Mayville Engineering Company ((MEC)) has held its Q2 earnings call. Read on for the main highlights of the call.
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In the latest earnings call, Mayville Engineering Company (MEC) conveyed a sentiment of cautious optimism. The company highlighted successful strategic initiatives, such as the acquisition of Accu-Fab and strong new business wins, which are poised to drive future growth. However, challenges like a decline in net sales and increased leverage due to acquisitions present a mixed outlook.
Successful Acquisition of Accu-Fab
The acquisition of Accu-Fab was a significant highlight, with expectations to increase MEC’s addressable market by 60% to approximately $8 billion. This acquisition is anticipated to be modestly accretive to earnings this year, offering further opportunities for market access and platform leverage.
Data Center and Critical Power Expansion
MEC secured its first cross-selling win in the data center segment post-Accu-Fab acquisition, with strong momentum expected to generate $5 million to $10 million in revenue synergies by 2026. This expansion represents a strategic move into high-growth sectors.
Strong New Business Wins
The company is tracking ahead of its annual goal of $100 million in new business awards. Significant wins in data center fabrications, commercial vehicles, and critical power end markets underscore MEC’s strategic positioning and market penetration.
Significant Free Cash Flow Generation
MEC generated $12.5 million in free cash flow, with a 92% conversion of adjusted EBITDA. This robust cash flow was utilized for debt repayment and share repurchases, reflecting a disciplined financial strategy.
Operational Efficiency Improvements
The company’s operational efficiency saw improvements, with an adjusted EBITDA margin expansion of 130 basis points sequentially. This was attributed to effective cost management and disciplined operating leverage.
Significant Decline in Net Sales
Despite strategic successes, MEC faced a 19.1% year-over-year decline in total sales, amounting to $132.3 million. This decline was due to soft customer demand across key end markets and channel inventory destocking.
Commercial Vehicle Market Weakness
The commercial vehicle market is projected to decline by 24% in production for 2025 compared to 2024, with no expected recovery in the latter half of 2025. This presents a significant challenge for MEC.
Increased Leverage Due to Acquisition
Following the Accu-Fab acquisition, MEC’s pro forma net leverage increased to approximately 3.1x from 1.4x. The company plans to reduce this leverage below 2x by 2026, indicating a focus on financial stability.
Lower Manufacturing and EBITDA Margins
MEC reported a decrease in manufacturing margin from 13.6% to 10.3%, and a 170 basis points decrease in adjusted EBITDA margin to 10.3% compared to the prior year period, highlighting areas needing attention.
Withdrawal of 2026 Financial Targets
Due to the current macroeconomic environment, MEC has withdrawn its 2026 financial targets issued at the 2023 Investor Day, reflecting the uncertainty in the market conditions.
Forward-Looking Guidance
Looking ahead, MEC provided updated guidance for 2025, reflecting the impact of the Accu-Fab acquisition and current demand conditions. The company expects full-year 2025 net sales to range between $528 million and $562 million, with adjusted EBITDA projected between $49 million to $55 million. The guidance includes anticipated revenues and EBITDA contributions from the Accu-Fab acquisition, alongside a focus on reshoring and footprint optimization.
In summary, Mayville Engineering Company’s earnings call presented a mixed sentiment, balancing strategic successes with market challenges. The acquisition of Accu-Fab and strong new business wins position the company for growth, while declines in net sales and increased leverage pose challenges. The company’s forward-looking guidance reflects cautious optimism in navigating the current economic landscape.