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Section 1: 8-K (8-K)

8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 6, 2019

 

 

Mayville Engineering Company, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Wisconsin   001-38894   39-0944729

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

715 South Street, Mayville, Wisconsin 53050

(Address of principal executive offices, including zip code)

(920) 387-4500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On August 6, 2019, Mayville Engineering Company, Inc. issued a press release announcing its earnings for its second quarter ended June 30, 2019. A copy of such press release is furnished as Exhibit 99 to this Current Report on Form 8-K and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

 

  (a)

Not applicable.

 

  (b)

Not applicable.

 

  (c)

Not applicable.

 

  (d)

Exhibits. The exhibit listed in the exhibit index below is being furnished herewith.

EXHIBIT INDEX

 

Exhibit
Number
    
99    Press Release of Mayville Engineering Company, Inc., dated August 6, 2019 regarding financial results for its second quarter ended June 30, 2019.

 

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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 hereunto duly authorized.

 

    MAYVILLE ENGINEERING COMPANY, INC.
Date: August 6, 2019     By:  

/s/ Todd M. Butz

      Todd M. Butz
      Chief Financial Officer
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Section 2: EX-99 (EX-99)

EX-99

Exhibit 99

MAYVILLE ENGINEERING COMPANY, INC. ANNOUNCES

SECOND QUARTER 2019 RESULTS

Robust Operating Results in Line with Internal Expectations; Reaffirming 2019 Outlook

Mayville, WI/August 6, 2019/Mayville Engineering Company (NYSE: MEC) (the “Company” or “MEC”), a leading U.S.-based value-added manufacturing partner that provides a broad range of prototyping and tooling, production fabrication, coating, assembly and aftermarket services, today announced results for the second quarter ended June 30, 2019.

Highlights:

 

   

Completed IPO in May generating total net proceeds of $101.8 million

 

   

Produced net sales of $145.1 million

 

   

Net loss of $15.3 million includes $23.2 million of one-time IPO related charges

 

   

Recorded Adjusted EBITDA of $17.8 million

 

   

Lowered the Company’s total outstanding debt balance by $90.9 million

 

   

Defiance Metal Products (“DMP”) performance and integration remain on track

 

   

Company reaffirms 2019 full-year outlook

“Our leading market position and reputation within the industry, coupled with our operational effectiveness and agility were key factors in our strong performance this quarter,” noted Robert D. Kamphuis, Chairman, President and CEO. “With the elimination of our retiree and diversification repurchase obligations and debt reduction from the IPO, we have increased financial flexibility and are well positioned to execute our growth strategy going forward.”

Second Quarter 2019 Results

Net sales were $145.1 million for the second quarter of 2019 as compared to $91.5 million for the same prior year period, an increase of $53.6 million, primarily driven by DMP. Net sales for the legacy business were comparable to the same quarter last year, noting that the 2018 quarter was a then record for the Company.

Manufacturing margins were $20.5 million for the second quarter of 2019 as compared to $15.6 million for the same prior year period, an increase of $4.9 million, primarily driven by DMP.

Amortization expenses were $2.7 million for the second quarter of 2019 as compared to $0.9 million for the same prior year period. The increase was solely driven by the amortization of identifiable intangible assets related to the DMP acquisition.

Depreciation expenses were $6.0 million for the second quarter of 2019 as compared to $4.0 million for the same prior year period. The increase relates to the addition of DMP and continued investments in new technology and automation.

Profit sharing, bonuses, and deferred compensation expenses were $22.8 million for the second quarter of 2019 as compared to $1.4 million for the same prior year period. The increase of $21.4 million was primarily driven by a one-time $10.2 million increase in deferred compensation plan expense and a one-time $9.9 million increase in long term incentive plan (“LTIP”) expense, both increases related to the initial public offering (“IPO”).

 

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Other selling, general and administrative expenses were $10.2 million for the second quarter of 2019 as compared to $2.7 million for the same prior year period. The increase was primarily driven by $3.0 million of one-time IPO expenses, $2.7 million for the DMP contingent consideration fair value adjustment, and the remainder mostly attributable to the DMP acquired entities plus additional costs associated with being a public company.

Interest expense was $2.0 million for the second quarter of 2019 as compared to $0.9 million for the same prior year period. The increase is due to additional debt related to the DMP acquisition, slightly offset by the partial paydown with use of the IPO proceeds.

Income tax benefits were $3.5 million for the second quarter of 2019. The benefit is the result of the Company’s legacy business converting to a C corporation on May 12, 2019, in conjunction with the one-time IPO expenses incurred during the quarter. Prior to the Company’s IPO, the Company’s legacy business was an S Corporation.

EBITDA and EBITDA Margin percent were ($8.1) million and -5.6%, respectively, for the second quarter of 2019 as compared to $13.9 million and 15.1%, respectively, for the second quarter of 2018. The $22.0 million decline in EBITDA is due to the previously mentioned one-time increases in LTIP and deferred compensation expenses, one-time IPO expenses, and the DMP contingent consideration fair value adjustment. These one-time expenses and charges were slightly offset by the addition of DMP.

Adjusted EBITDA and Adjusted EBITDA Margin percent were $17.8 million and 12.3%, respectively, for the second quarter of 2019 as compared to $14.4 million and 15.8%, respectively, for the second quarter of 2018. The increase in Adjusted EBITDA of $3.4 million was due to the acquisition of DMP.

Year-to-Date 2019 Results

Net sales were $288.9 million for the first half of 2019 as compared to $178.8 million for the same prior year period, an increase of $110.1 million. DMP contributed $103.7 million of the increase with the legacy business contributing the remainder.

Manufacturing margins were $40.1 million for the first half of 2019 as compared to $27.4 million for the same prior year period, an increase of $12.7 million, primarily driven by DMP.

EBITDA and EBITDA Margin percent were $5.6 million and 1.9%, respectively, for the first half of 2019 as compared to $24.2 million and 13.5%, respectively, for the same prior year period. The $18.6 million decline in EBITDA is due to the previously mentioned one-time IPO related expenses and the DMP contingent consideration fair value adjustment, slightly offset by the addition of DMP.

Adjusted EBITDA and Adjusted EBITDA Margin percent were $34.6 million and 12.0%, respectively, for the first half of 2019 as compared to $24.8 million and 13.9%, respectively, for the first half of 2018. The increase in Adjusted EBITDA of $9.8 million was primarily due to the recent acquisition of DMP.

 

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Balance Sheet and Liquidity

Total outstanding debt balance, which includes long-term debt and bank revolving credit notes, was $89.0 million as of June 30, 2019, compared to $179.9 million as of December 31, 2018. The $90.9 million decline is attributable to the repayment of debt from the $101.8 million of IPO proceeds, offset by one-time IPO related expenses and share repurchases in the second quarter of 2019.

Capital expenditures were $16.6 million for the first half of 2019. Budgeted capital expenditures for the full year 2019 remain consistent at approximately $20 million.

Outlook

Based on the Company’s recent performance, the overall economic climate, and industry trends, the Company is confirming the 2019 financial outlook previously issued in May 2019:

 

   

Net sales are expected to be between $558 million to $570 million

 

   

Adjusted EBITDA is expected to be between $66 million and $72 million

Kamphuis explained, “We are comfortable confirming our outlook for the year based on our current visibility, internal plans and order book. Of course, we remain focused on macroeconomic and industry trends and will use our market and operating agility to adjust our focus as needed in the coming quarters. We continue to execute our strategy effectively and want to express our appreciation for the dedication and hard work of our more than 3,000 employee owners who are striving every day to deliver for our customers.”

Conference Call

The Company will host a conference call on Wednesday, August 7th, 2019 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time).

For a live Internet webcast of the conference call, visit www.mecinc.com and click on the link to the live webcast on the Investors page.

For telephone access to the conference, call (866) 652-5200 within the United States, call (855)-669-9657 within Canada, or +1 (412) 317-6060 from outside the United States and Canada.

Forward Looking Statements

This press-release includes forward-looking statements that reflect plans, estimates and beliefs. Such statements involve risks and uncertainties. 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” and “Cautionary Statement Regarding Forward-Looking Statements” in the Company’s previously filed registration statement on Form S-1. 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: failure to compete successfully in our markets; risks relating to developments in the industries in which our customers operate; our ability to maintain our manufacturing, engineering and technological expertise; the loss of any of our large customers or the loss of their respective market shares; risks related to scheduling production accurately and maximizing efficiency; our ability to realize net sales represented by our awarded business; our ability to successfully identify or integrate acquisitions; risks related to entering new markets; our ability to develop new and innovative processes and gain customer acceptance of such processes; our ability to recruit and retain our key executive officers, managers and trade-skilled personnel; risks related to our information technology systems and infrastructure;

 

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manufacturing risks, including delays and technical problems, issues with third-party suppliers, environmental risks and applicable statutory and regulatory requirements; political and economic developments, including foreign trade relations and associated tariffs; volatility in the prices or availability of raw materials critical to our business; results of legal disputes, including product liability, intellectual property infringement and other claims; risks associated with our capital-intensive industry; risks related to our treatment as an S Corporation prior to the consummation of the initial public offering; risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan; and our ability to remediate the material weaknesses in internal control over financial reporting identified in preparing our audited consolidated financial statements and to subsequently maintain effective internal control over financial reporting. This discussion should be read in conjunction with our audited consolidated financial statements included in the Company’s previously filed registration statement on Form S-1. 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.

About Mayville Engineering Company

MEC is a leading U.S.-based value-added manufacturing partner that provides a broad range of prototyping and tooling, production fabrication, coating, assembly and aftermarket components. Our customers operate in diverse end markets, including heavy- and medium-duty commercial vehicles, construction, 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, powersports, agricultural, military and other products.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated in a manner other than in accordance with U.S. generally accepted accounting principles (“GAAP”).

The non-GAAP measures used in this press release are EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin.

EBITDA represents net income before interest expense, provision (benefit) for income taxes, depreciation, and amortization. EBITDA Margin represents EBITDA as a percentage of net sales for each period. Adjusted EBITDA represents EBITDA before transaction fees incurred in connection with the DMP acquisition and our initial public offering, the loss on debt extinguishment relating to our December 2018 credit agreement, non-cash purchase accounting charges including costs recognized on the step-up of acquired inventory and contingent consideration fair value adjustments, and one-time increases in deferred compensation and long term incentive plan expenses related to the initial public offering. 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 Adjusted EBITDA and Adjusted EBITDA Margin as

 

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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.

Please reference our reconciliation of net 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 included in this press release.

 

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Mayville Engineering Company, Inc.

Consolidated Balance Sheet

(in thousands except share data)

 

     (Unaudited)
June 30,
2019
     December 31,
2018
 

ASSETS

     

Cash and cash equivalents

   $ 1      $ 3,089  

Receivables, net of allowances for doubtful accounts of $778 as of June 30, 2019 and $801 as of December 31, 2018

     65,220        52,298  

Inventories, net

     50,582        53,405  

Tooling in progress

     2,539        2,318  

Prepaid expenses and other current assets

     3,394        1,649  
  

 

 

    

 

 

 

Total current assets

     121,736        112,759  
  

 

 

    

 

 

 

Property, plant and equipment, net

     127,721        123,883  

Goodwill

     72,430        69,437  

Intangible assets-net

     77,526        82,879  

Capital lease, net

     1,807        1,953  

Other long-term assets

     5,441        814  
  

 

 

    

 

 

 

Total

   $ 406,661      $ 391,725  
  

 

 

    

 

 

 

 

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Mayville Engineering Company, Inc.

Consolidated Balance Sheet (continued)

(in thousands except share data)

 

     (Unaudited)
June 30,
2019
    December 31,
2018
 

LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ EQUITY

    

Accounts payable

   $ 48,411     $ 45,992  

Current portion of capital lease obligation

     269       281  

Current portion of long-term debt

     8,392       8,606  

Accrued liabilities:

    

Salaries, wages, and payroll taxes

     7,897       7,548  

Profit sharing and bonus

     6,528       6,124  

Other current liabilities

     17,291       14,610  
  

 

 

   

 

 

 

Total current liabilities

     88,788       83,161  
  

 

 

   

 

 

 

Bank revolving credit notes

     41,485       59,629  

Capital lease obligation, less current maturities

     1,562       1,697  

Other long-term debt, less current maturities

     39,168       111,675  

Deferred compensation and long-term incentive, less current portion

     24,602       13,351  

Deferred income taxes

     19,824       19,123  

Other long-term liabilities

     100       100  
  

 

 

   

 

 

 

Total liabilities

     215,529       288,736  
  

 

 

   

 

 

 

Redeemable common shares, no par value, stated at redemption value of outstanding shares, 60,045,300 authorized, 38,623,806 shares issued at December 31, 2018

     —         133,806  

Retained earnings

     —         26,842  

Treasury stock at cost, 25,180,330 shares at December 31, 2018

     —         (57,659
  

 

 

   

 

 

 

Total temporary equity

     —         102,989  
  

 

 

   

 

 

 

Common shares, no par value, 75,000,000 authorized, 20,845,693 shares issued at June 30, 2019

     —         —    

Additional paid-in-capital

     180,997       —    

Retained earnings

     14,017       —    

Treasury stock at cost 1,105,397 shares at June 30, 2019

     (3,882     —    
  

 

 

   

 

 

 

Total shareholders’ equity

     191,132       102,989  
  

 

 

   

 

 

 

Total

   $ 406,661     $ 391,725  
  

 

 

   

 

 

 

Share counts give effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the Company’s May 2019 IPO. There were 45,000 shares authorized, 28,946 shares issued and 18,871 treasury shares at December 31, 2018.

 

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Mayville Engineering Company, Inc.

Consolidated Statement of Income (Loss)

(in thousands except share data)

 

     (Unaudited)     (Unaudited)  
     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2019     2018     2019     2018  

Net sales

   $ 145,130       91,535     $ 288,862       178,757  

Cost of sales

     124,595       75,986       248,748       151,396  

Amortization of intangibles

     2,677       939       5,353       1,878  

Profit sharing, bonuses, and deferred compensation

     22,830       1,365       24,580       3,005  

Employee Stock Ownership Plan expense

     1,500       1,000       3,000       2,000  

Other selling, general and administrative expenses

     10,180       2,713       17,772       5,581  

Income (loss) from operations

     (16,652     9,532       (10,591     14,897  

Interest expense

     (1,991     (853     (4,824     (1,760

Loss on debt extinguishment

     (154     (588     (154     (588

Income (loss) before taxes

     (18,797     8,091       (15,569     12,549  

Income tax expense (benefit)

     (3,513     —         (2,744     29  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) and comprehensive income

   $ (15,284   $ 8,091     $ (12,825   $ 12,520  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share – basic and diluted

        

Net income available to shareholders

   $ (15,284   $ 8,091     $ (12,825   $ 12,520  

Basic and diluted earnings (loss) per share

   $ (0.91   $ 0.56     $ (0.85   $ 0.87  

Basic and diluted weighted average shares outstanding

     16,799,915       14,341,538       15,131,012       14,341,538  

Tax and share adjusted pro forma information

        

Net income (loss) available to shareholders

   $ (15,284   $ 8,091     $ (12,825   $ 12,520  

Pro forma provision for income taxes

     103       2,104       173       3,226  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income (loss)

   $ (15,387     5,987     $ (12,998     9,294  

Pro forma basic and diluted earnings (loss) per share

   $ (0.92   $ 0.42     $ (0.86   $ 0.65  

Pro forma basic and diluted weighted average shares outstanding

     16,799,915       14,341,538       15,131,012       14,341,538  

Weighted average shares give effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the IPO.

Tax adjusted pro forma amounts reflect income tax adjustments as if the Company was a taxable entity as of the beginning of 2018 using a 26% effective tax rate.

 

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Mayville Engineering Company, Inc.

Consolidated Statement of Cash Flows

(in thousands)

 

     (Unaudited)
Six Months Ended
June 30,
 
     2019     2018  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income (loss)

   $ (12,825   $ 12,520  

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     16,355       9,902  

Stock-based compensation

     797       —    

Costs recognized on step-up of acquired inventory

     395       —    

Expense recognized on contingent consideration fair value adjustment

     3,544       —    

Gain on sale of property, plant and equipment

     (24     —    

Deferred compensation and long-term incentive

     11,251       173  

Loss (gain) on extinguishment or forgiveness of debt, net

     (367     558  

Non-cash adjustments

     290       103  

Changes in operating assets and liabilities - net of effects of acquisition:

    

Accounts receivable

     (12,417     (3,659

Inventories

     2,296       (2,928

Tooling in progress

     (221     214  

Prepaids and other current assets

     (1,744     (1,129

Accounts payable

     4,363       1,356  

Other long-term assets

     (4,730     —    

Accrued liabilities, excluding long-term incentive

     (504     (341
  

 

 

   

 

 

 

Net cash provided by operating activities

     6,459       16,769  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchase of property, plant and equipment

     (16,637     (5,990

Acquisitions, net of cash acquired

     (2,368     —    

Proceeds from sale of property, plant and equipment

     24       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (18,981     (5,990
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from bank revolving credit notes

     223,835       135,499  

Payments on bank revolving credit notes

     (241,979     (142,919

Repayments of other long-term debt

     (72,446     —    

Proceeds from issuance of other long-term debt

     —         42,053  

Proceeds from IPO, net

     101,763       (44,083

Purchase of treasury stock

     (1,592     (753

Deferred financing costs

     —         (569

Payments on capital leases

     (147     —    
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,434       (10,772
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (3,088     7  

Cash and cash equivalents at beginning of period

     3,089       76  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1     $ 83  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 4,524     $ 2,349  

 

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Mayville Engineering Company, Inc.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

(in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2019     2018     2019     2018  

Net income (loss)

     $ (15,284     $8,091       $ (12,825     $12,520  

Interest expense

     1,991       853       4,824       1,760  

Provision (benefit) for income taxes

     (3,513     —         (2,744     29  

Depreciation and amortization

     8,704       4,911       16,355       9,902  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (8,102     13,855       5,610       24,211  

Loss on debt extinguishment

     154       588       154       588  

Costs recognized on step-up of acquired inventory

     —         —         395       —    

Contingent consideration fair value adjustment

     2,674       —         3,544       —    

Deferred compensation expense specific to IPO

     10,159       —         10,159       —    

Long term incentive plan expense specific to IPO

     9,921       —         9,921       —    

Other IPO and DMP acquisition related expenses

     2,997       —         4,809       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 17,803     $ 14,443     $ 34,592     $ 24,799  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   $ 145,130     $ 91,535     $ 288,862     $ 178,757  

EBITDA Margin Percentage

     -5.6     15.1     1.9     13.5

Adjusted EBITDA Margin Percentage

     12.3     15.8     12.0     13.9

 

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