Mayville Engineering Company, Inc. Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $427.64m | Revenue (TTM) = $586.34m
Market Cap = $427.64m | Estimated Revenue = $642.45m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $552.53m | Revenue (TTM) = $586.34m
Enterprise Value = $552.53m | Forward Revenue = $642.45m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Mayville Engineering Company, Inc. Stock Analysis
Analyst Opinions
9 Analysts have issued a Mayville Engineering Company, Inc. forecast:
Analyst Opinions
9 Analysts have issued a Mayville Engineering Company, Inc. forecast:
Mayville Engineering Company, Inc. Events
Past Events
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AUG
5
Q2 2026 Earnings Call
about 2 months ago
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MAY
6
Q1 2026 Earnings Call
5 months ago
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MAR
4
Q4 2025 Earnings Call
7 months ago
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NOV
5
Q3 2025 Earnings Call
11 months ago
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StocksGuide Free
Mayville Engineering Company, Inc. — Q2 2026 Earnings Call
1. Management Discussion
Hello everyone, thank you for joining us and welcome to the 2026 second quarter Mayville Engineering Company earnings call. [Operator Instructions] I will now hand the conference over to Stefan Neely with Vallum Advisors. Please go ahead.
Thank you, operator. On behalf of our entire team, I'd like to welcome you to our second quarter 2026 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy; and Rachele Lehr, Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to our closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions.
With that, I would like to turn the call over to Jag.
Thank you, Stefan, and good morning, everyone. Our second quarter results reflect stronger-than-expected demand across several key end markets. This was highlighted by continued momentum in data center and critical power and the early recovery underway in our commercial vehicle market. As a result, top line performance exceeded our expectations and positions us well as we enter the second half of the year. Throughout the quarter, our execution remained strong as we ramped activity across numerous data center and critical power programs while continuing to invest in the people and equipment needed to support future demand. These investments are to expand the capacity required to support long-term profitable growth. As anticipated, higher volumes drove improved operating leverage sequentially during the quarter.
As we move quickly to capture a rapidly expanding data center and critical power opportunity pipeline, we are incurring incremental operating costs ahead of the associated revenue. This reflects two deliberate timing-related investments. First, the capacity and equipment we're putting in place to ensure effective program launches. Second, the incremental cost of outsourcing certain elements of the fabrication process to third parties, as equipment constraints in our existing facilities currently limit our ability to perform this work in-house. We have ordered the equipment needed to bring this work in-house, though it carries a 4- to 6-month lead time. We expect launch costs to continue through the second half of the year as we support customers' aggressive program timelines. These investments are front-loaded by design and reflect both the natural cost of scaling at pace and the opportunity for profitable growth that we see ahead.
Importantly, we continue to view these costs as temporary, and we expect them to subside as we bring our newly hired workforce up to full productivity and complete our targeted capacity investments. These programs are building toward a meaningful step-up in margins over time. As these investments come online, production volumes ramp and utilization improves, we expect strong incremental margins to materialize. Simply put, the programs we are launching today are accretive to the long-term margin profile of the business, and the investments we're making now unlock that expansion in the future. A significant milestone during the quarter was the successful completion of our common stock offering, which generated approximately $94 million in net proceeds. The offering advances our capital allocation priorities by strengthening the balance sheet and enhancing financial flexibility. We used the proceeds to reduce debt, exiting the quarter with more than $100 million of available liquidity.
With a stronger balance sheet and increased liquidity, we are well positioned to fund strategic growth initiatives and capitalize on the significant opportunities developing within the data center and critical power market. Equally important was the timing of the offering. With demand accelerating beyond what operating cash flow alone could prudently fund, securing capital now gives us the flexibility to invest ahead of demand rather than react to it. This provides us with the financial foundation to pursue profitable growth opportunities with confidence. As we deploy this capital, we will remain disciplined, prioritizing higher-value, higher-margin opportunities that we believe will generate the strongest returns and create lasting value for our shareholders.
Moving to some of our key end markets. Commercial Vehicle net sales increased approximately 3% year over year in the second quarter as North American Class 8 production began to recover. Customer build rates have continued to accelerate, and we expect this dynamic to continue into the second half of this year. In its most recent report, ACT's full-year 2026 outlook projects a 9.1% increase in Class 8 production, supported by a projected 45% increase in production throughout the remainder of the year. This outlook reflects a continued upcycle in order activity and leads to a projected 9.7% increase in 2027. Given that our demand activity typically precedes Class 8 production by approximately 6 weeks, we are encouraged by the activity levels we are seeing today. In Construction & Access, revenue increased approximately 15% year over year in the quarter as performance was supported by strength in non-residential activity. In Powersports, net sales decreased approximately 6% year over year, driven primarily by softness in legacy ATV, UTV, and motorcycle OEMs, resulting from ongoing offshoring initiatives.
Within Datacenter & Critical Power, we delivered organic growth of approximately 173% year-over-year, supported by growth from existing OEM customers and project launches tied to Accu-Fab-related cross-selling opportunities. Demand in this end market remains robust, with our qualified opportunity pipeline continuing to exceed $125 million. The value of projects scheduled to launch in 2026 is approximately $50 million to $60 million, including the growth from our existing OEM customers, Datacenter & Critical Power is expected to represent approximately 20% of total revenue in 2026.
As demand for these higher-value programs accelerates, we are making disciplined portfolio decisions across the business. This includes actively evaluating pricing and margin profiles across our portfolio on a case-by-case basis. This may result in changes to mix or capacity allocation over time. These dynamics are unfolding against a backdrop of limited manufacturing capacity across the U.S., increasing the value of reliable domestic supply. In response, we are evaluating opportunities for customers to reserve dedicated capacity with us. For customers, this provides greater certainty of supply. For MEC, it creates more predictable revenue and supports margin expansion by directing capacity toward our highest-value programs. We will continue to manage capacity and production priorities carefully to support sustainable, diversified, and profitable growth over the long term.
Before turning to capital allocation, I would like to highlight a few examples of the commercial momentum we are seeing across the business. During the second quarter, we secured approximately $40 million in new awards with data center and critical power customers. While these awards are not expected to contribute materially in the near term, they provide strong visibility into the future, with production launches and revenue generation anticipated to begin during 2027. Based on current visibility, we expect total 2026 bookings across all of our end markets to exceed $150 million, supported by sustained demand and an improving cyclical backdrop. Within our legacy end markets, we continue to expand our share with key commercial vehicle customers as they prepare for upcoming product launches tied to the 2027 EPA regulation changes. These programs are expected to begin entering production in late 2026. Beyond Commercial Vehicle, we secured business through new model introductions for an access customer, while also capturing additional service business supporting a military customer. In Datacenter & Critical Power, the approximately $40 million in awards secured during the quarter reflect both new business and continued expansion with major customers. These programs include power distribution units, switchgear, and static transfer switches.
Turning to capital allocation in more detail. With our balance sheet significantly strengthened, our focus is centered on three priorities: investing in organic growth, continuing to reduce leverage, and pursuing selective accretive acquisitions.
First, organic growth. Customer demand is increasingly outpacing our current available capacity, and our organic investments are aimed squarely at unlocking more of it. Over the next 2 years, we expect to invest an incremental $50 million to expand capacity and support the growing needs of our Datacenter & Critical Power customers. These investments include targeted upgrades across our existing manufacturing footprint, customer-supported program investments, and the development and equipping of a new production facility. Together, these initiatives are expected to increase our revenue capacity beyond the approximately $850 million we have discussed previously, with room to build from there over time. Rachele will discuss in greater detail later on the return criteria we apply to these capital investments.
Second, deleveraging. As production volumes increase and profitability improves, we expect earnings growth and cash generation to become increasingly important drivers of leverage reduction. Our long-term net leverage target remains 2.5x, and the actions we took this quarter represent a meaningful step toward achieving this objective. Third, accretive M&A. We will remain opportunistic, pursuing acquisitions that strengthen our competitive position, expand capacity, and support long-term value creation.
With conditions improving across our legacy end markets, accelerating momentum in Datacenter & Critical Power, and a significantly stronger balance sheet, we are well positioned to deliver profitable growth and create lasting shareholder value. We believe we are entering a transformative chapter defined by expanding capacity, accelerating growth, improving profitability, and rising returns on invested capital. The investments we are making today are building a stronger, more competitive company and positioning us for meaningful value creation in the years ahead.
With that, I would like to turn the call over to Rachele.
Thank you, Jag, and good morning, everyone. Total sales for the second quarter increased 23.2% on a year-over-year basis to $163 million. Excluding the impact of the Accu-Fab acquisition, organic net sales increased by 9.2% compared to the prior year period. Our manufacturing margin was 10.9% for the second quarter of 2026, compared to 10.3% for the prior year period. The increase in our manufacturing margin was due to higher-margin sales contribution from the Accu-Fab acquisition and improved capacity utilization as the Commercial Vehicle and Construction & Access end markets started to recover. This was partially offset by $2.1 million of Datacenter & Critical Power-related project launch costs. Other selling, general, and administrative expenses were $9.3 million, or 5.7% of net sales for the second quarter of 2026, as compared to $10.3 million, or 7.8% of net sales for the same prior year period.
The decrease in these expenses primarily relates to non-recurring executive transition expenses and Accu-Fab-related acquisition costs in the prior year period. This is partially offset by incremental SG&A expenses associated with the acquisition. Adjusted EBITDA margin was 8.1% for the quarter, compared to 10.3% in the prior-year period. The decrease reflects $2.1 million of project launch costs and higher gain-sharing accruals due to the current company performance and the expansion of our workforce, partially offset by the benefit of the Accu-Fab acquisition and higher legacy end-market volumes.
As Jag mentioned, our project launch costs in Datacenter & Critical Power came in slightly above our expectations to meet our customers' program timelines, while equipment constraints in our existing facilities limit our in-house capacity. We expect to recognize an additional $2 million to $3 million of outsourcing costs in the second half of the year. As activity accelerates, programs reach full production, and targeted capital investments are deployed, we expect these costs to normalize and to realize operating leverage across our footprint, positioning us to ramp new programs in the pipeline more efficiently and supporting the margin expansion we expect over time.
Interest expense was $3.5 million for the second quarter of 2026, as compared to $1.4 million in the prior year period. The increase was driven by increased average borrowings and interest rate under the company's revolving credit facility and the timing of debt repayment. As a reminder, the proceeds from our May equity offering were used to reduce debt during the quarter. However, under the terms of our credit agreement, the resulting step-down in our borrowing rate will not take effect until August.
Turning now to our cash flow and the balance sheet. Free cash flow during the second quarter of 2026 was a use of $6.6 million, as compared to $12.5 million provided in the prior year period. The year-over-year decrease was primarily driven by lower operating cash flow, reflecting reduced profitability, and working capital investments to support the launch of Datacenter & Critical Power programs. Capital expenditures also increased by $5.6 million, driven primarily by equipment investments supporting the launch of new programs. At the end of the second quarter, our net debt was $134.7 million, up from $71.8 million at the end of the second quarter of 2025. Our debt resulted in our bank covenant net leverage ratio of 2.9x as of June 30th.
Now, turning to a review of our outlook for the third quarter and the full year. For the third quarter of 2026, we currently expect net sales for the quarter of between $160 million and $170 million, and adjusted EBITDA of between $15.5 million to $18.5 million. Our third quarter outlook reflects continued recovery within our Commercial Vehicle and Construction & Access end markets, along with the ongoing ramp of the Datacenter & Critical Power programs. Our outlook also includes $1 million to $1.5 million in launch-related costs in addition to $1 million to $1.5 million in outsourcing costs.
For the full year, we increased our financial guidance for net sales and lowered our free cash flow guidance. We now expect net sales of between $620 million and $650 million. We still expect adjusted EBITDA of between $52 million and $60 million and free cash flow of between $7 million and $15 million. This outlook reflects a full year of Accu-Fab ownership, $50 million to $60 million of incremental cross-selling revenue, and continued improvement in legacy end-market demand as Commercial Vehicle recovers and Construction & Access continues to deliver steady performance. Additionally, our full-year outlook includes $5 million to $6 million in launch-related costs, and $2 million to $3 million in outsourcing costs.
I'd also like to provide some additional detail on our capital allocation plans. As Jag mentioned, we expect to invest approximately $40 million of incremental capital expenditures in the business over the next 2 years, along with an additional $10 million of leased equipment, which will be reflected in financing cash flow. Our updated full-year 2026 guidance includes approximately $25 million of this planned investment, with the balance occurring primarily in 2027, and to a lesser extent in 2028. Separately, these amounts do not include any investment in a new manufacturing facility. We are actively evaluating several potential sites in the southeastern United States and believe an investment of this type would likely fall in the $25 million to $30 million range and support approximately $50 million to $60 million of incremental revenue. We are generally targeting a decision in late 2026 and will provide updates as our plans take shape.
Underpinning these plans is a disciplined approach to capital deployment. We are carefully matching our organic growth investment to customer demand and hold new capital to clear return thresholds, targeting a payback period of 2 to 3 years and an internal rate of return of at least 15%. In summary, our second quarter results reflect strong top line performance that came in well above our expectations. While launch and outsourcing costs are impacting near-term profitability, these investments are supporting programs that will contribute sustainable future revenue and earnings growth.
As we move through the second half of the year, our focus remains on successfully scaling Datacenter & Critical Power programs, improving operational efficiency, and converting the commercial pipeline in front of us into profitable growth. With a stronger balance sheet, ample liquidity, and a disciplined investment framework, we believe we are well positioned to capitalize on the demand environment ahead and continue to create long-term value for shareholders.
With that, operator, we are ready to open the line for questions.
[Operator Instructions] Your first question is from the line of Mike Shlisky with D.A. Davidson.
2. Question Answer
I wanted to ask a question to follow up, Jag, on your comments about customers being able to potentially reserve some capacity in future periods. Just want to get a little bit more detail there. Was that a data center only comment or is that across most of your end markets? And does this mean that they have to give a deposit to reserve that space, or do you think there would be kind of like a reserve take-or-pay contract, or will it be just having space for a small fee and you can figure out the exact quantities and amounts later?
Mike, good question. We are exploring various options, particularly with data center customers, where there is an increasing need for capacity and there is a constraint in the U.S. manufacturing space to accommodate all the demand that we're seeing and they're seeing in the data center build out. And so we have had multiple conversations with many of our data center customers, and they were exploring different models. We put together an upfront fee structure, we have also discussed volume commitments and we continue to explore these options. Even though we have not signed any particular customer to a contract like that, but there is interest and we continue to explore those options with our data center customers.
Great. And then as a follow-up, I wanted to just ask for a little more detail on your truck-related as well. Does the relatively quick ramp-up in trucks, does that change any of your capacity plans for data centers or any of the other groups, or is that still going to run in its own area? I guess you can comment also on whether along the way as the truck market ramps up, if you had any interesting new business wins the last quarter or so.
Absolutely. We continue to see a significant ramp in Commercial Vehicle build-out rates. Our understanding currently is that most of the 2026 build slots have been filled and the customers are just beginning to open up their 2027 build slots. That is certainly a faster uptick than we have anticipated in Q1, and we continue to support our customers, all three major customers we currently work with, as they increase their build-outs and build rates.
At the same time, we continue to see good market share gains, particularly related to 2027 EPA emissions change. We talked about in our prepared remarks, a couple of wins in the Commercial Vehicle space, and we continue to see good activity with the OEMs that are introducing new models going into 2027. In the previous quarters, we talked about our significant wins for the 2027 model truck, particularly a couple of the customers. And those programs continue to be on track with revenue potentially showing up in late Q4. Certainly, the ramp for those vehicle programs will be in 2027.
Your next question is from the line of Vlad Bystricky with Citigroup.
I just wanted to ask you about, when I think about the revenues and adjusted EBITDA range for 3Q and the back half of this year, can you just talk about the puts and takes at the low end versus the high ends of the outlook and whether the ranges are more dependent on sort of customer timing or uncertainty, or more so around your ability to continue ramping on DCP volumes and deliveries?
Vlad, yes, I think as we talk about it, the primary variables as we look at the low end and the high end are truly the pace of the CV recovery. We are seeing, as Jag mentioned, a lot of increase there, but how fast does that happen? That's a piece that will impact whether we're at the low or the high. The timing and execution of DCP volume, so we're continuing to see the volume, but this market is continuing to evolve and change. And so sometimes customers are pushing things out, pulling things forward, so that could impact it.
And then how quickly can we get through these launch and outsourcing costs? The outsourcing costs are highly related to when we get our capital equipment purchases. And so the sooner those come in and the sooner we can get those up to speed, the sooner we'll be able to then reduce those costs. So those are kind of the three factors that put us on different ends of the range.
Got it. That's really helpful. Appreciate the color, Rachele. And then just as a follow-up, can you give us some color on the nature of the DCP program awards that you've been winning over the past year or so? Are these mainly additional programs for existing customers? Are you seeing new customer wins? And then just to follow up to that, can you, as you think about the incremental DCP cross-selling revenue on Slide 11, should we think about the level of certainty around those revenues or any risks around generating those sales in the time frames noted on the slide?
Yes, Vlad, the wins in the DCP end market are both existing customers increasing volumes of existing Accu-Fab programs. It's new programs from existing DCP customers and multiple new customers that we have been able to bring online since the transaction closed in July of last year. So we have added a significant number of new customer programs to the mix since the closing of Accu-Fab acquisition. We talked about as an example one particular customer that is new to MEC and Accu-Fab that have so far awarded a little over $55 million worth of programs just this year alone, and they continue to look at additional programs to award to MEC, right?
So that is, I would say, that probably out of the $90 million of bookings that we've had in the two quarters this year, easily that's -- $55 million of that is just from one brand new customer that came online after the acquisition closed. At the same time, the total $135 million of bookings we have had since the transaction closed are a mix of new programs from existing customers and new volume increases from existing programs that we picked up with the acquisition. And from a timing perspective we feel really good about the timing of these incremental cross-selling revenues that we have laid out on Slide 11, and we see a line of sight to certainly right in 2026 revenue, and then we also see good progress towards the '27 revenues.
Your next question is from the line of Greg Palm with Craig-Hallum.
I wanted to follow up on the capacity reservations that you talked about. In terms of like background, are these requests coming directly from customers and how did these conversations even start? And to be clear, are they solely with your existing customer base or are you having these conversations with companies that you aren't yet doing business with?
I would say most of these conversations are with both existing and new customers in the DCP market space, Greg. As I mentioned earlier, that is a new business model that we're exploring. And in our legacy end markets, whether it's construction, or CV, or Ag, that is not a framework that those customers are used to. And even though we have had preliminary conversations with legacy customers, but we're already on contract for those volumes, we already won those programs, and it's a little bit challenging to go back to those customers.
Certainly the new customers we're bringing on, those are the conversations we're having. And I'll also throw in the mix, as we are working on our Southeast facility identification, that's another opportunity for us to put in front of the DCP customers to say, look, at some point we will have a new facility in the Southeast and here's your opportunity to reserve some capacity, so I would say that's another interesting opening for us to pursue that framework.
And I guess given this dynamic, are you changing at all how you're looking at newer business opportunities in the pipeline? Are you becoming more selective to hold some of these potential spots for larger capacity reservations?
We are. I would say that as much as our sales team hates it, right? We have had to say no to some small programs. We have had to say no to some opportunities, because we are, right now, in the next 12 months as we project out our capacity utilization, as we project out where we will be by mid to late next year, we're already making some calls on which programs to walk away from, which programs we need to exit, right? So that's it. It's a lot of analysis and a lot of internal conversations that we're having. But yes, we're having to make some choices. And my expectation is that those choices will help us in the long run to improve our mix, improve our profitability, and continue to push up our expectations for our margin profile.
Your next question is from the line of Ross Sparenblek with William Blair.
Sticking to the new wins here, can you maybe just give us a sense of how the mix of revenue is expected to change over time as we think about maybe bespoke programs versus these higher quality longer-term programs that you're selectively bidding on?
Yes. We are certainly prioritizing volume increases from existing programs. What I mean by that is if a DCP customer currently has a program that we're building in one of our plants, and we have seen occasions where they would come in and then say, I want to double my volumes, I want to triple my volumes, I want to quadruple my volumes. Those programs obviously get a higher priority because it's the product line that we know well and processes have been set up and it's easier to scale those programs. We're prioritizing out those. At the same time, right, if we're adding equipment, CapEx, new incremental costs, we're going back to them to raise our prices even for those existing programs. That will push our mix and margin up for the future.
At the same time, we are looking at where can I exhaust my open capacity? So we're being very selective about converting our tube plants in Michigan, particularly one plant and potentially a second plant, to take on fabrication of DCP products. This is, I would say, a very challenging switch over, but the team has done a phenomenal job in converting one of our tube plants into a fab plant and that has opened up significant opportunities for us to take on DCP product lines. That would be our second opportunity.
Again, you know, we talked about Powersports customers offshoring many of our programs, even though that's a headwind in the short term, we're looking to take that capacity, convert that to DCP as well. So that's a second priority that we're driving. And then last but not least, scale. If we're going to take on a $10 million, $20 million program, we would prioritize that versus multiple $2 million to $3 million programs. So that's how we're trying to scale up and mix up for the future.
Yes, that's helpful. And that's kind of what I'm trying to assess here. There's inherent cyclicality in some of your end markets. You can't really fix that, but you're going back and you're repricing existing business because of the level of demand. So I was trying to -- how should we think about the contribution of kind of higher quality, longer term, like recurring revenue, just the stability of the portfolio outside of just, honestly, we're going to have more DCs, maybe some more defense, um, just generally speaking, like, is it kind of 30% heading to 20% that's like bespoke kind of a one-off, set or cyclical? And if it's not a good number, it's fine.
Yes, in the past, Ross, you know we talked about reducing our overall CV mix to just under 25%. I think we're making good progress, not by exiting CV programs, but by increasing our exposure to DCP programs, so that's number one. We see a line of sight to 20% revenue mix of DCP product lines by end of this year, even though we're not laying out any long-term targets for our DCP mix, I could see in the long run somewhere between 25% to 30% of total revenues, MEC revenues, exposed to DCP because we do think that it's a 3- to 5-year cycle, at least from what we can assess. So those are the two drivers that I would say that, you know, reduce a lower margin end market exposure and increase a higher margin from DCP exposure in the long run.
Okay, understood. And then maybe just one more really quick on that new facility coming online. Forgive me, but did you guys give a kind of a sense of the size there on square footage as we think about the revenue runway you gave us?
We have not. We continue to explore those options. We feel pretty good about being able to find and close on a plant sometime this year. And what we are targeting is a plant that has some existing infrastructure that could eventually generate between $50 million and $60 million of revenue once it's fully capitalized, i.e., put capital equipment and hire new people, train them, and scale that up.
[Operator Instructions] Your next question is from the line of Ted Jackson with Northland Securities.
My first question was actually just a clarification. You made a comment with regards to kind of what you thought this plant that you want to put in place in the Southwest might cost, and I missed the number. And so I just wanted to get that really quick.
Yes, we said that, that could cost us $25 million to $30 million range. That would be buying a facility that would be in the $10 million to $15 million and then putting another $10 million to $15 million in capital in that.
And then, so when we think about the $50 million of incremental CapEx that you want to put into play over the next, call it, 2 years. Half of that is from this both building and the equipment to make it a factory, and then the other half is expansion within your existing footprint in terms of capability, capacity, is that the way to read that?
Yes, that's correct. Yes, we were saying in our existing facilities, we're investing about $10 million to $15 million incremental, just kind of on the fringes for where we have existing. And then as we grow in the future, we've put that similar target out.
And then taking this a step farther on your view with regards to the revenue capability of your capacity, this would take that view north of $900 million, but your current view is $850 million, and you're going to add $50 million to $60 million plus more capability in your existing facility. We're talking about something between $900 million and $1 billion in terms of revenue support off this expansion.
Yes, we've publicly stated that in our existing facilities, we think we have $850 million in capacity. And so then adding that $50 million to $60 million would take you north of the $900 million.
I do want to add a caveat, Ted. That is the capacity number. At the same time, right, you know, some of our end markets could be highly cyclical, right? By the time we get to that extra capacity, we just need to be aware that some of our legacy end markets, you know, could go back into a downturn, so we just need to be a little cautious, not just stack a number on top of another number.
No, no, I'm just trying to understand the kind of the dynamics with regards to your investments and what it all means. And the long and short of it is, is it's not that -- I understand it's not a revenue number, but simply put, you know, sometime when we're either exiting '27 or in '28, the firm itself at a fundamental level should have the infrastructure to support that kind of revenue.
That's right. That's exactly right.
And then I wanted to touch base on two more things. One, I'm just kind of curious the functions that you have to outsource, what are they? And then the equipment that you need to put in place, you're saying it's 4- to 6-month lead times. Is that -- I assume you already put the orders in for that equipment, and so I guess where I'm going with that is that what is the function and at what point do we see that constraint being resolved? Is that something in early '27? Or will you have that before the end of the year?
Yes, the couple of main things we're outsourcing, one is laser capacity. That is strictly taking large sheets of metal and cutting into shapes. We have ordered a significant number of laser machines. Some of them are being installed. Some of them are on their way. Some of them will get delivered towards the end of this year. We're adding a lot of laser cutting machines across the enterprise, so we're outsourcing some of that work as we ramp new programs.
Secondly, we are also outsourcing some brake press capacity. That's primarily -- yes, we have some machines on order, but more importantly there is labor constraint in some of our key factories. We're in the Defiance, Ohio area, the unemployment rate is 2.3%. In Mayville, in the Wisconsin area, the unemployment rate is 2.9%, right? So we're working hard to fill some of those positions. While we fill those positions and train these new operators, we're outsourcing some of that work as well.
And then last but not least, paint capacity. At the industry, there is a dearth of paint capacity, paint and powder coat capacity in the country, so we're looking at bringing some of that work into our Wisconsin paint facilities. At the same time, sometimes it's more economical just to outsource some of the paint capacity to local paint vendors in some of these locations, so we're outsourcing that as well.
So those are, I would say, three of the activities we're currently outsourcing, and we expect to pull some, if not all of it, by early next year, at least for these programs back in-house and hence some increased transitionary costs in the second half of this year.
Okay, so it's a combination of equipment and labor. And then labor was actually the next question I wanted to ask is you put this expansion in place and you've commented in the past in terms of the amount of hiring you've done, the hiring needs that you have, and honestly, the challenge of retaining in what's really a seller's market in terms of labor these days for manufacturers.
What's the view with regards to the cost to put all this new capacity in place from a labor standpoint, both in terms of just kind of headcount and maybe dollar per headcount, and how does that layer in relative to the ramp in demand? And I guess where I'm getting in as we think about it, and I know you're not giving '27 guidance, but as we think about '27 and a lot of this capacity turns on, you're going to have -- I'd imagine you're going to have to have some investment in terms of some labor expenses, operating expenses, COGS that are going to go in front of that, and kind of how do we think about that as we get into '27 and you really start to see at least the top line, the benefits of your investments and kind of the investments that you're going to have to continue to do to kind of drive forward to what should be great margins as you get there. That's my last question. I hope it wasn't too long.
I'm going to let Rachele get into some of the details of our hiring and hiring plans and associated costs, but you know, in general, I would say that we're not the only ones that are seeing labor constraints, so we're doing a couple of things. Number one, as the labor costs increase, at least temporarily or in certain locations, we're pricing our programs accordingly to take into account increased costs. That's number one.
Number two, we're asking our customers if it's a transitionary cost to actually pay for that increase in overtime or outsourcing or things like that. So we're having those conversations with our customers. And then last but not least, we're also looking at locations where we have access to good labor pools, like the Detroit area. So our Hazel Park is obviously being scaled up. Similarly, we can hire people in Raleigh, North Carolina. We can hire people in the Chicago area, so we are prioritizing where to put some of these larger programs to make sure that we have good access to labor pools as well.
And I would add to that beyond really identifying strategically where we want to put programs, we're looking across all of our sites from a very holistic manner. It's about attraction, retention, the overall employee experience. And so from an attraction standpoint, yes, we need to ramp up our plants by several hundred people by the end of the year, so getting to your point, Ted, we're looking to be ramped with those employees before we hit '27 so we can hit the '27 production versus waiting till '27 to start hiring. That's all built into our plans right now.
We're actually leveraging some third-party resources to help us with that too. As Jag pointed out, in several markets where we have very low unemployment, our teams have already pulled out everything out of our tool chest, but now let's go and use others. We're not afraid to use the resources we need, but doing it prudently. Everything comes through me with the business case, so we get to make sure that we're making the right decision for our financials and it's all built into our second half guidance right now.
Then also from a retention standpoint, with having some of those outside resources helping us on attraction, our teams in location are going to be able to focus more on what's happening in the facilities with the employees, with the management to make sure we're focused, of course with the standard retention programs and things like that, that you put in place to keep our employees. So we're taking a holistic look at this to make sure that we aren't just bringing people in and continuing to cycle them out. We're bringing them in so they stick and can help us contribute to future years' revenue and growth.
Congrats on the quarter.
Your next question is from the line of Greg Palm with Craig-Hallum.
I guess from our seat on the outside, it's hard to understand the full impact of some of these temporary cost pressures, so I'm trying to figure out your visibility here as we get into 2027, because I'm assuming you'll continue to win more business and there's going to be new programs that launch. There's always going to be like this ongoing impact, but is it just a matter of increasing your revenue to some point that you're better able to absorb them? And then just to be clear, it sounds like some of the outsourcing stuff is really just a byproduct of once the equipment's there and you have it, you take it in-house and those go away entirely, so I just wanted to confirm that.
Yes, I think starting with the outsourcing, you're absolutely right. Once the capital equipment's in, we won't need to use the outsourcing, at least for the existing programs. As you point out on winning new business, yes, there might be some, but the margins will be higher. It will be built in. We'll understand that. But really right now the $1 million to $1.5 million that we've been looking at each quarter is as we look to bring additional facilities up to speed. So Jag mentioned now we're looking at another two facilities, so those are the things that we're incurring right now.
But yes, as we potentially open the Southeast facility, we know we'll need ramp costs there. So it's really facility-based where we're seeing a lot of this. We will continue to have that, that way, and then we'll also have the increased margin for absorption, as you pointed out as well.
Just to add to that, Greg, at some point, right, we're going to run out of footprint, we're going to run out of capacity even with all of these additions, right? So what is the timing? We're obviously not providing any guidance at this point. Is it '28? Is it late 2027? So I think those are some of the calculations that are going into our planning for next year. At the appropriate time towards the end of this year, beginning of next year, I think, you know, we'll have more clarity internally, but also we'll be able to share, you know, more of those details with our shareholders and our stakeholders.
Okay, and then I guess just one more follow up on the capacity reservation point. And this kind of relates to potentially the new facility that you talked about. Like are you -- would you be expecting to dedicate that to like a single customer? And what are the chances that some of that CapEx requirement could actually get funded by an actual customer? And same thing with the capacity reservation, dedication, is that -- are there certain like launch or ramp-up costs that could actually be incurred by the customer in that situation versus yourself?
It is possible. Those are all the options our commercial team is exploring with our customers.
This concludes our Q&A. I will now turn the call back to Jag Reddy for closing remarks.
Before we conclude, I want to thank our employees for their continued strong focus and execution and our shareholders for their ongoing support. We remain confident in the progress we're making to position MEC for durable high growth, higher margin in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today.
This concludes today's call. Thank you for attending. You may now disconnect.
Mayville Engineering Company, Inc. — Q2 2026 Earnings Call
Mayville Engineering Company, Inc. — Q1 2026 Earnings Call
1. Management Discussion
Hello, everyone. Thank you for joining us, and welcome to the Mayville Engineering Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Stefan Neely with Vallum Advisors. Please go ahead.
Thank you, operator. On behalf of our entire team, I'd like to welcome you to our first quarter 2026 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy; and Rachele Lehr, Chief Financial Officer.
Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements.
Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions.
With that, I would like to turn the call over to Jag.
Thank you, Stefan, and good morning, everyone. Our first quarter results exceeded our expectations, driven by strong top line momentum in our Datacenter and Critical Power end market. At the same time, the first quarter reflected an ongoing transition across the business. Our teams remained focused on positioning resources, completing tooling requirements and preparing for the launch of numerous Datacenter and Critical Power programs throughout 2026. During this transition, we continue to incur and retain variable costs as we position the business for successful program execution. As a result, our margins remained pressured during the first quarter. That said, performance improved late in the quarter as several Datacenter and Critical Power programs transitioned from the launch phase into full production. We expect that momentum to continue building through the second quarter, which reinforces our confidence in the sequential improvement reflected in our financial guidance.
While many of our Datacenter and Critical Power programs have yet to launch or are still in the early stages of ramp, execution to date has been strong. This reflects the upfront time, planning and resources we have invested to ensure a smooth and repeatable onboarding process across our legacy manufacturing footprint. As additional programs enter production, we are seeing consistent improvement in operating leverage and fixed cost absorption, driven by better asset utilization across our manufacturing network. Importantly, the strength we are seeing in Datacenter and Critical Power continues to contrast with mixed conditions across our legacy end markets. While each market has its own dynamics, we have not yet seen clear indications of a broad-based or material recovery in legacy customer demand.
Starting with commercial vehicles, demand continued to soften in the first quarter. Net sales declined approximately 24% year-over-year as North American Class 8 production reached a low point in the current cycle. In its most recent report, ACT again revised its full year 2026 outlook upward, now projecting a 9.2% increase in Class 8 production. This improved outlook reflects greater clarity around the 2027 EPA emission standards, anticipated prebuy activity and strong Class 8 orders earlier in the year. That said, current OEM production levels remained largely consistent over the past 6 months and do not yet indicate a meaningful cyclical recovery. Combined with elevated fuel costs and recent tariff policy changes, our near-term view of this market remains cautious, pending a material improvement in OEM activity.
In Construction and Access, revenue increased approximately 3% year-over-year in the quarter, which was ahead of our expectations. Performance was supported by continued strength in nonresidential activity, although demand remains more customer-specific than broad-based.
In Powersports, net sales increased approximately 5% year-over-year, driven primarily by incremental volumes from discrete short-cycle customer programs. This was partially offset by continued softness among legacy ATV, UTV and motorcycle OEMs as well as lower sales within the marine propulsion market.
Within Datacenter and Critical Power, we delivered organic growth of approximately 71% year-over-year, supported by growth from legacy OEM customers and early project launches tied to Accu-Fab related cross-selling opportunities. Overall, demand from OEM customers in the Datacenter and Critical Power market remains strong. Our qualified opportunity pipeline exceeds $125 million and the value of projects scheduled to launch in 2026 is approximately $50 million to $60 million. Combined with continued growth from our legacy OEM customers, we continue to expect Datacenter and Critical Power to represent more than 20% of our revenue in 2026. Customer demand in this end market remains robust, and we continue to evaluate the right approach to balancing the needs of our legacy customers while meeting accelerating demand in this rapidly evolving space.
As datacenter infrastructure advances, customers are increasingly seeking adaptable solutions that are addressing their evolving needs and enabling faster speed to market. These shifts are redefining how customers approach large-scale deployments and their selection of partners. As we move into the second half of the year and with the potential for recovery across certain legacy end markets, we are actively managing capacity and prioritization to support long-term diversified and profitable growth.
Before turning the call over to Rachele, I want to highlight several areas of commercial momentum that reinforce our confidence in the growth trajectory for 2026 and beyond. Across all of our end markets, customer engagement and bidding activity remains strong. During the first quarter, we secured approximately $50 million in new project awards with data center and critical power customers. This amount surpasses the total awards we secured in this end market during the second half of last year. For the full year 2026, we currently expect total bookings across all of our end markets to exceed $150 million, supporting profitable growth as our legacy markets move toward a cyclical recovery exiting 2026.
Within our legacy end markets, share gains continued with commercial vehicle customers as they launch new products ahead of the 2027 EPA regulation changes. These awards support future growth and are expected to enter production in late 2026 and 2027. In addition, new contract wins supporting legacy military vehicle platforms were secured during the quarter. This provides stability to our core base military revenues. Within the Datacenter and Critical Power market, the approximately $50 million of awards secured in the first quarter were primarily driven by demand from new customers in this end market. As these customers scale their programs, the intent is to serve as a long-term strategic metal fabrication partner. The awarded scopes of work span power distribution units, static transfer switches and switchgear.
Turning to capital allocation. Our priorities are disciplined and well balanced. In the near term, we are deploying capital in a targeted manner to support existing project commitments and the evolving needs of our Datacenter and Critical Power OEM customers, including investments in equipment and capacity. At the same time, we remain focused on prudent balance sheet management and reducing debt. Longer term, the focus remains on strengthening the balance sheet and maintaining sustainable financial flexibility. Our long-term net leverage target remains 2.5x, and we expect to make steady progress towards this objective through earnings growth, consistent cash generation and disciplined capital deployment.
Importantly, the demand environment in Datacenter and Critical Power is creating a meaningful opportunity to invest organically in the business and expand our capacity. In certain areas, customer demand is already exceeding our current available capacity, and we believe targeted investments in equipment, automation and operating capabilities can deliver attractive returns while enhancing our ability to serve this fast-growing end market. Although we're still assessing the full scope of this opportunity and the related capital requirements, we expect growth capital investment to increase above the $5 million to $10 million level we have historically averaged. In 2026, that investment will remain focused on supporting current program launches and selectively adding capacity where visibility, customer demand and return thresholds are strongest.
Over time, we believe this market may support a broader and highly attractive organic investment opportunity. As always, we will pursue that opportunity within a disciplined capital allocation framework, balancing growth investment with deleveraging, cash flow generation and balance sheet optionality. In closing, I am encouraged by the discipline and execution our team has demonstrated so far this year. As we navigate this next phase of growth, our focus is on prioritizing operational agility, efficient program execution and improved cash flow conversion as volumes ramp. We believe that consistent, disciplined execution over the coming quarters will position MEC to deliver stronger operating performance and create a solid foundation for sustainable growth.
With that, I would like to turn the call over to Rachele.
Thank you, Jag, and good morning, everyone. Total sales for the first quarter increased 6.8% on a year-over-year basis to $144.8 million. Excluding the impact of the Accu-Fab acquisition, organic net sales declined by 8.2% compared to the prior year period. Our manufacturing margin was 7.6% for the first quarter of 2026 compared to 11.3% for the prior year period. The decrease in our manufacturing margin was due to $1.2 million of Datacenter and Critical Power related project launch costs, nonrecurring restructuring costs and lower volumes in our legacy end markets. These factors were partially offset by the higher margin sales contribution from the Accu-Fab acquisition. Other selling, general and administrative expenses were $9.2 million or 6.3% of net sales for the first quarter of 2026 as compared to $8.7 million or 6.4% of net sales for the same prior year period. The increase in these expenses primarily reflects incremental SG&A expense associated with the Accu-Fab acquisition.
Interest expense was $3.7 million for the first quarter of 2026 as compared to $1.6 million in the prior year period. The increase was driven by higher borrowings resulting from the Accu-Fab acquisition, which was completed during the third quarter of last year. Adjusted EBITDA margin was 4.5% for the quarter compared to 9% in the prior year period. The decrease reflects lower legacy end market volumes and $1.2 million of project launch costs, partially offset by the benefit of the Accu-Fab acquisition. During the quarter, we also continued to execute our previously announced footprint optimization actions, including the consolidation of 4 warehouse locations and 1 manufacturing facility. We expect these actions to generate annualized savings of approximately $1 million to $2 million and are already contemplated within our full year outlook.
Turning now to our cash flow and the balance sheet. Free cash flow during the first quarter of 2026 was a use of $6.9 million as compared to $5.4 million provided in the prior year period. The year-over-year decrease was primarily driven by lower operating cash flow as a result of reduced profitability, together with a $1.2 million increase in capital expenditures. The increase in capital spending was primarily related to equipment investments supporting the launch of the new data center and critical power programs. At the end of the first quarter, our net debt was $219.2 million, up from $80.4 million at the end of the first quarter of 2025. Our increased debt resulted in our bank covenant net leverage ratio of 4.4x as of March 31.
Now turning to a review of our outlook for the second quarter and the full year. For the second quarter of 2026, we currently expect net sales for the quarter of between $145 million and $155 million and adjusted EBITDA of between $10 million to $13 million. Our second quarter outlook reflects continued launch-related costs and margin pressure early in the quarter with improvement expected as the quarter progresses and additional Datacenter and Critical Power programs move into full production.
For the full year, we refined our financial guidance by raising the low end of our previously announced guidance while maintaining the high end of the range. We now expect net sales of between $590 million and $620 million, adjusted EBITDA of between $52 million and $60 million and free cash flow of between $25 million and $35 million. This outlook reflects a full year of Accu-Fab ownership, $50 million to $60 million of incremental cross-selling revenue and a gradual improvement in legacy end market demand, primarily in the second half of the year.
In summary, our first quarter results were consistent with the operating conditions we outlined coming into the year. While profitability and cash flow were affected by launch-related costs and continued softness in legacy markets, those pressures are temporary and remain embedded within our outlook. As production levels increase and utilization improves, we expect better absorption, stronger margin conversion and improved cash generation over the remainder of the year. With continued working capital discipline and targeted capital spending, we believe we are positioned to support growth while also making measurable progress on deleveraging. With that, operator, we are ready to open the line for questions.
Your first question comes from the line of Mike Shlisky with D.A. Davidson.
2. Question Answer
I wanted to ask maybe a 2-part question about the non-data center end markets and legacy end markets here and your commentary in the slides. The Ag market, you were saying it was going to be down like mid-teens and now you're saying it's flat. And so my question -- and you didn't change the comments that most of your outlook feels like 2027 is the time when heavy Ag will come back, but there might be some lighter Ag doing better here in 2026. But I guess, is that -- was that change in outlook from down mid-teens to flat due to how you feel about the very end of the year and what OEMs are telling you about ramping up for 2027, asking suppliers like maybe to build stuff in late 2026. I guess that's the first part of the question.
And then the Construction and Access side, I've sensed so far this earnings season that most construction companies, including the largest ones, are taking their outlooks up, most of the construction equipment OEMs. You took your outlook here down from last quarter. So again, I'm curious whether there's some kind of year-end and estimate to slow down in advance of some challenges they might be seeing in 2027. Just maybe some more detail about both those end markets would be appreciated.
Yes. First of all, Mike, on the Ag market, we are seeing good strength in the Small Ag turf care segment. We're approximately 45%, 55% mix between Large Ag and Small Ag. So the Small Ag and the turf care segment strength obviously is offsetting the declines in the Large Ag segment, and that's the reason for our change in our outlook for the Ag segment. And then on to the Construction and Access. Again, as you recall, we're approximately 45%, 55% heavy construction versus access. Our heavy construction segment continues to show a good amount of strength driven by nonresidential ag demand, some of it driven by datacenter build-out as well. But then the Access segment, we anticipated coming out of last quarter earnings call, Access segment to accelerate this year. So far, we have not seen that. So hence, our change in our assumptions for the Construction and Access segment to be flat versus slightly up.
Okay. Okay. Turning to datacenter. I'd like to maybe get a feel for some more detail as to how you're looking to accommodate some of the demand that's been rolling in with some of the quoting that you've been doing. Because I think, first half, you mentioned you actually elsewhere in the business closed some footprint. So I want to make sure you've got a plan. Do you plan to open a brand-new footprint at this point given the demand? Or are you still looking to convert existing buildings to datacenter? Just some more detail as to how this will play out and the investments that you're making now, are those in people or in machines to accommodate some of that near-term demand?
Let me address that, Mike. We announced the closure of 4 locations. Those are mostly warehouses that we consolidated into our manufacturing sites. That was the restructuring we announced last year, the second half, and then we just wrapped those up. We -- we're not in process of closing any manufacturing footprint, number one. Number two, we have converted approximately 6 going potentially a seventh plant as well to datacenter manufacturing. So we're retooling between 6 and 7 plants as we speak here to produce datacenter products. We continue to add capital as needed in these 7 locations to offset existing manufacturing assets to continue to take on additional datacenter volumes.
We do see significant growth in the datacenter volumes. Every quarter, as you all have seen, we continue to step up our cross-selling synergies. Pre-acquisition closing, we were in the single digits. Now we're up to $50 million to $60 million of cross-selling synergies in 2026 alone. I continue to be very bullish on datacenter volumes. At the same time, we have not exited any of our legacy customer programs. We continue to be able to support at this point, our legacy customers with their volumes. As we talk about multiple end markets, we really haven't seen broad-based recovery in our legacy end markets. So certainly, right, at this stage, we're able to support our legacy customers as they continue to ramp and also take on incremental datacenter volumes in these 7 locations.
Great. Maybe one last one for me. A lot of headlines and stories about changes in the Section 232 tariffs and cost of steel and other metals. I was wondering if you can maybe outline how any of this might be impacting you directly and maybe just over the last few months. Are you guys a beneficiary since you're almost entirely U.S.-based? And are you seeing some customers old and new coming to you to say, how can you help us to best structure ourselves for these tariffs?
Yes. 100% of our steel is procured from domestic sources. That way, we have been reasonably insulated from supply challenges. We pass on any increases in steel prices to our customers. So I would say that it hasn't impacted us. At the same time, approximately 30% to 40% of our aluminum is imported from Canada. And then we're trying to mitigate that, but it is challenging. So rest of our aluminum is sourced domestically. So we're able to support many of our aluminum customers with their demand and needs. We are seeing some challenges where some of our customers are going on allocation with other suppliers on aluminum.
So fortunately, we're in a good position to continue to support our customers as their demand increases or they switch from another supplier that is unable to procure aluminum to MEC. So those have been positive. In general, on 232 impact, I would say that we have not been either positively or negatively impacted. You have seen some of our customers and their competitors publicly talk about 232 impacts. But so far, I would say that, that has not really impacted MEC.
Your next question comes from the line of Ross Sparenblek with William Blair.
Sounds like you guys have been busy with the problems you have here. Maybe just starting with the new customer wins, continued momentum in datacenters in the first quarter. Anything onetime in nature to call out? Or I mean, are you sensing that customer buying patterns have started to change here within the datacenters and power market?
Yes. In the datacenter -- yes, good question, Ross. In the datacenter market, some of the significant wins we had in Q1 actually came from 2 brand-new customers to MEC and Accu-Fab. We never did business pre-Accu-Fab days. So those 2 customers significantly contributed to the wins in Q1. We expect those 2 customers, in particular, to continue to grow with us as the year progresses and into the future. What we are seeing is a significant switch in our data center OEM customer behavior, purchasing behavior, where similar to our legacy end markets, many of these customers are looking to completely outsource fabrication, step up their manufacturing process to someone like MEC.
If you think about our legacy customers in ag or construction or CV over the decades, they exited fab operations to suppliers like MEC. We're seeing a similar process happening slowly, but steadily in the Datacenter and Critical Power customers. And we see that as a long-term secular tailwind for the fabrication industry. And being the largest fabricator in North America, we are able to offer significant capacity to these OEMs, and we're able to capture a significant portion of the outsourcing that is starting in this industry, right? So all of those are positive tailwinds for the industry and for MEC going into the future.
No, that's great to hear. And then just staying on that topic, when we think about all the larger potential OEM customers out there within data centers, can you just give us a sense of where your kind of penetration rate is as we think about the pipeline of opportunities and who you're speaking with?
I mean our penetration at this point, Ross, and take the top 10 potential customers or existing customers is low single digits or less, right? We're sub-5% penetration. And hence, my optimism for the industry and for our customers is that as we go into even rest of this year or second half, right, we continue to get significant inquiries. We continue to qualify these opportunities even after raising our cross-selling synergies for the year, right? Our qualified pipeline remains really, really strong and gives me a lot of comfort that this is a multiyear secular growth opportunity for MEC.
Yes. I mean just expanding on that, I mean, it sounds like the whole market is heading for a capacity squeeze. So I mean we just kind of take out the increased allocation for DC customers if the broader end markets start to recover here, I mean, how do you feel like you guys are positioned to handle legacy customers?
That's a great question. Our intent at this point is to continue to serve our long-standing legacy customers as they build out their volumes into the second half and into 2027. We're constantly evaluating plant by plant, manufacturing -- operation by manufacturing operation and continuing to see where we have to offset some capital to increase capacity. So some of my comments in our prepared remarks allude to the fact that we're looking at potentially in the long run, a significant organic investment opportunity as we think about expanding capacity for datacenter customers while continuing to serve our legacy customers.
Would that imply the optionality at Hazel Park? I believe you guys still have that additional square footage.
Absolutely. And I can tell you that, that's been a long time coming, the Hazel Park story. We just put approximately $55 million worth of datacenter products into Hazel Park in Q2 -- Q1, Q2. We're ramping approximately $55 million worth of datacenter products in Hazel Park. And we think we can fill up Hazel Park. And we always said that the current space we have, not the sublease space, the current space we have supports $100 million worth of capacity. We do need some capital assets to continue to go in because the mix of operations for datacenters is slightly different than our legacy customer products. So with all of that, we continue to be bullish on Hazel Park being filled up in the next year or so.
Your next question comes from the line of Greg Palm with Craig-Hallum.
Can you maybe talk about how some of these early launches in data center critical power are going just in light of the comments last quarter. It seems like everything is on track and you're starting to see the margin improvements. But just kind of curious what else is kind of top of mind as we obviously launch more of these projects this quarter and in the second half?
Yes. As we pointed out in the prepared remarks is we invested in these product launch costs. And we spent about $1.2 million in Q1, $1.2 million in Q4, and those are just to be ahead of these launches. We see that continuing into Q2. But then after that, as we're hitting full run rate production levels, we're seeing improvement. And in fact, in Q1, as we are exiting in the quarter, we saw that improvement happen as we had several programs hit that full production run rate. So very optimistic about the fact that we made those investments, did the right thing to make sure that we're creating an effective onboarding program so that as we do new programs, as we do new launches, we know what the upfront investment is. And then we hit that full run rate production levels, we're back to the margin levels of the overall end market.
Okay. Understood. And as we think about -- I appreciate the commentary on the new customer side in terms of what you're winning on data centers. But if we could go back to kind of the existing customers, I'm kind of curious what you're seeing in terms of like order progression from them in terms of how much bigger are the orders getting because they're outsourcing more business to you or they're winning a lot more business themselves?
Like it kind of feels like you're not only going to have this big ramp of orders from your existing customer base, but you're also going to be now layering on brand-new customers as well, which presumably would follow some similar path of accelerated activity as well. So maybe you can just kind of walk us through those dynamics.
Let me clarify, Greg, you were asking all of this in the context of datacenter customers, existing datacenter customers versus new?
Yes. Yes. Correct.
Yes, that's absolutely right. As we bring on -- as I mentioned, right, we brought on 2 brand-new customers to MEC since the acquisition closed. We expect a couple more brand-new customers that are in the works to become our customers later this year. Outside of those brand-new logos, as we internally call it, coming to MEC, Accu-Fab's legacy datacenter customers continue to ramp significantly. That's also been another tailwind for us. I shared some examples in the past about volumes doubling, tripling, quadrupling on products that Accu-Fab historically manufactured for some of these customers as they win significant new projects and significant volumes for their own product lines.
And hence, what the legacy Accu-Fab customers are doing is looking at their own footprint, their own resources and making choices around outsourcing additional work to suppliers like MEC, right? So there is new customer growth. There is existing customer volume growth. And then there is an existing customer market penetration or market share gains, right? So that's how I would position the growth we're seeing in this end market.
Okay. Makes sense. And I want to follow up on a comment you made in response to an earlier question, Jag. I think talking about Hazel Park, I think you said that you could actually generate $100 million out of that facility. I think you were specifically saying as it related to datacenter. Is that correct?
No, that's the total capacity historically -- Hazel Park being a $100 million plant. As I just said, we put $55 million worth of datacenter work into that plant. We still have another $15 million to $20 million of other legacy customer work in that plant today. And you can do the math and then say, can I put another $20 million to $25 million of datacenter work into Hazel Park? Absolutely. So that's what we're trying.
Okay. Makes sense. And I guess just last question to me is I'm thinking about the full year guide and backing into the second half, it implies an EBITDA run rate on a quarterly basis that's pretty close to $20 million. And I'm just asking in light of sort of early thoughts on next year, but I mean, we're already going to be at low double-digit margins in the second half of this year, if that's the case. I assume next year as volumes recover further as mix gets more positive from data centers, that would probably support even higher margins, but I just wanted to ask the question because it's a pretty big step-up in both absolute EBITDA and margins that is being considered for the second half of this year.
Yes. So when you look at our legacy business, you can look back to 2024 when we were hitting roughly $600 million in that base business alone. Our margins were at that point well in excess of where we're at today. And so we're on our way towards that 15% plus that we'd like to be long term. You throw in 20% plus and the Datacenter and Critical Power, which is 20% margins. And yes, we do see a clear path to that 15% plus as we move into the future.
[Operator Instructions] Your next question comes from Ted Jackson with Northland Securities.
Congrats on the quarter. So my first question, I want to just touch on the second quarter guidance. You're looking for a midpoint of $150 million. It's comfortably above, I'd call it, the consensus view. The legacy markets themselves, at least in the first part of this year are -- let's just say they're underperforming with a better outlook maybe in some of them as you get to the second half. To hit the midpoint of that, I mean, that would tell me that perhaps you're going to see maybe even more business coming out of the datacenter power side of things than perhaps you thought going into the year. Is there -- do you see that, that business being able to hit your 20% of revenue target in the second quarter alone?
In the second quarter alone. No, I think we want to still really look at that as being second half of the year that it's really going to hit those levels and actually almost outperform at that point. But in Q2, it's really going to be launching the program still, and we probably won't hit full run production rates until late in Q2. So really second half focus still for the Datacenter and Critical Power being at full production run rates.
And what is the full production run rate for Datacenter and Critical Power?
We have always targeted at least publicly commented, Ted, our ambition is to be at 25% of our total volumes to be in Datacenter and Critical Power end market. I do see that target in our reach, certainly on an exit run rate for 2026 and certainly for 2027.
Then shifting back into the second quarter, is there any particular legacy market that you're expecting to have some kind of, I mean, call it, a bulge in terms of ability to generate some revenue that then kind of falls away? I mean, like Powersports comes to mind because you've had some performance there, but you keep highlighting that it's been driven by very project-oriented stuff, and it's not like long tail customer wins. I'm just trying to understand like how to get to that $150 million if it's not coming from a faster ramp in the power and data market than maybe expected?
Yes. We have looked at commercial vehicles ramping starting in May-ish. So May and June could have a slightly higher commercial vehicle run rate as our OEMs ramp. Powersports is probably not the end market that I would expect to help us in Q2. We continue to see significant outsourcing to Asia from our Powersports customers. The discrete programs we talked about were specific aluminum related. As we had the materials and the capacity, we took on some quick run projects that will exit in Q2. So that's not a long-term run rate type of business in Powersports that's going to help us in Q2.
Okay. Okay. I think you've given me what I needed there. Shifting over to capacity. I mean you have one of the better problems that a manufacturing company can have, which is demand that might -- is pushing you to capacity constraints. Given your current footprint and the potential, we'll just call it potential for a lot of your legacy markets to turn around at the same time that this power and datacenter market is coming, how much revenue do you think you could run through your existing footprint? And what does it take to do? I mean, I assume that you're running at like I assume you could add ships and increase capacity that way. I mean maybe just a discussion like at your current level, where could you take your revenue run rate to? And then all else being equal that you have your same footprint, how could you take your revenue higher? What are the steps you would...
Yes. Great question. I will give you a couple of numbers, Ted. As we look at our current capacity and current programs that we have won and potential ramp-up of our legacy customers, we're going to top out with no further investments. We'll probably top out around $850 million in revenue. What that means is we have to continue to invest given the mix differences between datacenter products and our legacy products. We will potentially run out of capacity after the $850 million of revenue. And more importantly, and I've said this in the past, that we probably have to think about an organic investment somewhere on the Eastern Seaboard, where we're currently running out of capacity for datacenter customers.
We have capacity in the Midwest, but some of the products we're manufacturing for some of the datacenter customers are large in volume, significantly expensive to ship across the country, so that's something that we're evaluating. We're at the, I would say, early stages of that analysis and to figure out how do we fill existing capacity first. And then what's the time line by which we will run out of our existing capacity and then how do we think about expanding our capacity organically.
And that $850 million run rate, that without further investment, that's running the same shift counts or you're getting thereby -- you're just utilizing your facilities more by adding shifts?
Yes. We're feverishly adding people and shifts to our plants in the last 4, 5 months. Some of our plants are running 7 days a week. Some of our plants are running full 24 hours and 5 days a week. We're running 10% to 12% over time in many of our plants right now and continuing to hire in many of our plants that are seeing volume growth, particularly driven by data center customers.
So Jag, I'm sure every day you come to work, you have a lot of problems that you need to solve, and it's challenging, but it seems like the problems that you're solving are a lot of fun. So I mean it's pretty exciting to see what's there in front of you. And congrats on the results.
Your next question comes from the line of Andrew Kaplowitz with Citibank.
This is Natalia on behalf of Andy Kaplowitz. I think the first question I'll just ask is I'm just curious, as you continue to highlight strong momentum within Datacenter and Critical Power, yet your broader other end market outlook is flat for FY '26. Can you maybe help us unpack what areas within that category are offsetting that Datacenter and Critical Power-related strength? I think you mentioned on your slide, there's like modest activity from those growth initiatives.
Right. As we mentioned earlier, Natalia, ag is flat. Construction Access is flat. Powersports, we actually think will be a headwind for us in the second half and into 2027. Our CV market, we didn't spend a lot of time today talking about our current forecast guidance assumes a $240,000 -- sorry, 240,000 unit build for the year that is higher than what we started the year with, but at the same time, it's lower than what ACP is projecting today. We haven't seen that ramp yet. We're in the window right now. We should see that in May and June and going into Q3 with our CV customers. That's really giving us a bit of a pause in terms of legacy end markets, all in all, while we see strength in our DCP market.
I appreciate that, but I was just curious about your other end markets, like the other end market that you guys have on your slide with flat estimate.
Yes. I think the biggest thing here is as we've been growing in Datacenter and Critical Power, we've really been focused on growth initiatives there. This is some things that come in more as one-off pieces of business or different opportunities. Our extrusion business has a lot in here, but the extrusion business we're winning is actually Datacenter and Critical Power classified. So we're seeing a big piece of what maybe would have been growth in extrusion here in other be extrusion growth in Datacenter and Critical Power.
So some of this is really reclassification from other into datacenter market.
Got it. Makes sense. Much appreciated. And then one last question on my end. We appreciate the long-term growth opportunities in Datacenter and Critical Power. But with margins still under pressure and leverage elevated, what's giving you the confidence that MEC and the business can generate sufficient free cash flow to both delever and continue investing in these growth initiatives?
Yes. We definitely are focused on delevering. That's been something that we have a proven track record of doing as we do acquisitions. There's a little bit of a 12- to 18-month time of absorbing the acquisition and then working to pay that down. What we see as really the true opportunity here is as we move into the second half of this year, and we really have both the strong sales for Datacenter and Critical Power at higher margin plus some expectation of that CV market coming back in the second half that we'll be able to generate some additional cash flow to focus on delevering with the goal of being below that 3x as we exit this year. So very second half weighted. But with what we are seeing with the launch and the confidence that we gained exiting Q1, see those sales coming to fruition and the margin and results associated with it.
We have a follow-up question from Greg Palm with Craig-Hallum.
Yes. I thought this one would have gotten asked. So since I'm back in the queue, I'll ask it now. As it relates to commercial vehicle, I understand and can appreciate your conservatism. Let's just assume hypothetically that the build rate or the production increase ends up being whether it's that 9% rate or something in the high single digits for fiscal '26. Is there a reason why your segment results would deviate significantly from that?
It should not, Greg. So if the market actually builds at that 9-plus percent build rate. But also, let me remind you that the 9% is actually retail sales is how ACT would report, which is pretty close to the bill rates anyway. But let's say that it's approximately 9% build rate, yes, we should see a very similar tailwind for our segment revenue.
Okay. Understood. And I guess since I'm asking questions, I'll ask one more. Going back to datacenters, are you seeing -- like is most of the revenue or awards contracts that you're seeing today more project-based with sort of a definitive time line attached to it? And I'm curious if there's now or if there is like potential discussions to enter into like more long-term frame agreements, sort of multiyear type of sort of capacity expansion, that kind of stuff?
I would say that since the acquisition, a significant portion of our wins have been for long-running products, these customers will continue to offer to various datacenter projects. I can only think of perhaps maybe one program where it was one customer-specific program. It's a small program. But generally speaking, these are long tail long-run product lines is where we're winning. At the same time, we are beginning the conversations with these customers regarding potential capacity reservations, potential long-term agreements, as you mentioned, Greg. So those are the conversations our teams are beginning to have certainly with our DCP customers.
And this concludes today's Q&A session. I will now turn the call back to Jag Reddy for closing remarks.
Before we conclude, I want to again thank our team members for their continued strong focus and execution and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we are making to position MEC for durable high-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today.
This concludes today's call. Thank you for attending. You may now disconnect.
Mayville Engineering Company, Inc. — Q1 2026 Earnings Call
Mayville Engineering Company, Inc. — Q4 2025 Earnings Call
1. Management Discussion
Hello, everyone, and thank you for joining us today for the Mayville Engineering Company Fourth Quarter and Full Year 2025 Results Conference Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions]
I would now like to hand over to your host, Stefan Neely with Vallum Advisors to begin. Please go ahead, Stefan.
Thank you, operator. On behalf of our entire team, I'd like to welcome you to our fourth quarter and full year 2025 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy; and Rachele Lehr, Chief Financial Officer.
Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements.
Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions.
With that, I would like to turn the call over to Jag.
Thank you, Stefan, and good morning, everyone. The fourth quarter represented a transitional period for MEC. While demand in our legacy end markets remained muted during what is typically a seasonally softer quarter, our team remained focused on positioning the business for successful execution and growth as we enter 2026. Over the past 6 months, we have experienced robust and sustained demand momentum within our Data Center & Critical Power end market. In response, we have proactively reallocated available capacity and resources to support successful project launches and meet the evolving needs of our OEM customers in this market.
As a result of these actions, our fourth quarter margin performance was pressured. We incurred and retained costs that would typically be flexed with softer demand reflecting deliberate investments to support program readiness and execution. Importantly, this margin pressure is primarily driven by early stage project inefficiencies and project launch costs as we prepare for higher volume programs rather than pricing or structural cost challenges. As these programs ramp and utilization improves, we expect margins to normalize in line with our long-term expectations. These margin dynamics are transitory in nature and importantly, position MEC to deliver profitable growth in 2026 and beyond as we capture demand in the rapidly expanding Data Center & Critical Power market.
In addition, we remain focused on executing our MBX operational excellence framework, driving disciplined process improvements across our plants. We're also advancing initiatives to optimize and rationalize our manufacturing footprint, which we expect will further enhance operating leverage as end market demand recovers.
Now turning to a review of our key markets and their respective end market outlook. Starting with commercial vehicle, we continue to [indiscernible] with net sales to this end market declining approximately 19% versus the prior year period. In their most recent report, ACT has revised its full year 2026 outlook upwards now projecting a 3.4% increase in Class 8 production in 2026. This improved outlook reflects greater clarity surrounding the 2027 EPA emission standards, resulting in anticipated pre-buy activity and improved macroeconomic conditions.
In contrast, our construction and access market, revenues increased approximately 13% year-over-year during the quarter. This is supported by the Accu-Fab acquisition and strong nonresidential activity. Organic net sales growth in this market were approximately 11% in the quarter.
In the powersports market, net sales grew approximately 20% year-over-year driven by the impact of incremental volumes from new business wins and stabilized customer production schedules as dealer inventory levels are now in line with current demand. This was partially offset by a decrease in sales within the marine propulsion market. Net sales in our agriculture market were approximately flat year-over-year amid signs that demand is reaching a cyclical trough.
Within our Data Center & Critical Power end market, our business saw growth of approximately 13% year-over-year supported by legacy OEM demand growth and early project launches on Accu-Fab-related cross-selling opportunities. Overall, demand from OEM customers in the Data Center & Critical Power market remains strong. Our qualified opportunity pipeline now exceeds $125 million, and the value of projects scheduled to launch in 2026 is approximately $40 million to $50 million.
Combined with organic growth from our legacy OEM customers, we expect Data Center & Critical Power to represent more than 20% of our revenues in 2026. Looking ahead, we expect this end market to remain a consistent growth opportunity for MEC. Based on recent market studies, we estimate our serviceable addressable market to range from $115 million to $185 million per gigawatt of new data center capacity installed.
Given the number of new data centers expected to come online in the U.S. in 2026, this represents a total market opportunity of approximately $3.2 billion. We expect this market to grow at a compound annual rate of approximately 16% from 2026 through 2030. Please note, these estimations exclude server racking opportunities, which represents additional incremental upside. While we will continue to take a balanced approach to allocating capacity to this end market, the robust demand growth allows us to proactively manage our commitments. This approach ensures us to maximize footprint utilization, deliver consistent, profitable growth through the cycle and continue to invest in growth initiatives that unlock long-term value.
Before turning the call over to Rachele, I want to highlight several areas of commercial momentum that gives us confidence in our growth trajectory for 2026 and beyond. Across all of our end markets, customer engagement and bidding activity remains strong. During the fourth quarter, we secured approximately $15 million in new project awards with Data Center & Critical Power customers. Year-to-date, total awards across our legacy markets were more than $108 million, exceeding our annual target of $100 million. Looking ahead to 2026, we expect total bookings across our end markets to be approximately $140 million, supporting profitable growth as our legacy markets move toward a cyclical recovery exiting 2026.
Within our legacy end markets, we have continued to expand our share with our commercial vehicle customers as they launch new products heading into the 2027 EPA regulation changes. These products support future growth and are scheduled to begin production in late 2026 and 2027. In addition to the future expansion in commercial vehicle revenues, we secured new agriculture business on new model introductions and additional service business for a military customer.
Within the Data Center & Critical Power market, approximately $15 million of awards secured in the fourth quarter were primarily driven by demand from major Accu-Fab customers. These substantial scopes of work span power distribution units, static transfer switches, busway components and data center cooling.
Turning to capital allocation, we closed 2025 with strong free cash flow generation. While we expect free cash flow to be softer in the first quarter, we continue to anticipate full year free cash flow conversion of approximately 50% to 60% of adjusted EBITDA. As we progress through the year, our primary use of free cash flow will remain focused on debt reduction. As we progress toward our long-term target of 2.5x leverage, we expect to become increasingly opportunistic in deploying capital towards M&A with an emphasis on further diversifying our end market exposure and supporting consistent profitable growth.
In the meantime, our priority remains disciplined capital deployment, ensuring that growth investments are targeted, return-driven and fully aligned with maintaining balance sheet strength. With respect to guidance, to provide investors with greater visibility into our business trends, we are introducing quarterly financial guidance in addition to our full year outlook. This is due to the fast-moving Data Center & Critical Power environment and developing improvements within our legacy end markets.
Rachele will cover our guidance in more detail, but I would like to highlight a few key elements of our expectations for 2026. Inclusive of a full year of Accu-Fab and associated Data Center & Critical Power cross-selling synergies we expect to realize in 2026, we anticipate full year net sales to increase relative to 2025, along with margin expansion and improved free cash flow. These expectations assume an improvement of our legacy end markets primarily during the second half of the year. In summary, MEC is entering an important transitional year one that is shaping the next phase of our growth and value creation.
While we are intentionally investing both capital and operating resources ahead of anticipated demand, we believe the foundation for sustainable growth and improved profitability is firmly in place. With disciplined execution and a clear strategic focus, we are well positioned to deliver long-term value for our shareholders and our customers.
With that, I would like to turn the call over to Rachele.
Thank you, Jag, and good morning, everyone. Total sales for the fourth quarter increased 10.7% on a year-over-year basis to $134.3 million. Excluding the impact of the Accu-Fab acquisition, organic net sales declined by 5.3% compared to the prior year period. Our manufacturing margin rate was 6.6% for the fourth quarter of 2025 compared to 8.9% for the prior year period. The decrease in our manufacturing margin rate was due to $1.2 million of Data Center & Critical Power-related project launch costs and $1.7 million of early-stage project inefficiencies on a commercial vehicle project. This was partially offset by higher margin net sales contribution from the Accu-Fab acquisition. Excluding these temporary launch phase dynamics, our manufacturing margin rate would have been approximately 9% during the quarter.
Other selling, general and administrative expenses were $9.7 million or 7.2% of net sales for the fourth quarter of 2025 as compared to $7.9 million or 6.5% of net sales for the same prior year period. The increase in these expenses primarily reflects $0.2 million in nonrecurring costs and $1.1 million in incremental SG&A expense each associated with the Accu-Fab acquisition.
Interest expense was $3.8 million for the fourth quarter of 2025 as compared to $2 million in the prior year period. The increase was driven by higher borrowings resulting from the Accu-Fab acquisition, partially offset by lower SOFR base rates relative to the prior year period. Adjusted EBITDA margin was 4.7% for the quarter compared to 7.6% in the prior year period. The decrease reflects lower legacy market volumes and $2.9 million of project launch costs and early stage project inefficiencies, partially offset by the benefit of the Accu-Fab acquisition. Excluding these items, adjusted EBITDA margin would have been approximately 7%.
Turning now to our cash flow and the balance sheet. Free cash flow during the fourth quarter of 2025 was $10.2 million as compared to $35.6 million in the prior year period. The year-over-year decline primarily reflects the receipt of $25.5 million in settlement proceeds in the fourth quarter of last year related to a former Fitness customer dispute. Excluding this item, free cash flow was approximately flat year-over-year.
During the fourth quarter, we used available free cash flow to repay approximately $10 million in debt, resulting in net debt at the end of the quarter of $205.3 million, up from $82.1 million at the end of the fourth quarter of 2024. Our increased debt resulted in a net leverage ratio of 3.7x as of December 31.
Now turning to a review of our 2026 financial guidance. As Jag previously mentioned, we are introducing quarterly guidance in addition to full year guidance. For the first quarter of 2026, we currently expect net sales for the quarter of between $137 million and $143 million, and adjusted EBITDA of between $5 million to $7 million. Our first quarter outlook reflects continued project launch costs and margin pressure ahead of the majority of Data Center & Critical Power project ramps, which began in the second quarter.
Additionally, free cash flow is expected to reflect normal seasonal working capital usage, incremental working capital investment to support the Data Center & Critical Power ramp-up and planned capital expenditures of $3 million to $5 million. For the full year, we expect net sales of between $580 million and $620 million, adjusted EBITDA of between $50 million and $60 million and free cash flow of $25 million and $35 million. This outlook reflects the full year of Accu-Fab ownership, $40 million to $50 million of incremental cross-selling revenue and a gradual improvement in the legacy end market demand, primarily in the second half of the year.
Additionally, embedded within our 2026 adjusted EBITDA guidance is $2 million to $3 million of cost improvements driven by our MBX operational excellence and strategic value-based pricing initiatives, net of inflationary pressures. As it relates to free cash flow, we expect our free cash flow conversion for the full year to be between approximately 50% and 60% of adjusted EBITDA, coupled with full year capital expenditures to be between $15 million to $20 million.
Given this outlook and our priority of repaying our debt, we expect to achieve a net leverage ratio of 3x or lower by the end of 2026. Again, 2026 will be a transitional year for us. We believe that our cost structure and working capital discipline will position us for profitable growth, strong free cash flow yield and approved adjusted EBITDA margins as we enter a phase of cyclical recovery and growth across our legacy end markets supported by elevated growth in our Data Center & Critical Power end markets.
With that, operator, that concludes our prepared remarks. Please open the line for questions as we begin our question-and-answer session.
[Operator Instructions] Our first question is from Michael Shlisky from D.A. Davidson.
2. Question Answer
This is Linda with DAD. My first question, starting with commercial vehicle market. In your remarks, Jag, you noted revised ACT outlook. And from the data we got overnight shows that Class 8 truck orders for February were one of the top 10 months of all time. Does this change your view on 2026? And do you think any of it pulled from 2027 orders, if this is just an emission-related pre-buy?
Yes. Great question, Linda. And I was expecting that question this morning. I didn't see the ACT report until I got up this morning, right? So obviously, it's fresh off the press. I was not surprised by the increase in orders in February, but obviously, we were surprised by the magnitude of increase of orders in February. We have been signals from our OEMs in the last month or so, inquiring us about another suppliers, about capacity utilization, and we have seen signals from them of potential build rate increases. What I can tell you is we have not seen any of those signals translate into demand yet. Having said that, we expect, again, given this morning's news, we expect some of this demand to accelerate the build rate increases from our CV customers, and we expect that to start showing up in mid- to late Q2. Usually, more -- for more suppliers, it's a 6-week lead time. And hence, we haven't seen that yet in our EDI feeds, but we do expect that. So with that in mind, we came into this call, expecting approximately 230,000 build rate. We'll have to wait and see if that estimate changes in the coming quarters. And that's one of the reasons why we came out with our quarterly guidance, which is new for us. These are fast-moving developments in our legacy end markets. We're seeing similarly green shoots in construction and small ag as well. So with all of that, we want it to be more nimble, not only internally, but also externally how we're communicating with our shareholders.
I appreciate the color. That's very helpful. And then switching to ag, we keep hearing about ag getting better, whether that's from John Deere -- orders from John Deere or other suppliers getting a little more bullish? Do you see any light at the end of the tunnel on that end market?
As some of our customers have indicated, the large ag will still be down this year, double digits, that is our customer forecast what they have publicly communicated. But we are seeing signs of improvement in small ag, lawn care, turf and forestry equipment. So we do see some green shoots, as I mentioned, in the ag business. Also I want to remind you that our ag business is close to 5% of our overall sales as much as it used to be a much larger piece of our business, with our data center business and other end markets continuing to grow and ag continuing to stay down in the last 18 to 24 months. It is now a much smaller piece of our business.
Got it. And then my last question will be on Critical Power. You mentioned some launch costs in Critical Power are providing a margin headwind in 2026. Do you think that would be complete by 2027? And what kind of margin tailwind might that be next year?
Linda, this is Rachele. Just as we look ahead into 2026, we really see that being ahead of the program launches. And we really expect and anticipate most of that to start taking place to be at full run rate at the end of the second quarter. So we really expect to be at full run rate for the second half of the year. So we expect to incur more of those costs having the margin pressure in the first half. We do anticipate a little bit trailing into the second half of the year, but it's really going to be a first half impact.
Our next question comes from Greg Palm from Craig-Hallum.
So you incurred more costs and recognized lower margins than expected back from the November call. So I guess, like looking back, what surprised you relative to that outlook? And then maybe you can just help unpack the EBITDA guide specifically for Q1? And maybe more specifically, how that margin progression looks in sort of the Q2 to Q4 time period, it sounded like there's going to be some costs that you incur in Q2 and those mostly trail off in the second half. So I just wanted to be sure we understood that right.
Yes. Let me start first, Greg. The headline really for us is we have won more business in data centers than we anticipated coming out of our November call. We expect our Q1 -- we're not obviously talking about Q1 bookings here, but our Q1 bookings for data centers will be significantly higher than what we have seen in the second half of last year after the acquisition. So in preparation for those launches, we're in the middle of many of those launches already for the business, we have won in Q1. So we had to bring on significant resources online, not only in December but also in Q1 as we sit here. And that's the primary reason why we were showing the margin profile that we're showing in Q1.
And I would add, our legacy business, we always had product launches, but we are doing that over 12 to 18 months, a much longer time, and we're able to do that. This business is 8 to 12 weeks. And so we've had to expedite that and really make investments. We have a product launch team, specific focus to this more than we've ever had before because of the speed and the intensity of which our customers are asking for things. Again, as Jag mentioned, this really did exceed our expectations and what we're winning. When we first acquired this business, we've said, "Hey, it's going to be $1 million to $2 million in cross-selling synergies in 2026." And here, we now are at $40 million to $50 million. So we've just had to invest more. And we're seeing that continue into Q1 because a lot of these won't be at their full Q1 and Q2. And as a lot of these won't be at their full run rate until the end of the year, but we want to nail it. We want to make sure we hit it out of the park with these new customers in our locations.
And we are retooling 6 of our legacy plants -- MEC plants. That's a significant effort to put data center work not only what we have won so far year-to-date and last year, but what we are anticipating in 2026, right? So it's great news. Obviously, for the rest of the year and long term that we're able to quickly convert 6 of our facilities for cross-selling synergies.
Okay. That's great color. And you already mentioned you're expecting that end market to represent more than 20% of revenue. I'm just curious, as we sit here today, what kind of visibility do you have into that, call it, $125 million revenue number if you want to use that? And there's a sentence in the press release that talks about pipeline and multiple large opportunities. Are these multiple large opportunities in that $125 million number? Or is that something separate?
So I would say, with very good confidence that we have good line of sight to that $120 million worth of data center business for the year, so that's number one. Number two, very little of significantly large opportunities are in that qualified pipeline number we put out.
Sorry. Say that one more time?
So some of the large -- significant and large opportunities that we are pursuing, those are either it's 1 or 0, right? So we didn't want to take into account those opportunities into -- we don't want to inflate our pipeline with those large opportunities, right? So when we talk about the $125 million of qualified pipeline, that is -- most of that is visibility and greater than 50% confidence that we could win those opportunities. So we're excluding some significantly large opportunities in that qualified pipeline.
Okay. And just to be clear, like is there -- like when you talk about expectations for the year, if you were to win more small business or win one or a few of these large, is that something that could translate into more revenue this year above and beyond that $120 million number? Or what should we think of that more like a 2027 event?
Yes, it's possible, Greg, and hence, our effort at quarterly guidance here. This is a fast-moving end market. And we do -- though we laid out a $40 million to $50 million of cross-selling synergies, our expectation is that if we continue to win at the existing win rates in this end market, right, there could be upside to that number.
Our next question comes from Ross Sparenblek from William Blair.
This is Sam Karlov on for Ross. I guess maybe starting with Rachele, can you help us parse out some of the moving pieces within the EBITDA guidance? I mean how should we build to just an $8 million year-over-year step-up considering 2026 includes a full year of Accu-Fab and an incremental $40 million to $50 million of margin accretive cross-selling?
Sure. I think -- there's a couple of things to take into account here. One is our legacy business. The volumes continue to remain muted as we budgeted today. Now of course, we just talked a little bit about what we learned on CV overnight that there's some upside there. But as we look through the year, our customers are saying, our guidance is saying that we expect most of those to start to rebound sometime in the second half of the year. So we have that pressure continuing on that piece of our business. We have a high fixed cost, 55% of our costs are fixed. And so when we have that lower utilization, we really have ongoing under absorption associated with that.
The other piece is preparing for that legacy rebound. We are carrying some talent that we continue to hold on to because it is coming. And then the third piece is those launch costs. We, like I said, really want to make sure we hit it out of the park. The speed is faster. We're ramping up talent. We're learning as we go with this. And it is exciting to see the growth that we have with that, but we really need to be focused on delivering that. So first half is really pressured by the absorption, the launch cost and then getting ready for the rebound.
Got it. Have you given kind of what those launch costs are expected to be for the full year? Or just any sort of range there would be helpful.
Not full year, but we are looking. We expect the first quarter to be very similar with the fourth quarter of launch costs for Data Center & Critical Power, $1 million to $1.5 million. We expect that to taper down through each of the quarters of the year.
Okay. Got it. I guess switching gears then I mean the $40 million to $50 million of in-year revenue synergies, it sounds like that's back half loaded. I mean it seems like that implies a pretty healthy exit rate exiting '26. So I don't know if you could kind of help us size that ramp and kind of what that means as we enter 2027 or the business you guys have already won?
Yes. I think as we look at and we're seeing for 2026, Data Center & Critical Power could be 20% of our total business. So that's significant. The adjusted EBITDA margins on that business are between 20% and 22%. So when you take that into account, knowing that the majority of that $40 million to $50 million is going to come in the second half of the year, we will be exiting with margins in excess of our historical. If our historical business continues to come up, that will only additionally be upside.
Okay. From a revenue perspective, though, as we say, call it, $20 million in the third quarter, $20 million in the fourth quarter, something like that. That implies an exit rate of like, call it, $80 million. Is that the right way we should be thinking about it into 2027?
Yes. I think that's a pretty good assumption, Sam.
Our next question comes from Andrew Kaplowitz from Citi.
This is Natalie on behalf of Andy Kaplowitz. Maybe just first question on data centers, right? As Data Center & Critical Power segment grows and represents more than 20% of revenue. Should investors expect more customer concentration to increase as well? Or is the opportunity pipeline diversified across multiple customers within that end market?
Yes. Within that end market is reasonably diversified. Not only we're working with some of the blue-chip names in the Critical Power end market. We also are working with the next tier of OEMs within that end market. So I don't expect a significant concentration in that end market for us.
Got it. That's helpful. And then just maybe switching over to your construction access end market and then the recovery as well. You're expecting a modest recovery driven by infrastructure spending and potential rate cuts. But are you already seeing early signs of improvement in customer order patterns or conversations? Or is that recovery more of a second half expectation at this point of time?
In the construction portion of that end market, we are already seeing the build rates increasing. You have seen public comments from our customers that are bringing back capacity online, bringing back employees online, right? So we're seeing that already hitting our demand and EDI rates. In access, there were some starts and stops, if you will, with particularly the rental houses increasing their demand in Q4, but then some softer commentary from our customers on the access side of the end market. So we'll have to wait and see and watch and how access developed. But in general, we are positive on the construction access end market.
Our next question comes from Ted Jackson from Northland Securities.
We came in with 10 questions to ask and checked every one of them off. So anyway, here's a couple for you, Jag. With regards to the 20% of revenue for '26 that it could be coming from Data Center & Power. Will that -- are you going to be turning down in the legacy business to be able to ramp and hit that? Or is that just on top of what's going on within the footprint that you have for a lot of your legacy businesses? And then going even a little further. It's like if we do see a stronger turnaround in, say, commercial vehicles, which my personal opinion is that we will, will it include you from being able to get any additional business? And I've got a couple more.
Yes. At this stage, Ted, we believe we have enough capacity to be able to ramp up Data Center business, while we see improved run rates within our legacy business. It's not a question for 2026, I believe. It's really for us to figure out a way to continue to expand our capacity as we go into 2027. Our teams have been working feverishly over the last couple of quarters using our MBX framework to increase throughput, increase productivity. We're bringing on additional shifts in some of our plants. We're hiring more employees in some of our locations. So we're planning accordingly. And at this point, we're not going to have to turn down any of our legacy customer business, but that's something that we will continue to watch. And it also presents us some choices as we go into 2027, not necessarily for capacity reasons, but perhaps for margin and pricing reasons, right? So we will continue to evaluate those opportunities as we go into 2027.
The adding shifts is interesting to me, I mean, and obviously, employees too. As I recall in the past, some of your locations, you only were running at one shift and obviously, adding additional shifts was kind of difficult because of labor restraints or constraints, excuse me. Where are you in terms of kind of current utilization? Where are you in terms of kind of adding production shifts? And what are some of the hurdles that you're having to overcome to make that happen?
Yes. Without the two Accu-Fab facilities, right, if you exclude them for a second, I would say we're still around 55% on a 24/7 equipment capacity basis, right? So as we ramp up some of these volumes in our legacy factories, we're looking at automation, we're looking at extending our shift schedules, not all, but many of our plants coming out of COVID went to a 2 10-hour shifts for 4 days a week, right? So that's 20 hours a day, 4 days. But what we're doing is standardizing our shift schedules across the company. Now we're going to a 3 8-hour shifts, 5 days a week. That's one way we can immediately increase our run capacity in these plants. We're looking at automation, as I mentioned. We're looking at weekend shifts. We're looking at third shifts in some of our plants. So it's a mix of different strategies. We're employing depending on where we see capacity needed and then where we see demand coming in.
Okay. Going over to when you talk about having to put resources to ramp up and hurting margins. So we're kind of dancing around all this itself. So it's people, more labor cost. Is there -- what other things go into the resources needed to position yourself to capture this growth that's impacted margins beyond obviously -- the additional shifts?
Right. As we mentioned earlier, right, our traditional program launches would have taken 6 to 18 months in many cases. Now we're having to launch these new programs on a 6- to 12-week basis. I'll give you an example. We have one data center customer that in January came to us and then essentially quadrupled their demand for one of the product lines we used to make in Raleigh. So we had to shift that product line to Defiance, Ohio, one of our traditionally commercial truck plants. And we went in full force. I was part of a 15-member Kaizen team. I was on the plant floor for a full week, figuring out how do we quadruple our output through that plan for that customer. So we're rethinking how do we assemble components. We're rethinking how do we do product flow through the factories. We're rethinking logistics, right? We're having to rethink everything from scratch than what we used to do in any of our previous operations, right? So that needs project management resources, that needs engineering resources, that needs MBX resources. So all of this, we're trying to do this at 6 different locations, as I just mentioned, right, as we ramp up data center work, right? So that initial investments we're making. We're obviously having to put in some additional capital to improve productivity. We have most of the capital needed to produce these parts. But additional -- sometimes additional capital, new type of machines are automation improves throughput and productivity, right? So we're also thinking about how do we get more volume out of our factories as well for these customers. So those are all the things that we're doing. And all of that is investments we're making upfront.
Okay. And then my last question, which is kind of a silly one, but just to make sure, I want to make sure I understand what the term revenue synergies mean. So when you say that you're going to have $40 million to $50 million in revenue synergies in 2026. Can you just give me a quick definition of what that?
Yes. Anything from a data center customer that is going to be made in a legacy MEC plant, that's how we define that. As we mentioned last year the two Accu-Fab plants we acquired were at capacity when we acquired them. So we -- of course, we're trying to drive additional throughput through those two plants. And that's not considered in the cross-selling synergies, that's just productivity improvement at those two plants. But anything we're moving out, increasing volume and new programs from data center customers that are putting into MEC plants, that's what we consider a cross-selling synergies.
We currently have no further questions. So I'd like to hand back to Jag for some closing remarks.
Before we conclude, I want to again thank our employees for their continued strong focus and execution and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we are making to position MEC for durable higher-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today.
This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Mayville Engineering Company, Inc. — Q4 2025 Earnings Call
Mayville Engineering Company, Inc. — Q3 2025 Earnings Call
1. Management Discussion
Hello, everybody, and welcome to the Mayville Engineering Company Third Quarter 2025 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]
I would now like to hand over to Stefan Neely, at Vallum Advisors. Please go ahead.
Thank you, operator. On behalf of our entire team, I'd like to welcome you to our third quarter 2025 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy; and Rachele Lehr, Chief Financial Officer.
Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements.
Further, this call will contain a discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions.
With that, I would like to turn the call over to Jag.
Thank you, Stefan, and good morning, everyone. Our third quarter results reflect the discipline and focus of our team as we navigated persistent demand challenges across our legacy end markets. Despite continued softness from our OEM customers, results were in line with our expectations, and we are reaffirming our full year 2025 financial guidance.
We have also made significant progress integrating the Accu-Fab acquisition, which closed at the beginning of the third quarter. Our sales team has already engaged Accu-Fab's customer base and is leveraging MEC's domestic manufacturing footprint to position us as a preferred partner for leading data center and critical power OEMs. These customers are actively seeking reliable domestic supply chains to support accelerating demand from data center and critical power investments.
The integration of Accu-Fab into MEC now offers a scalable solution that simply was not available 6 months ago. Our pipeline of qualified opportunities within this market has grown substantially well above initial expectations and continues to expand as we demonstrate our ability to deliver rapidly and at scale. Today, we are bidding on more than $100 million in qualified opportunities, many of which extend across our broader MEC footprint.
Unlike our traditional markets, where projects typically take over a year or longer to reach production, data center and critical power programs can move from bid to revenue in as little as 8 to 12 weeks. To support this momentum, we are repositioning capacity and resources. This is a clear demonstration of the flexibility and strength of our vertically integrated operating model. Looking ahead, this opportunity represents a meaningful shift for MEC.
Our revenue synergy expectations from Accu-Fab have now increased to between $20 million and $30 million in 2026. We also expect this business to yield gross margins of approximately 10 percentage points above our historical average of 15% to 20%. While our legacy end markets remain in a cyclical trough, the emerging opportunity in the data center and critical power market represents an important inflection point as we seek to diversify our revenue base and strengthen our long-term growth profile.
Driven by the underlying market growth, significant capital investments in data center and critical power and our opportunity pipeline, we see a path for this end market to represent 20% to 25% of our total revenues in the coming years. At that level, it has the potential to become one of our largest end markets, representing a meaningful step in our strategic diversification of our business toward faster-growing and higher-margin end markets.
Importantly, growth in this end market is expected to be incremental to our legacy market. We fully expect to continue to meet the needs of our long-standing legacy OEM customers as end market demand recovers. Taken together, we believe this positions MEC for greater resilience and profitability through end market cycles.
Now turning to a review of our legacy market. Commercial vehicle demand has continued to soften in the third quarter with net sales to this end market declining 24% versus the prior year period. ACT now projects a 28% decline in Class 8 production in 2025 followed by an additional 14% decline in 2026 as tariffs and regulatory uncertainty delayed fleet replacement.
In contrast, our Construction & Access market revenues increased 10.1% year-over-year during the quarter. This is supported by the Accu-Fab acquisition and strong nonresidential activity. Organic net sales growth in this market was 6.2% in the quarter. We are expecting to see this level of growth continue through the fourth quarter and into 2026.
In the powersports market, net sales grew 6.4% year-over-year, driven by transient aluminum-related demand. Agriculture net sales declined 21.8% amid elevated interest rates and lower farm income. Across all our end markets, customer engagement remains strong. During the third quarter, we secured $30 million in new project awards with the data center and critical power customers. Year-to-date, total award across our legacy markets reached $90 million, nearing our full year target of $100 million as we entered the fourth quarter.
Within our legacy end markets, we have continued to expand our share with our commercial vehicle customers as they prepare to launch their next-generation models ahead of upcoming EPA regulatory changes. Many of these products support future growth and are scheduled to begin production in 2026 and 2027. In addition to the future expansion in commercial vehicle revenues, we secured a significant award for a next-generation product in our aluminum extrusion business, along with additional tube components for a major power generation customer.
Lastly, the $30 million within the data center and critical power market secured during the third quarter includes $25 million in cross-selling wins. We achieved significant awards with 2 major Accu-Fab customers covering battery backup cabinets and panels, static transfer switch components and busway components.
Operationally, our teams have been working diligently to respond to shifting demand within our legacy end markets while positioning to meet demand from the developing data center and critical power project pipeline. We are working closely with legacy customers to manage production schedules and capacity commitments. In select cases, we are adjusting pricing and requesting additional volumes to secure capacity availability for future demand.
These actions will help mitigate near-term underutilization, though we anticipate certain legacy market demand to remain a headwind through mid next year even as new data center and critical power programs ramp. During this transitional period, we expect additional margin pressure as we balance the resources needed for accelerating near-term demand.
Turning to capital allocation. Third quarter free cash flow was impacted by $3.5 million in nonrecurring items. However, we expect strong cash flow in the fourth quarter and have reaffirmed our full year free cash flow guidance. Consistent with our strategic framework, our top priority remains reducing debt and lowering leverage.
In summary, I am encouraged by the progress our team has made by executing our strategy. While legacy markets remain soft, our agile operating model is enabling us to capitalize on high-growth opportunities, all while maintaining financial discipline and operational focus. I am confident that our continued execution will drive improved profitability, enhanced diversification and sustainable value creation for our shareholders.
With that, I would like to turn the call over to Rachele.
Thank you, Jag, and good morning, everyone. Total sales for the third quarter increased 6.6% on a year-over-year basis to $144.3 million. Excluding the impact of the Accu-Fab acquisition, organic net sales declined by 9.1% compared to the prior year period. Our manufacturing margin rate was 11% for the third quarter of 2025 compared to 12.6% for the prior year period.
The decrease in our manufacturing margin rate was due to $1.2 million of nonrecurring restructuring costs and inventory step-up expense associated with the Accu-Fab acquisition and lower customer demand in the legacy commercial vehicle and agricultural end markets. This was partially offset by higher margin net sales contribution from the Accu-Fab acquisition.
Excluding the costs, our manufacturing margin rate would have been approximately 12% during the quarter. Other selling, general and administrative expenses were $10.5 million or 7.3% of net sales for the third quarter of 2025 as compared to $7.6 million or 5.6% of net sales for the same prior year period.
The increase in these expenses primarily reflects $0.9 million of nonrecurring costs and $1.6 million in incremental SG&A expense, each associated with the Accu-Fab acquisition. Long term, we continue to anticipate SG&A to remain at a normalized range of between 4.5% to 5.5% of net sales as end market demand recovers.
Interest expense was $3.4 million for the third quarter of 2025 as compared to $2.7 million in the prior year period. The increase was driven by higher borrowings resulting from the Accu-Fab acquisition, partially offset by a lower interest rate relative to the prior year period.
Adjusted EBITDA margin was 9.8% in the current quarter as compared to 12.6% for the same prior year period. The decrease in adjusted EBITDA margin was attributable to lower legacy customer demand, partially offset by the impact of the Accu-Fab acquisition.
Turning now to our statement of cash flows and balance sheet. Free cash flow during the third quarter of 2025 was a negative $1.1 million as compared to a positive $15.1 million in the prior year period. As Jag mentioned, free cash flow for the third quarter reflects $3.5 million of nonrecurring costs.
As of the end of the third quarter of 2025, our net debt, which includes bank debt, financing agreements, finance lease obligations, net of cash and cash equivalents was $214.9 million, up from $114.1 million at the end of the third quarter of 2024. Our increased debt resulted in a net leverage ratio of 3.5x as of September 30.
Now turning to a review of our 2025 financial guidance. We are reaffirming our 2025 financial guidance supported by growth in select legacy end markets and stronger-than-expected demand from the data center and critical power end market. We expect net sales for the full year of 2025 to be between $528 million and $562 million. Adjusted EBITDA of between $49 million to $55 million and free cash flow of between $25 million to $31 million.
We expect the fourth quarter to reflect normal seasonality and continued softness in certain legacy markets, most notably commercial vehicle. As a reminder, we have reduced manufacturing days during the fourth quarter due to the holidays. Combined with the ongoing reduction in commercial vehicle production schedules and retaining resources to support the ramp of new data center and critical power programs, we anticipate some margin pressure during the quarter. Despite this, we expect to generate positive free cash flow in the fourth quarter. Consistent with our capital allocation priorities, we plan to use that cash to reduce debt.
Looking ahead, we anticipate that softness across certain legacy markets will moderate the pace of debt repayment in 2026. To be clear, we do not expect sustained negative free cash flow. However, as we ramp data center and critical power production, working capital will temporarily increase, and we may make selective capital investments in equipment to support these programs. Together with fixed cost under absorption from subdued commercial vehicle demand through the first half of next year, we now expect to achieve a net leverage ratio of 3x or lower by the end of 2026.
Importantly, we view this as a transitional period. As cash generation strengthens, with the recovery in the commercial vehicle market and continued growth in our high-margin, high-velocity markets, we expect to accelerate debt repayment and return to a net leverage profile consistent with our stated long-term target of below 2.5x.
With that, operator, that concludes our prepared remarks. Please open the line for questions as we begin our question-and-answer session.
[Operator Instructions] First question comes from Ross Sparenblek with William Blair.
2. Question Answer
Jag, we started this year and you guys pulled forward your productivity initiatives and realize that's a delicate process, especially when demand cycles are volatile. But how do you feel with the rollout thus far? And do you feel that the organization is well positioned for when demand does begin to turn?
Absolutely, Ross. The team has been relentless in driving MBX programs across our plant network throughout the year. Every single plant has had increased number of lean activities throughout the year as we reconfigured our capacity to position data center products into existing footprint. We have done a lot of adjustments to resources, a lot of adjustments to our equipment, a lot of adjustments to how we think about shift schedules.
So all of these actions are not only helping us in the short-term to navigate the soft end market demand, but absolutely will position the company for a significant margin expansion, significant productivity once the volumes return, right? So I'm really excited about all the things that we have done this year, though it may not be reflected in our actual financial results. But as we start putting in volumes back into the plant, even with the data center products, right, we should see going into Q1 and beyond a good uptick in our productivity.
Okay. And if I was to put that into a spreadsheet here and just thinking through margins, decrementals were down over 30% in the quarter. What is kind of your time line for closing that gap to keeping a sustained decremental under 20% through cycle looking forward?
I would say -- yes, obviously, we're not providing any guidance for 2026. Having said that, I would say by midyear, we should see a decent readout coming out of all the actions that we have taken.
Let me address a big elephant in the room. We are taking a conservative approach to our 2026 CV forecast. You could look at our 2 large OEMs, they're public and they know what they have said publicly for 2026 guidance in terms of volumes, and you can look at ACT. ACT is around 205. And if you average what the customers have said, that's probably somewhere in the 245 to 250 range. So the difference is what is going to be, I guess, really make a difference next year for us. We have taken the conservative approach of using the ACT for planning purposes. So if the volume turns about the ACT number next year, that's an upside for us, not only in terms of productivity and margin expansion, but also significant revenue increase next year.
We now turn to Greg Palm with Craig-Hallum.
Can you just give us some sense on what's occurred in the last 4 months since Accu-Fab? I mean it just sounds like overall activity, it's been a lot higher. It's occurred much faster than initially thought. And what types of internal changes or investments do you have to make? Are you making to capitalize on this opportunity within data centers?
Really good question, Greg. We have been extremely busy and active in not only bringing our new customers to Accu-Fab, but also a lot of new customers to legacy MEC locations. We have hosted every top customer in data center and critical power segment in many of our plants, and they continue to be impressed with the level of capacity and automation and the skill sets that MEC can bring to this end market.
So as we came out of Q3, we continue to build on that pipeline. We said in our prepared remarks, our pipeline exceeds $100 million. This is qualified active pipeline. We have won $30 million out of the $30 million, it's really $25 million is the cross-selling synergies that we're actively putting into existing plants. A lot of the programs are going into our defense plant, which is primarily a CV plant. A lot of programs are going into Mayville that is a primarily agriculture and power sports plant.
We're putting products into other locations as well where we see immediate benefit as soon as we ramp these data center products, immediate benefit in terms of volume and productivity in those plants that are lacking in volume today. At the same time, we continue to host new customers in the space. We continue to navigate some of the accelerated product launch time lines. If you recall, our legacy programs take between 12 and 24 months once we win them to start up and see revenue.
Data center products are 8 to 12 weeks. Once they make a decision and award that purchase order to us, within 8 to 12 weeks, where we're making product and shipping this product, right? That means we are repositioning resources. We're repositioning capital. We're repositioning machinery. We're moving machines from plant to plant to fully be prepared for this increase in volumes that we're expecting out of the data center end market.
Okay. Appreciate that color. And I guess maybe can you help us understand like what constitutes a pipeline just versus nonqualified opportunities? And I'm curious, if you look at, you have a slide that's talking about actual orders. I'm curious in terms of the customer characterization, how many of those are from new customers? What would these orders have looked like under Accu-Fab as a stand-alone if they were existing customers? And just thinking about the future potential for follow-on orders if some of these are sort of initial orders from new customers. I'm curious just to get your thoughts there, too.
Yes, that's a really good question. Accu-Fab Raleigh location, which was primarily the data center and critical power location, they were sold out. So pretty much everything that you're seeing on this slide, the $25 million of cross-selling synergies, most of that, they would not have had capacity to actually produce, right? So that is the exciting part here is that battery backup cabinet, they might have been able to handle $1 million to $2 million at best in that plant, right? Now we're able to completely take over that program.
And we expect that program to continue on, even though we have a purchase order for $10 million, we expect that to increase as the year goes along next year. So that's the same case with power distribution units. Extrusion panels and busway components. Busway components are really around aluminum extrusions, which data -- sorry, Accu-Fab did not have any capacity for. We're going to produce these out of our Fond du Lac facility, right?
So this is the exciting part about this acquisition is that we're capturing everything Accu-Fab could capture. And then all of this is really icing on the cake because we're able to then now put all of these programs into MEC legacy plants. Also, some of these products here in the pipeline, as an example, products that Accu-Fab has never made. So those products, we are able to manufacture because of either size limitations, capability limitations, machinery limitations that Accu-Fab would not have even bid on in the past. So now MEC is able to bid and win in the future, some of these larger programs and larger physically in size and complexity.
And are you able to sort of tell us like what types of customers are they? How big are they? Like how much data center stuff are they doing themselves? And just to be clear, what we're talking about here, how many is new versus legacy customers to Accu-Fab?
I would say that a significant number of maybe 3 quarters of what we have won here or more are legacy Accu-Fab customers. And in the opportunity pipeline, I would say at least 1/3, if not higher, are new logos to Accu-Fab and MEC. So we're not stopping at just capturing incremental share of wallet from existing Accu-Fab customers. We're actually expanding our logo list, if you will, and going after new customers in that space.
So as an example, this data center customer on this slide, you're looking at, right, the one customer, that's a $20-plus billion in sales customer. The extrusions, the 2 customers, they're each of them, one is probably a couple of billion in size. The other one is $20-plus billion in revenue. Critical power, the 6 customers, these are multibillion-dollar revenue customers, right? So these are large customers significantly expanding their presence in the data center and critical power space and looking for additional capacity to continue to grow.
Okay. Perfect. Last one for me because you provided some good color by segment for fiscal '26, but there's a lot moving along around in this data center critical power segment. So just given the organic growth, Accu-Fab, synergies, I mean, you're at an annualized $90 million rate in Q3. What is your expectation for revenue in this segment in fiscal '26?
In data centers?
Yes.
Okay. We don't -- obviously, we're not providing any guidance for '26. And I'm not trying to be flippant about it, Greg. Every single day, a new program is -- every single week, right, a new program is being added to that qualified pipeline. It has been so dynamic. We did not expect to win $30 million of new business in Q3, right? And here we are, right? We already won some more in October, right? We expect to win some more in Q4.
So at a -- I would say, if I were to take a rough guess, we expect the data center and critical power end market to be at least 20% of our overall sales in 2026, right? Obviously, the caveat there is what is the CV market is going to do because that's a significantly large end market. If CV stays around 205 number, we expect data center to be a 20% end market for us next year.
We now turn to Mike Shlisky with D.A. Davidson.
I want to follow up on a couple of the comments you made so far, Jag, on the CV market for 2026. The ACT Research forecast, the 2 OEMs you mentioned. I want to throw out there that all the end users of trucks that I've heard from, not one has mentioned buying less trucks in 2026. That's mostly vocational. But even on the freight side, a lot of folks just set out 2025 and there was bought 0 trucks. So any one truck next year would be an increase for a lot of those players.
I guess I wanted to figure out, have you talked to any of the OEMs? And could you maybe share at a very high level what their actual comments have been directly to you about what to make sure you're ready for in 2026?
Good question, Mike. We have been burned by this end market in the last 12 months significantly burned by this end market, right? So if we're being a little gun shy, if we're being a little conservative, right, hopefully, you guys can give us some grace on that. Because if I were to listen to everything the OEM has said to us over the last 9 months, right, we would have been in much worse situation than we ended up in 2025.
I know that we called as we saw it coming out of Q2 and many of you, right, picked on us a little bit that we were being too conservative. In the end, MEC was right about this end market. Because we get to see daily, weekly EDIs. We get to see the build rates on a daily, weekly basis and what the OEMs are actually doing, right?
So I mean, your numbers that you referenced, what they have publicly commented, all 3 of them, 3 public OEMs, do I trust those numbers? I don't because I don't see that in the current forecast. I don't see that in the current EDI. I don't see that in their build rates. I don't see that in their production rates, right? So look, if I'm wrong about 205 and if the market ends up being 240 or 260, one of those numbers, great. That's an upside for MEC, right? So -- but what this has done for us is to -- over the last 3 months, right, since our last earnings call, we were able to go in and take out cost out of our factories, 6 CV-focused plants that we have.
We were able to take costs out. We were able to take shifts out. We were able to take other resources out and redirect resources and capacity to data center end market, right? So as I mentioned, a couple of plants that we're putting data center products in, those are CV plants, right? So this has given the opportunity for MEC to reconfigure our production capacity, reconfigure our resources. And if the volumes come back next year, great, right? That's just an upside for us.
So I still feel the call we made at the end of Q2 and the call we're making on ACT number today might be conservative, but it has really helped MEC to look at our cost structure, look at our capacity and reorganize us as a company.
Got it. That's great color. I really appreciate that. And perhaps a very similar question on the ag sector as well. Your comments on it being a back half 2026. Just any comments you heard. I guess the EDI isn't suggesting a good start to the year, at least what you've learned so far. Is that true? And again, heard anything from the OEMs directly as to what you should be preparing for and being ready for?
Right. At least the good news on the ag side is, if there is any, the OEMs are at least being honest and the OEMs are at least being transparent with us on what they see, and they don't see a recovery in 2026, perhaps maybe a little bit of flattening out in second half. But still, right, we're calling a low single-digit decline in ag next year, and that is consistent with the information that we have received from our ag OEMs.
Okay. You've also commented over the last few quarters about sort of getting market share, tariff-related contract pick ups or opportunities across CV and construction ag and elsewhere. [ indiscernible ] on do you think you could outperform the broader end markets next year with some new projects stuff in the pipeline beyond data center that maybe you can discuss that might come to the floor in 2026?
Yes. If you look at the slide we have on the deck, right, on the market slide, we have consistently outperformed our end markets, right? Yes, the negative bars are not great to look at. I recognize that. But if you look at the market downturn, any of these end markets, we have outperformed the end markets, right? So that's because we continue to win new programs in CV and ag and construction and military and every other end market.
So I expect whatever the end market is going to do next year, we're going to outperform that because we have programs that are starting up in 2026 and 2027 that we're already working on. As I mentioned earlier, these are 12- to 18-month start-ups, right? So we're in the middle of a significant new program start-ups. So 2026 and 2027 will be, again, another outperformance year for MEC in some of these end markets.
So '26 will be a transition year as we navigate putting in a lot of the data center work into some of our legacy plants and reconfigure resources, we can't lay off a whole bunch of people in Q4 and then expect them to be there in Q1 when the data center projects ramp-up, right? So there's a bit of a transition here in the next 1 to 2 quarters, but we do expect to outperform all of our end markets next year.
We now turn to Ted Jackson with Northland Securities.
Most of my questions have been asked, but a couple of smaller ones. And it sounds like this acquisition is going to be a winner, just going to say it. Question-wise, first of all, with regards to the CapEx spend and working capital needs to bring this data center vision to fruition. Can you talk a bit about what are the things that you need to put in place in terms of equipment and capabilities, maybe some kind of rough understanding in terms of what that means for capital spend next year and then the time line for it? I think my first question [ indiscernible ].
Sure. We don't anticipate significant CapEx increase, Ted, next year to accommodate some of these programs. I say that with the existing -- what the existing pipeline is informing us. We might -- on the margin, we might go spend on a handful of machines that will help us produce these products faster or more efficiently. We have 90-plus percent of the assets required to produce these programs internally today. So that is the great news about the synergies with this acquisition is that we have the footprint, we have the manpower, and we have the majority of the assets required.
Having said that, even though we're not providing any guidance right now, I think we do have it on one of our slides, CapEx slides. We expect to be in the $15 million to $20 million range for our CapEx next year. So that is a bit of an increase from 2025. And we have -- as we have indicated, we're going to be at the low end of the 2025 range for this year. And right now, we do anticipate a slight increase to that CapEx spend next year.
Okay. Shifting over to Construction & Access. You had a nice quarter with it. I know you have a fair amount of exposure within access, mainly aerials and stuff, which is a market that looks like it's kind of bottomed out at this point. So my question is, when I look into -- or you look into that business, I mean, is what you're seeing in there like a bottoming out of the access side of things? Or is it more an improvement outside of access? Maybe some color on that and then maybe some kind of perspective in terms of what you're thinking about that with regards to relatively fourth quarter and into '26? Because I listen to a lot of these OEMs, and it sounds like there's been a lessening of pricing pressure, at least within the larger construction equipment market and the inventories are lined up reasonably well with demand. So kind of just maybe some soft color with regards to your outlook there beyond the fiscal year [ indiscernible ].
Yes. In Construction & Access, we're roughly 50-50, 45-55, right? In access, in particular, I think some of the demand is being driven by nonresidential construction and data center construction. Some -- if you listen to the rental companies, I think out of the 3 rental companies, one of them is on a heavy capital spend. I believe that is one of the reasons why we saw a demand increase from our OEM. At the same time, 2 other rental companies, right, they're going through some transition, one trying to come to the U.S. with an IPO. And so other acquisition transition, inventory cleanup. So we have to wait and see what the other 2 rental companies are going to do.
But certainly, right, one of the rental companies that is doing well and spending money right now, mostly driven by data center construction. That's what's been helpful. Certainly in our Q3, we will wait and see how that transitions going into next year. Construction, again, hopefully, with interest rate cuts in the coming quarters would help residential and other type of construction for the regular earthmovers, the yellows that you can think of in the near-term.
Okay. And then my last is just on powersports. You put growth up there, but you caveated that it sounds like there was some onetime revenue that pushed the quarter. If you took that revenue out, how would powersports have performed? I mean it seems to me from listening to a lot of the guys that play around there that not that the business is bottoming, but the big declines and it seem to pass and you're starting to see kind of the RV, the side-by-side, the marine markets all sort of hit their bottoms [ indiscernible ]. So I guess the question is, removing your kind of onetime revenue, how did it perform? And am I correct in feeling that, that business or that market is at least finding it's, you know what I'm saying, it's foundation?
Yes. Yes. I would say that, again, listening to the public comments from some of the OEMs and what we're observing is that right now, their production schedules are reasonably aligned with end-user demand. That's what we wanted to see, and I think they're finally there. So we do expect flat to up low single digits in 2026 for powersports end market. As you recall, we also brought on some new customers this year. So that's also helping us outperform the market. So if we take out a onetime transitionary order we got, so if we take that out, we still see flat to slightly up next year.
[Operator Instructions] We now turn to Natalia Bak with Citi.
Maybe I know that there was a few questions on your data center and critical power vertical, but just maybe a few more follow-ups. You highlighted $20 million to $30 million synergy opportunities for 2026 from Accu-Fab. What are some of the key milestones to realize that? And can you also just frame the run rate EBITDA margin profile for this vertical once these synergies are captured?
Sure. What I think that we have on our slide -- let's go back. Yes, when we listed our wins, the $25 million of revenue synergies, Natalya, you can see that the battery backup cabinet starts to ramp -- actually starting to ramp in Q4 and power distribution unit and transfer switches will ramp up starting in first quarter, late January, early February. And then extrusions and busway components. So that is starting to ramp already through first quarter of 2026. So majority of these cross-selling synergies will see an impact starting in Q1 and a full ramp by Q2.
Sorry, what was the second part of your question? Margin growth...
I think it's -- yes.
Yes. So all of these are 30-plus percent gross margin programs that we just won. I would say that next year, approximately 20% is what I said will be data center end market. Out of the 20%, approximately 3%, I would say, would be legacy MEC products that are in the data centers, i.e., power generation, et cetera. So those are slightly lower margin. And then the remaining here, obviously, is the higher margin.
Got it. That's helpful color. And one more question for me. I'm just curious like how are you positioning production capacity between your legacy MEC end markets like commercial vehicle, agriculture versus high-growth data center exposure? I mean there's an expectation for some of your end markets, you're saying for like recovery next year. So just curious how you balance the production capacity.
Right. We're having a lot of conversation with our legacy customers. Since we closed, we have started and shared our growth objectives with them and started by requesting additional volumes because when their markets come back up, right, they need capacity today, if we reallocate that capacity to data center customers, they're not going to have access to that capacity. So next steps to that conversation, if volumes don't materialize, will involve commercial pricing. So many of these discussions are just starting and are in early stages, and we'll continue to have those conversations with these customers.
We have no further questions. So I'll now hand back to Jag Reddy for any final remarks.
Before we conclude, I want to thank again our employees for their continued strong focus and execution and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we're making to position MEC for durable, high-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today.
Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Mayville Engineering Company, Inc. — Q3 2025 Earnings Call
Financial data from Mayville Engineering Company, Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 586 586 |
12%
12%
100%
|
|
| - Direct Costs | 531 531 |
14%
14%
91%
|
|
| Gross Profit | 55 55 |
3%
3%
9%
|
|
| - Selling and Administrative Expenses | 52 52 |
16%
16%
9%
|
|
| - Research and Development Expense | - - |
-
-
|
|
| EBITDA | 3.05 3.05 |
92%
92%
1%
|
|
| - Depreciation and Amortization | 13 13 |
81%
81%
2%
|
|
| EBIT (Operating Income) EBIT | -9.47 -9.47 |
131%
131%
-2%
|
|
| Net Profit | -17 -17 |
197%
197%
-3%
|
|
In millions USD.
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Mayville Engineering Company, Inc. Stock News
Company Profile
Mayville Engineering Co., Inc. engages in the manufacture of metal components. It offers a broad range of prototyping and tooling, production fabrication, coating, assembly, and aftermarket components. Its customers operate in a diverse end markets, including heavy- and medium-duty commercial vehicle, construction, powersports, agriculture, military, and other end markets. The company was founded by Leo Bachhuber and Ted Bachhuber in 1945 and is headquartered in Mayville, WI.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Reddy |
| Employees | 2,400 |
| Founded | 1945 |
| Website | www.mecinc.com |


