Q4 2024 Modine Manufacturing Co Earnings Call

Neil D. Brinker: of air handling units for data centers and other strategic applications. We also executed two important divestitures during fiscal 2024, including the sale of three automotive businesses in Germany that manufactured parts principally for the internal combustion engine in the European market, as well as two coatings aftermarket businesses here in the U.S. These actions fit squarely within our strategy of focusing on innovative engineering solutions and investing in our most attractive end markets to help us achieve our long-term margin target. Mick will discuss our fourth-quarter financial results and provide our outlook for Fiscal 25, but first, I'd like to reflect on some of our accomplishments over the past year. Please turn to slide five.

Centers and other strategic applications.

We also executed two important divestitures during fiscal 2024.

Speaker Change: Including the sale of three automotive businesses in Germany that manufactured parts principally for the internal combustion engine and the European market as well as to coatings aftermarket businesses here in the U S.

Speaker Change: These actions fit squarely within our strategy of focusing on innovative engineering solutions and investing in our most attractive end markets that help us achieve our long term margin targets.

Speaker Change: Nick will cover our fourth quarter financial results and provide our outlook for fiscal 'twenty five, but first I'd like to reflect on some of our accomplishments over the past year.

Please turn to slide five.

Neil D. Brinker: Climate Solutions reported another outstanding year. The segment delivered a 31% increase in adjusted EBITDA on a 4% increase in sales, resulting in a 370 basis point improvement and adjusted EBITDA margin of 18.3%. Sales growth in the segment was driven by data centers, which were up 69% to 294 million at the top end of our expected range. We have made several investments in this market this year, including KMG Corp. and Scott Springton. Scott Springfield is a great strategic fit for Modine and our Climate Solutions segment.

Speaker Change: Climate solutions reported another outstanding year, the segment delivered a 31% increase in adjusted EBITDA and a 4% increase in sales.

<unk> and a 370 basis point improvement in adjusted EBIT margin to 18, 3%.

Speaker Change: Sales growth in this segment was driven by data centers, which were up 69% to $294 million at the top end of our expected range.

Speaker Change: We have made several investments in this market this year, including <unk> and Scott Springfield.

Speaker Change: Scott Springfield is a great strategic fit for Modine, and our climate solutions segment. Their manufacturing operations are in Calgary with two locations one dedicated data center products, which we are integrating into our data center vertical and the other supporting custom air handling units for other end markets, such as healthcare, which are integrating into our HVAC.

Neil D. Brinker: Their manufacturing operations are in Calgary, with two locations, one dedicated to data center products, which we are integrating into our data center vertical, and the other supporting custom air handling units for other end markets, such as healthcare, which we are integrating into our HVAC and R vertical. Perhaps most importantly for our data center business, Scott Springfield brought us complementary cooling technology and a strong customer base. In addition, it also brought a strategic relationship with a new hyperscaler customer, accelerating our ability to broaden and diversify our customer base.

Speaker Change: And our vertical.

Speaker Change: Perhaps most importantly for our data center business, Scott Springfield brought us a complementary cooling technology and a strong customer base.

Speaker Change: In addition, it also brought a strategic relationship with a new hyperscale customer accelerating our ability to broaden and diversify our customer base.

Neil D. Brinker: We have secured additional manufacturing capacity in Calgary to support our expected growth in this business, more than doubling the output potential. In addition, we recently announced that we have secured a new manufacturing site for data center cooling products in Bradford, UK, which will also include a new state-of-the-art R&D test center. This brings our total number of data center manufacturing locations to nine and represents a doubling of our potential capacity from where we were at the beginning of the past fiscal year.

We have secured additional manufacturing capacity in Calgary to support our expected growth of this business more than doubling the output potential.

Speaker Change: In addition, we recently announced that we secured a new manufacturing site for data center cooling products and Bradford UK, which will also include a new state of the art R&D Test Center.

Speaker Change: This brings our total number of data center manufacturing locations to nine and represents a doubling of our potential capacity from where we were at the beginning of the past fiscal year.

Neil D. Brinker: Given the current level of our backlog and active pipeline, this additional capacity will ensure that we will be able to meet our customers' commitments and future growth projections. Our other businesses within the climate solutions segment also performed well this past year. Despite a 15% revenue decline, our heat transfer products business significantly improved EBITDA margins through 80-20 actions, contributing to the overall improvement of the segment. Looking forward, Climate Solutions is focused on executing organic growth opportunities while integrating and building synergies with their acquired businesses.

Speaker Change: Given the current level of our backlog and active pipeline. This additional capacity won't share, we will be able to meet our customers' commitments and future growth projections.

Speaker Change: Our other businesses within the climate solutions segment also performed well this past year. Despite a 15% revenue decline our heat transfer products business significantly improved EBITDA margins through 2020 actions.

Speaker Change: Contributing to the overall improvement of the segment.

Speaker Change: Forward climate solutions is focused on executing organic growth opportunities, while integrating and building synergies with the acquired businesses in.

Neil D. Brinker: In addition, we will continue to target smaller inorganic growth opportunities to fill product and technology gaps. This team is executing at a high level, and I have confidence that they will continue to meet and exceed their targets. Please turn to page 6.

Speaker Change: In addition, we will continue to target smaller inorganic growth opportunities to fill product and technology gaps.

Speaker Change: This team is executing at a high level.

Speaker Change: And I have confidence that they will continue to meet and exceed their targets.

Speaker Change: Please turn to page six.

Neil D. Brinker: The performance technology segment also had a fantastic year, reporting a 67% increase in adjusted EBITDA on a 5% increase in sales, resulting in a 450 basis point improvement and an adjusted EBITDA margin of 12.1%. This performance was largely a product of advancing 80-20 throughout the organization from high-level commercial activities down to the factory floor. We have improved our sales mix by focusing resources on strategic product lines and de-emphasizing and divesting lower margin business.

Speaker Change: The performance Technology segment also had a fantastic year reporting a 67% increase in adjusted EBITDA on a 5% increase in sales, resulting in 450 basis point improvement.

Speaker Change: And adjusted EBIT margin to 12, 1%.

Speaker Change: This performance was largely a product of advancing 80 20 throughout the organization from high level commercial activity down to the factory floor.

Speaker Change: We have improved our sales mix by focusing resources on strategic product lines, and deemphasizing and divesting lower margin business.

Neil D. Brinker: The transformation of this portfolio is still underway, but we have a greater understanding of the profit drivers and have identified and are supporting those markets where we have strong customer relationships, technology superiority, and a clear strategic advantage. Our Advanced Solutions business continues to perform well, with our Advanced Thermal Systems Group having added 16 new programs representing over $40 million of incremental peak annual revenue this year. Overall revenues grew 25%. However, our air and liquid cooling verticals were relatively flat on the top line, largely due to the divestitures of the German automotive plants in Q3.

The transformation of this portfolio is still underway, but we have a greater understanding of the profit drivers and have identified and are supporting those markets, where we have strong customer relationships technology superiority and a clear strategic advantage.

Speaker Change: Our advanced solutions business continues to perform well with our advanced thermal systems group, having added 16, new programs representing over $40 million of incremental peak annual revenue this year.

Speaker Change: Overall revenues grew 25%.

Speaker Change: Our air and liquid cooling verticals were relatively flat on the top line largely due to the divestitures of the German automotive plants in Q3.

Neil D. Brinker: We're making progress consolidating our technical services, testing, and tooling operations, and we expect this to be mostly completed by the end of this quarter. The PT segment made significant strides against its strategic objectives this year, but they still have much work ahead. The segment will remain focused on driving favorable changes to their sales mix as they explore new applications for their products in support of the energy transition and promote further attrition of the portfolio through product exits and investments.

Speaker Change: We're making progress consolidating our technical services testing and tooling operations and we expect this to be mostly completed by the end of this quarter.

Speaker Change: The PT segment made significant strides against our strategic objectives. This year, but still have much work ahead. The segment will remain focused on driving favorable changes to their sales mix as they explore new applications for their products in support of energy transition and promote further attrition of the portfolio through product exits and divestitures I'm.

Neil D. Brinker: I'm very pleased with how the business performed this year, and I'm equally encouraged about what lies ahead. We are leaders in thermal management solutions, and we are finding newer and better ways to apply our technology. We are investing for the future while leveraging our strengths and using 80-20 to guide our decisions. This is leading to improved customer relationships and new opportunities to build a stronger Modine. With that, I will turn the call over to Mick.

Pleased with how the business performed this year and I'm equally encouraged about what lies ahead.

Speaker Change: We are leaders in thermal management solutions, and we are finding newer and better ways to apply our technology, we are investing for the future, while leveraging our strengths and using 80 20 to guide our decisions.

Speaker Change: This is leading to improved customer relationships and new opportunities to build a stronger Modi.

Speaker Change: With that I will turn the call over to Nick.

Michael B. Lucareli: Thanks, Neil, and good morning, everyone. Please turn to slide 7 to review the segment results. Climate Solutions finished the year with another excellent quarter, resulting in a 14% adjusted EBITDA improvement. Our focus and resource shift to the data center market continues to pay off, driving strong revenue growth and higher segment earnings. Data center sales grew 40% or 25 million, driven by strong demand for both hyperscale and co-location customers. eTransfer product sales were down 20% or 24 million. The decline was generally in line with our expectations, continuing the trend from the past few quarters.

Nick: Thanks, Neal and good morning, everyone.

Nick: Please turn to slide seven to review the segment results.

Climate solutions finished the year with another excellent quarter, resulting in a 14% adjusted EBITDA improvement.

Nick: Our focus and resource shift because the data center market continues to pay off driving strong revenue growth and higher segment earnings.

Nick: Data center sales grew 40% or $25 million driven by strong demand from both Hyperscale and colocation customers.

Nick: E transfer products sales were down 20% or $24 million the.

Nick: The decline was generally in line with our expectations.

Speaker Change: I mean, the trend from the past few quarters.

Michael B. Lucareli: The lower revenue is driven by a combination of 80-20 activities, along with lower demand in certain commercial and residential markets, including a soft European heat pump market. HVAC, and our sales increased 1% or 1 million, including revenue from our acquired businesses. Eating revenues were slightly up from the prior year, offset by a decline in commercial refrigeration coolers. We're very pleased with Climate Solutions' strong earnings conversion, resulting in a 210 basis point margin improvement in adjusted EBITDA to 18%.

Speaker Change: The lower revenue was driven by a combination of 80 20 activities, along with lower demand in certain commercial and residential markets, including a soft European heat pump market.

Speaker Change: HVAC in our sales increased 1% or 1 million.

Speaker Change: Revenue from our <unk>.

Speaker Change: Acquired businesses.

Speaker Change: <unk> revenues were slightly up from prior year offset by a decline in commercial refrigeration coolers.

Speaker Change: We're very pleased with climate solutions strong earnings conversion, resulting in a 210 basis point margin improvement and adjusted EBITDA to 18%.

Michael B. Lucareli: Despite relatively flat sales, our 80-20 discipline remains at the heart of these quarterly margin improvements, including a positive mixed impact, with data center sales driving a meaningful margin increase. This quarter wrapped up another great year for Climate Solutions. We anticipate more revenue and earnings growth ahead, including the positive impact from the businesses we acquired this past fiscal year. Please turn to slide 8.

Speaker Change: Despite relatively flat sales our 80 20 discipline remains at the heart of these quarterly margin improvement, including a positive mix impact with data center sales driving a meaningful margin increase.

Speaker Change: This quarter wrapped up another great year for climate solutions, we anticipate more revenue and earnings growth ahead, including the positive impact from the businesses. We acquired this past fiscal year.

Speaker Change: Please turn to slide eight.

Michael B. Lucareli: Performance Technologies also had another great quarter with a 38% increase in adjusted EBITDA. However, revenue decreased 5% driven by the recent German divestitures and lower sales of automotive products, partially offset by higher sales to off-highway and specialty vehicle customers. The negative sales impact due to divestitures in the quarter was $24 million, and organic sales grew 2%. Performance Technologies remains very focused on improving earnings and margins versus revenue growth, which came through clearly again this quarter.

Speaker Change: Performance technologies also had another great quarter with a 38% increase in adjusted EBITDA.

Speaker Change: Revenue decreased 5% driven by the recent German divestitures and lower sales of automotive product parse.

Speaker Change: Partially offset by higher sales to off highway and specialty vehicle customers.

Speaker Change: The negative sales impact due to divestitures in the quarter was $24 million and organic sales grew 2%.

Speaker Change: Performance technologies remains very focused on improving earnings and margins versus revenue growth, which came through clearly again this quarter.

Michael B. Lucareli: Advanced solutions sales were up 15% or 6 million, with growth of the eVantage product including higher sales to commercial and specialty vehicle customers. Liquid cool application sales decreased 13% or 18 million, mainly due to divestitures and lower auto sales in Europe and Asia.

Speaker Change: Advanced solution sales were up 15% or $6 million with growth of the E vantage product, including higher sales to commercial and specialty vehicle customers.

Speaker Change: Liquid cool application sales decreased 13% or $18 million, mainly due to the divestitures and lower auto sales in Europe and Asia.

Michael B. Lucareli: Lastly, air-cooled application sales decreased 2% or $4 million, also primarily due to the divestitures and ongoing A20 activities. As we've discussed strategically in the past, performance technologies will continue reducing and exiting targeted areas to drive higher earnings while redeploying resources to future growth businesses. As a result, their earnings conversion was excellent to finish the year, resulting in a 13.4% adjusted EBITDA margin, a 430 basis point improvement. To wrap up the year, we achieved significant earnings improvement and anticipate 8020 action will result in continued improvement in the upcoming fiscal year. Now we'll review the total company results. Please turn to slide 9.

Speaker Change: Lastly, Eric cooled application sales decreased 2% or $4 million.

Speaker Change: Also primarily due to the divestitures and ongoing 80 20 activities.

Speaker Change: As we've discussed strategically in the past performance technologies will continue reducing and exiting targeted areas to drive higher earnings while redeploying resources to future growth businesses.

Speaker Change: As a result their earnings conversion was excellent to finish the year, resulting in a 13, 4% adjusted EBITDA margin.

Speaker Change: 430 basis point improvement.

Speaker Change: To wrap up the year, we achieved significant earnings improvement and anticipate 80 20 actions.

Speaker Change: We will result in continued improvement in the upcoming fiscal year.

Speaker Change: Now, let's review total company results, please turn to slide nine.

Michael B. Lucareli: As we move on to the total company results, I think it's important, and I review how the numbers align with our transformation and 80-20 journey. A key element of 80-20 is to focus on and prioritize those areas that drive the majority of the value while deemphasizing other areas. As investors know, we've been actively reallocating human and financial resources to the highest-returning businesses. This also means that we're not focused on driving total revenue growth.

Speaker Change: As we move on to the total company results I think it's important.

Speaker Change: And I will review, how the numbers align with our transformation and the 80 20 journey.

Speaker Change: A key element of 80 20 is to focus on and prioritize those areas that drive the majority of the value while deemphasizing other areas.

Speaker Change: As investors know, we have been actively reallocating human and financial resources to the highest returning businesses.

Speaker Change: This also means that we're not focused on driving total revenue growth.

Michael B. Lucareli: Instead, we're targeting revenue growth in certain areas while de-emphasizing others. It's this 80-20 methodology that's allowed us to increase adjusted EBITDA by 48% on a relatively small increase in total revenue in fiscal 24. This is why we remain focused on margins and earnings over top-line revenue. With that said, fourth-quarter sales declined 2%, driven by planned 80-20 activities and divestitures, with $24 million of the decline tied to the divestiture.

Speaker Change: Instead, we're targeting revenue growth in certain areas, while deemphasizing others.

Speaker Change: It's in this 80 20 methodology, that's allowed us to increase adjusted EBITDA by 48% on a relatively small increase in total revenue in fiscal 'twenty four.

Speaker Change: This is why we remain focused on margins and earnings over topline revenue.

Speaker Change: With that said fourth quarter sales declined 2% driven by planned 80, 20 activities and divestitures with $24 million of the decline tied to the divestitures.

Michael B. Lucareli: Our gross margin improved 420 basis points, benefiting from the 80-20 initiatives and actions, along with lower commodity costs. SG&A increased $15 million, driven by higher employee compensation expenses, including $2.5 million tied to recent acquisitions and transaction-related costs. Adjusted EBITDA was strong again this quarter with an increase of 20% for $13 million. The adjusted EBITDA margin was 13.1%, a 250 basis point improvement from the prior year. This now represents the ninth consecutive quarter of year-over-year margin improvement.

Speaker Change: Our gross margin improved 420 basis points benefiting from the 80 20 initiatives and actions.

Speaker Change: Along with lower commodity costs.

SG&A increased $15 million driven by higher employee compensation expenses, including $2 5 million tied to recent acquisitions and transaction related costs.

Adjusted EBITDA was strong again this quarter with an increase of 20% or $13 million. The adjusted EBITDA margin was 13, 1%.

Speaker Change: 150 basis point improvement from the prior year.

Speaker Change: This now represents the ninth consecutive quarter of year over year margin improvement.

Michael B. Lucareli: In addition, adjusted earnings per share was $0.77, 15% higher than the prior year. Please note, earnings per share on a gap basis were $0.48, which was $1.21 lower than the prior year. The decrease was due to the reversal of a tax valuation allowance, which resulted in an income tax benefit of $57 million in the prior year's fourth quarter.

In addition.

Speaker Change: Adjusted earnings per share was <unk> 77.

Speaker Change: 15% higher than the prior year.

Speaker Change: Please note earnings per share on a GAAP basis was 48 cents.

Speaker Change: Which was a $1 21 lower than the prior year.

Speaker Change: The decrease was due to the reversal of a tax valuation allowance.

Speaker Change: Which resulted in an income tax benefit of $57 million in the prior year's fourth quarter.

Michael B. Lucareli: We're pleased with another exceptional quarter, resulting in a full-year EBITDA margin that ended above our targeted transformation range that we established more than two years ago. Now moving to cash flow metrics, please turn to slide 10. We generated $127 million of free cash flow during fiscal 24.

We're pleased with another exceptional quarter.

Speaker Change: <unk> and our full year EBITDA margin ended above our targeted transformation range that we established more than two years ago.

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

Speaker Change: We generated $127 million of free cash flow during fiscal 'twenty. Four this represents a five 3% of sales.

Speaker Change: And an improvement of $70 million compared to the prior year.

Speaker Change: Capex was higher than we previously anticipated primarily due to the recent purchase of the new U K manufacturing facility to support additional data center growth.

Michael B. Lucareli: This represents 5.3% of sales and an improvement of $70 million compared to the prior year. CAFX was higher than we previously anticipated, primarily due to the recent purchase of the new UK manufacturing facility to support additional data center growth. Net debt of $372 million, $86 million higher than the prior fiscal year and $188 million higher than last quarter.

Net debt of $372 million was $86 million higher than the prior fiscal year and $188 million higher than last quarter.

Michael B. Lucareli: This was largely due to our acquisition of Scott Springfield Manufacturing during the quarter. Our leverage ratio increased from 0.7 to 1.2 during the quarter due to the acquisition. We funded a large number of growth initiatives and acquisitions during fiscal 24, but we ended the year with a lower leverage ratio than when we started. As a result, we remain in a great position to support more organic growth and acquisition initiatives. Now, let's turn to slide 11 for our fiscal 2025 outlook.

Speaker Change: This was largely due to our acquisition of Scott Springfield manufacturing during the quarter.

Speaker Change: Our leverage ratio increased from <unk> seven to one two.

Speaker Change: During the quarter due to the acquisition.

Speaker Change: We funded a large number of growth initiatives and acquisitions during fiscal 'twenty four but ended the year with a lower leverage ratio than when we started.

Speaker Change: As a result, we remain in a great position to support more organic growth.

Speaker Change: And acquisition initiatives.

Speaker Change: Now, let's turn to slide 11 for our fiscal 2025 outlook.

Michael B. Lucareli: I'm pleased to share our current fiscal 25 outlook, which shows further progress towards our long-term financial targets. We're expecting a recovery in some of our key HVAC and R markets and continued strong growth in data centers. We're expecting slightly lower sales and performance due to the divestitures and 80-20 related product rationalization in the areas we've chosen to de-emphasize. Overall, we expect total company sales to grow in the range of 5 to 10%. In the climate solution segment, we expect data center sales to grow 60 to 70 percent.

Speaker Change: I'm pleased to share our current fiscal 'twenty five outlook, which shows further progress towards our long term financial targets.

Speaker Change: We're expecting a recovery in some of our key HVAC, our market and continued strong growth in data centers.

Speaker Change: We're expecting slightly lower sales in performance technologies due to the divestitures and.

An 80 20 related product rationalization.

Speaker Change: In the areas, we've chosen to deemphasize.

Speaker Change: Overall, we expect total company sales to grow in the range of 5% to 10%.

Speaker Change: In the climate solutions segment, we expect data center sales to grow 60% to 70%.

Michael B. Lucareli: This includes both organic growth and the positive impact from our recent acquisition. Moving to HVAC&R, we expect sales to improve this fiscal year, growing 20% to 25% following a relatively flat year. This will be driven by growth in indoor air quality, which also benefits from our recent acquisitions, along with the further recovery in heating and refrigeration cooler markets. For heat transfer products, we expect sales growth in the range of 3 to 5% following a down year.

Speaker Change: This includes both organic.

Speaker Change: Both and the positive impact from our recent acquisitions.

Speaker Change: Moving to <unk>, we expect sales to improve this fiscal year growing 20% to 25% following a relatively flat year. This will be driven by growth in indoor air quality.

Speaker Change: Which also benefits from our recent acquisition.

Speaker Change: Along with the further recovery in heating and refrigeration cooler markets.

Speaker Change: For heat transfer products, we expect sales growth in the range of 3% to 5%.

Michael B. Lucareli: For performance technologies, we expect advanced solutions growth in the 20 to 30% range, driven by new program launches. We expect a decline in sales of liquid-cooled products, driven by the remaining impact of the German divestitures and further attrition of non-strategic businesses.

Speaker Change: Following a down year.

Speaker Change: For performance technologies, we expect advanced solutions growth in the 20% to 30% range driven by new program launches.

Speaker Change: We expected the decline in sales in liquid cooled products.

Speaker Change: Driven by the remaining impact of the German divestitures and further attrition of non strategic business.

Michael B. Lucareli: Our air-cooled business will also be impacted by the divestitures, but that will be offset by targeted growth in strategic off-highway and power generation markets. Overall, we're planning on slightly lower sales and performance, but this is consistent with our long-term strategy, and we expect significant improvement in EBITDA dollars and margins. Before moving to the earnings outlook, I'd like to announce an organizational change that will impact our product group sales reporting going forward. Effective April 1st, we moved our coatings products to Climate Solutions and will report coating sales within heat transfer products going forward.

Speaker Change: Our air Cool business will also be impacted by the divestitures, but that will be offset by targeted growth and strategic off highway and power generation markets.

Speaker Change: Overall, we're planning on slightly lower sales in performance technologies, but this is consistent with our long term strategy and expect significant improvement in EBITDA dollars and margin.

Speaker Change: Before moving to the earnings outlook I'd like to announce an organizational change that will impact our product group sales reporting going forward.

Speaker Change: Effective April 1st we moved our coatings products the climate solutions.

Speaker Change: And we will report coating sales within heat transfer products going forward.

Michael B. Lucareli: Previously, the coatings business was managed by performance technologies and reported within advanced solutions. Financial impact will be minimal to the segment results. In terms of revenue for fiscal 24, sales in our coatings business were $53 million. Now moving to our earnings outlook. We expect fiscal 25 adjusted EBITDA to be in the range of $365 to $385 million. Using the midpoint of the range would result in a nearly 20% increase and another year of rapid earnings growth.

Speaker Change: Previously is a coatings was managed by performance technologies and reported within advanced solutions.

The financial impact will be minimal to the segment results.

Speaker Change: In terms of revenue for fiscal 'twenty four sales in our coatings business were $53 million.

Speaker Change: Now moving to our earnings outlook.

Speaker Change: We expect fiscal 'twenty five adjusted EBITDA to be in the range of $365 million to $385 million.

Speaker Change: Using the midpoint of the range would result in a nearly 20% increase in another year of rapid earnings growth.

Michael B. Lucareli: In addition, we anticipate another year of good cash flow and expect we'll generate a similar level of free cash flow in fiscal 25. As part of our cash flow outlook, we anticipate fiscal 25 capital spending to be in line with the prior year. Given the relatively complex purchase accounting for acquisitions, we would like to provide some EPS guidance. As part of the accounting treatment for the Scott Springfield acquisition, we're doing a typical adjustment for all asset values, which will result in a higher non-cash depreciation and amortization expense.

In addition, we anticipate another year of good cash flow and expect will generate a similar level of free cash flow in fiscal 'twenty five.

As part of our cash flow outlook, we anticipate fiscal 'twenty five capital spending to be in line with the prior year.

Speaker Change: Given the relatively complex purchase accounting for our acquisitions, we would like to provide EPS guidance.

Speaker Change: As part of the accounting treatment for the Scott Springfield acquisition, we're doing a typical adjustments for all asset values, which will result in a higher noncash depreciation and amortization expense.

Michael B. Lucareli: Based on our current outlook and the purchase accounting items, we're expecting adjusted EPS to be in the range of $3.55 to $3.85. This reflects the key assumptions for interest expense, taxes, and amortization depreciation expense, including impacts from the acquisition of Scott Springfield. Please note that these assumptions are summarized in the appendices attached to this presentation and our press release. To wrap up, we're extremely pleased with the results for the fourth quarter and the fiscal year.

Speaker Change: Based on our current outlook and the purchase accounting items, we're expecting adjusted EPS to be in the range of $3 55.

Speaker Change: The $3 85.

Speaker Change: This reflects the key assumptions for interest expense taxes, and amortization depreciation expense <unk>.

Speaker Change: Including impacts from the acquisition of Scott Springfield.

Speaker Change: Please note that these assumptions are summarized in the appendices attached to this presentation and our press release.

Speaker Change: To wrap up were extremely pleased with the results from the fourth quarter and the fiscal year.

Michael B. Lucareli: We've clearly demonstrated momentum towards our longer-term financial targets and look forward to the upcoming fiscal year. We plan to hold an analyst and investor day event later this year at our headquarters, and additional information on that event will be available soon. With that, Neil and I will take your questions.

Speaker Change: We've clearly demonstrated momentum towards our longer term financial targets and look forward to the upcoming fiscal year, we plan to hold an analyst and Investor Day event later this year at our headquarters and additional.

Speaker Change: All information on that event will be available.

Speaker Change: With that Neil and I will take your questions.

Operator: If you would like to ask a question at this time, please press the star, then the 1 key on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press the star and then the 2 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. Our first question is from Chris Moore with CJS Securities. Please proceed.

Speaker Change: Thank you.

Speaker Change: If you would like to ask a question at this time. Please press Star then the one key on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star and then the two if he would like to remove your question from the queue.

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

Speaker Change: Our first question is from Chris Moore with CJS Securities. Please proceed.

Christopher Paul Moore: Hey, good morning guys. Thanks for taking the time to answer a couple questions. All right.

Christopher Paul Moore: Maybe we could start, just talk a little bit further on data centers. As you guys know, I think we have discussed at this point in time, all of the current revenue is on the air-cooled side. On the liquid cooling front, you have the ongoing development efforts, you know, both direct-to-chip cooling and immersion cooling. Can you talk a little bit about the critical milestones over the next, say, 12 to 18 months, you know, where that would put you sometime in calendar year 25?

Christopher Paul Moore: Hey, good morning, guys. Thanks for taking a couple of questions.

Speaker Change: Alright, maybe.

Speaker Change: If we could start.

Speaker Change: Just talk a little bit further on data centers as you guys.

Speaker Change: And can discuss at this point in time.

Speaker Change: All of <unk> current revenue is on the air cooled side on liquid cooling front you have the ongoing development efforts, both directed chip cooling and emerging cooling can you talk a little bit about the critical milestones over the next say 12 months to 18 months, you know, where where where that would put you some time in calendar 'twenty.

Neil D. Brinker: Yeah, good question, Chris. Thanks for that. This is Neil.

Neil D. Brinker: Certainly, we have seen growth in the market for data centers around direct cooling, and now, with the Scott Springfield, we have added a new technology with evaporative cooling that has been in the industry for some time that may or may not support or augment liquid cooling, but certainly for standard data centers. You need that product line. And we're getting market capture there, so that's significant.

Speaker Change: Five.

Speaker Change: Yes. Good question, Chris. Thanks for that this is Neil certainly we have seen growth in the markets and data center around direct cooling and now with the addition of Scott Springfield. It adds a new technology with evaporative cooling.

Speaker Change: And then you know in the industry for some time that may or may not support or augment liquid cooling, but certainly for standard data centers.

Neil D. Brinker: That's where we're seeing the expansion in the United States, and some of the expansions that we've done in Europe are to support the growth in market capture, driven by or not by liquid cooling. So that has been a milestone for us, building out the capacity so that we can continue to gain share. The other milestone is where we know it's tied directly to liquid cooling, whether that's direct to chip, single phase, or two phase. Liquid Cooling Immersion.

Speaker Change: Need that product line.

Speaker Change: And we're gaining market capture there.

Speaker Change: And that's where we're seeing the expansion in the United States and some of the expansions that we've done in Europe.

Speaker Change: To support the growth on bond market capture.

Speaker Change: Drip.

Speaker Change: Driven by or not by a liquid cooling. So that's been that has been a milestone for us building out the capacity. So that we can continue to gain share.

Speaker Change: The milestone is where we know it's tied directly to liquid cooling, whether that's direct with chip.

Neil D. Brinker: And we, you know, the acquisition of the TMG assets will help us be at the table having conversations with our data center customers about future data center generations that may adopt those technologies. So that's a milestone to be able to have those products and technologies to have conversations about the future. And then our CDU development, which I believe is right around the corner for direct-to-chip adoption in the market. We're in the process of developing that product, and when we launch that with a select few customers by the end of the fiscal year, that would be a milestone.

Speaker Change: Well phase of two things.

Speaker Change: Quick cooling immersion and the.

Speaker Change: The acquisition of the CMG assets will help us be at the table, having conversations with our data center customers for future data center generation that may adopt those technologies. So that's a milestone to be able to have those.

Speaker Change: Those products and technologies to have conversations about that.

Speaker Change: Sure.

Speaker Change: And then our CDU development, which I believe is right around the corner for directed chip.

Speaker Change: With adoption in the market, where we're in the process of <unk>.

Speaker Change: Developing that product and when we launch that.

Neil D. Brinker: So capacity expansion, setting ourselves up for success, continuing to win with our customers, over-serving our customers and providing them with the products and services that we provide, and then having the technologies in terms of direct-to-chip and full immersion cooling so that we can have conversations about future data centers with our most important customers.

Speaker Change: Select few customers.

Speaker Change: By the end of the fiscal year that would be a milestone so capacity expansion and setting ourselves up for success continuing to win with our customers over serving our customers and providing them with the products and services that we provide and then having the technologies in terms of direct ship and full immersion cooling. So they can have conversations about future data center.

Christopher Paul Moore: Got it. Very helpful.

Christopher Paul Moore: And maybe just another way to look at it. From the air cooling perspective, I'm just trying to get a sense for the runway there. Obviously, we're talking about huge growth here. But is there any reason to think growth will slow data center-wise in, you know, three or four years from now? I'm just trying to understand if everything is shifting towards liquid or, you know, air growth is going to be there significantly, and liquids are coming as well.

Speaker Change: With our most important customers.

Speaker Change: Got it very helpful and maybe just another way to look at it from the air cooling perspective, I'm, just trying to get a sense for the runway. There. Obviously, we're talking about huge growth here I mean is there any reason to think growth slows datacenter wise.

In.

Speaker Change: Three or four years from now I'm, just trying to understand if if everything is shifting towards liquid or air growth is going to be there significantly and liquids coming as well.

Neil D. Brinker: We believe, Chris, it's a matter of both. You don't necessarily need liquid cooling for everything. And we also see, in most cases, as we're working with our customers and watching the trends in the industry, that air often augments liquid cooling. So there's a desire for both technologies.

Speaker Change: Yes.

Speaker Change: We believe it's a matter of Brook boat, you don't necessarily need.

Speaker Change: Cooling for everything and we also see in most cases with we're working with our customers and watching the trends in the industry.

Christopher Paul Moore: Got it. Very, very helpful. Maybe just my last one.

Speaker Change: Are often augments liquid so there is a desire for both technologies.

Speaker Change: Got it very helpful.

Maybe just my last one I know at the Investor Day, you know what that feels like a long time ago, you were talking about $400 million to $600 million in an M&A between 24 and 26 obviously.

Speaker Change: What you guys have done already on the M&A side in terms and also in terms of kind of the more organic growth.

Christopher Paul Moore: I know at Investor Day, you know, that felt like a long time ago. We're talking about 400 to 600 million in M&A between 24 and 26. Obviously, you know, between what you guys have done already on the M&A side and also in terms of kind of the more organic growth, you won't need to get to that level. Can you talk a little bit more about your M&A thoughts and, you know, is there a revenue target moving forward or just kind of how you're looking at it at this stage?

Speaker Change: Aren't going to need to get to that level can you talk a little bit more about M&A thoughts and you know is there a revenue target moving forward or just kind of how you're looking at at this stage.

Vic: Yeah, hey, Chris, it's Vic. Yeah, I think from the original targets we laid out two and a half years ago. You're right. Clearly, we don't see the need to have as large of an M&A funnel versus where we thought we needed to be to maybe address some of the planned product wind down. So through a lot of good work and margin improvement and other growth areas organically, we found that's definitely come down.

Bill: Yeah, Hey, Chris It's bill.

Speaker Change: Yeah, I think from.

Speaker Change: Our original targets, we laid out two and a half years ago.

Speaker Change: Youre right clearly.

Speaker Change: We don't see the need to have as large of.

Speaker Change: M&A funnel.

Speaker Change: This is where we thought we needed to be to maybe address.

Speaker Change: Some of it.

Speaker Change: Planned product line down.

Speaker Change: Through a lot of good work in margin improvement in other growth areas organically.

Vic: I think we don't have a firm target. We will try to provide updated guidance for you on that in the fall, but Neil and I have been pretty consistent that I think now the sweet spot we're looking at are kind of the, Smaller to mid-sized transactions, probably more in the Scott Springfield size, that we think are right down the middle of the road for us, but no, we don't need a lot of M&A, we don't need large M&A to hit our financial targets, so we're being pretty selective here about what we choose to bolt on.

Speaker Change: That's definitely come down I think we don't have a firm.

Speaker Change: Target.

Speaker Change: Ill try to provide updated.

Guidance for you that in that in the fall, but you and I have been pretty consistent that I think now the sweet spot we're looking at it.

Speaker Change: It's kind of the.

Speaker Change: Smaller to mid sized transactions, probably more in the Scott Springfield side.

Speaker Change: We think are right down.

Speaker Change: The middle of the road for Us, but no we don't need a lot of M&A, we don't need large M&A to hit our financial targets. So we're being pretty selective here about what we choose to bolt on.

Christopher Paul Moore: Got it. Very helpful. I'll jump back in line. Thank you. Thanks, everybody.

Noah Duke Kaye: Our next question is from Noah Kay with Oppenheimer and Company. Please proceed.

Speaker Change: Got it very helpful. I'll jump back in line. Thank you thanks, everybody.

Noah Duke Kaye: Hey, good morning. Thanks for taking the questions.

Speaker Change: Our next question is from Noah Kaye with Oppenheimer <unk> Company. Please proceed.

Noah Kaye: Hey, good morning, Thanks for taking the questions, maybe we can start with margins.

Certainly margin improvement happening faster than consensus across both segments can we really understand the margin expectations embedded in the 25 guide on.

Noah Kaye: Segment level, if possible and any considerations around cadence.

Noah Kaye: And is it also possible to ballpark the magnitude of divestitures embedded in the guide.

Noah Duke Kaye: Maybe we can start with margins. Certainly, margin improvement is happening faster than consensus across both segments. Can we maybe understand the margin expectations embedded in the 25 guide at a segment level, if possible, and any considerations around cadence? And is it also possible to ballpark the magnitude of divestitures embedded in the guide?

Nick: Yeah, sure. Hey, Nick.

Speaker Change: Yeah, sure Hey, Nick so.

Nick: So, um... You know, if you look at our guidance in the range, where if you kind of go to the midpoint, that's kind of putting that around, say, a 14.5% or so type EBITDA margin. And clearly, we're continuing to expect another sizable increase. We really talked about that all year, that we would expect Fiscal 25 or performance technology to have a nice... Let's call it another 200 basis points or so goal there. From a climate solution side, we are expecting a margin improvement, but on the smaller side. And again, we've been pretty consistent about this after the first year or two of launching a 20-person climate solution.

Speaker Change: If you look at our guidance in the range, where are you kind of go to the midpoint.

Speaker Change: That's kind of putting that around here.

Speaker Change: 14, 5% or so tight.

Speaker Change: EBITDA margin.

Speaker Change: And clearly we're continuing to expect.

Speaker Change: Another sizable increase as we really talked about that all year.

Speaker Change: Fiscal 'twenty five.

Speaker Change: Performance technologies that happened at night.

Call it another 200 basis points or so.

Speaker Change: Goal there from a climate solutions side, we are expecting a margin improvement, but on the smaller side and again, we've been pretty consistent about this after the first year or two in one to 2021st in climate solutions. So we're thinking there is more of maybe like a 50 basis point per.

Nick: So we're thinking there's more of maybe a 50 basis point per year, plus or minus lift, from a margin standpoint, from divestitures and product exit. On the PT side, it's probably around 100 million. On the divestiture side, it's a smaller portion of that. We originally announced the divestitures last year at about 80 or 90 million run rate. And so we have a partial year impact of that, plus we've got just ongoing product rationalization efforts. So I would say probably around 100 million on performance technologies in terms of divestitures and product lines.

Speaker Change: A year plus or minus.

Speaker Change: From a margin standpoint.

Speaker Change: From our divestitures.

Speaker Change: And product exit.

Speaker Change: Where are you on the PT side, its probably around $100 million.

Speaker Change: That divestiture side, it's a smaller portion of that we originally announced the deal.

Speaker Change: That sits there last year, it's about 80 or $90 million run rate.

Speaker Change: So we have a partial year impact of that plot we've got.

Speaker Change: Ongoing product rationalization efforts, so I would say I would say probably around 100 million on performance technologies in terms of divestitures and product line exit.

Noah Duke Kaye: Extremely clear, thanks. Before I get to Datacenter, I want to just ask around about the free cash flow. I'm trying to do the walk here.

Speaker Change: Extremely clear thanks.

Noah Duke Kaye: You commented on sort of a similar level of free cash flow year over year. Just help us understand the free cash flow walk because, you know, if EBITDA is up, call it 60 plus million at the midpoint year over year, and you've got what looks to be about... 15 million potentially or so higher tax, and feel free to check my math, and a little bit higher interest expense.

Before I get to data center I wanted to just ask around the free cash flow I'm trying to do the work here.

Speaker Change: You commented that sort of a similar level of free cash flow year over year.

Speaker Change: Just help us understand that.

Speaker Change: The free cash flow walk because I mean, if EBITDA is up you know call. It a 60 plus million at the midpoint year over year, and you've got what looks to be about.

Speaker Change: Uh huh.

Speaker Change: $15 million potentially or so higher taxes feel free to check my math.

Noah Duke Kaye: It seems like free cash flow should grow, especially with keeping the CapEx level. So help us understand what would be going on with the free cash flow conversion. Your working capital was a build this year as well.

Speaker Change: And a little bit higher interest expense.

Speaker Change: It seems like free cash flow should grow, especially with keeping capex level. So.

Speaker Change: Help us understand what might be going on with the free cash flow conversion.

Nick: Yeah, good question. I thought it would be a good chance to add more color to the call for that. So I, you know, I mentioned a similar level, our goal is, you know, I would say we want to meet or be, the precast we did last year, the drivers that are some headwinds, so why wouldn't it just be up in line with earnings? There are quite a few number of items. I'll just kind of hit the high points for you.

Speaker Change: Your working capital was a build this year as well.

Speaker Change: Yeah. Good question I kind of thought.

Speaker Change: Got that.

Speaker Change: <unk> be a good chance to add more color on the call for that.

Speaker Change: So as you know.

Speaker Change: I mentioned in similar level our goal.

Speaker Change: I would say, we want to meet or beat it.

Speaker Change: Free cash we did last year.

Speaker Change: River that are some headwinds so while winning 50 up in line with earnings is quite a few number of items that just kind of hit the high points for you there.

Nick: From the incentive comp point of view, that's accrued during the year. The cash payouts will be this year, so there's going to be a higher cash payout for incentive comp. We have some flexibility. It's early, but a typical pension contribution can be in the 10 to 15 million range. We plan the year at the higher end on a pension contribution. A little bit higher interest, he talked about. We also announced restructuring in Europe, and we'll have some higher cash payments from our restructuring side.

Speaker Change: From the incentive comp point, that's accrued during the year the cat payouts will be this year, so there's going to be a higher cash payout for incentive comp.

Speaker Change: Also.

Speaker Change: We have some flexibility early that typical pension contribution can be in the $10 million to $15 million range.

Speaker Change: We planned the year at the higher end on a pension contribution a.

Speaker Change: A little bit higher interest he talked about we also announced the restructuring.

Nick: And then, so, you know, all those combined are probably at least $30 to $40 million. And then the other kind of wild card we see from year to year on the data center side, it depends on the customer and the program. The Times We Get Cash Advances tie to major builds, and that can have an impact, or just the amount of inventory will carry based on a large potential data center build out.

Speaker Change: And we will have some higher cash payments from a restructuring side.

And then.

Speaker Change: So all of those combined are probably at least 30 to 40 million.

Speaker Change: And then the other kind of wild card, we see from year to year on the datacenter side it depends on the customer in the program.

Speaker Change: Is it time for you get a cash advances.

Speaker Change: The major build and that can have an impact and door.

Speaker Change: Just the amount of.

Nick: So again, I think our goal here, right, is to... The meter beats the last year's number, but clearly, there's just some timing of cash flow items that... to build a gear model as well. Hope that answers your question.

Speaker Change: Inventory will carry.

Speaker Change: Based on a large potential data center build out so again.

Speaker Change: I think our goal here right.

Speaker Change: To meet or beat last year's number, but clearly theres, just the timing of cash flow items that.

Noah Duke Kaye: Overall, yeah, thanks. And to bring it to the data center, you know, at the end there, I think, Neil, you commented in the prepared remarks around a doubling of capacity versus last year. One, I just want to make sure we probably understood that comment in terms of how to think about revenue capacity now across the business. But certainly, if we look at the midpoint of where you think data centers could be on revenue this year, it's more than doubling of, you know, where you ended fiscal 23. And maybe just how we think about organic growth versus M&A in the data center vertical.

Speaker Change: You should build into your model as well I hope that answers your question.

Comprehensively, yeah, thanks and to bring it to data center.

Speaker Change: I think Neil you you commented.

Neil: In the prepared remarks around a doubling of capacity versus last year. One I just wanted to make sure we properly understood.

Neil: Is that a comment in terms of how to think about revenue capacity now across the business, but certainly.

Speaker Change: If we look at the mid point of of where you think data center could be on revenue. This year, it's more than doubling of our you know where you ended fiscal 'twenty three.

Neil D. Brinker: Yeah, that's right. We have added additional capacity to that space. Part of that is through inorganic growth, adding multiple facilities through the Scott Springfield expansion and acquisition. We put out a press release where we acquired an additional facility in Bradford, UK, which helps us set up our strategy to have dedicated plants for specific equipment for the EMEA market, with the intention of the long-term strategy of building out capacity for, you know, a billion dollars.

Speaker Change: And maybe just how do we think about organic growth versus M&A and the data center vertical.

Speaker Change: Yeah. That's right. We have we have added we've added additional capacity in that space.

Speaker Change: Part of that is through the inorganic growth, adding multiple facilities through the Scotts Springfield expansion and acquisition.

Speaker Change: We put out a press release, where we acquired an additional facility in Bradford UK, which helps us set up for our strategy to have dedicated plants for specific equipment for the EMEA market.

Neil D. Brinker: Yeah, question about organic growth too. We talked about 60-70% growth this year and that last year we wrapped it up. The year that we just closed was 69%, so another strong year. Within that... organic growth right now, we probably have in kind of a 30 to 35% range. There's a little bit of a difference in how we look at it. Clearly, since we've acquired Scott Springfield, the commercial synergies look to be really strong, so kind of splitting hairs on what's organic or inorganic, but I think it's safe to say for now, we're modeling about a 30, 35% organic growth and then the balance coming from the Scott Springfield Act.

Speaker Change: With an intention of the long term strategy of building out capacity for $1 billion for example, now.

Speaker Change:

Speaker Change: Yeah, Yeah question about organic growth two we talked about.

Noah Duke Kaye: Thanks so much. I'll leave it there.

Speaker Change: 60% to 70% growth.

Speaker Change: This year in that last year, we wrapped up.

Speaker Change: The year that we just closed.

Speaker Change: 69%, so another strong year with them that.

Speaker Change: Organic growth right now is probably have in Canada, 30% to 35% range.

Speaker Change: There's a little bit how.

Speaker Change: How we look at it clearly is since we've acquired Scott Greenfield.

Speaker Change: Commercial synergies looked to be really strong so kind of splitting hairs or what's the organic or inorganic, but I think it's safe to say for now.

Speaker Change: Modeling about 30%, 35% organic growth and then the balance is coming from.

Matt J. Summerville: Our next question is from Matt Summerville with D. A. Davidson. Please proceed.

Springfield acquisition.

Speaker Change: Thanks, so much I'll leave it there.

Matt J. Summerville: Thanks. There are a couple of questions. So, through SSM, you've added another hyperscale customer. I'd be curious as to where you stand with potentially adding additional hyperscale customers. I think, Neil, you've indicated in the past you've been having some ongoing discussions, so maybe an update on that relationship cultivation and whether or not you're finding – early days, I realize that – that there's indeed a cross-selling opportunity between the cooling technology that SSM provides in your existing customer base and then your core cooling technology in their customers.

Speaker Change: Our next question is from Matt Summerville with D. A Davidson. Please proceed.

Speaker Change: Couple of questions. So through SSM, you've added another hyperscale customer I'd be curious as to where.

Speaker Change: You stand with potentially adding additional hyperscale customers I think Neil you did indicated in the past you've been having some ongoing discussions so maybe an update on that relationship cultivation, and whether or not you're finding early days I realize that finding that there is indeed cross selling opportunity.

Neil D. Brinker: Yeah, a great question for sure, Matt. Thank you. This is Neil.

Neil: Between the cooling technology that SSM provides in your existing customer base and then your core cooling technology in their customer base.

Neil D. Brinker: We have seen that opportunity without a doubt. You know, it's really difficult to pass the very stringent quality audits, safety audits, and the process that you have to go through to win a large hyperscaler. And I have a lot of respect for how they do that in terms of how they pick the right suppliers. They had already passed those audits, and they had already been certified as a qualified supplier, which accelerated it for us for our cross-selling opportunities on the other side, on the Airedale side.

Neal: Yeah, Great question for sure Matt. Thank you. This is Neal we have seen that opportunity without a doubt it.

Speaker Change: It's really.

Speaker Change: Difficult to.

Speaker Change: Pat.

Speaker Change: The quality very stringent quality audits.

Speaker Change: The audit and the process that you have to go through to win a large hyper scaler.

Speaker Change: And then I have a lot of respect for how they do that in terms of how they picked the right suppliers and when we acquired <unk>.

Speaker Change: Springfield there.

Speaker Change: It already pass those audits and they had already been certified and qualified supplier, which accelerated it for us for our cross selling opportunities on the other side of the mirror identified so by by acquiring that hyperscale customer because they already have a relationship with Scott Springfield, It really moves quickly and how you can be adopted and accepted with other products.

Neil D. Brinker: So by acquiring that hyperscaler customer, because they already have a relationship with Scott Springfield, it really moves quickly on how you can be adopted and accepted with other products. So certainly, there has been... cross-selling. And we'll take advantage of that. We're in the process of having them. So, relative to the other hypers, yes, we are advancing conversations. The thing that's really been able to help us is we've got state-of-the-art facilities, in my opinion, best-in-class labs that we've invested CapEx into, where we can run very stringent tests and meet their requirements.

Speaker Change: Certainly there has been some some cross selling opportunities.

Speaker Change: And we'll take advantage of that when we're in the process of having those conversations.

Speaker Change: So relative to the other hyperscale. It's we are advancing conversations the thing that's really been able to help us as we've got state of the art facilities My opinions best in class Labs.

Neil D. Brinker: So, being able to bring the hyperscalers in that are outside of the two that we've been public about, they've been impressed with our facilities, and the conversations continue to advance. So, I feel very comfortable with where we are with the other conversations because of our labs.

Speaker Change: We've invested capex into where we can run very stringent path and meet their requirements, so being able to bring the hyperscale and that are outside of the two that we've that we've been public about they've been impressed with that facility.

Neil D. Brinker: Got it. And then with respect to the comment from an earlier question, just to make sure I understand, after this wave of capacity expansion, you feel that you will have the capability to, assuming demand is there, basically have a billion-dollar data center business. And I would imagine, I don't know, maybe this is something you'll address now or at your analyst day, but over what time frame do you feel you can scale from, call it roughly $500 million this current fiscal year, to that billion-dollar type of number?

Speaker Change: And it continues to the conversations continue to advance so I feel very comfortable with where we're at with the other conversation because of our labs.

Speaker Change: Got it and then.

Speaker Change: With respect to the comment from earlier question just to make sure I understand after this.

Speaker Change: We've upped the capacity expansion you feel that you will have the capability to if assuming demand is there.

Speaker Change: Basically you have $1 billion datacenter business and <unk>.

Speaker Change: I would imagine I don't know if maybe this is something you'll address now or at your analyst day, but over what timeframe do you feel you can scale up from call. It roughly 500 billion. This current fiscal year to that billion dollar type of number.

Neil D. Brinker: Yeah, it's a good question. So, you know, we're always looking at our strategic plan horizon, and that's in, you know, that's years in terms of how we think about our strategic plan horizon. But you're right, the capacity expansion is a big piece. And it's not just the capacity expansion, Matt; it's also the technologies that we've acquired. So to support that 35% CAGR that we've been very public about, we knew that we needed to do the expansion with capacity. And it's not just more factories; it's factories in the right places, in the right countries for delivery. And then, you know, the acquisition of new technologies like immersion cooling as well as evaporation. Scott Springfield.

Speaker Change: Yes, it's a good question. So we're always looking at our strategic plan horizon and that's in.

Speaker Change: That's years in terms of how we think about our strategic planning horizon.

Speaker Change: But but you're right the capacity expansion is a big piece and it's not just the capacity expansion.

Speaker Change: Matt. It's also the technologies that we've acquired so to support that 35% CAGR that we've been very public about we knew that we needed to do.

Speaker Change: The expansion with capacity.

Speaker Change: Not just more factories its factories in the right places on the right in the right countries for delivery and then.

Neil D. Brinker: So a multi-pronged approach in terms of how we can get to a larger data center.

Speaker Change: The acquisition of new technologies like immersion cooling as well as of African linguistic Scott. Thank for multi prong approach in terms of how we can get to.

Nick: Got it. And then, maybe, Nick, if you could comment a little bit, how should we be thinking about, you know, the quarterly earnings cadence as we move through the year? Is there anything, anything unusual, I guess, you would want to point out as we think about how to model, you know, kind of quarterly numbers or how we should be thinking about first half versus second half?

Speaker Change: Larger data center number long term.

Speaker Change: Got it and then maybe making if you can comment a little bit how should we be thinking about that.

Speaker Change: Quarterly earnings cadence as we move through the year or anything.

Speaker Change: Unusual I guess, you would want to point out as we think about how to model.

Nick: Any detailed color you could provide there would be helpful. Thanks. Yeah, yeah. Thanks, Matt.

Speaker Change: Quarterly numbers or how we should be paying them up first half versus second half.

Nick: Yeah, I'd like to say, um... Our expectation is for kind of a normal year. You know, last year, I said that, and we had some really big pricing winds to start the year. But as we look at it now, I'd say, probably a typical Modine year. And to help everybody out, I think.

Speaker Change: Failed to color you could provide there would be helpful. Thank you.

Matt J. Summerville: Yeah, Yeah. Thanks, Matt.

Speaker Change: Yeah, I'd like to say it.

Our expectation is for kind of a normal year, you know on last year.

Speaker Change: I said that and we had some really big pricing to start the year, but as we look at it now I'd say, probably a typical modine year and healthy everybody out.

Nick: Clearly, we expect to build each quarter, so generally, Q4 would be our strongest, and that's mainly going to be driven by revenue and program launches. So I would say Q4 would be, from a top line perspective, our strongest, while Q1 and Q2 are building.

Speaker Change: Clearly we are we expected to build each quarter. So generally we want them to Q4 would be our strongest and that's mainly going to be driven revenue and program launches. So I would say Q4 would be from a top line.

Nick: And then there are Q3, the December quarter is probably the lowest of the quarter, of the quarter. So kind of a Q1, Q2 ramp up, a little bit of a dip, and that's seasonality. When I point out the December quarter, it's pretty traditional on the performance technology side, and large OE customers do a lot of plant shutdowns around Thanksgiving, Christmas, and New Year's. That said, early in the year, nothing dramatic, Matt, that I would point out other than call it kind of a revenue build with a little bit of a Q3 seasonal shutdown built in there.

Speaker Change: Our strong yet and then.

Speaker Change: Q1, and Q2 building and then in there our Q3.

Speaker Change: December quarter, yes would probably be the lowest of the quarter the quarter, so kind of you.

Speaker Change: Q1, Q2 ramp up a little bit of a dip in that seasonality why I pointed out the December quarter, it pretty traditional on the performance technology side and large OE customers do.

Speaker Change: We do a lot of plant shutdowns around Thanksgiving Christmas New year's.

Speaker Change: <unk>.

Speaker Change: That said early in the year nothing dramatic Matt that I would point out other than call. It kind of a revenue bill with a little bit of a Q3 seasonal shutdown built in there.

Brian C. Sponheimer: Our next question is from Brian Sponheimer with Gabelli Funds. Please proceed.

Speaker Change: Got it thanks guys.

Brian C. Sponheimer: Hey, good morning, and congratulations on a great year. The dynamics with the tech from a year ago played a role today. But as we kind of look forward, I think it's worth maybe taking a look back. The businesses that were for sale in the auto segment. How much of that remains of your revenues as you're looking into this fiscal year?

Speaker Change: Our next question is from Bryan Spillane Hamer with Gabelli funds. Please proceed.

Speaker Change: Hey, good morning, and congratulations on a great year, obviously market expectations, along with maybe some.

Nick: Yes, in total, the automotive industry is probably in the $300 million range.

Speaker Change: The dynamics with the tax bump from a year ago played a role today, but.

Speaker Change: As we kind of look forward I think it's worth maybe taken a look back the business.

Speaker Change: Had been for sale in the auto.

<unk>, how much of that remains of.

Speaker Change: <unk> of your revenues as Youre looking into this fiscal year.

Speaker Change: Yes.

Brian C. Sponheimer: [inaudible] So what portion of that? I don't want to nitpick too much, but we'll assume that portion of that was potentially going to be bought by the Tier 1 supplier you were going to sell it to.

Speaker Change: Automotive is probably in a $300 million range.

Speaker Change: Right.

Speaker Change: Yeah.

Speaker Change: So so what portion of that at all.

Nick: Yeah, yeah, so when we launched the sale process, it was over 500, between 5 and 600 million. And I should say on the $300; it's probably $250 to $300 is what's left, just to clarify that.

Speaker Change: Nitpick too much but what portion of that.

Speaker Change: Hmm.

Speaker Change: It was potentially going to be bought by the age of the tier one supplier you're going to sell it to.

Yeah, Yeah. So that was why we launched the sale process it was over.

Brian C. Sponheimer: And then the other thing I want to point out is that from when we started, it was not only the five to six hundred million, but we were pretty transparent. I think we, you know, we said, you know, low single-digit EBITDA margins. This team has worked really hard, and the remaining amount we have, it's clearly been a driver of Modine's results. So, strategically, it's still not an area we're gonna focus on putting capital into, but from a margin standpoint, it's helping us achieve our financial goals and targets. A couple years ago, and it's an absolute dream. The drag it once was. The next question kind of goes to the CapEx profile.

Speaker Change: Over 500 between five and 600 million.

Speaker Change: And I should say on that 300 is probably 250 to 300 is what's the last just to clarify on that and then the other thing I want to point out is from when we started it was not only the five to 600 million, but we're pretty transparent I think we said low single digit EBITDA.

Speaker Change: <unk> margin.

Speaker Change: That team has worked really hard the remaining amount we have it's clearly been a driver of milking resolve strategic.

Strategically, it's still not an area, we're going to focus on putting capital in Q, but from a margin standpoint, it is helping us to achieve our financial goals and targets versus.

Speaker Change: A couple of years ago, and it is an absolute dream.

Speaker Change: No I think you answered my next question as to how how strategic is this piece, but clearly it's not us.

Speaker Change: The drag is.

Speaker Change: Does.

Brian C. Sponheimer: and weather this, this new call it 85 million in CapEx. From a dollar perspective, does that look like more of a run rate going forward, or are there just some bits and pieces that you named, you know, obviously you named the facility that you purchased in order to expand capacity? Is this more of a kind of a run rate as far as what you think for the next few years?

Speaker Change: Next question kind of goes to the Capex profile.

Speaker Change:

Speaker Change: And whether this this new.

Speaker Change:

Speaker Change: Call it $85 million of Capex from a dollar perspective does that look like more of a run rate going forward or are there just some bits and pieces that.

Nick: Yeah, I think it's a little bit like the cash flow. I said a similar level this year, Brian, but I think that's going to be on the high end. I wanted to make sure You know, I set a bar at, you know, I could see it in line, but probably a little bit on the high end, and what's going on there, which is important, so I probably, we had a couple years around 70. I'd say, probably in a dollar value for now, 70 to 80 is what I'd say is probably more of a normal.

Speaker Change: Obviously in the facility that you purchased in honor of expand capacity.

Speaker Change: Is this more of a kind of a run rate as far as what you think for the next few years.

Speaker Change: Yeah, I think the.

Speaker Change: They're like the cash flow.

Speaker Change: I said similar levels this year, Brian and I think.

Speaker Change: That's going to be on the eye and I wanted to make sure are you now.

Speaker Change: That's a bar at yeah, I could see it in line, but.

Speaker Change: Probably a little bit on the high end and what's going on there.

Nick: And the other thing I would point out, and you know this, like if you go back to when we were 80 or 90 million a year, and it was nearly all performance technology. And last year, it's been flipped.

Speaker Change: And so.

Speaker Change: Probably we had a couple of years around 70 yesterday, probably in a dollar value for now 70 to 80 is what I'd say is probably more of a normal and the other thing I would point out and you know this like if you go back to when we were trying to sell auto.

Nick: It's $50 million or so going into climate solutions and about $30 million going into performance technology. So we're very targeted on the performance technology side, so that will go down, and it has gone way down. And then the $50 million or so on climate change. Back to the earlier discussion, we have been doing a lot of expansion. As soon as we bought Springfield, we needed to expand. We did a couple of additional property purchases last year and then also at the end of the year a larger plant expansion in the UK to support data center growth. So I think that this year is probably the... Well, I don't say last, because hopefully it'll keep up the accelerated growth. But there's been an accelerated CapEx to support the data center growth.

Speaker Change: We're 80 or $90 million a year and it was nearly all performance technology.

Speaker Change #100: And last year was kind of it you.

Speaker Change #100: You know it's been flat.

Speaker Change #100: <unk> 50 million or so going into climate solutions, and about 30 million going into performance technology.

Speaker Change #101: We're very targeted on the performance technology side, So that will go down and can see and it's been way down and then the 50 million or so on climate back to the earlier discussion we have been doing a lot of expansion as soon as we bought got Greenfield we needed to expand.

Speaker Change #102: We did a couple of additional purchase the property purchases last year and then also at the end of the year.

Speaker Change #102: Larger our plant expansion in the U K to support data center growth. So I think that this year, it's probably the.

Brian C. Sponheimer: Okay, yep, certainly. Last one for me, you mentioned heat transfer. European heat pump continues to be an area of softness that, you know, you've spoken about this in the past few calls. What are you looking for as far as a bottoming out of that market before that can become a source of growth? Because, as I recall, that's a market that is being supported by European governments as well as one that they want to grow, right?

Speaker Change #103: Well if.

Speaker Change #103: I don't say laugh, because hopefully, we'll keep accelerating growth, but there's been an accelerated capex to support the data center growth.

Speaker Change #103: Yes, certainly.

Speaker Change #104: Last one for me.

Speaker Change #105: You mentioned and heat transfer European heat pump continues to be an area of softness that you've spoken in the past few calls.

Speaker Change #106: What are you looking for as far as a bottom for that market before that can become a source of growth just because of the recall.

Nick: Yeah, I'll give you a quick answer on the e-pump side, and if Neil wants to add anything, he can. Last fiscal year, e-pump sales were about 50 million, or I should say in fiscal 23, and we did expect, when the e-pump market took off, really exponential growth. And we talked about that last fiscal 24, our sales were actually down, and that was one of the big drivers in Q4 for the AT&T sales decline, and what we've seen is not only, you know, the permits or the orders everybody's watching as legislation changes in Europe, but finished goods inventory across our customer base.

Nick: Yeah, I'll give you a quick...

Speaker Change #107: That's a market that is being supported by European governments as well as far as one that they want to grow right.

Speaker Change #108: Yes, I'll be quick.

Speaker Change #109: Quick answer on the heat pump side, and if Neil wants to add anything you can.

Speaker Change #110: Fifth last fiscal year product sales were about $50 million already paid in fiscal 'twenty three and we did at the end we did expect when the heat pump market took off.

Really exponential growth and we had talked about that last at the fiscal 'twenty four our sales were actually down in that list.

Speaker Change #110: One of the big drivers in Q4 for the H T. P sales decline and what we've seen is not only the permits or the orders everybody's watching as legislation changing changed in Europe.

Nick: So we're heading into the new fiscal year, expecting that the market's going to remain down, and what Neil and I are planning for, and we'll watch, in addition, how much finished goods are in the system.

Speaker Change #110: Our finished goods inventory across our customer base.

Speaker Change #111: So we're heading into the new fiscal year expecting that the market is going to remain down.

Brian C. Sponheimer: Again, I'd say we started at a small base. There are about $50 million, a little bit less now, but clearly, the growth plans have been delayed. We've already pared back any capital spending and resources in that area, but it's clearly going to take a while to sort itself out. Anything you want to add, Neil? No, I think that's clear.

Speaker Change #111: And what Neil and I are planning for and.

Speaker Change #111: We'll watch it in addition.

Speaker Change #111: How much finished goods that are in the system.

Speaker Change #112: Well again.

Again, I'd say, we started at a small base.

Speaker Change #112: There's about $50 million little bit less now.

But clearly the growth plans have been delayed where that we've pared already back any capital spending and resources in that area, but it's clearly going to take a while to sort itself out and then you want to add I think that's clear.

Matt J. Summerville: Alright, excellent. Thank you.

Matt J. Summerville: Our next question is from Matt Summerville with a follow-up from D. A. Davison. Please proceed.

Speaker Change #112: Yeah.

Matt J. Summerville: Yeah, just a quick follow up. Just to clarify in your data center assumption for this year, your revenue assumption that you know, 35% or so organic, are you assuming any contribution from liquid? And if so, what would be a reasonable expectation if this was year one for a liquid business for Modine? What's a reasonable expectation for a liquid business?

Speaker Change #113: Excellent. Thank you.

Speaker Change #113: Our next question is Matt Summerville with a follow up from D. A Davidson. Please proceed.

Matt J. Summerville: Yes, just a quick follow up just to clarify in your data center assumption for this year.

Speaker Change #114: Revenue assumption that you know 35% or so.

Matt J. Summerville: Organic are you assuming any contribution from liquid and if so what would be a reasonable expectation for if this is year one for illiquid business for modine, what's a reasonable year, one expectation for the liquid business.

Neil D. Brinker: Yeah, it's, it's, it's, it's, those numbers do not include liquid matter to any extent that's nominal.

Neil D. Brinker: Yeah, it's

Speaker Change #114: Yeah.

Speaker Change #114: It does.

Matt J. Summerville: The numbers do not include liquid Matt.

Speaker Change #115: Any extent its nominal amount.

Speaker Change #116: Got it.

Speaker Change #117: Do you think based on the conversations and the cadence and how this market is developing there as well.

Neil D. Brinker: Yeah, it's all dependent on the I believe, Matt, that the quickest and my perspective is on the direct-to-chip side, which is tied directly to the CD. So as we continue to develop with our customers, and if our customers, the key piece is once we convert to direct-to-chip that you have the technology to support the cross-selling of all the other products that we're talking about that's growing at $35. That makes sense

Speaker Change #117: Sure.

Start to see a liquid business materialize for modine this fiscal year.

Speaker Change #118: Yeah, that's it's all dependent on the <unk>.

Speaker Change #119: I believe Matt that the.

Speaker Change #120: Quickest liquid adoption in the market from what we're seeing.

Speaker Change #121: And it's my perspective is on the direct ship side, which is tied directly to the CPU.

Speaker Change #121: So as we continue to develop with our customers and if our customers.

Speaker Change #121: See that there's a true demand for that from their end users I would expect we would accelerate our testing and our development over this fiscal year, if the market lag I would expect it to be delayed.

Speaker Change #122: Where we're at today, we would expect to have seem to use in the market by that by the end of the calendar year and prototyping and as well as in validation. So you know it's not a.

Speaker Change #122: The key pieces once we convert to direct a chip that you have the technologies that support.

Neil D. Brinker: Yeah, it does. And then I just want to talk about kind of the go-forward pricing strategy across the businesses. I would imagine there's still some leftover pricing goodness to be realized in fiscal 25 in PT, just given how things seem to work in that business from a timing standpoint. So one, I guess; correct me if I'm wrong with that. And then second, on the climate side, is this a business where you've put in place, Neil, kind of a commercial practice where we should expect, you know, a point or two or a couple of points of price capture in that business on kind of a normal go-forward annual cadence? Yeah, that's a good question.

Speaker Change #122: The cross selling of all the other products that we're talking about that's growing at 35%.

Speaker Change #122: If that makes sense now.

Speaker Change #122: Yes, It does and then I just I wanted to talk about.

Speaker Change #123: Kind of the go forward pricing strategy across the businesses I would imagine there's still some left over pricing goodness to be realized in fiscal 'twenty five and P. T. Just given how things seem to work in that business from a timing standpoint. So one I guess correct me if I'm wrong with that and then second.

Speaker Change #124: On the climate side is this a business where you've put in place meal kind of a commercial practice, where we should expect.

Neil D. Brinker: Yeah, that's a good question. We're constantly making sure we're relevant in the market where we price our products. And as you know, Matt, we're in so many—one of the great things about Modine is that we're diversified. We're experts in heat transfer and thermal dynamics, so we can serve a lot of markets. And all those markets operate differently, especially when it comes to commercial excellence and terms. On the climate solution side, because there are some OEMs and a lot of it is distribution, you're correct.

Speaker Change #124: Point or two for a couple of points of price capture in that business on kind of a normal.

Speaker Change #124: For the annual cadence.

Speaker Change #125: Yeah. That's a good question, we are constantly making sure where we're relevant in the market, where our well we price our products and as you know Matt we're in so many one of the.

Speaker Change #125: Great things about multi line diversified her ethical and transparent thermal dynamics. So we can serve a lot of markets.

Neil D. Brinker: We can stay current and make sure that our pricing, at a minimum, keeps up with inflation. And then on the performance technology side, we've got through the heavy lift in terms of that activity, there's certainly cleanup, and that's, you know, why we feel confident in the margin expansion that we were public about on the call. I did it. Thanks.

Matt J. Summerville: And all of those markets operate differently, especially when it comes to commercial excellence and in terms of Ts and CS pricing.

Speaker Change #126: It is on the climate solution side, because it's typically there's some Oems and a lot of it is distribution you're correct. We can stay current and make sure that our pricing at a minimum keeps up with inflation.

Speaker Change #127: And then on the on the performance technology side, where we've got through the heavy lift in terms of that activity there certainly cleanup.

Nick: I'll just add one comment on the data center in Scott Springfield; I want to make sure it's for the analysts. As we do organic and inorganic growth, when we announced the deal, it was about evenly split, I think about 60% data center, 40% commercial air handlers, which is really good. But as a reminder, and that's how we split it out, so we've got a really rapid growth rate on the HVAC side.

Speaker Change #127: And that's why we feel confident in the margin expansion that we went public about.

Speaker Change #127: On the call.

Got it thanks, Dave.

Speaker Change #128: I'd just add one comment.

Speaker Change #129: And the data centers got Springfield, what makes sense for the analysts that are.

Speaker Change #130: Maybe try it as we do our organic and inorganic growth when we announced the deal. It was about evenly split I think about 50% data center 40 commercial.

Nick: Part of that is benefiting from Scott Springfield, and obviously, the data center side is also benefiting, but I just want to remind everyone that Scott Springfield was a split between commercial and data center when you're doing your modeling.

Speaker Change #130: Air handlers, which is really good.

Speaker Change #130: But yeah.

Speaker Change #131: So as a reminder, and that's how we split it out so we've got a really rapid growth rate on the HVA CNR side part of that is benefiting from Scott spring field and obviously the data center side is also benefiting but I just want to remind everyone has got to Springfield.

Kathleen T. Powers: I am showing no further questions at this time. I would now like to turn the conference back over to Kathy Powers. Thank you, Sherry, and thanks to everyone on the line for joining us this morning. You'll be able to access the replay of the call on our website in about two hours. We hope you all have a great day. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Speaker Change #131: Split between commercial and data center as Youre doing your modeling.

Speaker Change #131: I am showing no further questions at this time I would now like to turn the conference back over to Kathy powers.

Karen: Thank you Karen and thanks to everyone on the line for joining US. This morning, you'll be able to access the replay of the call through our website in about two hours. We hope you all have a great day.

Speaker Change #133: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Speaker Change #133: Okay.

Speaker Change #133: [music].