Q2 2025 Modine Manufacturing Co Earnings Call
I mean, my Neil Brinker, our President and Chief Executive Officer, and Mike Lucarelli, Our executive Vice President and Chief Financial Officer.
That will be using for todays presentation are available on the Investor Relations section of our website at <unk> Dot com.
On slide three of that deck is our notice regarding forward looking statements. This call will contain forward looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission with that I'll turn the call over to Neil.
Neil: Thank you Kathy and good morning, everyone. As most of you know we held an investor day last month at our corporate headquarters.
Neil: Like to thank everyone, who attended in person participated in the live webcast or watch the replay online this.
Neil: This was a very important event for us so before going over our quarterly results I'd like to review some of the key messages.
Neil: Throughout the presentation, we highlighted five strategic pillars that we believe are key value drivers that form the foundation of our strategy to drive growth and margin expansion for years to come.
Neil: First at our core we create value through our deep expertise in thermal management technology, allowing us to provide highly engineered mission critical thermal solutions for our customers in fact, we've been doing it for over 100 years.
Second through 80, 20, we have leveraged our product portfolio to segment and re segment the business focusing resources, where we can drive the most value.
80, 20 is an ongoing process and as part of it we announced that we will realign our six product groups in our next fiscal year to improve our product and market focus.
Neil: The third pillar relates to Mega trends and how they are fueling our growth. For example, we are currently focused on supporting trends like high performance computing as the rapid expansion of AI and machine learning fuels demand for data center capacity and more advanced cooling solutions.
Neil: Although these trends can change over time, we believe that the need to meet ever increasing regulations and reduce the impact of fossil fuels on our environment are currently driving multiyear growth cycles.
Neil: This will provide a constant need for new and advanced thermal solutions.
Neil: Next we have the benefit derived from our 80, 20 discipline, which drives everything from our decentralized organization to our strategic resource allocation.
By pushing decision, making down in the organization, we create a more focused product development cycle stronger customer relationships and an entrepreneurial spirit to fuel profitable growth.
Neil: We consider 2020 to be a competitive advantage, helping us improve efficiency drive strategy and ultimately to evolve our business portfolio.
Neil: That brings us to the final pillar evolving our portfolio to compound shareholder value. This.
Neil: This process does not have a beginning R&M, but is it repeatable cycle to continually drive shareholder value and is expressed through our recently introduced vision statement.
Neil: Always evolving our portfolio of products and pursuit of highly engineered mission critical thermal solutions.
Neil: In addition to sharing this new vision statement. We also introduced new three year financial targets, we expect compound annual revenue growth of 10% to 13% for the three year period off of fiscal 'twenty four base and expect adjusted EBITDA margins in the range of 16% to 18% by fiscal 'twenty seven.
Neil: Overall, the feedback from the event has been overwhelmingly positive we delivered on our commitments shared during our first Investor day back in 2022, and we've now raised the bar even further.
Neil: The team has accepted this challenge and have the plans in place to deliver once again now shifting back to the quarter I'd like to review the segment results. Please turn to slide five.
Neil: Our climate solutions segment had another outstanding quarter, driven primarily by growth in our data center business revenues more than doubled as compared to the prior year with about half of the increase driven organically and the balance from the Scotts Springfield acquisition.
Performance Computing, as the rapid expansion of AI machine learning fuels demand for data center capacity and more advanced cooling solutions.
Neil: This business continues to exceed our expectations.
Neil: In addition, we officially announced the launch of our one megawatt equivalent distribution unit or CDU, which is a critical component for liquid and hybrid cooling systems for high density applications.
Neil: Demonstrating the benefits of 80 20 in product development decision, making our CDU was developed with voice of customer at the forefront and is designed to seamlessly integrate with loading systems and controls to improve energy efficiency in the data centers.
Neil: Interest in this product has escalated with inquiries now coming from both collocation and Hyperscale customers.
We consider 80 wanting to be a competitive advantage, helping us improve efficiency drive strategy and ultimately to evolve our business portfolio.
Neil: We still anticipate our first shipments of this product in the fourth fiscal quarter of the year.
That brings us the final pillar evolving our portfolio to compound shareholder value. This process does not have a beginning R&M, but is it repeatable playbook to continually drive shareholder value and is expressed through our recently introduced vision statement.
Neil: As mentioned during our Investor day presentation growth with Hyperscale customers continue to accelerate.
Neil: In addition to our two current Hyperscale customers. We are now building a relationship with a third and expect to get our first order this quarter.
Neil: We are also observing the evolving needs of these customers currently we design and manufacture custom air handlers for our Hyperscale customers and this will continue to be a significant component of our business.
I always evolving our portfolio of products and pursuit of highly engineered mission critical thermal solutions.
In addition to sharing this new vision statement, we also introduced new three year financial targets.
Neil: These customers have been increasingly interested in our high performance Chillers, especially now that we have production in both the U S and the U K and.
We expect compound annual revenue growth of 10% to 13% for the three year period off of fiscal 'twenty four base and expect adjusted EBITDA margins in the range of 16% to 18% by fiscal 'twenty seven.
Neil: In fact, we've received our first purchase order for Chillers from.
Neil: A hyperscale customer this past quarter.
Neil: With expected shipment in our fourth fiscal quarter.
Overall, the feedback from the event has been overwhelmingly positive we delivered on our commitments shared during our first Investor day back in 2022, and we've now raised the bar even further.
Neil: This is an exciting expansion of our product offering to strategic hyperscale customers and another exciting growth prospects for our data center business.
Neil: Last quarter I mentioned that we are expanding capacity for our data center products and I am pleased to report that our UK expansion has been completed ahead of schedule with our first units off the production line last week.
The team has accepted this challenge and have the plans in place to deliver once again now shifting back to the quarter I'd like to review the segment results. Please turn to slide five.
Neil: We are also up and running at our expansion in Calgary and supporting the growth of data center products from SSM.
Our climate solutions segment had another outstanding quarter, driven primarily by growth within our data center business revenues more than doubled as compared to the prior year with about half of the increase driven organically and the balance from the Scotts Springfield acquisition.
I'm also excited to announce our next capacity expansion for data center products will be in India at a new facility in Chennai to support our customers in Asia and the Middle East.
This business continues to exceed our expectations.
Neil: This new facility is near our existing manufacturing location and can be leveraged in the future for growth in both segments. This will bring the number of data center manufacturing locations to turn and provide us with the capacity for continued growth around the globe.
In addition, we officially announced the launch of our one megawatt equivalent distribution units.
<unk>, which is a critical component for liquid and hybrid cooling systems for high density applications.
Neil: We're excited about this opportunity as we continue to organically invest in the data center market.
Demonstrating the benefits of 80 20 in product development decision, making our CDU was developed with voice of customer at the forefront and is designed to seamlessly integrate with loading systems and controls improve energy efficiency in the data centers.
Neil: Please turn to slide six.
Neil: The performance Technology segment also had a strong quarter with earnings and margin growth. Despite a drop in top line revenue driven by the decline in our vehicular markets.
Interest in this product has escalated with inquiries now coming from both collocation and Hyperscale customers we.
Neil: However, we are still seeing solid growth in the Gen set module business. This is being bolstered by our global footprint high quality and on time delivery in fact, our capacity expansion in India for data centers will also allow for future growth in Gen set production in that region.
We still anticipate our first shipments of this product in the fourth fiscal quarter of the year.
As mentioned during our Investor day presentation growth with Hyperscale customers.
Neil: Sales in our advanced solution group also posted positive sales growth in the quarter last week, we announced our partnership with <unk>, a leading manufacturer of transit buses specializing in low and zero emission solutions for public transportation.
To accelerate.
In addition to our two current Hyperscale customers. We are now building a relationship with a third and expect to get our first order this quarter.
We are also observing the evolving needs of these customers currently we design and manufacture custom air handlers for our Hyperscale customers and this will continue to be a significant component of our business.
Neil: This longstanding supply relationship includes collaboration on their hybrid vehicles, which use our E vantage battery thermal management system and inverter cooling modules.
However, these customers have been increasingly interested in our high performance Chillers, especially now that we have production in both the U S and the UK.
We also introduced our smart electric component portfolio, which is receiving positive feedback from the market our funnel of customer engagements and our advanced solutions group continues to be strong, including a number of opportunities in Europe.
In fact, we've received our first purchase order for Chillers from a hyperscale customer this past quarter with expected shipment in our fourth fiscal support.
Neil: All in all we are experiencing some short term volume challenges in certain markets and are implementing countermeasures to reduce costs, but we are also seeing long term opportunities with positive implications for our product mix in this segment.
This is an exciting expansion of our product offerings to strategic hyperscale customers and another exciting growth prospects for our data center business.
Last quarter I mentioned that we are expanding capacity for our data center products and I am pleased to report that our U K expansion has been completed ahead of schedule with our first units off the production line.
Overall, a good quarter and our 80 20 culture and approach continues to help us mitigate legacy business wind down and some economic sensitivity and a few product categories.
Weak.
Speaker Change: I will turn the call over to Nick who will provide some further updates on what we expect for the balance of the year.
We are also up and running at our expansion in Calgary and supporting the growth of data center products from SSM.
Nick: Thanks, Neal and good morning, everyone.
I'm also excited to announce our next capacity expansion for data center products will be in India at a new facility in Chennai to support our customers in Asia and the Middle East.
Nick: Please turn to slide seven to review the segment results.
Climate solutions continues to deliver outstanding results, posting a 47% improvement in adjusted EBITDA and a margin above 21%.
This new facility is near our existing manufacturing location and can be leveraged in the future for growth in both segments. This will bring the number of data center manufacturing locations to turn and provide us with the capacity for continued growth around the globe I'm very excited about this opportunity as we continue to organically invest in the data center market.
Data center sales grew 102% or $8 million driven by strong demand from North American Hyperscale and Colocation customers along with the sales from the acquired Scott Springfield business.
Please turn to slide six.
The performance Technology segment also had a strong quarter with earnings and margin growth. Despite a drop in top line revenue driven by the decline in our vehicular markets.
Nick: Modine datacenter business continues to exceed our projections and we're once again raising the revenue forecast for this product group.
However, we are still seeing solid growth in the Gen set module business. This is being bolstered by our global footprint high quality and on time delivery in fact, our capacity expansion in India for data centers will also allow for future growth in Gen set production in that region.
Nick: HVA CNR sales increased 14% or $13 million, including revenue from Scotts Springfield, along with higher sales of refrigeration coolers.
Sales in our advanced solutions group also posted positive sales growth in the quarter last week, we announced our partnership with Gillig, a leading manufacturer of transit buses specializing in low and zero emission solutions for public transportation.
Nick: Heat transfer products sales were down, 13% or $16 million with lower sales to European heat pump and commercial and residential HVAC customers How's.
However, we were able to finalize some commercial settlements this quarter to help offset the lower volumes versus what was originally agreed to with certain customers.
This long standing.
Relationship includes collaboration on a hybrid vehicles, which use our E vantage battery thermal management system and inverter cooling modules.
Nick: Team had been working towards the settlements than we originally expected to see most of the benefit beginning in our Q3.
We also introduced our smart electric component portfolio, which is receiving positive feedback from the market our funnel of customer engagements and our advanced solutions group.
Overall, we're pleased with the climate solutions strong earnings conversion, which resulted in a 300 basis point adjusted EBITDA margin improvement to 21, 5%.
To be strong, including a number of opportunities in Europe.
All in all we are experiencing some short term volume challenges in certain markets and are implementing countermeasures to reduce costs, but we are also seeing long term opportunities with positive implications for our product mix in this segment.
Nick: As discussed at the Investor Day, our 80 20 discipline continues to be at the heart of the segments quarterly margin improvements.
Nick: And the team will continue to focus on accelerating organic growth.
Overall, a good quarter and our 80 20 culture and approach continue to help us mitigate legacy business wind down and some economic sensitivity and a few product categories.
Nick: With organic sales improving 7% this quarter after adjusting for $53 million of revenue from the Scotts Springfield acquisition.
Turn the call over to Mick who will provide some further updates on what we expect for the balance of the year.
Nick: As we look at the last half of the year, we expect a positive momentum for revenue and earnings to continue for climate solution.
Mick: Thanks, Neal and good morning, everyone.
Please turn to slide seven to review the segment results.
Nick: Please turn to slide eight.
Mick: Climate solutions continues to deliver outstanding results, posting a 47% improvement in adjusted EBITDA and a margin above 21%.
Nick: Performance technologies continues to evolve the portfolio and improve profitability, including a 5% increase in adjusted EBITDA.
Nick: And a 230 basis point improvement in the margin.
Mick: Data center sales grew 102% or $80 million driven by strong demand from North American Hyperscale and Colocation customers along with the sales from the acquired Scott Springfield business.
Nick: The earnings growth and strong margin improvement were due to a lot of hard 80, 20 work, including labor material and overhead improvement.
Nick: In addition to the operational improvements we were able to secure sales tax credits in Brazil, which had a positive impact on revenue and adjusted EBITDA in the quarter.
Mick: Modine datacenter business continues to exceed our projections and we're once again raising the revenue forecast for this product group.
Mick: HVAC CNR sales increased 14% or $13 million, including revenue from Scott Springfield, along with higher sales of refrigeration coolers.
Nick: As anticipated performance technologies revenue was down in the quarter. This was driven by.
Nick: The prior year automotive divestitures, along with lower sales to automotive commercial vehicle and off highway customers.
Mick: E transfer product sales were down, 13% or $16 million with lower sales to European heat pump and commercial and residential HVAC customers. However, we were able to finalize some commercial settlements this quarter to help offset the lower volumes versus what was originally agreed to with <unk>.
Nick: Excluding the negative $22 million impact of divestitures organic sales decreased 5%.
Nick: Advanced solution sales were higher by 18% or $6 million driven by increased sales of EV systems to specialty vehicle and bus customers.
Mick: Certain customers.
Team had been working towards the settlements than we originally expected to see most of the benefit beginning in our Q3.
Nick: Liquid cooled application sales decreased 22% of $27 million due to the prior year divestiture, along with lower end market demand across auto commercial vehicle and off highway markets.
Mick: Overall, we're pleased with the climate solutions strong earnings conversion, which resulted in a 300 basis point adjusted EBITDA margin improvement to 21, 5%.
Nick: Lastly, air cooled application sales were lower by 10% or $18 million.
Mick: As discussed at the Investor Day, our 80 20 discipline continues to be at the heart of this.
Nick: Also driven by the divestitures and lower market demand from agriculture, and construction equipment and commercial vehicle customers.
Mick: Quarterly margin improvements.
Mick: And the team will continue to focus on accelerating organic growth with organic sales improving 7% this quarter after adjusting for $53 million of revenue from the Scotts Springfield acquisition.
However, as we have highlighted as the strategic focus sales to Gen set customers increased in the quarter by 29%.
Nick: In addition to the plan and portfolio rationalization. This segment is quickly addressing the broader market softness, which is well publicized across the agriculture construction and commercial vehicle markets.
As we look at the last half of the year, we expect the positive momentum for revenue and earnings to continue for our climate solutions.
Mick: Please turn to slide eight.
Nick: Despite temporary volume headwinds we are pleased with the level of earnings conversion further validating the benefit of our 80 20 discipline after a historically and seasonally softer fiscal Q3, we anticipate a step up in Q4.
Mick: Performance technologies continues to evolve the portfolio and improve profitability, including a 5% increase in adjusted EBITDA.
Mick: And at 230 basis point improvement in the margin.
Mick: The earnings growth and strong margin improvement was due to a lot of hard 80, 20 work, including labor material and overhead improvement.
Nick: Now, let's review total company results, please turn to slide nine.
Second quarter sales increased 6% driven by Scott Springfield acquisition, and our organic growth and climate solutions.
Mick: In addition to the operational improvements we were able to secure sales tax credits in Brazil, which had a positive impact on revenue and adjusted EBITDA in the quarter.
Nick: Climate solutions growth was partially offset by $22 million of divestitures and market related volume declines in performance technologies.
Mick: As anticipated performance technologies revenue was down in the quarter. This was driven by.
Nick: Our gross margin improved 340 basis points to 25, 2% driven primarily by an improved business mix, including the benefit of the Scotts Springfield acquisition and numerous 80 20 initiatives.
The prior year automotive divestitures, along with lower sales to automotive commercial vehicle and off highway customers.
Mick: Excluding the negative $22 million impact of divestitures organic sales decreased 5% and.
Nick: As noted during my comments in the segments.
Mick: Advanced solution sales were higher by 18% or $6 million driven by increased sales of EV systems to specialty vehicle and bus customers.
Nick: The quarter also benefited from a few items, including the commercial settlements in climate solutions and a sales tax credit recovery in Brazil.
Nick: We estimate that the net impact of these items along with a few others was approximately $5 million. These items were previously included in our full year outlook, but we anticipated that they would land in the second half of the fiscal year.
Mick: Liquid cooled application sales decreased 22% of $27 million due to the prior year divestiture, along with lower end market demand across auto commercial vehicle and off highway markets.
That said, we are pleased to secure the benefits earlier than expected.
Mick: Lastly, air cooled application sales were lower by 10% or $18 million.
Nick: As noted last quarter year over year SG&A includes SG&A of the acquired Scott Springfield business and.
Mick: Also driven by the divestitures and lower market demand from agriculture, and construction equipment and commercial vehicle customers.
Nick: And incremental amortization expense related to the acquired intangible assets.
Mick: However, as we've highlighted as the strategic focus sales to Gen set customers increased in the quarter by 29%.
Nick: In addition, we recorded higher salary and incentive compensation expenses in.
Nick: In line with our improved performance.
Mick: In addition to the plan and portfolio rationalization. This segment is quickly addressing the broader market softness, which is well publicized across the agriculture construction and commercial vehicle markets.
Nick: Adjusted EBITDA was strong again, this quarter with an increase of 23% or $19 million.
The adjusted EBITDA margin was 15, 2%, representing a 210 basis point improvement from the prior year.
Mick: Despite temporary volume headwinds, we're pleased with the level of earnings conversion.
Nick: Each quarter I provide a margin trend update and this now represents the 11th consecutive quarter of year over year margin improvement.
Mick: Further validating the benefit of our 80 20 discipline after a historically and seasonally softer fiscal Q3, we anticipate a step up in Q4.
Nick: Adjusted earnings per share was <unk> 97.
Mick: Now let's review the total company results, please turn to slide nine.
Nick: 9% higher than the prior year.
Nick: We're very pleased with another exceptional quarter, resulting in great adjusted EBITDA growth as momentum in some key end markets allowed us to overcome challenges in others.
Speaker Change: Second quarter sales increased 6% driven by the Scott Springfield acquisition, and our organic growth and climate solutions.
Speaker Change: Climate solutions growth was partially offset by $22 million of divestitures and market related volume declines in performance technologies.
The management team continues to implement 80 20 and remains laser focused on the things we can control.
Nick: Now moving to the cash flow metrics, please turn to slide 10.
Speaker Change: Our gross margin improved 340 basis points to 25, 2% driven primarily by an improved business mix, including the benefit of the Scotts Springfield acquisition and numerous 80 20 initiatives.
We generated $44 million of free cash flow in the second quarter, which was an improvement from the first quarter. Please.
Nick: Please note that the quarterly cash flow included nearly $6 million of cash restructuring payments.
Speaker Change: As noted during my comments in the segments.
Nick: This puts our year to date free cash flow of $58 million, which is on track with our full year outlook.
The quarter also benefited from a few items, including the commercial settlements in climate solutions and a sales tax credit recovery in Brazil, we estimate that the net impact of these items along with a few others was approximately five 5 million. These items were previously included in our full year outlook, but we anticipated that they would.
Nick: Net debt of $327 million was $45 million lower than the prior fiscal year.
Nick: And $36 million lower than last quarter. This resulted in a leverage ratio of 0.9.
Nick: Consistent with the previous quarter, the balance sheet remains strong and we anticipate another year of good free cash flow.
Speaker Change: Land in the second half of the fiscal year.
Speaker Change: That said, we are pleased to secure the benefits earlier than expected.
Now, let's turn to slide 11 for our fiscal 25 outlook.
Speaker Change: As noted last quarter year over year SG&A includes SG&A of the acquired Scott Springfield business.
Nick: With half the year behind US we announced in the press release that we are holding our fiscal 'twenty five outlook.
Speaker Change: And incremental amortization expense related to the acquired intangible assets.
Nick: While the Q2 earnings were somewhat higher than we anticipated the quarter included an estimated $5 million and net benefit as I reviewed in the quarterly results.
Speaker Change: In addition, we recorded higher salary and incentive compensation expenses in line with our improved performance.
Speaker Change: Adjusted EBITDA was strong again, this quarter with an increase of 23% or $19 million.
Nick: We had previously anticipated these benefits would settle in the second half of the year with the majority of the benefit coming in our Q3.
Speaker Change: The adjusted EBITDA margin was 15, 2%, representing a 210 basis point improvement from the prior year.
Nick: From a revenue standpoint, we will continue to update each quarter the revenue outlook promoting product groups.
Nick: The net impact of product group revenue adjustments is relatively neutral to the total company this quarter.
Speaker Change: Each quarter I provide a margin trend update and this now represents the 11th consecutive quarter of.
Nick: Yeah.
Nick: In the climate solutions segment, we're making a large increase to the data center outlook, along with an increased HVA CNR, while lowering our outlook for key transfer product.
Speaker Change: Of year over year margin improvement.
Speaker Change: Yes.
Speaker Change: Adjusted earnings per share was <unk> 97.
Speaker Change: 9% higher than the prior year.
Nick: We now expect data center sales to grow 100% to 110% a significant increase driven by the strong performance in the first half of the year and a growing order book.
Speaker Change: We're very pleased with another exceptional quarter, resulting in great adjusted EBITDA growth as momentum in some key and it's allowed us to overcome challenges in others.
Nick: Okay.
Speaker Change: The management team continues to implement 80 20 and remains laser focused on the things we can control.
Nick: Our performance technologies.
We've adjusted for our customer trends and ongoing weakness in the global commercial vehicle off highway and auto markets.
Speaker Change: Now moving to the cash flow metrics, please turn to slide 10.
Nick: With regards to earnings.
Speaker Change: We generated $44 million of free cash flow in the second quarter.
Nick: We expect fiscal 'twenty five adjusted EBITDA to be in the range of $375 million to $395 million.
Speaker Change: Which was an improvement from the first quarter.
Nick: Consistent with our previous guidance, we expect Q3 will be sequentially lower than Q2 based on normal seasonal trends along with some ongoing weakness in our vehicular markets.
Speaker Change: Please note that the quarterly cash flow included nearly $6 million of cash restructuring payments.
Speaker Change: This puts our year to date free cash flow of $58 million, which is on track with our full year outlook.
Nick: We then expect a sequential ramp in Q4, consistent with previous years, and driven by specific markets and product launches.
Speaker Change: Net debt of $327 million with $45 million lower than the prior fiscal year.
Speaker Change: And $36 million lower than last quarter. This resulted in a leverage ratio of 0.9.
Nick: In addition, our view of cash flow remains consistent as we anticipate another year of good cash flow based on the current outlook, we anticipate that free cash flow. This year will be in line or above the prior fiscal year.
Speaker Change: Consistent with the previous quarter, the balance sheet remains strong and we anticipate another year of good free cash flow.
Nick: Last we expect adjusted EPS to remain in the range of $3 65 to $3 95.
Speaker Change: Now, let's turn to slide 11 for our fiscal 25 outlook.
Speaker Change: With half the year behind US we announced in the press release that we are holding our fiscal 'twenty five outlook.
Nick: Our income tax expense is trending a bit higher and we expect the effective tax rate to be in the range of 26% to 28%.
Speaker Change: While the Q2 earnings were somewhat higher than we anticipated the quarter included an estimated $5 million and net benefit as I reviewed in the quarterly results.
Nick: Other assumptions for interest expense taxes, and amortization depreciation expense are summarized in the appendix attached to this presentation.
Speaker Change: We had previously anticipated these benefits would settle in the second half of the year with the majority of the benefit coming in our Q3.
Nick: To wrap up we're pleased with the results from the second quarter and the first half of the year.
Speaker Change: From a revenue standpoint, we will continue to update each quarter the revenue outlook promoting the product groups.
Nick: Thanks, again to those who attended our view the webcast of our Investor day event.
Speaker Change: The net impact of product group revenue adjustments is relatively neutral to the total company this quarter.
Nick: I encourage anyone who may have missed it to view the replay available on our Investor Relations website.
Speaker Change: In the climate solutions segment, we're making a large increase to the datacenter outlook, along with an increase to HVA CNR, while lowering our outlook for key transfer products.
Nick: With that Neil and I will take your questions.
Nick: Thank you.
Speaker Change: If you have a question at this time. Please press Star then one key on the telephone keypad.
Speaker Change: We now expect datacenter sales to grow 100% to 110% a significant increase driven by the strong performance in the first half of the year and a growing order book.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: The star and two if you would like to remove your questions from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to be comprehensive before pushing the stock.
Speaker Change: Our performance technologies.
Speaker Change: We've adjusted for customer trends and ongoing weakness in the global commercial vehicle off highway and auto markets.
Speaker Change: The first question comes from the line of Matt Summerville with D.
Speaker Change: Davidson. Please go ahead.
Speaker Change: With regards to earnings we.
Okay.
Speaker Change: We expect fiscal 'twenty five adjusted EBITDA to be in the range of $375 million to $395 million.
Matt Summerville: Neal in your prepared remarks, you had mentioned that.
Matt Summerville: In your Hyperscale data Center business, you now are seeing opportunities to sell your high performance chiller product into what sounds like potentially all three of your current hyperscale customers.
Speaker Change: Consistent with our previous guidance, we expect Q3 will be sequentially lower than Q2 based on normal seasonal trends along with some ongoing weakness in our vehicular markets.
Matt Summerville: On a per megawatt basis, how much can that potentially increase your content and I'm trying to understand ultimately Neal.
Speaker Change: We then expect a sequential ramp in Q4, consistent with previous years, and driven by specific markets and product launches.
Speaker Change: In addition, our view of cash flow remains consistent as we anticipate another year of good cash flow based on the current outlook.
Matt Summerville: Wallet opportunity each year looks like if you add.
Matt Summerville: These chillers in addition to the year handlers you currently manufacture and then ill follow up.
Speaker Change: That free cash flow this year will be in line or above the prior fiscal year.
Speaker Change: Yes, Matt Great question.
Speaker Change: The market pricing for a chiller.
Speaker Change: Last we expect adjusted EPS to remain in the range of $3 65.
Speaker Change: The capacity of about a megawatt in the half is right around $5 million.
At $3 95.
OSB.
Speaker Change: Our income tax expense is trending a bit higher and we expect the effective tax rate to be in the range of 26% to 28%.
Matt Summerville: Got it.
Speaker Change: Hum.
Speaker Change: This capital project Youre looking at in India can you talk a little bit about the capex associated the timing of products, specifically youre looking to manufacture there outside of <unk>.
Speaker Change: Other assumptions for interest expense taxes, and amortization depreciation expense are summarized in the appendix attached to this presentation.
Speaker Change: In addition to what Youre doing from data centers I think you mentioned something about gen sets, a little bit more color on that but importantly was.
To wrap up we're pleased with the results from the second quarter and the first half of the year.
Speaker Change: This part of Europe.
Speaker Change: Thanks, again to those who.
Speaker Change: Our view the webcast of our Investor day event.
Speaker Change: Year of longer term view that you expressed a quarter or two ago when you talked about.
Speaker Change: I encourage anyone who may have missed it to view the replay are available on our Investor Relations website.
Speaker Change: Growing a $500 million datacenter business to $1 billion in three years or less or was this already in that sort of thought process. Thank you.
Speaker Change: With that Neil and I will take your questions.
Speaker Change: Thank you.
Speaker Change: Good question Matt.
If you have a question at this time. Please press Star then one key on your 10 phone keypad.
Speaker Change: It was not this is incremental.
Speaker Change: We're following our customers.
Speaker Change: For their suggestions.
Speaker Change: A confirmation tone.
Speaker Change: Keith Your line is in the question queue, you've Memphis Star then two if you would like to move to questions from the queue for participants using speaker equipment. It may.
Speaker Change: We're looking at doing cracks fan walls.
Speaker Change: Use out of this location in India.
Speaker Change: And we feel good about it I mean, we've already got a presence there through our vehicular market.
Speaker Change: Necessary to be comprehensive before passing the stock.
Speaker Change: Got opportunity there with Gen sets as well. So this just makes a lot of sense to kind of.
The first question comes from the line of Matt <unk>.
Speaker Change: Move this up and our strategic plan and accelerated and it will add incremental capacity beyond our previous statements.
Matt: With D. A Davidson. Please go ahead.
Speaker Change: Okay.
Matt: Neal in your prepared remarks, you had mentioned that.
Speaker Change: Got it I'll get back in queue. Thanks.
Matt: In your Hyperscale data Center business, you now are seeing opportunities to sell your high performance chiller product into what sounds like potentially all three of your current hyperscale customers.
Speaker Change: Thank you next question comes from the line of Milwaukee.
Speaker Change: Oppenheimer. Please go ahead.
Yeah. Thanks can we start with.
Speaker Change: Scott Springfield, another step up in contribution revenue this quarter.
Matt: On a per megawatt basis, how much can that potentially increase your content and im trying to understand ultimately Neil what the wallet opportunity each year looks like if you add these chillers. In addition to the year handlers you currently manufacture a follow up.
Speaker Change: You, obviously set up for expanded production up in Canada, just talk a little bit about what you've been seeing from the business to to drive stronger contribution and how you think about that trending through the balance of the year versus maybe when you acquired it.
Speaker Change: So we're really pleased with that acquisition that team has been.
Speaker Change: Yes, Matt Great question.
Speaker Change: The market pricing for a chiller.
Speaker Change: Has been very successful and welcome to the to the overall boating team, they're doing an amazing job. We knew that if we could add additional capacity that we would get more volume because of the quality.
Speaker Change: The capacity of about a megawatt in the half is right around $5 million.
Speaker Change: USD.
Matt: Got it.
Speaker Change: And the premium product, we produce we knew we would get more share within some of our customers. If we could get delivery out at a faster rate, hence the investment in Capex in the second facility and we're seeing that flow through now we're also seeing the opportunity for cross selling as we bring in the Airedale brands and then.
And then.
Speaker Change: This capital projects Youre looking at in India can you talk a little bit about the capex associated the timing the products, specifically youre looking to manufacture there outside of.
Speaker Change: In addition to what Youre doing from data centers I think you mentioned something about gen sets, a little bit more color on that but importantly was.
Speaker Change: And then bringing the Scott Springfield brand over to the year traditional airedale customers. So the cross selling opportunities are.
Speaker Change: This.
Speaker Change: Part of your.
Your longer term view that you expressed a quarter or two ago when you talked about.
Speaker Change: We're starting to build up in our pipeline and our funnel and then just the pure volume because of the product the quality of that product.
Speaker Change: Growing a $500 million data center business to $1 billion in three years or less or was this already in that sort of thought process. Thank you.
Speaker Change: We're seeing that pick up with our customers' uptake so it's exceeded our expectations for this point.
Speaker Change: Okay, and then just on the outlook.
Speaker Change: Yes, good question Matt.
Speaker Change: Sure you're going through some of the moving pieces.
Speaker Change: It was not this is incremental.
Speaker Change: And some of the pull forward that you mentioned mix around the benefits from <unk>.
Speaker Change: We're following our customers.
Speaker Change: <unk>.
Speaker Change: Further suggestions so we're looking at doing cracks fan walls Cpus out of this location in India.
Speaker Change: Just at a high level, how do we think about kind of margin trajectory over the balance of the year and how is that informed by mix.
Speaker Change: And we feel good about it I mean, we've already got presence there through our vehicular market, we've got opportunity there with gen sets as well. So this just makes sense to kind of move this up and our strategic plan and accelerated and it will add incremental capacity beyond our previous statements.
Speaker Change: It does seem like.
Speaker Change: We're getting more growth in data center climate solutions.
Speaker Change: And maybe a little bit more weakness on PT side that that might be mix positive for the overall business, which would love your thoughts on that.
Speaker Change: Yes, yes no.
Speaker Change: Got it I'll get back in queue folks.
Speaker Change: You kind of hit on the major points there as we look at the <unk>.
Speaker Change: Thank you next question comes from the line of Milwaukee.
Speaker Change: Second half of the year, we do see.
Yes.
Speaker Change: Please go ahead.
Speaker Change: Q3, yes, a little bit lower margin there in Q3.
Speaker Change: Yeah. Thanks can we start with.
Speaker Change: Scott Springfield, another step up in contribution revenue this quarter.
And then talking total company.
Speaker Change: With a rebound again in Q4 with volume and other things with Q4 being more in line with <unk>.
Speaker Change: You, obviously set up for expanded production up in Canada.
Speaker Change: Talk a little bit about what you've been seeing from the business to to drive stronger contribution and how you think about that trending through the balance of the year.
Speaker Change: First half of the year than under the kind of the water line. There, we're expecting Q3 to be another solid quarter for our climate solutions. The order book on the datacenter strong we expect Q3 to be another good data center quarter for climate.
Speaker Change: Versus maybe when you acquired it.
Speaker Change: So we're really pleased with that acquisition that team has been.
Speaker Change: <unk> has been very successful and welcome to the to the overall loading team they're doing an amazing job. We knew that if we could add additional capacity that we would get more volume because of the quality.
Speaker Change: Lucian heating season is always a see how this time in the year ago that all of that said we're seeing.
Speaker Change: And the premium product we produce we do.
Speaker Change: More share within some of our customers if we could get delivery out at a faster rate, hence the investment in Capex in the second facility and we're seeing that flow through now we're also seeing the opportunity for cross selling as we bring in the Airedale brand and then.
Speaker Change: Selling good about our Q3 on the climate side.
Speaker Change: PT, then is really where we've got that temporary challenges and that one is.
Speaker Change: The seasonal pattern with holidays and production days is always lower as you guys know and then this year on top of it is that softness across AG construction.
Speaker Change: And then bringing the Scotts Greenfield branch or to the year with the traditional airedale customers. So the cross selling opportunities are.
Speaker Change: In auto and we're just seeing customers.
Speaker Change: They are starting to build up in our pipeline and our funnel and then just the pure volume because of the product the quality of that product.
Speaker Change: <unk> extended production shutdowns.
Speaker Change: We'll see.
Speaker Change: Seeing that pick up with our customers' uptake so it's exceeded our expectations to this point.
The bigger impact on the margin will be on the PT side.
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: And then just on the outlook.
Speaker Change: That yet.
Speaker Change: Solid on on the climate side.
Speaker Change: Sure you're going through some of the moving pieces.
Speaker Change: And some of the pull forward that you mentioned mix around the benefits from <unk>.
Speaker Change: That's how we see it in the kind of flowing through into Q3 and Q4.
Speaker Change: Yes, and just one follow up before I turn it over I mean at this point, how much visibility into the back half for PT.
Just at a high level, how do we think about kind of margin trajectory over the balance of the year and how is that informed by mix.
With some of those macro drivers do you feel you really have.
Speaker Change: It does seem like.
Speaker Change: We're getting more <unk>.
Speaker Change: And datacenter climate solutions.
Speaker Change: Is are we at the point, where you're sort of production planning for the back half is pretty baked.
And maybe a little bit more weakness on PT side that that might be mix positive for the overall business, which I would love your thoughts on that.
Speaker Change: Do you think you can move around a little bit in the next couple of months.
Speaker Change: Yes, yes no.
Speaker Change: Yes for the for the most part.
Speaker Change: You kind of hit on the major points there as we look at that.
Speaker Change: Q4 will start to firm up here based on customer <unk> order rate.
In the second half of the year.
Speaker Change: We do see.
Speaker Change: With the Q3, a little bit lower margin there in Q3, and then talking total company with a rebound again in Q4 with volume and other things with Q4 being more in line with the first.
Speaker Change: And we've tried to get under them and in a few cases.
Speaker Change: There's always situations, where they're not pulling at the same volume they are set.
Speaker Change: Sending to our plans from an order rate.
Speaker Change: That said, we also have a number of.
Speaker Change: Opportunities and improvements in Q4 that are more tied to product launches and volumes, especially around the gen set side and with our <unk> system. So you've got some launches and volume improvements we see there.
Speaker Change: Half of the year then.
The kind of the water line there, we're expecting Q3 to be another solid quarter for our climate solutions. The order book on the data Center strong we expect Q3 to be another good data center quarter.
Speaker Change: Climate solution heating season is always a see how this time in the year ago is that all of that said, we're feeling good about our Q3 on the climate side. The PT then is really where we've got that temporary challenges and the dip one is.
Speaker Change: Then.
Speaker Change: We've tried to get under the kind of the market run rate here with this latest quarter.
Speaker Change: Very helpful. Thank you.
Yeah.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Brian Drab with William Blair. Please go ahead.
Good morning, Thanks for taking my questions I just wanted to.
The seasonal pattern with holidays and production days is always lower as you guys know and then this year on top of it is that softness across AG construction CV in auto and we're just seeing customers add extend production shutdown sale.
Brian Drab: Ask you to elaborate on the advanced solutions business, there is somewhat of a <unk>.
Brian Drab: Downward revision for the for the balance of the year.
Brian Drab: Talk about some of those dynamics that would be great.
Speaker Change: Yes, great Hey, it's Mick.
Mick: I'll take a first swing and if Neil wants to add anything you can so we did lower the revenue outlook a little bit for Acs.
Speaker Change: We'll see.
Speaker Change: Their impact on the margin will be on the PT side.
Speaker Change: So that.
Speaker Change: And advanced solutions.
Speaker Change: But yet.
Speaker Change: As a reminder, last year about $125 million in revenue and <unk>.
Speaker Change: Solid on on the climate side scale.
Speaker Change: How we see it in the kind of flowing through into Q3 and Q4.
Speaker Change: That mix is continuing to evolve as we're launching our battery thermal management or <unk> system. So about three quarters of that portfolio as of last fiscal year was still heavy auto EV components.
Yes, and just one follow up before I turn it over I mean at this point, how much visibility into the back half for PT with some of those macro drivers do you feel.
Speaker Change: You really have.
And some legacy specialty vehicle commercial vehicle hybrid type.
Speaker Change: Is are we at the point, where you're sort of production planning for the back half is pretty baked.
Speaker Change: We really the most of what we took down mostly was on the auto.
Speaker Change: Do you think it can move around a little bit in the next couple of months.
Syed on the component side.
Speaker Change: We're still expecting our battery thermal management in the EV system that grow.
Speaker Change: Yes for the for the most part.
Speaker Change: Q4 will start to firm up here based on customer <unk>.
Quite rapidly this year in excess of 30%.
Speaker Change: The order rate.
Speaker Change: Really look that pulled down was the component area and that isn't a strategic focus for the company.
Speaker Change: And we've tried to get under them and in a few cases.
There's always situations, where they're not pulling at the same volume they are.
Does that answer your question.
Speaker Change: That into our plans from an order rate.
Speaker Change: Yes.
That's helpful and you are saying on the battery thermal management side.
Speaker Change: But that said, we also have a number of.
Speaker Change: <unk>.
Speaker Change: The commercial side.
Speaker Change: Opportunities and improvements in Q4 that are more tied to product launches and volumes, especially around the gen set side and with our <unk> system. So you've got some launches and volume improvements we see there and then.
Yes, that's required we're growing and it will continue to grow and it will continue to become a bigger shift as the overall portfolio.
Speaker Change: Okay.
And then in the heat pump market.
Speaker Change: Is there anything that's giving you any.
Better visibility into when that recovers.
Speaker Change: <unk>.
Speaker Change: We've tried to get under the kind of the market run rate here with this latest quarter.
Speaker Change: Okay.
Neal: It's a good question Brian. Thanks for that this is Neal, it's really driven by regulations right and Thats basically what we monitor and we pulse and you look at the amount of permits that are applied for <unk>.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Brian Drab with William Blair. Please go ahead.
Relative to incentives that is driven by regulation.
Brian Drab: Good morning, Thanks for taking my questions I just wanted to first.
Neal: Youll see that is.
Speaker Change: Several quarters out from now.
Brian Drab: Ask you to elaborate on the advanced solutions business, there is somewhat of a.
As they pushed that compliance dates.
Okay, Great, Yes, I'm trying to follow those regulations.
Brian Drab: Downward revision for the for the balance of the year and you could just talk about those dynamics that would be great.
Speaker Change: Assuming a better install them.
Having more detailed conversation, but I can have.
Brian Drab: Yes, great Hey, it's Mick.
Speaker Change: For that I'll follow up more later.
Mick: I'll take a first swing and if Neil wants to add anything you can so we did lower the revenue outlook a little bit for Acs.
Speaker Change: No problem.
Thank you next question comes from the line of Jeff Van <unk> with <unk> Securities. Please go ahead.
Speaker Change: And advanced solutions that as a reminder, last year about 125 million in revenue and <unk>.
Hi, good morning, everyone. So.
So just wanted to follow up a little bit more on the hyper scaler.
Speaker Change: That mix is continuing to evolve as we're launching our battery thermal management or EV systems. So about three quarters of that portfolio as of last fiscal year was still heavy auto EV components.
Given the new production facilities Youre targeting for those it seems like dedicated for hyper scaler work or more geared toward Harper scalar work.
Speaker Change: Are you at this point alright capacity constrained on any particular product.
Speaker Change: And some legacy specialty vehicle commercial vehicle hybrid type.
In the data center and then.
Speaker Change: Since you are considering or continuing to bring on a new hyperscale or it sounds like.
Speaker Change: We really the most that we took down mostly was on the auto side on the component side.
Speaker Change: Maybe you can just touch on.
Speaker Change: How production capacity will build and with the new facilities and then when might the first order shift with the new Hyperscale or do you expect to get an order from a tier three and I guess what is the potential to bring on incremental hyperscale is after that sorry.
Speaker Change: We're still expecting our battery thermal management in the EV systems to grow.
Speaker Change: Quite rapidly this year in excess of 30%.
Speaker Change: So it's really what's got pulled down was the component area and that isn't a strategic focus for the company.
Sorry, a lot of a lot of that question yes.
Yes, no. That's okay. Jeff quick question, we're comfortable with where we've expanded and we can certainly by adding additional lines within the brick and mortar that we've that we've invested in we can we can meet the demand that's been given and yes, you are right.
Speaker Change: Does that answer your question.
Speaker Change: Yes.
Speaker Change: Youre, saying that battery thermal management side.
Speaker Change: <unk>.
Speaker Change: The commercial side.
Speaker Change: Yes, that's where we are growing and it will continue to grow and it will continue to become a bigger shift as the overall portfolio.
We are now we've officially signed a master sales agreement as of last night with a third.
Speaker Change: And we expect to see some orders here in the coming quarter and we have the capacity to do it so.
Speaker Change: Okay. Thank you and then in the heat pump market.
Speaker Change: That was that was part of the process. The vetting process that we have with that third our now our new third hyper scaler and we are to your point in conversations with others. So there were others that were continuing to have conversations with and we're going through the same betting processes with a previous III.
Speaker Change: Is there anything that's giving you any.
Better visibility into into when that recovery.
Speaker Change: Okay.
Neal: It's a good question Brian. Thanks for that this is Neal, it's really driven by regulations right and Thats basically what we monitor and we pulse.
Speaker Change: Okay great.
Neal: If you look at the amount of permits that are applied for relative to incentives.
Speaker Change: And then just as we circle back to the.
The PT business for a moment.
Speaker Change: Driven by regulation.
Latest thoughts on further rationalization, there maybe divestiture initiatives either or on those too.
Speaker Change: We still see that as.
Speaker Change: Several quarters out from now.
As they pushed that compliance dates.
Speaker Change: Okay, Great I'm trying to follow those regulations.
Speaker Change: I think the.
The best way to answer that Jeff is as we laid out at the IR day right now the team.
Speaker Change: Assume you're a veteran slogan.
Speaker Change: Having more detailed conversations that I can have.
For that I'll follow up more later.
Heavily focused on that we laid out about a $300 million.
No problem.
Speaker Change: Thank you next question comes from the line of Jeff Van <unk> with <unk> Securities. Please go ahead.
<unk> area of our business that we are going to deemphasize over the next few years and we entire gated about.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Just wanted to follow up a little bit more on the hyper scaler.
$100 million a year not knowing exactly.
Speaker Change: Given the new production facilities Youre targeting for those it seems like dedicated for harp or work or more geared toward Harper scalar work are you at this point to highlight capacity constrained on any particular products in the data center area.
When each event might take place in bigger pieces, there a little bit right now that they are still focused on that piece of the non strategic while then.
<unk> talked about many times.
Doubling down to capture this share growth in power generation and.
Speaker Change: And then.
<unk> system.
Speaker Change: Since you are considering or continuing to bring on a new hyperscale or it sounds like.
Speaker Change: Okay fair enough. Thanks for taking my questions I'll take the rest offline.
Speaker Change: Maybe you can just touch on.
Speaker Change: How production capacity will build and with the new facilities and then when might the first order shift with the new Hyperscale or do you expect to get an order from the Q3 and then I guess what is the potential to bring on incremental hyperscale is optimal.
Thank you a reminder to all the participants that started in one to ask a question.
Speaker Change: Next question comes from the line of Chris Moore with CJS Securities. Please go ahead.
Hi, This is will on for Chris.
Sorry, a lot of that question yes.
Speaker Change: When you've talked about data center, and <unk> positioning and expected growth one of the consistent themes has always been you were focused on providing a relatively small subset of the market exceptional products and service.
Yeah, no it's okay, Jeff could work.
We're comfortable with where we've expanded and we can certainly by adding additional lines within the brick and mortar that we've that we've invested in we can we can meet the demand thats been given and yes. You are right. We are now we've officially signed a master sales agreement as of last night with a third.
So when you think about the $1 billion revenue target in data Center, how do you think about the expansion of your customer base can you get there just from the existing customer base do.
Speaker Change: Do you need to double it any thoughts you have on attracting new customers would be helpful. Thank you.
Speaker Change: We expect to see some orders here in the coming quarters, and we have the capacity to do it so.
Speaker Change: Yes, Thats right.
Speaker Change: That was that was part of the process. The vetting process that we have with that third our now our new third hyper scaler and we are to your point in conversations with others. So there were others that were continuing to have conversations with them, we're going to see.
Speaker Change: We play in that niche space.
We're moving away from low single digit market share into the low double digits.
Speaker Change: Teens market share so we're still in that space and with the capacity that we have in place today that with the existing funnel with existing and current customers that we have.
Speaker Change: I am betting processes with the previous three.
Speaker Change: Okay great.
Speaker Change: Incremental customers would be.
And then just as we circle back to the PT business for a moment.
It would be incremental so what we what we forecast is based on what we know.
<unk> latest thoughts on further rationalization, there maybe divestiture initiatives either or on those too.
Speaker Change: Super helpful. Thank you.
And then recognizing that the ice based auto business is not a long term focus.
Speaker Change: Sold some businesses here.
Speaker Change: I think the.
You guys raised prices aggressively, especially the ice based auto business as part of the overall transformation two plus years ago.
Best way to answer that Jeff is as we laid out at the IR day right now the team.
Heavily focused on.
In many instances auto customers are willing to pay the price increases at least temporarily.
Speaker Change: That we laid out about a $300 million.
Now that the auto companies have had more time to analyze switching costs and competitors have had time to react to your price increases how.
Speaker Change: <unk> area of our business that we are going to deemphasize over the next few years and we entire again at about a.
How would you characterize the current state of the remaining auto ice business. Thank you.
$100 million a year not knowing exactly.
Yes, that's a good question will I think.
When each event might take place in bigger pieces are little bit right. Now that's the sole focus on that piece of the non strategic while then as we've talked about many times.
Speaker Change: I can agree with your statement generally, but every supplier has unique conversations and discussions relative to the value that they add in the price that they pay so and we've had those conversations.
Speaker Change: <unk> down to capture this share growth in power generation and <unk>.
When we had those conversations certainly we don't look at that in terms of short term. If we're going to we're going to have conversations commercially we look at that into typically two to five year programs.
Speaker Change: <unk> systems.
Okay fair enough. Thanks for taking my questions I'll take the rest offline.
Speaker Change: That's great. Thank you.
Thank you a.
A reminder to all the participants that.
Thank you next question comes from the line of Matt Summerville with D. A Davidson. Please go ahead.
Started in one to ask a question.
Speaker Change: Next question comes from the line of Chris Moore with CJS Securities. Please go ahead.
Matt Summerville: Yes, Thanks, just a couple of follow ups.
Hi, This is will on for Chris.
Just given my understanding of 80 20.
Speaker Change: When you've talked about data center and <unk> positioning an unexpected growth one of the consistent themes has always been you were focused on providing a relatively small set of the market exceptional products and service.
The fact that you want to move on one way or another from $300 million in revenue does this sort of PT downturn, you're seeing enable you to accelerate that in any way how should we be thinking about that.
So when you think about the $1 billion revenue target in data Center, how do you think about the expansion of your customer base can you get there just from the existing customer base do.
Speaker Change: Yes, that's a good question, Matt certainly when we cease.
The headwinds within the market, we definitely we definitely lean on our other businesses, where we see we can outperform to offset that through 2020 initiatives and growth initiatives, but at the same time. We also look real heart of the business of their product line strategies. So when youre looking at the product line strategies.
Speaker Change: Do you need to double it any thoughts you have on attracting new customers would be helpful. Thank you.
Speaker Change: Yes, that's right.
We play in that niche space in.
We're moving away from low single digit market share into the low double digit teens.
Teens market share so we're still in that space and with the capacity that we have in place today, that's with the existing funnel with existing and current customers that we have.
And your volumes are down you can you can really start to see the icebergs, if you will and the when the water levels lowered so absolutely remember PT was about a year behind in terms of 80 20.
Speaker Change: Incremental customers would be.
<unk>, because we deliberately launched them a year later than climate solutions. So they are in the throes of it and we're going to continue to look at their product line portfolio and make decisions on where they want to take it based on.
I think it would be incremental so what we what we forecast is based on what we know.
Speaker Change: Super helpful. Thank you.
Speaker Change: And then recognizing that the ice based auto business is not a long term focus.
Long term based on the new watermark, which is the volumes that they're seeing today. So to answer your question directly yes.
You've sold some businesses here.
You guys raised prices aggressively, especially the <unk>.
Got it and then maybe just two quick follow ups on the datacenter side of the business, you're obviously, whilst the CDU do you expect to have some volume this year, what's maybe your early big picture thought on what liquid can look like in fiscal 'twenty can.
Ice based auto business as part of the overall transformation two plus years ago.
Speaker Change: In many instances auto customers are willing to pay the price increases at least temporarily now.
Speaker Change: Now that the auto companies have had more time to analyze switching costs and competitors have had time to react to your price increases.
Can you remind us in the roll forward you shared last multiyear analyst state of fiscal 'twenty seven.
How would you characterize the current state of the remaining auto ice business. Thank you.
Speaker Change: Yes, that's a good question well I think.
Did you include much in there for for liquid or much in there from this third hyperscale customer, which is seemingly beginning to procure.
Speaker Change: I can agree with your statement generally, but every supplier has unique conversations and discussions relative to the value that they add in.
Equipments from you guys, perhaps sooner.
They pay so we've had those conversations.
Speaker Change: Maybe would've suspected.
When we had those conversations certainly we don't look at that in terms of short term. If we're going to we're going to have conversations commercially we look at that into typically two to five year programs.
Speaker Change: Yes.
Yes, nothing material that in terms of liquid or from a third hyper scaler.
Speaker Change: Got it thanks Neel.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you.
As there are no further questions at this time I would now like to turn the floor over to Kathy powers for closing comments.
Speaker Change: Thank you next question comes from the line of Matt Summerville with D. A Davidson. Please go ahead.
Speaker Change: Yes, Thanks, just a couple of follow ups.
Kathy powers: Thank you to everyone for joining us. This morning. The replay of this call will be available on our Investor Relations Web site in about two hours and hope everybody has a great day and thank you all for your interest in Modine.
Just given my understanding of 80 20.
Speaker Change: The fact that you want to move on one way or another.
Speaker Change: <unk> million dollars in revenue.
Just sort of PT downturn youre seen enable you to accelerate that in any way how should we be thinking about that.
Yes, that's a good question, Matt certainly when we cease.
The headwinds within the market, we definitely we definitely lean on our other businesses, where we see we can outperform to offset that through 2020 initiatives.
But at the same time, we also look real heart of the business of their product line strategies. So when youre looking at the product line strategies.
And your volumes are down you can you can really start to see the icebergs, if you will and the when the water levels lowered so absolutely remember PT was about a year behind in terms of 80 20.
Initiatives, because we deliberately launched them a year later than climate solutions. So they are in the throes of it and we're going to continue to look at their product line portfolio and make decisions on where they want to take it based on the long term based on the new watermark, which is the volumes that they're seeing today. So to answer your question directly it's a yes.
Speaker Change: Got it and then maybe just two quick follow ups on the datacenter side of the business, you're obviously launched the CDU do you expect to have some volume. This year, what's may be your early big picture thought on what liquid can look like in fiscal 'twenty six can you remind us in la.
Roll forward you shared last multiyear analyst state of fiscal 'twenty seven did.
Speaker Change: Did you include much in there for for liquid or much in there from this third hyperscale customer, which is seemingly beginning to procure.
Equipment from you guys, perhaps sooner.
Maybe would've suspected.
Speaker Change: Yes, nothing material, Matt in terms of liquid or from a third hyper scaler.
Got it thanks Neel.
Speaker Change: Thank you.
There are no further questions at this time I would now like to turn the call over to Kathy powers for closing comments.
Thank you to everyone for joining us. This morning. The replay of this call will be available on our Investor Relations website in about two hours and hope everybody has a great day and thank you all for your interest in Modine.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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