# Mayville Engineering Company, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Mayville Engineering Company, Inc.](/companies/mec.md) (CIK 1766368)
- Form: 10-Q
- Filed: 2023-05-03
- Accepted by EDGAR: May 3, 2023, 15:00 ET
- Period: 2023-03-31
- Accession: 0001558370-23-007805
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1766368/000155837023007805/tmb-20230331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1766368/000155837023007805/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $142.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $126.3m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $4.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $1.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $441.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $2.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 20,749,948 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$6.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $2.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $661.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-03-31 | $126.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $154.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $448.0m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $96.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $224.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $223.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,727 characters.

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, 2022 and “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in Part II Item 1A. of this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 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, 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 a high level of experience, trust and confidence.

Our one operating segment focuses on producing metal components that are used in a broad range of heavy- and medium-duty commercial vehicles, construction & access equipment, powersports, agricultural, military and other products.

### Macroeconomic Conditions

For the three months ended March 31, 2023 and 2022, net sales reflected the ongoing supply chain constraints impacting some of our customers. In the current period, we continued to experience macroeconomic conditions that originated during the pandemic, including inflationary pressures on wages, benefits and manufacturing supplies due to a higher level of competition for employees, while observing material costs stabilizing.

### 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 represent 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.

***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, Hazel Park transition and legal costs due to the former fitness customer and impairment charges on long-lived assets and inventory and gain on contracts specifically purchased to meet obligations under the agreement with our former fitness customer. 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 March 31, 2023 | ​ ​ | ​ ​ ​ ​ ​ 2022 | ​ ​ ​ |
| --- | --- | --- | --- | --- | --- |
| Net income and comprehensive income | ​ | $2,571 ​ | ​ | $3,822 ​ | ​ |
| Interest expense |  | ​ 1,658 | ​ | ​ 567 |  |
| Provision for income taxes |  | ​ 441 | ​ | ​ 1,175 |  |
| Depreciation and amortization |  | ​ 7,880 | ​ | ​ 7,207 |  |
| EBITDA |  | ​ 12,550 | ​ | ​ 12,771 |  |
| Stock-based compensation expense |  | ​ 1,066 | ​ | ​ 1,257 |  |
| Hazel Park transition and legal costs due to former fitness customer |  | ​ 224 | ​ | ​ 1,927 |  |
| Impairment of long-lived assets and gain on contracts |  | ​ — | ​ | ​ (1,183) |  |
| Adjusted EBITDA | ​ | $13,840 ​ | ​ | $14,772 ​ | ​ |
| Net sales | ​ | $142,645 ​ | ​ | $136,252 ​ | ​ |
| EBITDA Margin | ​ | 8.8% | ​ | 9.4% | ​ |
| Adjusted EBITDA Margin | ​ | 9.7% | ​ | 10.8% | ​ |

### Consolidated Results of Operations

### Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2023 ​ Amount | ​ ​ | ​ ​ ​ % of Net ​ Sales | ​ ​ ​ ​ | ​ ​ 2022 ​ Amount | ​ ​ | ​ ​ ​ ​ % of Net ​ Sales | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Increase (Decrease) Amount Change | ​ ​ ​ | ​ ​ ​ ​ % Change ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Net sales | ​ | $142,645 | ​ | 100.0% | ​ | $136,252 | ​ | 100.0% | ​ | $6,393 | ​ | 4.7% |
| Cost of sales | ​ | ​ 126,268 | ​ | 88.5% | ​ | ​ 121,370 | ​ | 89.1% | ​ | ​ 4,898 | ​ | 4.0% |
| Manufacturing margins | ​ | ​ 16,377 | ​ | 11.5% | ​ | ​ 14,882 | ​ | 10.9% | ​ | ​ 1,495 | ​ | 10.0% |
| Amortization of intangible assets |  | ​ 1,738 |  | 1.2% | ​ | ​ 1,738 |  | 1.3% | ​ | ​ — |  | —% |
| Profit sharing, bonuses and deferred compensation |  | ​ 3,003 |  | 2.1% | ​ | ​ 2,548 |  | 1.9% | ​ | ​ 455 |  | 17.9% |
| Employee stock ownership plan expense | ​ | ​ — | ​ | —% | ​ | ​ 490 | ​ | 0.4% | ​ | ​ (490) | ​ | (100.0)% |
| Other selling, general and administrative expenses |  | ​ 6,966 |  | 4.9% | ​ | ​ 5,725 |  | 4.2% | ​ | ​ 1,241 |  | 21.7% |
| Impairment of long-lived assets and gain on contracts |  | ​ — |  | —% | ​ | ​ (1,183) |  | (0.9)% | ​ | ​ 1,183 |  | 100.0% |
| Income from operations |  | ​ 4,670 |  | 3.3% | ​ | ​ 5,564 |  | 4.1% | ​ | ​ (894) |  | (16.1)% |
| Interest expense |  | ​ (1,658) |  | 1.2% | ​ | ​ (567) |  | 0.4% | ​ | ​ 1,091 |  | 192.4% |
| Provision for income taxes |  | ​ 441 |  | 0.3% | ​ | ​ 1,175 |  | 0.9% | ​ | ​ (734) |  | (62.5)% |
| Net income and comprehensive income | ​ | $2,571 |  | 1.8% | ​ | $3,822 |  | 2.8% | ​ | $(1,251) |  | (32.7)% |
| EBITDA | ​ | $12,550 |  | 8.8% | ​ | $12,771 |  | 9.4% | ​ | $(221) |  | (1.7)% |
| Adjusted EBITDA | ​ | $13,840 |  | 9.7% | ​ | $14,772 |  | 10.8% | ​ | $(932) |  | (6.3)% |

***Net Sales.*** Net sales were $142,645 for the three months ended March 31, 2023 as compared to $136,252 for the three months ended March 31, 2022, an increase of $6,393, or 4.7%. This increase was primarily driven by a combination of increased sales volumes within our commercial vehicle, powersports and military end markets and continued price discipline, partially offset by supply chain challenges affecting some of our customers and softening demand in our construction & access end markets.

***Manufacturing Margins.*** Manufacturing margins were $16,377 for the three months ended March 31, 2023 as compared to $14,882 for the three months ended March 31, 2022, an increase of $1,495, or 10.0%. The increase was largely the result of the above-mentioned volume growth and commercial price actions partially offset by lower scrap income.

Manufacturing margin percentages were 11.5% for the three months ended March 31, 2023, as compared to 10.9% for the three months ended March 31, 2022, an increase of 0.6%. The increase was attributable to the items discussed in the preceding paragraph.

***Amortization of Intangibles Assets.*** Amortization of intangible assets were $1,738 for the three months ended March 31, 2023 and 2022.

***Profit Sharing, Bonuses and Deferred Compensation Expenses.*** Profit sharing, bonuses, and deferred compensation expenses were $3,003 for the three months ended March 31, 2023 as compared to $2,548 for the three months ended March 31, 2022, an increase of $455, or 17.9%. The increase was primarily due to the decision made by the Company to modify its profit sharing program by implementing a 401(k) company match as of January 1, 2023, which was higher than the prior year period discretionary 401(k) accrual.

***Employee Stock Ownership Plan Expense.*** Employee stock ownership plan estimated expense was $0 for the three months ended March 31, 2023, as compared to $490 for the three months ended March 31, 2022, a decrease of $490 as the Company transitioned to a 401(k) company match beginning January 1, 2023.

***Other Selling, General and Administrative Expenses.*** Other selling, general and administrative expenses were $6,966 for the three months ended March 31, 2023 as compared to $5,725 for the three months ended March 31, 2022, an increase of $1,241, or 21.7%. The increase was predominantly attributable to increasing salaries, wages and benefits, recruiting fees and higher professional fees related to the Company preparing to be Sarbanes-Oxley Act Section 404(b) compliant for 2024.

***Impairment of Long-Lived Assets and Gain on Contracts.*** At December 31, 2021, there was uncertainty as to the level of demand from the former fitness customer. The Company received a notification from this customer in February 2022 resulting in a change in forecasted future cash flow, triggering an impairment assessment of assets purchased, and assets the Company committed to purchase, to meet obligations under the agreement with the former fitness customer as December 31, 2021. The notification informed the Company that it did not forecast any demand for any products or parts that were the subject of the agreement between the Company and the customer for the remainder of the agreement’s term, which ends in March 2026. Given the circumstances, GAAP required the Company to assess whether the assets were impaired. As a result of this assessment, the Company recorded an impairment on the assets specifically purchased to meet obligations under the agreement with the former fitness customer. As a result, the Company recorded an impairment of long-lived assets and loss on contracts of $16,151 in the fourth quarter of 2021.

During the three months ended March 31, 2022, the Company was able to cancel $1,183 of purchase commitments for property, plant and equipment relating to the former fitness customer that had previously been recorded as an impairment of long-lived assets and loss on contracts at December 31, 2021. The cancellation of purchase commitments resulted in the reversal of this amount.

***Interest Expense.*** Interest expense was $1,658 for the three months ended March 31, 2023 as compared to $567 for the three months ended March 31, 2022, an increase of $1,091, or 192.4%. The change is primarily due to higher interest rates.

***Provision for Income Taxes.*** Income tax expense was $441 for the three months ended March 31, 2023 as compared to $1,175 for the three months ended March 31, 2022. As of March 31, 2023, our federal net operating loss (NOL) carryforward was $21,210 driven by the pretax losses incurred in prior years. The NOL does not expire and will be used to offset future pretax income. We estimate our long-term effective tax rate to be approximately 27%, based on current tax regulations. Please reference Note 7 – Income Taxes of the Condensed Consolidated Financial Statements for further details.

Due to the factors described in the preceding paragraphs, net income, comprehensive income, EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin decreased during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

### Liquidity and Capital Resources

### Cash Flows Analysis

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended March 31, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ Increase (Decrease) $ Change | ​ | ​ ​ ​ ​ % Change ​ | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | --- | ---: | --- |
| Net cash used in operating activities | ​ | $(6,043) | ​ | $(425) | ​ | ​ (5,618) | ​ | 1,322% | ​ |
| Net cash used in investing activities |  | ​ (2,255) |  | ​ (12,620) |  | ​ 10,365 | ​ | 82% |  |
| Net cash provided by financing activities |  | ​ 8,297 |  | ​ 13,047 |  | ​ (4,750) | ​ | 36% |  |
| Net change in cash | ​ | $(1) | ​ | $2 | ​ | $(3) | ​ | 150% | ​ |

***Operating Activities.*** Cash used by operating activities was $6,043 for the three months ended March 31, 2023, as compared to $425 for the three months ended March 31, 2022. The $5,618 increase in operating cash flows used was primarily due to a decrease in accounts payable during the current period resulting from reduced capital expenditures in accounts payable and lower raw material prices, partially offset by a decrease in inventory due to the sell through of deferred customer orders.

***Investing Activities.*** Cash used in investing activities was $2,255 for the three months ended March 31, 2023, as compared to $12,620 for the three months ended March 31, 2022. The $10,365 decrease in cash used in investing activities was driven by the completion of the capital investment in the Company’s Hazel Park, MI facility, which was completed at the end of 2022.

***Financing Activities.*** Cash provided by financing activities was $8,297 for the three months ended March 31, 2023, as compared to $13,047 for the three months ended March 31, 2022. The $4,750 decrease was primarily driven by higher debt repayments in excess of borrowings in relation to the Company’s revolving credit facility during the current year period. Additionally, the Company did not purchase any of its common stock in the first quarter of 2023 under our share repurchase program, however, the Company did effectively repurchase $661 of common stock from employees related to the employees’ tax withholding requirements for vested and issued restricted stock units. During the prior year period, the Company repurchased 200,000 shares of its common stock at a total cost of $2,323. The Company’s decision to repurchase additional shares in 2023 will depend on business conditions, free cash flow generation, other cash requirements and stock price. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional information regarding share repurchases.

### Amended and Restated Credit Agreement

On September 26, 2019, and as last amended as of March 31, 2022, we entered into the Credit Agreement with certain lenders and Wells Fargo Bank, National Association, the Agent. The Credit Agreement provides for a $200,000 Revolving Loan, with a letter of credit sub-facility in an aggregate amount not to exceed $5,000, and a swingline facility in an aggregate amount of $20,000. The Credit Agreement also provides for an additional $100,000 of capacity through an accordion feature. All amounts borrowed under the Credit Agreement mature on September 26, 2024.

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

Borrowings under the Credit Agreement bear interest at a fluctuating LIBOR (which may be adjusted for certain reserve requirements), plus 1.00% to 2.00% 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 LIBOR. If that happens, we will be required to pay interest at the Base Rate, which is the sum of (a) the higher of (i) the Prime Rate (as publicly announced by the Agent from time to time) and (ii) the Federal Funds Rate plus 0.50%, plus (b) 0.00% to 1.00%, depending on the current Total Consolidated Leverage Ratio. The Credit Agreement also includes provisions for determining a replacement rate when LIBOR is no longer available.

At March 31, 2023, the interest rate on outstanding borrowings under the Revolving Loan was 6.19%. We had availability of $118,424 under the Revolving Loan at March 31, 2023.

We must pay a commitment fee rate ranging from 0.20% to 0.50% 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 or incur liens, make certain investments, merge or consolidate with another entity, make certain asset dispositions, pay dividends or other distributions to shareholders, enter into transactions with affiliates, enter into sale leaseback transactions or make capital expenditures. The Credit Agreement also requires us to satisfy certain financial covenants, including a minimum interest coverage ratio of 3.00 to 1.00. At March 31, 2023, our interest coverage ratio was 9.82 to 1.00. The Credit Agreement also requires us to maintain a consolidated total leverage ratio not to exceed 3.25 to 1.00, although such leverage ratio can be increased in connection with certain acquisitions. As of March 31, 2023, our consolidated total leverage ratio was 1.44 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.

On June 30, 2020, March 31, 2021 and March 31, 2022, the Company entered into amendments to the Credit Agreement. Please refer to Note 3 – Bank Revolving Credit Notes in the Notes to the Consolidated Financial Statements for a more detailed discussion.

### Capital Requirements and Sources of Liquidity

During the three months ended March 31, 2023 and 2022, our capital expenditures were $2,408 and $12,979, respectively. The decrease of $10,571 was driven by the completion of the capital investment in the Company’s Hazel Park, MI facility, which was completed at the end of 2022. Capital expenditures for the full year 2023 are expected to be between $20,000 and $25,000.

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 March 31, 2023, we had immediate availability of $118,424 through our Revolving Loan and another $100,000 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 2023 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 2023 and beyond when taking into consideration the estimated impacts of the current macroeconomic conditions based on the information we have available at this time. However, future cash flows are subject to a number of variables, and additional capital expenditures will be required to conduct our operations. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through borrowings under the 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 March 31, 2023:

| ​ ​ ​ | ​ ​ | ​ ​ ​ ​ Total | ​ ​ | ​ ​ Payments Due by Period 2023 (Remainder) | ​ | ​ ​ 2024 – 2025 | ​ | ​ ​ 2026 – 2027 | ​ | ​ ​ Thereafter | ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Long-term debt principal payment obligations (1) | ​ | $81,576 | ​ | $— | ​ | $81,576 | ​ | $— | ​ | $— | ​ |
| Equipment financing agreements (2) | ​ | ​ 1,184 | ​ | ​ 1,074 | ​ | ​ 110 | ​ | ​ — | ​ | ​ — | ​ |
| Forecasted interest on debt payment obligations (3) | ​ | ​ 8,048 | ​ | ​ 4,037 | ​ | ​ 4,011 | ​ | ​ — | ​ | ​ — | ​ |
| Finance lease obligations (4) |  | ​ 1,135 |  | ​ 320 |  | ​ 717 |  | ​ 98 |  | ​ — |  |
| Operating lease obligations (4) |  | ​ 39,242 |  | ​ 4,283 |  | ​ 10,490 |  | ​ 9,329 |  | ​ 15,140 |  |
| Total | ​ | $131,185 | ​ | $9,714 | ​ | $96,904 | ​ | $9,427 | ​ | $15,140 | ​ |

(1) Principal payments under the Company’s Credit Agreement, which expires in 2024.

(2) Financing agreements entered into to purchase manufacturing equipment. Current and long-term portions are classified in other current liabilities and other long-term liabilities, respectively, on the Condensed Consolidated Balance Sheets.

(3) Forecasted interest on debt obligations are based on the debt balance, interest rate, and unused fee of the Company’s revolver credit facility, and the debt balances and interest rates of the Company’s equipment finance agreements as of March 31, 2023.

(4) See Note 4 – Leases in the Notes to Condensed Consolidated Financial Statements for additional information.

## Market risk

As filed, 2,257 characters.

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

The amount borrowed under the Revolving Loan under the Credit Agreement was $81.6 million as of March 31, 2023. The interest rate was 6.19% as of March 31, 2023. Please see “Liquidity and Capital Resources – Amended and Restated Credit Agreement” in Part I, Item 2 and Note 3 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 $0.2 million of interest expense based on our variable rate debt at March 31, 2023. 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 March 31, 2023, we did not have any commodity hedging instruments in place.

## Controls and procedures

As filed, 2,084 characters.

#### 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 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 fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 231 characters.

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, 2022, which was filed with the SEC on March 1, 2023.

Filed May 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-007805. Last ingested by Listed: Nov 5, 2026, 13:59 ET. No prices; not investment advice.