Mayville Engineering Company Q1 2026 Earnings Call - Data Center Momentum Masks Legacy Weakness, Guiding for Margin Recovery

Operator: Everyone, thank you for joining us, and welcome to the Mayville Engineering Company first quarter 2026 earnings conference 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, please press star one again. I will now hand the conference over to Stefan Neely with Vallum Advisors. Please go ahead.

Stefan Neely, Investor Relations, Vallum Advisors: Thank you, operator. On behalf of our entire team, I’d like to welcome you to our first quarter 2026 results conference call. Leading the call today is MEC’s President and CEO, Jag Reddy, and Rachele M. 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. This call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.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 and Chief Executive Officer, Mayville Engineering Company (MEC): Thank you, Stefan, and good morning, everyone. Our first quarter results exceeded our expectations, driven by strong top-line momentum in our data center and critical power end market. At the same time, the first quarter reflected an ongoing transition across the business. Our teams remained focused on positioning resources, completing tooling requirements, and preparing for the launch of numerous data center and critical power programs throughout 2026. During this transition, we continued to incur and retain variable costs as we position the business for successful program execution. As a result, our margins remained pressured during the first quarter. That said, performance improved late in the quarter as several data center and critical power programs transitioned from the launch phase into full production. We expect that momentum to continue building through the second quarter, which reinforces our confidence in the sequential improvement reflected in our financial guidance.

While many of our data center and critical power programs have yet to launch or are still in the early stages of ramp, execution to date has been strong. This reflects the upfront time, planning, and resources we have invested to ensure a smooth and repeatable onboarding process across our legacy manufacturing footprint. As additional programs enter production, we are seeing consistent improvement in operating leverage and fixed cost absorption, driven by better asset utilization across our manufacturing network. Importantly, the strength we are seeing in data center and critical power continues to contrast with mixed conditions across our legacy end markets. While each market has its own dynamics, we have not yet seen clear indications of a broad-based or material recovery in legacy customer demand. Starting with commercial vehicles, demand continued to soften in the first quarter.

Net sales declined approximately 24% year-over-year as North American Class 8 production reached a low point in the current cycle. In its most recent report, ACT again revised its full year 2026 outlook upward, now projecting a 9.2% increase in Class 8 production. This improved outlook reflects greater clarity around the 2027 EPA emission standards, anticipated pre-buy activity, and strong Class 8 orders earlier in the year. That said, current OEM production levels remained largely consistent over the past 6 months and do not yet indicate a meaningful cyclical recovery. Combined with elevated fuel costs and recent tariff policy changes, our near-term view of this market remains cautious pending a material improvement in OEM activity. In construction and access, revenue increased approximately 3% year-over-year in the quarter, which was ahead of our expectations.

Performance was supported by continued strength in non-residential activity, although demand remains more customer-specific than broad-based. In powersports, net sales increased approximately 5% year-over-year, driven primarily by incremental volumes from discrete short cycle customer programs. This was partially offset by continued softness among legacy ATV, UTV, and motorcycle OEMs, as well as lower sales within the marine propulsion market. Within data center and critical power, we delivered organic growth of approximately 71% year-over-year, supported by growth from legacy OEM customers and early project launches tied to Accu-Fab-related cross-selling opportunities. Overall, demand from OEM customers in the data center and critical power market remains strong. Our qualified opportunity pipeline exceeds $125 million, and the value of projects scheduled to launch in 2026 is approximately $50 million-$60 million.

Combined with continued growth from our legacy OEM customers, we continue to expect data center and critical power to represent more than 20% of our revenue in 2026. Customer demand in this end market remains robust, and we continue to evaluate the right approach to balancing the needs of our legacy customers while meeting accelerating demand in this rapidly evolving space. As data center infrastructure advances, customers are increasingly seeking adaptable solutions that are addressing their evolving needs and enabling faster speed to market. These shifts are redefining how customers approach large-scale deployments and their selection of partners. As we move into the second half of the year, and with the potential for recovery across certain legacy end markets, we are actively managing capacity and prioritization to support long-term, diversified, and profitable growth.

Before turning the call over to Rachele, I want to highlight several areas of commercial momentum that reinforce our confidence in the growth trajectory for 2026 and beyond. Across all of our end markets, customer engagement and bidding activity remains strong. During the first quarter, we secured approximately $50 million in new project awards with data center and critical power customers. This amount surpasses the total awards we secured in this end market during the second half of last year. For the full year 2026, we currently expect total bookings across all of our end markets to exceed $150 million, supporting profitable growth as our legacy markets move toward a cyclical recovery exiting 2026. Within our legacy end markets, share gains continued with commercial vehicles customers as they launch new products ahead of the 2027 EPA regulation changes.

These awards support future growth and are expected to enter production in late 2026 and 2027. In addition, new contract wins supporting legacy military vehicle platforms were secured during the quarter. This provides stability to our core base military revenues. Within the data center and the critical power market, the approximately $50 million of awards secured in the first quarter were primarily driven by demand from new customers in this end market. As these customers scale their programs, the intent is to serve as a long-term strategic metal fabrication partner. The awarded scopes of work span power distribution units, static transfer switches, and switchgear. Turning to capital allocation, our priorities are disciplined and well-balanced.

In the near term, we are deploying capital in a targeted manner to support existing project commitments and the evolving needs of our data center and critical power OEM customers, including investments in equipment and capacity. At the same time, we remain focused on prudent balance sheet management and reducing debt. Longer term, the focus remains on strengthening the balance sheet and maintaining sustainable financial flexibility. Our long-term net leverage target remains 2.5 times, and we expect to make steady progress towards this objective through earnings growth, consistent cash generation, and disciplined capital deployment. Importantly, the demand environment in data center and critical power is creating a meaningful opportunity to invest organically in the business and expand our capacity.

In certain areas, customer demand is already exceeding our current available capacity, and we believe targeted investments in equipment, automation, and operating capabilities can deliver attractive returns while enhancing our ability to serve this fast-growing end market. Although we’re still assessing the full scope of this opportunity and the related capital requirements, we expect growth capital investment to increase above the $5 million-$10 million level we have historically averaged. In 2026, that investment will remain focused on supporting current program launches and selectively adding capacity where visibility, customer demand, and return thresholds are strongest. Over time, we believe this market may support a broader and highly attractive organic investment opportunity. As always, we will pursue that opportunity within a disciplined capital allocation framework, balancing growth investment with deleveraging, cash flow generation, and balance sheet optionality.

In closing, I am encouraged by the discipline and execution our team has demonstrated so far this year. As we navigate this next phase of growth, our focus is on prioritizing operational agility, efficient program execution, and improved cash flow conversion as volumes ramp. We believe that consistent, disciplined execution over the coming quarters will position MEC to deliver stronger operating performance and create a solid foundation for sustainable growth. With that, I would like to turn the call over to Rachele Lehr.

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): Thank you, Jag, and good morning, everyone. Total sales for the first quarter increased 6.8% on a year-over-year basis to $144.8 million. Excluding the impact of the Accu-Fab acquisition, organic net sales declined by 8.2% compared to the prior year period. Our manufacturing margin was 7.6% for the first quarter of 2026, compared to 11.3% for the prior year period. The decrease in our manufacturing margin was due to $1.2 million of data center and critical power-related project launch costs, non-recurring restructuring costs, and lower volumes in our legacy end markets. These factors were partially offset by the higher margin sales contribution from the Accu-Fab acquisition.

Other selling, general, and administrative expenses were $9.2 million or 6.3% of net sales for the first quarter of 2026, as compared to $8.7 million or 6.4% of net sales for the same prior year period. The increase in these expenses primarily reflects incremental SG&A expense associated with the Accu-Fab acquisition. Interest expense was $3.7 million for the first quarter of 2026, as compared to $1.6 million in the prior year period. The increase was driven by higher borrowings resulting from the Accu-Fab acquisition, which was completed during the third quarter of last year. Adjusted EBITDA margin was 4.5% for the quarter, compared to 9% in the prior year period.

The decrease reflects lower legacy end market volumes and $1.2 million of project launch costs, partially offset by the benefit of the Accu-Fab acquisition. During the quarter, we also continued to execute our previously announced footprint optimization actions, including the consolidation of four warehouse locations and one manufacturing facility. We expect these actions to generate annualized savings of approximately $1 million-$2 million and are already contemplated within our full year outlook. Turning now to our cash flow and the balance sheet. Free cash flow during the first quarter of 2026 was a use of $6.9 million as compared to $5.4 million provided in the prior year period. The year-over-year decrease was primarily driven by lower operating cash flow as a result of reduced profitability together with a $1.2 million increase in capital expenditures.

The increase in capital spending was primarily related to equipment investments supporting the launch of the new data center and critical power programs. At the end of the first quarter, our net debt was $219.2 million, up from $80.4 million at the end of the first quarter of 2025. Our increased debt resulted in our bank covenant net leverage ratio of 4.4 times as of March 31st. Now turning to a review of our outlook for the second quarter and the full year. For the second quarter of 2026, we currently expect net sales for the quarter of between $145 million and $155 million and adjusted EBITDA of between $10 million to $13 million.

Our second quarter outlook reflects continued launch-related costs and margin pressure early in the quarter, with improvement expected as the quarter progresses and additional data center and critical power programs move into full production. For the full year, we refined our financial guidance by raising the low end of our previously announced guidance while maintaining the high end of the range. We now expect net sales of between $590 million and $620 million, adjusted EBITDA of between $52 million and $60 million, and free cash flow of between $25 million and $35 million. This outlook reflects a full year of Accu-Fab ownership, $50 million-$60 million of incremental cross-selling revenue, and a gradual improvement in legacy end market demand, primarily in the second half of the year.

In summary, our first quarter results were consistent with the operating conditions we outlined coming into the year. While profitability and cash flow were affected by launch-related costs and continued softness in legacy markets, those pressures are temporary and remain embedded within our outlook. As production levels increase and utilization improves, we expect better absorption, stronger margin conversion, and improved cash generation over the remainder of the year.

With continued working capital discipline and targeted capital spending, we believe we are positioned to support growth while also making measurable progress on deleveraging. With that, operator, we are ready to open the line for questions.

Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Michael Shlisky with D.A. Davidson. Your line is open. Please go ahead.

Michael Shlisky, Analyst, D.A. Davidson: Yes. Hi.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Hi, Michael.

Michael Shlisky, Analyst, D.A. Davidson: Good morning. Thanks for taking my questions. Good morning. I wanted to ask, maybe a 2-part question about the non-data center end markets and legacy end markets here and your commentary in the slides. The ag market you were saying was gonna be down like mid-teens, and now you’re saying it’s flat. You didn’t change the comments that, you know, most of you out there feels like 2027 is the time when heavy ag will come back. There might be some lighter ag doing better here in 2026.

I guess, was that change in outlook from, you know, down mid-teens to flat due to how you feel about the very end of the year and what OEMs are telling you about ramping up for 2027, you know, asking suppliers like, you know, Mayville to build stuff in late 2026? Guess that’s the first part of the question. Then the construction and access side, I’ve sensed so far this earnings season that most construction companies, including the largest ones, are taking their outlooks up, most of these construction equipment OEMs. You took your outlook here down from last quarter. Again, I’m curious whether there’s some kind of a year-end they’re asking you to slow down in advance of some challenges they might be seeing in 2027.

Maybe some more detail about both those end markets would be appreciated.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): First of all, Mike, you know, on the ag market, we are seeing good strength in the small ag, turf care segment. We’re approximately 45%-55% a mix between large ag and small ag. The small ag and the turf care segment strength obviously is offsetting the declines in the large ag segment, and that’s the reason for our change in our outlook for the ag segment. Then onto the construction and access. Again, as you recall, we’re approximately 45%-55%, you know, heavy construction versus access. Our heavy construction segment continues to show good amount of strength driven by non-residential, ag demand, you know, some of it driven by data center build-out as well.

The access segment, we anticipated, you know, coming out of last quarter earnings call, access segment to accelerate this year. So far, we have not seen that, so hence, our change in our assumptions for the construction and access segment to be flat versus slightly up.

Michael Shlisky, Analyst, D.A. Davidson: Okay. Okay, thanks for that. Turning to data center, I’d like to maybe get a feel for some more detail as to how you’re looking to accommodate some of the demand that’s been rolling in or some of the quoting that you’ve been doing. ’Cause I think, Rachele Lehr, you mentioned you actually elsewhere in the business closed some footprints. I wanna make sure you’ve got a plan. Do you plan to open brand new footprint at this point, given the little demand, or are you still looking to convert existing buildings to data center? Just some more detail as to how this might all play out and the investments that you’re making now, are those in people or in machines to accommodate some of that near-term demand?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Let me address that, Mike. We announced a closure of 4 locations. Those are mostly warehouses that we consolidated into our manufacturing site. That was the restructuring we announced last year, the second half, and then we just wrapped those up. We’re not in process of closing any manufacturing footprint, number one. Number two, we have converted approximately 6, potentially a 7th plant as well, to data center manufacturing. We’re retooling, you know, between 6 and 7 plants as we speak here, to produce data center products. We continue to add capital as needed in these 7 locations to offset existing manufacturing assets, to continue to take on additional data center volumes. We do see significant growth in the data center volumes.

You know, every quarter as you all have seen, we continue to step up our cross-selling synergies. You know, pre-acquisition closing, we were in the single digits, now we’re up to $50 million-$60 million of cross-selling synergies in 2026 alone. I continue to be very bullish on data center volumes. At the same time, we have not exited any of our legacy customer programs. We continue to be able to support at this point our legacy customers with their volumes. As we talk about multiple end markets, we really haven’t seen broad-based recovery in our legacy end markets. Certainly, right, at this stage, we’re able to support our legacy customers as they continue to ramp and also take on incremental data center volumes in these 7 locations.

Michael Shlisky, Analyst, D.A. Davidson: Great. Maybe one last one from me. A lot of headlines and stories about changes in the Section 232 tariffs and cost of steel and other metals. I was wondering if you could maybe outline how any of this might be impacting you theoretically and maybe just over the last few months. Are you guys a beneficiary since you’re almost entirely, you know, U.S.-based? Are you seeing some customers, old and new, coming to you to say, "How can you help us to, you know, best structure ourselves for these tariffs?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah. 100% of our steel is procured from domestic sources. That way we have been reasonably insulated from supply challenges. We pass on any increases in steel prices to our customers. I would say that it hasn’t impacted us. At the same time, you know, approximately 30%-40% of our aluminum is imported from Canada. You know, we’re trying to mitigate that, but it is challenging. Rest of our aluminum is sourced domestically. We’re able to support many of our aluminum customers with their demand and needs. We are seeing some challenges where some of our customers are going on allocation with other suppliers on aluminum.

Fortunately, we’re in a good position to continue to support our customers as their demand increases or they switch from another supplier that is unable to procure aluminum to MEC. Those have been positive. In general, on Section 232 impact, I would say that we have not been either positively or negatively impacted. You have seen some of our customers and their competitors publicly talk about Section 232 impacts. So far, I would say that that has not really impacted MEC.

Michael Shlisky, Analyst, D.A. Davidson: Okay. I appreciate that color. I’ll pass it along. Thank you.

Operator: Your next question comes from the line of Ross Sparenblek with William Blair. Your line is open. Please go ahead.

Ross Sparenblek, Analyst, William Blair: Hey, good morning.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Morning, Ross.

Ross Sparenblek, Analyst, William Blair: Sounds like you guys have been busy. Some good problems to have here. Maybe just starting with the new customer wins. You know, continued momentum in data centers in the first quarter. Anything one time in nature to call out or, I mean, are you sensing that customer buying patterns have started to change here within the data centers in the power market?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah, good question, Ross. In the data center market, some of the significant wins we had in Q1 actually came from two brand-new customers to MEC and Accu-Fab. We never did business pre Accu-Fab days. Those two customers significantly contributed to the wins in Q1. We expect those two customers in particular to continue to grow with us as the year progresses and, you know, and into the future. What we are seeing is a significant switch in our data center OEM customer behavior, purchasing behavior, where similar to our legacy end markets, many of these customers are looking to completely outsource fabrication step of their manufacturing process to someone like MEC.

If you think about our legacy customers in ag or construction or you know, CV, over the decades, they exited fab operations to suppliers like MEC. We’re seeing a similar process happening slowly but steadily in the data center and critical power customers. We see that as a long-term secular tailwind for the fabrication industry. Being the largest fabricator in North America, we are able to offer significant capacity to these OEMs, and we’re able to capture significant portion of that outsourcing that is starting in this industry, right? All of those are positive tailwinds for the industry and for MEC going into the future.

Ross Sparenblek, Analyst, William Blair: No, that’s great to hear. Just staying on that topic, you know, when we think about all the larger potential OEM customers out there within data centers, can you just give us a sense of, you know, where your kind of penetration rate is as you think about the pipeline of opportunities and who you’re speaking with?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): I mean, our penetration at this point, Ross Sparenblek, and take the top 10 potential customers or existing customers, is low single digits or less, right? You know, we’re sub 5% penetration. Hence my optimism for the industry and for our customers, is that as we go into even rest of this year or second half, right, we continue to get significant inquiries. We continue to qualify these opportunities even after raising our cross-selling synergies for the year, right? Our qualified pipeline remains really, really strong, and gives me a lot of comfort that, you know, this is a multi-year secular growth opportunity for MEC.

Ross Sparenblek, Analyst, William Blair: Yeah, I mean, just expanding on that. I mean, it sounds like the whole market’s heading for a capacity squeeze. I mean, we just kinda take out the increased allocation for DC customers if the broader end markets start to recover here. I mean, how do you feel like you guys are positioned to handle legacy customers?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): That’s a great question. Our intent at this point is to continue to serve our long-standing legacy customers as they build out their volumes into the second half and into 2027. We’re constantly evaluating plant by plant, manufacturing operation by manufacturing operation, and continuing to see where we have to offset some capital to increase capacity. Some of my comments in our prepared remarks allude to that fact that we’re looking at potentially in the long run, a significant organic investment opportunity as we think about expanding capacity for data center customers while continuing to serve our legacy customers.

Ross Sparenblek, Analyst, William Blair: Would that, does that imply the optionality at Hazel Park? I believe you guys still have that additional square footage.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Absolutely. I can tell you that, you know, that’s been a long time coming, Hazel Park story. You know, we just put approximately $55 million worth of data center products into Hazel Park in Q2, Q1, Q2. We’re ramping approximately $55 million worth of data center products in Hazel Park. We think we can fill up Hazel Park, and we always said that, the current space we have, not the subleased space, the current space we have supports $100 million worth of capacity. What we do need some capital assets to continue to go in because the mix of operations for data centers is slightly different than, you know, our legacy customer products.

With all of that, you know, we continue to be bullish on Hazel Park, being filled up in the next, year or so.

Ross Sparenblek, Analyst, William Blair: All right. Well, very nice quarter, all things considered. I’ll pass it along.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Thank you, Ross.

Operator: Your next question comes from the line of Greg Palm with Craig-Hallum. Your line is open. Please go ahead.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Morning, Greg.

Greg Palm, Analyst, Craig-Hallum: Hey, thanks. Good. Yeah, good morning. Jag A. Reddy. Can you know, maybe talk about how some of these early, you know, launches in data center critical power are going just in light of the comments last quarter? It seems like everything is on track, and you’re starting to see the margin improvements, but just kinda curious what else is kinda top of mind as we, you know, obviously launch more of these projects this quarter and in the second half.

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): As we pointed out in the prepared remarks is, you know, we invested in these product launch costs, we spent about $1.2 million in Q1, $1.2 million in Q4, those are just to be ahead of these launches. We see that continuing into Q2. After that, as we’re hitting full run rate production levels, we’re seeing improvement. In fact, in Q1, as we were exiting in the, you know, the quarter, we saw that improvement happen as we had several programs hit that full production run rate.

Very optimistic about the fact that we made those investments, did the right thing to make sure that we’re creating an effective onboarding program so that as we do new programs, as we do new launches, we know what the upfront investment is, and then when we hit that full run rate pro-production levels, we’re back to the margin levels of the overall end market.

Greg Palm, Analyst, Craig-Hallum: Okay. Understood. As we think about, you know, appreciate the commentary on the new customer side in terms of what you’re winning on data centers. If we could go back to kind of the existing customers, I’m kinda curious what you’re seeing in terms of, like, order progression, you know, from them in terms of, you know, how much bigger are the orders getting, you know, because they’re outsourcing more business to you, or they’re winning a lot more business themselves. It kinda feels like you’re not only gonna have this big ramp of orders from your existing customer base, but you’re also gonna be now layering on brand new customers as well, which, you know, presumably would follow some similar path of accelerated activity as well. Maybe you can just kinda walk us through those dynamics.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Let me clarify, Greg. You’re asking all of this in the context of data center customers?

Greg Palm, Analyst, Craig-Hallum: Yes. Yep.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): versus new?

Greg Palm, Analyst, Craig-Hallum: Cor-correct.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah.

Greg Palm, Analyst, Craig-Hallum: Yeah.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): What, Yeah, that’s absolutely right. You know, as I mentioned, right, we brought on 2 brand new customers to MEC since the acquisition closed. We expect a couple more brand new customers that are in the works to, you know, become our customers, you know, later this year. Outside of those brand new logos, as we internally call it, coming to MEC, Accu-Fab’s legacy data center customers continue to ramp significantly. That’s also been another tailwind for us. I shared some examples in the past about volumes doubling, tripling, quadrupling on products that Accu-Fab historically manufactured for some of these customers as they win significant new projects and significant volumes for their own product lines.

Hence, the legacy Accu-Fab customers are doing is looking at their own footprint, their own resources, and making choices around outsourcing additional work to suppliers like MEC, right? There is new customer growth, there is existing customer volume growth, and then there is existing customer market penetration or market share gains, right? That’s how I would position the growth we’re seeing in this end market.

Greg Palm, Analyst, Craig-Hallum: Okay. Makes sense. I wanna follow up on a comment you made in response to an earlier question, Jag. I think talking about Hazel Park, I think you said that, you know, you could actually generate $100 million out of that facility. I think you were specifically saying as it related to data center. Is that correct?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): No, that’s the total capacity.

Greg Palm, Analyst, Craig-Hallum: Okay.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): We have always talked Hazel Park being a $100 million plant. As I just said, we put $55 million worth of data center work into that plant. We still have another $15 million-$20 million of other legacy customer work in that plant today. You know, you can do the math and then say, "Can I put another $20 million-$25 million of data center work into Hazel Park?" Absolutely. That’s what we’re trying to do.

Greg Palm, Analyst, Craig-Hallum: Okay. Okay. Makes sense. I guess just, you know, last question to me is, I’m thinking about the full year guide and backing into the second half. You know, it implies an EBITDA run rate on a quarterly basis that’s, you know, pretty close to $20 million. You know, I’m just asking in light of sorta early thoughts on next year, but I mean, we’re already gonna be at low double-digit margins in the second half of this year if that’s the case. I assume next year as volumes recover further, as mix gets more positive from data centers, that would probably support even higher margins. I just wanted to ask the question because it’s a pretty big step up in both absolute EBITDA and margins that is being considered for the second half of this year.

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): Yeah. When you look at our legacy business, you can look back to 2024 when we were hitting, you know, roughly $600 million in that base business alone. Our margins were at that point, well in excess of where we’re at today. You know, we’re on our way towards that 15%+ that we would like to be long term. You throw in, you know, 20%+ in the data center and critical power, which is 20% margins, and yes, we do see a clear path to that 15%+ as we move into the future.

Greg Palm, Analyst, Craig-Hallum: Okay. I’ll leave it there. Thanks.

Thanks, Jag.

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): As-

Operator: As a reminder, if you’d like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you’re muted locally, please remember to unmute your device. Your next question comes from Ted Jackson with Northland Securities. Your line is open. Please go ahead.

Ted Jackson, Analyst, Northland Securities: Thank you very much. Congrats on the quarter.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Morning, Ted.

Ted Jackson, Analyst, Northland Securities: My first question, I want to just touch on the second quarter guidance. You know, you’re looking for midpoint $150 million. You know, it’s, you know, it’s comfortably above, I would call it, the consensus view. The, the legacy markets themselves, at least in, you know, the first part of this year are let’s just say they’re underperforming with a better outlook maybe in some of them as you get to the second half. To hit the midpoint of that, I mean, that would tell me that, you know, perhaps you’re going to see, you know, maybe even more business coming out of the data center, you know, power side of things than perhaps you had thought going into the year.

Do you see that that business being able to hit your 20% of revenue target in the second quarter alone?

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): In the second quarter alone? No, I think we wanna.

Ted Jackson, Analyst, Northland Securities: Yep

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): really look at that at being second half of the year that it’s really going to hit those levels and actually, you know, almost outperform at that point. In Q2, it’s really going to be launching the program still, and we probably won’t hit full run production rates until late in Q2. Really second half focus still for the data center and critical power being at full production run rates.

Ted Jackson, Analyst, Northland Securities: What is a full production run rate for data center and critical power?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Well, we have always targeted, at least publicly commented, Ted, our ambition is to be at 25% of our total volumes to be in data center and critical power end market. I do see that target in our reach certainly on an exit run rate for 2026, and certainly for 2027.

Ted Jackson, Analyst, Northland Securities: Shifting back into the second quarter, is there any particular legacy market that you’re expecting to have, you know, some kind of, I mean, call it a bulge in terms of, you know, ability to generate some revenue that then, you know, kinda falls away? I mean, I, you know, like powersports comes to mind because, you know, you’ve had some performance there, but you keep highlighting that it’s been driven by very project-oriented stuff and it’s not like, you know, long tail. I’m just trying to understand, like.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah

Ted Jackson, Analyst, Northland Securities: how to get to that $150 if it’s not coming from a faster ramp in the power and data market than maybe expected.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah. We looked at commercial vehicles ramping, you know, starting in, you know, May-ish. May and June could have a slightly higher commercial vehicle run rate as our OEMs ramp. Powersports is probably not the end market that I would expect to help us in Q2. We continue to see significant outsourcing to Asia from our powersports customers. The discrete programs we talked about were specific aluminum related. As we had the materials and the capacity, we took on some quick run projects that will exit in Q2. That’s not a long-term run rate type of business in Powersports that could help us in Q2.

Ted Jackson, Analyst, Northland Securities: Okay. Okay. I think you’ve given me what I needed there. Shifting over to, you know, capacity. I mean, you have one of the better problems that a manufacturing company can have, which is, you know, demand that is pushing you to capacity constraints. You know, given your current footprint and the potential, we’ll just call it potential, for a lot of your legacy markets to turn around at the same time that this power and data center market is coming, how much revenue do you think you could run through your existing footprint, and what does it take to do? I mean, I assume that you’re running at, you know, like, You know, I assume you could add shifts and, you know, increase capacity that way.

I mean, maybe just a discussion, you know, like at your current level, where could you take your revenue run rate to? You know, all else being equal, that you have your same footprint, how could you take your revenue higher and what would the steps be to do that? What would you need to do? That’s the next question.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah. Great question. I will give you a couple of numbers, Ted. As we look at our current capacity and current programs that we have won and potential ramp up of our legacy customers, you know, we’re gonna top out with no further investments. We’ll probably top out around $850 million in revenue. What that means is, we have to continue to invest. Given the mix differences between data center products and our legacy products, we will potentially run out of capacity after the $850 million of revenue. More importantly, and I’ve said this in the past, that we probably have to think about an organic investment somewhere on the eastern seaboard, where we’re currently running out of capacity for data center customers.

We have capacity in the Midwest, but some of the products we’re manufacturing for some of the data center customers are large in volume, significantly expensive to ship across the country. That’s something that we’re, you know, we’re evaluating. We’re at the, I would say, early stages of that analysis and to figure out how do we fill existing capacity first, and then, you know, what’s the timeline by which we will run out of our existing capacity, and then how do we think about expanding our capacity organically.

Ted Jackson, Analyst, Northland Securities: That $850 million run rate, that without further investment, that’s running, you know, the same shift counts, or you’re getting there by, you know, you’re just utilizing your facilities more by adding shifts?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Yeah. We’re feverishly adding people and shifts to our plans, you know, in the last four or five months. Some of our plants are running seven days a week. Some of our plants are running full 24 hours and five days a week. We’re running 10%-12% over time in many of our plants right now and continuing to hire in many of our plants that are seeing volume growth, particularly driven by data center customers.

Ted Jackson, Analyst, Northland Securities: Jag, I’m sure every day you come to work, you have a lot of problems that you need to solve, and it’s challenging, but it seems like the problems that you’re solving are a lot of fun. I mean, it’s pretty exciting to see, you know, what’s sitting there in front of you. I’ll get out of line. Thanks again for taking the questions and congrats on the results.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Thank you, Ted.

Operator: There are no further questions. Oh, apologies. Your next question comes from the line of Andrew Kaplowitz with Citibank. Your line is open. Please go ahead.

Natalia, Analyst, Citibank (on behalf of Andy Kaplowitz): Hi. Good morning. This is Natalia on behalf of Andy Kaplowitz.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Morning, Natalia.

Natalia, Analyst, Citibank (on behalf of Andy Kaplowitz): I think the first question I’ll just ask is, I’m just curious, as you continue to highlight strong momentum within data center and critical power, yet your broad, broader other end market outlook is flat for FY 2026, can you maybe help us unpack what areas within that category are offsetting that data center and critical power-related strength? I think you mentioned on your side there’s modest activity from those growth initiatives.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Right. As we mentioned earlier, Natalia, ag is flat. Construction access is flat. Powersports, we actually think will be a headwind for us in the second half and into 2027. Our CV market, we didn’t spend a lot of time today talking about. You know, our current forecast guidance assumes a 240,000 unit build for the year. That is higher than what we started the year with, but at the same time, it’s lower than what ACT is projecting today. We haven’t seen that ramp yet. We’re in the window right now. We should see that in May and June going into Q3 with our CV customers.

That’s really giving us a bit of a pause in terms of legacy end markets, all in all, while we see strength in our DCP markets.

Natalia, Analyst, Citibank (on behalf of Andy Kaplowitz): I appreciate that, but I’m just curious about your other end market, like the other end market that you guys have on your slide, which is flat, similar.

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): Oh. Yeah, I think the biggest thing here is as we’ve been growing, you know, in data center and critical power, we really have been focused on growth initiatives there. This is, you know, some things that come in more as one-off pieces of business or different opportunities. Our extrusion business has a lot in here, but the extrusion business we’re winning is actually data center and critical power classified. We’re seeing a big piece of what maybe would’ve been growth in extrusion here and other be extrusion growth in data center and critical power.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Some of this is really reclassification from other into data center market.

Natalia, Analyst, Citibank (on behalf of Andy Kaplowitz): Got it. Makes sense. Much appreciated. One last question on my end. You know, we appreciate the long-term growth opportunities in data center and critical power. With margins still under pressure and leverage elevated, what’s giving you the confidence that MEC and the business can generate sufficient free cash flow to both delever and continue investing in these growth initiatives?

Rachele M. Lehr, Chief Financial Officer, Mayville Engineering Company (MEC): Yeah. We definitely are focused on delevering. That’s, you know, been something that we’ve have a proven track record of doing as we do acquisitions. There’s a little bit of a, you know, 12 to 18 month time of absorbing the acquisition and then working to pay that down. What we see as really the true opportunity here is as we move into the second half of this year, and we really have both the strong sales for data center and critical power at higher margin, plus some expectation of that CV market coming back in the second half, that we’ll be able to generate some additional cash flow to focus on delevering with the goal of being below that 3 times as we exit this year.

Very second half weighted, but with what we are seeing with the launch and the confidence that we gained exiting Q1, see those sales coming to fruition and the margin and results associated with it.

Natalia, Analyst, Citibank (on behalf of Andy Kaplowitz): Great. Thank you so much.

Operator: We have a follow-up question from Greg Palm with Craig-Hallum. Your line is open. Please go ahead.

Greg Palm, Analyst, Craig-Hallum: Yeah. Thanks. I thought this one would’ve gotten asked, so since I’m back in the queue, I’ll ask it now. As it relates to commercial vehicle, I understand and can appreciate your conservatism. Let’s just assume, you know, hypothetically that, you know, the build rate or the production increase ends up being, you know, whether it’s that 9% rate or something in the high single digits for fiscal 2026. Is there a reason why your segment results would deviate significantly from that?

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): It should not, Greg. If the market actually builds at that 9+% build rate Also let me remind you that, you know, the 9% is actually retail sales, is how ACT would report. You know, which is pretty close to the build rates anyway. You know, let’s say that it’s approximately 9% build rate, yes, we should see a very similar tailwind for our segment revenue.

Greg Palm, Analyst, Craig-Hallum: Okay. Understood. I guess since I’m asking questions, I’ll ask one more. As, you know, going back to data centers, are you seeing Like, is most of the revenue or awards contracts that you’re seeing today more, you know, project based with sort of a definitive timeline attached to it? I’m curious if there’s now or if there is, like, potential discussions to enter into, like, more, you know, long-term frame agreements, sort of multi-year type of, you know, sort of capacity, you know, expansion, that kind of stuff.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): I would say that since the acquisition, significant portion of our wins have been for long-running products these customers will continue to offer to various data center, you know, projects. I can only think of perhaps maybe one program where it was one customer, specific program. It’s a small program. Generally speaking, these are long, tail, long-run product lines is where we’re winning. At the same time, we are beginning the conversations with these customers regarding potential capacity, reservations, potential long-term agreements, as you mentioned, Greg. Those are the conversations our teams are beginning to have, certainly with our DCP customers.

Greg Palm, Analyst, Craig-Hallum: Okay. Appreciate the color.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Thank you, Greg.

Operator: This concludes today’s Q&A session. I will now turn the call back to Jag Reddy for closing remarks.

Jag Reddy, President and Chief Executive Officer, Mayville Engineering Company (MEC): Before we conclude, I want to again thank our team members for their continued strong focus and execution and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we’re making to position MEC for durable high margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.