 

 

0.0

%

 

 

 

 

 

0.0

%

 

 

 

 

0.0%

 

Provision (benefit) for income taxes

 

 

2,512

 

 

 

2.0

%

 

 

17

 

 

 

0.0

%

 

 

2,495

 

 

 

14,339.6

%

 

 

691

 

 

 

0.6

%

 

 

769

 

 

 

0.5

%

 

 

(78

)

 

 

-10.1

%

Net income and comprehensive income

 

$

9,746

 

 

 

7.6

%

 

$

4,824

 

 

 

5.7

%

 

$

4,923

 

 

 

102.0

%

 

$

50

 

 

 

0.0

%

 

$

2,459

 

 

 

1.7

%

 

$

(2,409

)

 

 

-98.0

%

EBITDA

 

$

21,543

 

 

 

16.8

%

 

$

10,650

 

 

 

12.6

%

 

$

10,893

 

 

 

102.3

%

 

$

9,847

 

 

 

9.1

%

 

$

13,710

 

 

 

9.5

%

 

$

(3,863

)

 

 

-28.2

%

Adjusted EBITDA

 

$

13,570

 

 

 

10.6

%

 

$

10,650

 

 

 

12.6

%

 

$

2,920

 

 

 

27.4

%

 

$

11,429

 

 

 

10.5

%

 

$

16,788

 

 

 

11.7

%

 

$

(5,359

)

 

 

-31.9

%

 

Net Sales. Net sales were $128,511$108,605 for the three months ended September 30, 2019March 31, 2020 as compared to $84,338$143,732 for the three months ended September 30, 2018. The DMP acquisition accounted for $51,769March 31, 2019, a decrease of $35,127, or 24.4%. This change is primarily attributed to the continued impact of market demand changes and related destocking activities that adversely impacted the latter part of 2019.  As expected, these declines were most apparent in the Commercial Vehicle, Agricultural and Construction end markets served. In addition, net sales for the quarter. Both the legacy MEC business and DMP were adversely impacted by recent declines in market demand, particularly in the agricultural, construction and medium duty truck markets. The demand changes stem fromlatter half of March by approximately $5,000 due to select customer decisions to delay and/or curtail near-term production schedules, reduce dealer inventory levels, and ongoing labor issues in the heavy and medium duty truck markets.plant shutdowns caused by COVID-19.

Manufacturing Margins. Manufacturing margins were $14,570$11,843 for the three months ended September 30, 2019March 31, 2020 as compared to $12,821$19,579 for the three months ended September 30, 2018, an increaseMarch 31, 2019, a decrease of $1,749,$7,736, or 13.6%39.5%. The acquisitiondecline was mainly driven by lower sales volumes due to the aforementioned market demand changes that began in the later part of DMP account2019, the impact of customer shutdowns in March due to COVID-19, along with approximately $900 of inventory obsolescence and health care accruals specific to the estimated potential impacts of COVID-19.  These factors were slightly offset by strong labor productivity.

Our traditional methods of determining inventory obsolescence and health care accruals significantly rely upon historical data. When estimating the COVID-19 impact, we had neither historical information, nor much other data from which to compute an estimated impact for $5,825this type of event. Notwithstanding, the Company believed the obvious risk posed by the pandemic would have a financial impact in the current period in these areas. This charge for these COVID-19 specific accruals represents our best good faith estimate of the potential financial impact to the Company based on information available to us.

Manufacturing margin percentages were 10.9% for the three months ended March 31, 2020, as compared to 13.6% of net sales for the three months ended March 31, 2019, a decline of 270 basis points. This decline was mostly attributable to lower sales volumes resulting in less overhead absorption, slightly offset by strong labor productivity driven by efficiency gains through our investments in new technology and automation. Sequentially, manufacturing margin duringpercentage increased by 700 basis points for the quarter. Manufacturing margins for boththree months ended March 31, 2020 when compared to the legacy MEC and DMP businesses were impacted bythree months ended December 31, 2019. The significant increase is attributable to improved sales demand in the aforementioned declinescurrent quarter compared to the rapid declining volumes experienced in market demand.the fourth quarter of 2019, coupled with the company’s effective cost reduction actions taken in late 2019.

Amortization of Intangibles Expense. Amortization of intangibles expense was $2,677 for the three months ended September 30, 2019 as compared to $939 for the three months ended September 30, 2018. The increase of $1,738, or 185.1%, was solely due to the amortization expense associated with the identifiable intangible assets from the DMP acquisition. Please see Note 3 – Acquisition, of the Condensed Consolidated Financial Statements for more information related to these identifiable intangible assets.March 31, 2020 and 2019.

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit sharing, bonuses, and deferred compensation expenses were $678$1,325 for the three months ended September 30, 2019March 31, 2020 as compared to $2,340$1,750 for the three months ended September 30, 2018. TheMarch 31, 2019, a decrease of $1,662$425, or 24.3%. This change was primarily driven by year-to-date adjustments to incentivelower bonus accruals and modest declines in deferred compensation programs related to performance.liabilitiesas a result of changes in market valuations of investment vehicles that deferred compensation balances are invested in.

Employee Stock Ownership Plan Expense. Employee stock ownership plan expense was $675 for the three months ended March 31, 2020 as compared to $1,500 for the three months ended September 30,March 31, 2019, as compareda decrease of $825, or 55.0%. The change is

23


mostly attributable to $1,000a decrease in headcount. Prior to December 31, 2019, the annual ESOP contribution was discretionary except that it must be at least 3% of the compensation for all safe harbor participants for the three months ended September 30, 2018.The increase of $500, or 50.0%, was primarily due to the addition of plan participants as a result of the DMP acquisition.year.  Beginning in 2020, all contributions are discretionary.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $6,068$5,599 for the three months ended September 30, 2019March 31, 2020 as compared to $2,855$6,723 for the three months ended September 30, 2018.March 31, 2019, a decrease of $1,124, or 16.7%. The increase of $3,213, or 112.6%, was driven by $1,625prior year period includes an additional $1,790 of one-time other IPO and DMP acquisition related expenses relatedas compared to the IPO,current period. Excluding these one-time costs, other selling, general and administrative expenses from the DMP acquired business, plus additionalincreased approximately $700 due to costs associated with being a publicly traded company.company, slightly offset by the aforementioned initiatives to adjust our cost structure to align with sales due to market demand changes, in conjunction with synergies achieved through the integration of DMP.

Contingent Consideration Revaluation. The DMP purchase agreement providesprovided for a payout to the previous shareholders of DMP of $7,500, but not more than $10,000 if a certain level of EBITDA was generated during the twelve-month period ended September 30, 2019. In accordance with GAAP, weWe estimated the fair value of the contingent consideration payable balance of $6,076 as of the acquisition date.date of December 14, 2018. We then remeasured the fair value each quarter through September 30, 2019, with the change recorded as income or expense. Based on our calculations in accordance witha contingent consideration revaluation adjustment. For the purchase agreement, DMP’s EBITDA fell slightly short of the payout threshold and as a result,three months ended March 31, 2019, the contingent consideration payable balance of $9,598 was adjustedrevalued to zero,$6,924, resulting in income$869 of this amount during the quarter.

24


Interest Expense. Interest expense was $987a revaluation adjustment for the three months ended September 30, 2019 as compared to $846March 31, 2019.

Interest Expense. Interest expense was $826 for the three months ended September 30, 2018March 31, 2020 as compared to $2,832 for the three months ended March 31, 2019, a decrease of $2,006, or 70.8%. The increase of $140, or 16.6%, changeis due to additional debt usedlower borrowings during the first quarter 2020 as compared to fund the DMP acquisition offset by the substantial paydown of debt with the IPO proceeds in the secondfirst quarter of 2019.2019 and lower interest rates attributable to the more favorable terms afforded under the A&R Credit Agreement.

Provision (Benefit) for Income Taxes. Income tax expenses were $2,512$691 for the three months ended September 30, 2019March 31, 2020 as compared to $17$769 for the three months ended September 30, 2018. The current period expenseMarch 31, 2019. Federal income tax expenses will be offset against our federal net operating loss carryforward of approximately $13.8 million until it is the result of the Company’s legacy business converting to a C Corporation in May 2019. 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. The DMP entities have been taxable under the provisions of the Internal Revenue Code and certain state statutes since being acquired. The consolidated business is subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward.fully utilized.

Net Income and Comprehensive Income. Net income and comprehensive income was $9,746$50 for the three months ended September 30, 2019March 31, 2020 as compared to net income and comprehensive income of $4,824$2,459 for the three months ended September 30, 2018.March 31, 2019. The increasedecrease of $4,923$2,409 was due to the previously discussed items, most notably the $9,598 gain recorded from the contingent consideration payable fair value adjustment.items.

EBITDA and EBITDA Margin. EBITDA and EBITDA Margin percent were $21,543$9,847 and 16.8%9.1%, respectively, for the three months ended September 30, 2019March 31, 2020 as compared to $10,650$13,710 and 12.6%9.5%, respectively, for the three months ended September 30, 2018.March 31, 2019. The $10,893 increase$3,863 decrease in EBITDA was primarily due to the $9,598 revaluation fordecline in net sales caused by the contingent consideration fair value adjustment and the addition of DMP.aforementioned decline in market demand.

Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin percent were $13,570$11,429 and 10.6%10.5%, respectively, for the three months ended September 30, 2019,March 31, 2020, as compared to $10,650$16,788 and 12.6%11.7%, respectively, for the three months ended September 30, 2018.March 31, 2019. The increasedecrease in Adjusted EBITDA of $2,920 was primarily driven by our recent acquisition of DMP, while the decrease in Adjusted EBITDA Margin percent was driven by the aforementioned recent declines in market demand.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Increase (Decrease)

 

(in thousands)

 

Amount

 

 

% of Net

Sales

 

 

Amount

 

 

% of Net

Sales

 

 

Amount

Change

 

 

% Change

 

Net sales

 

$

417,373

 

 

 

100.0

%

 

$

263,095

 

 

 

100.0

%

 

$

154,279

 

 

 

58.6

%

Cost of sales

 

 

362,689

 

 

 

86.9

%

 

 

222,913

 

 

 

84.7

%

 

 

139,776

 

 

 

62.7

%

Manufacturing margins

 

 

54,684

 

 

 

13.1

%

 

 

40,181

 

 

 

15.3

%

 

 

14,503

 

 

 

36.1

%

Amortization of intangibles

 

 

8,030

 

 

 

1.9

%

 

 

2,817

 

 

 

1.1

%

 

 

5,213

 

 

 

185.1

%

Profit sharing, bonuses and deferred compensation

 

 

25,258

 

 

 

6.1

%

 

 

5,346

 

 

 

2.0

%

 

 

19,913

 

 

 

372.5

%

Employee stock ownership plan expense

 

 

4,500

 

 

 

1.1

%

 

 

3,000

 

 

 

1.1

%

 

 

1,500

 

 

 

50.0

%

Other selling, general and administrative expenses

 

 

20,296

 

 

 

4.9

%

 

 

8,435

 

 

 

3.2

%

 

 

11,861

 

 

 

140.6

%

Contingent consideration revaluation

 

 

(6,054

)

 

 

-1.5

%

 

 

 

 

 

0.0

%

 

 

(6,054

)

 

N/A

 

Income (loss) from operations

 

 

2,655

 

 

 

0.6

%

 

 

20,584

 

 

 

7.8

%

 

 

(17,930

)

 

 

-87.1

%

Interest expense

 

 

(5,811

)

 

 

1.4

%

 

 

(2,606

)

 

 

1.0

%

 

 

3,205

 

 

 

123.0

%

Loss on extinguishment of debt

 

 

(154

)

 

 

0.0

%

 

 

(588

)

 

 

0.2

%

 

 

(434

)

 

 

-73.8

%

Provision (benefit) for income taxes

 

 

(231

)

 

 

-0.1

%

 

 

46

 

 

 

0.0

%

 

 

(277

)

 

 

-603.2

%

Net income (loss) and comprehensive income

   (loss)

 

$

(3,079

)

 

 

-0.7

%

 

$

17,344

 

 

 

6.6

%

 

$

(20,424

)

 

 

-117.8

%

EBITDA

 

$

27,153

 

 

 

6.5

%

 

$

34,861

 

 

 

13.3

%

 

$

(7,709

)

 

 

-22.1

%

Adjusted EBITDA

 

$

48,161

 

 

 

11.5

%

 

$

35,449

 

 

 

13.5

%

 

$

12,712

 

 

 

35.9

%

Net Sales. Net sales were $417,373 for the nine months ended September 30, 2019 as compared to $263,095 for the nine months ended September 30, 2018 for an increase of $154,279, or 58.6%. The acquired DMP business contributed $155,504 of the change.

Manufacturing Margins. Manufacturing margins were $54,684 for the nine months ended September 30, 2019 as compared to $40,181 for the nine months ended September 30, 2018, an increase of $14,503, or 36.1%.  The acquired DMP business contributed $18,636 of the change. Manufacturing margin percentage was 13.1% for the nine months ended September 30, 2019 as compared to

25


15.3% for the nine months ended September 30, 2018. The decrease is mostly attributed to the aforementioned market demand challenges experienced during the third quarter of 2019.

Amortization of Intangibles Expense. Amortization of intangibles expense was $8,030 for the nine months ended September 30, 2019 as compared to $2,817 for the nine months ended September 30, 2018. The increase of $5,213, or 185.1%, was solely due to the amortization expense associated with the identifiable intangible assets from the DMP acquisition. Please see Note 3 – Acquisition of the Condensed Consolidated Financial Statements for more information related to these identifiable intangible assets.

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit sharing, bonuses, and deferred compensation expenses were $25,258 for the nine months ended September 30, 2019 as compared to $5,346 for the nine months ended September 30, 2018. The increase of $19,913 was primarily driven by a one-time $10.2 million increase in deferred compensation plan expense and a one-time $9.9 million increase in long term incentive plan (LTIP) expense, both of which relate to the IPO.

Employee Stock Ownership Plan Expense. Employee stock ownership plan expense was $4,500 for the nine months ended September 30, 2019 as compared to $3,000 for the nine months ended September 30, 2018. The increase of $1,500, or 50.0%,$5,359 was primarily due to the addition of plan participants as a result of the DMP acquisition.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $20,296 for the nine months ended September 30, 2019 as compared to $8,435 for the nine months ended September 30, 2018. The increase of $11,861, or 140.6%, was driven by $6,434 of one-time IPO and DMP acquisition expenses, along with expenses from the acquired DMP business and additional costs associated with being a publicly traded company.

Contingent Consideration Revaluation. The DMP purchase agreement provides for a payout to the previous shareholders of DMP of $7,500, but not more than $10,000 if a certain level of EBITDA was generated during the twelve-month period ended September 30, 2019. In accordance with GAAP, we estimated the fair value of the contingent consideration payable balance as of the acquisition date. We then remeasured the fair value each quarter with the changed recorded as income or expense. Based on our calculationsdecline in accordance with the purchase agreement, DMP’s EBITDA fell slightly short of the payout threshold and as a result, the contingent consideration payable balance was adjusted to zero, resulting in income of $6,054 for the nine months ended September 30, 2019.

Interest Expense. Interest expense was $5,811 for the nine months ended September 30, 2019 as compared to $2,606 for the nine months ended September 30, 2018. The increase of $3,205, or 123.0%, is due to additional debt used to fund the DMP acquisition offsetnet sales caused by the substantial paydown of our debt from the IPO proceeds.aforementioned declined market demand.

Provision (Benefit) for Income Taxes. Income tax benefits were $231 for the nine months ended September 30, 2019 as compared to $46 provision for the nine months ended September 30, 2018. The current period benefit is the result of the Company’s legacy business converting to a C Corporation in May 2019 and the one-time IPO expenses incurred during the second quarter of 2019, which are deductible, causing the benefit. 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. The DMP entities have been taxable under the provisions of the Internal Revenue Code and certain state statutes since being acquired. The consolidated business is subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward.

Net Income (Loss) and Comprehensive Income (Loss). Net loss and comprehensive loss was $3,079 for the nine months ended September 30, 2019 as compared to net income and comprehensive income of $17,344 for the nine months ended September 30, 2018. The decrease of $20,424 was due to the previously discussed expense increases, most notably the one-time LTIP and deferred compensation plan expenses related to the IPO, other one-time IPO and DMP acquisition related expenses, slightly offset by the contingent consideration fair value adjustment and net income generated by DMP.

EBITDA and EBITDA Margin. EBITDA and EBITDA Margin percent were $27,153 and 6.5%, respectively, for the nine months ended September 30, 2019, as compared to $34,861 and 13.3%, respectively, for the nine months ended September 30, 2018. The $7,709 decline in EBITDA was due to the previously mentioned increase in LTIP and deferred compensation plan expenses related to the IPO, and one-time IPO expenses. These one-time expenses and charges were slightly offset by the gain recorded for the DMP contingent consideration fair value adjustment and the addition of DMP.

Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin percent were $48,161 and 11.5%, respectively, for the nine months ended September 30, 2019, as compared to $35,449 and 13.5%, respectively, for the nine months ended September 30, 2018. The increase in Adjusted EBITDA of $12,712 was primarily driven by our recent acquisition of DMP.

26


Liquidity and Capital Resources

Cash Flows Analysis

 

 

Nine Months Ended

September 30,

 

 

Increase (Decrease)

 

 

Three Months Ended

March 31,

 

 

Increase (Decrease)

 

(in thousands)

 

2019

 

 

2018

 

 

$Change

 

 

% Change

 

 

2020

 

 

2019

 

 

$Change

 

 

% Change

 

Net cash provided by operating activities

 

$

16,424

 

 

$

28,570

 

 

 

(12,145

)

 

 

-42.5

%

Net cash provided by (used in) operating activities

 

$

2,633

 

 

$

(1,500

)

 

 

4,133

 

 

 

275.5

%

Net cash used in investing activities

 

 

(26,768

)

 

 

(13,319

)

 

 

(13,449

)

 

 

101.0

%

 

 

(2,272

)

 

 

(8,142

)

 

 

5,870

 

 

 

-72.1

%

Net cash provided by (used in) financing activities

 

 

7,256

 

 

 

(15,242

)

 

 

22,498

 

 

 

-147.6

%

Net cash provided by financing activities

 

 

12,639

 

 

 

6,580

 

 

 

6,059

 

 

 

92.1

%

Net change in cash

 

$

(3,088

)

 

$

8

 

 

$

(3,096

)

 

 

-39,424

%

 

$

13,000

 

 

$

(3,061

)

 

$

16,062

 

 

 

524.7

%

 

Operating Activities. Cash provided by operating activities was $16,424$2,633 for the ninethree months ended September 30, 2019,March 31, 2020, as compared to $28,570cash used in operating activities of $1,500 for the ninethree months ended September 30, 2018.March 31, 2019. The $12,145,$4,133, or 42.5% decline275.5% increase in operating cash flows was primarily due to changes in net working capital items, most notably the $9,524a smaller increase in accounts receivable changes primarily duethis quarter as compared to DMP (whose customers have longer payment terms than those of the legacy MEC business).prior quarter, slightly offset by a smaller increase in accounts payable this quarter as compared to the prior quarter. Changes to pricing, payment terms and credit terms did not have a significant impact on changes to working capital items, or any other element of the operating cash flow activities, for the periods presented.

24


Investing Activities. Cash used in investing activities was $26,768$2,272 for the ninethree months ended September 30, 2019,March 31, 2020, as compared to $13,319$8,142 for the ninethree months ended September 30, 2018.March 31, 2019. The $13,449,$5,870, or 101.0% increase72.1% decrease in cash used in investing activities was primarily driven by lower capital expenditures as a result of the continued investment in automation andtiming of certain new technology along with a $2,368 payment related toand automation investments originally planned for early 2020 that occurred in the DMP net working capital true-up.fourth quarter of 2019.

Financing Activities. Cash provided by financing activities was $7,256$12,639 for the ninethree months ended September 30, 2019,March 31, 2020, as compared to cash used in financing activities of $15,242$6,580 for the ninethree months ended September 30, 2018.March 31, 2019. The $22,498$6,059 change was primarilydriven by the Company’s decision to draw down $13,000 from the revolver.Despite the strength and reputation of our lenders, the Company drew down $13,000 from the revolver and deposited it into a money market account in March 2020 to ensure liquidity due to the IPO proceeds receiveduncertainty of the COVID-19 impact on the bank industry in May 2019, netthe most extreme of debt repayments.circumstances.  The need for this liquidity position will continue to be evaluated and will be modified as circumstances warrant.

Amended and Restated Credit Agreement

On September 26, 2019, and as last amended as of December 31, 2019, we entered into an amended and restated credit agreement (thethe A&R Credit Agreement)Agreement with certain lenders and Wells Fargo Bank, National Association, as administrative agent (the Agent). The A&R Credit Agreement provides for a $200.0 million revolving credit facility (the$200,000 Revolving Loan),Loan, with a letter of credit sub-facility in an aggregate amount not to exceed $5.0 million,$5,000, and a swingline facility in an aggregate amount of $20.0 million.$20,000. The A&R Credit Agreement also provides for an additional $100.0 million$100,000 of capacity through an accordion feature. All amounts borrowed under the A&R Credit Agreement mature on September 26, 2024.

Our obligations under the A&R Credit Agreement are secured by first priority security interests in substantially all of our personal property and guaranteed by, and secured by first priority security interests in, substantially all of the personal property of, our direct and indirect subsidiaries: Center Manufacturing, Inc., Center Manufacturing Holdings, Inc., Center—Moeller Products LLC, Defiance Metal Products Co., Defiance Metal Products of Arkansas, Inc., Defiance Metal Products of PA., Inc. and Defiance Metal Products of WI, Inc.

Borrowings under the A&R Credit Agreement bear interest at a fluctuating LIBOR (which may be adjusted for certain reserve requirements), plus 1.00-2.00% depending on the current Consolidated Total Leverage Ratio (as defined in the A&R Credit Agreement). Under certain circumstances, we may not be able to pay interest based on LIBOR. If that happens, we will be required to pay interest at the Base Rate, which is the sum of (a) the higher of (i) the Prime Rate (as publicly announced by the Agent from time to time) and (ii) the Federal Funds Rate plus 0.50%, plus (b) 0.00% to 1.00%, depending on the current Total Consolidated Leverage Ratio.  The A&R Credit Agreement also includes provisions for determining a replacement rate when LIBOR is no longer available.

At September 30, 2019,March 31, 2020, the interest rate on outstanding borrowings under the Revolving Loan was 3.56%3.125%. At September 30, 2019,March 31, 2020, we had availability of $87.0$112.2 million under the Revolving Loan.

We must pay a commitment fee at a rate of 0.20% per annum on the average daily unused portion of the aggregate unused revolving commitments under the A&R Credit Agreement. We must also pay fees as specified in the Fee Letter (as defined in the A&R Credit Agreement) and with respect to any letters of credit issued under the A&R Credit Agreement.

The A&R 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 or incur liens, make

27


certain investments, merge or consolidate with another entity, make certain asset dispositions, pay dividends or other distributions to shareholders, enter into transactions with affiliates, enter into sale leaseback transactions or make capital expenditures. The A&R 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, 2019,March 31, 2020, our interest coverage ratio was 7.779.21 to 1.00. The A&R Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 3.25 to 1.00, although such leverage ratio can be increased in connection with certain acquisitions. At September 30, 2019,March 31, 2020, our consolidated total leverage ratio was 1.301.84 to 1.00. As noted above, the Company drew down $13,000 from the revolver and deposited it into a money market account in March 2020 to ensure liquidity due to the uncertainty of the COVID-19 impact on the bank industry in the most extreme of circumstances. The need for this liquidity position will continue to be evaluated and will be modified as circumstances warrant. Had the $13,000 draw down on the revolver not occurred, our consolidated total leverage ratio would have been 1.58 to 1.00.

The A&R Credit Agreement includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, material money judgments, failure to maintain subsidiary guarantees and a change in control, which will be deemed to occur if any person or group other than the ESOP or the 401(k) Plan owns or controls more than 35% of our equity interests, or our board of directors is not composed of a majority of our continuing directors (i.e., our directors as of September 26, 2019, and any additional or replacement directors that have been approved by at least 51% of the directors then in office), or the ESOP fails to own more than 50% of our voting stock.. If an event of default occurs, the Agent will be entitled to take various actions,

25


including the acceleration of amounts due under the A&R Credit Agreement, termination of the credit facility, and all other actions permitted to be taken by a secured creditor.

At September 30, 2019,March 31, 2020, we were in compliance with all covenants under the A&R Credit Agreement.

Capital Requirements and Sources of Liquidity

During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, our capital expenditures were approximately $22.8 million$2,400 and $13.3,$8,200, respectively. The increasedecrease of $9.5 millionapproximately $5,800 was primarily driven by our continued investment in automation and new technology, the additionlower capital expenditures as a result of DMP, and the timing of purchasescertain new technology and automation investments originally planned for early 2020 that occurred in 2019 as compared to the prior year. Budgeted capitalfourth quarter of 2019. Capital expenditures for the full year 20192020 are expected to be approximately $27 million.

Historically,$12,000 to $15,000. The greater the adverse impact COVID-19 has on the business, the closer we have had significant cash requirements in orderexpect to organically expand our business to meetbe on the market related needslower end of our customers, continue our investment in new technologies and automation, as well as fund new projects. Additionally, prior to the Company’s IPO, we were required to use cash to repurchase shares of our common stock from the ESOP in connection with legally required diversification and other distributions to eligible ESOP participants. Following the consummation of the Company’s IPO, this requirement terminated, which allows us to direct this previously allocated cash to operating- and growth-related purposes. Our cash requirements include costs related to capital expenditures, purchase of materials and production of materials and cash to fund these needs. Our working capital needs are driven by the growth of our business, with our cash requirements greater in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancing our information systems and, our integration of DMP and any future acquisitions and, our compliance with laws and rules applicable to being a public company. Following the completion of the Company’s IPO, our primary uses of cash are investing in flexible, re-deployable automation used to provide our components and products and funding organic and acquisitive growth initiatives.range.

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 September 30, 2019,March 31, 2020, we had immediate availability of $113.0 millionapproximately $112,200 through our Revolving Loan and another $100,000 through an accordion feature under our A&R 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 A&R Credit Agreement as long as we remain compliant with the financial covenants. Based on our estimates of the impact of COVID-19 at this time, we expect to be in compliance with these financial covenants through 2020 and beyond.

We believe that our operating cash flow and available borrowings under the A&R Credit Agreement are sufficient to fund our operations for 2019.2020 when taking into consideration the estimated impacts of COVID-19 based on the information we have available at this time. However, future cash flows are subject to a number of variables, and additional capital expenditures will be required to conduct our operations. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through borrowings under the A&R Credit Agreement, joint ventures, asset sales, offerings of debt or equity securities or other means. We cannot guarantee that this additional capital will be available on acceptable terms or at all. If we are unable to obtain the funds we need, we may not be able to complete acquisitions that may be favorable to us or finance the capital expenditures necessary to conduct our operations.

Contractual Obligations

The following table presents our obligations and commitments to make future payments under contracts and contingent commitments at September 30, 2019:March 31, 2020:


 

 

 

 

 

 

Payments Due by Period

 

(in thousands)

 

Total

 

 

2019

(Remainder)

 

 

2020 – 2021

 

 

2022 – 2023

 

 

Thereafter

 

Long-term debt principal payment obligations (1)

 

$

87,083

 

 

$

83

 

 

$

 

 

$

 

 

 

87,000

 

Forecasted interest on debt payment obligations (2)

 

 

16,585

 

 

 

816

 

 

 

6,525

 

 

 

6,525

 

 

 

2,719

 

Capital lease obligations

 

 

3,728

 

 

 

178

 

 

 

1,424

 

 

 

1,424

 

 

 

702

 

Operating lease obligations

 

 

12,076

 

 

 

875

 

 

 

5,284

 

 

 

3,094

 

 

 

2,823

 

Purchase obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

119,472

 

 

$

1,952

 

 

$

13,233

 

 

$

11,043

 

 

$

93,244

 

 

 

 

 

 

 

 

Payments Due by Period

 

(in thousands)

 

Total

 

 

2020

(Remainder)

 

 

2021 – 2022

 

 

2023 – 2024

 

 

Thereafter

 

Long-term debt principal payment obligations (1)

 

$

87,793

 

 

$

 

 

$

 

 

$

87,793

 

 

$

 

Forecasted interest on debt payment obligations (2)

 

 

12,575

 

 

 

2,058

 

 

 

5,487

 

 

 

5,030

 

 

 

 

Capital lease obligations

 

 

3,493

 

 

 

551

 

 

 

1,468

 

 

 

1,248

 

 

 

226

 

Operating lease obligations

 

 

10,921

 

 

 

2,299

 

 

 

4,211

 

 

 

2,317

 

 

 

2,094

 

Total

 

$

114,782

 

 

$

4,908

 

 

$

11,166

 

 

$

96,388

 

 

$

2,320

 

(1)

The long-term amounts in the table include principal payments under the Company’s A&R Credit Agreement, which expires in 2024 and other debt.

(2)

Forecasted interest on debt payment obligations based on the debt balance and interest ratesrate as of September 30, 2019.March 31, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company had $1 thousand of cashWe are exposed to market risk from changes in customer forecasts, interest rates, and, cash equivalents as of September 30, 2019. The entirety of this balance was in demand accounts withto a lesser extent, commodities. To reduce such risks, we selectively use financial institutions. The primary market risks associated with this balance is liquidity risk.instruments and other proactive management techniques.

Customer Forecasts

The Company is partyuse and consumption of our components, products and services fluctuates depending on order forecasts we receive from our customers. These order forecasts can change dramatically from quarter to a bank revolving credit facility. quarter dependent upon the respective markets that our customers provide products in.

Interest Rate Risk

26


We are exposed to interest rate risk on certain of our short- and long-term debt obligations used to finance our operations and acquisitions. We have LIBOR-based floating rate borrowings under the A&R Credit Agreement, which exposes us to variability in interest payments due to changes in the referenced interest rates.

The amount borrowed under the revolving credit facilityRevolver Loan under the A&R Credit Agreement was $87.0$87.8 million as of September 30, 2019.March 31, 2020. The interest rate was 3.56%3.125% as of September 30, 2019.March 31, 2020. Please see “Amended“Liquidity and Capital Resources - Amended and Restated Credit Agreement” abovein Part I, Item 2 of this Quarterly Report on Form 10-Q and Note 54 in the Notes to the Unaudited Condensed Consolidated Financial Statements for more specifics.

A hypothetical 100-basis-point increase in interest rates would have resulted in an additional $0.5$0.2 million of interest expense for the nine months ended September 30, 2019. The Company doesbased on our variable rate debt at March 31, 2020. We do not use derivative financial instruments to manage interest risk or to speculate on future changes in interest rates. A rise in interest rates could negatively affect the Company’sour cash flow.

Commodity Risk

We source a wide variety of materials and components from a network of suppliers. While such materials are generally available from numerous suppliers, commodity raw materials, such as steel, aluminum, copper, paint and paint chemicals, and other production costs are subject to price fluctuations, which could have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin erosion and in many cases utilize contracts with those customers to mitigate the impact of commodity raw material price fluctuations. As of March 31, 2020, we did not have any commodity hedging instruments in place.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form-10-Q.Form 10-Q. As a result of the material weaknessesweakness described below, and previously disclosed in our Prospectus, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form-10-Q,Form 10-Q, our disclosure controls and procedures were not effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

As a newly public company, neither we nor our independent registered public accounting firm are required at this time to perform an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and neither we nor our independent registered public accounting firm have performed such an evaluation.

InDuring the course of preparing financial statements for the fiscal years ended December 31, 2018quarterly and 2017, our managementyear-end processes in 2019, we identified a material weaknessesweakness in the design and operation of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, which related to: (i) information technology general controls specificsuch that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness relates to segregation of duties, systems access and change management processes and (ii) a lack of consistently documented accounting policies and procedures and a lack of formalized controls over the accounting and recording of complex and significant unusual transactions which, in the aggregate, constitute a material weakness.

We have taken numerous steps to enhance our internal control environment during 2019 and to date in 2020. While preparing for our initial public offering, as of December 31, 2018, we had identified two material weaknesses in the design and operation of our internal control over financial reporting. As of December 31, 2019, we have concluded that one of the previously identified material weaknesses has been remediated and the other has been partially remediated. The previously identified deficiencies, that represented the two material weaknesses, included the preparation and review of journal entries, and a limited number of personnel with a level of GAAP accounting knowledge commensurate with our financial reporting requirements. The nature of these material weaknessesrequirements and our remediation actions are more fully described in the Prospectus.

29


We continue to implement actions to remediate these material weaknesses, including: (i) in January 2019, we hired additional accounting and finance staff members, including a senior accounting officer with public company reporting experience, to augment our current staff and to improve the effectiveness of our closing and financial reporting processes; (ii) we commenced an internal assessment ofcertain information technology general controls specific to segregation of duties, systems access and change management processes and (iii) we engagedprocesses. However, deficiencies in our control environment, specifically deficiencies related to a reputable third party to assist us with formalizing our business processes,lack of consistently documented accounting policies and procedures and a lack of formalized controls over the accounting and recording of complex and significant unusual transactions, which we have collectively determined aggregate to a material weakness, remained as of March 31, 2020. We are currently evaluating a number of steps to enhance our control over financial reporting and address this material weakness, including: enhancing our internal review procedures

27


during the financial statement close process, and designing and implementing consistent policies throughout the Company; however, our current efforts to design and implement effective controls documentation, enhancing related internal controls and strengthening supervisory reviews by our management. Other than ongoing remediation actionsmay not be sufficient to remediate the material weakness described above there were no changesor prevent future material weaknesses or other deficiencies from occurring. Despite these actions, we may identify additional material weaknesses in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended September 30, 2019 that have materially affected, or are reasonably likelyfuture.

If we fail to materially affect,effectively remediate this material weakness in our internal control over financial reporting.reporting, if we identify future material weaknesses in our internal control over financial reporting or if we are unable to comply with the demands that will be placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.

30Commencing with our Annual Report on Form 10-K for the year ending December 31, 2020 we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes Oxley Act. We expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404. If we fail to implement the requirements of Section 404 in a timely manner, regulatory authorities such as the SEC or the Pubic Company Accounting Oversight Board, might subject us to sanctions or investigation. We cannot be certain that the actions we will be taking to improve our internal controls over financial reporting will be sufficient, or that we will be able to implement our planned processes and procedures in a timely manner.

28


PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently a party to any material litigation proceedings. From time to time, however, we may be a party to litigation and subject to claims incident to the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

There have been no material changes to the risk factors relating to the Company set forth in “Risk Factors”previously disclosed in Part II,I, Item 1A, of the Company’s Quarterly“Risk Factors,” in our Annual Report on Form 10-Q10-K for the quarteryear ended June 30,December 31, 2019, which was filed with the SEC on August 9, 2019.March 2, 2020 other than the following:

The coronavirus (COVID-19) pandemic will have a negative impact on our business, financial condition, cash flows and results of operations.

The COVID-19 pandemic has resulted in national, state and local government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions, and limitations or shutdowns of business operations. These measures have impacted and may further impact our workforce and operations, including disruptions at some of our manufacturing operations and facilities, as well as the operations of our customers, and those of our suppliers. There is considerable uncertainty regarding the impact, and expected duration, of such measures and potential future measures, and restrictions on our access to our facilities or on our support operations or workforce, or similar limitations for our suppliers. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

The COVID-19 pandemic has significantly increased economic and demand uncertainty. The pandemic has caused an economic slowdown that is likely to continue, and it is possible that it could cause an extended global recession.

The COVID-19 pandemic has weakened demand for our components, products and services, which has resulted in a decline in sales activities and customer orders, and it remains uncertain what impact this weakened demand will have on future sales activities and customer orders once conditions begin to improve.  The pandemic could also disrupt our supply chain.

In recent weeks, the spread of COVID-19 has led to disruption and volatility in the global capital markets, which may adversely affect our and our customers’ and suppliers’ liquidity, cost of capital and ability to access the capital markets. As a result, the continued spread of COVID-19 could adversely affect the ability of our customers to perform, including in making timely payments to us, which could further adversely impact our business, financial condition, cash flows and results of operations.

The COVID-19 pandemic has had, and will continue to have, a negative impact on our business, financial condition, cash flows and results of operations, although the full extent is uncertain. As the pandemic continues to rapidly evolve, the extent of the impact on our business, financial condition, cash flows and results of operations will depend on future developments, including, but not limited to, the duration and spread of the pandemic (including any relapses), its severity, the actions to contain the virus and/or treat its impact, related restrictions on travel, the duration, timing and severity of the impact on customer spending (including any recession resulting from the pandemic), and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted.

In addition, the COVID-19 pandemic will or may have additional impacts on the following risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 2, 2020: “Most of our customers do not commit to long-term production schedules, which makes it difficult for us to schedule production accurately and achieve maximum efficiency of our manufacturing capacity;” “We may incur additional expenses and delays due to technical problems or other interruptions at our manufacturing facilities;” “Political and economic developments could adversely affect our business;” “Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages;” “The impact of foreign trade relations and associated tariffs could adversely impact our business;” “Increases in the cost of employee benefits could impact our financial results and cash flows;” “Volatility in the prices of raw materials and energy prices and our ability to pass along increased costs to our customers could adversely affect our results of operations;” “The market price of our common stock may be volatile, and you could lose all or part of your investment;” “We are affected by developments in the industries in which our customers operate;” and “We depend on our key executive officers, managers, and trade-skilled personnel and may have difficulty retaining and recruiting qualified employees. Moreover, we operate in competitive labor markets, which may also impact our ability to hire and retain employees at our facilities.”

29


Item 2. Unregistered SalesSales of EquityEquity Securities and Use of Proceeds.

The table below sets forth information with respect to purchases we made of shares of our common stock during the quarter ended September 30, 2019:March 31, 2020:

 

Period

 

Total

Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced Plans

or Programs (1)

 

 

Dollar Value of

Shares that

May Yet Be

Purchased

Under the Plans

or Programs (1)

 

April 1-30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

May 1-31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

June 1-30, 2019

 

 

105,397

 

 

$

15.10

 

 

 

105,397

 

 

$

2,408,338

 

July 1-31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

August 1-31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

September 1-30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

105,397

 

 

 

 

 

 

 

105,397

 

 

 

 

 

Period

 

Total

Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced Plans

or Programs (1)

 

 

Dollar Value of

Shares that

May Yet Be

Purchased

Under the Plans

or Programs (1)

 

January 1-31, 2020

 

 

 

 

 

 

 

 

 

 

$

22,406,533

 

February 1-29, 2020

 

 

283,174

 

 

$

7.65

 

 

 

283,174

 

 

$

20,239,122

 

March 1-31, 2020

 

 

37,071

 

 

$

7.22

 

 

 

37,071

 

 

$

19,971,545

 

Total

 

 

320,245

 

 

 

 

 

 

 

320,245

 

 

 

 

 

 

(1)

(1)

On June 12,October 28, 2019 our board of directors authorized the purchase of up to $4.0$25.0 million of shares of our common stock to be used to meet the Company’s required 2019 safe harbor funding obligation under the Company’s ESOP.stock. This authorization expires on December 31, 2019. On October 28, 2019, the Company’s Board of Directors approved an increase of the Company’s share repurchase program from $4 million to $25 million through 2021.


3130


Item 6. Exhibits.

The exhibits listed in the Exhibit Index below are filed as part of this Quarterly Report on Form 10-Q.

EXHIBIT INDEX

 

Exhibit

Number

 

Description

 

 

 

  103

 

Amended and Restated Credit Agreement, dated asBylaws of September 26, 2019, by and among Mayville Engineering Company, Inc., the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent for the lenders, and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunneramended through March 30, 2020 (incorporated by reference to Exhibit 103.2 to the Company’s Current Report on Form 8-K (File No. 001-38894) filed on OctoberApril 2, 2019)2020).

  31.1

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32

 

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

 

Mayville Engineering Company, Inc.

 

 

 

 

 

Date: October 31, 2019May 6, 2020

 

By:

 

/s/ Robert D. Kamphuis

 

 

 

 

Robert D. Kamphuis

 

 

 

 

Chairman, President & Chief Executive Officer

 

 

 

 

 

 

 

By:

 

/s/ Todd M. Butz

 

 

 

 

Todd M. Butz

 

 

 

 

Chief Financial Officer

 

3332