Mayville Engineering (NYSE:MEC) reported an 18.1% increase in third-quarter sales as demand for data center and critical power equipment grew, but the company said project delays, launch costs and underused capacity in other markets would weigh on fourth-quarter margins.
Net sales rose to $170.4 million for the third quarter of 2026. Adjusted EBITDA increased to $17 million, or 10% of sales, from $14.1 million, or 9.8% of sales, a year earlier. The adjusted EBITDA margin improved approximately 190 basis points from the second quarter.
President and CEO Jag Reddy said additional data center and critical power programs reached full production during the quarter, helping utilization. But the company also incurred approximately $3 million in project launch and outsourcing costs in that market, along with premium labor costs supporting other programs.
“We are absorbing these near-term costs deliberately because the programs we are launching today are accretive to our long-term margin profile,” Reddy said.
Project delays affect outlook
Mayville updated its full-year 2026 outlook to call for net sales of $630 million to $640 million, adjusted EBITDA of $48 million to $52 million and free cash flow use of $6 million to $16 million. CFO Rachele Lehr said the outlook reflects shifting customer timelines and a mix of strong commercial vehicle demand with continued weakness in agriculture and power sports.
Reddy said approximately $20 million of data center and critical power revenue shifted from the second half of 2026 into 2027 as multiple customers dealt with supply-chain challenges. Lehr said the delay in higher-margin revenue, along with incremental labor and launch costs, contributed to the reduction in the adjusted EBITDA outlook midpoint from $56 million to $50 million.
Lehr expects fourth-quarter adjusted EBITDA margin to be modestly below the third-quarter level and described the fourth quarter as the base for subsequent margin improvement. New equipment is expected to be running in the first quarter of 2027, although moving outsourced work back in-house will take additional time. Lehr said the margin impact from the equipment should become apparent sometime in the second quarter.
Management expects margins to improve sequentially through 2027 as launch costs moderate, hiring progresses and higher volumes improve fixed-cost absorption. Reddy reiterated the company’s target of approximately 15% adjusted EBITDA margin and said the benefits of its actions should be most visible as Mayville exits 2027 and moves into 2028. The company plans to provide formal 2027 guidance on its fourth-quarter call.
Data center pipeline expands
Data center and critical power sales rose approximately 65% year over year and represented about 22% of total third-quarter sales. Mayville secured approximately $45 million of new awards in the market during the quarter, while its qualified opportunity pipeline exceeded $200 million.
In response to an analyst’s question, Reddy said the increase from a $125 million pipeline the prior quarter was driven mostly by potential new customers. He said programs enter the qualified pipeline when customers are close to a decision and Mayville believes its chance of winning is greater than 50%.
The company is in discussions with more than one customer about dedicated capacity or capacity-payment guarantees, Reddy said. He added that Mayville has begun charging data center customers for some delays, incremental headcount and working capital as it adapts to the market’s rapid production schedules.
Reddy said management expects to reach full capacity within approximately 18 months based on awarded programs and the pipeline. On Oct. 1, Mayville acquired a manufacturing facility in Thomson, Georgia, closer to key data center and critical power customers. Including the purchase, improvements and equipment, the company expects to invest approximately $25 million in the location through 2028 and add approximately $50 million of annual revenue capacity.
Labor and legacy markets remain constraints
Commercial vehicle sales increased nearly 35% year over year, while construction and access sales rose approximately 9%. Power sports sales fell approximately 27%, and Reddy said agriculture remained in a cyclical trough with no near-term recovery expected.
Reddy said Mayville expects $20 million to $30 million of net exits from industrial customer business next year as it pursues higher pricing and redirects some capacity toward data center work. He also said power sports customers are shifting more supply-chain work to Asia, limiting his optimism about a recovery for Mayville in that market.
Labor shortages are influencing where the company places programs. Reddy said Mayville had 230 to 250 plant job openings and was moving work across its network to better match available skills. In some locations, the company has used outsourcing and temporary labor while training its own welders.
For the third quarter, free cash flow was a use of $3.3 million, compared with a use of $1.1 million a year earlier, primarily because of higher capital spending. Net debt was $146.6 million at Sept. 30, and net leverage was 2.9 times trailing 12-month adjusted EBITDA under the company’s credit agreement. Mayville’s long-term leverage target remains 2.5 times.
Lehr said the company expects $40 million to $50 million in capital expenditures in 2027, focused on supporting growth, including approximately $10 million for the Georgia facility.
About Mayville Engineering (NYSE:MEC)
Mayville Engineering Company, Inc (NYSE:MEC) is a U.S.-based contract manufacturer that provides engineered metal components and assemblies to original equipment manufacturers. Headquartered in Mayville, Wisconsin, the company works with customers from product design and prototyping through production, finishing and assembly.
Its manufacturing capabilities include metal fabrication, precision machining, stamping, tube forming, laser cutting, robotic and manual welding, powder coating, painting and final assembly.
