Q3 2025 Mayville Engineering Co Inc Earnings Call

Speaker #1: Hello everybody , and welcome to the . Mayville Engineering Company , third quarter 2020 Earnings Conference . Call . My name is Elliot , and I'll be coordinating your call today .

Speaker #1: If you would like to register a question during today's event , please press Star One on your telephone keypad . I would now like to hand over to Stefan Neely at Valim Advisors .

Speaker #1: Please go ahead .

Speaker #2: Thank you . Operator . On behalf of our entire team , I'd like to welcome you to our third quarter 2020 results conference call .

Speaker #2: Leading the call today is MECs president and CEO Jagadeesh Reddy and Rachele Lehr Chief Financial Officer . Today's discussion contains forward looking statements about future business and financial expectations .

Speaker #2: 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 .

Speaker #2: Except as required by law , we undertake no obligation to update our forward looking statements . Further , this call will contain the discussion of certain non-GAAP financial measures .

Speaker #2: Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release , which is available at MCC , Inc.com .

Speaker #2: Following our prepared remarks , we will open the line for questions . With that , I would like to turn the call over to JAG .

Speaker #3: Thank you , Stefan , and good morning , everyone . Our third quarter results reflect the discipline and focus of our team as we navigated persistent demand challenges across our legacy end markets .

Speaker #3: Despite continued softness from our OEM customers , results were in line with our expectations . And we are reaffirming our full year 2025 financial guidance .

Speaker #3: We have also made significant progress integrating the accu acquisition , which closed at the beginning of the third quarter . Our sales team has already engaged Aquafaba customer base and is leveraging Max domestic manufacturing footprint to position us as a preferred partner for leading data center and critical power OEMs .

Speaker #3: These customers are actively seeking reliable domestic supply chains to support accelerating demand from data center and critical power investments . The integration of Aquafaba into Meck now offers a scalable solution that simply was not available six months ago .

Speaker #3: Our pipeline of qualified opportunities within this market has grown substantially , well above initial expectations and continues to expand as we demonstrate our ability to deliver rapidly and at scale .

Speaker #3: Today , we are bidding on more than $100 million in qualified opportunities . Many of which extend across our broader Meck footprint . Unlike our traditional markets , where projects typically take over a year or longer to reach production data center and critical power programs can move from bid to revenue in as little as 8 to 12 weeks .

Speaker #3: To support this momentum , we are repositioning capacity and resources . This is a clear demonstration of the flexibility and strength of our vertically integrated operating model .

Speaker #3: Looking ahead , this opportunity represents a meaningful shift for Meck . Our revenue synergy expectations from Aquafaba have now increased to between 20 million and $30 million in 2026 .

Speaker #3: We also expect this business to yield gross margins of approximately ten percentage points above our historical average of 15 to 20% . While our legacy end markets remain in a cyclical trough The emerging opportunity in the data center and critical power market represents an important inflection point as we seek to diversify our revenue base and strengthen our long term growth profile .

Speaker #3: Driven by the underlying market growth . Significant capital investments in data center and critical power , and our opportunity pipeline . We see a path for this end market to represent 20 to 25% of our total revenues in the coming .

Speaker #3: years . At that level , it has the potential to become one of our largest end markets , representing a meaningful step in our strategic diversification of our business toward faster growing and higher margin end markets .

Speaker #3: Importantly , growth in this end market is expected to be incremental to our legacy markets . We fully expect to continue to meet the needs of our long standing legacy OEM customers as end market demand recovers .

Speaker #3: Taken together , we believe this positions Meck for greater resilience and profitability through in-market cycles . Now , turning to a review of our legacy markets .

Speaker #3: Commercial vehicle demand has continued to soften in the third quarter , with net sales to this end market declining 24% versus the prior year period .

Speaker #3: Act now projects a 28% decline in class eight production in 2025 , followed by an additional 14% decline in 2026 . As tariffs and regulatory uncertainty delay fleet replacement in contrast , our construction and access market revenues increased 10.1% year over year during the quarter .

Speaker #3: This is supported by the Aquafaba acquisition and strong non-residential activity. Organic net sales growth in this market was 6.2% in the quarter.

Speaker #3: We are expecting to see this level of growth continue through the fourth quarter and into 2026 . In the Power sports market . Net sales grew 6.4% year over year , driven by transient aluminum related demand .

Speaker #3: Agriculture net sales declined 21.8% amid elevated interest rates and lower farm income across all our end markets . Customer engagement remains strong during the third quarter , we secured $30 million in new project awards with data center and critical power customers .

Speaker #3: Year to date , total award across our legacy markets reached $90 million , nearing our full year target of $100 million . As we entered the fourth quarter within our legacy end markets , we have continued to expand our share with our commercial vehicle customers as they prepare to launch their next generation models ahead of upcoming EPA regulatory changes .

Speaker #3: Many of these products support future growth and are scheduled to begin production in 2026 and 2027 . In addition to the future expansion in commercial vehicle revenues , we secured a significant award for a next generation product in our aluminum extrusion business , along with additional tube components for a major power generation customer .

Speaker #3: Lastly, the $30 million within the data center and critical power market secured during the third quarter includes $25 million in cross-selling wins.

Speaker #3: We achieved significant awards with two major customers covering battery backup cabinets and panels . Static transfer switch components and busway components . Operationally , our teams have been working diligently to respond to shifting demand within our legacy end markets .

Speaker #3: While positioning to meet demand from the developing data center and critical power project pipeline . We are working closely with legacy customers to manage production schedules and capacity commitments in select cases .

Speaker #3: We are adjusting pricing and requesting additional volumes to secure capacity availability for future demand . These actions will help mitigate near-term underutilization though we anticipate certain legacy market demand to remain a headwind through mid next year .

Speaker #3: Even as new data center and critical power programs ramp . During this transitional period . We expect additional margin pressure as we balance the resources needed for accelerating near-term demand .

Speaker #3: Turning to capital allocation . Third quarter free cash flow was impacted by $3.5 million in non-recurring items . However , we expect strong cash flow in the fourth quarter and have reaffirmed our full year free cash flow guidance consistent with our strategic framework .

Speaker #3: Our top priority remains reducing debt and lowering leverage . In summary , I am encouraged by the progress our team has made by executing our strategy .

Speaker #3: While legacy markets remain soft . Our agile operating model is enabling us to capitalize on high growth opportunities , all while maintaining financial discipline and operational focus .

Speaker #3: I am confident that our continued execution will drive improved profitability , enhanced diversification and sustainable value creation for our shareholders . With that , I would like to turn the call over to Rochelle .

Speaker #4: Thank you . Jack , and good morning , everyone . Total sales for the third quarter increased 6.6% on a year over year basis to $144.3 million , excluding the impact of the fab acquisition .

Speaker #4: Organic net sales declined by 9.1% compared to the prior year period . Our manufacturing margin rate was 11% for the third quarter of 2020 .

Speaker #4: Five , compared to 12.6% for the prior year period . The decrease in our manufacturing margin rate was due to $1.2 million of non-recurring restructuring costs and inventory step up expense associated with the Aquafaba acquisition and lower customer demand in the legacy commercial vehicle and agricultural and markets .

Speaker #4: This was partially offset by higher margin net sales contribution from the Aquafaba acquisition , excluding the non-recurring costs . Our manufacturing margin rate would have been approximately 12% during the quarter .

Speaker #4: Other selling administrative expenses were $10.5 million , or 7.3% of net sales . For the third quarter of 2025 , as compared to $7.6 million , or 5.6% of net sales for the same prior year period .

Speaker #4: The increase in these expenses primarily reflects $0.9 million of non-recurring costs , and $1.6 million in incremental , general and with the Aquafaba acquisition .

Speaker #4: Long term , we continue to anticipate SGA to remain at a normalized range of between four and a half to 5.5% of net sales as end market demand recovers .

Speaker #4: Interest expense was $3.4 million for the third quarter of 2025 , as compared to $2.7 million in the prior year period . The increase was driven by higher borrowings resulting from the Aquafaba acquisition , partially offset by a lower interest rate relative to the prior year period .

Speaker #4: Adjusted EBITDA margin was 9.8% in the current quarter , as compared to 12.6% for the same prior year period . The decrease in adjusted EBITDA margin was attributable to lower legacy customer demand , partially offset by the impact of the Aquafaba acquisition .

Speaker #4: Turning now to our statement of cash flows and balance sheet free cash flow during the third quarter of 2025 was a negative $1.1 million as compared to a positive $15.1 million in the prior year period .

Speaker #4: As Jay mentioned , free cash flow for the third quarter reflects $3.5 million of non-recurring costs . As of the end of the third quarter of 2025 , our net debt , which includes bank debt financing agreements , finance , lease obligations , net of cash and cash equivalents , was $214.9 million , up from $114.1 million at the end of the third quarter of 2020 .

Speaker #4: For our increased debt resulted in a net leverage ratio of three and a half times . As of September 30th . Now , turning to a review of our 2025 financial guidance .

Speaker #4: We are reaffirming our 2025 financial guidance , supported by growth and select legacy end markets and stronger than expected demand from the data center and critical power and market .

Speaker #4: We expect net sales for the full year of 2025 to be between 528 million and $562 million , adjusted EBITDA of between 49 million to $55 million and free cash flow of between 25 million to $31 million .

Speaker #4: We expect the fourth quarter to reflect normal seasonality and continued softness in certain legacy markets , most notably commercial vehicle . As a reminder , we have reduced manufacturing days during the fourth quarter due to the holidays .

Speaker #4: Combined with the ongoing reduction in commercial vehicle production schedules and retaining resources to support the ramp of new data center and critical power programs .

Speaker #4: We anticipate some margin pressure during the quarter . Despite this , we expect to generate positive free cash flow in the fourth quarter , consistent with our capital allocation priorities .

Speaker #4: We plan to use that cash to reduce debt . Looking ahead , we anticipate that softness across certain legacy markets will moderate the pace of debt repayment in 2026 .

Speaker #4: To be clear , we do not expect sustained negative free cash flow . However , as we ramp data center and critical power production working capital will temporarily increase and we may make selective capital investments in equipment to support these programs .

Speaker #4: Together with fixed costs . Under absorption from subdued commercial vehicle demand . Through the first half of next year , we now expect to achieve a net leverage ratio of three times or lower by the end of 2026 .

Speaker #4: Importantly , we view this as a transitional period as cash generation strengthens with the recovery in the commercial vehicle market and continued growth in our high margin , high velocity markets .

Speaker #4: We expect to accelerate debt repayment and return to a net leverage profile consistent with our stated long term target of below two and a half times .

Speaker #4: With that operator , that concludes our prepared remarks . Please open the line for questions as we begin our question and answer session .

Speaker #1: Thank you . If you would like to ask a question , please press star followed by one on your telephone keypad . If you would like to withdraw your question , please press star followed by two .

Speaker #1: When preparing to ask a question , please ensure your device is unmuted locally . First question comes from Ross Barenblatt with William Blair .

Speaker #1: Your line is open. Please go ahead.

Speaker #5: Hey . Good morning guys , and thanks for taking the questions .

Speaker #3: Morning , Ross .

Speaker #6: Morning .

Speaker #5: Jack , you know , we started this year . And you guys pulled forward your productivity initiatives . Initiatives and realized that the delicate process , especially when demand cycles are volatile .

Speaker #5: But how do you feel with the rollout thus far ? And do you feel that the organization is . Well positioned for when demand does begin to turn ?

Speaker #3: Absolutely . Ross . The team has been relentless in driving MBA programs across our plant network throughout the year . Every single plant has had increased number of lean activities throughout the year .

Speaker #3: As we reconfigured our capacity to position data center products into existing footprint , we have done a lot of adjustments to resources , a lot of adjustments to our equipment , a lot of adjustments to how we think about shift schedules .

Speaker #3: So all of these actions are not only helping us in the short term to navigate the soft end market demand , but absolutely will position the company for a significant margin expansion .

Speaker #3: Significant productivity once the volumes return . So I'm really excited about , you know , all the things that we have done this year , though it may not be reflected in our actual financial results , but as we start putting in volumes back into the plant , even with the data center products , right , we should see going into Q1 and beyond a a good uptick in our productivity .

Speaker #5: Okay . And if I was to put that into a , a spreadsheet here and just thinking through margins , Decrementals were down over 30% in the quarter .

Speaker #5: What is the kind of timeline for closing that gap to, you know, keeping a sustained decremental under 20% through the cycle?

Speaker #3: I would say , yeah , obviously we're not providing any guidance for 2026 . Having said that , I would say by mid-year we should see a decent readout coming out of all the actions that we have taken .

Speaker #3: Let me address the big elephant in the room . We are taking a conservative approach to our 2026 CV forecast . You can look at our two large OEMs , their public , and they what they have said publicly for 2026 guidance in terms of volumes .

Speaker #3: And you can look at Act . Act is around 205 . And if you average what the customers have said , that's probably , you know , somewhere in the two .

Speaker #3: 45 to 250 range . So the difference is what is going to make , you know , is going to be , I guess , really make a difference next year for us .

Speaker #3: We have taken the conservative approach of using the act for planning purposes . So if the volume turns about the act number next year , that's an upside for us , not only in terms of productivity and margin expansion , but also significant revenue increase next year .

Speaker #5: Okay . Definitely understood . And thanks for providing that . That framework for 2026 . Definitely understand . You know loose and not all of you guys do it .

Speaker #5: So I'll pass it along.

Speaker #6: Thank you .

Speaker #1: Are we now . Turn to Greg Palm with Craig-hallum . Your line is open . Please go ahead .

Speaker #7: Yeah , thanks . Good morning . Hi , Jack . Hi , Rochelle .

Speaker #3: Good morning . Greg .

Speaker #7: Can you just give us some sense on , you know , what's occurred in the in the last four months since since aquafaba .

Speaker #7: I mean , it just sounds like overall activity . It's been a lot higher . It's occurred much faster than initially thought . You know , and you know , what types of , you know , internal changes or investments do you have to make ?

Speaker #7: Are you making to capitalize on this opportunity within data centers ?

Speaker #3: Really good question , Greg . We have been extremely busy and active in not only bringing on new customers to Aquafaba , but also a lot of new customers to legacy mech locations .

Speaker #3: We have hosted every top customer in data center and critical power segment in many of our plants , and they continue to be impressed with the level of capacity and automation and just skill sets that mech can bring .

Speaker #3: To this end market . So , as you know , we came out of Q3 , we continue to build on that pipeline .

Speaker #3: You know , we said in our prepared remarks , our pipeline exceeds $100 million . This is qualified , active pipeline . We have won 30 million out of the 30 million .

Speaker #3: It's really 25 million is the cross-selling synergies that we're actively putting into existing plants . Out of the programs are going into our defiance plant , which is a primarily a CV plant .

Speaker #3: A lot of programs are going into Mavil . That is a primarily agriculture and powersports plant . We're putting products into other locations as well , where we see immediate benefit .

Speaker #3: As soon as we ramp this data center , products immediate benefit in terms of volume and productivity in those plants that are lacking in volume today , but at the same time , we continue to host new customers in the space we continue to navigate some of the accelerated product launch .

Speaker #3: You know , at timelines , if you recall , our legacy programs take between 12 and 24 months . Once we win them to start up and see a revenue data center .

Speaker #3: Products , you know , are 8 to 12 weeks . Once they make a decision and award that purchase order to us within 8 to 12 weeks , we're making product and , you know , shipping this product .

Speaker #3: Right ? That means we are repositioning resources . We're repositioning capital . We're repositioning machinery , we're moving machines from plant to plant to fully be prepared for this increase in volumes that were expecting out of the data center .

Speaker #3: And market .

Speaker #7: Okay . Appreciate that color . And I guess maybe can you can you help us understand like what constitutes a pipeline ? You know , just just , you know , versus , you know , non-qualified opportunities .

Speaker #7: And I'm curious if you look at , you have a slide that's talking about actual orders . I'm curious , you know , in terms of the customer characterization , how many of those are from new customers , what would these orders have looked like under , you know , Aquafaba , as a standalone , if there were existing customers and , you know , just thinking about the future , you potential for follow on orders , if some of these are sort of initial orders from new customers , I'm curious just to get your thoughts there to .

Speaker #3: Yeah , that's a really good question . Aquafaba Raleigh location , which was primarily the data center and critical power location . They were sold out .

Speaker #3: So pretty much everything that you're seeing on this slide , the 25 million of cross-selling synergies , most of that , they would not have had capacity to actually produce .

Speaker #3: Right . So that is the exciting part here is , you know , that battery backup cabinet , they might have been able to handle 1 to 2 million at best in that plant right now .

Speaker #3: You know , we're able to completely take over that program . And we expect that program to continue on even though we have a purchase order for 10 million .

Speaker #3: We expect that to increase . As you know , the year goes along . Next year . So that's the same case with power distribution units , extrusion panels and busway components .

Speaker #3: Busway components are really around aluminum extrusions , which you know , data , sorry , Aquafaba did not have any capacity for . We're going to produce these out of our fond du Lac facility .

Speaker #3: Right . So this is the exciting part about this acquisition is that we're capturing everything Aquafaba could capture . And then all of this is really icing on the cake , because we're able to then now put all of these programs into Mac legacy plants .

Speaker #3: Also , some of these products here in the pipeline , as an example , products that Aquafaba has never made . So those products , you know , we are able to manufacture because of either size limitations , capability limitations , machinery limitations that Aquafaba would not have even bid on in the past .

Speaker #3: So now Mack is able to bid and win in the future . Some of these , you know , larger programs and larger physically in size and complexity .

Speaker #3: .

Speaker #7: And are you able to sort of tell us , like what types of customers are they ? How big are they like , how much data center stuff are they doing themselves .

Speaker #7: And just to be clear , what we're talking about here , how many is new versus , you know , legacy customers to aquafaba .

Speaker #3: I would say that a significant number of maybe three quarters of what we have won here . Are more our legacy Aquafaba customers .

Speaker #3: And in the opportunity pipeline , I would say at least a third , if not a higher , our new logos to Aquafaba and Mack .

Speaker #3: So we're not stopping at just capturing incremental share of wallet from existing customers . We're actually expanding our logo list , if you will , and going after new customers in that space .

Speaker #3: So as an example , this data center customer on this slide , you're looking at right . You know , one customer that's a 20 plus billion dollars in sales .

Speaker #3: Customer . The extrusions , the two customers , there , each of them . One is probably a couple of billion in size .

Speaker #3: Other one is 20 plus billion in revenue . Critical power . The six customers these are multibillion dollar revenue customers . Right . So these are large customers significantly expanding their presence in the data center .

Speaker #3: And critical power space . And looking for additional capacity to continue to grow .

Speaker #7: Okay . Perfect . Last one for me because , you know , you provided some good color by segment for fiscal 26 . But there's a lot moving along around in this in this data center , critical power segment .

Speaker #7: So just given the organic growth acute synergies , I mean , you're at an annualized $90 million rate in Q3 . What is your expectation for revenue in this segment in fiscal 26 ?

Speaker #3: In data centers .

Speaker #7: Yes .

Speaker #3: Okay . We don't obviously , we're not providing any guidance for 26 . And , you know , I'm not trying to be flippant about it , Greg .

Speaker #3: Every single day a new program is every single week , right ? A new program is being added to that qualified pipeline . It has been so dynamic .

Speaker #3: We do not expect to win 30 million of new business in Q3 . Right . And here we are , right . We already won some more in October .

Speaker #3: Right ? We expect to win some more in Q4 . So you know , at a I would say if I were to take a rough guess , we expect that data center and critical power and market to be at least 20% of our overall sales in 2026 .

Speaker #3: Right ? Obviously , the caveat there is , what is the CV market is going to do , because that's a significantly large end market .

Speaker #3: If CV stays around 205 , number , we expect data center to be at 20% . End market for us next year .

Speaker #7: Wow . Okay . Good to hear . Appreciate all the color . I'll hop back in queue . Thanks .

Speaker #6: Thank you .

Speaker #1: Thank you Mike with D.A. Davidson . Your line is open . Please go ahead .

Speaker #6: Good morning and thank you . I want to follow up on a couple of the comments that you've made so far . On the CV market for , for 2026 , the Act research forecast the two OEMs you mentioned , you know , I want to throw out there that all the end users of truck that I've heard from , not one has mentioned buying less trucks in 2026 .

Speaker #6: That's mostly vocational . Even on the freight side , a lot of folks are set out 2025 and literally bought zero trucks . So any one truck next year would be an increase for a lot of those players .

Speaker #6: I guess I wanted to figure out . Have you talked to any of the OEMs and could you maybe share at a very high level what their actual comments have been directly to you about what to make sure you're ready for in 2026 ?

Speaker #3: Good question . Mike . We have been burned by this end market . You know , in the last 12 months , significantly burned by this end market , right ?

Speaker #3: So if we're being a little gun shy , if we're being a little conservative , right . You know , hopefully you guys can give us some grace on that .

Speaker #3: Because if I were to listen to everything the OEM has said to us over the last nine months, right, we would have been in a much worse situation than we ended up in 2025.

Speaker #3: I know that we called as we saw it coming out of Q2 , and many of you , right ? You know , picked on us a little bit that we were being too conservative in the end , Mac was right about this end market because , you know , we get to see , you know , daily , weekly eddies .

Speaker #3: We get to see the build rates on a daily , weekly basis and what the OEMs are actually doing . Right . So , I mean , your numbers that you referenced in what they have publicly commented , all three of them , three public , you know , OEMs , do .

Speaker #3: I trust those numbers ? I don't , because I don't see that in the current forecast . I don't see that in the current Eddy .

Speaker #3: I don't see that in their build rates . I don't see that in their production rates . Right . So look , you know , if I'm wrong , about 205 and the market ends up being 240 or 2 , 61 of those , you know , numbers , great .

Speaker #3: That's an upside for Mac . Right . So but what this has done for us is to over the last three months . Right .

Speaker #3: And since our last earnings call , we were able to go in and take out cost out of our factories . Six CV focused plants that we have , we were able to take costs out .

Speaker #3: We were able to take ships out . We were able to take , you know , other resources out and redirect resources and capacity to data center and market .

Speaker #3: Right . So as I mentioned , a couple of plants that we're putting data center products in , those are CV plants , right ?

Speaker #3: So this has given the opportunity for Mac to reconfigure our production capacity , reconfigure our resources . And if the volumes come back next year , great .

Speaker #3: Right . That's just an upside for us . So you know , I still feel the call we made at the end of Q2 and the call we're making on on act number today might be conservative , but it has really helped Mac to look at our cost structure , look at our capacity and reorganize us as a company .

Speaker #6: Got it . That's great color . I really appreciate that . And perhaps a very similar question on the AG sector as well .

Speaker #6: Your comments on it being a back half , 2026 . Just any comments you've heard , I guess Eddie isn't suggesting a good start to the year , at least what you've learned so far is that is that true ?

Speaker #6: And again , I heard anything from the OEMs directly as to what you .

Speaker #3: Should be .

Speaker #6: Prepared for and being ready for .

Speaker #3: Right ? At least you know the good news on the backside is if there is any OEMs are at least being honest and OEMs are at least being transparent with us .

Speaker #3: What they see and they don't see a recovery in 2026 . Perhaps , maybe a little bit of flattening out in second half .

Speaker #3: But still . Right . We're calling a low single digit decline in AG next year . And that is consistent with the information that we've received from our ag OEMs .

Speaker #6: Okay . You've also commented on the last few quarters about sort of gaining market share , tariff related contract pickups or opportunities across TV and construction , AG and elsewhere .

Speaker #6: I think us on . Do you think you could outperform the broader market next year with some new projects up in the pipeline , beyond data centers ?

Speaker #6: Maybe you can you can discuss that might come .

Speaker #3: Yeah .

Speaker #6: To the fore in 26 .

Speaker #3: If you look at the slide , we have in the deck , right on the market slide , we have consistently outperformed our end markets , right ?

Speaker #3: Yes . The negative bars are not great to look at . Recognize that . But if you look at the market downturn , any of these end markets , you know we have outperformed the markets .

Speaker #3: Right . So that's because we continue to win new programs in CV and AG and construction and military and every other end market .

Speaker #3: So I expect whatever the end market is going to do next year , you know , we're going to outperform that because we have programs that are starting up in 2026 and 2027 that we're already working on .

Speaker #3: As I mentioned earlier , these are 12 to 18 month startups , right ? So we're in the middle of a significant new program .

Speaker #3: Startups . So , you know , 2026 and 2027 will be again , another outperformance year for Mac in some of these end markets .

Speaker #3: So 26 will be a transitional year as we navigate putting in a lot of the data center work into some of our legacy plans and reconfigure resources .

Speaker #3: We can't lay off a whole bunch of people in Q4 in the expect them to be there in Q1 when the data center projects ramp up , right .

Speaker #3: So there's , you know , a bit of a transition here in the next 1 to 2 quarters , but , you know , we do expect to outperform all of our end markets next year .

Speaker #6: Great. Thanks so much. I appreciate it.

Speaker #3: Thanks , Mike .

Speaker #1: We now turn to Ted Jackson with Northland Securities . Your line is open . Please go ahead .

Speaker #2: Thanks .

Speaker #6: Most of my .

Speaker #8: Have been asked but a couple of a couple of smaller ones and it sounds like this acquisition is going to be a winner .

Speaker #8: Just going to say it .

Speaker #3: Thank you .

Speaker #8: First of all , with with regards to the CapEx spend and working capital needs to , you know , bring this data center vision to fruition .

Speaker #8: Can you talk a bit about what are the things that you need to put in place in terms of equipment and capabilities ? You know , maybe some kind of rough understanding in terms of what that means for capital spend next year and and then the timeline for it .

Speaker #8: I think the first question I got a couple more boxes .

Speaker #3: Sure . We don't anticipate significant CapEx increase . Ted , next year to accommodate some of these programs . I say that with the existing what the existing pipeline is informing us .

Speaker #3: We might on the margin , we might go spend a handful of machines that will help us produce these products faster or more efficiently .

Speaker #3: We have 90 plus percent of the assets required to produce these programs internally today . So that is a great news about the synergies with this acquisition is that we have the footprint , we have the manpower , and we have the majority of the assets required .

Speaker #3: Having said that , even though we're not providing any guidance right now , I think we do have it on one of our slides , CapEx slides .

Speaker #3: We expect to be in the 15 to $20 million range for our CapEx next year . So that is a bit of an increase from 2025 .

Speaker #3: And we have as we have indicated , we're going to be at the low end of the 2025 range for this year . And , you know , right now , you know , we do anticipate , slight increase to that CapEx spend next year .

Speaker #8: Okay . Shifting over to construction and access . You had a nice quarter with it . I know you have a fair amount of exposure within access , mainly aerials and stuff , which is the market that looks like it's kind of bottomed out at this point .

Speaker #8: So my question is , is when I look into are you look into that business is is what you're seeing in there like a bottoming out of the access side of things , or is it more an improvement outside of access to maybe some color on that ?

Speaker #8: And then maybe some , you know , you know , kind of , you know , perspective in terms of , of what you're thinking about that with regards to rolling through fourth quarter and into 26 , because I listened to a lot of these OEMs , and it sounds like there's been a lessening of pricing pressure , at least within the larger construction equipment market .

Speaker #8: And inventories are lined up reasonably well with demand . So kind of just maybe some soft , you color with regards to your outlook there beyond the then one more behind .

Speaker #3: Yeah. In construction, access will roughly be 50/50, 45, 55. Right in access, in particular, I think some of the demand is being driven by non-residential construction and data center construction.

Speaker #3: Some, if you listen to the rental companies, I think out of the three rental companies, one of them is on a heavy capital spend.

Speaker #3: I believe that is one of the reasons why we saw a demand increase from our OEM . At the same time . Two other rental companies , right .

Speaker #3: They're going through some transition; one is trying to come to the U.S. with an IPO, and, you know, there’s also other acquisition transitions and inventory cleanup.

Speaker #3: So we have to wait and see what the other two companies are going to do . But certainly , right now one of the rental companies that is doing well and spending money right now is mostly driven by data center construction .

Speaker #3: That's what's been helpful . Certainly in our Q3 , we will wait and see how that transitions going into next year . Construction again , hopefully with interest rate cuts in the coming quarters would help .

Speaker #3: Us residential and other type of construction for the regular earth , the yellows that you can think of in in the near term .

Speaker #8: Okay . And then my last is just on powersports . You put growth up there , but you caveat it that it sounds like there was some , you know , one time revenue , you that pushed the quarter .

Speaker #8: If you took that revenue out , how would powersports have performed maybe it seems to me from listening to a lot of the guys that play around there , that it's that the business is bottoming out .

Speaker #8: But the big declines didn't seem to have passed , and you're starting to see , you know , kind of the , you know , the RV , the side by side , the marine markets all sort of hit their bottoms , if you will .

Speaker #8: So I guess the question is moving , removing your kind of one time revenue , how did it perform . And and and I correct in feeling that that business or that market is at least finding its you know what I'm saying .

Speaker #8: It's foundation .

Speaker #6: Yeah .

Speaker #3: Yeah, I would say that again, listening to the public comments from some of the OEMs. And what we're observing is that right now, their production schedules are reasonably aligned with end user demand.

Speaker #3: That's what we wanted to see. And I think they're finally there. So we do expect flat to up low single digits in 2026 for powersports.

Speaker #3: And market . As you recall , we also brought on some new customers this year . So that's also helping us outperform the market .

Speaker #3: So if we if we take out a one time , you know , transitionary order , we got . So we if we take that out , we still see flat to slightly up next year .

Speaker #8: Okay . That's it for me . Thanks very much .

Speaker #3: Thanks Jed .

Speaker #1: That's another reminder if you'd like to ask a question , please press Star One on your telephone keypad . Now , we now turn to Natalia back with Citi .

Speaker #1: Your line is open . Please go ahead .

Speaker #9: Hi . Good morning .

Speaker #3: Good morning . Natalia .

Speaker #9: Maybe I know there's a few questions on your data center and critical power vertical, but just maybe a few more follow-up.

Speaker #9: You know , you highlighted 20 to 30 million synergy opportunities for 2026 from Aquafaba . But what are some of the key milestones to realize that ?

Speaker #9: And can you also just frame the run rate EBITDA margin profile for this vertical once these synergies are captured ?

Speaker #3: Sure . What I think we have on our slide , let's go back . Yeah , this one , when we where we listed our wins , the 25 million of revenue synergies .

Speaker #3: Natalia . You can see that the battery backup cabinet starts to ramp . Actually starting to ramp in Q4 . And power distribution unit and transfer switches will ramp up starting in first quarter , late January , early February , and then extrusions and busway components .

Speaker #3: So that is starting to ramp already through first quarter of 2026 . So majority of these cross-selling synergies will see an impact starting in Q1 .

Speaker #3: And a full ramp by Q2. I'm sorry, what was the second part of your question?

Speaker #10: Margin profile .

Speaker #3: So .

Speaker #9: Yes , yes .

Speaker #3: Yeah . So all of these are 30 plus percent gross margin programs that we just won . I would say that next year , approximately 20% is what I said will be data center .

Speaker #3: And market . Out of the 20% , approximately 3% I would say would be a legacy mech . Products that are in the data centers , i.e. power generation , etc.

Speaker #3: so those are slightly lower margin . And then the remaining here obviously is at the higher margin .

Speaker #9: Got it . That's helpful . Color . And one more question for me . I'm just curious , how are you positioning production capacity between your legacy mech and markets like commercial vehicle agriculture versus high growth data center exposure , and there's an expectation for some of your end markets , you're saying for recovery next year .

Speaker #9: So just curious how you balance the production capacity .

Speaker #3: Right . You know we're having a lot of conversation with our legacy customers since we closed . We have started and shared our growth objectives with them and started by requesting additional volumes , because when their markets come back up , right , you know , they need capacity today for reallocate that capacity to data center customers .

Speaker #3: They're not going to have the access to that capacity . So next steps , you know , to that conversation , if volumes don't materialize we'll involve commercial pricing .

Speaker #3: So many of these discussions are just starting and are in early stages . And we'll continue to have those conversations with these customers .

Speaker #9: That's helpful . Thank you .

Speaker #3: Thank you .

Speaker #1: We have no further questions . So I'll now hand back to Jack . Ready for any final remarks .

Speaker #3: Before we conclude , I want to thank again 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're making to position mEq for durable , high margin growth in the years ahead .

Speaker #3: We look forward to sharing our continued progress with you . Thank you for joining us today .