mec(MEC) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Mayville Engineering Company, Inc. and its subsidiaries, including balance sheets, statements of comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, acquisitions, debt, leases, and other financial disclosures Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | ASSETS | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $314 | $672 | | Receivables, net | 67,853 | 57,445 | | Inventories, net | 60,816 | 67,782 | | Total current assets | 140,212 | 134,623 | | Property, plant and equipment, net | 168,757 | 175,745 | | Goodwill | 92,650 | 92,650 | | Intangible assets, net | 55,201 | 58,667 | | Total assets | $488,151 | $496,661 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Accounts payable | $53,963 | $46,526 | | Total current liabilities | 81,828 | 71,709 | | Bank revolving credit notes | 122,063 | 147,493 | | Total liabilities | $250,067 | $266,683 | | Total shareholders' equity | 238,084 | 229,978 | | Total liabilities and shareholders' equity | $488,151 | $496,661 | - Total assets decreased from $496,661 thousand at December 31, 2023, to $488,151 thousand at June 30, 2024[10] - Total liabilities decreased from $266,683 thousand at December 31, 2023, to $250,067 thousand at June 30, 2024[10] Condensed Consolidated Statements of Comprehensive Income This section details the company's financial performance, including net sales, cost of sales, income from operations, and net income over specific periods Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $163,636 | $138,980 | $324,905 | $281,626 | | Cost of sales | 141,359 | 122,885 | 281,696 | 249,154 | | Income from operations | 8,150 | 4,273 | 15,780 | 8,943 | | Interest expense | (2,969) | (1,968) | (6,324) | (3,626) | | Income before taxes | 5,181 | 2,089 | 9,456 | 5,101 | | Income tax expense | 1,399 | 475 | 2,433 | 916 | | Net income and comprehensive income | $3,782 | $1,614 | $7,023 | $4,185 | | Earnings per share: Basic | $0.18 | $0.08 | $0.34 | $0.21 | | Earnings per share: Diluted | $0.18 | $0.08 | $0.34 | $0.20 | - Net sales increased by 17.7% for the three months ended June 30, 2024, and by 15.4% for the six months ended June 30, 2024, compared to the respective prior year periods[12] - Net income and comprehensive income increased by 134.3% to $3,782 thousand for the three months ended June 30, 2024, and by 67.8% to $7,023 thousand for the six months ended June 30, 2024, compared to the respective prior year periods[12] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flows From Operating Activities | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net income | $7,023 | $4,185 | | Net cash provided by (used in) operating activities | 33,900 | (5,865) | | Cash Flows From Investing Activities | | | | Purchase of property, plant and equipment | (6,874) | (6,320) | | Net cash used in investing activities | (6,767) | (6,167) | | Cash Flows From Financing Activities | | | | Proceeds from bank revolving credit notes | 273,536 | 347,324 | | Payments on bank revolving credit notes | (298,967) | (241,618) | | Net cash provided by (used in) financing activities | (27,491) | 102,030 | | Net increase (decrease) in cash and cash equivalents | (358) | 89,998 | | Cash and cash equivalents at end of period | $314 | $90,125 | - Net cash provided by operating activities significantly increased to $33,900 thousand for the six months ended June 30, 2024, compared to cash used of $5,865 thousand in the prior year period, primarily due to higher earnings and favorable changes in working capital[15][111] - Net cash used in financing activities was $27,491 thousand for the six months ended June 30, 2024, a decrease from $102,030 thousand provided in the prior year, mainly due to debt repayments exceeding borrowings and the prior year's acquisition-related escrow withdrawal[15][113] Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's equity, including additional paid-in capital, treasury shares, and retained earnings Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Metric | December 31, 2023 | March 31, 2024 | June 30, 2024 | | :------------------------------------------- | :---------------- | :------------- | :------------ | | Additional Paid-in-Capital | $205,373 | $206,191 | $207,454 | | Treasury Shares | (9,513) | (9,513) | (10,511) | | Retained Earnings | 34,118 | 37,359 | 41,141 | | Total Shareholders' Equity | $229,978 | $234,037 | $238,084 | - Total shareholders' equity increased from $229,978 thousand at December 31, 2023, to $238,084 thousand at June 30, 2024, driven by net income and stock-based compensation, partially offset by treasury stock purchases[19] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1. Basis of presentation This note describes the accounting principles and framework used for preparing the interim financial statements - The interim unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP and Form 10-Q instructions, reflecting all necessary adjustments for fair presentation[21] - MEC is a leading U.S.-based, vertically-integrated manufacturing partner providing solutions from design to production for diverse end markets including commercial vehicles, construction, powersports, agriculture, and military[23] - The Company operates as one operating segment focused on producing metal components[24] Note 2. Acquisition This note details the acquisition of Mid-States Aluminum, including the total consideration and allocated assets and liabilities - On July 1, 2023, MEC acquired Mid-States Aluminum (MSA) for a total net consideration of $90,002 thousand, financed by an amended credit agreement[27] - The MSA acquisition provides entry into lightweight materials fabrication and significant cross-selling opportunities[28] MSA Acquisition: Assets Acquired and Liabilities Assumed (in thousands) | Item | Opening Balance Sheet Allocation | | :---------------------------------- | :------------------------------- | | Cash | $324 | | Accounts receivable, net | 7,381 | | Inventory | 9,698 | | Property, plant and equipment | 41,271 | | Developed technology (7 Years) | 4,900 | | Customer relationships (17 Years) | 17,700 | | Goodwill (Indefinite) | 21,115 | | Total assets acquired | 102,680 | | Accounts payable | (2,386) | | Accrued expenses | (1,509) | | Other liabilities | (1,984) | | Debt | (7,884) | | Total consideration | $88,917 | Note 3. Select balance sheet data This note provides detailed breakdowns of specific balance sheet items, including inventories and property, plant, and equipment Inventories (in thousands) | Inventory Category | June 30, 2024 | December 31, 2023 | | :----------------------------- | :------------ | :---------------- | | Finished goods and purchased parts | $27,435 | $31,489 | | Raw materials | 23,256 | 25,929 | | Work-in-process | 10,126 | 10,363 | | Total | $60,816 | $67,782 | Property, Plant and Equipment, Net (in thousands) | Asset Category | June 30, 2024 | December 31, 2023 | | :--------------------------------- | :------------ | :---------------- | | Total property, plant and equipment, gross | $426,246 | $418,335 | | Less accumulated depreciation | 257,489 | 242,590 | | Total property, plant and equipment, net | $168,757 | $175,745 | - Goodwill balance remained unchanged at $92,650 thousand between December 31, 2023, and June 30, 2024[40] Note 4. Debt This note describes the company's credit agreement, revolving credit facility, and compliance with financial covenants - The Company entered into an amended and restated credit agreement on June 28, 2023, providing a $250,000 thousand revolving credit facility, maturing June 28, 2028[43] - As of June 30, 2024, the consolidated total leverage ratio was 1.69 to 1.00 (covenant maximum 4.00 to 1.00) and the consolidated interest coverage ratio was 4.57 to 1.00 (covenant minimum 3.00 to 1.00)[45] - The interest rate on bank revolving credit notes was 7.68% as of June 30, 2024[46] Note 5. Leases This note explains the company's recognition of right-of-use assets and lease liabilities for operating and finance leases - The Company recognizes right-of-use (ROU) assets and lease liabilities for both operating and finance leases[49] Total Lease Expense (in thousands) | Lease Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total finance lease expense | $131 | $104 | $243 | $209 | | Operating lease expense | 1,353 | 1,321 | 2,693 | 2,607 | | Short-term lease expense | 159 | 131 | 311 | 270 | | Variable lease expense | 60 | 48 | 112 | 117 | | Lease income | (537) | (404) | (1,069) | (1,035) | | Total lease expense | $1,166 | $1,200 | $2,290 | $2,168 | Note 6. Employee stock ownership plan This note provides information on the company's ESOP, including share allocations and contributions - The Company made no ESOP expense contributions for the three and six months ended June 30, 2024 and 2023[53] - Allocated ESOP shares decreased from 4,062,583 at December 31, 2023, to 3,474,467 at June 30, 2024[53] Note 7. Retirement plans This note details the company's 401(k) retirement plan, including employer matching contributions - The Company provides a 50% match for employee 401(k) contributions, up to 6%[55] Employer 401(k) Match Expense (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :----- | :----- | | Three months ended June 30 | $922 | $770 | | Six months ended June 30 | $1,976 | $1,644 | Note 8. Income taxes This note presents the company's income tax expense and effective tax rates for the reported periods Income Tax Expense and Effective Tax Rate (ETR) | Period | Income Tax Expense (in thousands) | ETR | | :----------------------------------- | :-------------------------------- | :------ | | Three months ended June 30, 2024 | $1,399 | 27.00% | | Six months ended June 30, 2024 | $2,433 | 25.73% | | Three months ended June 30, 2023 | $475 | 22.73% | | Six months ended June 30, 2023 | $916 | 17.96% | - The effective tax rate for the three and six months ended June 30, 2024, increased compared to the prior year periods, primarily due to state taxes, non-deductible items, R&D credits, and excess tax benefits from stock-based compensation[57] Note 9. Commitments and contingencies This note discloses the company's involvement in legal proceedings and other potential liabilities - The Company is involved in a lawsuit against Peloton Interactive, Inc. for breach and anticipatory repudiation of a supply agreement, with claims for substantial damages[59] - Peloton filed a counterclaim alleging fraud and seeking recission and damages[60] - Management believes the likelihood of loss from other litigation and claims is remote, or any possible loss is not expected to materially impact consolidated financial statements[61] Note 10. Deferred compensation This note provides details on employee deferred compensation, including deferrals, expenses, and cash distributions - Eligible employees deferred $83 thousand and $447 thousand for the three and six months ended June 30, 2024, respectively[64] - Total deferred compensation expense was $53 thousand for the three months and $285 thousand for the six months ended June 30, 2024[64] - Cash distributions for deferred compensation were $286 thousand for the six months ended June 30, 2024, significantly lower than $17,562 thousand in the prior year[64] Note 11. Self-Funded insurance This note outlines the company's self-funded insurance program and related accrued liabilities Self-Funded Insurance Expenses (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :----- | :----- | | Three months ended June 30 | $6,382 | $5,133 | | Six months ended June 30 | $12,551 | $9,768 | - An estimated accrued liability for unpaid claims was $1,894 thousand as of June 30, 2024, up from $1,018 thousand at December 31, 2023[65] Note 12. Segments This note clarifies that the company operates as a single operating segment with no foreign revenues or long-lived assets - The Company has determined it operates as one operating segment[66] - The Company does not earn revenues or have long-lived assets located in foreign countries[66] Note 13. Fair value of financial instruments This note describes the fair value measurement of financial instruments, specifically deferred compensation liabilities - Deferred compensation liabilities are recorded at fair value, with the current balance classified as Level 1 in the fair value hierarchy[69] Fair Value of Deferred Compensation Liability (in thousands) | Item | Balance at June 30, 2024 | Level 1 | | :-------------------------- | :----------------------- | :------ | | Deferred compensation liability | $4,556 | $4,556 | | Total | $4,556 | $4,556 | | | Balance at December 31, 2023 | Level 1 | | Deferred compensation liability | $4,105 | $4,105 | | Total | $4,105 | $4,105 | Note 14. Earnings Per Share This note presents the calculation of basic and diluted earnings per share for the reported periods Earnings Per Share (EPS) Data | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to MEC (in thousands) | $3,782 | $1,614 | $7,023 | $4,185 | | Basic income per share | $0.18 | $0.08 | $0.34 | $0.21 | | Diluted income per share | $0.18 | $0.08 | $0.34 | $0.20 | | Weighted average shares outstanding (Basic) | 20,602,650 | 20,494,437 | 20,544,292 | 20,405,383 | | Weighted average shares outstanding (Diluted) | 21,034,780 | 20,827,728 | 20,914,499 | 20,789,175 | Note 15. Revenue Recognition This note disaggregates the company's net sales by product category and end market Disaggregated Revenue by Product Category (in thousands) | Product Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Outdoor sports | $2,205 | $2,379 | $4,364 | $4,684 | | Fabrication | 87,201 | 84,172 | 178,115 | 171,174 | | Performance structures | 47,795 | 26,846 | 93,564 | 53,521 | | Tube | 19,846 | 19,468 | 38,921 | 39,820 | | Tank | 12,625 | 11,070 | 23,701 | 22,189 | | Total, net sales | $163,636 | $138,980 | $324,905 | $281,626 | Disaggregated Revenue by End Market (in thousands) | End Market | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commercial vehicle | $62,130 | $56,075 | $121,084 | $115,230 | | Construction & access | 27,230 | 26,522 | 55,676 | 53,029 | | Powersports | 30,306 | 23,995 | 60,597 | 48,093 | | Agriculture | 14,639 | 13,444 | 29,597 | 27,895 | | Military | 6,579 | 8,910 | 14,530 | 17,479 | | Other | 22,752 | 10,033 | 43,421 | 19,899 | | Total, net sales | $163,636 | $138,980 | $324,905 | $281,626 | Note 16. Concentration of major customers This note identifies major customers and their contribution to net sales and accounts receivable Major Customer Concentration | Customer | Net Sales (3 Months June 2024) | Net Sales (3 Months June 2023) | Net Sales (6 Months June 2024) | Net Sales (6 Months June 2023) | Accounts Receivable (June 30, 2024) | Accounts Receivable (Dec 31, 2023) | | :------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :---------------------------------- | :--------------------------------- | | A | 16.2 % | 15.6 % | 16.4 % | 15.5 % | 11.9 % | <10 % | | B | 13.0 % | 15.6 % | 13.5 % | 15.6 % | 10.7 % | 12.6 % | | C | 11.0 % | 11.5 % | 10.4 % | 11.8 % | <10 % | <10 % | | D | <10 % | <10 % | <10 % | <10 % | 13.1 % | 12.7 % | Note 17. Stock-based compensation This note details the company's stock-based compensation plans, including RSU, PSU, and option awards - The Company's 2019 Omnibus Incentive Plan was amended to increase authorized shares for issuance by 2,500,000[79] Stock-Based Compensation Expense (in thousands) | Award Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | RSU awards | $962 | $874 | $1,752 | $1,589 | | PSU awards | 119 | — | 138 | — | | Option awards | 257 | 480 | 605 | 831 | | Total | $1,338 | $1,354 | $2,495 | $2,420 | - As of June 30, 2024, 1,302,558 options remained outstanding with a weighted average strike price of $11.79 and a contractual life of 6.54 years[83] Note 18. Common Equity This note provides a summary of changes in the company's outstanding common shares Changes in Outstanding Common Shares | Period | Outstanding Shares | | :------------------------------------------- | :----------------- | | Shares as of December 31, 2022 | 20,172,746 | | Treasury stock purchases | (100,726) | | Common stock issued | 298,778 | | Balance as of June 30, 2023 | 20,370,798 | | Shares as of December 31, 2023 | 20,310,584 | | Treasury stock purchases | (61,197) | | Common stock issued | 223,912 | | Balance as of June 30, 2024 | 20,473,299 | Note 19. Subsequent events This note confirms that no material events occurred after the reporting period - No material events or transactions were discovered during the evaluation of subsequent events since June 30, 2024[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting key drivers of revenue and expense changes, macroeconomic impacts, and liquidity. It includes a reconciliation of GAAP to non-GAAP financial measures like EBITDA and Adjusted EBITDA, and discusses cash flow activities and debt covenants Overview A detailed overview of this section's content - MEC is a leading U.S.-based, vertically-integrated manufacturing partner offering a full suite of solutions from design to aftermarket components[90] - The Company's single operating segment focuses on producing metal components for diverse end markets including commercial vehicles, construction, powersports, agriculture, and military[90] Macroeconomic Conditions A detailed overview of this section's content - Macroeconomic conditions, including supply chain constraints, material cost inflation, and wage/benefit pressures due to labor availability, have impacted the Company[91] - These dynamics are expected to continue in 2024, potentially affecting demand, material costs, and labor[91] How We Assess Performance A detailed overview of this section's content - Net sales are affected by macroeconomic conditions, weather, acquisitions, and customer production schedules, recognized at shipment or delivery[92] - Manufacturing margins are influenced by commodity prices (steel, aluminum), with contractual agreements largely mitigating these fluctuations[92] - Depreciation and amortization expenses are recognized on a straight-line basis over the estimated useful lives of assets and intangible assets, respectively[93] Other Key Performance Indicators A detailed overview of this section's content - EBITDA and Adjusted EBITDA are non-GAAP measures used by management and investors to evaluate operating performance, with Adjusted EBITDA excluding stock-based compensation, debt extinguishment loss, acquisition costs, and legal costs[95][96] Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income and comprehensive income | $3,782 | $1,614 | $7,023 | $4,185 | | Interest expense | 2,969 | 1,968 | 6,324 | 3,626 | | Provision for income taxes | 1,399 | 475 | 2,433 | 916 | | Depreciation and amortization | 9,391 | 8,011 | 18,645 | 15,891 | | EBITDA | 17,541 | 12,068 | 34,425 | 24,618 | | Adjusted EBITDA | $19,639 | $15,299 | $38,159 | $29,138 | | Net sales | $163,636 | $138,980 | $324,905 | $281,626 | | EBITDA Margin | 10.7 % | 8.7 % | 10.6 % | 8.7 % | | Adjusted EBITDA Margin | 12.0 % | 11.0 % | 11.7 % | 10.3 % | Consolidated Results of Operations A detailed overview of this section's content Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 A detailed overview of this section's content - Net sales increased by $24,656 thousand (17.7%) to $163,636 thousand, driven by the MSA acquisition and increased organic sales in commercial vehicle, construction & access, and powersports markets[100] - Manufacturing margins increased by $6,182 thousand (38.4%) to $22,277 thousand, with the margin percentage rising from 11.6% to 13.6%, due to higher sales volumes, the MSA acquisition, MBX initiatives, and pricing actions[101] - Net income and comprehensive income increased by $2,168 thousand (134.3%) to $3,782 thousand[100] Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 A detailed overview of this section's content - Net sales increased by $43,279 thousand (15.4%) to $324,905 thousand, primarily due to the MSA acquisition and organic growth in commercial vehicle, construction & access, and powersports[106] - Manufacturing margins increased by $10,737 thousand (33.1%) to $43,209 thousand, with the margin percentage rising from 11.5% to 13.3%[106][107] - Net income and comprehensive income increased by $2,838 thousand (67.8%) to $7,023 thousand[107] Liquidity and Capital Resources A detailed overview of this section's content Operating Activities A detailed overview of this section's content - Cash provided by operating activities was $33,900 thousand for the six months ended June 30, 2024, a significant increase from cash used of $5,865 thousand in the prior year[111] - The increase was driven by higher earnings and favorable changes in net working capital, including decreased inventory, increased accounts payable, and higher general reserves[111] Investing Activities A detailed overview of this section's content - Cash used in investing activities increased by $600 thousand to $6,767 thousand for the six months ended June 30, 2024, due to a marginal increase in capital expenditures[112] - Investments prioritized high-return, capital-light growth and automation advancements[112] Financing Activities A detailed overview of this section's content - Cash used in financing activities was $27,491 thousand for the six months ended June 30, 2024, a decrease of $129,521 thousand compared to cash provided in the prior year[113] - This change was mainly due to debt repayments exceeding borrowings and the prior year's withdrawal of funds for the MSA acquisition[113] - The Company repurchased $998 thousand of common stock in the first six months of 2024, compared to $1,661 thousand in the prior year[113] Amended and Restated Credit Agreement A detailed overview of this section's content - The Credit Agreement provides a $250,000 thousand revolving credit facility, maturing June 28, 2028, with an interest rate of 7.68% on outstanding borrowings as of June 30, 2024[115][117] - The Company had $127,937 thousand available under the revolving credit facility at June 30, 2024[117] - Financial covenants include a minimum interest coverage ratio of 3.00 to 1.00 (actual 4.57 to 1.00) and a consolidated total leverage ratio not to exceed 4.00 to 1.00 (actual 1.69 to 1.00), which will decrease to 3.50 to 1.00 starting July 1, 2024[118] Other Debt A detailed overview of this section's content - The Company assumed a Fond du Lac Term Note with the MSA acquisition, with a balance of $2,375 thousand as of June 30, 2024, payable in annual installments of $500 thousand plus 2.00% interest, due in December 2028[120] Capital Requirements and Sources of Liquidity A detailed overview of this section's content - Capital expenditures were $6,874 thousand for the six months ended June 30, 2024, an increase of $554 thousand, driven by investments in technology and automation[121] - Capital expenditures for the full year 2024 are expected to be between $15,000 thousand and $20,000 thousand[121] - The Company relies on operating cash flow and available credit facilities, expecting to be compliant with financial covenants through 2024 and the foreseeable future[122][123] Contractual Obligations A detailed overview of this section's content Contractual Obligations and Commitments at June 30, 2024 (in thousands) | Obligation Type | Total | 2024 (Remainder) | 2025 – 2026 | 2027 – 2028 | Thereafter | | :---------------------------------- | :--------- | :--------------- | :---------- | :---------- | :--------- | | Long-term debt principal payment obligations | $124,438 | $500 | $1,000 | $122,938 | — | | Forecasted interest on debt payment obligations | 26,344 | 4,316 | 12,890 | 9,138 | — | | Finance lease obligations | 1,012 | 284 | 642 | 86 | — | | Operating lease obligations | 34,922 | 2,945 | 10,259 | 9,976 | 11,742 | | Total | $186,716 | $8,045 | $24,791 | $142,138 | $11,742 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks from changes in customer forecasts, interest rates, and commodity prices. It manages these risks through proactive techniques and contractual agreements, but does not use derivative financial instruments for interest or commodity risk Customer Forecasts A detailed overview of this section's content - The use and consumption of the Company's components, products, and services fluctuate based on customer order forecasts, which can change dramatically depending on respective markets[127] Interest Rate Risk A detailed overview of this section's content - The Company is exposed to interest rate risk on SOFR-based floating rate borrowings under its Credit Agreement[127] - A hypothetical 100-basis-point increase in interest rates would result in an additional $0.7 million of interest expense based on variable rate debt at June 30, 2024[128] - The Company does not use derivative financial instruments to manage interest rate risk[128] Commodity Risk A detailed overview of this section's content - Commodity raw materials (steel, aluminum, copper, paint) are subject to price fluctuations, which could negatively impact results[128] - The Company strives to pass along commodity price increases to customers and uses contracts to mitigate the impact of price fluctuations[128] - As of June 30, 2024, the Company did not have any commodity hedging instruments in place[128] Item 4. Controls and Procedures Management, under the supervision of the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2024, concluding they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2024[130] - No material changes occurred in the Company's internal control over financial reporting during the quarter ended June 30, 2024[130] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, cybersecurity, equity sales, and other miscellaneous disclosures Item 1. Legal Proceedings The Company is involved in litigation and claims in the ordinary course of business. While litigation can have an adverse impact, management believes the likelihood of loss is remote or any possible loss is not expected to materially affect the consolidated financial statements - The Company is a party to litigation and claims incident to the ordinary course of business[131] - Management believes the likelihood of loss from such proceedings is remote, or any reasonably possible loss is not expected to have a material adverse impact on the consolidated financial statements[131] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[132] Item 1C. Cybersecurity During the quarter, the Company enhanced its cybersecurity oversight by hiring a Chief Information Officer (CIO) who reports to the CFO. The CIO manages the information security program and periodically briefs the Audit Committee and senior management on cybersecurity risk and incidents - The Company enhanced cybersecurity oversight with the hiring of a Chief Information Officer (CIO) who reports to the Chief Financial Officer (CFO)[133] - The CIO manages the Company's information security program, leading enterprise-wide cybersecurity strategy, policy, standards, architecture, and processes[133] - The CIO periodically briefs the Audit Committee of the Board of Directors, CEO, CFO, and senior management on cybersecurity risk[133] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company purchased 61,197 shares of its common stock in June 2024 at an average price of $16.31 per share, as part of a $25 million share repurchase program approved in October 2023 Common Stock Purchases During Q2 2024 | Period | Total Number of Shares Purchased | Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------- | :------------------------------- | :---------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------- | | April 2024 | — | $— | — | $25,000,000 | | May 2024 | — | $— | — | $25,000,000 | | June 2024 | 61,197 | $16.31 | 61,197 | $24,002,119 | - On October 26, 2023, the Board of Directors approved a new share repurchase program of up to $25 million through 2026[135] Item 5. Other Information During the three months ended June 30, 2024, no director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement - No director or Section 16 officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2024[136] Item 6. Exhibits This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits include certifications of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act sections 302 and 906[139] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File) are filed[139] Signatures The report is duly signed on behalf of Mayville Engineering Company, Inc. by Jagadeesh A. Reddy, President & Chief Executive Officer, and Todd M. Butz, Chief Financial Officer, as of August 7, 2024 - The report is signed by Jagadeesh A. Reddy, President & Chief Executive Officer, and Todd M. Butz, Chief Financial Officer[140] - The signing date for the report is August 7, 2024[140]