Midamerican Funding LLC Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 mec-10q_20200930.htm 10-Q mec-10q_20200930.htm

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, 2020

☐	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, 2020, the registrant had 20,059,390 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 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	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION	33

Item 1.	Legal Proceedings	33

Items 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 5.	Other Information	33

Item 6.	Exhibits	35

Signatures		36

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Quarterly Report on Form 10-Q contain 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. Mayville 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 I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the SEC) on March 2, 2020, as such were previously supplemented and amended in Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2020 and which may be further 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 negative impacts the coronavirus (COVID-19) has had and will continue to have on our business, financial condition, cash flows and results of operations (including future uncertain impacts);

•

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; and

•

our ability to remediate the material weakness in internal control over financial reporting identified in preparing our financial statements included in our Annual Report on Form 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 qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no

obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by federal securities laws.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

	September 30, 2020			December 31, 2019
ASSETS
Cash and cash equivalents	$	110		$	1
Receivables, net of allowances for doubtful accounts of $1,293 at September 30, 2020 and $526 at December 31, 2019		48,654			40,188
Inventories, net		37,964			45,692
Tooling in progress		3,642			1,589
Prepaid expenses and other current assets		2,717			3,007
Total current assets		93,087			90,477
Property, plant and equipment, net		107,887			125,063
Assets held for sale		3,552			—
Goodwill		71,535			71,535
Intangible assets-net		64,143			72,173
Capital lease, net		2,742			3,227
Other long-term assets		1,003			1,107
Total	$	343,949		$	363,582
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	27,606		$	32,173
Current portion of capital lease obligation		619			598
Accrued liabilities:
Salaries, wages, and payroll taxes		10,529			5,752
Profit sharing and bonus		1,310			6,229
Other current liabilities		4,526			3,439
Total current liabilities		44,590			48,191
Bank revolving credit notes		59,986			72,572
Capital lease obligation, less current maturities		2,220			2,687
Deferred compensation and long-term incentive, less current portion		25,183			24,949
Deferred income tax liability		12,998			14,188
Other long-term liabilities		100			100
Total liabilities		145,077			162,687
Common shares, no par value, 75,000,000 authorized, 21,093,035 shares issued at September 30, 2020 and 20,845,693 at December 31, 2019		—			—
Additional paid-in-capital		189,780			183,687
Retained earnings		14,026			22,090
Treasury shares at cost, 1,033,645 shares at September 30, 2020 and 1,213,482 at December 31, 2019		(4,934	)		(4,882	)
Total shareholders’ equity		198,872			200,895
Total	$	343,949		$	363,582

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

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

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

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net sales	$	91,075		$	128,511		$	262,262		$	417,373
Cost of sales		81,340			113,941			241,838			362,689
Amortization of intangibles		2,677			2,677			8,030			8,030
Profit sharing, bonuses, and deferred compensation		2,288			678			4,807			25,258
Employee stock ownership plan expense		—			1,500			—			4,500
Other selling, general and administrative expenses		4,490			6,068			14,642			20,296
Contingent consideration revaluation		—			(9,598	)		—			(6,054	)
Income (loss) from operations		280			13,245			(7,055	)		2,655
Interest expense		(647	)		(987	)		(2,110	)		(5,811	)
Loss on extinguishment of debt		—			—			—			(154	)
Income (loss) before taxes		(367	)		12,258			(9,165	)		(3,310	)
Income tax expense (benefit)		733			2,512			(1,101	)		(231	)
Net income (loss) and comprehensive income (loss)	$	(1,100	)	$	9,746		$	(8,064	)	$	(3,079	)
Earnings (loss) per share
Net income (loss) available to shareholders	$	(1,100	)	$	9,746		$	(8,064	)	$	(3,079	)
Basic and diluted earnings (loss) per share	$	(0.05	)	$	0.49		$	(0.41	)	$	(0.18	)
Basic and diluted weighted average shares outstanding		20,077,039			19,740,296			19,838,701			16,684,337
Tax-adjusted pro forma information
Net income (loss) available to shareholders	$	(1,100	)	$	9,746		$	(8,064	)	$	(3,079	)
Pro forma provision for income taxes		—			—			—			173
Pro forma net income (loss)	$	(1,100	)	$	9,746		$	(8,064	)	$	(3,252	)
Pro forma basic and diluted earnings (loss) per share	$	(0.05	)	$	0.49		$	(0.41	)	$	(0.19	)
Basic and diluted weighted average shares outstanding		20,077,039			19,740,296			19,838,701			16,684,337

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 2019.

Tax adjusted pro forma amounts reflect income tax adjustments as if the Company was a taxable entity as of the beginning of 2019 using a 26% effective tax rate.

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

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(8,064	)	$	(3,079	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		16,304			16,622
Amortization		8,030			8,030
Stock-based compensation expense		3,719			2,135
Allowance for doubtful accounts		767			(271	)
Inventory excess and obsolescence reserve		279			165
Costs recognized on step-up of acquired inventory		—			395
Contingent consideration revaluation		—			(6,054	)
Loss (gain) on disposal of property, plant and equipment		688			(74	)
Deferred compensation and long-term incentive		234			11,392
Gain on extinguishment or forgiveness of debt		—			(367	)
Other non-cash adjustments		262			1,892
Changes in operating assets and liabilities – net of effects of acquisition:
Accounts receivable		(9,233	)		(9,524	)
Inventories		7,449			3,700
Tooling in progress		(2,053	)		826
Prepaids and other current assets		338			(1,633	)
Accounts payable		(4,016	)		(1,175	)
Deferred income taxes		(1,189	)		(4,266	)
Accrued liabilities, excluding long-term incentive		5,776			(2,290	)
Net cash provided by operating activities		19,291			16,424
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(5,354	)		(22,820	)
Proceeds from sale of property, plant and equipment		1,920			76
Non-cash adjustments		—			(1,656	)
Acquisitions, net of cash acquired		—			(2,368	)
Net cash used in investing activities		(3,434	)		(26,768	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit notes		209,857			367,364
Payments on bank revolving credit notes		(222,443	)		(339,993	)
Repayments of other long-term debt		—			(119,963	)
Deferred financing costs		(206	)		—
Proceeds from IPO, net		—			101,763
Purchase of treasury stock		(2,510	)		(1,592	)
Payments on capital leases		(446	)		(323	)
Net cash provided (used in) by financing activities		(15,748	)		7,256
Net increase (decrease) in cash and cash equivalents		109			(3,088	)
Cash and cash equivalents at beginning of period		1			3,089
Cash and cash equivalents at end of period	$	110		$	1
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,366		$	6,288
Cash paid for taxes	$	351		$	538
Non-cash construction in progress in accounts payable	$	201		$	1,238

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

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands)

(unaudited)

	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
Net loss		—			—			(7,014	)		(7,014	)
Purchase of treasury stock		—			(74	)		—			(74	)
Stock-based compensation		1,159			—			—			1,159
Balance as of June 30, 2020		188,802			(4,934	)		15,126			198,994
Net loss		—			—			(1,100	)		(1,100	)
Stock-based compensation		978			—			—			978
Balance as of September 30, 2020	$	189,780		$	(4,934	)	$	14,026		$	198,872

	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 17)		133,806			(57,659	)		29,698			105,845
Net loss post IPO		—			—			(15,681	)		(15,681	)
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		180,997			(3,882	)		14,017			191,132
Net income		—			—			9,746			9,746
Stock-based compensation		1,338			—			—			1,338
Balance as of September 30, 2019	$	182,335		$	(3,882	)	$	23,763		$	202,216

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

Mayville Engineering Company, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

(unaudited)

Note 1. Basis of presentation

The interim unaudited consolidated 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 of operations and financial 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, 2019, included in the Company’s Annual Report on Form 10-K. A summary of the Company’s significant accounting policies is included in the Company’s 2019 financial statements in the 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 & access equipment, powersports, agriculture, military and other end markets. Along with process engineering and development services, MEC maintains an extensive manufacturing infrastructure with 19 facilities across seven states. These facilities make it possible to offer conventional and computer numerical control (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 & access equipment, powersports, agricultural, military and other products.

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.

COVID-19 has had and will continue to have a negative impact on our business, financial condition, cash flows and results of operations (including future uncertain impacts).

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 “emerging growth company” (EGC), 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.

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 EGC, 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 2019 financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019.

Note 2. IPO

The IPO of shares of the Company’s common stock was completed in May 2019. In connection with the offering, the 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. IPO proceeds were used to pay down certain indebtedness.

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.

Note 3. Select balance sheet data

Inventory

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

	September 30, 2020		December 31, 2019
Finished goods and purchased parts	$	23,525	$	28,664
Raw materials		8,634		10,834
Work-in-process		5,805		6,194
Total	$	37,964	$	45,692

Property, plant and equipment

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

	Useful Lives Years*	September 30, 2020		December 31, 2019
Land	Indefinite	$	1,033	$	1,264
Land improvements	15-39		3,169		3,169
Building and building improvements	15-39		55,022		58,021
Machinery, equipment and tooling	3-10		198,951		204,248
Vehicles	5		3,712		3,738
Office furniture and fixtures	3-7		16,243		15,469
Construction in progress	N/A		1,677		3,154
Total property, plant and equipment, gross			279,807		289,063
Less accumulated depreciation			171,920		164,000
Total property, plant and equipment, net		$	107,887	$	125,063

Additionally, the Company completed the closure of its Greenwood, SC manufacturing facility during the quarter. The net amount of property, plant and equipment associated with the facility was $3,552, which is classified in assets held for sale on the Condensed Consolidated Balance Sheets as of September 30, 2020.

Goodwill

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

Balance as of December 31, 2019	$	71,535
Impairment		—
Balance as of September 30, 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, 2020 and December 31, 2019:

	Useful Lives Years	September 30, 2020			December 31, 2019
Amortizable intangible assets:
Customer relationships and contracts	9-12	$	78,340		$	78,340
Trade name	10		14,780			14,780
Non-compete agreements	5		8,800			8,800
Patents	19		24			24
Accumulated amortization			(41,612	)		(33,582	)
Total amortizable intangible assets, net			60,332			68,362
Non-amortizable brand name			3,811			3,811
Total intangible assets, net		$	64,143		$	72,173

Non-amortizable brand name is tested annually for impairment.

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

Balance as of December 31, 2019	$	72,173
Amortization expense		(8,030	)
Balance as of September 30, 2020	$	64,143

Amortization expense was $2,677 for the three months ended September 30, 2020 and 2019, and $8,030 for the nine months ended September 30, 2020 and 2019.

Future amortization expense is expected to be as followed:

Year ending December 31,
2020 (remainder)	$	2,676
2021	$	10,706
2022	$	6,952
2023	$	6,866
2024	$	5,192
Thereafter	$	27,940

Note 4. Bank revolving credit notes

On September 26, 2019, and as last amended as of June 30, 2020, we entered into an amended and restated credit agreement (Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, as administrative agent. The Credit Agreement provides for a $200,000 revolving credit facility (the Revolving Loan), with a letter of credit sub-facility in an aggregate amount not to exceed $5,000, and a swingline facility in an aggregate amount of $20,000. The Credit Agreement also provides for an additional $100,000 of debt capacity through an accordion feature. All amounts borrowed under the Credit Agreement mature on September 26, 2024.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on our ability to, subject to certain exceptions, create, incur or assume indebtedness, create 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 Credit Agreement also requires us to satisfy certain financial covenants, including a minimum interest coverage ratio of 3.00 to 1.00 as well as 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.

In order to provide a means of insurance against future macroeconomic events, we entered into an amendment (Second Amendment) to the Credit Agreement on June 30, 2020. The Second Amendment provides the Company with temporary changes to the total leverage ratio covenant for the period from June 30, 2020, through December 31, 2021, or such earlier date as the Company may elect (Covenant Relief Period), in return for certain increases in interest rates, fees and restrictions on certain activities of the Company, including capital expenditures, acquisitions, dividends and share repurchases. New pricing, which takes effect for the quarters ending on and after September 30, 2020, includes interest at a fluctuating London Interbank Offered Rate (LIBOR) (at a floor of 75 basis points), plus 1.00% – 2.75%, along with the commitment fee ranging from 20 to 50 basis points.

During the Covenant Relief Period, the required ceiling on the Company’s total leverage ratio will be 4.25 to 1.00 for quarters ending June 30, 2020 through and including December 31, 2020, and will decline in quarterly increments to 3.25 to 1.00 through the quarter ending December 31, 2021.

At September 30, 2020, our consolidated total leverage ratio was 2.16 to 1.00 as compared to a covenant maximum of 4.25 to 1.00 in accordance with the Second Amendment of the Credit Agreement.

At September 30, 2020, our interest coverage ratio was 7.44 to 1.00 as compared to a covenant minimum of 3.00 to 1.00 under the Credit Agreement.

Under the Credit Agreement, interest is payable quarterly at the adjusted LIBOR plus an applicable margin based on the current funded indebtedness to adjusted EBITDA ratio. The interest rate was 2.50% and 3.25% as of September 30, 2020 and December 31,

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, 2020 and December 31, 2019.

The Company was in compliance with all financial covenants of its credit agreements as of September 30, 2020 and December 31, 2019. The amount borrowed on the revolving credit notes was $59,986 and $72,572 as of September 30, 2020 and December 31, 2019, respectively.

Note 5. Capital lease obligation

Capital leases consist of equipment with a capitalized cost of $3,825 at September 30, 2020 and December 31, 2019, and accumulated depreciation of $1,084 and $598 at September 30, 2020 and December 31, 2019, respectively. Depreciation of $161 and $483 was recognized on the capital lease assets during the three and nine months ended September 30, 2020, respectively, and $196 and $342 during the three and nine months ended September 30, 2019, respectively. Non-cash capital lease transactions amounted to zero for the three and nine months ended September 30, 2020. Future minimum lease payments required under the lease are as follows:

Year ending December 31,
2020 (remainder)	$	184
2021		734
2022		734
2023		734
2024		514
Thereafter		226
Total		3,126
Less payment amount allocated to interest		287
Present value of capital lease obligation	$	2,839
Current portion of capital lease obligation		619
Long-term portion of capital lease obligation		2,220
Total capital lease obligation	$	2,839

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)	$	877
2021		3,112
2022		2,300
2023		2,260
2024		1,473
Thereafter		2,981
Total	$	13,003

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 $1,128 and $1,223 for the three months ended September 30, 2020 and 2019, respectively, and $3,283 and $3,624 for the nine months ended September 30, 2020 and 2019, respectively.

Note 7. Employee stock ownership plan

Under the Mayville Engineering Company, Inc. Employee Stock Ownership Plan (the ESOP), the Company can make annual contributions to the trust for the benefit of eligible employees in the form of cash or shares of common stock of the Company. Prior to December 31, 2019, the annual contribution was discretionary except that it must have 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, 2020 and 2019, the Company’s ESOP expense amounted to zero and $1,500, respectively. For the nine months ended September 30, 2020 and 2019, the Company’s ESOP expense amounted to zero and $4,500, respectively.

Price	12.47	EPS	-0
Shares	20	P/E	-80
MCap	246	P/FCF	15
Net Debt	-0	EBIT	3
TEV	246	TEV/EBIT	93
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-03
10-Q	2020-06-30	Filed 2020-08-05
10-Q	2020-03-31	Filed 2020-05-06
10-K	2019-12-31	Filed 2020-03-02
10-Q	2019-09-30	Filed 2019-10-31
10-Q	2019-06-30	Filed 2019-08-09
S-1	2019-04-12	Public Filing
10-Q	2019-03-31	Filed 2019-06-18

8-K	2020-11-02
8-K	2020-08-04
8-K	2020-06-30
8-K	2020-06-25
8-K	2020-05-12
8-K	2020-05-05
8-K	2020-03-30
8-K	2020-03-12
8-K	2020-02-26
8-K	2020-01-29
8-K	2020-01-23
8-K	2019-10-29
8-K	2019-09-26
8-K	2019-08-06
8-K	2019-06-12
8-K	2019-05-28
8-K	2019-05-13

EX-10.1	mec-ex101_72.htm
EX-10.2	mec-ex102_71.htm
EX-31.1	mec-ex311_6.htm
EX-31.2	mec-ex312_8.htm
EX-32	mec-ex32_7.htm

MEC 10Q Quarterly Report

Midamerican Funding LLC Earnings 2020-09-30