MEC — Mayville Engineering Company, Inc.

Summary of Mayville Engineering Company, Inc. Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Total Sales: Increased by 10.7% year-over-year to $134.3 million. However, organic net sales declined by 5.3% excluding the AccuFab acquisition.
• Manufacturing Margin Rate: Dropped to 6.6% from 8.9% in the prior year, impacted by $1.2 million in project launch costs and $1.7 million in early-stage inefficiencies.
• Adjusted EBITDA Margin: Decreased to 4.7% from 7.6% year-over-year, reflecting lower legacy market volumes and project-related costs.
• Free Cash Flow: Reported at $10.2 million, down from $35.6 million in the prior year, largely due to a one-time settlement received last year.
• Net Debt: Increased to $205.3 million, resulting in a net leverage ratio of 3.7 times.

2. Strategic Updates and Business Highlights

• Market Focus: The company is reallocating resources to capitalize on strong demand in the data center and critical power markets, which are expected to represent over 20% of revenues in 2026.
• Operational Excellence: Continued execution of the MBX operational framework to enhance manufacturing efficiency and optimize the footprint.
• New Project Awards: Secured approximately $15 million in new project awards in Q4, contributing to a total of over $108 million year-to-date, exceeding the annual target.
• Acquisition Impact: The AccuFab acquisition is expected to drive significant cross-selling opportunities, with projected incremental revenue of $40 million to $50 million in 2026.

3. Forward Guidance and Outlook

• 2026 Full-Year Guidance: Anticipates net sales between $580 million and $620 million, with adjusted EBITDA of $50 million to $60 million.
• Q1 2026 Guidance: Expected net sales of $137 million to $143 million and adjusted EBITDA of $5 million to $7 million, reflecting ongoing project launch costs.
• Long-Term Growth: The data center market is projected to grow at a compound annual rate of approximately 16% from 2026 to 2030.

4. Bad News, Challenges, or Points of Concern

• Margin Pressure: Continued margin pressure due to project launch inefficiencies and elevated costs associated with ramping up new projects.
• Legacy Market Declines: Net sales in the commercial vehicle market declined by approximately 19%, with expectations of a slow recovery.
• Operational Costs: High fixed costs (55% of total) lead to under-absorption during periods of low utilization, impacting profitability.
• Debt Levels: Increased debt levels raise concerns regarding financial leverage, although management aims to reduce leverage to 3 times or lower by the end of 2026.

5. Notable Q&A Insights

• Commercial Vehicle Market: Management noted a potential acceleration in demand due to revised industry forecasts, but actual demand signals have yet to materialize.
• Agriculture Market: While large agriculture remains down, there are signs of improvement in smaller agriculture segments.
• Data Center Growth: The company has good visibility on achieving the $125 million revenue target from the data center segment, with a diversified customer base reducing concentration risk.
• Operational Adjustments: The company is adapting its operational strategy to increase throughput and productivity, including adding shifts and rethinking production processes to meet rapid demand changes.

Overall, Mayville Engineering Company, Inc. is navigating a transitional phase with significant investments aimed at capturing growth in the data center market while addressing challenges in its legacy markets. The outlook for 2026 appears cautiously optimistic, contingent on successful project execution and market recovery.