Mayville Engineering Company, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; this is an annual filing, not a standalone fourth-quarter report. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted.
Business context and reporting period
MEC is a U.S.-based, vertically integrated manufacturer of engineered metal components and related services, including fabrication, aluminum extrusion, coating, assembly and aftermarket products. It serves commercial vehicles, construction and access equipment, powersports, agriculture, military and other markets through 23 U.S. facilities. The July 1, 2023 acquisition of Mid-States Aluminum (MSA) expanded MEC’s aluminum extrusion and fabrication capabilities.
Key financial metrics
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Net sales | $588.4 million | $539.4 million | Up 9.1% |
| Manufacturing margin | $69.7 million (11.8%) | $61.1 million (11.3%) | Up $8.6 million; margin up 0.5 percentage points |
| Income from operations | $20.2 million (3.4%) | $25.8 million (4.8%) | Down 21.7% |
| Net income | $7.8 million | $18.7 million | Down 58.1% |
| Diluted EPS | $0.38 | $0.91 | Down $0.53 |
| EBITDA | $55.1 million (9.4%) | $55.1 million (10.2%) | Essentially flat; margin down 0.8 percentage points |
| Adjusted EBITDA | $66.1 million (11.2%) | $60.8 million (11.3%) | Up 8.7%; margin down 0.1 percentage points |
| Cash from operating activities | $40.4 million | $52.4 million | Down $12.1 million |
| Capital expenditures | $16.6 million | $58.6 million | Down $42.0 million |
Adjusted EBITDA is a non-GAAP measure; MEC’s reconciliation includes specified adjustments such as stock-based compensation, acquisition costs, inventory step-up costs, a field replacement claim and restructuring costs. It should not be treated as a substitute for GAAP earnings or cash flow.
At year-end, cash was $0.7 million, revolving-credit borrowings were $147.5 million, and available revolver capacity was $102.5 million. The revolver’s stated rate was 7.71%. The company reported a 2.14x consolidated total leverage ratio against a 4.00x maximum and 5.49x interest coverage against a 3.00x minimum. Total assets were $496.7 million and total liabilities were $266.7 million. Operating cash flow less capital expenditures was approximately $23.8 million, a simple calculation rather than a company-reported free-cash-flow measure.
Material changes versus FY 2022
- Sales increased primarily from MSA, organic volume growth in commercial vehicles, powersports and military, and pricing discipline. Growth was partly offset by softer construction and agriculture demand, lower commodity-price pass-throughs and fourth-quarter customer impacts from UAW strikes.
- Manufacturing margin improved with volume, the acquisition and commercial pricing, but operating income fell as higher interest expense and increased SG&A outweighed the margin improvement. Interest expense rose to $11.1 million from $3.4 million, reflecting higher debt to fund MSA and higher rates.
- Net income declined despite higher sales and Adjusted EBITDA. Operating cash flow decreased, including a $17.6 million deferred-compensation payout to a retired executive; investing outflows included $88.6 million for the MSA acquisition, net of cash acquired.
- Year-end revolving debt increased to $147.5 million from $72.2 million. Capital spending declined following completion of the Hazel Park facility investment.
Outlook, commentary, risks and unusual items
- MEC expects 2024 capital expenditures of $15 million to $20 million and says operating cash flow and available borrowings should fund operations for 2024 and beyond. It expects to remain within credit covenants. The filing does not provide a clear revenue or earnings forecast.
- Management identifies continuing risks from inflation in wages, benefits and materials, customer supply-chain constraints, labor availability, uncertain customer schedules and potentially softer end-market demand. The company warns that price increases may not fully offset cost inflation.
- Customer concentration is significant: PACCAR, John Deere and AB Volvo represented 15.0%, 14.8% and 10.6% of FY 2023 sales, respectively; the top ten customers represented 74.6%.
- MEC is pursuing a lawsuit against Peloton over a supply agreement and unpaid fixed-revenue payments. Peloton has counterclaimed, alleging fraud and seeking rescission and damages. MEC’s potential recovery is uncertain and has not been recognized as income; management says any recovery would be recognized only when realized or realizable.
- Unusual FY 2023 costs included $1.4 million of MSA transaction costs, $0.9 million of MSA inventory step-up expense, a $0.5 million field replacement claim and $0.9 million of COO restructuring costs. MSA contributed $25.7 million in net sales and $3.0 million in operating income after acquisition.
- Floating-rate debt exposes MEC to interest-rate risk; the filing estimates a 100-basis-point increase would add approximately $1.4 million of annual interest expense based on year-end variable-rate debt. The company does not use interest-rate or commodity hedges.
- The company reported effective disclosure controls and management-assessed effective internal control over financial reporting. The auditor did not attest to internal-control effectiveness because MEC qualified for the emerging-growth-company exemption; management stated it expected auditor-attestation requirements to apply with its 2024 annual report.
Important facts for investors to verify
- Whether post-acquisition MSA performance, integration and cross-selling support continued growth and margin improvement.
- Whether customer demand, production schedules and labor or supply constraints affect 2024 volumes, utilization and cash conversion.
- Debt repayment capacity and covenant headroom, particularly if borrowing costs remain elevated or earnings weaken.
- The outcome, potential costs and timing of the Peloton litigation, without assuming any contingent recovery.
- Whether customer concentration and the decline in GAAP net income are offset by durable operating cash flow and sustainable margins.