Q2 2024 Modine Manufacturing Co Earnings Call

November 2, 2023

Kathy powers: followed by Neil Brinker, our President and Chief Executive Officer and Mick Lucarelli, our Executive Vice President and Chief Financial Officer. We'll be using slides with today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted on the Investor Relations section of our website, modine.com. On slide three is our notice regarding forward-looking statements. This call will contain forward-looking statements as outlined in our earnings release, as well as in our company's filings with the Securities and Exchange Commission.

Kathy powers: With that, it's my pleasure to turn the call over to Neil. Thank you, Kathy, and good morning, everyone.

Neil Brinker: I'm pleased to report another strong quarter with both solid revenue growth and earnings improvements that came in ahead of our expectations. Sales increased 7% from the prior year driven by increases in both the climate solutions and performance technology segment. In addition, we reported adjusted EBITDA of 81.2 million, an increase of 59% from the prior year. EBITDA margin was 13.1%, a 430 basis point improvement from the prior year.

Neil Brinker: As a reminder, last year we set a goal to significantly improve our EBITDA margins, targeting a range of 10 to 12% by the end of the fiscal year and reaching 13 to 15% range by the end of fiscal 27. We are clearly ahead of these targets driven by a combination of key factors including using 80-20 principles to guide decision-making throughout the organization, allocating additional resources to targeted higher margin businesses, and focusing on the value we bring to our customers and leveraging that to drive margin improvement and profitable growth.

Neil Brinker: I'm very proud of what the organization has been able to accomplish in a short period of time. I continue to believe that we remain in the early stages of our transformation as we see medium to long-term opportunities for sustainable growth that will continue to improve our financial profile. Please turn to slide five.

Neil Brinker: The climate solution segment delivered an excellent quarter with revenue of 8% from the prior year. We are benefiting from the planned diversification of our businesses. As strong growth in the data center vertical is helping offset some weaknesses and the other HVAC markets. The segment reported adjusted EBITDA of 50.4 million, a 31% increase from the prior year. This resulted in an adjusted EBITDA margin of 18.3% of 330 basis points from the prior year.

Neil Brinker: Revenues in our data center business were 79 million more than double the prior year. Our order intake continues to grow. That said, this business can be quite lumpy due to the timing of product shipments on large data center projects, so we are not expecting growth to continue at a linear rate. We have projected a dip in the third quarter data center volume since the beginning of the year and then expect volumes to pick up again in Q4.

Neil Brinker: We have significant backlog to work through over the next 12 to 18 months, which it provides some stability in the business despite the quarter to quarter fluctuation in revenues. Our commercial team continues to win orders with key relationships in our pipeline and add new opportunities to the sales funnel as we evaluate and develop high-quality prospects. Our goal is not to be a high-volume product supplier to the data center market, instead we are focusing on relationships with key customers, supporting them with system solutions and ongoing services as they grow globally. This includes new and existing customers that value our engineering and service. Model.

Neil Brinker: We have great products in the space and the expertise to advance the technology to address the higher heat loads that will be required in the future. For example, we are internally developing a cooling distribution unit or CDU. A CDU is integral to liquid cooling, providing critical cooling capacity and heat removal for high density data center environments. The CDU offers controlled, contaminant-free coolant for heat exchangers, direct to chip and immersion cooling devices, integrating between the server and the external heat rejection.

Neil Brinker: The CDU will further strengthen our global data center systems offering as we will be able to offer hybrid, liquid, and air-cooled systems. Our CDU is being developed with a full voice of the customer and is planned to be commercialized early next year. This marks our first dedicated development into the liquid cooling systems.

Neil Brinker: In addition, we are also working on other advanced technologies and our product roadmaps so we can continue to provide our data center customers with efficient connected systems elevating their performance while helping them meet their sustainability targets around power and water usage. Moving to our HVAC in our businesses, we recently announced the expansion of our electrical heating line with two new product launches. Our new electric infrared line provides a low emissions heating product that can be used in a wide variety of commercial and residential applications.

Neil Brinker: In addition, our new amp dog is the electric version of our popular hot dog line of residential garage and workshop heaters. This line provides an electric alternative with the same quality and performance the Modine is known for.

Neil Brinker: These are just a few examples of our product development efforts and they're more to come. Regarding heat pumps earlier this year, we announced our plans to expand capacity at our plant and survey in response to the strong order intake from heat pump customers. Growth expectations for the heat pump market have been fueled by regulations driving a conversion from natural gas to electric to increase the use of renewable energy. Recently, the enforcement date of these regulations has been delayed, specifically in the German market, where the adoption date was pushed from 2027 to 2029.

Neil Brinker: This has resulted in a reduction of our forecast based on the latest information from our customers. We're still planning on growth but expect lower growth in the near term while we adjust our overall production ramp. We still believe that this is an important market for Modine and our nearing completion of the first phase of our Serbian plan expansion. We had planned the investment in phases so that we could bring on the necessary production capacity as needed.

Neil Brinker: This is providing us with a flexibility to respond to regulatory changes like these and allows us to take more measured approach to our investment. We will continue to monitor this market along with regulatory drivers that are creating this volatility.

Neil Brinker: Our climate solutions business is having an incredible year and I'm very proud of what we've been able to accomplish. We are investing in new products and technologies now to make sure we can continue to have profitable growth in the future. Please turn to slide six.

Neil Brinker: The performance technology segment also delivered excellent results this quarter with revenue of 7% from the prior year driven by off-highway commercial vehicle and specialty vehicle customers. Adjust the EBITDA increase 73% to 42 million resulting in an adjusted EBITDA margin of 11.9% and improvement of 450 basis points. Similar last quarter much of the increase was due to improving commercial terms in our long-term contracts including some additional retroactive The PT business made a couple of important announcements this quarter that I would like to highlight as a prime example of our 80-20 work. First, we announced the divestiture of three businesses in Germany that produce products for internal combustion diesel and gasoline engines for the European automotive market. I'm pleased to report that this transaction closed on October 31st.

Neil Brinker: We have been very clear with our intention to exit non-strategic businesses and these divestitures are firm actions towards that goal. We will continue to pivot our resources towards strategic, high growth businesses and will quickly exit or wind down business that is not meeting our margin targets. Many of these actions have already been identified and are underway.

Neil Brinker: As a reminder, exiting lower margin businesses is a critical element of 80-20 as we remain focused on the earnings growth over revenue growth. We have anticipated this as part of our transformation strategy in the PT segment, understanding that could initially result in lower revenue. However, we also have plans for growth in our EV systems and gents at businesses that will replace the businesses we are exiting with product profiles aligned with our long-term goals. This is all part of the 80-20 process.

Neil Brinker: In addition, as we exit certain businesses, we need to examine our cost structure to make sure that it's appropriate for the size of the business. There could be some additional costs as we realign our manufacturing footprint. One of the businesses where we're investing is our EV systems business. Last month, we announced our plans to expand production of our EV eventage thermal management system to Europe. Beginning next year, we will produce battery thermal management systems and electronic cooling packages for our European customers at our plant in Pontiveco, Italy.

Neil Brinker: This is in addition to our existing product lines in Lawrenceburg, Tennessee, where we are in the process of adding additional capacity to accommodate increased volumes as we launch more programs. Overall, our performance technology segment is firmly on track and I'm proud of the work being done by this team. Material costs continue to be favorable and we have had significant success in negotiating contractual improvements. We're making great progress on the 80-20 journey and the segment, focusing the organization on both capitalizing on growth opportunities and optimizing non-strategic product lines.

Mick Lucarelli: Now, I'd like to turn the call over to Mick who will review our results for the quarter and provide segment financial updates. Thanks, Neil, and good morning, everyone.

Mick Lucarelli: Please turn to slide seven to review the segment results. Climate solutions had another excellent quarter with a 31% increase in adjusted EBITDA. Revenue grew 8%, including a 7 million favorable effects impact. The growth was driven by data center sales, increasing 117% or 43 million. We continue to see strong demand for our products in North American Europe, including those supporting both hyperscale and co-location customers.

Mick Lucarelli: As Neil mentioned, the timing of these sales can be somewhat unpredictable and shipments in the quarter once again exceeded our expectations. Based on the timing of our current customer schedules, we anticipate lower shipments in Q3 than ramping significantly in Q4. I want to highlight that while the timing can be hard to predict between quarters, our full-year outlook has not changed with growth expected exceed 60%. HVAC and our sales were down 2% or 2 million.

Mick Lucarelli: The heating market remains soft, but is improved sequentially from Q1. We expect to see further rebound as we enter the heating season, but the weather will ultimately factor into the strength of our sales for the balance of the year. Sales of heat transfer products decreased 16% or 21 million.

Mick Lucarelli: As discussed in previous quarters, we've experienced a decline in market demand with commercial refrigeration, along with commercial and residential HVAC and RV customers. We believe many customers are continuing to work down excess inventory that was created during the previous supply change shortage. Additionally, we've continued 80-20 product rationalization activities to drive further margin improvements. We're pleased with the strong earnings conversion as a justity but die increased 31% with a 330 basis point margin improvement to 18.3%. The earnings and margin improvements were driven by higher sales volume and benefits from ongoing 80-20 initiatives. Climate solutions clearly had a very strong first half of the year.

Mick Lucarelli: The growth and data center sales was driven by a favorable market, along with the investments we've made to grow this business. With regards to the HVAC and R and heat transfer products, we're still maintaining a cautious outlook for the second half of the year. Given our assumptions on the heating market and the lighter data center shipments in Q3, we would expect sequentially lower earnings in Q3, then close out the year with a strong Q4. To wrap up on climate solutions, we're remaining cautious in a few key markets, but fully anticipate further year-over-year improvements in the next two quarters to wrap up another great year. Please turn to slide eight.

Mick Lucarelli: Performance technologies also had a great quarter with 7% sales growth, including an 8 million favorable effects impact. Revenue benefited from 80-20 initiatives as we continue to focus on higher margin businesses. While underlying sales volume declined by 5 million or 2%, the average selling price per unit was higher.

Mick Lucarelli: As a reminder, 80-20 efforts in performance technologies are focused on driving rapid earnings growth and not revenue growth. Therefore, we expect to see earnings growth at a more rapid rate than overall sales volume. Advanced solution sales were up 30% or 10 million with continued growth of our EV systems and component sales, along with higher sales to specialty vehicle and coatings customers. Liquid cooled application sales increased 6% or 7 million due to higher demand from our commercial vehicle customers, along with benefits from 80-20 initiatives. Lastly, air-cooled application sales increased 2% or 4 million, primarily due to higher sales to off-highway and gen-set customers, along with gains from 80-20. Initiative.

Mick Lucarelli: Performance technology earnings conversion was excellent with adjusted EBITDA of 73% resulting in 11.9% margin and a 450 basis point improvement. Similar to the previous quarter earnings temporarily benefited from several million dollars of retroactive payments that may not repeat in future quarters. As Neil mentioned, we're pleased to report that the divestiture of three businesses in Germany was completed on October 31st as previously disclosed the annual revenue impact from these businesses is approximately 80 to 90 million and will result in a revenue reduction the second half of this fiscal year.

Mick Lucarelli: While these divestitures represent lower margin and non strategic business, we're reviewing action plans to further align our cost structure to the lower revenue. We anticipate that these plans will be launched in Q3 with savings to begin in Q4. We did not experience any material impact from the UAW strike but expect that some of our major OE customers may take extended holiday shutdowns this year.

Mick Lucarelli: Based on all of these factors for the balance of the year, we anticipate ongoing 80-20 progress and further year-over-year improvements with a sequential dip in earnings in Q3 and a step up again in Q4. And on a full-year basis, we expect performance technologies will report another excellent year and be within our targeted margin range. Now let's review the total company results. Please turn to slide 9.

Mick Lucarelli: First quarter sales were up 7% or 42 million including a 15 million favorable effects impact as previously discussed the higher revenue was driven by growth in both business segments. The growth margin improved 520 basis points primarily driven by increases in volume, higher average selling prices and numerous other improvements tied to our 80-20 initiatives. FGNA increased 10 million driven primarily by higher employee compensation expenses including incentive comp and higher product development costs.

Mick Lucarelli: I'm happy to report that adjusted EBITDA was very strong in the quarter with an increase of 59% or 30 million. This equates to an adjusted EBITDA margin of 13.1% and a 4 and 30 basis point improvement from the prior year. This also represents the seventh consecutive quarter of year-over-year margin improvement. In addition, adjusted earnings per share with 89% and 85% higher than the prior year.

Mick Lucarelli: Before moving to the balance sheet, I'd like to reiterate that we're pleased with the exceptional performance in the quarter and there were a few areas that were better than expected. First, our shipments of data center products were somewhat stronger than expected with a little pull forward from Q3. Second, we had some additional benefits in the quarter for performance technologies including favorable material ratios and product MIPS, and, as I mentioned on the previous slide, we also benefited from some commercial negotiations and settlements.

Mick Lucarelli: While maintaining a cautious view for the second half, we're, again, raising our earnings outlook based on some of the first half progress. In a few minutes, I'll further review how all this will impact our sequential results in the full-year guidance. Now moving the cash flow metrics, please turn to slide 10. We generated 58 million of free cash flow in the second quarter, which is a nice improvement from our first quarter. This puts year-to-date free cash flow at 85 million, which compares very favorably to 33 million generated in the prior year. Net debt of 222 million was 63 million lower than the prior fiscal year end and 43 million lower than the last quarter.

Mick Lucarelli: Net debt coupled with strong earnings resulted in a leverage ratio of 0.8. During the quarter, we restarted our share repurchased program and purchased 200,000 shares. As a reminder, our program is currently focused on offsetting the loot of impact of our share based incentive compensation program. This fiscal year, we expect continued growth and free cash flow driven by higher earnings and a continued focus on working capital. We continue to anticipate full-year free cash flow will fall in our targeted range of 3 to 5 percent of sales.

Mick Lucarelli: Motions balance sheet remains quite strong, which we plan to maintain in the current economic climate and stand ready to support both organic growth and acquisition initiatives. Now let's turn to slide 11 for our fiscal 24 outlook. As announced in the press release, we're raising our full-year earnings outlook for fiscal 24. Second quarter exceeded our expectations leading to another increase in our profitability outlook for the fiscal year. In the climate solution segment, we continue to expect data center revenue growth of 60 to 70 percent.

Mick Lucarelli: Moving to HVAC and R, we expect modest revenue growth in the low single digits, maintaining the range from last quarter as we remain cautious and approach the prime heating season. With regards to heat transfer products, we now anticipate a sales decline in the mid-single digits, which is a reduction from our previous guidance. This is primarily due to concerns over a general economic slowdown, especially in residential and commercial refrigeration applications and a slower ramp schedule for the heat pump market.

Mick Lucarelli: Moving to performance technologies, we expect continued benefits from our 80-20 rollout and now that we've completed the German divestitures, we're adjusting the second half revenue outlook accordingly. We expect advanced solutions to grow in the 25 to 35 percent range, which did not change from last quarter. This growth is driven by program launches, continued demand for EV systems and components. We anticipate modest growth for liquid and air-cooled products as we implement 80-20 across the segment, including the impact of the divest. Estetures.

Mick Lucarelli: From an FGNA perspective, we're anticipating that we'll finish the full year between 260 and 270 million, including higher incentive and compensation expenses. Let's move to Adjusted EBITDA. Based on the recent results and market trends, we're raising our Adjusted EBITDA outlook for the year while maintaining a somewhat cautious position with half of the fiscal year left in front of us. We now expect our adjusted fiscal 24 EBITDA to be in the range of 285 to 300 million, up from 280 million to 295 million, and representing an increase of 34 to 41% versus the prior year.

Mick Lucarelli: Consistent with our previous update, we anticipate that the second half will average approximately 70 million of a quarterly adjusted EBITDA. We expect a Q3 will be sequentially lower based on my previous comments on the business segments with a step up in Q4. The sequential lifting Q4 will be driven by typical seasonal patterns and a strong order book and data centers, advanced thermal solutions, and other key growth businesses. Shifting back to the full year, I want to reaffirm that our full year outlook is well aligned with our transformational earnings and margin targets, and we expect to deliver another year of record results at Modine.

Mick Lucarelli: In addition, we anticipate that free cash flow will further improve with the higher earnings outlook, with capital expenditures expected to be around 70 million. Other assumptions, including interest expense, taxes, depreciation, amortization are included in appendices attached to this presentation and our press release. The wrap up, we're extremely pleased with the results from the second quarter and our ability to maintain momentum towards our interim and long-term financial targets. As Neil said, we're in the early stages of our transformation, but the progress has been tremendous, and we have a lot of hard work and opportunity in front of us.

Mick Lucarelli: With that, Neil and I will take your questions. Thank you.

Operator: Ladies and gentlemen, if you have a question at this time, please press star then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we pull for questions.

Matt Summerville: Our first question comes from Matt Somerville with DA Davidson. Please go ahead.

Matt Summerville: Excuse me. Thanks, Morning. I wanted to maybe start with a question on the data center business. The growth cycle you're in in fiscal 24, what does that suggest about fiscal 25 in the context of the backlog and order comments you made and what we're in the fly? here.

Neil Brinker: And then I'm curious if you have any update on customer diversification initiatives within the hyperscale market and any early feedback on the CDU. And then I follow up. Thank you. You want to go first on CDU? Yeah, Matt.

Neil Brinker: Thank you for the question. Yes. So, as you know, we continue to experience growth and we continue to grow the backlog in data centers. A lot of that was driven by the fact that we've expanded our ability to manufacture globally. The CapEx investment that we made in our labs and our factories in the United States as well as in Europe to support this growth is to allow us to build a capacity to keep up with this demand that we're seeing.

Neil Brinker: And, you know, we've been able to expand our product portfolio on the air cooling set as well. An integral piece of this growth was being able to develop a manufacturer a chiller in the United States and North America market.

Neil Brinker: So, we will continue to expand our product portfolio and data centers. And the next evolution of that is with the CDUs. So, these CDUs are going to get us into a different area of the data center to allow us to provide liquid cooling. And that's the VOC that we've collected from both our hyperscaler and colos that they pivot into more of a liquid cooling approach for areas where they have high heat density and heat loads.

Neil Brinker: They're leaning on us in order to help them provide that solution. And, you know, this isn't new to us, Matt. We've recognized this and we've realized this. We actually produced a CDU back in 2016. And, you know, this was before there was a market.

Neil Brinker: And now that we see that there's favorable trends where we can complement our current product portfolio of cooling products and data centers adding the CDU piece just makes a lot of sense. Yep. And, Matt, on your question about next year, we're in the middle of our planning process. So, a little bit early to give a definitive number for you. But I think the way we thought about it for quite a while is ability, obviously, to grow 60, 70% a year is not going to be sustainable over the long term as the business gets much bigger. But we've talked about longer-term growth rates in the 2030 percent level, maybe even a little bit higher. So, still really high.

Neil Brinker: We'd expect very high revenue growth next year. But, you know, it won't continue at 60, 70% pace. I might ask about any progress on high-per-scale customer diversification. Yes, we continue to have conversations and advance our conversations there. It takes time.

Neil Brinker: You know, we started the process about 18 months ago and we're much further along in line with where we would expect to be. Again, adding our capacity across the globe, having the global manufacturing footprint, increasing our product portfolio with liquid cooling technologies, all is in favor of us being able to continue to advance those conversations with the hypers. Got it.

Mick Lucarelli: And then just as a follow-up, is I kind of think about the guidance framework you gave coming out of Q1, thinking about Q2, pretty much everything you just delivered bucked all of that guidance in a good way. And I'm just curious about the go-for guidance. Have you really seen a step function change in the demand environment? Are you looking at this saying, you know, macro is a little choppy.

Mick Lucarelli: There's a few myths here and there in the business. Geopolitical environment is, as unfortunately, as it is, it is what it is, so to speak. And so maybe some conservatism here is understandable, but we're just trying to sort of more dig at kind of your guidance philosophies. We think about the second half in the setup, given how you performed it in one way. College.

Mick Lucarelli: Yeah, hey, Matt Smith, I think a really fair question. And I think it's much more of the ladder. We're not seeing a step function change in the business or, you know, any level of pro, the profitability levels. The ladder, which you went through that list of the uncertainties kind of cross the market to political environment. It's like the eating season coming up.

Neil Brinker: So I know we had thought you two would be a little bit of a step down from Q1 and we had another strong quarter in there is the other thing I guess I'd add and Neil could add any color. But as we continue to go through this transformation, the amount of complexity that we have in the organization, we're asking the leaders to manage through businesses that we are divesting product lines, we're exiting pricing adjustments, we're pushing through growth volumes and timing.

Neil Brinker: It's turned out for us in a positive way, the momentum's great, but our ability to predict with one quarter to the next with that level of accuracy is a large amount of complexity in the company right now that's just making it. We're trying to be cautious of how we we project for the next six months. Neil, do you want to add any other color on it?

Neil Brinker: Yeah, I mean, when you think about how difficult it is to predict change in a stable environment, when we destabilize it, you know, through a lot of our 80-28 activities intentionally for the right thing to do, we're transforming the company. When you're in a destabilized mode, we're changing many, many things all at once. It does become a little bit more difficult to predict.

Mick Lucarelli: So we're continuing to manage it the way we do and we want to make sure that we keep a consistent with our approach in terms of how we got. Great, thanks guys. Thank you.

Chris Moore: Our next question is from Chris Moore with DJS Securities. Please go ahead. Hey, good morning guys.

Chris Moore: Thanks for taking a couple questions. Yeah, maybe I'll just start with just a quick follow up on the data center side. So the current backlog is that is that all year from air cooling technology? Correct. Gotcha. And what the timeframe on the CDU development is that is that a couple of years? What does that look like?

Neil Brinker: Great question, Chris. Yeah, we expect to have the ability to commercialize that in the beginning and next year. And it'll grow at the rate that we see or we potentially can predict the market adoption of this. So it's a nice compliment in terms of what we're doing on the air cooling side. You know, we've got multiple technologies here with the CDU we can do liquid, liquid, we can do air to liquid.

Neil Brinker: There's just different ways to solve for the challenges that our customers see. So, you know, we're going to be able to move and deploy product at the rate that they see that growth inside of the data centers that support high density. Bill.

Neil Brinker: Got it. Very helpful. Does the competitive landscape change much as you move on to the liquid cooling side? You know, it's a natural extension of what we do. You know, the competitive landscape is similar. The technologies are different. Some of our competitors have partnered with some, you know, companies that have this technology and they, you know, positioned themselves well, we're doing that. There's another thing. But it's a similar space.

Neil Brinker: We're familiar with it. We've been waiting for the time to make this investment when we actually start to see this market start to stabilize and has the potential to grow. Like I said earlier, we've developed CDUs in the past. We did this six years ago. There's well in the market for it. So we believe it's the time is right. Perfect. That's helpful. Switch gears here.

Neil Brinker: So Ford is postponing a $12 million EV factory. The reasons given we're, you know, unwillingness of customers to pay extra for its electric vehicles. Just wondering, you know, kind of how you look at that, any impact you potentially, you know, on the ice auto business or EV business in general, just, you know, kind of your thoughts there. Yeah, it's a, it's an interesting question, right?

Neil Brinker: We don't focus on EV automotive. Our EV and areas that we focus in terms of the electrification is on specialty vehicles. You know, we really look at larger EV applications that require our systems and solutions. And we've moved away from any EV related to automotive that's component related. So where we see growth and where we see the demand, you know, we're partnered with, we're on 119 different engagements with customers in the areas that we target for EV. You know, we see 27 orders or platform wins that we're very pleased to have one.

Neil Brinker: We're expanding our EV product group. We're expanding capacity in our plants in Tennessee. We just recently put out a press release that we're expanding into Europe. We're going to be producing in Italy. So we see growth in the areas that we've defined that is target for us in the EV. And again, that's in systems and in vehicles like, you know, specialty vehicles, you know, municipal buses, school buses, last mile delivery vehicles, that that's the space that we're focused on.

Neil Brinker: God, no, I got that. I understand it wasn't on the car. On the, on the auto side, I was just curious if you had, if you're getting any pushback from a pricing perspective, sounds like, you know, so far so good on that front. So I will leave it there. I appreciate it. Thank you.

Chess Van Cindren: Our next question is from Chess Van Cindren with the Briby Securities. Please go ahead. Hi, good morning, everyone.

Mick Lucarelli: No, you mentioned lump being as I think and a pull forward, I believe you said, into Q2 and the data center segment. Maybe you can, if I caught that right, maybe you can just help us understand the dynamics there. Yeah, hey, it's Mick.

Mick Lucarelli: So definitely we, from a forecast standpoint, probably the last, you know, three or four months and on based on schedules from our customers, we knew the lowest quarter of the year would likely be our Q3. Those data center, what we've talked about in the past is they can be lumpy. These are, we had a photo in the, in the presentation, really large construction projects.

Neil Brinker: And so we're required to have product ready to be shipped. But when they're pulled, it depends on the customer and the completion, and they only want it, you know, on time, ready to go. So in Q2, we had a little bit higher revenue than we thought that was really going to be, we thought would be coming in Q3. And then in Q3, we expect to have a lower amount of revenue in Q3 and a big ramp in Q4 again, just based on, just consistent with our order book, but it's based on the timing of where we see the customers pulling and asking for those ships, and then I just wanted to follow up on the CDU.

Neil Brinker: I guess, but it has thoughts on how you're approaching high-performance and AI data centers and then does the CDU address that given that it's liquid cooling or not for that market? That's a good question. Yes, it does address that. So anywhere where you need to augment your cooling capacity in a data center where you have the traditional air cooling mechanisms and if you as a data center or co-location one who expand into higher performance, higher computing speeds because of AI or AV or ML machine learning, you would need a more efficient cooling technique and liquid cooling is a more efficient cooling technique.

Neil Brinker: So this is liquid cooling that supports direct to chip, for example, cooling to allow for the removal of heat on those heat loads on those server racks. So yes, it is part of that those market drivers this helps support itself for that problem. Okay, and I think you said that's actually going to be available in the first part of calendar 24. What did you mean? I wasn't quite on that.

Mick Lucarelli: Yeah, we're looking at the first part of next year, correct. Okay, great. And then just one quick one effect that squeeze it in any update or any updated thoughts, I guess, on what you're seeing in terms of M&A potential targets, pipeline, any more color to add there. Yeah, it's ebbed and flowed a little bit, but we talked maybe a quarter or two ago with rate hikes and nervousness around the economy. We saw some deal flow and opportunities kind of slow down. People were hesitant to come to the market.

Mick Lucarelli: I would say the last few months, it's been picking up a little bit for us in addition with me, and I've talked about we're continuing to have more people on the mogins side being aggressive with dialogues, discussions, knocking on doors. So we'll continue to report back, but it's 100% effort going forward. And I think it, you know, we're feeling good about the pipeline with opportunity. We're building. Okay, great. Thanks for taking my questions and continuing your success. Thanks, Jeff. Thank you, ladies and gentlemen. If you wish to ask a question, please press star and one. Our next question is from Tim Moore with E.F.

Tim Moore: Utton, please go ahead. Thanks, and congratulations on the gross margin expansion and the data centers group. And for overall Modine, I mean, it seems like you've harnessed the quickest and easier way to grow sales as through your current customers because that helps the margin profile quicker. That may be a new customer that has a new engineering design cost drag.

Neil Brinker: You know, as you look out over the next 12 months, I mean, do you expect to take on some more new customers outside of the EV platforms that you've been signing up? You know, and do you think that might weigh a little bit on gross margin expansion or do you think the 80-20 would offset that if you're Partners. Yeah, well, there's a good question, Tim.

Neil Brinker: Certainly, we're looking at new customers and new geographies, where we've identified market-facing verticals that are growth. So, if you think about the gen-set market, you think about what we're doing in EV, data centers, indoor air quality, absolutely. And through 80-20, as we identify those customers, we have filters just to be direct. We've got filters in place to make sure that we don't have erosion in terms of all the hard work that we're doing. That's great. That's helpful, Collar.

Neil Brinker: I definitely enjoy visiting your data center, manufacturing facility in Virginia three months ago. I've got a really good appreciation of the uniqueness of the offering there. That was a great investor day, but we really want to get to, I know the opening remarks you mentioned, 12 to 18 months backlog range for that. I'm just trying to get a sense, because there's a shadow backlog behind that, as you talk to your customers, and they plan finding more power sources of electricity to run their location and hyperskills, and you kind of think about maybe what CDU can do, the end calendar 2025. Do you think that your backlog is a lot bigger than maybe the 12 to 18 months based on kind of the plans of your customers for their growth? Yeah, it's a good question.

Neil Brinker: Certainly, if we think about it in terms of our percent competence, when we get to the point of backlog, we run it all the way through a funnel. When you're looking at backlog, this is a high degree, high visibility, high likelihood that the order is going to be placed or the order has already been placed. Even before that, we look at our commercial funnel and we say that it's 50% visibility, and it's larger than the current backlog.

Neil Brinker: There's a precursor to that, which is 25%, assuming that you have 25% visibility of it that that order is larger and bigger. As you get out in the out years, three or five years, it's much more difficult to predict, but certainly we're having conversations with our customers, because as you go along that cycle, whether it's at 25%, 50%, or 75%, you have to start triggering supply chain, manufacturing, operations, and there's an entire process. Yes, we have those conversations. Yes, we see, and we do have visibility of it, but we don't declare victory until we have the order in hand.

Mick Lucarelli: That's helpful. Thank you. Two more questions. Your gross margin is the several quarters in a row, versus maybe from the commentary, where the consensus number was. Any sense, if Mick wants to take a stab at this, any chance to maybe parse out how much of the gross margin expansion, maybe this quarter, or recently, roughly, is from kind of the cost-saving slash efficiency bucket versus catch-up pricing taken. I cover a lot of industrial stocks, and a lot of them had terrific price increases the last 12 to 16 months, but they're starting to see it slow when October and November. Let's try to get a sense.

Mick Lucarelli: The ED-20 is still a pretty big driver, as it gets rolled out more to performance technologies. Are you tapping out on maybe the pricing catch-up? Yeah, yeah, that's a fair question. I would answer it two different ways or two ways.

Mick Lucarelli: If we break it down by climate and by performance technology, climate solutions and very intentionally, as part of the transformation, the strategy has shifted towards a heavy lean on growth. And so most of the margin improvement we've been seeing in climate solutions over the last two quarters, I would say is driven by growth. And yes, there's mix in there, but we're growing the businesses that we want to grow have high margins and margins where we want them to be. And data centers is a good example. Performance technologies, again, and Neil talked about this for a couple quarters, we specifically pace that. They are deep into the early phases of 80-20.

Mick Lucarelli: So for performance technologies over the last couple quarters, they've had a much bigger margin drive based on I would combine it, it's not just pricing, but product line simplification. And with that is cost reduction and throughput and productivity. So yeah, we continue to think performance technologies for a bit is going to be cleaning, simplifying their business focus on margin improvement with a heavy dose of growth and EV. And then we would expect probably a year out performance technologies will continue to then identify those pockets where they see above market growth rates. So hope that answers the question for you.

Mick Lucarelli: Let me make that definitely do that was really a good green layer and gives me more optimism about the runway for margin expansion from the technology and even climate. Unlike some other industrial companies, they're seeing the pricing power have this quarter, but my last question is around your SGNA expense. You know, I know it ran a bit high 11% this quarter and it seemed like the implied guidance to give from this year is about 2.4% or 10.4% or so sales.

Mick Lucarelli: I know you guys have been focused obviously on the operation side and for a good point and the growth margin expansion has been phenomenal, but do you think maybe next year, you know, there's some opportunity to maybe get some more SGNA levers out and get them down to 10% instead of maybe 10.4. Yeah, the way I think about it, you know, in my view, if Neil wants that any color, there was we go back again to when we announced the transformation and Neil coming in a 5 or 10 years of really leaning out,[inaudible] so I call it kind of maybe reloading where we needed, we had some gaps in SGNA, so I would expect, you know, we'll have SGNA dollars growing to that, you know, the range I provided and then at that point, I think from a percentage of sales, that's a fair question. I think we'll start to we'll peak out or even start to leverage a little bit as a percentage of sales, the SGNA. Thank you.

Matt Summerville: Our next question is Matt Summerville with DA Davidson. Please go ahead.

Matt Summerville: Thanks. A couple questions. First, talk through data center expectations that you talked through on slide of things. There's three other, you know, high growth verticals that you guys have talked about in the past. Could you maybe more directly address kind of what you're seeing there, what expectations may look like for revenue this year? Where are the pluses in minuses and those remaining three?

Neil Brinker: And then I have a couple of quick follow. Yeah, so we continue to develop in the Genset market some advanced products that we believe we're going to be able to move into to expanding our customer, our customer base. So certainly we still believe in the numbers behind Genset. We still believe in the market. We see the tailwinds behind it.

Neil Brinker: And it's favorable to the work that we're doing. So Genset markets on path, I'll let make give the numbers when I finish on the other two. We continue to develop new product that we mentioned the expansion that we're moving into in Europe because of the potential demand in the out years. We're winning on platforms and programs and we've launched additional new products and indoor air quality. We're starting to continue to see the impact and the fact of the CARES Act and the SRA funds. So we're seeing tailwinds out to 2026 with our school unit ventilators. So again, we're standing behind our indoor air quality growth relative to the numbers.

Mick Lucarelli: Yeah, for the most part, those long term growth rates. Especially in the growth businesses, Neil just went through, Matt, we still feel good about those. Well, I think with the strong data center year will probably be adjusting data center long term growth rates up to reflect this really strong year we're in. And then we still expect similar growth rates, you know, high, high double digit growth rates across all of those.

Mick Lucarelli: And then on the heat pump side that growth rate, we think with based on what Neil said, we'll take it down a little bit. Still be double digit growth rate, but we see that being a slower ramp and taking a little bit longer to get to peak volume. Got it.

Mick Lucarelli: And just to be clear from a modeling standpoint, embedded in the reiterated pop line guide is how much headwind from either the vestiture's product line exit or otherwise I'll call it deliberate revenue nutrition. Yeah, I would estimate that 40 to 50 million Matt of products, you know, for sure the divestitures, those three German businesses were 80 to 90 million annualized. And then we do track all of our 80 20 product line simplification efforts and just in context way we just updated that and as we started, we're over 300 million. Now that includes the divestitures, but over 300 million of business that we've specifically targeted from a product line simplification.

Mick Lucarelli: And then just lastly, early read on the heating season here in North America, I know that one important business for you. Obviously, you know, we had a really mild winter last year, but what does early selling look like into the channel? And what's your assessment of inventory levels as they sit here today? Yeah, you know, the last couple quarters, we were looking at anticipating that we hit a bottom there relative to the amount of inventory that was in the channel and starting to see a recovery. This month, October, will be a very important month for us as we track the order rates as well as November.

Matt Summerville: And, you know, we're going to track those on a day-to-day basis to see exactly when we start to see the recovery and the rebound. So I think we're near where we thought we would be. And, you know, we're going to know a lot more in the next four weeks. How strong the recovery will be Matt.

Kathy powers: Got it. Thanks, guys. Thank you. Has there no further questions at this time? I would now turn the conference over to Kathy Powers. Please go ahead. Thank you. And thanks to everybody for joining us on the call this morning.

Kathy powers: The replay will be available through our website in about two hours. We hope everyone has a great day.

Executive Officer, and Mike Lucarelli, our executive Vice President and Chief Financial Officer, who.

We will be using slides with today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted on the Investor Relations section of our website Modine Dot com.

On slide three is our notice regarding forward looking statements. This call will contain forward looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission with that it's my pleasure to turn the call over to Neil.

Thank you Kathy and good morning, everyone.

I am pleased to report another strong quarter with both solid revenue growth and earnings improvement that came in ahead of our expectations sales.

Sales increased 7% from the prior year driven by increases in both the climate solutions and performance Technology segment. In addition, we reported adjusted EBITDA of $81 2 million, an increase of 59% from the prior year.

EBITDA margin was 13, 1%, a 430 basis point improvement from the prior year.

As a reminder, last year, we set a goal to significantly improve our EBITDA margins targeting a range of 10% to 12% by the end of the fiscal year, and reaching 13% to 15% range by the end of fiscal 'twenty. Seven. We're clearly ahead of these targets driven by a combination of key factors, including.

Using 80 20 principles to guide decision, making throughout the organization allocating additional resources to targeted higher margin businesses and focusing on the value, we bring to our customers and leveraging that to drive margin improvement and profitable growth.

I'm very proud of what the organization has been able to accomplish in a short period of time I continue to believe that we remain in the early stages of our transformation as we see medium to long term opportunities for sustainable growth that will continue to improve our financial profile.

Please turn to slide five.

The climate solutions segment delivered an excellent quarter with revenue up 8% from the prior year, we're benefiting from the planned diversification of our businesses as strong growth in the data center vertical is helping offset some weaknesses in the other HVAC markets.

The segment reported adjusted EBITDA of $50 4, Million% to 31% increase from the prior year.

This resulted in an adjusted EBITDA margin of 18, 3% up 330 basis points from the prior year.

Kathleen T. Powers: Following him will be Neil Brinker, our President and Chief Executive Officer, and Mick Lucareli, our Executive Vice President and Chief Financial Officer. We'll be using slides with today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted on the investor relations section of our website, modine.com. On slide three is our notice regarding forward-looking statements. This call will contain forward-looking statements as outlined in our earnings release, as well as in our company's filings with the Securities and Exchange Commission. With that, it's my pleasure to turn the call over to you. Thank you, Kathy, and good morning, everyone.

Revenues in our data center business were $79 million more than double the prior year.

<unk> from the prior year.

Our order intake continues to grow that said this business can be quite lumpy due to the timing of product shipments on large data center projects. So we're not expecting growth to continue at a linear rate.

We have projected a dip in the third quarter data center volume since the beginning of the year and then expect volumes to pick up again in Q4, we.

Making throughout the organization allocating additional resources to targeted higher margin businesses and focusing on the value, we bring to our customers and leveraging that to drive margin improvement and profitable growth.

We have significant backlog to work through over the next 12 months to 18 months, which should provide some stability in the business despite the quarter to quarter fluctuation in revenues.

Our commercial team continues to win orders with key relationships in our pipeline and add new opportunities to the sales funnel as we evaluate.

I'm very proud of what the organization has been able to accomplish in a short period of time.

Neil D. Brinker: I'm pleased to report another strong quarter with both solid revenue growth and earnings improvements that came in ahead of our expectations. Sales increased 7% from the prior year, driven by increases in both the climate solutions and performance technology segments. In addition, we reported adjusted EBITDA of $81.2 million, an increase of 59% from the prior year. The EBITDA margin was 13.1%, a 430 basis point improvement from the prior year.

Continue to believe that we remain in the early stages of our transformation as we see medium to long term opportunities for sustainable growth that will continue to improve our financial profile.

And develop high quality prospects. Our goal is not to be a high volume products part of the data center market instead.

Instead, we're focusing on relationships with key customers supporting them with system solutions and ongoing services as they grow globally. This includes new and existing customers that value our engineering and service model, we have great products in the space.

Please turn to slide five.

Our solutions segment delivered an excellent quarter with revenue up 8% from the prior year, we're benefiting from the planned diversification of our businesses as strong growth in the data center vertical is helping offset some weaknesses in the other HVAC markets.

The expertise to advance the technology to address the higher heat loads that will be required in the future.

Neil D. Brinker: As a reminder, last year, we set a goal to significantly improve our EBITDA margins, targeting a range of 10 to 12 percent by the end of the fiscal year and reaching 13 to 15 percent by the end of fiscal 27. We are clearly ahead of these targets, driven by a combination of key factors, including using 80-20 principles to guide decision making throughout the organization, allocating additional resources to targeted higher-margin businesses, and focusing on the value we bring to our customers and leveraging that to drive margin improvement and profitable growth. I'm very proud of what the organization has been able to accomplish in a short period of time. I continue to believe that we are in the early stages of our transformation as we see medium to long-term opportunities for sustainable growth that will continue to improve our financial profile. Please turn to slide 5.

For example, we are internally developing a cooling distribution unit or CDU, a CDU is integral to liquid cooling, providing critical cooling capacity and heat removal for high density data center environments.

The segment reported adjusted EBITDA of $50 4, Million% to 31% increase from the prior year.

This resulted in an adjusted EBITDA margin of 18, 3% up 330 basis points from the prior year.

<unk> offers controlled contaminant free cooling for heat exchangers, directed chip and immersion cooling devices integrating between the server and the external heat rejection.

Revenues in our data center business were $79 million more than double the prior year.

The CDU will further strengthen our global data center systems offering as we'll be able to offer hybrid liquid and air cooled systems. Our CDU is being developed with a full voice of the customer and is planned to be commercialized early next year.

We have projected a dip in the third quarter data center volume since the beginning of the year and then expect volumes to pick up again in Q4, we.

We have significant backlog to work through over the next 12 months to 18 months, which should provide some stability in the business despite the quarter to quarter fluctuation in revenues.

This marks our first dedicated development into liquid cooling systems. In addition, we are also working on other advanced technologies and our product Roadmaps. So we can continue to provide our data center customers with efficient connected systems elevating their performance, while helping them meet their sustainability targets around power and water usage.

Our commercial team continues to win orders with key relationships in our pipeline and add new opportunities to the sales funnel as we evaluate.

Neil D. Brinker: The climate solution segment delivered an excellent quarter with revenue of 8% from the prior year. We are benefiting from the planned diversification of our business, as strong growth in the data center vertical is helping offset some weakness in the other HVAC markets. The segment reported adjusted EBITDA of $50.4 million, a 31% increase from the prior year.

And develop high quality prospects.

Moving to our HVAC in our businesses, we recently announced the expansion of our electrical heating line with two new product launches, our new electric infrared line provides a low emissions heating product that can be used in a wide variety of commercial and residential applications. In addition, our new Amp dog is the electric version of our popular Hot dog line of residential garage and <unk>.

Our goal is not to be a high volume products part of the data center market. Instead, we're focusing on relationships with key customers supporting them with system solutions and ongoing services as they grow globally. This includes new and existing customers that value our engineering and service model, we have great products in the space and the expertise to advance the technology to address.

Neil D. Brinker: This resulted in an adjusted EBITDA margin of 18.3%, up 330 basis points from the prior year. Revenues in our data center business were $79 million, more than double the prior year. Our order intake continues to grow. That said, this business can be quite lumpy due to the timing of product shipments on large data center projects. So we're not expecting growth to continue at a linear rate.

Shop heaters. This line provides an electric alternative with the same quality and performance that <unk> is known for.

Just the higher heat loads that will be required in the future.

For example, we are internally developing a cooling distribution unit or CDU, a CDU is integral to liquid cooling providing critical cooling capacity and heat removal for high density data center environments. The CDU offers controlled contaminant free cooling for heat exchangers, directed chip and immersion cooling devices.

These are just a few examples of our product development efforts and there are more to come <unk>.

Regarding heat pumps earlier this year, we announced our plans to expand capacity at our plant in Serbia in response to the strong order intake from heat pump customers.

Neil D. Brinker: We have projected a dip in third-quarter data center volume since the beginning of the year and then expect volumes to pick up again in Q4. We have a significant backlog to work through over the next 12 to 18 months, which should provide some stability in the business despite the quarterly fluctuation in revenue. Our commercial team continues to win orders with key relationships in our pipeline and add new opportunities to the sales funnel as we evaluate and develop high-quality processes. Our goal is not to be a high volume product supplier to the data center.

Growth expectations for the heat pump market have been fueled by regulations driving a conversion from natural gas to electric to increase the use of renewable energy.

Integrating between the server and the external heat rejection.

The CDU will further strengthen our global data center systems offering as we'll be able to offer hybrid liquid and air cooled systems. Our CD was being developed with a full voice of the customer and is planned to be commercialized early next year.

Recently the enforcement date of these regulations has been delayed specifically in the German market, where the adoption date was pushed from 2027 to 2029. This has resulted in a reduction of our forecast based on our latest information from our customers. We're still planning on growth, but expect lower growth in the near term, while we adjust our overall production ramp we still believe that this is in.

Neil D. Brinker: Instead, we're focusing on relationships with key customers, supporting them with system solutions and ongoing services as they grow globally. This includes new and existing customers that value our engineering and service quality. We have great products in the space, and the expertise to advance the technology to address the higher heat loads that will be required in the future. For example, we are internally developing a cooling distribution unit, or CDU. A CDU is integral to liquid cooling, providing critical cooling capacity and heat removal for high-density data center environments. CVU offers controlled, contaminant-free coolant for heat exchangers, direct-to-chip, and immersion cooling devices, integrated between the server and the external heat rejector.

An important market for Modine and are nearing completion of the first phase of our Serbian plant expansion. We had planned the investment in phases. So that we could bring on the necessary production capacity as needed.

This is providing us with the flexibility to respond to regulatory changes like these and allows us to take more measured approach to our investment we will continue to monitor this market along with regulatory drivers that are creating this volatility.

In our climate solutions business is having an incredible year and I'm very proud of what we've been able to accomplish we are investing in new products and technologies now to make sure. We can continue to have profitable growth in the future.

Workshop heaters. This line provides an electric alternative with the same quality and performance the motive is known for.

Please turn to slide six.

These are just a few examples of our product development efforts and there are more to come.

The performance Technology segment also delivered excellent results this quarter with revenue up 7% from the prior year driven by off highway commercial vehicle and specialty vehicle customers.

Neil D. Brinker: The CDU will further strengthen our global data center systems offering, as we'll be able to offer hybrid, liquid, and air-cooled systems. Our CDU is being developed with the full voice of the customer and is planned to be commercialized early next year. This marks our first dedicated development into the liquid cooling system. In addition, we are also working on other advanced technologies and our product roadmaps, so we can continue to provide our data center customers with efficient, connected systems, enhancing their performance, while helping them meet their sustainability targets around power and water use, moving to our HVAC in our business. We recently announced the expansion of our electrical heating line with two new products. Our new electric infrared line provides a low-emissions heating product that can be used in a wide variety of commercial and residential applications. In addition, our new Amp Dog is the electric version of our popular hot dog line of residential garage and workshop heaters. This line provides an electric alternative with the same quality and performance that Modine is known for.

Regarding heat pumps earlier this year, we announced our plans to expand capacity at our plant in Serbia in response to the strong order intake from heat pump customers.

Adjusted EBITDA increased 73% to $42 million, resulting in an adjusted EBITDA margin of 11, 9% an improvement of 450 basis points.

Growth expectations for the heat pump market have been fueled by regulations driving a conversion from natural gas to electric to increase the use of renewable energy.

Similar to last quarter much of the increase was due to improving commercial terms in our long term contracts, including some additional retroactive recovery.

The PT business made a couple of important announcements this quarter that I would like to highlight is a prime example of our 80 20 work.

First we announced the divestiture of three businesses in Germany that produce products for internal combustion diesel and gasoline engines for the European automotive market I am pleased to report that this transaction closed on October 31.

Market promoting and are nearing completion of the first phase of our Serbian plant expansion, we had planned the investment in phases. So that we could bring on the necessary production capacity as needed.

We have been very clear with our intention to exit non strategic businesses and these divestitures our firm actions towards that goal.

This is providing us with the flexibility to respond to regulatory changes like these and allows us to take more measured approach to our investments. We will continue to monitor this market along with regulatory drivers that are creating this volatility.

We will continue to pivot our resources towards strategic high growth businesses and will quickly exit or wind down business that does not meeting our margin targets. Many of these actions have already been identified and are underway.

Neil D. Brinker: These are just a few examples of our product development efforts, and there are more to come. Regarding heat pumps, earlier this year, we announced our plans to expand capacity at our plant in Serbia in response to the strong order intake for heat pumps. Growth expectations for the heat pump market have been fueled by regulations driving a conversion from natural gas to electric to increase the use of renewable energy. However, recently, the enforcement date of these regulations has been delayed, specifically in the German market, where the adoption date was pushed from 2027 to 2029.

As a reminder, exiting lower margin businesses is a critical element of 80 20 as we remain focused on the earnings growth over revenue growth. We have anticipated. This as part of our transformation strategy in the PT segment understanding that could initially result in lower revenue.

Please turn to slide six.

The performance Technology segment also delivered excellent results this quarter with revenue up 7% from the prior year driven by off highway commercial vehicle and specialty vehicle customers.

However, we also have plans for growth in our <unk> systems, and <unk> businesses that will replace the businesses. We are exiting with product profiles aligned with our long term goals. This is all part of the 80 20 process.

Adjusted EBITDA increased 73% to $42 million, resulting in an adjusted EBITDA margin of 11, 9% an improvement of 450 basis points.

Neil D. Brinker: This has resulted in a reduction in our forecast based on the latest information from our customers. We're still planning for growth, but expect lower growth in the near term while we adjust our overall production ramp. We still believe that this is an important market for Modine and are nearing completion of the first phase of our Serbian plant expansion. We had planned the investment in phases so that we could bring on the necessary production capacity as, This is providing us with the flexibility to respond to regulatory changes like these and allows us to take a more measured approach to our investment. We will continue to monitor this market along with regulatory drivers that are creating this volatility. And our Climate Solutions business is having an incredible year, and I'm very proud of what we've been able to accomplish.

In addition, as we exit certain businesses, we need to examine our cost structure to make sure that it's appropriate for the size of the business there could be some additional costs as we realign our manufacturing footprint.

Similar to last quarter much of the increase was due to improving commercial terms in our long term contracts, including some additional retroactive recovery.

One of the businesses, where we're investing is our EV systems business last month, we announced our plans to expand production of our E. Vantage thermal management system to Europe. Beginning next year, we will produce battery thermal management systems and electronic cooling packages for our European customers at our plant in Ponta vehicle, Italy.

The PT business made a couple of important announcements this quarter that I would like to highlight is a prime example of our 80 20 work.

This is in addition to our existing product lines and Lawrenceburg, Tennessee, where we are in the process of adding additional capacity to accommodate increased volumes as we launch more programs.

We've been very clear with our intention to exit non strategic businesses and these divestitures our firm actions towards that goal.

Overall, our performance technology segment is firmly on track and I am proud of the work being done by this team.

<unk> costs continue to be favorable and we have had significant success negotiating contractual improvements, we're making great progress on the 80 20 journey and the segment focusing the organization on both capitalizing on growth opportunities and optimizing non strategic product lines.

Neil D. Brinker: We are investing in new products and technologies now to make sure we can continue to have profitable growth in the future. Please turn to slide 6. The performance technology segment also delivered excellent results this quarter, with revenue up 7% from the prior year, driven by off-highway commercial vehicle and specialty vehicle customers. Adjusted EBITDA increased 73% to $42 million, resulting in an adjusted EBITDA margin of 11.9%, an improvement of 450 basis points.

Now I'd like to turn the call over to Mick who will review our results for the quarter and provide segment financial updates.

Thanks, Neil and good morning, everyone. Please turn to slide seven to review the segment results.

<unk> solutions had another excellent quarter with a 31% increase in adjusted EBITDA.

Neil D. Brinker: Similar to last quarter, much of the increase was due to improving commercial terms in our long-term contracts, including some additional retroactive recovery. The PT business made a couple of important announcements this quarter that I would like to highlight as a prime example of our 80-20 work. First, we announced the divestiture of three businesses in Germany that produce products for internal combustion diesel and gasoline engines for the European Automotive Market.

Revenue grew 8%, including a $7 million favorable FX impact the.

The growth was driven by data center sales, increasing 117% or $43 million.

One of the businesses, where we're investing is our <unk> systems business last month, we announced our plans to expand production of our E. Vantage thermal management system to Europe. Beginning next year, we will produce battery thermal management systems and electronic cooling packages for our European customers at our plant in Ponta vehicle, Italy.

We continue to see strong demand for our products in North America, and Europe, including those supporting both Hyperscale and Colocation customers.

As Neil mentioned the timing of these sales can be somewhat unpredictable in shipments in the quarter once again exceeded our expectations.

This is in addition to our existing product lines and Lawrenceburg, Tennessee, where we are in the process of and adding additional capacity to accommodate increased volumes as we launch more programs.

Based on the timing of our current customer schedules, we anticipate lower shipments in Q3, and then ramping significantly in Q4 I want to highlight that while the timing can be hard to predict between quarters. Our full year outlook has not changed with growth expected to exceed 60%.

Neil D. Brinker: I'm pleased to report that this transaction closed in October. We have been very clear about our intention to exit non-strategic businesses, and these divestitures are firm actions towards that goal. We will continue to pivot our resources towards strategic, high-growth businesses, and we'll quickly exit or wind down business that is not meeting our margin. Many of these actions have already been identified and are underway. As a reminder, exiting lower-margin business is a critical element of 80-20 as we remain focused on earnings growth over revenue. We have anticipated this as part of our transformation strategy in the PT segment, understanding that it could initially result in lower revenue. However, we also have plans for growth in our EV systems and genset businesses that will replace the businesses we are exiting with product profiles aligned with our long-term goals. This is all part of the 80-20 program.

Overall, our performance technology segment is firmly on track and I am proud of the work being done by this team.

HVA CNR sales were down 2% or $2 million the heating market remains soft but has improved sequentially from Q1, we expect to see further rebound as we enter the heating season, but the weather will ultimately factor into the strength of our sales for the balance of the year.

Now I'd like to turn the call over to Mick who will review our results for the quarter and provide segment financial updates.

Thanks, Neil and good morning, everyone. Please turn to slide seven to review the segment results.

Sales of heat transfer products decreased 16% or $21 million.

<unk> solutions had another excellent quarter with a 31% increase in adjusted EBITDA.

As discussed in previous quarters, we've experienced a decline in market demand with commercial refrigeration, along with commercial and residential HVAC and RV customers.

Revenue grew 8%, including a $7 million favorable FX impact the.

The growth was driven by data center sales, increasing 117% or $43 million.

We believe many customers are continuing to work down excess inventory that was created during the previous supply chain shortage.

We continue to see strong demand for our products in North America, and Europe, including those supporting both Hyperscale and Colocation customers.

Additionally, we've continued 80 20 product rationalization activities to drive further margin improvements.

As Neil mentioned the timing of these sales can be somewhat unpredictable in shipments in the quarter once again exceeded our expectations.

Neil D. Brinker: In addition, as we exit certain businesses, we need to examine our cost structure to make sure that it's appropriate for the size of the business. There could be some additional costs as we realign our manufacturing footprint. One of the businesses where we're investing is our EV system. Last month, we announced our plans to expand production of our eVantage thermal management system to Europe. Beginning next year, we will produce battery thermal management and electronic cooling packages for our European customers at our plant in Ponte Vico, Italy.

We're pleased with the strong earnings conversion as adjusted EBITDA increased 31% with a 330 basis point margin improvement to 18, 3%.

The earnings and margin improvements were driven by higher sales volume and benefits from ongoing 80 20 initiatives.

Climate solutions, clearly had a very strong first half of the year the growth in data center sales was driven by a favorable market along with the investments we've made to grow this business.

With regards to the HVA CNR and heat transfer products, we're still maintaining a cautious outlook for the second half of the year.

Neil D. Brinker: This is in addition to our existing product lines in Lawrenceburg, Tennessee, where we are in the process of adding additional capacity to accommodate increased volumes as we launch more programs. Overall, our performance technology segment is firmly on track, and I'm proud of the work being done. The material costs continue to be favorable, and we have had significant success negotiating contractual improvements. We're making great progress on the 80-20 journey in the segment, focusing the organization on both capitalizing on growth opportunities and optimizing non-strategic products. Now, I'd like to turn the call over to Mick, who will review our results for the quarter and provide segment financial updates. Thanks, Neil. And good morning, everyone.

Given our assumptions on the heating market in the lighter datacenter shipments in Q3, we would expect sequentially lower earnings in Q3, then close out the year with a strong Q4.

Sales of heat transfer products decreased 16% or $21 million.

As discussed in previous quarters, we've experienced a decline in market demand with commercial refrigeration, along with commercial and residential HVAC and RV customers.

To wrap up on climate solutions, we're remaining cautious in a few key markets, but fully anticipate further year over year improvements in the next two quarters to wrap up another great year.

We believe many customers are continuing to work down excess inventory that was created during the previous supply chain shortage.

Please turn to slide eight.

Performance technologies also had a great quarter.

Additionally, we've continued 80 20 product rationalization activities to drive further margin improvements.

With 7% sales growth, including an $8 million favorable FX impact red.

Revenue benefited from 80 20 initiatives as we continue to focus on higher margin businesses.

We're pleased with the strong earnings conversion as adjusted EBITDA increased 31% with a 330 basis point margin improvement to 18, 3%.

Michael B. Lucareli: Please turn to slide seven to review the segment results. Climate Solutions had another excellent quarter with a 31% increase in adjusted EBITDA. Revenue grew 8%, including a $7 million favorable FX impact. The growth was driven by data center sales increasing 117% or 43 million.

While underlying sales volume declined by $5 million or 2% the average selling price per unit was higher.

The earnings and margin improvements were driven by higher sales volume and benefits from ongoing 80 20 initiatives.

As a reminder, 80 20 efforts in performance technologies are focused on driving rapid earnings growth and that revenue growth.

Climate solutions, clearly had a very strong first half of the year the growth in data center sales was driven by a favorable market along with the investments we've made to grow this business.

Therefore, we expect to see earnings growth at a more rapid rate than overall sales volume.

Michael B. Lucareli: We continue to see strong demand for our products in North America and Europe, including those supporting both hyperscale and co-location customers. However, as Neil mentioned, the timing of these sales can be somewhat unpredictable, and shipments in the quarter once again exceeded our expectations. Based on the timing of our current customer schedules, we anticipate lower shipments in Q3 than ramping up significantly in Q4. I want to highlight that while the timing can be hard to predict between quarters, our full year outlook has not changed, with growth expected to exceed 60%. HVAC and R sales were down 2%, or $2 million.

Advanced solution sales were up 30% or $10 million with continued growth of our <unk> systems and components sales along with higher sales to specialty vehicle and coatings customers.

With regards to the HVA CNR and heat transfer products, we're still maintaining a cautious outlook for the second half of the year.

Given our assumptions on the heating market in the lighter datacenter shipments in Q3, we would expect sequentially lower earnings in Q3, then close out the year with a strong Q4.

Liquid cooled application sales increased 6% or $7 million due to higher demand from our commercial vehicle customers along with benefits from 80 20 initiatives.

Lastly, air cooled application sales increased 2% or $4 million, primarily due to higher sales to off highway and Gen set customers.

To wrap up on climate solutions, we're remaining cautious in a few key markets, but fully anticipate further year over year improvements in the next two quarters to wrap up another great year.

Along with gains from 80 20 initiatives.

Performance technologies earnings conversion was excellent with adjusted EBITDA of 73%, resulting in a 11, 9% margin and a 450 basis point improvement.

Please turn to slide eight.

Performance technologies also had a great quarter.

Michael B. Lucareli: The heating market remains soft but has improved sequentially from Q1. We expect to see further rebound as we enter the heating season, but the weather will ultimately factor into the strength of our sales for the balance of the year. Sales of heat transfer products decreased 16%, or 21 million.

With 7% sales growth, including an $8 million favorable FX impact Rev.

Similar to the previous quarter earnings temporarily benefited from several million dollars of retroactive payments that may not repeat in future quarters.

Revenue benefited from 80 20 initiatives as we continue to focus on higher margin businesses.

While underlying sales volume declined by $5 million or 2% the average selling price per unit was higher.

As Neil mentioned, we're pleased to report that the divestiture of three businesses in Germany was completed on October 31.

Michael B. Lucareli: As discussed in previous quarters, we've experienced a decline in market demand for commercial refrigeration, along with commercial and residential HVAC, and RV customers. We believe many customers are continuing to work down excess inventory that was created during the previous supply chain shortage. Additionally, we've continued 80-20 product rationalization activities to drive further margin improvement. We're pleased with the strong earnings conversion as adjusted EBITDA increased 31% with a 330 basis point margin improvement to 18.3%. The earnings and margin improvements were driven by higher sales volume and benefits from ongoing 80-20 initiatives. Climate Solutions clearly had a very strong first half of the year.

As a reminder, our 80 20 efforts in performance technologies are focused on driving rapid earnings growth and that revenue growth.

As previously disclosed the annual revenue impact from these businesses is approximately $80 million to $90 million and will result in a revenue reduction in the second half of this fiscal year.

Therefore, we expect to see earnings growth at a more rapid rate than overall sales volume.

While these divestitures represent lower margin and non strategic business. We're reviewing action plans to further align our cost structure to the lower revenue. We anticipate that these plans will be launched in Q3 with savings to began in Q4.

Advanced solution sales were up 30% or $10 million with continued growth of our <unk> systems and components sales along with higher sales to specialty vehicle and coatings customers.

Liquid cooled application sales increased 6% or $7 million due to higher demand from our commercial vehicle customers along with benefits from 80 20 initiatives.

We did not experience any material impact from the UAW strike, but expect that some of our major OE customers may take extended holiday shutdowns this year.

Lastly, air cooled application sales increased 2% or $4 million, primarily due to higher sales to off highway and Gen set customers.

Based on all of these factors for the balance of the year, we anticipate ongoing 80 20 progress in further year over year improvements with a sequential dip in earnings in Q3, and a step up again in Q4.

Along with gains from 80 20 initiatives.

Michael B. Lucareli: The growth in data center sales was driven by a favorable market, along with the investments we made to grow this business. With regard to HVAC&R and heat transfer products, we're still maintaining a cautious approach for the second half of the year. Given our assumptions on the heating market and the lighter data center shipments in Q3, we would expect sequentially lower earnings in Q3, then close out the year with a strong Q4. To wrap up on climate solutions, we're remaining cautious in a few key markets but fully anticipate further year-over-year improvements in the next two quarters to wrap up another great year. Please turn to slide 8.

Performance technologies earnings conversion was excellent with adjusted EBITDA of 73%, resulting in a 11, 9% margin and a 450 basis point improvement.

And on a full year basis, we expect performance technologies, we'll report another excellent year and be within our targeted margin range.

Similar to the previous quarter earnings temporarily benefited from several million dollars of retroactive payments that may not repeat in future quarters.

Now let's review the total company results, please turn to slide nine.

First quarter sales were up 7% or $42 million, including a $15 million favorable FX impact as previously discussed the higher revenue was driven by growth in both business segments.

As Neil mentioned, we're pleased to report that the divestiture of three businesses in Germany was completed on October 31.

As previously disclosed the annual revenue impact from these businesses is approximately $80 million to $90 million and will result in a revenue reduction in the second half of this fiscal year.

The gross margin improved 520 basis points, primarily driven by increases in volume higher average selling prices and numerous other improvements tied to our 80 20 initiatives.

Michael B. Lucareli: Performance Technologies also had a great quarter with 7% sales growth, including an $8 million favorable FX impact. Revenue benefited from 80-20 initiatives as we continue to focus on higher-margin businesses. While underlying sales volume declined by 5 million, or 2 percent, the average selling price per unit was higher.

SG&A increased $10 million, driven primarily by higher employee compensation expenses.

Including incentive comp and higher product development costs.

I'm happy to report that adjusted EBITDA was very strong in the quarter with an increase of 59% or $30 million.

We did not experience any material impact from the UAW strike, but expect that some of our major OE customers may take extended holiday shutdowns this year.

Michael B. Lucareli: As a reminder, 80-20 efforts in performance technologies are focused on driving rapid earnings growth and not revenue growth. Therefore, we expect to see earnings growth at a more rapid rate than overall sales volume. Advanced Solutions sales were up 30%, or 10 million units, with continued growth of our EV systems and component sales, along with higher sales to specialty vehicle and coatings customers.

This equates to an adjusted EBITDA margin of 13, 1% and a 430 basis point improvement from the prior year. This also represents the seventh consecutive quarter of year over year margin improvement.

In addition, adjusted earnings per share was <unk> 89.

85% higher than the prior year.

And on a full year basis, we expect performance technologies, we'll report another excellent year and be within our targeted margin range.

Before moving to the balance sheet I would like to reiterate that we're pleased with the exceptional performance in the quarter and there were a few areas that were better than expected.

Michael B. Lucareli: Liquid cooled application sales increased 6% or $7 million due to higher demand from our commercial vehicle customers, along with benefits from 80-20 initiatives. Lastly, air-cooled application sales increased 2% or $4 million, primarily due to higher sales to off-highway and genset customers, along with gains from 80-20. Performance Technologies earnings conversion was excellent, with adjusted EBITDA of 73%, resulting in 11.9% margin and a 450 basis point improvement Similar to the previous quarter, earnings temporarily benefited from several million dollars of retroactive payments that may not repeat in future quarters. As Neil mentioned, we're pleased to report that the divestiture of three businesses in Germany was completed on October 31st.

Now let's review the total company results, please turn to slide nine.

First our shipments of datacenter products were somewhat stronger than expected with a little pull forward from Q3.

First quarter sales were up 7% or $42 million, including a $15 million favorable FX impact as previously discussed the higher revenue was driven by growth in both business segments.

Second we had some additional benefits in the quarter for performance technologies, including favorable material ratios and product mix.

The gross margin improved 520 basis points, primarily driven by increases in volume higher average selling prices and numerous other improvements tied to our 80 20 initiatives.

And as I mentioned on the previous slide we also benefited from some commercial negotiations and settlements.

While maintaining a cautious view for the second half, we're again raising our earnings outlook based on some of the first half progress.

SG&A increased $10 million, driven primarily by higher employee compensation expenses.

In a few minutes our further review how all of this will impact our sequential results in the full year guidance.

Including incentive comp and higher product development costs.

Now moving to cash flow metrics, please turn to slide 10.

I'm happy to report that adjusted EBITDA was very strong in the quarter with an increase of 59% or $30 million.

We.

<unk> $58 million of free cash flow in the second quarter, which is a nice improvement from our first quarter. This puts year to date free cash flow at 85 million, which compares very favorably to $33 million generated in the prior year.

Michael B. Lucareli: As previously disclosed, the annual revenue impact from these businesses is approximately $80 to $90 million and will result in a revenue reduction in the second half of this fiscal year. While these divestitures represent lower margin and non-strategic businesses, we're reviewing action plans to further align our cost structure to the lower revenue. We anticipate that these plans will be launched in Q3, with savings to begin in Q4. We did not experience any material impact from the UAW strike but expect that some of our major OE customers may take extended holiday shutdowns this year.

This equates to an adjusted EBITDA margin of 13, 1% and a 430 basis point improvement from the prior year. This also represents the seventh consecutive quarter of year over year margin improvement.

Net debt of $222 million was $63 million lower than the prior fiscal year end and $43 million lower than the last quarter.

In addition, adjusted earnings per share was <unk> 89.

85% higher than the prior year.

Yeah.

Before moving to the balance sheet I would like to reiterate that we're pleased with the exceptional performance in the quarter and there were a few areas that were better than expected.

Net debt coupled with strong earnings resulted in a leverage ratio of <unk> eight.

During the quarter, we restarted our share repurchase program and purchased 200000 shares.

First our shipments of datacenter products were somewhat stronger than expected with a little pull forward from Q3.

Michael B. Lucareli: Based on all of these factors, for the balance of the year, we anticipate ongoing 80-20 progress and further year-over-year improvement, with a sequential dip in earnings in Q3 and a step up again in Q4. And on a full year basis, we expect performance technologies to report another excellent year and be within our targeted margin range. Now, let's review the total company results. Please turn to slide nine.

As a reminder, our program is currently focused on offsetting the dilutive impact of our share based incentive compensation program.

Second we had some additional benefits in the quarter for performance technologies, including favorable material ratios and product mix.

This fiscal year, we expect continued growth in free cash flow driven by higher earnings and a continued focus on working capital.

And as I mentioned on the previous slide we also benefited from some commercial negotiations and settlements.

We continue to anticipate full year free cash flow will fall in our targeted range of 3% to 5% of sales.

While maintaining a cautious view for the second half, we're again raising our earnings outlook based on some of the first half progress.

<unk> balance sheet remains quite strong, which we plan to maintain in the current economic climate and stand ready to support both organic growth and acquisition initiatives.

In a few minutes our further review how all of this will impact our sequential results in the full year guidance.

Michael B. Lucareli: First quarter sales were up 7% or $42 million, including a $15 million favorable FX impact. As previously discussed, the higher revenue was driven by growth in both business segments. The growth margin improved by 520 basis points, primarily driven by increases in volume, higher average selling prices, and numerous other improvements tied to our AD20 initiative. SG&A increased $10 million, driven primarily by higher employee compensation expenses, including incentive comp, and higher product development costs.

Now moving to cash flow metrics, please turn to slide 10.

Now, let's turn to slide 11 for our fiscal 'twenty four outlook.

We generated $58 million of free cash flow in the second quarter, which is a nice improvement from our first quarter. This put year to date free cash flow at 85 million, which compares very favorably to $33 million generated in the prior year.

As announced in the press release, we're raising our full year earnings outlook for fiscal 'twenty four.

Second quarter exceeded our expectations, leading to another increase in our profitability outlook for the fiscal year.

Net debt of $222 million was $63 million lower than the prior fiscal year end and $43 million lower than the last quarter.

In the climate solutions segment, we continue to expect datacenter revenue growth of 60% to 70%.

Moving to HVA CNR, we expect modest revenue growth in the low single digits, maintaining the range from last quarter as we remain cautious and approach the prime heating season.

Net debt coupled with strong earnings resulted in a leverage ratio of <unk> eight.

Michael B. Lucareli: I'm happy to report that adjusted EBITDA was very strong in the quarter, with an increase of 59% or $30 million. This equates to an adjusted EBITDA margin of 13.1% and a 430 basis point improvement from the prior year. This also represents the seventh consecutive quarter of year-over-year margin improvement. In addition, adjusted earnings per share was 89 cents and 85% higher than the prior year.

During the quarter, we restarted our share repurchase program and purchased 200000 shares.

With regards to the heat transfer products, we now anticipate a sales decline in the mid single digits.

As a reminder, our program is currently focused on offsetting the dilutive impact of our share based incentive compensation program.

Which is a reduction from our previous guidance. This is primarily due to concerns over a general economic slowdown, especially in residential and commercial refrigeration applications and a slower ramp schedule for the heat pump market.

This fiscal year, we expect continued growth in free cash flow driven by higher earnings and a continued focus on working capital.

We continue to anticipate full year free cash flow will fall in our targeted range of 3% to 5% of sales.

Moving to performance technologies, we expect continued benefits from our 80 20 rollout.

Michael B. Lucareli: Before moving to the balance sheet, I'd like to reiterate that we're pleased with the exceptional performance in the quarter, and there were a few areas that were better than expected. First, our shipments of data center products were somewhat stronger than expected with a little pull forward from Q3. Second, we had some additional benefits in the quarter for performance technologies, including favorable material ratios and product mix.

<unk> balance sheet remains quite strong, which we plan to maintain in the current economic climate and stand ready to support both organic growth and acquisition initiatives.

And now that we've completed the German divestitures, we're adjusting the second half revenue outlook accordingly.

We expect advanced solutions to grow in the 25% to 35% range, which did not change from last quarter.

Now, let's turn to slide 11 for our fiscal 'twenty four outlook.

This growth is driven by program launches continued demand for <unk> systems and components.

As announced in the press release, we're raising our full year earnings outlook for fiscal 'twenty four.

We anticipate modest growth for liquid and air cooled products as we implement 80 20 across the segment, including the impact of the divestitures.

Michael B. Lucareli: And as I mentioned on the previous slide, we also benefited from some commercial negotiations and settlement. While maintaining a cautious view for the second half, we're again raising our earnings outlook based on some of the first half progress. In a few minutes, I'll further review how all this will impact our sequential results in the full year guidance. Now, moving to cash flow metrics, please turn to slide 10. We generated $58 million of free cash flow in the second quarter, which is a nice improvement from our first quarter. This puts year-to-date free cash flow at $85 million, which compares very favorably to $33 million generated in the prior year. The net debt of $222 million was $63 million lower than the prior fiscal year end.

Second quarter exceeded our expectations, leading to another increase in our profitability outlook for the fiscal year.

In the climate solutions segment, we continue to expect datacenter revenue growth of 60% to 70%.

From an SG&A perspective, we're anticipating that we'll finish the full year between 260 and $270 million, including higher incentive and compensation expenses.

Moving to HVA CNR, we expect modest revenue growth in the low single digits, maintaining the range from last quarter as we remain cautious and approach the prime heating season.

Let's move to adjusted EBITDA.

Based on the recent results and market trends, we are raising our adjusted EBITDA outlook for the year, while maintaining a somewhat cautious position with half of the fiscal year left in front of US. We now expect our adjusted fiscal 'twenty for EBITDA to be in the range of 285 to 300 million up from.

With regards to the heat transfer products, we now anticipate a sales decline in the mid single digits.

280 million to 295 million and representing an increase of 34% to 41% versus the prior year.

Moving to performance technologies, we expect continued benefits from our 80 20 rollout.

Michael B. Lucareli: $43 million lower than the last quarter. Net debt, coupled with strong earnings, resulted in a leverage ratio of 0.8. During the quarter, we restarted our share repurchase program and purchased 200,000 shares. As a reminder, our program is currently focused on offsetting the dilutive impact of our share-based incentive compensation program. This fiscal year, we expect continued growth in free cash flow driven by higher earnings and a continued focus on working capital. We continue to anticipate full-year free cash flow will fall in our targeted range of 3-5% of sales.

Consistent with our previous update we anticipate that the second half will average approximately $70 million of our quarterly adjusted EBITDA.

And now that we've completed the German divestitures, we're adjusting the second half revenue outlook accordingly.

We expect advanced solutions to grow in the 25% to 35% range, which did not change from last quarter.

We expect a Q3 will be sequentially lower based on my previous comments on the business segments with a step up in Q4.

This growth is driven by program launches continued demand for <unk> systems and components.

The sequential lift in Q4 will be driven by typical seasonal patterns and a strong order book in data centers advanced thermal solutions and other key growth businesses.

We anticipate modest growth for liquid and air cooled products as we implement 80 20 across the segment, including the impact of the divestitures.

Shifting back to the full year I want to reaffirm that our full year outlook is well aligned with our transformational earnings and margin targets.

From an SG&A perspective, we're anticipating that we'll finish the full year between 260 and $270 million, including higher incentives and compensation expenses.

Michael B. Lucareli: Modine's balance sheet remains quite strong, which we plan to maintain in the current economic climate and stand ready to support both organic growth and acquisition initiatives. Now let's turn to slide 11 for our fiscal 24 outlook. As announced in the press release, we're raising our full-year earnings outlook for Fiscal 24. The second quarter exceeded our expectations, leading to another increase in our profitability outlook for the fiscal year.

And we expect to deliver another year of record results at Modine.

In addition, we anticipate that free cash flow will further improve with the higher earnings outlook with capital expenditures expected to be around $70 million.

Let's move to adjusted EBITDA.

Other assumptions, including interest expense taxes, depreciation and amortization are included in the appendices attached to this presentation and our press release.

Michael B. Lucareli: In the climate solution segment, we continue to expect data center revenue growth of 60 to 70 percent. Moving to HVAC&R, we expect modest revenue growth in the low single digits, maintaining the range from last quarter as we remain cautious and approach the prime Heating. With regard to heat transfer products, we now anticipate a sales decline in the mid-single digits, which is a reduction from our previous guidance. This is primarily due to concerns over a general economic slowdown, especially in residential and commercial refrigeration applications, and a slower ramp schedule for the heat pump.

To wrap up we're extremely pleased with the results from the second quarter and our ability to maintain momentum towards our interim and long term financial targets.

280 million to $295 million, and representing an increase of 34% to 41% versus the prior year.

As Neil said.

We're in the early stages of our transformation, but the progress has been tremendous.

Consistent with our previous update we anticipate that the second half will average approximately $70 million of our quarterly adjusted EBITDA.

And we have a lot of hard work and opportunity in front of us with that Neil and I will take your questions.

We expect a Q3 will be sequentially lower based on my previous comments on the business segments with a step up in Q4.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

The sequential lift in Q4 will be driven by typical seasonal patterns and a strong order book in data centers advanced thermal solutions and other key growth businesses.

Michael B. Lucareli: Moving to performance technologies, we expect continued benefits from our 80-20 rollout. And now that we've completed the German divestitures, we're adjusting the second half revenue outlook accordingly. We expect advanced solutions to grow in the 25 to 35% range, which did not change from last quarter. This growth is driven by program launches, continued demand for EV systems, and components. We anticipate modest growth for liquid and air-cooled products as we implement 80-20 across the segment, including the impact of divestment. From an SG&A perspective, we're anticipating that we'll finish the full year between $260 and $270 million, including higher incentive and compensation expenses.

You May press Star then two if you would like to remove your question from the queue.

Shifting back to the full year I want to reaffirm that our full year outlook is well aligned with our transformational earnings and margin targets.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

And we expect to deliver another year of record results at Modine.

Ladies and gentlemen, we will wait for a moment, while we poll for questions.

In addition, we anticipate that free cash flow will further improve with the higher earnings outlook with capital expenditures expected to be around $70 million.

Our first question comes from Matt Summerville with D. A Davidson. Please go ahead.

Excuse me thanks, good morning.

Other assumptions, including interest expense taxes, depreciation and amortization are included in the appendices attached to this presentation and our press release.

I wanted to maybe start with a question on the data center business the growth cycle year in fiscal 'twenty four what does that suggest about fiscal 'twenty five in the context of the backlog and order comments you made and what we are in the slides here and then I'm curious if you have any update.

To wrap up we're extremely pleased with the results from the second quarter and our ability to maintain momentum towards our interim and long term financial targets.

Michael B. Lucareli: Let's move to adjusted EBITDA. Based on recent results and market trends, we're raising our adjusted EBITDA outlook for the year while maintaining a somewhat cautious position with half of the fiscal year left in front of us. We now expect our adjusted fiscal 24 EBITDA to be in the range of $285 to $300 million, up from $280 million to $295 million and representing an increase of 34 to 41 percent versus the prior year. Consistent with our previous update, we anticipate that the second half will average approximately $70 million of adjusted EBITDA per quarter.

As Neil said.

Customer diversification initiatives within the Hyperscale market and any early feedback on the CDU Eminem follow up thank you.

We're in the early stages of our transformation, but the progress has been tremendous.

And we have a lot of hard work and opportunity in front of us with that Neil and I will take your questions.

On Volcker, some CD, yes, Matt. Thank you for the question.

Yes, so as you know we continue to experience growth.

Thank you.

We continue to grow the backlog in data centers a lot of that was driven by the fact that we've expanded our ability to manufacture globally.

Ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

The Capex investment that we made in our labs and our factories in the United States as well as in Europe to support this growth as it allow us to build the capacity to keep up with this demand that we're seeing.

You May press Star then two if you would like to remove your question from the queue.

Michael B. Lucareli: We expect that Q3 will be sequentially lower based on my previous comments on the business segments, with a step-up in Q4. The sequential lift in Q4 will be driven by typical seasonal patterns and a strong order book in data centers, advanced thermal solutions, and other key growth businesses. Shifting back to the full year, I want to reaffirm that our full year outlook is well aligned with our transformational earnings and margin targets, and we expect to deliver another year of record results at Modine. In addition, we anticipate that free cash flow will further improve with the higher earnings outlook, with capital expenditures expected to be around $70 million. Other assumptions, including interest expense, taxes, depreciation, and amortization, are included in appendices attached to this presentation and our press release.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

And we.

We've been able to expand our product portfolio on the air cooling side as well an integral piece of this growth was being able to develop and manufacture a chiller in the United States in the North American market. So we will continue to expand our product portfolio and data centers in the next evolution of that is with the Cpus. So these C. The use.

Ladies and gentlemen, we will wait for a moment, while we poll for questions.

Yeah.

Our first question comes from Matt Summerville with D. A Davidson. Please go ahead.

Excuse me thanks, good morning.

We're going to get us into a different area of the data center to allow us to provide liquid cooling.

The VLC that we've collected from both our hyper scaler in Colo.

Customer diversification initiatives within the Hyperscale market and any early feedback on the CDU Eminem follow up thank you.

And is this and we realize this we actually produce the CDU back in 2016, and this was before there was a market.

Neil D. Brinker: To wrap up, we're extremely pleased with the results from the second quarter and our ability to maintain momentum towards our interim and long-term financial targets. As Neil said... We're in the early stages of our transformation, but the progress has been tremendous. We have a lot of hard work and opportunity in front of us. With that, Neil and I will take your questions. Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star then 2 if you would like to remove your question.

John Wilkerson CD, yes, Matt. Thank you for the question.

And now that we see that there is favorable trends, where we can complement our current product portfolio cooling products and data centers.

Yes, so as you know we continue to experience growth in.

We continue to grow the backlog in data centers a lot of that was driven by the fact that we've expanded our ability to manufacture globally.

Adding the CDU piece, just makes a lot of sense.

Yes, Matt on your question about next year.

We're in the middle of our planning process, so a little bit early to give a definitive number for you, but I think.

The way, we thought about it for quite a while as ability obviously to go grow 60%, 70% a year is it.

We.

It is not going to be sustainable over the long term as the business gets much bigger, but we've talked about longer term growth rates in the 20% 30%.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from Matt Summerville with D.A. Davidson. Go ahead. Excuse me.

<unk>, maybe even a little bit higher so still really high we'd expect very high revenue growth next year, but it won't it.

Matt J. Summerville: Thanks. Morning. I wanted to maybe start with a question about the data center. The growth cycle you're in, in Fiscal 24, what does that suggest about Fiscal 25 in the context of the backlog and order comments you made and what were in the slides? And then I'm curious if you have any update on customer diversification initiatives within the hyperscale market and any early feedback on those. Yeah, Matt, thank you for the question. Yes, as you know, we continue to experience growth, and we continue to grow the backlog for data centers. A lot of that is driven by the fact that we've expanded our ability to manufacture globally. The CapEx investment that we made in our labs and our factories in the United States as well as in Europe to support this growth allows us to build the capacity to keep up with this demand that we're seeing. And, you know, we've been able to expand our product portfolio on the air cooling side as well. An integral piece of this growth was being able to develop and manufacture a chiller in the United States for the North American market.

We're going to get us into a different area of the data center to allow us to provide liquid cooling.

It won't continue at a 60% 70% pace.

The VLC that we've collected from both our hyper scaler in Colo.

And remind us about any progress on hyperscale customer diversification.

They pivot into more of a liquid cooling approach for areas, where they have high heat density and heat loads. They are leaning on us in order to help them provide that solution and this isn't new to US Matt. We've we've recognize this and we realize this we actually produce the CDU back in 2016 and this was before there was a mark.

Yes, we continue to have conversations and advance our conversations there.

Takes time.

We started the process.

About 18 months ago, and we're much further along in line with where we would expect to be.

Again, adding our capacity across the globe, having the global manufacturing footprint.

<unk>.

Now that we see that there is favorable trends, where we can complement our current product portfolio cooling products and data centers.

Creasing, our product portfolio with liquid cooling technologies, all those in favor of us being able to continue to advance those conversations with hyperscale.

Adding the CDU piece, just makes a lot of sense.

Yes, Matt on your question about next year.

Got it and then just as a follow up.

Think about the guidance framework, you gave coming out of Q1 thinking about Q2 pretty much everything you just delivered booked all of that guidance in in a good way and I'm. Just curious about the go forward guidance have you really seen a step function change in the demand environment.

We're in the middle of our planning process, so a little bit early to give a definitive number for you, but I think.

The way, we thought about it for quite a while as ability obviously to go grow 60%, 70%. A year is is not going to be sustainable over the long term as the business gets much bigger, but we've talked about longer term growth rates in the 20% 30% level.

Neil D. Brinker: We will continue to expand our product portfolio and data centers, and the next evolution of that is with the CDUs. These CDUs are going to get us into a different area of the data center to allow us to provide liquid cooling. And that's the VOC that we've collected from both our Hyperscaler and Colos, that as they pivot into more of a liquid cooling approach for areas where they have high heat density and heat loads, they're leaning on us in order to help them provide that solution. And, you know, this isn't new to us, Matt.

Are you looking at this thing.

Macros, a little choppy there is a few minutes here and there in the business geopolitical environment as unfortunate as it is it is what it is so to speak.

A level, maybe even a little bit higher sale.

Really high we'd expect very high revenue growth next year, but it won't.

So maybe some conservatism here.

It won't continue and at $60, 70% pace.

It is understandable, but I'm, just trying to sort of more dig at kind of your guidance philosophy as we think about the second half.

And remind us about any progress on hyperscale customer diversification.

Setup, given how you performed and what age.

Yes, we continue to have conversations and advance our conversations there.

Yeah, Hey, Matt mixed I think really fair question and I think it's much more of the ladder.

It takes time.

We started the process.

About 18 months ago, and we're much further along in line with where we would expect to be.

We're not seeing a step function change in the business or any level of the profitability levels.

Neil D. Brinker: We've recognized this, and we realize this. We actually produced a CDU back in 2016, and, you know, this was before there was a market. And now that we see that there are favorable trends where we can complement our current product portfolio of cooling products and data centers, adding the CDU piece just makes a lot of sense. Yes, and Matt, on your question about next year.

Again, adding our capacity across the globe, having the global manufacturing footprint.

Ladder, which you went through that list.

The uncertainty is kind of across the markets geopolitical environment.

Increasing our product portfolio with liquid cooling technologies, all those in favor of us being able to continue to advance those conversations with hyperscale.

A number of things in in a few markets like the heating season coming up so.

Got it and then just as a follow up.

I know, we had thought Q2 would be a little bit of a step down from Q1, and we had another strong quarter.

Kind of think about the guidance framework, you gave coming out of Q1 thinking about Q2 pretty much everything you just delivered booked all of that guidance in in a good way and I'm. Just curious about the go forward guidance have you really seen a step function change in the demand environment.

Michael B. Lucareli: We're in the middle of our planning process, so it's a little bit early to give a definitive number for you. But I think the way we thought about it for quite a while was the ability obviously to grow 60-70% a year is not going to be sustainable over the long term as the business gets much bigger. But we've talked about longer-term growth rates in the 20-30% level, maybe even a little bit higher. So it is still really high.

In there is the other thing I guess I'd add and Neil can add any color, but as we continue to go through this transformation the amount of complexity that we have in the organization and we're asking the leaders to manage through businesses that we are divesting product lines, we are exiting.

Are you looking at this thing.

Macros, a little choppy there is a few minutes here and there in the business geopolitical environment as unfortunate as it is it is what it is so to speak.

Pricing adjustments were pushing through growth volumes and timing, it's turned out for us in a positive way the momentum is great, but our ability to predict.

Michael B. Lucareli: We'd expect very high revenue growth next year, but it won't continue at a 60-70% pace. And then I asked about any progress on hyperscale customer diversity. Yes, we continue to have conversations and advance our conversations there. It takes time.

So maybe some conservatism here is understandable, but I'm just trying to sort of more dig at kind of your guidance philosophy as we think about the second half.

One quarter to the next with that level of accuracy. There is a large amount of complexity in the company right now that's just making it we're trying to be cautious of how we we project for the next six months.

Setup, given how you performed and what age.

Neil D. Brinker: You know, we started the process about 18 months ago, and we're much further along in line with where we would expect to be. Again, adding capacity across the globe, having a global manufacturing footprint, increasing our product portfolio with liquid cooling technologies, all is in favor of us being able to continue to advance those conversations and do that.

Yeah, Hey, Matt mixed I think really fair question and I think it's much more of the ladder.

Want to add any other color on it yes, I mean, when you think about how difficult it is to predict change in a stable environment when we stabilize it.

We're not seeing a step function change in the business or any level of the profitability levels.

Through a lot of our 80 20 activities intentionally for the right thing to do we're transforming the company when Youre in a destabilized mode. We're changing many many things all at once it does become a little bit more difficult to predict so we're continuing to manage it the way, we do and we want to make sure that we keep the consistent with our approach in terms of how we guide.

Ladder, which you went through that list.

The uncertainty is kind of across the market geopolitical environment, a number of things in a few markets like the heating season coming up.

Matt J. Summerville: And then just as a follow-up, as I kind of think about the guidance framework you gave coming out of Q1, thinking about Q2, pretty much everything you just delivered blew away all of that guidance in a good way. And I'm just curious about the guidance going forward. Have you really seen a step function change in the demand environment? Or are you looking at this saying, you know, macros a little choppy, there's a few myths here and there in the business? The geopolitical environment is as unfortunate as it is.

I know, we had thought Q2 would be a little bit of a step down from Q1, and we had another strong quarter.

Great. Thanks, guys.

Thank you.

Question is from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking a couple of questions.

Maybe I'll just start with just a quick follow up on the data center side. So the current backlog is that does that all year from air cooling technology.

Michael B. Lucareli: It is what it is, so to speak. Maybe some conservatism here is understandable, but I'm just trying to sort of dig deeper into kind of your guidance philosophy as we think about the second half in the setup, given how you performed in one. Yeah, hey, Matt Smith, I think, a really fair question.

Pricing adjustments were pushing through growth volumes and timing, it's turned out for us in a positive way the momentum is great, but our ability to predict with one quarter to the next with that level of accuracy. There is a large amount of complexity in the company right now.

Correct.

Got you and what the time frame on the on the CDU development is that just had a couple of years.

Neil D. Brinker: And I think it's much more of the latter. We're not seeing a step function change in the business or, you know, any level of profitability, the latter, which you went through that list of the uncertainties across the market, the geopolitical environment, a number of things in a few markets like the heating season coming up. So I know we had thought Q2 would be a little bit of a step down from Q1, but we had another strong quarter in there. The other thing I guess I'd add, and Neil can add any color, but as we continue to go through this transformation, the amount of complexity that we have in the organization, we're asking the leaders to manage through businesses that we are divesting, product lines we're exiting, pricing adjustments we're pushing through, growth volumes, and timing.

What does that look like.

Question, Chris Yes, we expect.

We have the ability to commercialize that in the beginning of next year.

That is just making it we're trying to be cautious of how we we project for the next six months.

And.

It will grow at the rate that we see or we potentially can predict the market adoption of this so it's a nice complement in terms of what we're doing on the air cooling side.

And any other color around it.

When you think about how difficult it is to predict change in a stable environment when we stabilize it.

We've got a multiple technologies here with the <unk>, we can do liquid and liquid we can do are to liquid there's just different ways to solve for the challenges that our customers see so we're going to be able to move and deploy product at the rate that they.

They see this.

Both inside of the data centers to support high density E. Those.

Got it very helpful does the competitive landscape changed much as you move on to the liquid cooling side.

Great. Thanks, guys.

Thank you.

Question is from Chris Moore with CJS Securities. Please go ahead.

It's a natural extension of what we do.

Neil D. Brinker: It's turned out for us, in a positive way; the momentum is great, but our ability to predict from one quarter to the next, with that level of accuracy, there's a large amount of complexity in the company right now that's just making it; we're trying to be cautious of how we project for the next six months. Neil, do you want to add any other color to that?

The competitive landscape is.

Hey, good morning, guys. Thanks for taking a couple of questions.

Similar the technologies are different some of your competitors have partnered with some.

Maybe I'll just start with just a quick follow up on the data center side. So the current backlog is that does that all year from air cooling technology.

Companies that have this technology.

Position themselves well with joint ventures, and other things.

It's a similar space, we're familiar with it we've been waiting for the time.

Correct.

Got you and what the time frame on the on the CDU development is that just had a couple of years.

To make this investment when we actually start to see this market start to stabilize and it has the potential to grow like I said earlier, we've developed Cpus in the past we did this six years ago. There just wasn't a market for it. So we believe the time is right.

Neil D. Brinker: Yeah, I mean, when you think about how difficult it is to predict change in a stable environment, when we destabilize it through a lot of our 80-20 activities intentionally because the right thing to do, we're transforming the company. When you're in a destabilized mode where we're changing many, many things all at once, it does become a little bit more difficult to predict. So we're continuing to manage it the way we do, and we want to make sure that we are consistent with our approach in terms of how we guys do it. Thanks.

What does that look like.

Question, Chris, Yes, we expect it to.

We have the ability to commercialize that in the beginning of next year.

And.

Perfect Thats helpful.

It will grow at the rate that we see or we potentially can predict the market adoption of this so it's a nice complement in terms of what we're doing on the air cooling side.

Maybe switch gears here to afford as postponing a $12 billion EV factory, the reasons, given where unwillingness of customers to pay extra for electric vehicles.

Just wondering kind of how you look at that any impact potentially.

Matt J. Summerville: Thank you. Our next question is from Chris Moore with CPJS Security. Hey, good morning, guys.

On the ice auto business, our EV business.

In general just kind of your thoughts there.

They see this.

It's an interesting question right.

Both inside of the data centers to support high density <unk>.

Christopher Paul Moore: Thanks for taking a couple of questions. Yeah, maybe I'll just start with just a quick follow up on the data center side. So the current backlog, is that all air cooling technology? Correct.

We don't focus on EV automotive, our EV and areas that we focus in terms of.

Got it very helpful does the competitive landscape changed much as you move on to the liquid cooling side.

Electrification is on specialty vehicles.

We really look at.

It's a natural extension of what we do.

Larger.

Neil D. Brinker: Gotcha. And what is the timeframe for the, for the CDU development? Was that a couple of years? Or what does that look like?

EV applications that require our systems and solutions and we've we've.

The competitive landscape is.

Similar the technologies are different some of your competitors have partnered with some.

We've moved away from any EV related to automotive that's component related so where we see growth and where we see the demand. We're partnered with we're on a 119 different engagements with customers in the areas that we target for EV.

Companies that have this technology.

Neil D. Brinker: Great question, Chris. Yeah, we expect to have the ability to commercialize that by the beginning of next year. And, you know, it'll grow at the rate that we see, or we can potentially predict the market adoption of this. So it's a nice complement in terms of what we're doing on the air cooling side. You know, we've got multiple technologies here with the CDU. We can do liquid to liquid. We can change air to liquid.

Position themselves well with joint ventures, and other things.

It's a similar space, we're familiar with it we've been waiting for the time.

We see 27 orders or platform wins.

We're very pleased to have one we're expanding our EV.

Product group.

We're expanding capacity in our plants in Tennessee, We just recently put out a press release that we're expanding into Europe, we're going to be producing in Italy. So we see growth in the areas that we've defined.

Neil D. Brinker: There are just different ways to solve for the challenges that our customers see. So, you know, we're going to be able to move and deploy products at the rate that they see growth inside of the data centers that support high-density heat loads. Got it. Very helpful.

Perfect Thats helpful.

Switch gears here to afford as postponing a $12 billion EV factory, the reasons, given where unwillingness of customers to pay extra for electric vehicles.

That is target for us in the <unk> and again, that's in systems and in vehicles like specialty vehicles municipal buses school buses last mile delivery vehicles, that's the space that we're focused on.

Just wondering kind of how you look at that any impact potentially.

Neil D. Brinker: Does the competitive landscape change much as you move on to the liquid cooling side? It's a natural extension of what we do. The competitive landscape is similar, but the technologies are different. Some of our competitors have partnered with some companies that have this technology, and they position themselves well with joint ventures and other things. It's a similar space. We're familiar with it.

Got it no I got that I understand it wasn't on the on the.

On the ice auto business, our EV business.

Oh, sorry, I was just curious if you had it.

In general just kind of your thoughts there.

If youre getting any pushback from them from a pricing perspective, it sounds like so far so good on that front so.

It's an interesting question right.

We don't focus on EV automotive, our EV and areas that we focus in terms of.

I will leave it there I appreciate it thank.

Thank you.

Electrification is on specialty vehicles.

Thank you.

We really look at.

Our next question is from Jeff Van <unk> with B Riley <unk> Securities. Please go ahead.

Larger.

Neil D. Brinker: We've been waiting for the time to make this investment when we actually start to see this market start to stabilize and has the potential to grow. Like I said earlier, we've developed CVUs in the past. We did this six years ago. There just wasn't a market for them. We believe the time is right.

EV applications that require our systems and solutions and we've we've we've moved away from any EV related to automotive that's component related so where we see growth and where we see the demand. We're partnered with we're on a 119 different engagements with customers in the areas that we target for EV.

Hi, good morning, everyone.

You mentioned Lumpiness, I think and a pull forward I believe you said into Q2 in the datacenter segment, maybe you can if I caught that right.

Maybe you can just help us understand the dynamics there.

Yeah, Hey, it's Nick.

We see 27 orders.

So definitely.

Neil D. Brinker: So Ford is postponing a $12 billion EV factory, the reasons given were, you know, the unwillingness of customers to pay extra for its electric vehicles. Just wondering, you know, kind of how you look at that, any impact you potentially have on the ice auto business or the EV business? in general, just, you know, kind of your thoughts there. Yeah, it's an interesting question, right? We don't focus on EV automotive

Platform wins that we're very pleased to have one we're expanding our EV <unk>.

From a forecast standpoint, probably the last three or four months based on.

Group, we're expanding capacity in our plants in Tennessee, We just recently put out a press release that we're expanding into Europe, we're going to be producing in Italy. So we see growth in the areas that we've defined.

Schedules from our customers, we knew the the lowest quarter of the year would likely be our Q3.

Those data center, what we've talked about in the past as they can be lumpy. These are we had a photo in the in the presentation.

Large construction projects and so we were required to have product ready to be shipped but when they're pulled it depends on the customer and the completion. They only want it on time ready to go. So in Q2, we had a little bit higher revenue than we thought that was really good.

Neil D. Brinker: Our EV areas that we focus on in terms of electrification are specialty vehicles. You know, we really look at larger EV applications that require our systems and solutions, and we've moved away from any EV related to the automotive that's component related. Where we see growth and where we see demand, we're on 119 different engagements with customers in the areas that we target for EV. You know, we have 27 orders or platform wins that we're very pleased to have won.

Got it no I got that I understand it wasn't on the on the.

Oh, sorry, I was just curious if you had if youre getting any pushback from them from a pricing perspective, it sounds like so far so good on that front so I.

B, we thought would be coming in Q3.

I will leave it there I appreciate it.

And then in Q3, we expect to have the.

Yeah.

A lower amount of revenue in Q3, and a big ramp in Q4 again, just based on this consistent with our order book, but it's based on the timing of where we see the customers pulling.

Thank you <unk>.

Next question is from Jeff Van <unk> with B Riley Securities. Please go ahead.

Hi, good morning, everyone.

Mentioned, Lumpiness I think and a pull forward I believe you said into Q2 in the datacenter segment, maybe you can if I can.

And asking for those shipments.

Neil D. Brinker: We're expanding our EV product group. We're expanding capacity in our plants in Tennessee. We just recently put out a press release that we're expanding into Europe. We're going to be producing in Italy.

Okay fair enough.

And then I just wanted to follow up on the CB CDU.

Caught that right.

Maybe you can just help us understand the dynamics there.

I guess latest thoughts on how you're approaching high performance AI data centers and then just the seating you address that given that its liquid cooling or not for that market.

Yeah, Hey, it's Nick.

Neil D. Brinker: So, we see growth in the areas that we've defined that are targets for us in the EV. And again, that's in systems and in vehicles like specialty vehicles, municipal buses, school buses, last-mile delivery vehicles. That's the space that we're focused on. No, I understand that. I didn't understand it wasn't on the auto side.

No definitely.

From a forecast standpoint, probably the last three or four months based on sketch.

Schedules from our customers we knew the.

That's a good question, yes, it does address that so anywhere where you need to augment.

The lowest quarter of the year would likely be our Q3.

Youre cooling capacity.

And the data center, where you have the traditional air cooling.

Those data center, what we've talked about in the past as they can be lumpy. These are we had a photo in the in the presentation really large construction projects and so we are required to have product ready to be shipped but when they're pulled it depends on the customer and the completion they only.

Christopher Paul Moore: I was just curious if you were getting any pushback from a pricing perspective. Sounds like so far, so good on that. I will leave it there. Thank you. Our next question is from Jeff Van Sinderen with B. Reilly Securities. Please go ahead. Hi, good morning, everyone.

Mechanisms and if you as a data center co location want to expand into.

Higher performance higher computing speeds, because of AI or AAV or ml machine learning.

You would need a more efficient cooling techniques and liquid cooling is.

One it on time ready to go so in Q2, we had a little bit higher revenue than we thought that was really going to be we thought would be coming in Q3.

As a more efficient cooling techniques. So this is this is liquid cooling that supports.

Directed chip for example cooling to allow for.

Jeffrey Wallin Van Sinderen: No, you mentioned lumpiness, I think, and a pull forward, I believe you said, into Q2 in the data center segment. Maybe you can, if I caught that right, maybe you can just help us understand the dynamics there. Yeah, hey, it's Nick.

And then in Q3, we expect to have a lower amount of revenue in Q3, and a big ramp in Q4 again just based on this consistent with our order book, but it's based on the timing of where we see the customers pulling.

The removals heat on those heat loads on the server rack. So yes. It is part of that.

Those market drivers this helps support and solve for that problem.

Okay, and I think you said that that's actually going to be available in the first part of calendar 'twenty four or did you mean.

Michael B. Lucareli: So definitely, We, from a forecast standpoint, probably the last, you know, three or four months or not, based on schedules from our customers, we knew the lowest quarter of the year would likely be our Q3. The data center, what we've talked about in the past, can be lumpy. These are, we had a photo in the presentation, really large construction projects. And so we're required to have product ready to be shipped, but when they're pulled, it depends on the customer and the completion date. They only want it, you know, on time and ready to go.

And asking for those shipments.

I wasn't clear on that.

Okay fair enough.

Yes.

Looking at the first part of.

And then I just wanted to follow up on the on the CB CDU.

Next year correct.

Okay great.

I guess latest thoughts on how you're approaching high performance.

And then just one quick one if I could squeeze you then any updated.

<unk> AI data centers and then just the seating you address that given that its liquid cooling or not for that market.

Any updated thoughts I guess on what Youre seeing in terms of M&A potential targets pipeline.

More color to add there.

That's a good question, yes, it does address that so anywhere where you need to augment.

Yes.

It's ebbed and flowed a little bit but.

Cooling capacity.

We talked maybe a quarter or two ago with rate hikes in.

In the data center, where you have the traditional air cooling.

Yeah.

Mechanisms and if you as a data center co location want to expand into.

Nervousness around the economy, we saw some deal flow and opportunities to kind of slow down people were hesitant to come to the market.

Michael B. Lucareli: So in Q2, we had a little bit higher revenue than we thought that was really going to be, we thought it would be coming in Q3. And then in Q3, we expect to have a lower amount of revenue in Q3 and a big ramp up in Q4. Again, just based on, it's consistent with our order book, but it's based on the timing of where we see the customers pulling and asking for those shipments. Okay, fair enough.

Higher performance higher computing speeds, because of AI or AAV or ml machine learning.

I would say the last few months.

It's been ticking up a little bit for Us in addition, with Neil and I have talked about we're continuing to have.

You would need a more efficient cooling techniques and liquid cooling is.

As a more efficient cooling techniques. So this is this is liquid cooling that supports.

More people on the modine side being aggressive with Diane.

Directed chip for example cooling to allow for the.

Dialogues discussions knocking on doors so.

We'll continue to report back but.

The removals heat on those heat loads on those silver rack. So yes. It is part of that.

It's.

Jeffrey Wallin Van Sinderen: And then I just wanted to follow up on the CDU, I guess your latest thoughts on how you're approaching high performance and AI data centers. And then does the CDU address that, given that it's liquid cooling or not for that market? That's a good question. Yes, it does address that. So, anywhere where you need to augment your cooling capacity in a data center where you have the traditional air cooling mechanisms, and if you, as a data center or co-location, want to expand into higher performance, higher computing speeds because of AI or AV or ML, or machine learning, you would need a more efficient cooling technique. And liquid cooling is a more efficient cooling technique. So, this is liquid cooling that supports direct-to-chip, for example, cooling to allow for the removal of heat on those heat loads on those silver racks.

100% effort going forward and.

Those market drivers this helps support and solve for that problem.

I think we're feeling good about the pipeline with opportunity we're building.

Okay, and I think you said that that's actually going to be available in the first part of calendar 'twenty four or did you mean.

Okay, great. Thanks for taking my questions and continued success.

I wasn't clear on that.

Thanks, Jeff.

Yes.

Looking at the first part of.

Thank you, ladies and gentlemen, if you wish to ask a question. Please press star and one.

Next year correct.

Okay great.

And then just one quick one if I could squeeze you then any update.

Our next question is from Tim Moore with E. F. Gordon. Please go ahead.

Any updated thoughts I guess on what Youre seeing in terms of M&A potential targets pipeline any more color to add there.

Thanks, and congratulations on the gross margin expansion in the data centers group.

For overall Modine I mean, it seems like you've harnessed.

Yes.

It's ebbed and flowed a little bit but.

The quickest some easier way to grow sales through your current customers that helps the margin profile quicker.

Can we talk maybe a quarter or two ago with rate hikes in.

And maybe a new customer that has new and.

Nervousness around the economy, we saw some deal flow and opportunities to kind of slow down people were hesitant to come to the market.

Engineering design cost drag if you will.

Look out over the next 12 months I mean do you expect to take on some more new customers outside of the EV platforms that you've been signing up.

I would say the last few months.

And do you think that might weigh a little bit on gross margin expansion or do you think the 80 20 would offset that if you're in new.

It's been ticking up a little bit for Us in addition, with Neil and I have talked about we're continuing to have more people on the <unk> side being aggressive with.

Neil D. Brinker: So, yes, it is part of those market drivers. This helps a lot, support, and solve for that problem. Okay, and I think you said that that's actually going to be available in the first part of calendar 24. Or did you mean, I wasn't quite on that. Yeah, we're looking at the first part of next year, correct. Great. Um, and then just one quick one if I could squeeze it in: any update, or any updated thoughts, I guess, on what you're seeing in terms of M&A, potential targets, pipeline, any more color to add there? Yeah, it's ebbed and flowed a little bit, but we talked maybe a quarter or two ago about rate hikes, and nervousness around the economy saw some deal flow and opportunities kind of slow down. People were hesitant to come to the market.

New customers.

Yes, well.

It's a good question, Tim certainly we're looking at new customers.

Dialogues discussions knocking on doors so.

And in new.

New geographies, where the where we've identified market facing verticals that are growth. So if you think about the gen set market you think about what we're doing in EV with data centers indoor air quality.

We'll continue to report back but.

It's.

100% effort going forward and.

I think we're feeling good about the pipeline with opportunity and we are building.

Absolutely and through 2020, as we identify those customers we have filters. So just to be direct we've got filters in place to make sure that we don't have erosion in terms of all the hard work that we're doing.

Okay, great. Thanks for taking my questions and continued success.

Thanks, Jeff.

Thank you, ladies and gentlemen, if you wish to ask a question. Please press star and one.

That's great that's helpful color.

It definitely enjoy visiting your data center manufacturing facility in Virginia, three months ago, and got a really good appreciation of the uniqueness of the offering there.

Our next question is from Tim Moore with E. F. Gordon. Please go ahead.

Yesterday, but no one really wanted to get to I know the opening remarks, you mentioned.

Thanks, and congratulations on the gross margin expansion in the data centers group.

12 to 18 months backlog range for that I'm, just trying to get a sense.

For overall Modine I mean, it seems like you've harnessed.

Michael B. Lucareli: I would say the last few months. It's been picking up a little bit for us. In addition, as Neil and I talked about, we're continuing to have more people on the Modine side being aggressive with dialogue, discussions, knocking on doors, so we'll continue to report back, but it's 100% effort going forward. And I think we're feeling good about the pipeline of opportunity we're building. Great. Thanks for taking my questions and continued success. Thanks, Jeff. Thank you. Ladies and gentlemen, if you wish to ask a question... Press star and 1.

If there is a shadow backlog behind that.

The quickest some easier way to grow sales through your current customers that helps the margin profile quicker.

You talked to your customers.

Finding more power sources of electricity to run the two location in Hyperscale.

And then maybe a new customer that has new and.

Engineering design cost drag.

Think about maybe what CDU can do.

Look out over the next 12 months I mean do you expect to take on some more new customers outside of the EV platforms that you've been signing up.

In calendar 2025.

Do you think that your backlog is a lot bigger than maybe the 12 to 18 months based on kind of the plans of your customers for their growth.

And do you think that might weigh a little bit on gross margin expansion or do you think the 80 20 would offset that if you are in.

Yes, it's a good question certainly if we think about it in terms of our percent confidence when we get to the point of backlog we run it all the way through a funnel right. So when youre looking at backlog. This is a high degree high visibility high likelihood that the order is going to be placed or the order has already been placed and even before that.

New customers.

Yes, well that's a good question, Tim certainly we're looking at new customers.

And in new geographies, where the where we've identified market facing verticals that are growth. So if you think about the gen set market you think about what we're doing in EV with data centers indoor air quality.

We look at our commercial funnel and we say that it's 50% visibility and it's larger than the current backlog and then there is a.

Jeffrey Wallin Van Sinderen: Our next question is from Tim Moore with EF Button. Please go ahead. Thanks, and congratulations on the gross margin expansion in the data centers group. And for overall Modine, I mean, it seems like you've harnessed the quickest and easier way to grow sales is through your current customers because, you know, that helps the margin profile quicker than maybe a new customer that has, you know, new engineering design cost drag. You know, as you look out over the next 12 months, do you expect to take on some more new customers outside of the EV platforms that you've been signing up, and do you think that might weigh a little bit on gross margin expansion, or do you think the 80-20 would offset that? Yeah, well, it's a good question, Tim.

Precursor to that which is 25%.

Yeah.

Assuming that you have 25% visibility of it.

That's great that's helpful color.

That that order is larger and bigger as you get out in the out years 345 years, it's much more difficult to predict but certainly we are having conversations with our customers because as you go along that cycle, whether it's a 25%, 50% or 75% you have to start triggering supply chain manufacturing operations and Theres an entire.

And definitely enjoyed visiting your data center manufacturing facility in Virginia, three months ago, and got a really good appreciation of the uniqueness of the offering there.

Yesterday, but no one really wanted to get to I know the opening remarks, you mentioned.

12 to 18 months backlog range for that I'm, just trying to get a sense.

There is a shadow backlog behind that.

Process so.

Yes, we have those conversations yes, we see and we do have visibility of it.

You talked to your customers May plan, finding more power sources of electricity to run the two location in Hyperscale.

But.

No we don't.

We don't declare victory until we have the order in hand.

Think about maybe what CDU can do.

Neil D. Brinker: Certainly, we're looking at new customers and new geographies where we've identified market-facing verticals that are growing. So, if you think about the genset market, you think about what we're doing in EV, data centers, indoor air quality, absolutely. And through 8020, as we identify those customers, we have filters, just to be direct. We've got filters in place to make sure that we don't have erosion in terms of all the hard work that we're doing. That's great. That's very helpful, Collar.

That's helpful. Thanks, Neil so two more questions.

In calendar 2025.

Do you think that your backlog is a lot bigger than maybe the 12 to 18 months based on kind of the plans of your customers for their growth.

Margin.

<unk> be several quarters in a row versus maybe some of the commentary or what the consensus number was.

Any sense constant.

I want to take a stab at this.

Any chance to maybe parse out how much of the gross margin expansion, maybe this quarter were recently roughly.

Is from kind of the cost saving slash efficiencies bucket versus catch up pricing taken.

The likelihood that the order is going to be placed or the order has already been in place and even before that we look at our commercial funnel and we say that it's 50% visibility and it's larger than the current backlog and then there is.

I covered a lot of industrial stocks.

Neil D. Brinker: I definitely enjoyed visiting your data center manufacturing facility in Virginia three months ago and got a really good appreciation of the uniqueness of the offering there. That was a great investor day. But we really want to get to, I know the opening remarks you mentioned, you know, the 12 to 18 month backlog range for that. I'm just trying to get a sense.

<unk> had terrific price increases the last 12 months to 16 months, but they're starting to see it slow in October and November. So I'm, just trying to get a sense is that <unk> still a pretty big driver.

Precursor to that which is 25%.

Yeah.

It gets rolled out more to performance technologies.

Assuming that you have 25% visibility of it.

Are you kind of tapping out on maybe.

That that order is larger and bigger as you get out in the out years 345 years, it's much more difficult to predict but certainly we are having conversations with our customers because as you go along that cycle, whether it's a 25%, 50% or 75% you'd have to start triggering supply chain manufacturing operations and Theres an.

The pricing catch up.

Neil D. Brinker: If there's a shadow backlog behind that, you know, as you talk to your customers and they plan on finding more power sources of electricity to run their co-location and hyperscales, and you kind of think about maybe what CDU can do, you know, by the end of the calendar 2025. Do you think that your backlog is a lot bigger than maybe the 12 to 18 months based on the kind of plans of your customers for their growth? Yeah, it's a good question.

Yes, yes.

A fair question I would answer it two different ways. There are two ways, if we break it down by climate and by performance technology climate solutions and.

And very intentionally as part of the transformation strategy has shifted towards.

Process so.

Yes, we have those conversations yes, we see and we do have visibility of it.

A heavy lean on growth and so most of the margin improvement we've been seeing in climate solutions over the last two quarters.

But.

No we don't.

Neil D. Brinker: Certainly, you know, if we think about it in terms of our percent confidence, when we get to the point of backlog, we run it all the way through a funnel, right? So when you're looking at backlog, this is a high degree, high visibility, high likelihood that the order is going to be placed or the order has already been placed. And even before that, you know, we look at our commercial funnel, and we say that it's 50% visibility, and it's larger than the current backlog. And then there's a precursor to that, which is 25%. You know, assuming that you have 25% visibility of it, that you know, that that order is larger and bigger.

We don't declare victory until we have the order in hand.

That's helpful. Thanks, Neil so two more questions.

I would say is driven by growth and yet there's mix in there, but we're growing the businesses that we want to grow or have high.

Margin.

<unk> be several quarters in a row versus maybe some of the commentary or what the consensus number was.

Any sense if mccloskey.

I want to take a stab at this.

Margins in margins, where we want them to be and data centers is a good example performance technologies again and Neil talked about this for a couple of quarters, we specifically pace that they are deep into the early phases of 80 20, So for performance technologies over the last couple of quarters.

Any chance to maybe parse out how much of the gross margin expansion, maybe this quarter were recently roughly.

Is from kind of the cost saving slash efficiencies bucket versus catch up pricing taken.

I covered a lot of industrial stocks.

Neil D. Brinker: As you get out in the far years, three, four, five years, it's much more difficult to predict. But certainly, we're having conversations with our customers because as you go along that cycle, whether it's a 25%, 50%, or 75%, you have to start triggering the supply chain, manufacturing, operations, and there's an entire process. So, yes, we have those conversations. Yes, we see it, and we do have visibility of it. But, you know, we don't declare victory until we have the order in hand.

They've had a much bigger margin drive based on I would combine it it's not just pricing, but product line simplification and with that is cost reduction and throughput and productivity.

It gets rolled out more to performance technologies.

Are you kind of tapping out on maybe.

The pricing catch up.

Yes, we continue to think performance technologies for a bit.

Yeah.

<unk>.

A fair question I would answer it two different ways. There are two ways, if we break it down by climate and by performance technology climate solutions and.

Is going to be cleaning.

Cleaning simplifying their business focused on margin improvement with a heavy dose of growth in EV and then we would expect.

Neil D. Brinker: And that's helpful. Thanks, Neil. I just have two more questions.

Timothy M. Moore: You know, your gross margin beat several quarters in a row versus maybe some of the commentary or what the consensus number was. Any sense, you know, if Mick wants to take a stab at this, any chance to maybe parse out how much of the gross margin expansion maybe this quarter or recently, you know, roughly, you know, is from kind of the cost savings slash efficiencies bucket versus catch-up pricing taken? You know, we're, you know, I cover a lot of industrial stocks. You know, a lot of them have had terrific price increases over the last 12 to 16 months, but they're starting to see that slow down in October and November. So, I'm just trying to get a sense, you know, is the ED20 still a pretty big driver as it gets rolled out more to performance technology? And are you kind of tapping out, maybe?

And very intentionally as part of the transformation strategy has shifted towards.

<unk> a year out performance technologies will continue to do that and identify those pockets where they see.

A heavy lean on growth and so most of the margin improvement we've been seeing in climate solutions over the last two quarters.

Market growth rates, so hope that answers the question for you.

I think that definitely do that was really good granularity.

Gives me more optimism about the runway for margin expansion from the technologies and climate.

I would say is driven by growth and yet there's mix in there, but we're growing the businesses that we want to grow or have high.

Unlike some other industrial companies are seeing your pricing power house this quarter.

My last question is around your SG&A expense.

I know I ran a bit high 11% this quarter and it seemed like the implied guidance you gave for this year is about two 4% or 10, 4% or so of sales.

I know you guys have been focused obviously on the operation side and for good point gross margin expansion has been a phenomenal but do you think maybe next year. There is some opportunity to maybe get some more SG&A levers out and get that down to 10% sort of maybe some forums.

Michael B. Lucareli: Pricing catch-up. Yeah, yeah, that's a fair question. I would answer it in two different ways, or two ways if we break it down by climate and by performance technologies. Climate solutions And very intentionally, as part of the transformation, the strategy has shifted towards a heavy lean on growth. And so most of the margin improvement we've been seeing in climate solutions over the last two quarters, I would say, is driven by growth. And yes, there's a mix in there, but we're growing. The businesses that we want to grow have high margins and margins where we want them to be, and data centers are a good example. Performance technologies, again, and Neil's talked about this for a couple quarters, we specifically pace that. They are deep into the early phases of 80-20.

They've had a much bigger margin drive based on I would I would combine it it's not just pricing, but product line simplification and with that is cost reduction and throughput and productivity.

Yes, the way I think about I'll give you my view and if Neil wants to add any color. There was if we go back again to that when we announced the transformation and Neil coming in.

Yes, we continue to think performance technologies for a bit.

Is going to be.

Five or 10 years of really leaning out modine and focused on SG&A over the last year, we have reinvested in some key areas to support growth in people in its everything from procurement to product development.

Cleaning simplifying their business focused on margin improvement with a heavy dose of growth in EV and then we would expect.

Probably a year out performance technologies will continue to do that and identify those pockets, where they see above market growth rates. So hope that answers the question for you.

And I think everybody sees that the amount of earnings growth coming from those.

But we will.

That definitely do that was really good granularity excuse me more optimism about the runway for margin expansion from this technology climate.

Plateau I'd call it kind of maybe reloading, whereas we needed we had some gaps in SG&A. So I would expect we will.

Unlike some other industrial companies are seeing your pricing power house this quarter.

SG&A dollars growing to that range I provided and then at that point I think from a percentage of sales. That's a fair question. I think we will start to will peak out or even start to leverage a little bit as a percentage of sales the SG&A.

Michael B. Lucareli: So for performance technologies over the last couple quarters, they've had a much bigger margin drive based on, I would combine it, it's not just pricing but product line simplification, and with that, cost reduction, throughput, and productivity. So yeah, we continue to think performance technologies for a bit are going to be cleaning, simplifying their business focused on margin improvement with a heavy dose of growth in EV. And then, we would expect, probably a year out, performance technologies will continue to identify those pockets where they see above-market growth rates. So I hope that answers the question for you. Nick, that definitely did.

My last question is around your SG&A expense.

I know I ran a bit high 11% this quarter and it seemed like the implied guidance you gave for this year is about two 4% or 10, 4% or so of sales.

I know you guys have been focused obviously on the operation side and for good point gross margin expansion has been phenomenal, but do you think maybe next year. There is some opportunity to maybe get some more SG&A levers out and get that down to 10% instead of maybe some point for them.

Terrific Mcneil, Thanks, a lot and that's it for my questions.

Thank you.

Our next question is from Matt Summerville with D. A Davidson. Please go ahead.

Thanks.

Yes, the way I think about I'll give you my view and if Neil wants to add any color. There was if we go back again to that when we announced the transformation and Neil coming in.

Couple of questions first.

Talk through.

To set our expectations a bit you talked through the heat pump side of things Theres three other.

High growth verticals that you guys have talked about in the past could you maybe.

More directly address kind of what youre seeing there or what expectations may look like for revenue this year, where the pluses and minuses in those remaining three and then I have a couple of quick follow ups.

Timothy M. Moore: That was really good granularity and gives me more optimism about the runway for Margin of and even Climate. Unlike some other industrial companies, they're pricing power. My last question is around your SG&A expense. I know it ran a bit high, 11% this quarter, and it seemed like the implied guidance you gave for this year was about 2.4% or 10.4% or so of sales. I know you guys have been focused, obviously, on the operations side, and for a good point, the growth margin expansion has been phenomenal. But do you think maybe next year, there's some opportunity to maybe get some more SG&A leverage out and get that down to 10% instead of maybe 10.4? Yeah, the way I think about it, I'll give you my view, and if Neil wants to add any color, there was, if we go back again to when we announced the transformation and Neil came in, 5 or 10 years of really leaning out Modine and focused on SG&A.

Yes, so we continue to develop in the Gen set market.

And I think everybody sees the amount of earnings growth coming from those.

Some.

Advanced products that we believe we're going to be able to move into two expanding our customer our customer base. So certainly we still believe in the numbers behind Jen said, we still believe in the market, we see the tailwind behind it and it's favorable to the work that we're doing so gen set mark.

But we will.

So I'd call it kind of maybe reloading, whereas we needed we had some gaps in SG&A. So I would expect we will.

Have SG&A dollars growing to that range I provided and then at that point I think from a percentage of sales. That's a fair question. I think we will start to will peak out or even start to leverage a little bit as a percentage of sales the SG&A.

<unk> on patent I'll, let Mick.

The numbers when I finish on the other two <unk>, we continue to develop new product as we mentioned the expansion that we're moving into.

Europe because of the potential demand in the out years, we are winning on platforms and programs and we've launched additional new products.

Terrific Mcneil, Thanks, a lot and that's it for my questions.

Thank you.

And indoor air quality.

Our next question is from Matt Summerville with D. A Davidson. Please go ahead.

Starting to continue to see the <unk>.

Impact and the effect of the cares Act and the <unk> funds, we're seeing <unk> out to 2026 with our school unit ventilator. So again, we are standing behind our indoor air quality growth.

Thanks.

Couple of questions first.

Timothy M. Moore: Over the last year, we have reinvested in some key areas, support growth and people it's everything from procurement to product development and I think everybody sees the the amount of earnings growth coming from those but we're we will you know plateau I call it kind of maybe reloading worse that we needed we had some gaps in SG&A so I would expect you know we'll have SG&A dollars growing to that you know the range I provided and then at that point I think from a percentage of sales that's a fair question I think we'll start to will peak out or even start to leverage a little bit at the percentage of sales the SG&A, Terrific, Mickey, Neil. Thanks a lot, and that's it for my questions.

Talk through.

To set our expectations a bit you talked through the heat pump side of things Theres three other.

<unk> to the.

The numbers, yes for the most part those those long term growth rates.

High growth verticals that you guys have talked about in the past could you maybe.

Especially in the growth businesses, Neil just went through map, we still feel good about those will I think with the strong datacenter year will probably be adjusting data center long term growth rates up to reflect this really strong year. We're in.

Yes, so we continue to develop in the Gen set market.

And then we still expect similar growth rates high high.

Some.

Advanced products that we believe we're going to be able to move into two expanding our customer or our customer base. So certainly we still believe in the numbers behind Jen said, we still believe in the market, we see the tailwind behind it and it's favorable to the work that we're doing so gen set mark.

High double digit growth rates across all of those.

And then on a heat pump side that growth rate, we think based on what Neil said, we'll take it down a little bit.

Still be double digit growth rate, but we see that being a slower ramp and.

Timothy M. Moore: Thank you. Our next question is from Matt Summerville with DA Davidson. Please go ahead. Thanks.

<unk> on patent I'll, let Mick.

Taking a little bit longer to get to peak volume.

The numbers when I finish on the other two <unk>, we continue to develop new product as we mentioned the expansion that we're moving into.

Got it and just to be clear from a modeling standpoint embedded in the reiterated top line guide how much headwind from either divestitures product line exit or otherwise I'll call. It deliberate revenue attrition.

Matt J. Summerville: A couple of questions first, talk through data center expectations a bit, and talk through the heat pump side of things. There are three other, you know, high growth verticals that you guys have talked about in the past. Could you maybe, more directly address kind of what you're seeing there what expectations may look like for revenue this year, the pluses and minuses and those remaining three, and then I Yeah, so we continue to develop products in the Genset market some advanced products that we believe we're going to be able to move into expanding our customer base. So certainly, we still believe in the numbers behind GenSet. We still believe in the market. We see the tailwinds behind it, and they're favorable to the work that we're doing. So GenSet markets are on the right path. I'll let Mick give the numbers when I finish on the other two.

Europe because of the potential demand in the out years, we are winning on platforms and programs and we've launched additional new products.

And indoor air quality.

Starting to continue to see the impact and the effect of the cares Act and the Aster funds, we're seeing <unk> out to 2026 with our school unit ventilator. So again, we are standing behind.

Yeah, I would estimate that 40 to 50 million Matt.

Yes.

Product.

Our indoor air quality growth.

For sure the divestitures.

<unk> to the.

The numbers, yes for the most part those those long term growth rates.

Those three German.

Businesses were $80 to $90 million annualized.

And then we do track all of our 80 20.

Product line simplification efforts.

<unk>, we just updated that and since we started were over $300 million now that includes the divestitures, but over $300 million of business that we've.

And then we still expect similar growth rates high high.

Specifically targeted from a product line simplification.

High double digit growth rates across all of those.

And then on a heat pump side that growth rate, we think based on what Neil said, we'll take it down a little bit.

Neil D. Brinker: EV, we continue to develop new product. We mentioned the expansion that we're moving into in Europe because of the potential demand in the out years. We're winning on platforms and programs, and we've launched additional new product. In indoor air quality, we're starting to continue to see the impact and effect of the CARES Act and the ESSER funds. We're seeing tailwinds out to 2026 with our school unit ventilators. So again, we're standing behind our indoor air quality growth. Relative to the, The numbers.

Okay.

And then.

Just lastly.

Early read on the heating season here in North America, I know, that's an important business for you obviously.

Still be double digit growth rate, but we see that being a slower ramp and.

We had a really mild winter last year, but what is early selling look like into the channel and what's your assessment of inventory levels as they sit here today.

Taking a little bit longer to get to peak volume.

Got it and just to be clear from a modeling standpoint embedded in the reiterated top line guide is how much headwind from either divestitures product line exit or otherwise I'll call. It deliberate revenue attrition.

Yes, the last couple of quarters, we're looking at.

Okay.

Anticipating that we hit a bottom there relative to the amount of inventory that was in the channel and starting to see a recovery. This this month of October.

Neil D. Brinker: Yeah, for the most part, those long-term growth rates. Especially in the growth businesses Neil just went through, Matt, we still feel good about those. We'll, I think with the strong data center year, we'll probably be adjusting data center long-term growth rates up to reflect this really strong year we're in. And then we still expect similar growth rates, you know, high double-digit growth rates across all of those. And then on the heat pump side, that growth rate, we think based on what Neil said, we'll take it down a little bit, still be double-digit growth rates, but we see that being a slower ramp and taking a little bit longer to get to peak volume. And just to be clear, from a modeling standpoint, embedded in the reiterated top line guide is how much headwind from either divestitures, product line exit, or otherwise, I'll call it deliberate revenue. Yeah, I would estimate that 40 to 50 million Matt of product, you know, for sure the divestitures, those three German businesses were 80 to 90 million annualized.

Be a very important month for us as we track the order rates as well as November and.

Yeah, I would estimate that.

40 to 50 million Matt.

We're going to track those on a day to day basis to see exactly when we start to see the recovery and a rebound. So I think we're near where we thought we would be and.

Product.

For sure the divestitures.

Those three German.

Businesses were $80 to $90 million annualized.

And then we do track all of our 80 20.

We're going to know a lot more in the next four weeks how strong the recovery will be met.

Product line simplification efforts.

Got it thanks guys.

Context way, we just updated that since we started were over $300 million now that includes the divestitures, but over $300 million of business that we've.

Thank you.

Has there are no further questions at this time I would now turn the conference over to Kathy powers. Please go ahead.

Specifically targeted from a product line simplification.

Thank you and thanks to everybody for joining us on the call. This morning, the replay will be available through our website in about two hours. We hope everyone has a great day.

Okay.

Then.

Just lastly.

Early read on the heating season here in North America, I know, that's an important business for you obviously.

We had a really mild winter last year, but what is early selling look like into the channel and what's your assessment of inventory levels as they sit here today.

Yes, the last couple of quarters, we are looking at.

Okay.

Anticipating that we hit a bottom there relative to the amount of inventory that was in the channel and starting to see a recovery. This this month of October.

We will be a very important month for us as we track the order rates as well as November and.

Michael B. Lucareli: And then we do track all of our 80-20 product line simplification efforts. And just in context for you, we just updated that. And since we started, we've sold over 300 million.

We're going to track those on a day to day basis to see exactly when we start to see the recovery and a rebound. So I think we're near where we thought we would be and.

Michael B. Lucareli: Now, that includes the divestitures, but over 300 million dollars of business that we've specifically targeted from a product line simplification. And then, just lastly, Early read on the heating season here in North America. I know that's an important business for you, obviously. You know, we had a really mild winter last year, but what does early selling look like into the channel? And what's your assessment of inventory levels as they see it? Yeah, you know the last couple quarters we were looking at, anticipating that we hit a bottom there relative to the amount of inventory that was in the channel and starting to see a recovery this month. October will be a very important month for us as we track the order rates as well as November and, you know, We're going to track those on a day-to-day basis to So I think we're near where we thought we would be, and we're going to know a lot more in the next four weeks about how strong the recovery will be.

We're going to know a lot more in the next four weeks how strong the recovery will be met.

Got it thanks guys.

Thank you.

Has there are no further questions at this time I would now turn the conference over to Kathy powers. Please go ahead.

Thank you and thanks to everybody for joining us on the call. This morning, a replay will be available through our website in about two hours. We hope everyone has a great day.

Okay.

Thank you the conference of Modine manufacturing has now concluded. Thank you for your participation you may now disconnect your lines.

[music].

Okay.

Yes.

[music].

Neil D. Brinker: Got it. Thanks. Thank you. As there are no further questions at this time, I would now turn the conference over to Kathy Powers. Please go ahead. Thank you and thanks to everybody for joining us on the call this morning. The replay will be available through our website in about two hours. We hope everyone has a great day.

Yes.

Q2 2024 Modine Manufacturing Co Earnings Call

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