Mayville Engineering Company (MEC) Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Total Sales: Increased 23.2% year-over-year to $163 million.

Organic Net Sales: Excluding the Accu-Fab acquisition, organic sales rose 9.2%.

Manufacturing Margin: Improved to 10.9% from 10.3% year-over-year, aided by higher-margin sales from Accu-Fab and improved capacity utilization.

Adjusted EBITDA Margin: Decreased to 8.1% from 10.3% due to $2.1 million in project launch costs and higher gain-sharing accruals.

Net Debt: Increased to $134.7 million from $71.8 million year-over-year, with a net leverage ratio of 2.9x.

Free Cash Flow: A use of $6.6 million, compared to a positive $12.5 million in the prior year.

2Strategic Updates and Business Highlights

Market Demand: Strong demand in data centers and critical power markets, with a 173% year-over-year growth in this segment.

Commercial Vehicle Sales: Increased by 3% year-over-year, with expectations of continued recovery supported by a projected 9.1% increase in Class 8 production.

Capacity Investments: Plans to invest $50 million over the next two years to expand capacity, including a potential new facility in the Southeast estimated to cost $25 million to $30 million.

Stock Offering: Completed a common stock offering generating approximately $94 million in net proceeds, enhancing financial flexibility and reducing debt.

3Forward Guidance and Outlook

Q3 2026 Guidance: Expected net sales between $160 million and $170 million, with adjusted EBITDA between $15.5 million and $18.5 million.

Full-Year 2026 Guidance: Increased net sales forecast to $620 million - $650 million; adjusted EBITDA remains at $52 million - $60 million; free cash flow guidance lowered to $7 million - $15 million.

Future Revenue: Anticipated bookings for 2026 to exceed $150 million, with significant contributions from the data center and critical power segments.

4Bad News, Challenges, or Points of Concern

Temporary Cost Pressures: Launch and outsourcing costs are impacting near-term profitability, expected to continue through the second half of 2026.

Labor Constraints: Difficulty in hiring and retaining skilled labor in low-unemployment areas, which may affect operational efficiency.

Increased Interest Expense: Interest expense rose to $3.5 million from $1.4 million year-over-year due to higher borrowings.

Free Cash Flow Decline: The significant drop in free cash flow reflects reduced profitability and working capital investments.

5Notable Q&A Insights

Capacity Reservations: MEC is exploring capacity reservation models primarily with data center customers, which may involve upfront fees or volume commitments.

Commercial Vehicle Market: The rapid recovery in the commercial vehicle sector is prompting MEC to make strategic decisions about capacity allocation and prioritization of higher-margin programs.

Outsourcing Dynamics: Outsourcing is primarily for laser cutting, brake press, and painting due to equipment constraints and labor shortages, with plans to bring these processes in-house as new equipment arrives.

Customer Engagement: Conversations are ongoing with both existing and new customers regarding capacity reservations, indicating a proactive approach to managing demand and supply constraints. This summary encapsulates MEC's financial performance, strategic initiatives, future outlook, and challenges, providing a comprehensive overview of the company's current position and future direction.