Q1 2025 Modine Manufacturing Co Earnings Call
Neil D. Brinker: coming online later this year. As data centers prepare for the growth of high-performance computing, there is an increased need for hybrid solutions that incorporate a mix of air and liquid cooling. As I previously mentioned, we are internally developing a cooling distribution unit, or CDU, that will facilitate direct-to-chip cooling while integrating seamlessly with our other products. We expect the first shipments to be delivered to a strategic co-location customer in Europe during our fourth fiscal quarter and expect this to be followed by shipments to key North American co-location customers.
Unknown Attendee: As data centers prepare for the growth of high performance computing, there is an increased need for hybrid solutions that incorporate a mix of air and liquid cooling products. By combining both air and liquid techniques in a hybrid approach, data centers can achieve optimal cooling efficiency while minimizing energy consumption.
As data centers prepare for the growth of high performance computing. There is an increased need for hybrid solutions that incorporate a mix of <unk> and.
In liquid cooling.
Yeah.
By combining both air and liquid techniques in a hybrid approach data centers can achieve optimal cooling efficiency, while minimizing energy consumption.
Neil Brinker: As I previously mentioned, we are internally developing a cooling distribution unit or CDU that will facilitate directed chip cooling while integrating seamlessly with our other products. We are completing the test base for this product, and moving towards production and launch. We expect the first shipments to be delivered to a strategic co-location customer in Europe during our fourth fiscal quarter, and expect this to be followed by shipments to key North America co-location customers. Our CDU will be on display at our Investor Day in September, as well as at industry trade shows this fall. Please turn to slide 6.
As I previously mentioned, we are internally developing a cooling distributions.
Our CDU that will facilitate directed chip cooling, while integrating seamlessly with our other products.
We are completing the test base for this product and moving towards production and launch.
We expect the first shipments to be delivered to a strategic colocation customer in Europe during our fourth fiscal quarter and expect this to be followed by shipments to key North America Colocation customers.
Our CD will be on display at our Investor day in September as well as at industry trade shows this fall.
Neil Brinker: The performance technology segment also had an outstanding quarter, with a 25% increase in adjusted EBITDA and an EBITDA margin of 14%. Myth will cover the specifics, but we are lowering our sales outlook and the performance technology segment due to lower expected volumes and the agricultural and construction equipment markets, as well as certain portions of the automotive market. However, we have been able to offset some of these declines with higher-than-expected sales of gen-set modules as the market continues to be strong. This strategic shift in evolving product mix is one of the contributing factors to the significant margin improvement in the performance technology segment due to lower expected volumes and the agricultural and construction equipment markets, as well as certain portions of the automotive market.
Neil D. Brinker: The performance technology segment also had an outstanding quarter, with a 25% increase in adjusted EBITDA and an EBITDA margin of 14%. Mick will cover the specifics, but we are lowering our sales outlook and the performance technology segment due to lower expected volumes in the agricultural and construction equipment markets, as well as certain portions of the automotive market. However, we have been able to offset some of these declines with higher than expected sales of GenSet modules as the market continues to be strong.
Please turn to slide.
Six.
The performance Technology segment also had an outstanding quarter with a 25% increase in adjusted EBITDA and an EBIT margin of 14%.
Nick will cover the specifics, but we are lowering our sales outlook and the performance technology segment due to lower expected volumes in the agricultural and <unk>.
Nick: Equipment markets as well as certain portions of the automotive market. However, we have been able to offset some of these declines with higher than expected sales of Gen set modules as the market continues to be strong.
Neil D. Brinker: This strategic shift and evolving product mix is one of the contributing factors to the significant margin improvement in the performance technology segment. Earlier this month, our EV Systems business announced an important product launch with the introduction of the Advanced Cabin Climate System. Along with the other products marketed under the eVantage brand, this system is specifically designed for commercial, off-highway, and specialty electric vehicles and fully integrates with our other thermal management products.
Neil Brinker: However, we have been able to offset some of these declines with higher-than-expected sales of gen-set modules as the market continues to be strong. This strategic shift in evolving product mix is one of the contributing factors to the significant margin improvement in the performance technology segment.
Nick: This strategic shift and evolving product mix is one of the contributing factors to the significant margin improvement in the performance technology segment.
Neil Brinker: Earlier this month, our EV systems business announced an important product launch, with the introduction of the Advanced Cabin Climate System. Along with the other products marketed under the Evantage brand, this system is specifically designed for commercial, off-highway, and specialty electric vehicles, and fully integrated with our other thermal management products. The team booked 8 program wins this quarter, equating to a projected annual run rate of over 24 million at peak revenue. One of these awards was with a major plus customer in Europe, which will be the first program launched out of our expanded Italian footprint next year.
Nick: Earlier this month, our EV systems business announced an important product launch with the introduction of the advanced cabin climate system.
Nick: Along with the other products marketed under the E. Vantage brand. This system is specifically designed for commercial off highway and specialty electric vehicles and fully entered.
Michael B. Lucareli: The team booked eight program wins this quarter, equating to a projected annual run rate of over $24 million at peak revenue. Thanks, Neil, and good morning, everyone. Please turn to slide 7 to review the segment results. Climate Solutions is off to a strong start with a 31% increase in adjusted EBITDA and a margin over 20%. Performance Technologies also started the fiscal year off very well, with a 25% increase in adjusted EBITDA and a 390 basis point improvement in adjusted EBITDA margin. Sales decreased 1%. Performance Technologies is leveraging our 80-20 model to focus on improving earnings and margins.
Nick: With our other thermal management products.
Nick: The team booked a program wins this quarter equating to a projected annual run rate of over $24 million at peak revenue.
Nick: One of these awards was with a major bus customer in Europe, which will be the first program launched out of our expanded Italian footprint next year.
Neil Brinker: We are projecting this business to grow by 30 percent or more per year over the next few years.
Nick: We are projecting.
Neil Brinker: This is a great example of how 80-20 has changed our culture, allowing us to identify and foster new opportunities to leverage our deep expertise in thermal management to develop highly engineered mission critical solutions. Performance technologies revenue were also influenced by the plan Strategic Investitures completed last year, and we are continuing to reduce our cost as we ship resources away from some of our legacy businesses. We will continue to evaluate the best way to achieve these goals and look for opportunities to accelerate where possible. Now that we've improved the profitability of the business, we have more options than we've had before and can take the time to see what's best to evolve our portfolio.
Nick: Business to grow by 30% or more per year over the next few years.
Nick: This is a great example of how 80 twentyish changed our culture, allowing us to identify and foster new opportunities to leverage our deep expertise in thermal management to develop highly engineered mission critical solutions.
Nick: Performance technologies revenue were also up.
Nick: By the planned strategic divestitures completed last year, and we are continuing to reduce our cost as we shift resources away from some of our legacy businesses.
Nick: We will continue to evaluate the best way to achieve these goals and look for opportunities to accelerate where possible.
Nick: Now that we've improved the profitability of the business we have more.
Neil Brinker: I'm very pleased with our progress, and our performance is quarter. I'm looking forward to our Investor Day event, which is in September at our headquarters, where we will provide some additional insights on our transformation and updated financial targets.
Options than we've had before and can take the time to do whats best to evolve our portfolio.
Nick: I am very pleased with our progress and our performance this quarter I'm looking forward to our Investor Day event, which is in September at our headquarters, where we will provide some additional insights on our transformation and updated financial targets.
Neil Brinker: With that, I'll turn the call to Nick. Thanks, Neil, and good morning, everyone. Please turn to slide 7 to review the segment results. Climate solutions is off to a strong start, with a 31% increase in adjustability and a margin over 20%. Our heavy focus and resources to the data center market continues to pay off, driving strong revenue growth and an improved sales mix. Data center sales grew 138% or $94 million, driven by strong demand from hyper-scale customers, along with sales from the acquired Scott Springfield. HVAC and our sales increased 7% or $5 million, including revenue from our acquired businesses.
Speaker Change: With that I'll turn the call.
Speaker Change: Nick.
Nick: Thanks, Neal and good morning, everyone. Please turn to slide seven to review the segment results.
Nick: Climate solutions is off to a strong start with a 31% increase in adjusted EBITDA and a margin over 20%.
Nick: Our heavy focus and resource.
Nick: The data center market continues to pay off driving strong revenue growth and an improved sales mix.
Nick: Data center sales grew 138% or $94 million driven by strong demand from hyperscale customers along with sales from the acquired Scott Springfield.
Nick: HVA CNR sales increased 7% or $5 million, including revenue from our acquired businesses the.
Neil Brinker: The heating market bounce back this quarter with encouraging signs for an improved market this year. He transferred product sales for down 21% or 29 million. The decline primarily related to a significant drop in sales to European heat fund customers and lower demand in certain other commercial and residential markets. Overall, we're very pleased with the climate solution strong earnings conversion, resulting in a 100 basis point adjusted EBITDA margin improvement to 20.1%. Our 80-20 discipline remains at the heart of our quarterly earnings margin improvements, including a positive mix impact, with data center sales continuing to drive a meaningful margin increase.
Nick: The heating market bounce back this quarter with encouraging signs for an improved market this year.
Nick: Transfer product sales were down 21% or $29 million.
Nick: The decline primarily related to a significant drop in sales to European heat on customers.
Nick: And lower demand in certain other commercial and residential markets.
Nick: Overall, we're very pleased with the climate solutions strong earnings conversion, resulting in a 100 basis point adjusted EBITDA margin improvement to 21%.
Nick: Our 80 20 discipline remains at the heart of our quarterly earnings margin improvements, including a positive mix impact with data center sales continuing to drive a meaningful margin increase.
Neil Brinker: In addition, our acquisitions are meeting or exceeding the goals established, which is further supporting the positive momentum and outlook for climate solutions.
Nick: In addition, our acquisitions are meeting or exceeding the goals.
Neil Brinker: Please turn to slide 8. Performance technologies also started the fiscal year off very well, with a 25% increase in the adjusted EBITDA and a 309 basis point improvement in the adjusted EBITDA margin. Revenue decreased 10%, which was in line with our expectations, driven primarily by the German divestitures, along with lower sales to automotive and off-highway customers. Excluding the negative 24 million impact of divestitures and FX rates, sales decreased 1%. Performance technologies is leveraging our 80-20 model to focus on improving earnings and margins. While the sales line may be flatter down, the team continues to exit certain lower-margin businesses and grow other targeted areas.
Speaker Change: The analyst, which is further supporting the positive momentum and outlook for climate solutions.
Speaker Change: Please turn to slide eight.
Nick: Performance technologies also started the fiscal year off very well with a 25% increase in adjusted EBITDA and a 390 basis point improvement in adjusted EBITDA margin.
Speaker Change: Revenue decreased 10%, which was in line with our expectations driven primarily by the chairman divestitures, along with lower sales to automotive and off highway customers.
Nick: Excluding the negative $24 million impact.
Nick: Divestitures and FX rates.
Nick: <unk> decreased 1%.
Michael B. Lucareli: While the sales line may be flat down, the team continues to exit certain lower-margin businesses and grow other targeted areas, partially offset by lower EV auto sales. These items were partially offset by strong order intake and sales for products that go into GenSys. We said that revenue is not the primary focus for performance technologies in our transformation, and I'm very pleased with the high level of earnings conversion in the quarter.
Nick: Performance technologies is leveraging our 80 20 model to focus on improving earnings and margins.
Nick: While the sales line may be flat or down the team continues to exit certain lower margin business.
Neil Brinker: Advanced solution sales were higher by 12% or 3 million, driven by higher sales of EV systems to commercial and specialty vehicle customers, partially offset by lower EV auto sales. Liquid cooled application sales decreased 23% or 31 million, primarily due to the divestitures along with lower end market demand across auto, commercial vehicle, and off-highway markets. Lastly, air cooled application sales were lower by 3% or 4 million, mostly driven by lower volumes in the agriculture and construction markets, along with the impact from last year's the bestitures. These items were partially offset by strong order intake and sales for products that go into gen sets.
Nick: <unk> and grow other targeted areas.
Nick: Advanced solution sales were higher by 12% or $3 million driven by higher sales of <unk> systems to commercial and specialty vehicle customers.
Nick: Shelley offset by lower EV auto sales.
Nick: Liquid cooled application sales decreased 23% or $31 million, primarily due to the divestitures along with lower end market demand across auto commercial vehicle and off highway markets.
Eric: Lastly, Eric.
Eric: Air cooled application sales were lower by <unk>.
Eric: Our $4 million, mostly driven by lower volumes in the agriculture and construction markets along with the impact from last year's divestitures.
Neil Brinker: We said that revenue is not the primary focus for performance technologies in our transformation, and I'm very pleased with the high-level earnings conversion in the quarter. Performance technologies drove up 390 basis point margin improvement, resulting in a 14.1% EBITDA margin.
Eric: These items were partially offset by strong order intake and sales for products that go into Gen. Six.
Michael B. Lucareli: Performance technologies drove a 390 basis point margin improvement, resulting in a 14.1% EBITDA margin. First quarter sales increased 6%, driven by acquisitions in organic growth and climate solutions, partially offset by $24 million of divestitures and planned 80-20 initiatives in performance technology.
Speaker Change: We said that revenue is not a primary focus for performance technologies, and our transformation and I'm very pleased with the high level of earnings conversion in the quarter performance technologies drove a 390 basis point margin improvement.
Neil Brinker: Now, let's review the total key results. Please turn to slide 9. First quarter sales increased 6% driven by acquisitions in organic growth and climate solutions, partially offset by 24 million of the vestitures and planned 80-20 initiatives in performance technologies. Excluding the impact of acquisitions, the vestitures and effects rates, organic sales increased 4%. Our growth margin was significantly higher, with a 400 basis point improvement to 24.6%. The margin improvement is continued over the last two years, benefiting from 80-20 initiatives and a strategic shift in our business mix. SGNA increased 21 million, which is larger than normal but in line with our expectations and outlook.
Speaker Change: Resulting in a 14, 1% EBITDA margin.
Speaker Change: Now, let's review the totals the results please turn to slide nine.
Speaker Change: First quarter sales increased 6% driven by acquisitions and organic growth and climate solutions.
Speaker Change: Partially offset by $24 million of divestitures and planned 80 20 initiatives in performance technologies.
Speaker Change: Excluding the impact of acquisitions divestitures, and FX rates organic sales increased 4%.
Speaker Change: Our gross margin was significantly higher with a 400 basis point improvement to 24, 6%.
Eric: The margin improvement has continued over the last two years benefiting from 80 20 initiatives and our strategic shift in our business mix.
Neil Brinker: The SG&A change includes SG&A in the acquired businesses, incremental amortization expense tied to the acquired intangible assets. In addition, we forwarded higher salary and incentive compensation expenses in our based businesses. Adjusted EBITDA was extremely strong again this quarter, with an increase of 25% or 21 million. The adjusted EBITDA margin was 15.3%, a 240 basis point improvement from the prior year. This now represents the 10th consecutive quarter of year-over-year margin improvement. Adjusted earnings per share was $1.4%, 22% higher than the prior year. We're very pleased with another exceptional quarter, resulting in an EBITDA margin that confirms we're on the right path for 80-20 journey.
Michael B. Lucareli: SG&A increased $21 million, which is larger than normal but in line with our expectations and outlook.
Eric: The SG&A change includes SG&A in the acquired businesses.
Eric: Incremental amortization expense tied to the acquired intangible assets.
Eric: In addition, we recorded higher salary and incentive compensation expenses in our base businesses.
Eric: Adjusted EBITDA was extremely strong again this quarter with an increase of 20.
Eric: A percent or $21 million.
Eric: The adjusted EBITDA margin was 15, 3%, a 240 basis point improvement from the prior year.
Unnamed Speaker: 22% higher than the prior year. We're very pleased with another exceptional quarter resulting in an EBITDA margin that confirms we're on the right path for the 80-20 journey. Now moving to the cash flow metrics, please turn to slide 10. Net debt of $363 million was $9 million lower than the prior fiscal year end.
Eric: This now represents the 10th consecutive quarter of year over year margin improvement.
Eric: Adjusted earnings per share was $1 four.
Eric: 22% higher than the prior year.
Neil Brinker: Now moving to the cash flow metrics, please turn to slide 10. We generated 14 million of free cash flow in the first quarter. This was primarily driven by higher operating earnings, partially offset by CAPF and payments for incentive compensation. This also included 11 million of cash restructuring payments, primarily in Europe, an integration cost paid during the quarter. Net debt of 323 million was 9 million lower than the prior fiscal year end. This resulted in a leverage ratio of 1.1. The balance sheet remains strong, and we anticipate another year of good free cash flow. We remain in a great position to support more organic growth and acquisition initiatives.
Eric: We're very pleased with another exceptional quarter, resulting in an EBITDA margin that confirms we're on the right path for our 80 20 journey.
Eric: Now moving to the cash flow metrics, please turn to slide 10.
Eric: We generated $14 million of free cash flow in the first quarter. This was primarily driven by higher operating earnings partially offset by capex and payments for incentive compensation.
Eric: This also included $11 million of cash restructuring payments, primarily in Europe and integration cost paid during the quarter.
Eric: Net debt of $333 million was $9 million lower than the prior fiscal year end.
Unnamed Speaker: We remain in a great position to support more organic growth and acquisition initiatives. We now expect fiscal 25 adjusted EBIT data to be in the range of $375 million to $395 million, attached to this presentation and our press release. Ladies and gentlemen, we will wait for a moment while we poll for questions.
Eric: This resulted in a leverage ratio of one one.
Neil Brinker: Now let's turn to slide 11 for our fiscal 25 outlook. I'm pleased to report we're raising our sales earnings and adjusted EPS outlook for fiscal 25. Our first quarter results exceeded our expectations, and our improved outlook reflects this, along with some revenue adjustments across a few product groups. We're raising the total company sales growth to a range of 6 to 11%. In the climate solution segment, we have an improved outlook driven by a large increase in our data center sales projection, which is partially offset by adjustments to HVAC and R and heat transfer products. We now expect data center sales to grow 80 to 90 percent, which is a substantial increase from our initial guidance of 60 to 70 percent.
Eric: The balance sheet remains strong and we anticipate another year of good free cash flow.
Unnamed Speaker: We remain in a great position to support more organic growth and acquisition initiatives.
Eric: Now, let's turn to slide 11 for our fiscal 25 outlook.
Eric: I am pleased to report we are raising our sales earnings and adjusted EPS outlook for fiscal 'twenty five our first quarter results exceeded our expectations and are.
Eric: With the outlook reflects this along with some revenue adjustments across a few product groups.
Eric: We're raising the total company sales growth to a range of 6% to 11%.
Unnamed Speaker: In the climate solutions segment, we have an improved.
Eric: Outlook driven by a large increase in our data center sales projections, which is partially offset by adjustments to HVA CNR and heat transfer products.
Neil Brinker: Moving to HP and R, we continue to see strong growth, but are adjusting to be up in the range of 15 to 20 percent. And for key transfer products, we now anticipate that HDP sales will be flat to down 5 percent, with improvements later in the fiscal year. Within performance technologies, we're adjusting advanced solutions growth to be in the 15 to 25 percent range, driven by new program launches. We continue to expect a decline in sales for liquid-cool products, driven by the remaining impacts of the German divestitures and further attrition of non-strategic businesses. Our air-cooled business continues to see higher sales of products of the Gensett and power generation market.
We now expect data center sales to grow $80 to 90%, which is a substantial increase from our initial guidance of 60% to 70%.
Eric: Moving to <unk>, we continue to see strong growth, but are adjusting to be up in the range of 15% to 20%.
Eric: And heat transfer products, we now anticipate that http sales will be flat to down 5% with improvements later in the fiscal year.
Unnamed Speaker: Within performance technologies, we're adjusting advanced solutions growth to be in that 15% to 25% range.
Eric: Driven by new program launches.
Eric: We continue to expect a decline in sales for liquid cooled products driven by the remaining impact of the German divestitures and further attrition of non strategic businesses.
Neil Brinker: However, we've also experienced the reduction in orders from customers in the ag and construction markets. As a result, we now anticipate that sales in this product group will be flat to down 10 percent. As I discussed at the beginning of the fiscal year, we're anticipating slightly lower sales in performance technologies. But this is consistent with our long-term strategy and expect improvement in EBITDA dollars and margin during fiscal 25.
Eric: Our air Cool business continued to see higher sales of product the Gen set and power generation market.
Eric: However, we've also experienced a reduction in orders from customers in the AG and construction markets.
Eric: As a result, we now anticipate that sales in this product group will be flat to down 10%.
Neil Brinker: Now moving to our earnings outlook. While it's early in the fiscal year, we're raising the earnings outlook mostly based on the strengths of our first quarter. We now expect fiscal 25 adjusted EBITDA to be in the range of $375 million to $395 million. In addition, we anticipate another year of good cash flow and expect will generate a similar level of free cash flow as in fiscal 24. As part of our cash flow outlook, we anticipate the fiscal 25 capital spending to be in line with the prior year. We're expecting adjusted EPS to be in the range of $3.65 to $3.95, which is also an increase from the previous guidance.
Eric: As I discussed at the beginning of the fiscal year, we anticipate getting slightly lower sales in performance technologies, but this is consistent with our long term strategy and expect improvement in EBITDA dollars and margin during fiscal 'twenty five.
Eric: Now moving to our earnings outlook.
Eric: While it's early in the fiscal year, we are raising the earnings outlook, mostly base.
Strength of our first quarter.
Eric: We now expect fiscal 'twenty five adjusted EBITDA to be in the range of 375 million to $395 million.
Eric: In addition, we anticipate another year of good cash flow and expect we will generate a similar level of free cash flow is in fiscal 'twenty four.
Eric: Part of our cash flow outlook, we anticipate that fiscal 'twenty five capital spending to be in line with the prior year.
Neil Brinker: This reflects key assumptions for interest expense, taxes, and amortization and depreciation expense, including the impacts from the acquisition of Scott Springfield. These assumptions are summarized in the appendices attached to this presentation and a press release.
Eric: We're expecting adjusted EPS to be in the range of $3 65.
Eric: To $3 95.
Unnamed Speaker: Which is also an increase from the previous guidance.
Kathy powers: To wrap up, we're very pleased with the results from the first quarter, and we're off to a strong start to the fiscal year. As a reminder, we're holding an Analyst and Investor Day on the 11th of September at our headquarters. There's still time to register, but the window is closing soon. Please contact Kathy and our Investor Relations team if you are interested in attending.
Eric: This reflects the key assumptions for interest expense taxes and.
Unnamed Speaker: In amortization and depreciation expense, including the impacts from the acquisition of Scott Springfield.
Eric: These assumptions are summarized in the appendices.
Eric: Patched to this presentation and our press release.
Eric: To wrap up.
Eric: We're very pleased with the results from the first.
Unnamed Speaker: And we're off to a strong start to the fiscal year.
Neil Brinker: With that, Neil and I will take your questions. Thank you.
Unnamed Speaker: As a reminder, we're holding an analyst and Investor day on the 11th of September at our headquarters there.
Unknown Attendee: Ladies and gentlemen, if you have a question at this time, please press the star, then one key on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press staff, then too, if you'd like to remove your question from the queue.
Speaker Change: There is still time to register but the window is closing soon.
Speaker Change: Please contact Kathy and our Investor Relations team. If you are interested in attending.
Speaker Change: With that Neil and I will take your questions.
Unknown Attendee: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the staff keys. Ladies and gentlemen, we will wait for a moment while we pull for questions.
Unnamed Speaker: Thank you.
Speaker Change: Ladies and gentlemen, if you have a question at this time. Please press the Star then one key on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Noah Kaye: Our first question is from the line of Noah Kaye, with Oppenheimer and Company. Please go ahead. Good morning. Thanks for taking the questions.
Unnamed Speaker: You May press star.
Unnamed Speaker: Then two if you would like to remove your question from the queue.
Keith: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
Neil Brinker: I guess we have to start with data center because it was a pretty phenomenal quarter for the results. Just shouldn't understand the trends as we move throughout the year here. You've got capacity expansions in the works. They'll start to benefit in the back half. You raise the full year guidance. Just going off of the results here in one queue, we would imply one queue, somewhat seasonally stronger versus prior years.
Unnamed Speaker: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: Our first question is from the line of no half key west.
Noel Hebert: Open Hi, Mom and company. Please go ahead.
Eric: Okay.
Speaker Change: Good morning, Thanks for taking the questions I guess, we have to start with data center because it was a pretty.
Speaker Change: Pretty phenomenal quarter.
Speaker Change: The results just trying to understand the trends as we move throughout the year here.
Neil Brinker: Just trying to understand whether that's anything specific to large order revenue timing, or is it really just conservatism because it would seem like you've got some additional growth levers as you move into the back half. Thanks for the question. It's really the latter. I'd say not necessarily conservatism as much as we still have the incoming pipeline of programs and opportunities. And for the second half of the year, especially our queue for, we'll be able to firm that up by probably late fall. So the biggest issue for us is we're trying to provide guidance and forecast based on our funnel; the majority of that are secured purchase orders.
Speaker Change: You've got capacity expansion works, we will start to benefit in the back half.
Speaker Change: You raised the full year guidance.
Speaker Change: Hi.
Speaker Change: Just going off of the results here in <unk>, It would imply <unk> somewhat seasonally stronger versus prior years, just trying to understand whether that.
Speaker Change: Specific to large order revenue timing or is it really just conservatism.
Unnamed Speaker: We still have the incoming pipeline of programs and opportunities, and for the second half of the year, especially RQ4, we'll be able to firm that up by probably late fall. So the biggest issue for us is we're trying to provide guidance and forecast based on our funnel, the majority of which are secured purchase orders.
Speaker Change: Does it would seem like you've got some additional growth levers as you move into the back half.
Speaker Change: Yeah, Hey.
Speaker Change: Thanks for the question, it's really the latter.
Speaker Change: I'd say.
Speaker Change: Not necessarily conservativism.
Speaker Change: As much as.
Unnamed Speaker: We still have the incoming pipeline of programs and opportunities and for the second half of the year, especially our Q4.
Neil Brinker: And then, as we continue to look out for the balance of the year, again, probably part of queue three and most of queue four within another quarter. So we'll be able to firm up how many of those transition to firm purchase orders. Great. I'll follow up on that offline.
Unnamed Speaker: And then as we continue to look out for the balance of the year, again, probably part of Q3 and most of Q4 will be within another quarter. Can I, before yielding to others, please clarify on that point for a second. Because I think 80-20 certainly played a factor in some of the trends within heat transfer products last year. But our impression was that a lot of the optimization would basically be done as you went into this year.
Speaker Change: We'll be able to firm that up.
Speaker Change: By probably late fall so that the biggest issue for US is we're trying to provide guidance and forecast based on our funnel majority of that are secured purchase orders.
Neil Brinker: I did want to ask about the reduction in outlook for heat transfer products. We get easier coms, obviously, moving through the back half of the year. But looking at some of the, in commercial HVAC trends broadly, especially in North America, they've been quite positive quarter to date in the industry. So just wondering if you can sort of parse out how much of the weakness in the quarter was really the heat pumps versus the broader market. And what would create kind of a drag on growth relative to your prior outlook as we look through the full year?
Eric: And then as we continue to look out for the balance of the year again, probably prior to Q3 and most of Q4.
Eric: Within another quarter or so we will be able to firm up.
Speaker Change: How many of those.
Speaker Change: Transition of firm purchase orders.
Speaker Change: Okay, Great I'll follow up on that offline I did want to ask about the reduction in outlook for heat transfer products.
Speaker Change: We get easier comps obviously moving.
Speaker Change: The back half of the year.
Speaker Change: Looking at some of the commercial HVAC trends broadly, especially in North America, but they've been quite positive quarter to date in the industry. So just wondering.
Neil Brinker: Yeah, to make again, first, more than three quarters of the revenue drop was tied to the heat pump, lower heat pump sale. So, again, as you said, we'll start in the second half of the year to have easier coms specifically tied to the heat pumps. So yeah, the first vast majority of the revenue drop was tied to on the European heat pump sale side. The other areas really are tied to 80-20. And as the team has been continuing to kind of test the market, we've got certain areas of business we have targeted to exit. And then there are other areas, so I think we're just the term we use internally is testing the price elasticity.
Speaker Change: If you can sort of parse out how much of the weakness in the quarter was really the heat pumps versus the broader market and and what would create.
Speaker Change: Kind of a drag on growth relative to your prior outlook as we look through the full year.
Unnamed Speaker: Yes, it's Nick again first.
Unnamed Speaker: Sure.
Unnamed Speaker: More than three quarters.
Speaker Change: The revenue drop was tied to the heat pump lower heat pump sale.
Unnamed Speaker: Okay.
Speaker Change: Again as you said.
Speaker Change: We'll start in the second half of the year to have easier comps is specifically tied to the heat pump. So yes first vast majority of the revenue drop is tied to on the European heat pump sales side. The other areas really are tied to <unk> and as the team is continuing.
Neil Brinker: And so they're still sorting out the other bounds of the market.
Neil Brinker: Can I just, before yielding the other country, clarify on that point for a second, actually? Because I think 80, 20 certainly played a factor in some of the trends within heat transfer products last year. Our impression was a lot of the optimization would would would basically be done as you went into this year. So how big a revenue headwind could that be as we look to the guidance for 25? Is this a point or two of strategic exits? Is it more? Yeah, good question. No, this is Neil. We're continuing to work through 80, 20 execution in this business.
Speaker Change: Kind of test the market, we've got certain areas of business, we have targeted to exit and then there are other areas. So I think we're just the term we use internally is testing the price elasticity and scale.
Unnamed Speaker: You know, so how big of a revenue headwind could that be as we look to, you know, the guidance for 25? Is this, you know, a point or two of kind of strategic exits? Is it more?
Speaker Change: They're still sorting out the other balance of the market.
Unnamed Speaker: Can I just before yielding other countries.
Unnamed Speaker: On that point for a second actually because I think $80 20, certainly played a factor in some of the trends within the transfer products last year.
Speaker Change: Our impression was a lot of the optimization.
Unnamed Speaker: It would basically be done as you went into this year.
Neil Brinker: So as we do that, we're we have dozens of markets that we serve. We also have thousands of skews that we produce to serve these markets. So we're going to continue to go through the evaluation phase. I'd have to take it; it would be a guess to give you an estimate, as they are in the middle of the second phase of this. But you're right; the majority of it has been done. They've had, you know, tremendous lift and improvement of the business over the last 18 months. And they'll continue to settle some of these additional markets throughout the rest of this year.
Speaker Change: So how big.
Speaker Change: Our revenue headwind could that be.
Speaker Change: As we look to the guidance for 'twenty five as this.
Speaker Change: A point or two of kind of strategic exits is it more.
Unnamed Speaker: Yes. Good question, though this is Neal we're continuing to work through 80 20 execution.
Speaker Change: In this business so as we do that we have.
Speaker Change: Dozens of markets.
Noah Kaye: All right. Well, I'll take the rest offline. See in September. Really nice quarter. Thank you. Thanks.
Speaker Change: Serve we also have thousands of skus that we produce to serve these markets. So we're going to continue to go through the evaluation phase head to head.
Christopher Moore: Thank you. Our next question is from the line of Chris Moore with C.J.S. Securities. Please go ahead. Hi, it's actually good to go to for Chris this morning. Good morning. So I guess just following up on that last question, in terms of the rationalizations, I think you previously said you target about $100 million of revenue rationalization each year. Can you give us, you know, sort of any guidance? I guess using that number for starters as we look to fiscal 25. Yeah, we've been pretty consistent for, you know, going back against Neil to the beginning when we had originally announced before Neil came in the automotive investiture.
Speaker Change: Our guests to give you an estimate as they are in the middle of the second phase of this but you are right. The majority of it has been done they've had tremendous lift and an improvement of the business over the last 18 months.
Unnamed Speaker: Hi, it's actually Degoda for. And so, as we look today at, Okay, and then I guess as it relates to guidance, it's really constructive to see you guys raise guidance. So, kind of pulling that all together for Modine. Our next question is from the line of Matt Summerville with DA Davidson. Please go ahead.
Speaker Change: They'll continue to settle.
Speaker Change: Some of these additional markets throughout the rest of this year.
Speaker Change: Alright, well ill take the rest offline fee in September really nice quarter.
Speaker Change: Thank you.
Unnamed Speaker: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Chris Moore with CJS Securities. Please go ahead.
Speaker Change: Alright. Thanks.
Chris: For Chris This morning.
Unnamed Speaker: Yeah.
Speaker Change: Good morning, good morning.
Speaker Change: So I guess just following up on that last question.
Speaker Change: In terms of the Rationalizations I think you'd previously said you target about $100 million of revenue rationalization each year.
Neil Brinker: And at that point, I think we are five to 600 million. And then, over the last couple of years, we've done three or four of the vestitures, primarily in the automotive component space. And so, as we look today, it's $300 million tight business plus or minus. And that's primarily the area we've targeted. And we think about it. We think, on average, about 100 million a year would be the goal to continue to strategically move away from. That can be done in smaller pieces, like we've done, or it could be done in larger transactions. It would really just depend on the situation and what the market allows us to do.
Speaker Change: Could you give us sort of any guidance.
Matt J. Summerville: I guess using that number for starters as we look to fiscal 'twenty five.
Speaker Change: Yeah, and we've been pretty consistent for going back against Nielson, beginning when we had originally announced before Neal came in the automotive divestiture and at that point I think we are $5 million to $600 million and then over the last couple years, we've done.
Speaker Change: Three or four divestitures, primarily in order.
Speaker Change: Automotive component state and.
Unnamed Speaker: So as we look today at.
Speaker Change: $300 million type business plus or minus.
Speaker Change: Thats, primarily the area we have targeted.
Neil Brinker: Okay, and then I guess, as it relates to guidance, it's really constructive to see you guys raise guidance so early in the year. That being said, versus our Q1 model, you obviously beat the quarter. And then the guidance for the year is sort of raised by a little less than the quarterly outperform.
Unnamed Speaker: <unk>.
Speaker Change: We think about it we think on average about $100 million a year would be the goal to continue to strategically move away from.
Speaker Change: That can be done in smaller pieces like we've done or it could be done in in larger transactions is it really just depend on the situation and what the market allows us to do.
Neil Brinker: So just given that dynamic, can you give us any color as you kind of look out to Q2, Q3, Q4 and the cadence of that beyond the Q1 number? Yeah, yeah, so just a few comments on the guidance if it helps out. Yes, stronger even than we had anticipated Q1. We clearly rolling it had a really strong tailwind on data centers, partially offsetting a little bit of that. We talked about additional softness a little bit below where we thought we'd be in the egg and construction size, and clearly in automotive components as well. So and EV auto sales.
Speaker Change: Okay and then.
Speaker Change: I guess as it relates to guidance.
Matt J. Summerville: Really constructive to see you guys raise guidance so early in the year.
Speaker Change: That being said versus our Q1 model.
Speaker Change: You, obviously beat the quarter.
Matt J. Summerville: And then the guidance for the year sort of raised by a little less in the quarter. We outperform so just given that dynamic can you give us any color.
Matt J. Summerville: As you kind of look out to Q2, Q3, Q4, and the cadence of that beyond the Q1 numbers.
Speaker Change: Yeah, Yeah. So just a few comments on the guidance of at Healthsouth, Yes.
Speaker Change: Stronger even.
Neil Brinker: So positive roll through on data center, a little bit of pullback in a few areas in performance technology. And then when we look at the kind of the balance of the year, climate solutions from a revenue standpoint, probably relatively consistent at this time. As I did mention a minute ago, we, you know, with our fourth quarter ending March, QCounder 1 and 25, it's out there a bit. We'll continue to evaluate our data center funnel and firm up the full year this fall. But for now, we're kind of looking at a relatively steady revenue run rate from climate solutions, which is good.
Speaker Change: Than we had anticipated Q1.
Speaker Change: We clearly rolling it had a really strong tailwind on data centers.
Speaker Change: Partially offsetting a little bit of that we talked about additional.
Speaker Change: Additional softness a little bit below where we thought we'd be in the AG and construction side and clearly in automotive components.
Speaker Change: Well, so and <unk> sales.
Unnamed Speaker: <unk>.
Speaker Change: Positive roll through on data center, a little bit of pullback in a few areas and performance technology and then when we look at.
Speaker Change: Kind of the balance of the year.
Speaker Change: Climate solutions from a revenue standpoint, probably relevant.
Neil Brinker: Performance technologies with the pullback and off highway, we're expecting a little bit of a dip in Q2. Seasonally, RQ3 of their December quarter is always the lightest that ties to holiday shutdowns with our OEs. So kind of pulling that all together for Modine, we see that from an EBITDA perspective, that Q2 may be sequentially down a little bit from Q1. Typically, same as last year, RQ3, generally the lowest quarter of the year would then step back up in RQ4. So, and all that said, and I said that, you know, last year as we've gone forward, all of our quarters, we continue to expect year-over-year growth in earnings and margin improvement, despite whatever seasonal trends or sequential trends we see right now.
Speaker Change: Consistent at this time as I did mention a minute ago.
Speaker Change: With our fourth quarter ending March Q calendar, one in 25, it's out there a bit we'll continue to evaluate our datacenter funnel and firm up the full year. This fall.
Speaker Change: But for now we're kind of looking at a relative.
Unnamed Speaker: Steady.
Speaker Change: Revenue run rate from climate solutions, which is good performance technologies with the pullback in off highway we're expecting a little bit of a dip in Q2 seasonally or Q3 of their December quarter is always the lightest thats tied to holiday shutdowns with our Oes.
Speaker Change: So kind of pulling that altogether for modine.
Speaker Change: We see that from an EBITDA perspective that Q2 may be sequentially down a little bit from Q1.
Neil Brinker: I hope that helps. Sorry, I'll hop back in Q. Thanks very much.
Speaker Change: Typically as <unk>.
Speaker Change: As last year, our Q3 is generally the lowest quarter of the year with then step back up.
Matt Summerville: Thank you. Our next question is from the line of math, some of the DA Davidson. Please go ahead. Yeah, thanks. A couple of questions.
Speaker Change: Our Q4, and all of that said and I said that last year and as we've gone forward.
Unnamed Speaker: Yeah, thanks. A couple questions. First, on the DC side of the business, the up 80 to 90, can you break out how much of that is organically driven versus the contribution from SSM? And with respect to the latter, we've been really good at scaling up our data center capability across the globe. And when we brought some of that skill set to Scott Springfield, in addition to what they do well, that marriage has put together, you know, the rhythm that we have with growth.
Matt Summerville: First, on the DC side of the business, the up 80s and 90, can you break out how much of that is organically driven versus the contribution from SSM? And with respect to the latter, you know, I'm under the impression that SSM had a 60 million valid data center business last year. And it looks like you probably did close to 30 million alone in SSM DC and Q1. So I'd really like you to spend a minute talking about some of the successes you've had very early on with that acquisition. I'm going to have a follow-up. Yeah.
Speaker Change: All of our quarters, we continue to expect year over year growth in earnings and margin improvement.
Unnamed Speaker: Despite whatever seasonal trends or sequential trends, we see right now.
Unnamed Speaker: I hope that helps.
Speaker Change: That's very helpful. I'll hop back in queue, thanks very much.
Unnamed Speaker: Yes.
Speaker Change: Thank you.
Unnamed Speaker: Our next question is from the line of Matt Summerville with D. A Davidson. Please go ahead.
Unnamed Speaker: Yes. Thanks, a couple questions first on the DC side of the business to up $80 90 can you breakout how much of that is organically driven.
Neil Brinker: Hey, Matt. I'll go first, and Neil can add the more color specifically around SSM. So, on a full year basis, we're expecting about 40 to 50% organic growth out of that full year guide. and you're right on Scott Springfield. We were really excited about the customer that are brought and we talked about cross-selling opportunities, both in terms of customers and products, but the other thing that we felt really good about was the opportunity set for Scott Springfield's order book and what they really needed was Modine's support in terms of scale, investment, manufacturing capabilities in order to have those customer and a major customer release additional orders and increase that share of the order book.
Unnamed Speaker: Versus the contribution from SSM and with respect to the ladder.
Speaker Change: I'm under the impression that <unk> had a $60 million data center business last year, it looks like <unk>.
Speaker Change: We did close to $30 million alone.
Speaker Change: <unk> in Q1, so I'd really like you to spend a minute talking about some of the successes you've had very early.
Speaker Change: That acquisition and then I have a follow up.
Speaker Change: Yeah, Hey, Matt, Matt Carl Goldberg, and Neil can add some more color specifically around SSM, Jeff on a full year.
Unnamed Speaker: Basis, we're expecting about 40% to 50% organic growth.
Unnamed Speaker: Out of that full year guidance.
Speaker Change: And Youre right on Scott Springfield.
Unnamed Speaker: We were really excited about that customer that are brought and we talked about cross selling opportunities both in terms of customers and products, but the other thing that we felt really good about what the operator.
Neil Brinker: So what you're seeing in Q1, we're really excited about. It's going, it's running well ahead of our plans, and maybe just with that I'll let Neil add a little bit more color about Scott Springfield. Yeah, that covers it, and that's a good summary, Mick. You know, there's a few things. We've been really good in scaling up our data center capability across the globe, and when we brought some of that skill set to Scott Springfield, in addition to what, you know, they do well, that marriage has put together, you know, the rhythm that we have with growth.
Speaker Change: Set for Scott Greenfield order book and what they really needed was modine support in terms of scale and investment in manufacturing capabilities in order to have those customer and a major customer released additional orders and increase that share of the order book So.
Unnamed Speaker: Seeing in Q1, we're really excited about is going is running well ahead of our plans and.
Neil Brinker: So a couple things: capital deployment in the right areas, particularly with Scott Springfield, to help them with capacity and expansion, and then, you know, the cross selling of our order books between our customers has been pretty significant. So, as you recall, we had a specific technology through our AirDale brand, and Scott Springfield brings the, you know, an alternative technology with the majority of the market between the two. Now, you have that full basket of goods and products that you can take into your customers, and we're seeing the synergies from that. Got it.
Neil: Maybe just with that I'll, let add Neil add a little bit more color about Scott Springfield.
Speaker Change: Yeah that covers it and Thats a good summary.
Speaker Change: There's a few things.
Unnamed Speaker: We've been we've been really good in terms of scaling up our data center capability across the globe and when we brought some of that skill set to Scott Springfield. In addition to what they do well that marriage has put together.
Unnamed Speaker: The rhythm that we have with growth.
Unnamed Speaker: So a couple of things capital deployment in the right areas, particularly with Scott Springfield to help them with capacity and expansion and then the cross selling of our order books between our customers has been pretty significant so as you recall, we had a specific technology through our airedale.
Unnamed Speaker: Got it. And then, it is a follow-up. Maybe you can talk a little bit about, kind of, I mean, you mentioned initial CDU shipments commencing in Q4. What does the two to three year CDU slash liquid opportunity look like for Modine as a subset?
Neil Brinker: And then it is a follow up. Maybe you talk a little bit about kind of, I mean, you mentioned initial CDU shipments, current scene in Q4. What does the two to three year CDU slash liquid opportunity look like for Modine? Is it a subset or maybe the answer is it's in addition to that kind of three year or less billion dollar target you've laid out for your data center business. Maybe also just talk about your confidence level in that having another quarter in the rear view mirror and perhaps even more funnel visibility. And then I also just would like to ask about on the gents that side of the business what you expect organic growth to be there in fiscal 25.
Speaker Change: Brand and Scott Springfield brings that.
Speaker Change: An alternative technology.
Unnamed Speaker: The majority of the market between the two now you've had that full basket of goods and products that you can take into your customers.
Unnamed Speaker: And we're seeing the synergies from that.
Speaker Change: Got it.
Unnamed Speaker: As a follow up maybe can you talk a little bit about kind of I mean, you mentioned initial CDU shipments commencing in Q4, what does the two to three year CDU slash liquid opportunity look like for Modine as a subset.
Neil Brinker: Thanks a lot. Good question. Certainly, Matt. Yes, that would be an addition in addition to the capacity that we've been pretty public about that we're driving to over the strategic plan horizon. And you know, it's going to depend on our customers, their customers' market adoption rate that requires high performance computing. We certainly believe that the direct chip cooling is taking foot inside of the data centers and gaining traction at the same time. And that's why it's so important for us to work closely with our largest and best customers to develop product for them to be able to win in their market space, particularly when it comes to high performance computing.
Speaker Change: Or maybe the answer is it's in addition to that three year or less billion dollars target you've laid out for your data center business.
Speaker Change: And maybe also just talk about your comfort.
Speaker Change: Vince level in that having another quarter in the rearview mirror.
Speaker Change: Perhaps even more funnel visibility and then also just.
Speaker Change: I would like to ask about on the Gen set side of the business. What you expect organic growth to be there in fiscal 'twenty five thanks a lot.
Speaker Change: Good question.
Speaker Change: Certainly Matt Yes that would be an addition in addition to the capacity that we've that we've been pretty public about that we're driving to over the strategic plan horizon.
Neil Brinker: So CDU is a big play there. And it has a nice compliment to the products that we already have. Like we said, it's going to be a hybrid approach in a lot of these cases where you're going to need air cooling, you're going to need cracks and crawls, you're going to need chillers, fan walls, you're going to need a vapour of cooling, you're going to need the techniques and products that we have today. And then you can complement it with direct chip, and the cooling distribution is a major component of that. So it's one more product than our portfolio that we can continue to help our customers solve their problems. Just lastly, Neil, the outlook for gem sets this year.
Speaker Change: It's going to depend on our customers.
Speaker Change: Their customers market adoption rate that requires high performance computing.
Speaker Change: We certainly believe that direct chip cooling.
Speaker Change: <unk> is taking.
Speaker Change: Taking foot inside of the data centers and gaining traction at the same time and that's why it's so important for us to work closely with our largest and best customers to develop product for them to be able to win in their market space, particularly when it comes to high performance computing. So <unk> is a big play there.
Neil Brinker: I think it was a $100 million business plus or minus for Modine last year. What your thought is this year. And if you've won any new customers of late, in what those prospects may look like, thank you. Yeah, Matt, just on the number side, this year we're expecting to hit about 120 million or so in sales, which would be up 20%. And we expect that to continue to ramp. So fiscal 25 and 26, we continue to expect to grow in 20, 30% type rate. I don't know if you want anything around the product or the market.
Speaker Change: And it's a.
Speaker Change: A nice complement to the products that we already have like we said, it's going to be a hybrid approach and a lot of these cases, where youre going to need air cooling youre going to need cracks and crawls youre going to need chillers fan walls, youre going to need of evaporative cooling youre going to need the techniques and products that we have today and then you can complement it with direct to chip in the cooling distribution is a major component of that.
Unnamed Speaker: So.
Speaker Change: One more product in our portfolio that we can continue to help our customers solve their problems.
Neil: And then just lastly, Neil the outlook for Gen sets. This year I think it was $100 million business or plus or minus for modine last year. What your thought is this year and if you won any new customers.
Neil Brinker: Yeah, so the team has done an amazing job. You know, through 80, 20 segmentation and lining an organization around that dedicated product group is really showing the results. I mean, a tremendous amount of credit needs to go out to that team to be able to expand at the rate that they've been able to expand. And that's what they've done. They have added capacity. And as fast as they add the capacity, you know, we're taking orders and shipping because the market is growing at that rate. And yeah, we've added a second customer. So we're going to continue to dial in and stay focused on the big four.
Speaker Change: The blade and what those prospects may look like thank you.
Speaker Change: Yes, Matt just on the number side this year, we're expecting to hit.
Speaker Change: About $120 million or so in sales, which would be up 20%.
Unnamed Speaker: <unk>.
Speaker Change: We expect that to continue to ramp so fits.
Unnamed Speaker: Fiscal 'twenty five and 26, we continue to expect to grow 20%, 30% type right now Neel do you want to anything around the product or the market. Yes. So the team has done an amazing job through 2020 segmentation aligning the organization around that debt.
Neil Brinker: And we've captured two. Great. Thanks. Thank you.
Jeff Van Sinderin: Next question is on the line of Jeff Van Sinderin with B. L. Lee. Please go ahead.
Unnamed Speaker: Or maybe the answer is it's in addition to that kind of three-year or less billion dollar target you've laid out for your data center business. Maybe also just talk about your confidence level in that having another quarter in the rear view mirror and perhaps even more funnel visibility. And then I also just would like to ask about on the Genset side of the business what you expect organic growth to be there in fiscal 25. Thanks. Thank you. Our next question is from the line of Jeff Van Sinderen with Be Riley Securities. Please go ahead. Good morning, everyone, and let me add my congratulations on the terrific progress.
Speaker Change: Product group is is really showing the results.
Speaker Change: Tremendous amount of credit means to go out to that team to be able to expand at the rate that <unk> been able to expand.
Neil Brinker: Good morning, everyone. Let me add my congratulations on terrific progress. You mentioned the new manufacturing capacity you're adding for data centers. Just wondering, can you tell us a little bit what the ramp-up of that capacity looks like? And is that capacity needed for some of the new projects you're undertaking? So the capacity that we're putting in places in line for the market cager that we put out there that we've suggested over the next three years. So it tracks and aligns with that. And, you know, we can use existing capacity for some of the new products, particularly the CDU, where we'll manufacture that here in the United States in an existing modium facility.
Speaker Change: And that's what they've done they have added capacity in as fast as they added capacity.
Speaker Change: We're taking orders and shipping.
Speaker Change: Because the market is growing at that rate and yes, we've added.
Speaker Change: Second customers. So we're going to continue to dial in and stay focused on the big four.
Speaker Change: And we've captured too.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Unnamed Speaker: Our next question is from the line of Jeff Van <unk> with B Riley.
Speaker Change: Please go ahead.
Speaker Change: Good morning, everyone. Let me add my congratulations on terrific progress.
Neil Brinker: Yeah, I would just say that it's been a continuing reassessment and going back I think where we were beginning the last year and our expectation for revenue, we raised, you know, multiple times. I think we finished the year, you know, almost double. And then you add the acquisitions. And then this year, we, you know, started the year, what we thought was a really high growth rate, double triple the market. And we raised it again. So just from the CFO side, when we get together, Neil is in the Group President. He's always looking at our current capacity run rate.
Unnamed Speaker: Yeah, I would just add that, Uh, from the work we had planned on here, but we thought that would hit more later in the year, that was a good kind of one-time benefit in Q1. But your point about NICS and any comments on that. To balance that out, we launched performance technologies almost a full year after just, Yeah, good question on the heat pump. I want to go back, though, to your original question, because I think it's a good question.
Speaker Change: You mentioned, the new manufacturing capacity, you're adding for data centers. Just wondering can you tell us a little bit what the ramp up of that capacity looks like and is that capacity needed for some of the new project.
Speaker Change: We are undertaking.
Speaker Change: So the capacity that we're putting in place is in line for the market CAGR that we put out there that we've suggested over the next three years. So it tracks and it's in line with that and we can use existing capacity for some of the new products, particularly the CDU.
Speaker Change: We'll manufacture that here in the United States with an existing loading facility.
Neil Brinker: And then, with the market sales we in, we continue to expand. So we're trying to stay a step ahead. Okay, great.
Unnamed Speaker: Yes, I would just add that.
Dan: It's Dan.
Unnamed Speaker: That continued reassessment and going back I think where we were beginning of last year and our expectation for revenue we raised it.
Neil Brinker: And then I wanted to maybe just get a little bit granular here on the quarterly progression. I know you did go through some comments around that. But just wondering kind of business mix impact on growth margin over the next couple of quarters. And he starts there. From a growth margin standpoint, not a lot of movement, maybe a little bit just a small amount in Q3 and Q4 lower from a growth margin standpoint. In Q1, one of the things in Q1, I want about 3 to 4 million of pricing and commercial cancellation settlements, so that was work we had planned on here, but we thought that would hit more later in the year. That was a good kind of one-time benefit in Q1.
Speaker Change: Multiple times I think we finished the year almost double and then you add the acquisitions and then this year. We started the year with we thought was a really high growth rate double triple the market and we raised it again, so just from the CFO side, when we get together.
Unnamed Speaker: Neil.
Unnamed Speaker: Yeah.
Unnamed Speaker: Group President are always looking at our current capacity run rate.
Speaker Change: And then with the market tails, we and we continue to expand so we're trying to stay a step ahead.
Unnamed Speaker: Okay great.
Unnamed Speaker: And then I wanted to.
Unnamed Speaker: Get a little bit granular here.
Speaker Change: The quarterly progression I know you did go through some comments around that but just wondering kind of business mix impact on gross margin over the next couple of quarters and any thoughts there.
Speaker Change: From a.
Neil Brinker: But your point about Nick, we talk a long time under the water level on this relatively stable growth margin, that with 80-20 and everything else happening at the company, certain areas that we are divesting or moving away from, a product simplification to growth and a mixed shift change. The kind of the short of the answer is, relatively stable growth margins might have a little bit of a dip tied to some volume, but other than that, under there, hopefully what is coming through is the areas we are growing are margin accretive to where we want to be in the areas that we are reducing are at or below the margins we want to be at, so that's certainly helping profit up.
Speaker Change: Gross margin standpoint, not a lot of.
Unnamed Speaker: <unk>.
Unnamed Speaker: Maybe a little bit just a small amount in Q3 and Q4.
Unnamed Speaker: Lower from.
Unnamed Speaker: Gross margin standpoint in Q1.
Speaker Change: One of the things.
Unnamed Speaker: In Q1.
Unnamed Speaker: I want to mention for performance technologies, as we had about $3 million to $4 million of pricing and commercial cancellation settlement. So that was.
Unnamed Speaker: Work, we had planned on here, but we thought that would hit more later in the year that was a good kind of onetime benefit in Q1.
Speaker Change: But your point about mix.
Unnamed Speaker: Okay.
Speaker Change: A long time under under the water level on this relatively stable gross margin that with 80, 20, and everything else happening at the company certain areas that we are divesting or moving away from from a product simplification to growth and a mix shift.
Neil Brinker: Okay, and then one last one if I could squeeze it in. Since you are heading prior EBITDA margin targets, are you getting close to kind of dry reading around those targets? Do you have a new target that you are contemplating, or is that something we should wait for the analyst day for? Yeah, yes, it's good. Thank you for the lead. But I won't give you the answer today. Yes, we realized, right? But yeah, at our Investor Day, we'll share new two-year targets. So obviously, with us achieving the first over-driving on the first phase, we're planning to raise the bar and send a new set of financial goals for a two-year time period.
Unnamed Speaker: <unk>.
Speaker Change: The kind of the short of the answer is relatively stable gross margins might have a little bit of a dip tied to some volume, but other than that under there hopefully what is coming through is the areas. We are growing our margin accretive to where on a b in the area.
Unnamed Speaker: That we are.
Unnamed Speaker: Reducing our <unk>.
Speaker Change: And below the market and the margins, we want to be yet so thats certainly helping profit up.
Speaker Change: Okay, Great and then one last one if I can squeeze it in general are heading prior EBITA margin target.
Neil Brinker: Okay, thanks for taking my questions and continue to accept. Thank you.
Unnamed Speaker: Youre getting close.
Speaker Change: Kind of gyrating around those targets do you have a new target that youre contemplating or is that something we should wait for the analyst day for.
Brian Grab: Our next question is the line of Brian Grab with William Blair. Please go ahead. Hi, thanks for taking my questions. As I expected after initiating yesterday, a lot of the questions that I'm getting are around, you know, what is the underlying growth rate for this business? I just wanted to, you know, this might be helpful for some that are listening. It would certainly be helpful for me to hear you comment on this. So, you know, the increase in guidance in terms of dollars, about 200 million. And then it's wondering if you just talked about the components.
Speaker Change: Yes, yes.
Speaker Change: Good thank you for the lead.
Speaker Change: I won't give you the answer today.
Speaker Change: We realized right, but yeah and at our Investor Day, we will.
Speaker Change: Share new two year target, so obviously with us achieving the first overdrive playing on the first phase.
Speaker Change: We're planning to raise the bar and set a new set of financial goals for a two year time period, ending our fiscal 2007.
Neil Brinker: And I know you did this to some extent, even on just on the last conference call, but, you know, the components of that 200 million. Because I know there's, you know, acquisitions; they've asked the revenue 80, 20 cuts. And, you know, I think the acquisition revenue, you know, you're going to have like a full year of Scott in there. And that was 100 million, although that business seems to be growing rapidly. And then you've got the three-auto divestitures that are, you know, you're not, you've got about 40 to 45 million. I think this year, given the timing of when you made those divestitures, and then there's 80, 20 cuts that I don't know, I think it's inferred that it's around 50 million of a headwind for this fiscal year.
Speaker Change: Okay. Thanks for taking my questions and continued success.
Joe: Thanks, Joe.
Speaker Change: Thank you our next question.
Unnamed Speaker: A line of Brian Drab with William Blair. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: As I expected after initiating yesterday, a lot of the questions that I'm getting around what is the underlying growth rate for this business. So I just wanted to.
Speaker Change: This might be helpful. For some that are listening I would certainly be helpful for me to.
Speaker Change: Hear you comment on this so.
Speaker Change: The increase in guidance.
Speaker Change: In terms of dollars about $200 million and then I was wondering if you could just talk about the components and I know you did this to some extent even on the just on the last conference call, but the components of that $200 million because I know there's acquisitions divested revenue 80 20 cuts.
Neil Brinker: And so, it kind of gets you to 100 million in headwind, and then you've got, you know, Scott is 100 million tailwind. And so I think it all kind of nets out to zero. And, you know, the midpoint of your guidance, like revenue growth of like 8 to 9%, is really how we should think about organic revenue growth. I mean, is that in the ballpark, and can we hear any comments on that? Yeah, yeah, that's a good question. And you're hitting the heart of Modine's transformation, right? And there is some level of complexity with 80 to 90 in our transformation.
Speaker Change: And I think the acquisition revenue youre going to have like a full year of Scott and there and that was $100 million, although that business seem to be growing rapidly and then you've got the three auto divestitures that are.
Speaker Change: Youre not.
Speaker Change: <unk> got about 40% to $45 million I think this year given the timing of when when you made those divestitures and then Theres 80, 20 cuts that I.
Neil Brinker: I would, I would say that's a lot of it. I think you hit right on the head, and Neil can add any other comments to this. But, when we separate right now, where we're at in our maturity, we talk a lot about 80/20 maturity. We launched 80/21st in climate solutions. In fact, data centers with the tip of the spear, funding that, growing that. So climate solutions is mostly in a growth phase right now. We talk a little bit about some headwinds in HTTP, but organic growth, we said for a while, can be double digit, 10 to 15%.
Unnamed Speaker: I don't know.
Speaker Change: I think it's inferred that it's around $50 million.
Unnamed Speaker: Of a headwind for this fiscal year.
Unnamed Speaker: And so that kind of gets you to.
Speaker Change: $100 million.
Speaker Change: And headwind and then you've got.
Unnamed Speaker: Scott is the 100 million tailwind and so I think it all kind of nets out to zero in the midpoint of your guidance like revenue growth of like 8% to 9% is really how we should think about organic revenue growth is that in the ballpark.
Speaker Change: Okay and any comments on that.
Unnamed Speaker: Yes, yes, that's good question.
Speaker Change: Youre right in the heart of.
Neil Brinker: This quarter, organic was 10% for climate solutions. Obviously, with some M&A, that 25% type growth. And indoor air quality, commercial ventilation, heating will be a little bit more mature market, but growing. And then obviously, data center, we've kind of put in the hyper growth balance that out. We launched performance technologies almost a full year after just managing the corporate. How much change is happening? And you can see that while this business is continuing to divest and shrink the top line in certain areas, the margin in the growth is really pretty phenomenal. So we, at the beginning of the journey, we've said performance technologies over a long period, three, five years could be flat.
Dean: No Dean transformation right.
Speaker Change: There is some level of complexity with the <unk> transformation and I would I would say this a lot of it I think you hit right on.
Neil: On the head and Neil can add any other comments to this but.
Speaker Change: When we separate right now where we're at in our maturity, we talked a lot about 80 20 maturity.
Speaker Change: We launched $8 21, and climate solutions in fact data centers was the tip of spear funding that growing.
Speaker Change: So climate solutions is mostly in a growth phase right now, we talked a little bit about some headwinds and <unk>, but organic growth, we've said for a while can be.
Speaker Change: Double digit 10% to 15% this quarter organic was 10% for climate.
Speaker Change: Obviously with some M&A that 25% type growth.
Neil Brinker: And under that, we would see things like that auto investors. And the other areas you, you know, you are declining. And then while our bets on electrification, e-mobility, power generation, higher margin system of business driving the earnings. So let me pause, but I think that the performance technology is not a focus of a top line story right now, climate solution, stop line, be a blend them. Yeah, I think we said again, we can be high single-digit organic type top-line growth, which is kind of in the midpoint of our guidance.
Unnamed Speaker: And.
Speaker Change: Indoor air quality commercial ventilation.
Unnamed Speaker: Heating will be.
Speaker Change: A little bit more mature market, but growing and then obviously data center lease kind of put in a hyper growth.
Unnamed Speaker: To balance that out we launched performance technologies almost a full year after.
Speaker Change: Managing the corporate how much change happening and you can see that while this business is continuing to divest in shrink the top line in certain areas the margin and the growth.
Unnamed Speaker: Growth is really pretty phenomenal so.
Speaker Change: We began the journey, we've said performance technologies over a long period three years five years could be flat.
Neil Brinker: Okay, yeah, no, thank you very much for going through all that and, you know, continuing to help me get up to speed and understand that. You know, just one last question for now, I guess. In the heat pump business, which has been soft, are you seeing, you know, can you talk about what you're seeing in terms of potentially any signs of stability there? I don't think you talk about a book to bill, but anything in terms of order rates or that that you're seeing in maybe even July to give us some confidence that maybe that's stabilizing if it is.
Speaker Change: And under that we would see things like that auto of divestitures.
Speaker Change: And the other areas you.
Unnamed Speaker: Okay.
Speaker Change: Declining and then while our bets on electrification E mobility.
Unnamed Speaker: Our generation.
Speaker Change: Margin system the business driving.
Speaker Change: The earnings so.
Unnamed Speaker: Let me pause, but I think that that performance technologies.
Speaker Change: Not a focus of a topline story right now climate solutions topline via blend them. Yeah. I think we've said again, we can be high single digit.
Neil Brinker: Yeah, good question on the heat pump. I want to go back though to your original question because I think it's a good question. And we have a, you know, there's a high level of complexity as we work through 80, 20 in a diversified industrial. And we go back and you look at performance technologies in general versus climate solutions in general, we would say, you know, we're, we're aligned behind what Nick just described there. And we're not expecting high growth and performance technologies, and then climate solutions; that's the area we're focused growth. But if you go into level deeper, what we try to do with our six, you know, the six market facing verticals, is to give you those revenues.
Unnamed Speaker: We have a, you know, there's a high level of complexity as we work through 80-20 in a diversified industrial. And when we go back and look at performance technologies in general versus climate solutions in general, we would say, you know, we align behind what Mick just described there. And we're not expecting high growth in performance technologies and in climate solutions. That's the area where we're focused on growth.
Unnamed Speaker: <unk>.
Speaker Change: Topline growth, which is kind of in the midpoint of our guidance.
Speaker Change: Okay. Yeah, no. Thank you very much for going through all that.
Unnamed Speaker: And.
Speaker Change: Continuing to help me to get up to speed and understand that.
Speaker Change: Just one last question for now I guess.
Mick: In the heat.
Brian C. Sponheimer: But if you go a level deeper, what we try to do with our six, you know, six market-facing verticals is to give you those revenues. So you can see that we're growing in the areas that are the right areas for us to grow, to expand margin, and to evolve the company from components to the system. Got it. Okay. That's all very helpful. Yeah. Thanks very much.
Mick: Heat pump business, which has been soft.
Speaker Change: Are you seeing can.
Speaker Change: Can you talk about what youre seeing in terms of potentially any signs of stability there.
Neil Brinker: So you can see that we're growing in the areas there to the right areas for us to grow, to expand margin, and to evolve the company from components. Systems. So that's why you see the breakdown of data center and HP Liquid, air, ATS. So when we say in general, performance technologies will be flat, revenue will be over time or slightly growing. You know, underneath it, you see a decline in the areas where we're deliberately taking actions through 80/20, and then you see growth in the areas of gen sets or in our event is product group, which is an ATS, you know, and you see growth beyond the market rate.
Speaker Change: Can you I don't think you talked about a book to Bill.
Speaker Change: But any anything in terms of order rates or where that that youre seeing and maybe even in July to.
Speaker Change: Give us some confidence that maybe that stabilizing if it is.
Speaker Change: Yes. Good question on the heap of I want to go back though.
Speaker Change: Your original question because I think it's a good question we have.
Speaker Change: There is a high level of complexity as we work through 2020 and diversified industrial and.
Speaker Change: And we go back and you look at performance technologies in general versus climate solutions in General we would say.
Neil Brinker: That growth is why we call out the percentages there. So you can kind of you can see the revenue makeshift happening underneath at more micro level versus the general theme of the two segments. I think that's important for people to understand relative to heat pump. You know, it is, I don't I don't expect we don't expect to see rebound until we get later throughout the year, maybe even into next year relative to this regulatory climate and environment. I mean, it clearly the heat pump demand was driven by incentives, as if as the incentives have dried up, it's essentially slowed the market.
Brian C. Sponheimer: We align behind what Mick just described there and we're not expecting high growth in performance technologies and in climate solutions at Sierra.
Brian C. Sponheimer: Our focus growth, but if you go into a level deeper what we tried to do with our six market facing verticals as to give you. Those revenues. So you can see that we're growing in the areas that are the right areas for us to grow to expand margin and to evolve the company from components to systems. So Thats why you see the breakdown of data center in Asia.
Speaker Change: Liquid air Ats, So when we say in general performance technologies will be flat revenue over time or slightly growing.
Neil Brinker: We get closer to get compliant state, which is further out. I would expect those applications for incentives to increase and then, you know, typically what we saw last time was the order book increased. So we have a further delay. Got it.
Speaker Change: Underneath that you see a decline in the areas, where we are deliberately taking actions through 2020, and then you see growth in the areas of Gen sets or in our E vantage product group, which is in Etfs.
Unknown Attendee: Okay, that's all very helpful. Yeah, thanks very much. Thank you. Ladies and gentlemen, a reminder: if you wish to ask a question, please best start then one.
Speaker Change: And you see growth beyond the market rate.
Speaker Change: That growth is why we call out the percentages. There. So you can kind of you can see the revenue mix shift happening underneath it more of a micro level versus the general theme of the two segments I think that's important for people to understand relative to heat pump.
Brian Sponheimer: Our next question is from the line of Brian Sponheimer with Cabeli Funds.
Neil Brinker: Please go ahead. Good morning, everyone. Congratulations again on another great quarter. Just a question, which I guess probably waits for the analyst. I mean, we're just curious your thoughts now. You know, you're a $6 billion equity cap company. Clearly, the scope of what you're looking at has grown. I'm curious about the M&A environment and, you know, your thoughts on maybe the weaponry you can use to grow outside of just cash generated by the business. You know, basically, you're levered at one time. You've got a lot of a lot of firepower here.
Speaker Change: I don't have I don't expect we don't expect to see rebound until we.
Speaker Change: We get later.
Unnamed Speaker: Just a question, which I guess probably waits for analyst day. I'm just curious about your thoughts now, you know, you're a $6 billion equity-capital company. I'm curious about the M&A environment. Maybe the weaponry you can use to, or whatever you want. Yeah. Hey, Brian. Thanks. Thanks for the question. Yeah, we have a relatively low level of leverage, and then with the equity market cap.
Speaker Change: About a year, maybe even into next year relative to this the regulatory climate and environment.
Speaker Change: Nearly the heat pump demand was driven by incentives as it bids as the incentives have dried up.
Speaker Change: It's essentially slowed the market.
Speaker Change: As we get closer to the compliance date, which is further out I would expect those apps.
Speaker Change: Applications for incentives to increase and then typically what we saw last time was the order book increased so we have a further delay.
Speaker Change: Got it okay. That's all very helpful. Thanks very much.
Unnamed Speaker: Okay.
Neil Brinker: Yeah, hey, Brian. Thanks. Thanks for the question. Yeah, we started the journey, and you've clearly been along with it. But early days part of our, you know, our thought was we didn't really have. That's fairly the balance sheet, the equity valuation, so forth to have M&A as a key to clever plus our, you know, going out and executing on some really big goals to turn the company around. So, as you said, as we pivoted, we're throwing off a lot more cash, have a relatively low level of leverage, and then with the equity market cap. So we exacerbated.
Speaker Change: Ladies and gentlemen, a reminder, if you wish to ask a question. Please press Star then one.
Brian Paul Drab: Our next question is from the line of Brian <unk> with Gabelli funds. Please go ahead.
Speaker Change: Hi, good morning, everyone and congratulations again.
Speaker Change: Another great quarter.
Unnamed Speaker: Just a question, which I guess.
Speaker Change: Probably wait for the analyst day, but I'm just curious your thoughts now you're at $6 billion equity cap company.
Speaker Change: Clearly the scope of what you are looking at.
Unnamed Speaker: <unk>.
Speaker Change: That's grown I'm curious about the M&A environment.
Unnamed Speaker: Your thoughts on that.
Unnamed Speaker: Maybe the weaponry you can use to.
Unnamed Speaker: So, Well, that's it, and I look forward to seeing you in... We hope everybody has a great day.
Unnamed Speaker: To grow outside of just cash generated by the business.
Neil Brinker: So, from my side, we'll stay disciplined, but I would say we are still getting a pretty good look of ideas, both kind of privately and option based.
Unnamed Speaker: Basically.
Speaker Change: And one times.
Speaker Change: A lot of.
Unnamed Speaker: A lot of firepower here.
Brian: Yes, Hi, Brian.
Unnamed Speaker: Thanks, Thanks for the question.
Unnamed Speaker: Yes.
Speaker Change: We started the journey and you've clearly been along with it but early days part of our.
Neil Brinker: Yeah, thanks, Brian. Appreciate it. Thank you.
Kathy powers: As there are no further questions, I would now hand the conference over to Kathy Powers for closing comments. Kathy? Thank you, and thanks to everybody for joining us this morning. You'll be able to access the replay of this call through our website in about two hours. Again, please reach out to me if you would like to attend our Investor Day in September. If you've received an invitation, please follow the registration link. If you have not received an invitation, please reach out to me, and we will get that sent out to you. We hope everybody has a great day.
Unnamed Speaker: Our thought was we.
Speaker Change: We didn't really have.
Speaker Change: Necessarily the balance sheet, the equity valuation so forth to have M&A as a key.
T J: T J <unk> lever plus.
Speaker Change: Going out and executing on some really big goal is to turn the company our ground. So.
Speaker Change: As you said as we pivoted, we're throwing off a lot more cash.
Unnamed Speaker: Our relatively low level of leverage and then with the equity market cap.
Speaker Change: Exacerbated so from my side, we'll stay disciplined but I would say we are still getting a pretty good look of of ideas, both kind of privately and option date.
Unknown Attendee: Thank you.
Unknown Attendee: The conference of Modine has now concluded. Thank you for your participation. You may now disconnect your lines.
Unnamed Speaker: Understood that's it.
Unnamed Speaker: Look forward to seeing you in September.
Unnamed Speaker: Yes, Thanks, Brian appreciate it.
Unnamed Speaker: Thank you.
Kathleen T. Powers: There are no further questions I would now hand, the conference over to Kathy powers for closing comments Kathy.
Speaker Change: Thank you and thanks to everybody for joining us this morning, youll be able to access the replay of this call.
Speaker Change: Site in about two hours.
Speaker Change: Again, please reach out to me if you would like to attend our Investor day in September.
Speaker Change: We have received an invitation please follow the registration link if you have not received an invitation. Please reach out to me and we will get that sent out to you.
Unnamed Speaker: We hope everybody has a great day.
Speaker Change: Thank you.
Speaker Change: Conference of Modine has now concluded. Thank you for your participation you may now disconnect your lines.
Unnamed Speaker: Okay.
Unnamed Speaker: Okay.
Unnamed Speaker: Okay.
Unnamed Speaker: Okay.
Unnamed Speaker: Yeah.