Mayville Engineering Reports Q2 2026 Results: Full Earnings Call Transcript

On Wednesday, Mayville Engineering (NYSE: MEC ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. 2% excluding the AccuFab acquisition.

The company is investing in expanding capacity to support future demand, particularly in data center and critical power markets, which are expected to represent 20% of total 2026 revenue. A successful common stock offering raised approximately $94 million, which was used to reduce debt and bolster financial flexibility, leaving the company with over $100 million in available liquidity. The company secured approximately $40 million in new awards in the data center and critical power sectors during the quarter, with production and revenue generation anticipated to begin in 2027. 5 million.

Full-year guidance has been updated to reflect expected net sales between $620 million and $650 million, with adjusted EBITDA between $52 million and $60 million. S. manufacturing capacity, potentially involving upfront fees or volume commitments. Labor constraints and outsourcing costs are impacting profitability, but these are expected to normalize as new equipment is installed and labor issues are addressed.

Full Transcript OPERATOR Hello everyone. Thank you for joining us and welcome to the 2026 second quarter Mayville Engineering Company earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand.

To withdraw your question, press star one again. I will now hand the conference over to Stefan Neely with Vallum Advisors. Please go ahead. Stefan Neely, Vallum Advisors (Investor Relations) Thank you, operator.

On behalf of our entire team, I'd like to welcome you to our second quarter 2026 results conference call. Leading the call today is MEC's President and CEO Jag Reddy and Rachele Lehr, Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission.

Except as required by law, we undertake no obligation to update our forward-looking statements further. This call will include the discussion of certain non-GAAP financial measures. com. Following our prepared remarks, we will open the line for questions.

With that, I would like to turn the call over to Jag. Jag Reddy, President, Chief Executive Officer and Board Director Thank you, Stefan, and good morning everyone. Our second quarter results reflect stronger than expected demand across several key end markets. This was highlighted by continued momentum in data center and critical power and the early recovery underway in our commercial vehicle market.

As a result, top line performance exceeded our expectations and positions us well as we entered the second half of the year. Throughout the quarter, our execution remained strong as we ramped activity across numerous data center and critical power programs while continuing to invest in the people and equipment needed to support future demand. These investments are to expand the capacity required to support long-term profitable growth. As anticipated, higher volumes drove improved operating leverage sequentially during the quarter.

As we move quickly to capture a rapidly expanding data center and critical power opportunity pipeline, we are incurring incremental operating costs ahead of the associated revenue. This reflects two deliberate timing-related investments. First, the capacity and equipment we're putting in place to ensure effective program launches. Second, the incremental cost of outsourcing certain elements of the fabrication process to third parties.

As equipment constraints in our existing facilities currently limit our ability to perform this work in house. We have ordered the equipment needed to bring this work in house though it carries a four to six month lead time. We expect launch costs to continue through the second half of the year as we support customers' aggressive program timelines. These investments are front-loaded by design and reflect both the natural cost of scaling at pace and the opportunity for profitable growth that we see ahead.

Importantly, we continue to view these costs as temporary and we expect them to subside as we bring our newly hired workforce up to full productivity and complete our targeted capacity investments. These programs are building toward a meaningful step up in margins over time. As these investments come online, production volumes ramp and utilization improves. We expect strong incremental margins to materialize.

Simply put, the programs we are launching today are accretive to the long-term margin profile of the business and the investments we're making now unlock that expansion in the future. A significant milestone during the quarter was the successful completion of our common stock offering which generated approximately $94 million in net proceeds. The offering advances our capital allocation priorities by strengthening the balance sheet and enhancing financial flexibility. We used the proceeds to reduce debt, exiting the quarter with more than $100 million of available liquidity.

With a stronger balance sheet and increased liquidity, we are well positioned to fund strategic growth initiatives and capitalize on the significant opportunities that are developing within the data center and the critical power market. Equally important was the timing of the offering. With demand accelerating beyond what operating cash flow alone could prudently fund, securing capital now gives us the flexibility to invest ahead of demand rather than react to it. This provides us with the financial foundation to pursue profitable growth opportunities with confidence.

As we deploy this capital, we will remain disciplined, prioritizing higher value, higher margin opportunities that we believe will generate the strongest returns and create lasting value for our shareholders. Moving to some of our key end markets, commercial vehicle net sales increased approximately 3% year over year in the second quarter as North American Class 8 production began to recover. Customer build rates have continued to accelerate and we expect this dynamic to continue into the second half of this year. 1% increase in Class 8 production supported by a projected 45% increase in production throughout the remainder of the year.

7% increase in 2027. Given that our demand activity typically precedes Class 8 production by approximately six weeks, we are encouraged by the activity levels we are seeing today. In Construction and Access, revenue increased approximately 15% year over year in the quarter as performance was supported by strength in non-residential activity. In powersports, net sales decreased approximately 6% year over year, driven primarily by softness in legacy ATV/UTV and motorcycle OEMs resulting from ongoing offshoring initiatives.

Within Data Center and Critical Power, we delivered organic growth of approximately 173% year over year supported by growth from existing OEM customers and project launches tied to ACCUFAB-related cross-selling opportunities. Demand in this end market remains robust with our qualified opportunity pipeline continuing to exceed $125 million. The value of projects scheduled to launch in 2026 is approximately $50 million to $60 million. Including the growth from our existing OEM customers, Data Center and Critical Power is expected to represent approximately 20% of total revenue in 2026.

As demand for these higher value programs accelerates, we are making disciplined portfolio decisions across the business. This includes actively evaluating pricing and margin profiles across our portfolio on a case-by-case basis. This may result in changes to mix or capacity allocation over time. , increasing the value of reliable domestic supply.

In response, we are evaluating opportunities for customers to reserve dedicated capacity with us. For customers, this provides greater certainty of supply; for MEC, it creates more predictable revenue and supports margin expansion by directing capacity towards our highest value programs. We will continue to manage capacity and production priorities carefully to support sustainable, diversified and profitable growth over the long term. Before turning to capital allocation, I would like to highlight a few examples of the commercial momentum we are seeing across the business.

During the second quarter, we secured approximately $40 million in new awards with Data Center and Critical Power customers. While these awards are not expected to contribute materially in the near term, they provide strong visibility into future, with production launches and revenue generation anticipated to begin during 2027. Based on current visibility, we expect total 2026 bookings across all of our end markets to exceed $150 million.

Supported by sustained demand and an improving cyclical backdrop within our legacy end markets, we continue to expand our share with key commercial vehicle customers as they prepare for upcoming product launches tied to the 2027 EPA regulation changes. These programs are expected to begin entering production in late 2026. Beyond commercial vehicle, we secured business through new model introductions for an Access customer while also capturing additional service business supporting a military customer. In Data Center and Critical Power, the approximately $40 million in awards secured during the quarter reflect both new business and continued expansion with major customers.

These programs include power distribution units, switchgear and static transfer switches. Turning to capital allocation in more detail, with our balance sheet significantly strengthened, our focus is centered on three: investing in organic growth, continuing to reduce leverage, and pursuing selective accretive acquisitions. First, organic growth: customer demand is increasingly outpacing our current available capacity and our organic investments are aimed squarely at unlocking more of it. Over the next two years, we expect to invest an incremental $50 million to expand capacity and support the growing needs of our data center and critical power customers.

These investments include targeted upgrades across our existing manufacturing footprint, customer-supported program investments, and the development and equipping of a new production facility. Together, these initiatives are expected to increase our revenue capacity beyond the approximately $850 million we have discussed previously, with room to build from there over time. Rachele will discuss in greater detail later on the written criteria we apply to these capital investments. Second, deleveraging: as production volumes increase and profitability improves, we expect earnings growth and cash generation to become increasingly important drivers of leverage reduction.

5 times and the actions we took this quarter represent a meaningful step toward achieving this objective. Third, accretive M&A: we will remain opportunistic, pursuing acquisitions that strengthen our competitive position, expand capacity and support long-term value creation. With conditions improving across our legacy end markets, accelerating momentum in data center and critical power, and a significantly stronger balance sheet, we are well positioned to deliver profitable growth and create lasting shareholder value.

We believe we are entering a transformative chapter defined by expanding capacity, accelerating growth, improving profitability and rising returns on invested capital. The investments we are making today are building a stronger, more competitive company and positioning us for meaningful value creation in the years ahead. With that, I would like to turn the call over to Rachele. Rachele Lehr, Chief Financial Officer Thank you, Jag, and good morning, everyone.

2% on a year-over-year basis to $163 million. 2% compared to the prior-year period. 3% for the prior-year period. The increase in our manufacturing margin was due to higher-margin sales contribution from the AccuFab acquisition and improved capacity utilization as the commercial vehicle and construction access end markets started to recover.

1 million of data center and critical power related project launch costs. 8% of net sales for the same prior-year period. The decrease in these expenses primarily relates to non-recurring executive transition expenses and AccuFab-related acquisition costs in the prior-year period. This is partially offset by incremental SG&A expenses associated with the acquisition.

3% in the prior-year period. 1 million of project launch costs and higher gainsharing accruals due to the current company performance and the expansion of our workforce, partially offset by the benefit of the AccuFab acquisition and higher legacy end market volumes. As Jag mentioned, our project launch costs in Data Center and Critical Power came in slightly above our expectations to meet our customers’ program timelines.

While equipment constraints in our existing facilities limit our in-house capacity, we expect to recognize an additional $2 million to $3 million of outsourcing costs in the second half of the year as activity accelerates, programs reach full production, and targeted capital investments are deployed. We expect these costs to normalize and to realize operating leverage across our footprint, positioning us to ramp new programs in the pipeline more efficiently and supporting the margin expansion we expect over time. 4 million in the prior-year period.

The increase was driven by increased average borrowings and interest rate under the company's revolving credit facility and the timing of debt repayment. As a reminder, the proceeds from our May equity offering were used to reduce debt during the quarter. However, under the terms of our credit agreement, the resulting step down in our borrowing rate will not take effect until August. 5 million provided in the prior-year period.

The year-over-year decrease was primarily driven by lower operating cash flow reflecting reduced profitability and working capital investments to support the launch of Data Center and Critical Power programs. 6 million, driven primarily by equipment investments supporting the launch of new programs. 8 million at the end of the second quarter of 2025. 9 times as of June 30th.

Now turning to a review of our outlook for the third quarter and the full year. 5 million. Our third quarter outlook reflects continued recovery within our commercial vehicle and construction access end markets, along with the ongoing ramp of the Data Center and Critical Power programs. 5 million in outsourcing costs.

For the full year, we increased our financial guidance for net sales and lowered our free cash flow guidance. We now expect net sales of between $620 million and $650 million. We still expect adjusted EBITDA of between $52 million and $60 million and free cash flow of between $7 million and $15 million. This outlook reflects a full year of AccuFab ownership, $50 million to $60 million of incremental cross-selling revenue and continued improvement in legacy end market demand as commercial vehicle recovers and construction access continues to deliver steady performance.

Additionally, our full year outlook includes $5 million to $6 million in launch-related costs and $2 million to $3 million in outsourcing costs. I'd also like to provide some additional detail on our capital allocation plans.