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MEC - Mayville Engineering Co. Inc.

11/06/2024 | Press release | Distributed by Public on 11/06/2024 10:32

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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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, 2024

☐	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.)

135 S. 84th Street, Suite 300 Milwaukee, Wisconsin	53214
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (414) 381-2860

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 November 1, 2024, the registrant had 20,644,333 shares of common stock, no par value per share, outstanding.

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Page

PART I.	FINANCIAL INFORMATION	5

Item 1.	Financial Statements (Unaudited)	5

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Comprehensive Income	6

	Condensed Consolidated Statements of Cash Flows	7

	Condensed Consolidated Statements of Shareholders' Equity	9

	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION	32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

Signatures	34

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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, 2023, filed with the Securities and Exchange Commission (the SEC) on March 6, 2024, 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:

●

Macroeconomic conditions, including inflation, elevated interest rates and recessionary concerns, labor availability and material cost pressures, have had, and may continue to have, a negative impact on our business, financial condition, cash flows and results of operations (including future uncertain impacts);

●	risks relating to developments in the industries in which our customers operate;

●	risks related to scheduling production accurately and maximizing efficiency;

●	our ability to realize net sales represented by our awarded business;

●	failure to compete successfully in our markets;

●	our ability to maintain our manufacturing, engineering and technological expertise;

●	the loss of any of our large customers or the loss of their respective market shares;

●	risks related to entering new markets;

●	our ability to recruit and retain our key executive officers, managers and trade-skilled personnel;

●	volatility in the prices or availability of raw materials critical to our business;

●	manufacturing risks, including delays and technical problems, issues with third-party suppliers, environmental risks and applicable statutory and regulatory requirements;

●	our ability to successfully identify or integrate acquisitions;

●	our ability to develop new and innovative processes and gain customer acceptance of such processes;

●	risks related to our information technology systems and infrastructure, including cybersecurity risks and data leakage risks;

●	geopolitical and economic developments, including foreign trade relations and associated tariffs;

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●	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; and

●	risks related to our employee stock ownership plan's treatment as a tax-qualified retirement plan.

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.

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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,		December 31,
	2024		2023
ASSETS
Cash and cash equivalents	$	178		$	672
Receivables, net of allowances for doubtful accounts of $430 at September 30, 2024 and $685 at December 31, 2023		54,345			57,445
Inventories, net		61,173			67,782
Tooling in progress		5,626			5,457
Prepaid expenses and other current assets		4,932			3,267
Total current assets		126,254			134,623
Property, plant and equipment, net		163,713			175,745
Goodwill		92,650			92,650
Intangible assets, net		53,467			58,667
Operating lease assets		28,536			32,233
Other long-term assets		1,382			2,743
Total assets	$	466,002		$	496,661
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	47,990		$	46,526
Current portion of operating lease obligation		4,646			5,064
Accrued liabilities:
Salaries, wages, and payroll taxes		6,042			6,368
Profit sharing and bonus		3,182			3,107
Other current liabilities		9,517			10,644
Total current liabilities		71,377			71,709
Bank revolving credit notes		111,045			147,493
Operating lease obligation, less current maturities		25,570			28,606
Deferred compensation, less current portion		4,603			3,816
Deferred income tax liability		12,847			12,606
Other long-term liabilities		2,204			2,453
Total liabilities	$	227,646		$	266,683
Commitments and contingencies (see Note 9)
Common shares, no par value, 75,000,000 authorized, 22,302,151 shares issued at September 30, 2024 and 21,853,477 at December 31, 2023		-			-
Additional paid-in-capital		205,750			205,373
Retained earnings		44,115			34,118
Treasury shares at cost, 1,657,818 shares at September 30, 2024 and 1,542,893 at December 31, 2023		(11,509)			(9,513)
Total shareholders' equity		238,356			229,978
Total liabilities and shareholders' equity	$	466,002		$	496,661

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

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

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

(unaudited)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024		2023		2024	2023
Net sales	$	135,392		$	158,217	$	460,298	$	439,843
Cost of sales		118,297			139,197		399,993		388,351
Amortization of intangible assets		1,733			2,173		5,200		5,649
Profit sharing, bonuses, and deferred compensation		2,076			2,346		10,010		8,037
Other selling, general and administrative expenses		7,559			8,608		23,589		22,969
Income from operations		5,727			5,893		21,506		14,837
Interest expense		(2,653)			(3,907)		(8,977)		(7,533)
Loss on extinguishment of debt		-			-		-		(216)
Income before taxes		3,074			1,986		12,529		7,088
Income tax expense		100			554		2,532		1,471
Net income and comprehensive income	$	2,974		$	1,432	$	9,997	$	5,617

Earnings per share:
Basic	$	0.14		$	0.07	$	0.49	$	0.28
Diluted	$	0.14		$	0.07	$	0.48	$	0.27

Weighted average shares outstanding:
Basic		20,715,275			20,439,602		20,601,702		20,416,914
Diluted		21,123,494			20,622,864		20,893,316		20,644,915

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

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,997		$	5,617
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		22,927			19,849
Amortization		5,200			5,649
Allowance for doubtful accounts		(255)			127
Inventory excess and obsolescence reserve		(30)			277
Stock-based compensation expense		3,847			3,755
Gain on disposal of property, plant and equipment		(177)			(342)
Deferred compensation		752			(17,433)
Loss on extinguishment of debt		-			216
Non-cash lease expense		4,034			3,348
Other non-cash adjustments		447			202
Changes in operating assets and liabilities:
Accounts receivable		3,355			(6,819)
Inventories		6,639			7,818
Tooling in progress		(169)			2,348
Prepaids and other current assets		(1,694)			(769)
Accounts payable		534			(4,134)
Deferred income taxes		1,454			1,017
Operating lease obligations		(3,792)			(3,119)
Accrued liabilities		(1,222)			(3,911)
Net cash provided by operating activities		51,847			13,696
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(9,753)			(9,814)
Proceeds from sale of property, plant and equipment		108			753
Payment for acquisition, net of cash acquired		-			(88,593)
Net cash used in investing activities		(9,645)			(97,654)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit notes		514,466			454,587
Payments on bank revolving credit notes		(550,914)			(358,411)
Repayments of other long-term debt		(306)			(5,877)
Payments of financing costs		-			(1,206)
Shares withheld for employees' taxes		(3,816)			-
Purchase of treasury stock		(1,996)			(2,661)
Payments on finance leases		(475)			(296)
Proceeds from the exercise of stock options		345			-
Net cash provided by (used in) financing activities		(42,696)			86,136
Net increase (decrease) in cash and cash equivalents		(494)			2,178
Cash and cash equivalents at beginning of period		672			127
Cash and cash equivalents at end of period	$	178		$	2,305

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

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	8,032		$	7,209
Cash paid for taxes	$	1,205		$	508
Non-cash property, plant & equipment, net	$	1,376		$	1,981
Non-cash 401(k) contribution of treasury stock	$	-		$	2,500
In conjunction with the acquisition, assets acquired and liabilities assumed were as follows:
Fair value of assets acquired, net of cash acquired	$	-		$	102,356
Liabilities assumed		-			(13,763)
Cash paid for acquisition, net of cash acquired	$	-		$	88,593

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

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Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders' Equity

(in thousands)

(unaudited)


	Shareholders' Equity
	Additional		Treasury		Retained
	Paid-in-Capital		Shares		Earnings	Total
Balance as of December 31, 2023	$	205,373		$	(9,513)	$	34,118	$	229,978
Net income		-			-		3,241		3,241
Stock-based compensation		1,157			-		-		1,157
Stock options exercised net of employee tax withholding		185			-		-		185
Restricted stock units net of employee tax withholding		(524)			-		-		(524)
Balance as of March 31, 2024	$	206,191		$	(9,513)	$	37,359	$	234,037
Net income		-			-		3,782		3,782
Purchase of treasury stock		-			(998)		-		(998)
Stock-based compensation		1,338			-		-		1,338
Stock options exercised net of employee tax withholding		(75)			-		-		(75)
Balance as of June 30, 2024	$	207,454		$	(10,511)	$	41,141	$	238,084
Net income		-			-		2,974		2,974
Purchase of treasury stock		-			(998)		-		(998)
Stock-based compensation		1,352			-		-		1,352
Stock options exercised net of employee tax withholding		(2,771)			-		-		(2,771)
Restricted stock units net of employee tax withholding		(285)			-		-		(285)
Balance as of September 30, 2024	$	205,750		$	(11,509)	$	44,115	$	238,356

	Shareholders' Equity
	Additional		Treasury		Retained
	Paid-in-Capital		Shares		Earnings	Total
Balance as of December 31, 2022	$	200,945		$	(9,352)	$	26,274	$	217,867
Net income		-			-		2,571		2,571
401(k) plan contribution		-			2,500		-		2,500
Purchase of treasury stock		-			(661)		-		(661)
Stock-based compensation		1,066			-		-		1,066
Balance as of March 31, 2023	$	202,011		$	(7,513)	$	28,845	$	223,343
Net income		-			-		1,614		1,614
Purchase of treasury stock		-			(1,000)		-		(1,000)
Stock-based compensation		1,354			-		-		1,354
Stock options exercised net of employee tax withholding		58			-		-		58
Balance as of June 30, 2023	$	203,423		$	(8,513)	$	30,459	$	225,369
Net income		-			-		1,432		1,432
Purchase of treasury stock		-			(1,000)		-		(1,000)
Stock-based compensation		1,336			-		-		1,336
Restricted stock units net of employee tax withholding		(115)			-		-		(115)
Stock options exercised		20			-		-		20
Balance as of September 30, 2023	$	204,664		$	(9,513)	$	31,891	$	227,042

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

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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 Condensed 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, 2023, 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 2023 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 except for new accounting pronouncements adopted as described below.

Nature of Operations

MEC is a leading U.S.-based, vertically-integrated, value-added manufacturing partner providing a full suite of manufacturing solutions from concept to production, including design, prototyping and tooling, fabrication, aluminum extrusion, 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. Founded in 1945 and headquartered in Milwaukee, Wisconsin, we are a leading Tier I U.S. supplier of highly engineered components to original equipment manufacturer (OEM) customers with leading positions in their respective markets. The Company operates 23 facilities located in Arkansas, Michigan, Mississippi, Ohio, Pennsylvania, Virginia, and Wisconsin. Our engineering expertise and technical know-how allow us to add value through every product redevelopment cycle (generally every threeto five years for our customers).

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.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures, amending Accounting Standards Codification (ASC) 740, Income Taxes. The amendment is intended to enhance the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments require that on an annual basis, entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments require that entities disclose additional information about income taxes paid as well as additional disclosures of pretax income and income tax expense and remove the requirement to disclose certain items that are no longer considered cost beneficial or relevant. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is evaluating the potential impact of adopting this guidance on the consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, amending ASC 280, Segment Reporting. The amendment is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and for interim periods after December 15, 2024. The Company has evaluated the impact of the guidance and will adopt during the period ended December 31, 2024. The Company does not expect this adoption to have a material impact on its consolidated financial statements.

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Note 2. Acquisition

On July 1, 2023, the Company completed its acquisition of Mid-States Aluminum (MSA). The acquisition was consummated in accordance with terms and conditions of the certain Unit Purchase Agreement, dated as of June 19, 2023, among the Company and shareholders of MSA. The purchase price of the acquisition was $95,945, subject to adjustments for the amount of cash, indebtedness, net working capital and certain expenses of MSA as of the closing. At the closing of the acquisition, the Company applied an estimate of the adjustments and paid total net consideration of $90,002. The Company financed the acquisition by borrowing under its amended and restated credit agreement, as described in Note 4 - Debt in the Notes to Condensed Consolidated Financial Statements.

Located in Fond du Lac, WI, MSA is an industry leading, vertically-integrated manufacturer of custom aluminum extrusions and fabrications that also offers related services including design, engineering, anodizing and finishing, assembly and packaging. The acquisition enables MEC to secure an attractive entry point within light-weight materials fabrication, while providing significant new cross-selling opportunities with both new and existing customers.

The aggregate purchase price has been allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values at the acquisition date. The estimate of the excess purchase price over the preliminary estimated fair value of net tangible assets acquired was allocated to identifiable intangible assets and goodwill. The Company engaged an independent third party to assist with the identification and valuation of these intangible assets. Management makes 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 13) not observable in the market.

The following table is a summary of the assets acquired, liabilities assumed and net cash consideration paid for MSA during 2023:


	Opening Balance		Estimated
	Sheet Allocation		Useful Life
Cash	$	324
Accounts receivable, net		7,381
Inventory		9,698
Property, plant and equipment		41,271
Other assets		291
Intangible assets
Developed technology		4,900		7 Years
Customer relationships		17,700		17 Years
Goodwill		21,115		Indefinite
Total assets acquired		102,680
Accounts payable		(2,386)
Accrued expenses		(1,509)
Other liabilities		(1,984)
Debt		(7,884)
Total consideration	$	88,917

Inventory was valued at its estimated fair value, which is defined as expected sales price, less costs to sell, plus a reasonable margin for selling effort. The valuation resulted in an inventory fair value step-up of $891 and was fully expensed and reflected in cost of sales on the Condensed Consolidated Statements of Comprehensive Income during the three months ended September 30, 2023.

Property, plant and equipment was valued at its estimated fair value using the cost, market and sales comparison approaches. The valuation resulted in a property, plant and equipment fair value step-up of $21,157. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the respective assets.

The Company also recorded $17,700 of customer relationships intangible assets with an estimated useful life of 17 years and $4,900 of developed technology intangible assets with an estimated useful life of 7 years. The purchase price allocated to these assets

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was based on management's forecasted cash inflows and outflows and using a relief from royalty method for developed technologies and the multi-period excess earnings method for customer relationships. Amortization expense related to these intangible assets is recorded on a straight-line basis and reflected in amortization of intangible expenses on the Condensed Consolidated Statements of Comprehensive Income.

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

As of December 31, 2023, the Company finalized the net working capital adjustment in conjunction with the fair value estimates for assets acquired, liabilities assumed, identifiable assets and the net income tax provision. Since its preliminary estimates, the Company adjusted the purchase price by ($1,084) related to working capital adjustments. The offsetting adjustment was primarily related to goodwill. As of June 30, 2024, the Company finalized the estimates of assets and acquired liabilities assumed.

Pro Forma Financial Information (Unaudited)

In accordance with ASC 805, the following unaudited pro forma combined results of operations have been prepared and presented to give effect to the MSA acquisition as if it had occurred on January 1, 2023, the beginning of the comparable period, applying certain assumptions and pro forma adjustments. These pro forma adjustments primarily relate to the estimated depreciation expense associated with the fair value of the acquired property, plant and equipment, amortization of identifiable intangible assets, interest expense related to additional debt needed to fund the acquisition, and the tax impact of these adjustments. Additionally, the pro forma adjustments include non-recurring expenses related to transaction costs and the sale of stepped-up inventory. The unaudited pro forma consolidated results are provided for illustrative purposes only, are not indicative of the Company's actual consolidated results of operations or consolidated financial position and do not reflect any revenue and operating synergies or cost savings that may result from the acquisition.


	Nine Months Ended
	September 30,
	2023
Net sales	$	470,799
Net income	$	3,523

Note 3. Select balance sheet data

Inventory

Inventories are stated at the lower of cost, determined on the first-in, first-out method, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Work-in-process and finished goods are valued at production costs consisting of material, labor, and overhead.

Inventories as of September 30, 2024 and December 31, 2023 consist of:


	September 30,		December 31,
	2024		2023
Finished goods and purchased parts	$	27,560		$	31,489
Raw materials		24,963			25,929
Work-in-process		8,650			10,363
Total	$	61,173		$	67,782

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Property, plant and equipment

Property, plant and equipment as of September 30, 2024 and December 31, 2023 consist of:


	Useful Lives		September 30,		December 31,
	Years		2024		2023
Land		Indefinite		$	2,587	$	2,640
Land improvements		15-39			4,291		4,378
Building and building improvements		15-39			82,207		79,682
Machinery, equipment and tooling		3-10			306,907		295,960
Vehicles		5			4,405		4,571
Office furniture and fixtures		3-7			22,846		21,325
Construction in progress		N/A			5,528		9,779
Total property, plant and equipment, gross					428,771		418,335
Less accumulated depreciation					265,058		242,590
Total property, plant and equipment, net				$	163,713	$	175,745

Depreciation expense was $7,748 and $7,434 for the three months ended September 30, 2024 and 2023, respectively, and $22,927 and $19,849 for the nine months ended September 30, 2024 and 2023, respectively.

Goodwill

There were no changes to the goodwill balance of $92,650 between December 31, 2023 and September 30, 2024.

Intangible Assets

The following is a listing of definite-lived intangible assets, the useful lives in years (amortization period) and accumulated amortization as of September 30, 2024 and December 31, 2023:


				September 30, 2024
	Useful Lives		Gross Carrying		Accumulated
	Years		Amount		Amortization		Net
Amortizable intangible assets:
Customer relationships and contracts		9-17		$	96,040	$	56,643	$	39,397
Trade name		10			14,780		8,555		6,225
Non-compete agreements		5			8,800		8,800		-
Developed technology		7			4,900		875		4,025
Patents		19			24		15		9
Total intangible assets, net				$	124,544	$	74,888	$	49,656


				December 31, 2023
	Useful Lives		Gross Carrying		Accumulated
	Years		Amount		Amortization		Net
Amortizable intangible assets:
Customer relationships and contracts		9-17		$	96,040	$	53,078	$	42,962
Trade name		10			14,780		7,446		7,334
Non-compete agreements		5			8,800		8,800		-
Developed technology		7			4,900		350		4,550
Patents		19			24		14		10
Total intangible assets, net				$	124,544	$	69,688	$	54,856

Additionally, the Company reported an indefinite lived non-amortizable brand name asset with a balance of $3,811 as of September 30, 2024 and December 31, 2023.

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Changes in intangible assets between December 31, 2023 and September 30, 2024 consist of:


Balance as of December 31, 2023	$	58,667
Amortization expense		(5,200)
Balance as of September 30, 2024	$	53,467

Amortization expense was $1,733 and $2,173 for the three months ended September 30, 2024 and 2023, respectively, and $5,200 and $5,649 for the nine months ended September 30, 2024 and 2023, respectively.

Future amortization expense is expected to be as followed:


Year ending December 31,
2024 (remainder)	$	1,733
2025	$	6,933
2026	$	6,933
2027	$	6,933
2028	$	6,877
Thereafter	$	20,247

Note 4. Debt

Bank Revolving Credit Notes

On June 28, 2023, we entered into an amended and restated credit agreement (the Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, as administrative agent (the Agent). The Credit Agreement provides for a $250,000 revolving credit facility, with a letter of credit sub-facility, and a swingline facility in an aggregate amount of $25,000. The Credit Agreement also provides the availability of incremental facilities to the greater of $100,000 and 125% of the Company's twelve month trailing Consolidated EBITDA through an accordion feature. All amounts borrowed under the credit agreement mature on June 28, 2028.

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, incur, assume or suffer to exist liens; make certain investments; allow our subsidiaries to merge or consolidate with another entity; make certain asset dispositions; pay certain dividends or other distributions to shareholders; enter into transactions with affiliates; enter into sale leaseback transactions; and exceed the limits on annual capital expenditures. The Credit Agreement also requires us to satisfy certain financial covenants, including a minimum consolidated interest coverage ratio of 3.00 to 1.00 as well as a consolidated total leverage ratio not to exceed 3.50 to 1.00.

The Company incurred deferred financing costs of $1,248 associated with executing the Credit Agreement, which was recorded as an other long-term asset in the Condensed Consolidated Balance Sheets and will be amortized over the duration of the agreement.

At September 30, 2024, our consolidated total leverage ratio was 1.59 to 1.00 as compared to a covenant maximum of 3.50 to 1.00 under the Credit Agreement.

At September 30, 2024, our consolidated interest coverage ratio was 4.92 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 secured overnight financing rate (SOFR) plus an applicable margin based on the current consolidated total leverage ratio. The interest rate was 7.22% and 7.71% as of September 30, 2024 and December 31, 2023, respectively. Additionally, the agreement has a fee on the average daily unused portion of the aggregate unused revolving commitments. This fee was 0.25% as of September 30, 2024 and 0.30% as of December 31, 2023.

Prior to June 28, 2023, the Company maintained a credit agreement (Former Credit Agreement) with certain lenders and the Agent. The Former Credit Agreement provided for a $200,000 revolving credit facility, with a letter of credit sub-facility in an

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aggregate amount not to exceed $5,000, and a swingline facility in an aggregate amount of $20,000. The Former Credit Agreement also provided for an additional $100,000 of debt capacity through an accordion feature.

The Company was in compliance with all financial covenants of its credit agreements as of September 30, 2024 and December 31, 2023. The amount borrowed on the revolving credit notes was $111,045 and $147,493 as of September 30, 2024 and December 31, 2023, respectively.

Other Debt

Additionally, the Company has a Fond du Lac County and Fond du Lac Economic Development Corporation term note (Fond du Lac Term Note). The Fond du Lac Term Note is secured by a security agreement, payable in annual installments of $500 plus interest at 2.00% and is due in full in December 2028. The balance outstanding as of September 30, 2024 and December 31, 2023 was $2,375. The short-term and long-term balance of $500 and $1,875, respectively, are recorded in other current liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets.

Note 5. Leases

The Company has real property operating leases for office and manufacturing space. Operating leases for the Company's personal property consist of leases for office equipment, vehicles, forklifts and storage tanks for bulk gases. The Company recognizes a right-of-use (ROU) asset and a lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense for the Company's operating leases is recognized on a straight-line basis over the lease term, including renewal periods that are considered reasonably certain.

The Company has finance leases for equipment used throughout its office and manufacturing facilities. The Company recognizes an ROU asset and a lease liability for finance leases based on the net present value of future minimum lease payments. Lease expense for the Company's finance leases is comprised of the amortization of the ROU asset and interest expense recognized based on the effective interest method.

Variable lease expense is related to certain of the Company's real property leases and personal property leases, and it generally consists of property tax and insurance components that are for the benefit of the lessor (real property leases) and variable overage fees (personal property leases) that are remitted as part of the Company's lease payments.

The components of lease expense were as follows:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024		2023		2024	2023
Finance lease cost:
Amortization of finance lease assets	$	130		$	122	$	353	$	310
Interest on finance lease liabilities		12			14		32		35
Total finance lease expense		142			136		385		345
Operating lease expense		1,332			1,310		4,025		3,917
Short-term lease expense		200			169		511		439
Variable lease expense		66			22		178		139
Lease income ⁽¹⁾		(547)			(513)		(1,616)		(1,548)
Total lease expense	$	1,193		$	1,124	$	3,483	$	3,292

(1)	The Company subleases a portion of its Hazel Park, MI facility. Lease income for the three months ended September 30, 2024 and 2023 was $547and $513, respectively, and $1,616and $1,548for the nine months ended September 30, 2024 and 2023, respectively.

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The lease related supplemental cash flow information is as follows:


	Nine Months Ended
	September 30,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities for finance leases:
Operating cash flows	$	32		$	35
Financing cash flows	$	475		$	296

Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows	$	4,459		$	4,348

Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases	$	337		$	455
Finance leases	$	377		$	2

Note 6. Employee stock ownership plan

Under the Mayville Engineering Company, Inc. Employee Stock Ownership Plan (ESOP), the Company can make annual discretionary contributions to the trust for the benefit of eligible employees in the form of cash or shares of common stock of the Company subject to the Board of Directors' approval. The Company recorded no ESOP expense for the three and nine months ended September 30, 2024 and 2023.

As of January 1, 2023, the Company amended the plan reducing the distribution period from five years to three years.

At various times following death, disability, retirement, termination of employment or the exercise of diversification rights, 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.

As of September 30, 2024 and December 31, 2023, the ESOP shares consisted of 3,474,467 and 4,062,583 in allocated shares, respectively.

Note 7. Retirement plans

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 to the 401(k) Plan, subject to the limits of Section 401(k) of the Internal Revenue Code.

The Company provides a 50% match for employee contributions, up to 6%. For the three months ended September 30, 2024 and 2023, the Company's employer match expense was $609 and $933, respectively. Total employer match expense for the nine months ended September 30, 2024 and 2023 was $2,585 and $2,577, respectively. Additionally, the 401(k) Plan 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). For the three and nine months ended September 30, 2024 and 2023, the Company's estimated discretionary profit-sharing expense was $0.

Note 8. 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 and adjusted for discrete taxable events that may occur in the quarter. As the year progresses, the Company will refine its estimate based on facts and circumstances by each tax jurisdiction.

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Income tax expense was $100 and $2,532, and the effective tax rate (ETR) was 3.24% and 20.21% for the three and nine months ended September 30, 2024, respectively. Our ETR is different from the expected tax rate due to state taxes, non-deductible items, research and development credits and excess tax benefit associated with stock-based compensation items.

For the three and nine months ended September 30, 2023, income tax expense was estimated at $554 and $1,471 and the ETR was 27.94% and 20.76%, respectively.

Uncertain Tax Positions

Based on the Company's evaluation, it has been concluded that there is one unrecognized tax benefit requiring recognition in its financial statements as of September 30, 2024. The Company does not anticipate that there will be a material change in the balance of the unrecognized tax benefits in the next twelve months. Any interest and penalties related to uncertain tax positions are recorded in income tax expense.

The Company files income tax returns in the United States federal jurisdiction and in various state and local jurisdictions. Federal tax returns for tax years beginning January 1, 2020, and state tax returns beginning January 1, 2019, are open for examination.

Note 9. Commitments and contingencies

Litigation

On August 4, 2022, the Company filed a lawsuit against Peloton Interactive, Inc. ("Peloton") in the Supreme Court of the State of New York, New York County. The lawsuit arises from a March 2021 Supply Agreement between the parties, pursuant to which MEC was to manufacture and supply custom component parts for Peloton's exercise bikes (the "Manufacturing Project"). In the lawsuit, the Company originally asserted two claims (1) breach and anticipatory repudiation of contract and (2) breach of the duty of good faith and fair dealing (pleaded in the alternative). In January 2023, in response to Peloton's motion to dismiss, the court allowed the first claim to proceed and dismissed the alternative claim. In the remaining claim, MEC asserts that Peloton breached and anticipatorily repudiated the Supply Agreement by unilaterally cancelling the Manufacturing Project, and refusing to pay MEC certain monthly fixed revenue payments owed under the terms of the Supply Agreement. The parties cross-appealed the court's order on the motion to dismiss - Peloton appealed the portion of the order that denied the motion to dismiss the claim for breach and anticipatory repudiation of contract and MEC appealed the portion of the order that dismissed the claim for breach of duty of good faith and fair dealing. On April 11, 2024, the First Department, Appellate Division issued a decision and order affirming the court's order on the motion to dismiss and affirming the court's dismissal of the alternate claim of good faith and fair dealing. On November 3, 2023, Peloton filed a counterclaim alleging that Peloton was induced by fraud to enter into the Supply Agreement and seeking recission of the Supply Agreement and damages, among other forms of relief. On November 22, 2023, the Company answered Peloton's counterclaim, denying the allegations in the counterclaim.

On October 28, 2024, the Company and Peloton entered into a formal Settlement Agreement (the "Agreement") to resolve this lawsuit. Under the terms of the Agreement, MEC and Peloton have agreed to dismiss the lawsuit and exchange mutual releases, and MEC received a gross payment of $25,500 from Peloton in the fourth quarter of the current year, with no admission of liability by either party.

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.

Note 10. Deferred compensation

The Mayville Engineering Company 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 their 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.

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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.

Deferrals are assumed to be 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 and nine months ended September 30, 2024, eligible employees elected to defer compensation of $96 and $544, respectively. Eligible employees elected to defer compensation of $94 and $410 for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, the short-term portion accrued for all benefit years less than twelve months under this plan was $254 and $289, respectively. As of September 30, 2024 and December 31, 2023, the long-term portion accrued for all benefit years greater than twelve months under this plan was $4,603 and $3,816. These amounts include the initial deferral of compensation and were adjusted for changes in the value of investment options chosen by the participants. Total expense (credit) for the deferred compensation plan for the three months ended September 30, 2024 and 2023 was $204 and ($52), respectively. Total expense for the deferred compensation plan for the nine months ended September 30, 2024 and 2023 was $489 and $677, respectively. These expenses are included in profit-sharing, bonuses and deferred compensation on the Condensed Consolidated Statements of Comprehensive Income. Additionally, the Company made cash distributions of $286 and $18,520 for the nine months ended September 30, 2024 and 2023, respectively.

Note 11. 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. The Company has an aggregate stop loss limit to mitigate risk. Expenses related to self-funded insurance were $6,104 and $5,741 for the three months ended September 30, 2024 and 2023, respectively, and $18,655 and $15,508 for the nine months ended September 30, 2024 and 2023, respectively. An estimated accrued liability of $1,244 and $1,018 was recorded as of September 30, 2024 and December 31, 2023, respectively, for estimated unpaid claims and is included within other current liabilities on the Condensed Consolidated Balance Sheets.

Note 12. Segments

The Company applies the provisions of ASC 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 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 assets located in foreign countries.

Note 13. 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

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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.

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


	Balance at		Fair Value Measurements at
	September 30,		Report Date Using
	2024		(Level 1)		(Level 2)	(Level 3)
Deferred compensation liability	$	4,857		$	4,857	$	-	$	-
Total	$	4,857		$	4,857	$	-	$	-


	Balance at		Fair Value Measurements at
	December 31,		Report Date Using
	2023		(Level 1)		(Level 2)	(Level 3)
Deferred compensation liability	$	4,105		$	4,105	$	-	$	-
Total	$	4,105		$	4,105	$	-	$	-

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 Condensed Consolidated Balance Sheets at cost and approximate fair value.

Deferred compensation liabilities are recorded at amounts due to participants at the time of deferral. Deferrals are invested in an investment vehicle based on the options made available to the participant, considered to be Level 1 or Level 2 on the fair value hierarchy, with the current balance all as Level 1. The change in fair value is recorded in the profit-sharing, bonuses, and deferred compensation line item on the Condensed Consolidated Statements of Comprehensive Income. The short-term and long-term balances due to participants are reflected on the other current liabilities and deferred compensation, less current portion, line items, respectively, on the Condensed Consolidated Balance Sheets.

The Company's non-financial assets such as goodwill, 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. As of September 30, 2024, there was no impairment recognized for the year.

Note 14. Earnings Per Share

The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share. In accordance with ASC 260, outstanding options will be considered to have been exercised and outstanding as of the beginning of the period if the average market price of the common stock during the period exceeds the exercise price of the options (they are "in the money"), and the assumed exercise of the options do not have an anti-dilutive impact on earnings per share.

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A reconciliation of basic and diluted net income per share attributable to the Company were as follows:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024		2023		2024	2023
Net income attributable to MEC	$	2,974		$	1,432	$	9,997	$	5,617
Average shares outstanding		20,715,275			20,439,602		20,601,702		20,416,914
Basic income per share	$	0.14		$	0.07	$	0.49	$	0.28

Average shares outstanding		20,715,275			20,439,602		20,601,702		20,416,914
Effect of dilutive stock-based compensation		408,219			183,262		291,614		228,001
Total potential shares outstanding		21,123,494			20,622,864		20,893,316		20,644,915
Diluted income per share	$	0.14		$	0.07	$	0.48	$	0.27

There were no options in the money that were excluded in the computation of diluted earnings per share for the three and nine months ended September 30, 2024 and 2023 that had an anti-dilutive impact on earnings per share.

Note 15. Revenue Recognition

Contract Assets and Contract Liabilities

The Company has contract assets and contract liabilities, which are included in tooling in progress and other current liabilities on the Condensed Consolidated Balance Sheets, respectively. Contract assets include products where the Company has satisfied its performance obligation, but receipt of payment 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 Product Part Approval Process or other documented customer acceptance. Cost of goods sold is recognized and released from the balance sheet when control of the tooling promised under contract is transferred to the customer.

The Company's contracts with customers are short-term in nature; therefore, revenue is typically recognized, billed and collected within a twelve-month period. The following table reflects the changes in our contract assets and liabilities during the nine months ended September 30, 2024:


	Contract		Contract
	Assets		Liabilities
As of December 31, 2023	$	5,457		$	3,635
Net activity		169			(1,302)
As of September 30, 2024	$	5,626		$	2,333

Disaggregated Revenue

The following tables represent a disaggregation of revenue by product category and end market:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
Product Category	2024		2023		2024	2023
Outdoor sports	$	1,824		$	2,155	$	6,188	$	6,839
Fabrication		67,284			89,372		245,400		260,545
Performance structures		42,645			41,541		136,209		95,063
Tube		16,140			19,096		55,061		58,916
Tank		10,684			11,660		34,385		33,849
Total		138,577			163,824		477,243		455,212
Intercompany sales elimination		(3,185)			(5,607)		(16,945)		(15,369)
Total, net sales	$	135,392		$	158,217	$	460,298	$	439,843

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	Three Months Ended		Nine Months Ended
	September 30,		September 30,
End Market	2024		2023		2024	2023
Commercial vehicle	$	51,612		$	57,264	$	172,696	$	172,494
Construction & access		20,110			26,296		75,786		79,326
Powersports		21,605			25,143		82,202		73,236
Agriculture		10,358			15,029		39,955		42,924
Military		6,968			10,960		21,499		28,439
Other		24,739			23,525		68,160		43,424
Total, net sales	$	135,392		$	158,217	$	460,298	$	439,843

Note 16. Concentration of major customers

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


	Net Sales		Net Sales		Accounts Receivable
	Three Months Ended		Nine Months Ended		As of		As of
	September 30,		September 30,		September 30,		December 31,
	2024		2023		2024		2023		2024		2023
Customer
A	16.8	%	14.3	%	16.5	%	15.1	%	12.2	%	<10	%
B	<10	%	13.4	%	12.2	%	14.8	%	<10	%	12.6	%
C	<10	%	10.1	%	10.2	%	11.2	%	<10	%	<10	%
D	<10	%	<10	%	<10	%	<10	%	14.1	%	12.7	%

Note 17. Stock-based compensation

The Mayville Engineering Company, Inc. 2019 Omnibus Incentive Plan provided the Company the ability to grant monetary payments based on the value of its common stock, up to 2,000,000 shares.

On April 20, 2021, shareholders of the Company approved an amendment to the 2019 Omnibus Incentive Plan increasing the number of shares of common stock authorized for issuance by 2,500,000 shares.

The Company recognizes stock-based compensation using the fair value provisions prescribed by ASC 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 stock-based instrument at the time of grant and are recognized as expense over the vesting period of the stock-based instrument. Our stock-based compensation consists of stock options, restricted stock units (RSUs) and performance stock units (PSUs). For all types of units, fair value is equivalent to the adjusted closing stock price at the date of the grant. The Black-Scholes option pricing model is utilized to determine fair value for options.

The actual number of PSUs, if any, to be earned by the award recipients is determined after the end of a performance measurement period. The performance measures include Adjusted EBITDA, which represents net income before interest expense, provision for income taxes, depreciation, amortization, stock-based compensation, legal costs due to the former fitness customer and adjusted for items to be determined unusual in nature or infrequent in occurrence, for the year ended December 31, 2026, and the average annual return on invested capital (ROIC), for the three-years ended December 31, 2024, 2025 and 2026, respectively. ROIC represents net operating profit after taxes divided by invested capital for an annual period. These performance targets are subject to adjustments or exclusions as deemed appropriate to account for extraordinary or unanticipated events that do not reflect the core business of the Company, and have been set for each of the minimum, target and maximum levels with the actual performance amount received determined by the Compensation Committee of the Board of Directors.

Cancellations and forfeitures are accounted for as incurred.

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During the nine months ended September 30, 2024, 247,564 RSUs vested. For the same period, 206,524 options vested with a weighted average strike price of $13.54. During the nine months ended September 30, 2023, 254,169 RSUs vested. For the same period, 195,264 options vested with a strike price of $11.67.

During the nine months ended September 30, 2024, options exercised were 879,388 with a weighted average strike price of $9.85, which resulted in 264,247 of Company issued shares.

As of September 30, 2024, 433,918 options remained outstanding with a weighted average strike price of $13.71 and a weighted average contractual life of 9.24 years remaining.

The Company's stock-based compensation expense by award type is summarized as follows:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024		2023		2024	2023
RSU awards	$	973		$	856	$	2,725	$	2,445
PSU awards		119			-		257		-
Option awards		260			480		865		1,311
Stock-based compensation expense, net of tax	$	1,352		$	1,336	$	3,847	$	3,756

A roll-forward of unrecognized stock-based compensation expense is displayed in the table below. Unrecognized stock-based compensation expense as of September 30, 2024 will be expensed over the remaining requisite service period from which individual award values relate, up to August 20, 2027.


	RSUs		PSUs		Options	Total
Balance as of December 31, 2023	$	2,304		$	-	$	1,513	$	3,817
Grants		4,423			1,423		-		5,846
Forfeitures		(32)			-		-		(32)
Expense		(789)			(20)		(348)		(1,157)
Balance as of March 31, 2024	$	5,906		$	1,403	$	1,165	$	8,474
Grants		1,115			-		-		1,115
Forfeitures		(283)			-		(33)		(316)
Expense		(962)			(119)		(257)		(1,338)
Balance as of June 30, 2024	$	5,776			1,284	$	875	$	7,935
Grants		80			-		-		80
Forfeitures		(58)			-		-		(58)
Expense		(973)			(119)		(260)		(1,352)
Balance as of September 30, 2024	$	4,825			1,165	$	615	$	6,605

Note 18. Common Equity

At September 30, 2024 the authorized stock of the Company consisted of 75,000,000 shares of common stock without par value.

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Changes in outstanding common shares are summarized as follows:


		Shares
		Outstanding
Shares as of December 31, 2022		20,172,746
Treasury stock purchases		(184,964)
Common stock issued (including stock-based compensation impact)		320,574
Balance as of September 30, 2023		20,308,356

		Shares
		Outstanding
Balance as of December 31, 2023		20,310,584
Treasury stock purchases		(114,925)
Common stock issued (including stock-based compensation impact)		448,674
Balance as of September 30, 2024		20,644,333

Note 19. Subsequent events

The Company has evaluated events and transactions for potential recognition or disclosure in the consolidated financial statements through November 6, 2024, the date on which the consolidated financial statements were available to be issued, and there were no material events or transactions other than the following:

On October 28, 2024, the Company entered into the Agreement to resolve the lawsuit with Peloton. Under the terms of the Agreement, MEC and Peloton have agreed to dismiss the lawsuit and exchange mutual releases, and MEC received a gross payment of $25,500from Peloton in the fourth quarter of the current year, with no admission of liability by either party.

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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 I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and "Cautionary Statement Regarding Forward-Looking Statements" in 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 year ended December 31, 2023 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 vertically-integrated, value-added manufacturing partner providing a full suite of manufacturing solutions from concept to production, including design, prototyping and tooling, fabrication, aluminum extrusion, 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. We have developed long-standing relationships with our blue-chip customers based upon our commitment to "Unmatched Excellence".

Macroeconomic Conditions

The broader market dynamics over the past few years have resulted in impacts to the Company, material cost inflation and inflationary pressures on wages and benefits due to labor availability. The Company expects some of these dynamics to continue in 2024 and could continue to have an impact on demand, material costs and labor. Specifically for the three months ended September 30, 2024, net sales reflected a significant decline in demand across all the Company's key end markets as customers implemented channel inventory de-stocking activities to reduce from near historic high levels and is expected to continue for the remainder of 2024.

How We Assess Performance

Net Sales. Net sales reflect sales of our components and products net of allowances for returns and discounts. In addition to the current macroeconomic conditions, several factors affect our net sales in any given period, including weather, timing of acquisitions and the production schedules of our customers. Net sales are recognized at the time of shipment or at delivery 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 variations based upon certain market indexes.

Depreciation and Amortization. We carry property, plant and equipment on our balance sheet at cost, net of accumulated depreciation. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the asset. The periodic expense related to leasehold improvements and intangible assets is depreciation and amortization expense, respectively. Leasehold improvements are depreciated 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.

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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 certain other managerial employees and certain corporate level administrative expenses such as incentive compensation, audit, accounting, legal and other consulting and professional services, travel, and insurance.

Other Key Performance Indicators

EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin

EBITDA represents net income before interest expense, provision for income taxes, depreciation and amortization. EBITDA Margin represents EBITDA as a percentage of net sales for each period.

Adjusted EBITDA represents EBITDA before stock-based compensation expense, loss on extinguishment of debt, Mid-States Aluminum (MSA) acquisition related costs, field replacement claim, legal costs due to the former fitness customer and costs recognized on step-up of MSA acquired inventory. 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 EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin as management uses these measures as key performance indicators, and we believe they are measures frequently used by securities analysts, investors and other parties to evaluate companies in our industry. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP.

Our calculation of EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to the similarly named measures reported by other companies. Potential differences between our measures of EBITDA and Adjusted EBITDA compared to other similar companies' measures of EBITDA and Adjusted EBITDA may include differences in capital structure and tax positions.

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


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2024			2023			2024		2023
Net income and comprehensive income	$	2,974			$	1,432		$	9,997		$	5,617
Interest expense		2,653				3,907			8,977			7,533
Provision for income taxes		100				554			2,532			1,471
Depreciation and amortization		9,482				9,608			28,127			25,498
EBITDA		15,209				15,501			49,633			40,119
Loss on extinguishment of debt ⁽¹⁾		-				-			-			216
MSA acquisition related costs ⁽²⁾		-				499			-			1,398
Stock-based compensation expense ⁽³⁾		1,352				1,336			3,847			3,756
Field replacement claim ⁽⁴⁾		-				-			-			490
Legal costs due to former fitness customer ⁽⁵⁾		501				984			1,740			1,479
Costs recognized on step-up of MSA acquired inventory ⁽⁶⁾		-				891			-			891
Adjusted EBITDA	$	17,062			$	19,211		$	55,220		$	48,349
Net sales	$	135,392			$	158,217		$	460,298		$	439,843
EBITDA Margin		11.2	%			9.8	%		10.8	%		9.1	%
Adjusted EBITDA Margin		12.6	%			12.1	%		12.0	%		11.0	%

(1)	Unamortized debt issue costs written off from the prior five-year credit agreement attributable to lenders that are no longer included in the amended and restated credit agreement or decreased their capacity in the amended and restated credit agreement.

(2)	Transaction costs, primarily legal and professional services, related to the acquisition of MSA.

(3)	Non-cash employee compensation based on the value of common stock issued pursuant to the 2019 Omnibus Incentive Plan.

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(4)

Represents a one-time charge related to a COVID related sourcing issue that caused the Company to change suppliers and ultimately lead to a product being produced outside of customer specifications. These costs are not expected to be incurred on an ongoing basis and therefore are not indicative of ongoing operations.

(5)	Legal costs associated with the enforcement of the Company's supply contract with the former fitness customer.

(6)	Expense associated with the recognized fair value step-up of inventory in correlation with the MSA acquisition.

Consolidated Results of Operations

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023


	Three Months Ended September 30,
	2024			2023			Increase (Decrease)
			% of Net					% of Net		Amount
	Amount		Sales			Amount		Sales		Change	% Change
Net sales	$	135,392		100.0	%		$	158,217	100.0	%	$	(22,825)	(14.4)	%
Cost of sales		118,297		87.4	%			139,197	88.0	%		(20,900)	(15.0)	%
Manufacturing margins		17,095		12.6	%			19,020	12.0	%		(1,925)	(10.1)	%
Amortization of intangible assets		1,733		1.3	%			2,173	1.4	%		(440)	(20.2)	%
Profit sharing, bonuses and deferred compensation		2,076		1.5	%			2,346	1.5	%		(270)	(11.5)	%
Other selling, general and administrative expenses		7,559		5.6	%			8,608	5.4	%		(1,049)	(12.2)	%
Income from operations		5,727		4.2	%			5,893	3.7	%		(166)	(2.8)	%
Interest expense		(2,653)		2.0	%			(3,907)	2.5	%		(1,254)	(32.1)	%
Provision for income taxes		100		0.1	%			554	0.4	%		(454)	(81.9)	%
Net income and comprehensive income	$	2,974		2.2	%		$	1,432	0.9	%	$	1,542	107.7	%
EBITDA	$	15,209		11.2	%		$	15,501	9.8	%	$	(292)	(1.9)	%
Adjusted EBITDA	$	17,062		12.6	%		$	19,211	12.1	%	$	(2,149)	(11.2)	%

Net Sales. Net sales were $135,392 for the three months ended September 30, 2024 as compared to $158,217 for the three months ended September 30, 2023, a decrease of $22,825, or 14.4%. This decrease was driven by a decrease in demand across all key end markets and customer de-stocking channel inventory, partly offset by incremental volumes associated with new project wins.

Manufacturing Margins. Manufacturing margins were $17,095 for the three months ended September 30, 2024 as compared to $19,020 for the three months ended September 30, 2023, a decrease of $1,925, or 10.1%. The decrease was primarily driven by the lower end market demand, partially offset by the Company's MEC Business Excellence (MBX) initiatives, commercial pricing actions and cost reduction actions, most notably a 12% reduction in the Company's labor force.

Manufacturing margin percentages were 12.6% for the three months ended September 30, 2024, as compared to 12.0% for the three months ended September 30, 2023, an increase of 0.6%. The increase was attributable to the offsetting items discussed in the preceding paragraph.

Amortization of Intangibles Assets. Amortization of intangible assets were $1,733 for the three months ended September 30, 2024 as compared to $2,173 for the three months ended September 30, 2023, a decrease of $440, or 20.2%. The decrease was due to the full amortization of certain intangible assets in prior periods.

Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit-sharing, bonuses, and deferred compensation expenses were $2,076 for the three months ended September 30, 2024 as compared to $2,346 for the three months ended September 30, 2023, a decrease of $270, or 11.5%. The decrease was primarily driven by lower bonus accruals aligning with Company financial performance, slightly offset by deferred compensation expense during the current year period versus deferred compensation income during the prior year period due to fluctuations in the financial markets.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $7,559 for the three months ended September 30, 2024 as compared to $8,608 for the three months ended September 30, 2023, a decrease of $1,049, or 12.2%. The decrease was predominantly attributable to lower legal fees associated with the litigation against the former fitness customer and non-recurring professional fees related to the MSA acquisition during the prior year period.

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Interest Expense. Interest expense was $2,653 for the three months ended September 30, 2024 as compared to $3,907 for the three months ended September 30, 2023, a decrease of $1,254, or 32.1%. The change is due to a decrease in borrowings and lower interest rates relative to the prior year period.

Provision for Income Taxes. Income tax expense was $100 for the three months ended September 30, 2024 as compared to $554 for the three months ended September 30, 2023. The decrease of $454 is primarily due to a lower effective tax rate in the current year period as a result of increased excess tax benefit associated with stock-based compensation items, partially offset by higher net income and comprehensive income in the current year period. Refer to Note 8 - Income Taxes of the Condensed Consolidated Financial Statements for further details.

Due to the factors described in the preceding paragraphs, net income and comprehensive income, EBITDA Margin and Adjusted EBITDA Margin increased during the three months ended September 30, 2024, while EBITDA and Adjusted EBITDA decreased, as compared to the three months ended September 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023


	Nine Months Ended September 30,
	2024			2023			Increase (Decrease)
			% of Net					% of Net		Amount
	Amount		Sales			Amount		Sales		Change	% Change
Net sales	$	460,298		100.0	%		$	439,843	100.0	%	$	20,455	4.7	%
Cost of sales		399,993		86.9	%			388,351	88.3	%		11,642	3.0	%
Manufacturing margins		60,305		13.1	%			51,492	11.7	%		8,813	17.1	%
Amortization of intangible assets		5,200		1.1	%			5,649	1.3	%		(449)	(7.9)	%
Profit sharing, bonuses and deferred compensation		10,010		2.2	%			8,037	1.8	%		1,973	24.5	%
Other selling, general and administrative expenses		23,589		5.1	%			22,969	5.2	%		620	2.7	%
Income from operations		21,506		4.7	%			14,837	3.4	%		6,669	44.9	%
Interest expense		(8,977)		2.0	%			(7,533)	1.7	%		1,444	19.2	%
Loss on extinguishment of debt		-		0.0	%			(216)	0.1	%		(216)	NM
Provision for income taxes		2,532		0.6	%			1,471	0.3	%		1,061	72.1	%
Net income and comprehensive income	$	9,997		2.2	%		$	5,617	1.3	%	$	4,380	78.0	%
EBITDA	$	49,633		10.8	%		$	40,119	9.1	%	$	9,514	23.7	%
Adjusted EBITDA	$	55,220		12.0	%		$	48,349	11.0	%	$	6,871	14.2	%

Net Sales.Net sales were $460,298 for the nine months ended September 30, 2024 as compared to $439,843 for the nine months ended September 30, 2023 for an increase of $20,455, or 4.7%. The increase was primarily driven by the acquisition of MSA in the third quarter of the prior year and incremental volumes from new program wins. These items were partially offset by softening demand within all key end markets, customer de-stocking channel inventory and the foreseen roll-off of certain military aftermarket programs at the end of 2023.

Manufacturing Margin.Manufacturing margins were $60,305 for the nine months ended September 30, 2024 as compared to $51,492 for the nine months ended September 30, 2023, an increase of $8,813, or 17.1%. The increase was primarily driven by increased sales volumes, MSA acquisition, MBX initiatives, commercial pricing actions and the 12% reduction in the Company's labor force.

Manufacturing margin percentages were 13.1% for the nine months ended September 30, 2024 as compared to 11.7% for the nine months ended September 30, 2023, an increase of 1.4%. This increase was attributable to the items discussed in the preceding paragraph.

Amortization of Intangibles Assets.Amortization of intangible assets were $5,200 for the nine months ended September 30, 2024 as compared to $5,649 for the nine months ended September 30, 2023, a decrease of $449. The decrease was due to the full amortization of certain intangible assets in prior periods, slightly offset by the amortization expense associated with the identifiable intangible assets from the MSA acquisition.

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Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit-sharing, bonuses, and deferred compensation expenses were $10,010 for the nine months ended September 30, 2024 as compared to $8,037 for the nine months ended September 30, 2023, an increase of $1,973, or 24.5%. The increase was primarily due to higher bonus accruals aligning with Company financial performance in the current year period.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $23,589 for the nine months ended September 30, 2024 as compared to $22,969 for the nine months ended September 30, 2023, an increase of $620 or 2.7%. The increase was predominantly attributable to higher costs related to compliance requirements and annual wage inflation, partially offset by lower legal fees associated with the litigation against the former fitness customer and non-recurring professional fees related to the MSA acquisition during the prior year period.

Interest Expense. Interest expense was $8,977 for the nine months ended September 30, 2024 as compared to $7,533 for the nine months ended September 30, 2023, an increase of $1,444, or 19.2%. The change is due to higher average interest rates and debt levels as compared to the prior year period. The increase in debt level is due to the acquisition of MSA which closed during the third quarter of the prior year period.

Provision for Income Taxes. Income tax expense was $2,532 for the nine months ended September 30, 2024 as compared to $1,471 for the nine months ended September 30, 2023. The increase of $1,061 is primarily due to higher net income and comprehensive income in the current year period, partially offset by an increased tax benefit associated with stock-based compensation items. Refer to Note 8 - Income Taxes of the Condensed Consolidated Financial Statements for further details.

Due to the factors described in the preceding paragraphs, net income and comprehensive income, EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin increased during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Liquidity and Capital Resources

Cash Flows Analysis


	Nine Months Ended
	September 30,		Increase (Decrease)
	2024		2023		$ Change	% Change
Net cash provided by operating activities	$	51,847		$	13,696		38,151	279	%
Net cash used in investing activities		(9,645)			(97,654)		88,009	90	%
Net cash provided by (used in) financing activities		(42,696)			86,136		(128,832)	NM
Net change in cash	$	(494)		$	2,178	$	(2,672)

Operating Activities. Cash provided by operating activities was $51,847 for the nine months ended September 30, 2024, as compared to $13,696 for the nine months ended September 30, 2023. Of the $38,151 increase in operating cash flows, $17,562 is due to a payout of deferred compensation to a retired Company executive made in the prior year period. The remaining increase of $20,589 was primarily due to the favorable impact of higher earnings and changes in net working capital items. The primary favorable changes in working capital include a decrease in accounts receivable due to the Company's ongoing collection efforts, an increase in accounts payable due to the timing of payments and improved inventory turns.

Investing Activities. Cash used in investing activities was $9,645 for the nine months ended September 30, 2024, as compared to $97,654 for the nine months ended September 30, 2023. The $88,009 decrease in cash used in investing activities was mainly driven by the acquisition of MSA, which was completed on July 1, 2023.

Financing Activities. Cash used in financing activities was $42,696 for the nine months ended September 30, 2024, as compared to cash provided by financing activities of $86,136 for the nine months ended September 30, 2023. The $128,832 decrease is mainly due to the debt repayments in excess of borrowings during the current year period and the withdrawal of funds used to purchase MSA in the prior year period. Additionally, the Company purchased $1,996 of common stock in the first nine months of 2024 as compared to $2,661 in the prior year period. The Company's decision to repurchase additional shares in 2024 will depend on business conditions, free cash flow generation, other cash requirements and stock price. Refer to Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional information regarding share repurchases.

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Amended and Restated Credit Agreement

On June 28, 2023, we entered into an amended and restated credit agreement (the Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, the Agent. The Credit Agreement provides for a $250,000 revolving credit facility, with a letter of credit sub-facility, and a swingline facility in an aggregate amount of $25,000. The Credit Agreement also provides for the availability of incremental facilities to the greater of $100,000 and 125% of the Company's twelve month trailing Consolidated EBITDA through an accordion feature. All amounts borrowed under the credit agreement mature on June 28, 2028.

Borrowings under the Credit Agreement bear interest at a fluctuating secured overnight financing rate (SOFR) plus an applicable margin based on the current consolidated total leverage ratio (which may be adjusted for certain reserve requirements), plus 1.25% to 2.75% depending on the current Consolidated Total Leverage Ratio (as defined in the Credit Agreement). Under certain circumstances, we may not be able to pay interest based on SOFR. 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), (ii) the Federal Funds Rate plus 0.50%, and (iii) Adjusted Term SOFR for a one-month tenor in effect on such day plus 1.00%. The Credit Agreement also includes provisions for determining a replacement rate when SOFR is no longer available.

At September 30, 2024, the interest rate on outstanding borrowings under the Revolving Loan was 7.22%. We had availability of $138,955 under the revolving credit facility at September 30, 2024.

We must pay a commitment fee of 0.20% to 0.35% per annum on the average daily unused portion of the aggregate unused revolving commitments under the Credit Agreement. We must also pay fees as specified in the Fee Letter (as defined in the Credit Agreement) and with respect to any letters of credit issued under the Credit Agreement.

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, incur, assume or suffer to exist liens; make certain investments; allow our subsidiaries to merge or consolidate with another entity; make certain asset dispositions; pay certain dividends or other distributions to shareholders; enter into transactions with affiliates; enter into sale leaseback transactions; and exceed the limits on annual 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. At September 30, 2024, our interest coverage ratio was 4.92 to 1.00. The Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 3.50 to 1.00. As of September 30, 2024, our consolidated total leverage ratio was 1.59 to 1.00.

The 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, and failure to maintain subsidiary guarantees. If an event of default occurs, the Agent will be entitled to take various actions, including the acceleration of amounts due under the Credit Agreement, termination of the credit facility, and all other actions permitted to be taken by a secured creditor.

Other Debt

Additionally, the Company has a Fond du Lac County and Fond du Lac Economic Development Corporation term note (Fond du Lac Term Note). The Fond du Lac Term Note is secured by a security agreement, payable in annual installments of $500 plus interest at 2.00% and is due in full in December 2028. The balance outstanding as of September 30, 2024 was $2,375, with the short-term and long-term balance of $500 and $1,875, respectively, recorded in other current liabilities and other long-term liabilities in the Condensed Consolidated Balance Sheets.

Capital Requirements and Sources of Liquidity

During the nine months ended September 30, 2024 and 2023, our capital expenditures were $9,753 and $9,814 respectively. The marginal decrease of $61 was driven by the Company controlling its spend due to the end market demand softening. In turn, capital expenditures for the full year 2024 are expected to be between $13,000 and $15,000.

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, 2024, we had immediate availability of $138,955 through our revolving credit facility and the availability of incremental facilities to the greater of $100,000 and 125% of the Company's twelve

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month trailing Consolidated EBITDA through an accordion feature under our Credit Agreement, subject to the covenants under the 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 Credit Agreement as long as we remain compliant with the financial covenants. Based on our estimates at this time, we expect to be in compliance with these financial covenants through 2024 and the foreseeable future.

We believe that our operating cash flow and available borrowings under the Credit Agreement are sufficient to fund our operations for 2024 and beyond. 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 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, 2024:


				Payments Due by Period
	Total		2024 (Remainder)		2025 - 2026	2027 - 2028		Thereafter
Long-term debt principal payment obligations ⁽¹⁾	$	113,420		$	500	$	1,000		$	111,920	$	-
Forecasted interest on debt payment obligations ⁽²⁾		21,859			1,887		11,603			8,369		-
Finance lease obligations ⁽³⁾		871			142		642			87		-
Operating lease obligations ⁽³⁾		33,448			1,468		10,259			9,979		11,742
Total	$	169,598		$	3,997	$	23,504		$	130,355	$	11,742

(1)	Principal payments under the Company's Credit Agreement, which expires in 2028 and the Fond du Lac Term Note, which is due in full in December 2028.

(2)	Forecasted interest on debt obligations are based on the debt balance, interest rate, and unused fee of the Company's revolving credit facility and debt balance and interest rate of the Company's Fond due Lac Term Note.

(3)	See Note 5 - Leases in the Notes to Condensed Consolidated Financial Statements for additional information

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk from changes in customer forecasts, interest rates, and to a lesser extent, commodities. To reduce such risks, we selectively use financial instruments and other proactive management techniques.

Customer Forecasts

The use 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-quarter dependent upon the respective markets that our customers provide products in.

Interest Rate Risk

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 SOFR-based floating rate borrowings under the Credit Agreement, which exposes us to variability in interest payments due to changes in the referenced interest rates.

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The amount borrowed under the revolving credit facility under the Credit Agreement was $111.0 million with an interest rate of 7.22% as of September 30, 2024. Please see "Liquidity and Capital Resources - Amended and Restated Credit Agreement" in Part I, Item 2 and Note 4 in the Notes to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for more specifics.

A hypothetical 100-basis-point increase in interest rates would have resulted in an additional $1.0 million of interest expense based on our variable rate debt at September 30, 2024. 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 our cash flow.

Commodity Risk

We source a wide variety of materials and components from a network of 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 September 30, 2024, 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 the Company's 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 and has concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, 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. See Note 9 - Commitments and contingencies in the Notes to the Condensed Consolidated Financial Statements for additional information.

Item 1A. Risk Factors

There have been no material changes to the 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, 2023, which was filed with the SEC on March 6, 2024.

Item 2. Unregistered Sales of Equity 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, 2024:


					Total Number		Dollar Value of
					of Shares		Shares that
	Total				Purchased as		May Yet Be
	Number				Part of Publicly		Purchased
	of Shares	Average Price		Announced Plans		Under the Plans
Period	Purchased	Paid per Share		or Programs⁽¹⁾		or Programs⁽¹⁾
July 2024	-	$	-		-		$	24,002,119
August 2024	-	$	-		-		$	24,002,119
September 2024	53,728	$	18.58		53,728		$	23,004,056
Total	53,728				53,728

(1)	On October 26, 2023, the Board of Directors approved a new share repurchase program of up to $25 million of shares through 2026. The new share repurchase program replaced the prior program.

Item 5. Other Information

During the three months ended September 30, 2024, no director or Section 16 officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.

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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

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		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL 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: November 6, 2024		By:	/s/ Jagadeesh A. Reddy
	Jagadeesh A. Reddy
	President & Chief Executive Officer

	By:	/s/ Todd M. Butz
		Todd M. Butz
		Chief Financial Officer

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Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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