Mayville Engineering’s Q1 Earnings: Growth Amid Challenges

Mayville Engineering Company ((MEC)) has held its Q1 earnings call. Read on for the main highlights of the call.

Mayville Engineering Company (MEC) recently held its first-quarter earnings call, revealing a mixed sentiment. The company demonstrated robust operational execution with sequential growth and margin expansion, alongside significant new business wins. However, these positives were tempered by notable year-over-year sales declines across key markets, reduced margins, and increased operating expenses. Additionally, uncertainties in the macroeconomic and regulatory environment present challenges for the future.

Sequential Sales Growth and Margin Expansion

MEC reported a 12% sequential sales growth and a 140 basis point improvement in adjusted EBITDA margin for the first quarter. This growth was attributed to strong execution and operational discipline, highlighting the company’s ability to adapt and thrive in a competitive market.

Positive Free Cash Flow and Debt Reduction

The company generated $5.4 million in free cash flow, achieving a 44% free cash flow conversion of adjusted EBITDA. MEC also made significant strides in reducing its debt from $143.1 million to $80.6 million, resulting in a net leverage ratio of 1.4 times.

Significant New Business Wins

MEC is on track to meet its annual goal of $100 million in new business wins, having secured between $35 to $40 million by the end of April. The company has seen substantial expansion with commercial vehicle customers, underscoring its growth potential.

Strong Domestic Manufacturing Presence

With approximately 95% of sales and 92% of sourcing within the United States, MEC is well-positioned to benefit from OEM re-shoring activities accelerated by changes in US trade policy.

Military Market Growth

The military market is expected to grow by mid-teens, providing a positive contribution to MEC’s overall performance and offering a buffer against declines in other sectors.

Decline in Total Sales and Net Sales in Key Markets

Total sales for the first quarter saw a 15.9% year-over-year decrease to $135.6 million, with significant declines in the commercial vehicle, powersports, construction and access, and agriculture markets.

Reduced Manufacturing Margin

MEC’s manufacturing margin decreased to $15.3 million in the first quarter from $20.9 million in the previous year, with the margin rate dropping from 13% to 11.3%.

Higher SG&A Expenses

Selling, general, and administrative expenses rose to $8.7 million from $7.8 million in the prior year, driven by normal wage inflation and increased compliance and consulting costs.

Uncertain Market Conditions and Regulatory Environment

The company faces uncertainty in the regulatory and macroeconomic environment, particularly concerning tariffs, potential recession, and EPA emissions requirements, which could impact demand in the latter half of the year.

Forward-Looking Guidance

Despite a 15.9% year-over-year decrease in total sales for the quarter, MEC maintained its full-year guidance. The company expects net sales between $560 million and $590 million, adjusted EBITDA between $60 million and $66 million, and free cash flow between $43 million and $50 million. The commercial vehicle market is projected to see a low-single-digit decrease, while the military market is anticipated to grow by mid-teens. MEC aims to reduce net debt leverage to below 1 times by year-end, excluding M&A activity, and remains focused on cost control and strategic growth.

In conclusion, Mayville Engineering Company’s earnings call presented a balanced view of its current performance and future prospects. While the company achieved sequential growth and made significant new business wins, it faces challenges from declining sales in key markets and a complex regulatory environment. Nevertheless, MEC’s strong domestic presence and strategic focus on growth and cost control position it well for future success.