10-Q: MEC Reports Q3 Loss Amid Acquisition Costs, Restructuring

Mayville Engineering Company, Inc. reported a net loss for the third quarter and first nine months of 2025, primarily impacted by the Accu-Fab acquisition and restructuring costs, despite a slight increase in Q3 net sales.

Summary

• Net sales for the three months ended September 30, 2025, increased by 6.6% to $144,310 compared to $135,392 in the prior year, driven by the Accu-Fab acquisition.
• Net sales for the nine months ended September 30, 2025, decreased by 10.4% to $412,217 compared to $460,298 in the prior year, due to reduced customer demand and de-stocking, partially offset by the Accu-Fab acquisition.
• The company reported a net loss of $(2,675) for Q3 2025, a significant decline from net income of $2,974 in Q3 2024.
• For the nine months ended September 30, 2025, the company incurred a net loss of $(3,752) compared to net income of $9,997 in the prior year.
• Income from operations plummeted by 99.2% to $48 in Q3 2025 and by 92.1% to $1,702 for the nine months, primarily due to non-recurring restructuring costs, inventory step-up expense from the Accu-Fab acquisition, and lower legacy customer sales.
• Manufacturing margins decreased to 11.0% in Q3 2025 (from 12.6%) and to 10.9% for the nine months (from 13.1%).
• Adjusted EBITDA decreased by 17.5% to $14,081 in Q3 2025 and by 26.2% to $40,747 for the nine months.
• The company acquired Accu-Fab, LLC on July 1, 2025, for a net consideration of $141,185, which contributed $21,246 in net sales and $4,225 in operating income for the three/nine months ended September 30, 2025.
• A restructuring plan was initiated on August 5, 2025, to consolidate three warehouses and one manufacturing facility, with expected costs between $5,000 and $7,000, of which $559 was incurred in Q3 2025.
• Net cash provided by operating activities decreased by 51.4% to $25,181 for the nine months ended September 30, 2025.
• Free cash flow decreased by 60.2% to $16,751 for the nine months ended September 30, 2025.
• A material weakness in internal control over financial reporting related to journal entry review and approval, identified in the 2024 Annual Report, remains un-remediated, with ongoing efforts to address it.

Sentiment

Score: 3

Explanation: The company reported significant net losses and declines in operating income and free cash flow for both the quarter and year-to-date, driven by acquisition-related costs, restructuring, and broad customer demand weakness. While the Accu-Fab acquisition offers strategic benefits and the company remains covenant compliant, the overall financial performance is weak, and a material weakness in internal controls persists.

Positives

• Net sales for the three months ended September 30, 2025, increased by 6.6% to $144,310, primarily driven by the Accu-Fab acquisition.
• The acquisition of Accu-Fab, LLC on July 1, 2025, enhances the company's strategic position by broadening its customer base and accelerating entry into the rapidly growing data center & critical power infrastructure end markets.
• The company remains in compliance with all financial covenants under its amended credit agreement, with a consolidated total leverage ratio of 3.47 to 1.00 (covenant maximum 4.00 to 1.00) and an interest coverage ratio of 6.23 to 1.00 (covenant minimum 3.00 to 1.00).
• Interest expense for the nine months ended September 30, 2025, decreased by 28.8% to $6,395, due to reduced interest rates relative to the prior year period, partially offset by increased borrowings.
• Cost reduction actions partially offset the decrease in manufacturing margins for the nine months ended September 30, 2025.

Negatives

• The company reported a net loss of $(2,675) for the three months ended September 30, 2025, compared to net income of $2,974 in the prior year, a decrease of 189.9%.
• A net loss of $(3,752) was recorded for the nine months ended September 30, 2025, compared to net income of $9,997 in the prior year, a decrease of 137.5%.
• Income from operations decreased significantly by 99.2% to $48 in Q3 2025 and by 92.1% to $1,702 for the nine months.
• Manufacturing margins decreased by 160 basis points in Q3 2025 to 11.0% and by 220 basis points for the nine months to 10.9%, primarily due to restructuring costs, inventory step-up expense from the Accu-Fab acquisition, and lower legacy customer sales.
• Net sales for the nine months ended September 30, 2025, decreased by 10.4% due to reduced customer demand across nearly all end markets and customer de-stocking channel inventory.
• Free cash flow for the nine months ended September 30, 2025, decreased by 60.2% to $16,751 from $42,094 in the prior year.
• Interest expense for the three months ended September 30, 2025, increased by 29.3% to $3,430 due to increased borrowings associated with the Accu-Fab acquisition.
• A material weakness in internal control over financial reporting related to the review and approval of journal entries remains un-remediated.

Risks

• Macroeconomic conditions, including inflation, elevated interest rates, labor availability, material cost pressures, and inconsistent customer demand, may continue to negatively impact business, financial condition, cash flows, and results of operations.
• Risks relating to developments in the industries in which customers operate.
• Risks related to scheduling production accurately and maximizing efficiency.
• Ability to realize net sales represented by awarded business.
• Failure to compete successfully in markets.
• Ability to maintain manufacturing, engineering, and technological expertise.
• Loss of any large customers or their respective market shares.
• Volatility in the prices or availability of raw materials critical to business.
• Geopolitical and economic developments, including foreign trade relations and associated tariffs.
• Risks related to entering new markets.
• Ability to recruit and retain key executive officers, managers, and trade-skilled personnel.
• Manufacturing risks, including delays and technical problems, issues with third-party suppliers, environmental risks, and applicable statutory and regulatory requirements.
• Ability to successfully identify or integrate acquisitions.
• Ability to develop new and innovative processes and gain customer acceptance.
• Risks related to information technology systems and infrastructure.
• Results of legal disputes, including product liability, intellectual property infringement, and other claims.
• Risks associated with the capital-intensive industry.
• Ability to remediate the material weakness in internal control over financial reporting and subsequently maintain effective internal control over financial reporting.

Future Outlook

The company expects some macroeconomic dynamics, including elevated interest rates, inconsistent customer demand, material cost inflation, and labor availability, to continue through 2025 and potentially impact demand, material costs, and labor. Capital expenditures for the full year 2025 are expected to be between $13,000 and $17,000. The company believes its operating cash flow and available borrowings under the Credit Agreement are sufficient to fund operations for 2025 and beyond, but future cash flows are subject to a number of variables, and additional capital expenditures will be required to conduct operations. There is no assurance that operations and other capital resources will provide sufficient cash, and additional capital may be needed for acquisitions or capital expenditures, which may not be available on acceptable terms or at all.

Management Comments

• Management believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America (GAAP), notwithstanding the material weakness in internal control over financial reporting.
• The company's decision to repurchase additional shares in 2025 will depend on business conditions, free cash flow generation, other cash requirements and stock price.

Industry Context

The company operates in diverse end markets including heavyand medium-duty commercial vehicles, construction & access equipment, powersports, data center & critical power, agriculture, and military. The acquisition of Accu-Fab strategically enhances its position by broadening its customer base and accelerating entry into the rapidly growing data center & critical power infrastructure end markets. However, the company faces broader market dynamics, geopolitical and economic developments, and customer de-stocking, leading to reduced demand across most legacy end markets such as Commercial Vehicle, Agriculture, and Powersports.

Corporate Governance

Legal Proceedings

• The company is not currently a party to any material litigation proceedings. From time to time, it may be involved in various claims and lawsuits arising in the normal course of business, which could have an adverse impact due to defense and settlement costs, diversion of management resources, and other factors.

Stakeholder Impact

• Shareholders: Negative impact due to reported net losses, decreased earnings per share, and reduced free cash flow. The ongoing share repurchase program's extent will depend on business conditions and cash flow.
• Employees: The Accu-Fab acquisition adds new employees. Amendments to the ESOP plan affect distribution timing and diversification options. The restructuring plan, involving facility consolidation, may impact employees at affected locations.
• Customers: Reduced demand from existing customers in several end markets, but the Accu-Fab acquisition expands the customer base and strengthens the company's presence in the data center & critical power market.
• Creditors: Increased borrowings under the revolving credit facility to finance the acquisition, but the company remains in compliance with financial covenants, indicating continued ability to meet debt obligations.

Next Steps

• Complete the purchase price allocation for the Accu-Fab acquisition within one year from the acquisition date (by July 1, 2026).
• Continue implementing and testing remediation efforts for the material weakness in internal control over financial reporting.
• Complete the restructuring plan by December 31, 2026, which involves consolidating three warehouses and one manufacturing facility.
• Evaluate the potential impact of ASU 2025-06 (Intangibles Internal-Use Software) on consolidated financial statements.
• Evaluate the potential impact of ASU 2024-03 (Expense Disaggregation Disclosures) on consolidated financial statements.
• Adopt ASU 2023-09 (Improvements to Income Tax Disclosures) in the fourth quarter of 2025.
• Review and make appropriate changes to Accu-Fab's internal control structure as it is integrated into the overall internal control over financial reporting process.

Key Dates

Recommendation

The company reported significant net losses and a sharp decline in operating income and free cash flow, primarily due to the Accu-Fab acquisition costs and a new restructuring plan, compounded by broad customer demand weakness. While the Accu-Fab acquisition is strategically positive, expanding into the growing data center market, and the company remains compliant with debt covenants, the material weakness in internal controls and the overall negative financial performance warrant caution. The stock is a 'hold' as investors should monitor the successful integration of Accu-Fab, the effectiveness of the restructuring plan, and the remediation of internal control weaknesses before considering further investment.

Keywords

Mayville Engineering, MEC, Manufacturing, Metal Fabrication, SEC Filing, 10-Q, Quarterly Report, Financial Results, Accu-Fab, Acquisition, Restructuring, Data Center, Critical Power, Commercial Vehicles, Construction Equipment, Powersports, Agriculture, Military, Corporate Governance, Internal Controls, Debt, Credit Facility, Share Repurchase