Mayville Engineering Q1 Earnings Call Highlights

Key Points

• Data center and critical power is becoming MEC’s growth engine: Revenue in that segment rose about 71% organically year over year, and the company won roughly $50 million in new awards as demand stayed strong. Management expects the business to exceed 20% of 2026 revenue and sees a pipeline of more than $125 million.
• Margins were pressured in Q1 by launch costs and weak legacy markets: Sales rose 6.8% to $144.8 million, but manufacturing margin fell to 7.6% and adjusted EBITDA margin dropped to 4.5% due to program launch expenses, restructuring costs, and lower volumes in older end markets. Free cash flow also turned negative as spending increased on equipment for new programs.
• Management is guiding for improvement later this year: MEC raised the low end of full-year guidance and now expects $590 million to $620 million in sales and $52 million to $60 million in adjusted EBITDA. The company anticipates sequential improvement as data center programs move into full production and utilization rises.

Mayville Engineering NYSE: MEC reported first-quarter 2026 results that topped management’s expectations, as rapid growth in its data center and critical power business offset continued softness across several legacy end markets.

President and CEO Jag Reddy said the quarter reflected “strong top-line momentum” in data center and critical power, while the broader business remained in transition as the company prepared for a series of program launches throughout 2026. Those preparations included repositioning resources, completing tooling requirements and retaining variable costs ahead of production ramps, which weighed on margins during the quarter.

“Performance improved late in the quarter as several data center and critical power programs transitioned from the launch phase into full production,” Reddy said. “We expect that momentum to continue building through the second quarter.”

Data center and critical power demand drives growth

MEC said data center and critical power revenue grew approximately 71% organically year over year in the first quarter, supported by legacy OEM customers and early launches tied to cross-selling opportunities from the company’s Accu-Fab acquisition.

Reddy said customer demand in the market remains strong, with a qualified opportunity pipeline exceeding $125 million. Projects scheduled to launch in 2026 represent approximately $50 million to $60 million in value, and MEC continues to expect data center and critical power to account for more than 20% of revenue in 2026.

During the first quarter, the company secured about $50 million in new project awards with data center and critical power customers, exceeding the total awards in that end market during the second half of the prior year. Reddy said the awards were primarily driven by new customers and included work on power distribution units, static transfer switches and switchgear.

In response to analyst questions, Reddy said two new data center customers contributed significantly to the first-quarter wins and that MEC expects those customers to continue growing with the company. He said customers in the market are increasingly looking to outsource fabrication work, similar to trends that occurred over time in MEC’s legacy end markets.

“We see that as a long-term secular tailwind for the fabrication industry,” Reddy said, adding that MEC’s penetration among top potential and existing data center customers remains in the “low single digits or less.”

Margins pressured by launch costs and legacy-market weakness

Chief Financial Officer Rachele Lehr said total first-quarter sales increased 6.8% year over year to $144.8 million. Excluding the Accu-Fab acquisition, organic net sales declined 8.2% from the prior-year period.

Manufacturing margin fell to 7.6% from 11.3% a year earlier. Lehr attributed the decline to $1.2 million of data center and critical power project launch costs, non-recurring restructuring costs and lower volumes in legacy end markets. Those pressures were partially offset by the higher-margin contribution from Accu-Fab.

Adjusted EBITDA margin was 4.5% in the quarter, down from 9% in the prior-year period. Interest expense increased to $3.7 million from $1.6 million, reflecting higher borrowings tied to the Accu-Fab acquisition, which closed in the third quarter of the prior year.

Free cash flow was a use of $6.9 million, compared with $5.4 million provided in the prior-year quarter. Lehr said the decline was driven by lower operating cash flow from reduced profitability and a $1.2 million increase in capital expenditures, largely related to equipment supporting new data center and critical power programs.

Legacy markets remain mixed

Reddy said demand across MEC’s legacy end markets remains uneven and that the company has not seen clear signs of a broad-based recovery.

• Commercial vehicles: First-quarter net sales declined approximately 24% year over year as North American Class 8 production reached a low point in the cycle. Reddy said ACT Research had raised its 2026 outlook to a 9.2% increase in Class 8 production, but MEC has not yet seen a meaningful recovery in OEM activity.
• Construction and access: Revenue increased approximately 3% year over year, ahead of expectations, supported by non-residential activity. However, management said demand remains customer-specific rather than broad-based.
• Powersports: Net sales increased approximately 5% year over year, driven by discrete short-cycle customer programs. This was partially offset by softness among legacy ATV, UTV and motorcycle OEMs, as well as lower sales in marine propulsion.
• Agriculture: In the question-and-answer session, Reddy said strength in small agriculture and turf care is offsetting declines in large agriculture, leading to a flat outlook for the segment.

Reddy also said MEC’s commercial vehicle outlook assumes a 240,000-unit build for the year, below ACT’s latest projection. If the market achieves ACT’s higher implied build rate, he said MEC’s commercial vehicle revenue should see a similar tailwind.

Capacity investments and balance sheet priorities

MEC is increasing its investment focus on data center and critical power capacity. Reddy said customer demand is already exceeding available capacity in some areas, and the company is evaluating targeted spending on equipment, automation and operating capabilities. Growth capital investment is expected to rise above the historical annual average of $5 million to $10 million, though management said it will remain disciplined.

Reddy said MEC has converted approximately six, and potentially seven, plants to support data center manufacturing. The company has not exited legacy customer programs and continues to support those customers while adding data center volume. He said MEC may eventually need an organic investment on the East Coast, where capacity is tighter for certain large data center products that are expensive to ship long distances.

Without further investment, Reddy said the company would likely top out at around $850 million in revenue through its existing footprint. He also said some plants are running seven days a week, others are operating 24 hours a day for five days a week, and overtime is running 10% to 12% in many locations.

Lehr said net debt stood at $219.2 million at the end of the first quarter, up from $80.4 million a year earlier, with a bank covenant net leverage ratio of 4.4 times. MEC’s long-term net leverage target remains 2.5 times. Lehr said the company is focused on deleveraging and aims to be below three times leverage as it exits the year, supported by stronger second-half sales and margins.

Guidance calls for sequential improvement

For the second quarter, MEC expects net sales of $145 million to $155 million and adjusted EBITDA of $10 million to $13 million. Lehr said the outlook includes continued launch-related costs and margin pressure early in the quarter, with improvement expected as more data center and critical power programs move into full production.

For the full year, MEC raised the low end of its guidance while maintaining the high end. The company now expects net sales of $590 million to $620 million, adjusted EBITDA of $52 million to $60 million and free cash flow of $25 million to $35 million. The outlook includes a full year of Accu-Fab ownership, $50 million to $60 million of incremental cross-selling revenue and gradual improvement in legacy market demand, primarily in the second half.

“As production levels increase and utilization improves, we expect better absorption, stronger margin conversion, and improved cash generation over the remainder of the year,” Lehr said.

About Mayville Engineering NYSE: MEC

Mayville Engineering Company, Inc NYSE: MEC is a U.S.-based industrial manufacturer specializing in engineered metal castings and precision machining services. Headquartered in Mayville, Wisconsin, the company leverages over a century of casting experience to design, produce and finish complex metal components for a broad range of heavy-duty applications.

The company operates two principal business segments: iron castings and steel castings. Its iron segment utilizes green sand and lost-foam molding processes to produce gray and ductile iron components, while the steel segment employs electric-arc furnace technology to manufacture high-strength steel castings.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.