Mayville Engineering Company, Inc.

Hello, everyone, and thank you for joining us today for the Mayville Engineering Company fourth quarter and full year 2025 results conference call. My name is Sammy, and I'll be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad to remove yourself from the question queue. I'm now allowed to hand over to your host, Stefan Neely, with Valum Advisors to begin. Please go ahead, Stefan.

Thank you, operator. On behalf of our entire team, I'd like to welcome you to our fourth quarter and full year 2025 results conference call. Leading the call today is MEC's President and CEO, Jag Reddy, and Rachelle Lair, 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 Chad.

Thank you, Stephan, and good morning, everyone. The fourth quarter represented a transitional period for MEC. 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. For the past six months, we have experienced robust and sustained demand momentum within our data center and critical power and 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 costs 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 MEC 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 discipline process improvements across our plans. We're also 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 your review of our key markets and the respective end market outlooks. Starting with commercial vehicle. Continue to. With net sales to this end market declining approximately 19% versus the prior year period. In their most recent report, ACP 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 13% year over year during the quarter. This is supported by the acquisition and strong non-residential activity. Organic net sales growth in this market were approximately 11% in the quarter. In the power sports 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 the 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 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 MECC. 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 US 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 represents 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 Rochelle, I want to highlight several areas of commercial momentum that gives 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 in 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 and markets. Rochelle 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 ACUFAB and the 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, MEC 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 Rochelle.