Mayville Engineering (NYSE:MEC) executives said the company is entering a “transitional” period as muted demand in several legacy markets coincides with accelerating activity in data center and critical power work that is driving near-term margin pressure ahead of expected volume ramps later in 2026.
On the company’s fourth-quarter and full-year 2025 results call, President and CEO Jag Reddy said MEC has experienced “robust and sustained demand momentum” in data center and critical power for the past six months and has reallocated capacity and resources to support new program launches. Those deliberate investments, he said, weighed on fourth-quarter margins, driven primarily by early-stage project inefficiencies and project launch costs rather than pricing or structural cost issues.
Fourth-quarter results show growth with launch-related margin headwinds
Manufacturing margin was 6.6% in the quarter, down from 8.9% a year earlier. Lehr attributed the decline to $1.2 million of data center and critical power-related launch costs and $1.7 million of early-stage inefficiencies on a commercial vehicle project, partially offset by a higher-margin contribution from Accu-Fab. Excluding those temporary items, she said manufacturing margin would have been approximately 9%.
SG&A expenses were $9.7 million, or 7.2% of net sales, compared with $7.9 million, or 6.5%, in the prior-year quarter, driven primarily by $0.2 million in non-recurring costs and $1.1 million in incremental SG&A associated with the Accu-Fab acquisition. Interest expense rose to $3.8 million from $2.0 million a year earlier due to higher borrowings related to the acquisition, partially offset by lower SOFR base rates.
Adjusted EBITDA margin was 4.7% versus 7.6% in the prior-year quarter. Lehr said the decline reflected lower legacy market volumes and $2.9 million of launch costs and early-stage inefficiencies, partially offset by Accu-Fab’s benefit. Excluding those items, she said adjusted EBITDA margin would have been approximately 7%.
End-market trends: legacy softness, data center strength
Reddy described demand in legacy end markets as “muted” during what is typically a seasonally softer quarter, while emphasizing sustained momentum in data center and critical power. He provided the following fourth-quarter end-market performance highlights:
- Commercial vehicle: Net sales declined approximately 19% year over year. Reddy cited ACT Research’s updated outlook projecting a 3.4% increase in Class 8 production in 2026, tied to greater clarity around 2027 EPA emission standards and expected pre-buy activity.
- Construction and access: Revenues increased about 13% year over year, supported by the Accu-Fab acquisition and strong non-residential activity; organic growth was about 11%.
- Powersports: Net sales rose roughly 20% year over year, driven by incremental volumes from new business wins and more stable production schedules as dealer inventories align with demand. This was partially offset by a decrease in marine propulsion sales.
- Agriculture: Net sales were approximately flat year over year, with Reddy stating the market shows signs of reaching a cyclical trough. In Q&A, management noted customers still expect large ag to be down double digits, while seeing improvement in small ag, lawn care, turf, and forestry equipment.
- Data center and critical power: Net sales grew about 13% year over year on legacy OEM demand growth and early project launches tied to Accu-Fab cross-selling opportunities.
Reddy said the company’s qualified opportunity pipeline in data center and critical power exceeds $125 million, and the value of projects scheduled to launch in 2026 is approximately $40 million to $50 million. Combined with organic growth from legacy OEM customers, he said MEC expects data center and critical power to represent more than 20% of revenue in 2026.
In Q&A, Reddy said the $125 million “qualified pipeline” reflects projects with “greater than 50% confidence” and excludes certain “significantly large opportunities” the company is pursuing. He also said MEC has “good line of sight” to roughly $120 million of data center business for the year.
Bookings, cross-selling, and the operational push to support growth
Reddy said customer engagement and bidding activity remain strong across end markets. He reported approximately $15 million in new project awards with data center and critical power customers during the fourth quarter, while total awards across legacy markets were more than $108 million for the year, exceeding an annual target of $100 million. Looking to 2026, he said the company expects total bookings of approximately $140 million.
Management repeatedly emphasized that rapid data center program timelines—often 8 to 12 weeks—are requiring accelerated investments versus the company’s historical launch cadence in legacy markets. In response to analyst questions, Reddy said MEC is “retooling six” legacy plants for data center work and is standardizing shift schedules, including moving from two 10-hour shifts for four days a week in many plants to three 8-hour shifts, five days a week. Excluding the two Accu-Fab facilities, he said utilization is around 55% on a 24/7 equipment capacity basis.
Reddy also clarified that “revenue synergies” of $40 million to $50 million in 2026 refer to data center customer work produced in legacy MEC plants. He said the acquired Accu-Fab plants were at capacity when purchased, and incremental throughput improvements at those locations are not counted as cross-selling synergies.
Cash flow, leverage, and new quarterly guidance for 2026
Free cash flow in the fourth quarter was $10.2 million versus $35.6 million in the prior-year quarter. Lehr said the year-ago period included $25.5 million in settlement proceeds tied to a former fitness customer dispute; excluding that item, free cash flow was approximately flat year over year. MEC used fourth-quarter free cash flow to repay about $10 million of debt, ending the quarter with net debt of $205.3 million and net leverage of 3.7x as of Dec. 31.
To provide more visibility given the “fast-moving” data center environment and developing improvements in legacy markets, MEC introduced quarterly guidance alongside full-year guidance.
- First quarter 2026 guidance: net sales of $137 million to $143 million; adjusted EBITDA of $5 million to $7 million. Lehr said the outlook reflects continued launch costs and margin pressure ahead of most data center and critical power ramps, which begin in the second quarter, as well as seasonal working capital usage, incremental working capital to support ramp-up, and planned capex of $3 million to $5 million.
- Full-year 2026 guidance: net sales of $580 million to $620 million; adjusted EBITDA of $50 million to $60 million; free cash flow of $25 million to $35 million. The outlook assumes a full year of Accu-Fab ownership, $40 million to $50 million of incremental cross-selling revenue, and gradual improvement in legacy markets primarily in the second half.
Lehr said the company expects $2 million to $3 million of cost improvements in 2026 from its MBX operational excellence and strategic value-based pricing initiatives, net of inflation. She added that MEC expects full-year free cash flow conversion of about 50% to 60% of adjusted EBITDA, with capex of $15 million to $20 million, and reiterated debt reduction as the primary use of free cash flow. Based on that outlook, management said it expects net leverage to be 3x or lower by the end of 2026.
In closing remarks, Reddy said the company recognizes near-term challenges in legacy markets but believes the current investments and execution focus position MEC for “durable, higher margin growth” in the years ahead.
About Mayville Engineering (NYSE:MEC)
Mayville Engineering Company, Inc (NYSE:MEC) is a U.S.-based industrial manufacturer specializing in engineered metal castings and precision machining services. Headquartered in Mayville, Wisconsin, the company leverages over a century of casting experience to design, produce and finish complex metal components for a broad range of heavy-duty applications.
The company operates two principal business segments: iron castings and steel castings. Its iron segment utilizes green sand and lost-foam molding processes to produce gray and ductile iron components, while the steel segment employs electric-arc furnace technology to manufacture high-strength steel castings.
