Mayville Engineering Company ((MEC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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During the recent earnings call, Mayville Engineering Company (MEC) expressed a mixed sentiment, highlighting both significant achievements and ongoing challenges. The company showcased its progress with the Accu-Fab acquisition and its promising growth prospects in the data center and critical power market. However, it also acknowledged the hurdles faced in its legacy markets, such as commercial vehicles and agriculture, which have led to a decline in manufacturing margins and increased debt leverage. Despite these obstacles, MEC remains optimistic about future growth and has reaffirmed its 2025 guidance.
Accu-Fab Acquisition Integration
MEC has made significant strides in integrating the Accu-Fab acquisition, with the sales team actively engaging with Accu-Fab’s customer base. This integration is expected to provide a scalable solution for data center and critical power OEMs, resulting in a substantial pipeline of over $100 million in opportunities.
Data Center and Critical Power Market Growth
The data center and critical power market is projected to account for 20% to 25% of MEC’s total revenues in the coming years. Revenue synergy expectations from Accu-Fab have increased, with projections of $20 million to $30 million in 2026, and gross margins anticipated to be approximately 10 percentage points higher than the historical average.
Construction & Access Market Growth
The Construction & Access market experienced a 10.1% year-over-year revenue increase during the quarter, bolstered by the Accu-Fab acquisition and robust nonresidential activity. Organic net sales growth in this sector was 6.2% for the quarter.
Powersports Market Growth
MEC’s powersports market saw a 6.4% year-over-year increase in net sales, driven by transient aluminum-related demand.
New Project Awards
In the third quarter, MEC secured $30 million in new project awards with data center and critical power customers. Year-to-date, total awards across legacy markets reached $90 million, nearing the full-year target of $100 million.
Total Sales and Guidance Reaffirmation
MEC reported a 6.6% year-over-year increase in total sales for the third quarter, reaching $144.3 million. The company reaffirmed its 2025 financial guidance, with expected net sales between $528 million and $562 million.
Legacy End Markets Softness
Legacy end markets remain in a cyclical downturn, with commercial vehicle demand softening, resulting in a 24% decline in net sales compared to the previous year.
Agriculture Market Decline
The agriculture sector faced a 21.8% decline in net sales due to elevated interest rates and reduced farm income.
Manufacturing Margin Decline
MEC’s manufacturing margin rate fell to 11% for the third quarter of 2025, down from 12.6% in the prior year, primarily due to nonrecurring restructuring costs and decreased customer demand in legacy markets.
Interest Expense Increase
Interest expenses rose to $3.4 million for the third quarter of 2025, up from $2.7 million the previous year, driven by higher borrowings from the Accu-Fab acquisition.
Free Cash Flow Impact
The third quarter of 2025 saw a negative free cash flow of $1.1 million, reflecting $3.5 million in nonrecurring costs, compared to a positive $15.1 million in the prior year.
Increased Net Debt
Net debt increased to $214.9 million, up from $114.1 million at the end of the third quarter of 2024, resulting in a net leverage ratio of 3.5x.
Forward-Looking Guidance
Despite challenges in legacy end markets, MEC reaffirmed its full-year 2025 financial guidance. The company expects net sales between $528 million and $562 million, adjusted EBITDA of $49 million to $55 million, and free cash flow of $25 million to $31 million. The integration of Accu-Fab has significantly expanded MEC’s market opportunities, with $100 million in qualified opportunities in the data center and critical power sectors. MEC aims to use positive free cash flow in the fourth quarter to reduce debt, targeting a net leverage ratio of 3x or lower by the end of 2026.
In conclusion, Mayville Engineering Company’s earnings call presented a balanced view of its current situation. While the company faces challenges in its legacy markets, it is making significant progress in integrating Accu-Fab and expanding in the data center and critical power sectors. MEC’s reaffirmation of its 2025 guidance underscores its confidence in overcoming present hurdles and achieving future growth.