MEC

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.

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 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.

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 six 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 2.5x, 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.

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.

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.

Yes. Hi.

Hi, Michael.

Good morning. Thanks for taking my questions.

Good morning.

I wanted to ask, maybe a two-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.

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.

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?

Let me address that, Mike. We announced a closure of four 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 six, potentially a 7th plant as well, to data center manufacturing. We're retooling, you know, between six and seven plants as we speak here, to produce data center products. We continue to add capital as needed in these even 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 seven locations.

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?"

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.

Okay. I appreciate that color. I'll pass it along. Thank you.

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

Hey, good morning.

Morning, Ross.

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?

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.

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?

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.

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?

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.

Would that, does that imply the optionality at Hazel Park? I believe you guys still have that additional square footage.

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 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.

All right. Well, very nice quarter, all things considered. I'll pass it along.

Thank you, Ross.

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

Morning, Greg.

Hey, thanks. Good. Yeah, good morning. Jag, Rachele. 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.

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.

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.

Let me clarify, Greg. You're asking all of this in the context of data center customers?

Yes. Yep.

versus new?

Cor-correct.

Yeah.

Yeah.

Yeah, that's absolutely right. You know, as I mentioned, right, we brought on two 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.

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?

No, that's the total capacity.

Okay.

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.

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.

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.

Okay. I'll leave it there. Thanks.

Thanks, Greg.

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.

Thank you very much. Congrats on the quarter.

Morning, Ted.

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?

In the second quarter alone? No, I think we wanna.

Yep

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.

What is a full production run rate for data center and critical power?

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.

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-

Yeah

-how to get to that $150 if it's not coming from a faster ramp in the power and data market than maybe expected.

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.

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.

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.

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?

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.

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.

Thank you, Ted.

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.

Hi. Good morning. This is Natalia on behalf of Andy Kaplowitz.

Morning, Natalia.

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.

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.

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.

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.

Some of this is really reclassification from other into data center market.

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?

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 three 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.

Great. Thank you so much.

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

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?

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.

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.

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.

Okay. Appreciate the color.

Thank you, Greg.

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

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.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us today for the Mayville Engineering Company, Inc. fourth quarter and full year 2025 results conference call. My name is Sami, and I will be coordinating your call today. During the presentation, you can register a question by pressing star to remove yourself from the question queue. Your host, Stefan Neely with Valem Advisors, to begin. Please go ahead, Stefan.

Thank you, operator. On behalf of our entire team, I would like to welcome you to our fourth quarter and full year 2025 results conference call. Leading the call today is Mayville Engineering Company, Inc.’s President and CEO, Jagadeesh 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.

Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mechinc.com. Following our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Jagadeesh.

Thank you, Stefan, and good morning, everyone. The fourth quarter represented a transitional period for Mayville Engineering Company, Inc. While demand in our legacy end markets remained muted during what is typically a seasonally softer quarter, our team remained focused on positioning the business for successful execution and growth as we enter 2026. Over the past six months, we have experienced robust and sustained demand momentum within our data center and critical power end market. In response, we have proactively reallocated available capacity and resources to support successful project launches and meet the evolving needs of our OEM customers in this market. As a result of these actions, our fourth quarter margin performance was pressured. We incurred and retained cost that would typically be flexed with softer demand, reflecting deliberate investments to support program readiness and execution. Importantly, this margin pressure is primarily driven by early-stage project inefficiencies and project launch costs as we prepare for higher-volume programs rather than pricing or structural cost challenges. As these programs ramp and utilization improves, we expect margins to normalize in line with our long-term expectations. These margin dynamics are transitory in nature and, importantly, position Mayville Engineering Company, Inc. to deliver profitable growth in 2026 and beyond as we capture demand in the rapidly expanding data center and critical power market. In addition, we remain focused on executing our MBX operational excellence framework, driving disciplined process improvements across our plants, and advancing initiatives to optimize and rationalize our manufacturing footprint, which we expect will further enhance operating leverage as end market demand recovers. Now turning to a review of our key markets and the respective end market outlooks. Starting with commercial vehicle, we continue to see net sales to this end market declining approximately 19% versus the prior-year period. In their most recent report, ACT has revised its full-year 2026 outlook upwards, now projecting a 3.4% increase in Class 8 production in 2026. This improved outlook reflects greater clarity surrounding the 2027 EPA emission standards, resulting in anticipated pre-buy activity and improved macroeconomic conditions. In contrast, our construction and access market revenues increased approximately 15% year over year during the quarter. This is supported by the AccuFab acquisition and strong nonresidential activity. Organic net sales growth in this market was approximately 11% in the quarter. In the powersports market, net sales grew approximately 20% year over year, driven by the impact of incremental volumes from new business wins and stabilized customer production schedules, as dealer inventory levels are now in line with current demand. This was partially offset by a decrease in sales within the marine propulsion market. Net sales in our agriculture market were approximately flat year over year amid signs that demand is reaching a cyclical trough. Within our data center and critical power end market, our business saw growth of approximately 13% year over year, supported by legacy OEM demand growth and early project launches on AccuFab-related cross-selling opportunities. Overall, demand from OEM customers in the data center and critical power market remains strong. Our qualified opportunity pipeline now 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 our legacy OEM customers, we expect data center and critical power to represent more than 20% of our revenues in 2026. Looking ahead, we expect this end market to remain a consistent growth opportunity for Mayville Engineering Company, Inc. Based on recent market studies, we estimate our serviceable addressable market to range from $115 million to $185 million per gigawatt of new data center capacity installed. Given the number of new data centers expected to come online in the U.S. in 2026, this represents a total market opportunity of approximately $3.2 billion. We expect this market to grow at a compound annual rate of approximately 16% from 2026 to 2030. Please note these estimations exclude server racking opportunities, which represent additional incremental upside. While we will continue to take a balanced approach to allocating capacity to this end market, the robust demand growth allows us to proactively manage our commitments. This approach ensures us to maximize footprint utilization, deliver consistent profitable growth through the cycle, and continue to invest in growth initiatives that unlock long-term value. Before turning the call over to Rachele, I want to highlight several areas of commercial momentum that give us confidence in our growth trajectory for 2026 and beyond. Across all of our end markets, customer engagement and bidding activity remains strong. During the fourth quarter, we secured approximately $15 million in new project awards with data center and critical power customers. Year to date, total awards across our legacy markets were more than $108 million, exceeding our annual target of $100 million. Looking ahead to 2026, we expect total bookings across our end markets to be approximately $140 million, supporting profitable growth as our legacy markets move toward a cyclical recovery exiting 2026. Within our legacy end markets, we have continued to expand our share with our commercial vehicle customers as they launch new products heading into the 2027 EPA regulation changes. These products support future growth and are scheduled to begin production in late 2026 and 2027. In addition to the future expansion in commercial vehicle revenues, we secured new agriculture business on new model introductions and additional service business for a military customer. Within the data center and critical power market, approximately $15 million of awards secured in the fourth quarter were primarily driven by demand from major AccuFab customers. These substantial scopes of work span power distribution units, static transfer switches, busway components, and data center cooling. Turning to capital allocation. We closed 2025 with strong free cash flow generation. While we expect free cash flow to be softer in the first quarter, we continue to anticipate full-year free cash flow conversion of approximately 50% to 60% of adjusted EBITDA. As we progress through the year, our primary use of free cash flow will remain focused on debt reduction. As we progress toward our long-term target of 2.5 times leverage, we expect to become increasingly opportunistic deploying capital towards M&A, with an emphasis on further diversifying our end market exposure and supporting consistent profitable growth. In the meantime, our priority remains disciplined capital deployment, ensuring that growth investments are targeted, return-driven, and fully aligned with maintaining balance sheet strength. With respect to guidance, to provide investors with greater visibility into our business trends, we are introducing quarterly financial guidance in addition to our full-year outlook. This is due to the fast-moving data center and critical power environment and developing improvements within our legacy end markets. Rachele will cover our guidance in more detail, but I would like to highlight a few key elements of our expectations for 2026. Inclusive of a full year of AccuFab and associated data center and critical power cross-selling synergies we expect to realize in 2026, we anticipate full-year net sales to increase relative to 2025, along with margin expansion and improved free cash flow. These expectations assume an improvement of our legacy end markets primarily during the second half of the year. In summary, Mayville Engineering Company, Inc. is entering an important transitional year, one that is shaping the next phase of our growth and value creation. While we are intentionally investing both capital and operating resources ahead of anticipated demand, we believe the foundation for sustainable growth and improved profitability is firmly in place. With disciplined execution and a clear strategic focus, we are well positioned to deliver long-term value for our shareholders and our customers. With that, I would like to turn the call over to Rachele. Thank you, Jag.

Good morning, everyone. Total sales for the fourth quarter increased 10.7% on a year-over-year basis to $134.3 million. Excluding the impact of the AccuFab acquisition, organic net sales declined by 5.3% compared to the prior-year period. Our manufacturing margin rate was 6.6% for the fourth quarter of 2025, compared to 8.9% for the prior-year period. The decrease in our manufacturing margin rate was due to $1.2 million of data center and critical power-related project launch costs and $1.7 million of early-stage project inefficiencies on a commercial vehicle project. This was partially offset by higher-margin net sales contribution from the AccuFab acquisition. Excluding these temporary launch phase dynamics, our manufacturing margin rate would have been approximately 9% during the quarter. Other selling, general, and administrative expenses were $9.7 million, or 7.2% of net sales, for the fourth quarter of 2025 as compared to $7.9 million, or 6.5% of net sales, for the same prior-year period. The increase in these expenses primarily reflects $200,000 in nonrecurring costs and $1.1 million in incremental SG&A expense, each associated with the AccuFab acquisition. Interest expense was $3.8 million for the fourth quarter of 2025, as compared to $2.0 million in the prior-year period. The increase was driven by higher borrowings resulting from the AccuFab acquisition, partially offset by lower SOFR base rates relative to the prior-year period. Adjusted EBITDA margin was 4.7% for the quarter, compared to 7.6% in the prior-year period. The decrease reflects lower legacy market volumes and $2.9 million of project launch costs and early-stage project inefficiencies, partially offset by the benefit of the AccuFab acquisition. Excluding these items, adjusted EBITDA margin would have been approximately 7%. Turning now to our cash flow and the balance sheet. Free cash flow during the fourth quarter of 2025 was $10.2 million, as compared to $35.6 million in the prior-year period. The year-over-year decline primarily reflects the receipt of $25.5 million in settlement proceeds in the fourth quarter of last year related to a former fitness customer dispute. Excluding this item, free cash flow was approximately flat year over year. During the fourth quarter, we used available free cash flow to repay approximately $10.0 million in debt, resulting in net debt at the end of the quarter of $205.3 million, up from $82.1 million at the end of 2024. Our increased debt resulted in a net leverage ratio of 3.7 times as of December 31. Now turning to a review of our 2026 financial guidance. As Jag previously mentioned, we are introducing quarterly guidance in addition to full-year guidance. For the first quarter of 2026, we currently expect net sales of between $137 million and $143 million and adjusted EBITDA of between $5 million and $7 million. Our first-quarter outlook reflects continued project launch costs and margin pressure ahead of the majority of data center and critical power project ramps, which begin in the second quarter. Additionally, free cash flow is expected to reflect normal seasonal working capital usage, incremental working capital investments to support the data center and critical power ramp-up, and planned capital expenditures of $3 million to $5 million. For the full year, we expect net sales of between $580 million and $620 million, adjusted EBITDA of between $50 million and $60 million, and free cash flow of between $25 million and $35 million. This outlook reflects a full year of AccuFab ownership, $40 million to $50 million of incremental cross-selling revenue, and a gradual improvement in the legacy end market demand, primarily in the second half of the year. Additionally, embedded within our 2026 adjusted EBITDA guidance is $2 million to $3 million of cost improvements driven by our NBX operational excellence and strategic value-based pricing initiatives, net of inflationary pressures. As it relates to free cash flow, we expect our free cash flow conversion for the full year to be between approximately 50% to 60% of adjusted EBITDA, coupled with full-year capital expenditures to be between $15 million and $20 million. Given this outlook and our priority of repaying our debt, we expect to achieve a net leverage ratio of three times or lower by the end of 2026. Again, 2026 will be a transitional year for us. We believe that our cost structure and working capital discipline will position us for profitable growth, strong free cash flow yield, and improved adjusted EBITDA margins as we enter a phase of cyclical recovery and growth across our legacy end markets, supported by elevated growth in our data center and critical power end market. With that, operator, that concludes our prepared remarks. We will now open for questions as we begin our question-and-answer session.

Thank you very much. To remove yourself from the question queue, please follow the prompts. Our first question comes from Michael Shlisky from D.A. Davidson. Your line is open. Please go ahead.

Yeah. This is Linda. My first question, starting with the commercial vehicle market. In your remarks, you noted the revised ACT outlook, and from the data we got overnight, it shows that Class 8 truck orders for February were one of the top ten months of all time. Does this change your view on 2026, and do you think any of it pulls from 2027 orders if this is just an emission-related pre-buy?

Yeah. Great question, Linda. And I was expecting that question this morning. You know, I did not see the ACT report until I got up this morning. Right? So, obviously, it is fresh off the press. I was not surprised by the increase in orders in February, but, obviously, we were surprised by the magnitude of increase of orders in February. We have seen signals from our OEMs in the last month or so inquiring us and other suppliers about capacity, utilization, and we have seen signals from them of potential build rate increases. What I can tell you is we have not seen any of those signals translate into demand yet. Having said that, we expect again, given this morning’s news, we expect some of this demand to accelerate the build rate increases from our CV customers, and we expect that to start showing up in mid to late Q2. Usually, for most suppliers, there is a six-week lead time, and hence, we have not seen that yet in our EDI feeds. But we do expect that. So with that in mind, you know, we came into this call expecting approximately a 230,000 build rate. We will have to wait and see if that estimate changes in the coming quarters. And that is one of the reasons why we came out with our quarterly guidance, which is new for us. These are fast-moving developments in our legacy end markets. We are seeing similarly green shoots in construction and small ag as well. So with all of that, we wanted to be more nimble, not only internally, but also externally in how we are communicating with our shareholders.

Great. Yeah. I appreciate the color. That is very helpful. Then, switching to ag, we keep hearing about ag getting better, whether that is from John Deere or other suppliers getting a little more bullish. Do you see any light at the end of the tunnel on that end market?

As some of our customers have indicated, the large ag will still be down this year, double digits. That is our customer forecast, what they have publicly communicated. But we are seeing signs of improvement in small ag, lawn care, turf, and forestry equipment. So we do see some green shoots, as I mentioned, in the ag business. I also want to remind you that our ag business is close to 5% of our overall sales, as much as it used to be a much larger piece of our business. With our data center business and other end markets continuing to grow and ag continuing to stay down in the last 18 to 24 months, it is now a much smaller piece of our business.

Got it. And then, my last question will be on critical power. You mentioned some launch cost in critical power providing a margin headwind in 2026. Do you think that would be complete by 2027, and what kind of margin tailwind might that be next year?

Linda, this is Rachele. Just, you know, as we look ahead into 2026, we really see that being ahead of the program launches. And we really expect and anticipate most of that to start taking place, to be at full run rate at the end of the second quarter. So we really expect to be at full run rate for the second half of the year. So we expect to incur more of those costs having the margin pressure in the first half. We do anticipate a little bit trailing into the second half of the year, but it is really going to be a first-half impact.

Got it. Thank you so much. Thank you for your time this morning.

Thank you, Linda.

Our next question comes from Greg Palm from Craig-Hallum. Your line is open. Please go ahead.

Yeah. Thanks. Good morning, everybody. You know, you incurred more cost and recognized lower margins than expected back from the November call. So I guess, looking back, what surprised you relative to that outlook? And then maybe you can just help unpack the EBITDA guide specifically for Q1 and maybe more specifically, what that margin progression looks like in sort of the Q2 to Q4 time period. It sounded like there are going to be some costs that you incur in Q2, and those mostly trail off in the second half. So just wanted to be sure we understood that right.

Yeah. Let me start first, Greg. The headline really for us is we have won more business in data centers than we anticipated coming out of our November call. We expect our Q1—we are not obviously talking about Q1 bookings here—but our Q1 bookings for data centers will be significantly higher than what we have seen in the second half of last year after the acquisition. So in preparation for those, we are in the middle of many of those launches already. The business we have won in Q1. So we had to bring on significant resources online, not only in December, also in Q1 as we sit here. And that is the primary reason why we are showing the margin profile that we are showing in Q1.

And I would add, you know, our legacy business, we always had product launches, but we are doing that over, you know, 12 to 18 months, a much longer time, and we are able to do that. This, you know, this business is 8 to 12 weeks. And so we have had to expedite that and really make investments. We have a product launch team specific to this, more than we have ever had before, because of the speed and the intensity of which our customers are asking for things. Again, as Jag mentioned, this really did exceed our expectations and what we are winning. We first acquired this business, you know, we have said, hey, it is going to be $1 to $2 million in cross-selling synergies in 2026, and here we now are at $40 to $50 million. So we have just had to invest more, and we are seeing that continue into Q1 because a lot of these will not be at their full run rate until the end of the year, but we want to nail it and want to make sure we hit it out of the park with these new customers in our locations.

And we are retooling six of our legacy plants—Mayville Engineering Company, Inc. plants. That is a significant effort to put data center work, not only what we have won so far year to date and last year, but what we are anticipating in 2026. Right? So it is great news, obviously, for the rest of the year and long term, that we are able to quickly convert six of our facilities for cross-selling synergies.

Okay. That is great color. And you already mentioned you are expecting that end market to represent more than 20% of revenue. I am just curious, as we sit here today, what kind of visibility do you have into that, you know, call it a $125 million revenue number if you want to use that. And, you know, there is a sentence in the press release that talks about pipeline and multiple large opportunities. Are these multiple large opportunities within that $125 million number, or is that something separate?

So I would say with very good confidence that we have good line of sight to that $120 million worth of data center business for the year. So that is number one. Number two, very little of significantly large opportunities are in that qualified pipeline number we put out.

Sorry. Say that one more time.

So some of the significant and large opportunities that we are pursuing, those are either—it is, you know, one or zero, right? So we did not want to take into account those opportunities—we do not want to inflate our pipeline with those large opportunities. Right? So when we talk about the $125 million of qualified pipeline, most of that is visibility and greater than 50% confidence that we could win those opportunities. So we are excluding some significantly large opportunities in that qualified pipeline.

Okay. And just to be clear, like, is there—when you talk about expectations for the year, if you were to, you know, win more small business or win, you know, one or a few of these large— is that something that could translate into more revenue this year above and beyond that $120 million number, or should we think of that more like a 2027 event?

Yeah. It is possible, Greg, and hence our effort at quarterly guidance here. This is a fast-moving end market, and we do know, though we laid out $40 to $50 million cross-selling synergies, our expectation is that if we continue to win at the existing win rates in this end market, right, there could be upside to that number.

Okay. Perfect. Alright. I will leave it there. Thanks.

Thank you.

Our next question comes from Ross Sparenblek from William Blair. Your line is open. Please go ahead.

Good morning. This is Sam Carlevon for Ross. Thanks for taking my question.

Hey. Morning, Sam.

Maybe starting with Rachele, can you help us parse out some of the moving pieces within the EBITDA guidance? I mean, how should we build to just an $8 million year-over-year step up considering 2026 includes a full year of AccuFab and incremental $40 million to $50 million of margin-accretive cross selling.

Sure. I think there are a couple of things to take into account here. One is our legacy business. The volumes continue to remain muted as we budgeted today. Now, of course, we just talked a little bit about what we learned on CV overnight—that there is some upside there. But as we look through the year, our customers are saying, our guidance is saying, that we expect most of those to start to rebound sometime in the second half of the year. So we have that pressure continuing on that piece of our business. We have a high fixed cost—55% of our costs are fixed—and so when we have that lower utilization, we really have ongoing under-absorption associated with that. The other piece is preparing for that legacy rebound. We are carrying some talent that we continue to hold on to because it is coming. And then the third piece is those launch costs. We, like I said, really want to make sure we hit it out of the park. The speed is faster. We are ramping up talent. We are learning as we go with this, and it is exciting to see the growth that we have with that, but we really need to be focused on delivering that. So first half is really pressured by the absorption, the launch cost, and getting ready for the rebound.

Got it. Have you given kind of what those launch costs are expected to be for the full year? Or just any sort of range there would be helpful.

Not full year, but we expect the first quarter to be very similar to the fourth quarter of launch costs for data center and critical power—$1 million to $1.5 million. We expect that to taper down through each of the quarters of the year.

Okay. Got it. I guess switching gears then. I mean, the $40 million to $50 million of in-year revenue synergies sounds like that is back-half loaded. I mean, it seems like that implies a pretty healthy exit rate exiting 2026. So I do not know if you could kind of help us size that ramp and kind of what that means as we enter 2027 of the business you guys have already won?

Yeah. I think, you know, as we look at—and we are seeing—by 2026, data center and critical power could be 20% of our total business, so that is significant. The adjusted EBITDA margins on that business are between 20% to 22%. So when you take that into account, knowing that the majority of that $40 to $50 million is going to come in the second half of the year, we will be exiting with margins in excess of our historical. If our historical business continues to come up, that will only additionally be upside.

Okay. From a revenue perspective, though, if we say, call it, you know, $20 million in the third quarter, $20 million in the fourth quarter, something like that, that implies an exit rate of, like, call it $80 million. Is that the right way we should be thinking about it into 2027?

Yeah. That is, I think, a pretty good assumption, Sam.

Okay. Got it. That is what I thought. That is helpful. I will leave it there. Thanks, guys.

Thank you. Our next question comes from Andrew Kaplowitz from Citi. Your line is open. Please go ahead.

Alright. Good morning. This is Natalia on behalf of Andrew Kaplowitz.

Morning, Natalia.

Maybe just first question on data centers. As data centers and critical power segment grows and represents more than 20% of revenue, should investors expect more customer concentration to increase as well? Or is the opportunity pipeline diversified across multiple customers within that end market?

Yeah. Within that end market, it is reasonably diversified. You know, not only are we working with some of the blue-chip names in the critical power end market, we also are working with the next tier of OEMs within that end market. So I do not expect a significant concentration in that end market for us.

Got it. That is helpful. And then just maybe switching over to your access end market and then the recovery as well. You are expecting a modest recovery driven by infrastructure spending and potential rate cuts. But are you already seeing early signs of improvement in customer order patterns or conversations, or is that recovery more of a second-half expectation at this point in time?

In the construction portion of that end market, we are already seeing the build rates increasing. You have seen public comments from our customers that are bringing back capacity online, bringing back employees online. Right? So we are seeing that already hitting our demand and EDI rates. In access, there were some, you know, starts and stops, if you will, with particularly the rental houses increasing their demand in Q4, but then, you know, some softer commentary from our customers on the access side of the end market. So we will have to wait and see and watch how access develops. But, you know, in general, we are positive on the construction and access end market.

Great. Thank you. Appreciate it. That is it on my end.

Yep. Thank you.

Our next question comes from Ted Jackson from Northland Securities. Your line is open. Please go ahead.

Thanks. I came in with 10 questions to ask and checked every one of them off. So, anyway, here is a couple for you, Jag. With regards to the 20% of revenue for ’26 that could be coming from data center and power, will that—are you going to be turning down in your legacy business to be able to ramp and hit that, or is that just on top of what is going on within the footprint that you have? For a lot of your legacy businesses, you know, then going even a little further, it is like, if we do see a stronger turnaround in, say, commercial vehicles, which, you know, my personal opinion is that we will, you know, will that preclude you from being able to get any additional business? And then I have got a couple more.

Yeah. At this stage, Ted, we believe we have enough capacity to be able to ramp up data center business while we see improved run rates within our legacy business. It is not a question for 2026, I believe. It is really for us to figure out a way to continue to expand our capacity as we go into 2027. Our teams have been working feverishly for the last couple of quarters using our MBX framework to increase throughput, increase productivity. We are bringing on additional shifts in some of our plants. We are hiring more employees in some of our locations. So we are planning accordingly. And at this point, we are not going to have to turn down any of our legacy customer business. But that is something that we will continue to watch. And it also presents us some choices as we go into 2027, not necessarily for capacity reasons, but perhaps for margin and pricing reasons. Right? So we will continue to evaluate those opportunities as we go into 2027.

I think the adding shifts is interesting to me. I mean, and, obviously, employees too. You know, I recall in the past, some of your locations, you only were running at one shift. And, honestly, adding additional shifts was kind of difficult because of labor constraints. You know, where are you in terms of, you know, kind of current utilization? You know, where are you in terms of kind of adding production shifts, and what are some of the hurdles you are having to overcome to make that happen?

Yeah. Without the two AccuFab facilities, right—if you exclude them for a second—I would say we are still around 55% on a 24/7 equipment capacity basis. Right? So as we ramp up some of these volumes in our legacy factories, we are looking at automation. We are looking at, you know, extending our shift schedules. Not all, but many of our plants coming out of COVID went to two 10-hour shifts for four days a week. Right? So that is 20 hours a day, four days. But what we are doing is standardizing our shift schedules across the company. Now we are going to three eight-hour shifts, five days a week. That is one way we can immediately increase our run capacity in these plants. We are looking at automation, as I mentioned. We are looking at weekend shifts. We are looking at third shifts in some of our plants. So, you know, it is a mix of different strategies depending on where we see capacity needed and where we see demand coming in.

Okay. Going over to when you talk about, you know, having to put resources to ramp up and incurring margins—so we are kind of dancing around all this—so it is people, you know, more labor cost. Is there—what other things go into, you know, the resources needed to position yourself to capture this growth that is impacting margins beyond, you know, obviously, the order of additional—

Right. You know, as we mentioned earlier, our traditional program launches would have taken 6 to 18 months in many cases. Now we are having to launch these new programs on a 6 to 12 week basis. I will give an example. We have one data center customer that in January came to us and then essentially quadrupled their demand for one of the product lines we used to make in Raleigh. So we had to shift that product line to Defiance, Ohio, one of our, you know, traditionally commercial truck plants, and we went in full force. You know, I was part of a 15-member Kaizen team. I was on the plant floor for a full week figuring out how do we, you know, quadruple our output in that plant for that customer. So, you know, we are rethinking how we assemble components. We are rethinking how we do product flow through the factories. We are rethinking logistics. Right? We are having to rethink everything from scratch compared to what we used to do in any of our previous operations. Right? So that needs project management resources. That needs engineering resources. That needs MBX resources. So all of this, we are trying to do at six different locations, as I just mentioned, as we ramp up data center work. Right? So that is the initial investment we are making. We are obviously having to put in some additional capital to improve productivity. We have most of the capital needed to produce these parts, but sometimes additional capital—new types of machines or automation—improves throughput and product. We are also thinking about how do we get more volume out of our factories as well for these customers. So those are all the things that we are doing. And all of that is investment we are making upfront.

Okay. And then my last question, which is kind of a silly one, but just to make sure—I want to make sure I understand what the term revenue synergies mean. So when you say that, you know, you are going to have $40 to $50 million in the revenue synergies in 2026, can you just give me a quick definition of what that—

Yeah.

Anything from a data center customer that is going to be made in a legacy Mayville Engineering Company, Inc. plant. That is how we define that. As we mentioned, you know, last year, the two AccuFab plants we acquired were at capacity when we acquired them. So we are, of course, trying to drive additional throughput through those two plants, and that is not considered in the cross-selling synergies. That is just productivity improvement at those two plants. But anything we are moving out, increasing volume, and, you know, new programs from data center customers that we are putting into Mayville Engineering Company, Inc. plants, you know, that is where we consider cross-selling synergies.

Thought I had it right. Just wanted to make sure. That is it for me. Thanks a lot, Jag.

Thank you, Ted.

We currently have no further questions, so I would like to hand back to Jag for some closing remarks.

Before we conclude, I want to again thank our employees 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 are making to position Mayville Engineering Company, Inc. for durable, higher-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today.

This concludes today’s call. We thank everyone for joining. You may now disconnect your lines.