MEC Q3 Deep Dive: Data Center Growth Offsets Legacy Market Weakness

Vertically integrated manufacturing solutions provider Mayville Engineering Company (NYSE:MEC) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 6.6% year on year to $144.3 million. The company’s full-year revenue guidance of $545 million at the midpoint came in 1.1% above analysts’ estimates. Its non-GAAP profit of $0.10 per share was significantly above analysts’ consensus estimates.

Is now the time to buy MEC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Mayville Engineering’s third quarter revealed a mixed picture, as the company outpaced Wall Street’s top-line expectations but faced clear operational headwinds. Management pointed to persistent demand challenges in legacy end markets, particularly commercial vehicles and agriculture, as a primary reason for margin compression. CEO Jagadeesh Reddy acknowledged, “Our third quarter results reflect the discipline and focus of our team as we navigated persistent demand challenges across our legacy end markets.” The integration of Accu-Fab drove new growth in higher-margin data center and critical power markets, but margin pressures and restructuring costs weighed on overall profitability.

Looking forward, Mayville Engineering’s guidance is anchored by optimism around its shift toward data center and critical power segments, which management believes will increase revenue diversification and margin potential. Reddy emphasized, “This opportunity represents a meaningful shift for MEC. Our revenue synergy expectations from Accu-Fab have now increased to between $20 million and $30 million in 2026.” Management plans to continue reallocating resources to these high-growth areas, but remains cautious about the pace of recovery in traditional markets, noting that a transitional period with margin pressure will likely persist until demand normalizes.

Key Insights from Management’s Remarks

Management attributed third quarter trends to weak legacy demand, Accu-Fab integration, and strong momentum in new markets, while highlighting the rapid pipeline expansion in data center and critical power.

• Legacy market softness: Persistent weakness in commercial vehicle and agriculture segments led to underutilized capacity and lower margins. Management cited a 24% year-over-year sales decline in commercial vehicles and a 21.8% drop in agriculture, reflecting macro headwinds and delayed fleet replacements.
• Accu-Fab integration success: The recently acquired Accu-Fab business contributed to sales growth and margin improvement in targeted segments. CEO Reddy emphasized that the acquisition allowed Mayville to access new customers and increase capacity for high-growth data center and critical power projects.
• Data center and critical power expansion: Rapid growth in this end market is reshaping Mayville’s revenue mix. Management reported a pipeline of over $100 million in qualified opportunities and secured $30 million in new project awards during the quarter. The company expects these programs to move from bid to revenue in 8–12 weeks, much faster than traditional markets.
• Operational restructuring: Mayville implemented plant reconfigurations and lean initiatives to manage shifting demand, focusing on redeploying resources to support new business while controlling fixed costs. This restructuring, however, brought nonrecurring expenses and temporary inefficiencies, contributing to margin pressure.
• Customer diversification: The company secured new business with both existing and new customers, particularly in data center and critical power, including large multinational clients. Management views this diversification as key to reducing earnings volatility tied to cyclical legacy markets.

Drivers of Future Performance

Mayville Engineering’s outlook is shaped by ongoing legacy market headwinds, aggressive expansion in data center and critical power, and efforts to rebalance its production footprint.

• Shift to higher-margin markets: Management expects the data center and critical power segment to represent 20–25% of total revenues in the near future, with gross margins roughly 10 percentage points above the company’s historical average. This shift is anticipated to drive incremental sales and better profitability as new programs scale.
• Transitional margin pressure: The company anticipates ongoing margin pressure in the next few quarters due to a combination of underutilization in legacy plants and ramp-up costs for new programs. Management sees this as a temporary phase, expecting margin expansion once data center volumes increase and legacy demand recovers.
• Capital allocation and debt reduction: Mayville plans to use free cash flow from growth initiatives to lower leverage, but acknowledges that working capital needs and selective capital investments for new equipment may temporarily moderate debt repayment. Management reaffirmed its commitment to achieving a net leverage ratio of 3x or lower by the end of next year.

Catalysts in Upcoming Quarters

In the upcoming quarters, the StockStory team will be monitoring (1) the pace at which data center and critical power projects move from pipeline to revenue, (2) whether margin pressures from underutilized legacy capacity abate as new business ramps, and (3) progress toward reducing net leverage as free cash flow improves. Execution on plant reconfigurations and successful customer diversification will also be important milestones for Mayville’s long-term strategy.

Mayville Engineering currently trades at $16.13, down from $18.04 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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