Mayville Engineering Company, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Accu-Fab Acquisition: Closed in the third quarter; sales team engaged Accu-Fab's customer base; pipeline of qualified opportunities exceeds $100 million; revenue synergy expectations for 2026 between $20M and $30M; gross margins for this business expected to be approximately 10 percentage points above historical average of 15% to 20%.
• Legacy Markets: Commercial vehicle demand softened; Construction & Access saw 10.1% year-over-year revenue growth; Powersports had 6.4% year-over-year growth; Agriculture declined 21.8%; secured $30M in data center/critical power awards in Q3; year-to-date legacy market awards reached $90M near full-year target of $100M.
• Capital Allocation: Third quarter free cash flow impacted by $3.5 million in nonrecurring items; reaffirming full-year free cash flow guidance; top priority remains reducing debt and lowering leverage.

Segment Performance

• Commercial Vehicle: Net sales declined 24% year-over-year in Q3; ACT projects 28% decline in Class 8 production in 2025 and 14% in 2026.
• Construction & Access: Revenues increased 10.1% year-over-year in Q3, with organic net sales growth of 6.2%; expected to continue growth into 2026.
• Powersports: Net sales grew 6.4% year-over-year, driven by transient aluminum-related demand.
• Agriculture: Net sales declined 21.8% amid elevated interest rates and lower farm income.
• Data Center and Critical Power: Secured $30 million in new project awards in Q3; pipeline of qualified opportunities exceeds $100 million; revenue synergy expectations for 2026 between $20M and $30M; expected to be 20%-25% of total revenues in coming years with gross margins ~10 points above historical average.

Guidance

• Reaffirming 2025 financial guidance: Net sales expected to be between $528 million and $562 million; adjusted EBITDA between $49 million and $55 million; free cash flow between $25 million and $31 million.
• Fourth quarter expected to reflect normal seasonality and continued softness in certain legacy markets, but positive free cash flow anticipated.
• Anticipate net leverage ratio of 3x or lower by the end of 2026, aiming for below 2.5x long-term.

Risks

• Legacy market softness continuing into mid-2026, leading to near-term margin pressure as resources are balanced for data center ramp.
• Uncertainty in legacy market volumes, particularly for commercial vehicle and agriculture sectors.

Question and Answer

Q: Ross Sparenblek on productivity rollout and margin gap timeline.

A: Jag on MBX programs, actions taken to reconfigure capacity, expecting a midyear readout on margin improvement.

Q: Greg Palm on Accu-Fab activity, pipeline, and customers.

A: Jag on legacy vs new customers, large data center and critical power customers, and pipeline growth exceeding initial expectations.

Q: Michael Shlisky on CV and ag markets.

A: Jag on conservative approach to legacy market volumes, reconfiguring production capacity to support data center growth, and ag market outlook for late 2026.

Q: Edward Jackson on CapEx, Construction & Access, and Powersports.

A: Jag on minimal CapEx increase needed, Construction & Access outlook, and Powersports performance excluding onetime revenue.

Q: Natalia Bak on data center production capacity balance.

A: Jag on balancing production capacity with legacy customers through ongoing conversations about volume and pricing.