Mayville Engineering Q2 Earnings Call Highlights

Key Points

• Q2 sales exceeded expectations: Revenue rose 23.2% year over year to $163 million, including 9.2% organic growth, driven by data center, critical power and recovering commercial-vehicle programs. MEC raised its full-year sales outlook to $620 million–$650 million.
• Data center growth is accelerating but costly: Organic revenue in the segment increased approximately 173%, with more than $125 million in qualified opportunities and about $40 million in new awards. Launch, outsourcing and capacity-expansion costs pressured adjusted EBITDA margins and are expected to continue through the second half.
• Investment is weighing on cash flow: MEC maintained its $52 million–$60 million adjusted EBITDA outlook but lowered free-cash-flow guidance to $7 million–$15 million. The company plans roughly $40 million in incremental capital expenditures plus $10 million in leased equipment over the next two years, partly funded by a $94 million stock offering used to reduce debt.

Mayville Engineering NYSE: MEC reported second-quarter sales growth that exceeded management’s expectations, driven by momentum in data center and critical power programs and an early recovery in commercial vehicles. The company raised its full-year sales outlook while maintaining its adjusted EBITDA forecast and lowering its free-cash-flow guidance to reflect planned growth investments.

Total second-quarter sales increased 23.2% year over year to $163 million. Excluding the Accu-Fab acquisition, organic sales rose 9.2%, Chief Financial Officer Rachele Lehr said. Manufacturing margin improved to 10.9% from 10.3% a year earlier, aided by Accu-Fab’s higher-margin sales contribution and improved utilization in commercial vehicle and construction and access markets.

Adjusted EBITDA margin, however, declined to 8.1% from 10.3% in the prior-year quarter. Lehr attributed the decline primarily to $2.1 million in data center and critical power program launch costs, as well as higher gain-sharing accruals associated with company performance and workforce expansion.

Data Center Growth Comes With Near-Term Costs

President and CEO Jag Reddy said data center and critical power revenue grew organically by approximately 173% year over year, supported by existing OEM customers and cross-selling tied to the Accu-Fab acquisition. The company’s qualified opportunity pipeline in the market exceeds $125 million, while projects scheduled to launch during 2026 carry an estimated value of $50 million to $60 million, including growth from current OEM customers.

MEC expects data center and critical power to represent about 20% of 2026 revenue. During the quarter, it secured approximately $40 million in new awards in the segment, with production launches and revenue contributions expected to begin in 2027. The awards include power distribution units, switchgear and static transfer switches.

Reddy said the company is investing in workforce, equipment and capacity ahead of customer program launches. Current facility constraints have forced MEC to outsource portions of fabrication work, including laser cutting, brake-press capacity and certain painting services. The company has ordered equipment to bring work in-house, though the machines have lead times of four to six months.

Lehr said MEC expects an additional $2 million to $3 million of outsourcing costs in the second half. For the full year, the company’s outlook includes $5 million to $6 million of launch-related expenses and $2 million to $3 million of outsourcing costs. Management expects those costs to normalize as equipment is deployed, employees reach productivity targets and programs move to full production.

Legacy Markets Show Mixed Performance

Commercial vehicle sales rose about 3% year over year during the second quarter as North American Class 8 production began recovering. Reddy said customer build rates have continued to increase, with 2026 build slots largely filled and customers beginning to open 2027 slots. MEC’s demand activity generally precedes Class 8 production by roughly six weeks, he said.

Management cited ACT’s outlook for a 9.1% increase in full-year 2026 Class 8 production and a projected 45% rise in production during the rest of the year, followed by a projected 9.7% increase in 2027. MEC also said it continues to gain commercial-vehicle share through programs tied to 2027 EPA emissions regulations, with some revenue potentially beginning in late 2026 and larger ramps expected in 2027.

Construction and access revenue rose approximately 15% from a year earlier, supported by non-residential activity. Powersports revenue fell about 6%, reflecting softness among legacy ATV, UTV and motorcycle OEMs as a result of offshoring initiatives.

Management said it is becoming more selective in allocating capacity, including declining smaller opportunities and considering exits from some programs. Reddy said the company is prioritizing higher-volume programs, particularly expansions of existing data center and critical power products, as well as opportunities in the $10 million to $20 million range over multiple smaller projects.

Capital Investment and Balance-Sheet Actions

MEC completed a common-stock offering during the quarter that generated approximately $94 million in net proceeds. The company used the funds to reduce debt and exited the period with more than $100 million of available liquidity, according to Reddy.

Net debt stood at $134.7 million at June 30, compared with $71.8 million a year earlier, and the company’s bank covenant net leverage ratio was 2.9 times. Second-quarter free cash flow was a use of $6.6 million, compared with $12.5 million provided in the prior-year quarter, reflecting lower profitability, working-capital investment and higher capital expenditures.

Over the next two years, MEC expects to invest about $40 million in incremental capital expenditures and an additional $10 million in leased equipment. The company’s 2026 guidance incorporates about $25 million of the planned investment, with most of the remaining spending expected in 2027.

Separately, MEC is evaluating potential manufacturing sites in the Southeastern U.S. Management said a new facility could require a $25 million to $30 million investment and support approximately $50 million to $60 million of incremental revenue once fully equipped and staffed. The company is targeting a decision in late 2026.

Lehr said capital projects must meet a targeted payback period of two to three years and an internal rate of return of at least 15%.

Outlook Raised for Sales

For the third quarter, MEC expects sales of $160 million to $170 million and adjusted EBITDA of $15.5 million to $18.5 million. The outlook includes $1 million to $1.5 million of launch costs and another $1 million to $1.5 million of outsourcing costs.

For the full year, the company increased its sales outlook to $620 million to $650 million. It maintained adjusted EBITDA guidance of $52 million to $60 million and lowered free-cash-flow guidance to $7 million to $15 million.

• 2026 sales outlook: $620 million to $650 million
• 2026 adjusted EBITDA outlook: $52 million to $60 million
• 2026 free cash flow outlook: $7 million to $15 million
• Expected 2026 bookings: More than $150 million across end markets

Reddy said MEC is also exploring capacity-reservation arrangements with data center customers, including potential upfront fees and volume commitments. No such contracts have been signed, but management said customers have shown interest amid limited U.S. manufacturing capacity.

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.

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