Mayville Engineering Company, Inc. Q2 FY2025 earnings call

• Remained focused on executing the MBX value creation framework, with adjusted EBITDA margin expanding 130 basis points sequentially despite a 2% decline in net sales.
• Completed acquisition of Accu-Fab in early July, which is accretive to earnings, increases serviceable addressable market by ~60% to ~$8 billion, and provides diversification into power and data center end markets.
• Tracking ahead of pace to achieve $100 million in new business awards for the year, with cross-selling wins post-Accu-Fab, expanded market share with Access customer, commercial vehicle wins, power generation and battery thermal management unit wins.
• Implemented fixed cost reduction initiatives and rationalized asset capacity to optimize manufacturing footprint.
• Free cash flow conversion was 92% of adjusted EBITDA in Q2, used for debt repayment and share repurchases.

Total sales for the second quarter decreased 19.1% year-over-year to $132.3 million. Manufacturing margin was $13.6 million in the second quarter compared to $22.3 million in the prior year period. Adjusted EBITDA for the second quarter was $13.7 million versus $19.6 million in the prior year period. Adjusted EBITDA margin decreased by 170 basis points to 10.3%. Free cash flow during the second quarter was $12.5 million. Debt was $72 million as of the end of the second quarter, down from $125.4 million the prior year, resulting in a net leverage ratio of 1.4x.

• Updated 2025 financial guidance: net sales $528M-$562M, adjusted EBITDA $49M-$55M, free cash flow $25M-$31M, including incremental revenues and adjusted EBITDA from Accu-Fab acquisition.
• Pro forma net leverage post-Accu-Fab is ~3.1x, targeting below 2x by end of 2026.
• Expect $5M-$10M in revenue synergies from Accu-Fab in 2026, ahead of schedule, and $15M-$20M by 2028.

• Soft end-user demand in core markets prolonging destocking cycles, especially in commercial vehicle market with elevated inventory levels and uncertainty around 2027 EPA regulations.
• Uncertainty in tariffs, freight volumes, and rates impacting customer decisions.
• Potential for continued weakness in agriculture and other markets until recovery in 2026.

Q: Mike Shlisky asks about impressions of Accu-Fab integration and synergies.

A: Jag states integration activities are on track, sees significant commercial opportunities, expects Accu-Fab revenues to reach ~$100M by 2028 and cross-selling synergies over $20M by 2028.

Q: Mike Shlisky asks about end market outlook and why guidance was reduced.

A: Jag explains commercial vehicle market saw significant production days cut and run rate reductions, leading to adjusted ACT forecast, and other markets have varying outlooks.

Q: Ross Sparenblek asks about SKU rationalization and destocking.

A: Jag addresses lack of specific info on SKU rationalization but discusses market stabilization in powersports, construction, and agriculture.

Q: Ted Jackson asks about commercial vehicle channel inventory and vertical outlooks.

A: Jag states commercial vehicle channel inventory should align with demand by 2026, and other segments have minor changes due to recategorization and reshoring.

Q: Unidentified Analyst asks about reshoring and vertical diversification.

A: Jag mentions reshoring driven by tariffs and increased requests for quotations, and Accu-Fab helps diversify into critical power and data center, with ongoing new business wins in various sectors.