Q4 2025 Modine Manufacturing Co Earnings Call

Operator: This call is being recorded.

Operator: I would now like to turn the call over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Related. Thank you. You may begin.

I would now like turn the call over to your host Ms. Kathy powers, Vice President Treasurer and Investor Relations.

Speaker Change: Thank you you may begin.

Kathy powers: Good morning and welcome to our conference call to discuss Modine's fourth quarter and full year fiscal 2025 results.

Kathy powers: Good morning, and welcome to our conference call to discuss <unk> fourth quarter and full year fiscal 2025 results.

Kathy powers: I'm joined by Neil Brinker, our President and Chief Executive Officer, and Michael Lucarelli, our Executive Vice President and Chief Financial Officer. The slides that we will be using for today's presentation are available on the investor relations section of our website, modine.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.

Mike Lucarelli: I'm joined Danielle breaker, our President and Chief Executive Officer, and Mike Lucarelli, Our executive Vice President and Chief Financial Officer.

The slides that we will be using for todays presentation are available on the Investor Relations section of our website Modine dotcom.

Mike Lucarelli: On slide three of that deck, because 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 Brinker: With that, I'll turn the call over to Neil. Thank you, Kathy. And good morning, everyone. We close out the year with a strong fourth quarter performance. This was another record year for Modine, with the highest reported sales and profitability, and our history for the third year in a row. For the past three years, our strategy has been to shift our business mix to drive top line growth and expand even the market. We've made significant investments in order to spur this growth, and for the first time in our history, the climate solution segment reported higher revenues than performance technology.

Neil: Thank you Kathy and good morning, everyone.

Neil: We closed out the year with a strong fourth quarter performance.

Neil: This was another record year for Murphy.

Neil: With the highest reported sales and profitability and our.

Neil: For the third year in a row.

Neil: For the past three years, our strategy has been to shift our business mix to drive topline growth and expand EBITDA margins.

Neil: We've made significant investments in order to spur this growth.

Neil: For the first time in our history. The climate solutions segment reported higher revenues in performance technologies.

Neil Brinker: The rate of earnings growth has far outpaced revenue growth, driven by a 80-20 and a favorable business mix shift. This year, our adjusted EBITDA was up 25% on a 7% sales increase.

Neil: The rate of earnings growth has far outpaced revenue growth driven by 80, 20, and a favorable business mix shift.

Neil: This year, our adjusted EBITDA was up 25% on a 7% sales increase.

Neil Brinker: Nick will cover our fourth quarter financials results and provide our outlook for fiscal 26. But first, I'd like to reflect on some of our accomplishments over the past year.

Nick will cover our fourth quarter financials results and provide our outlook for fiscal 'twenty six.

Speaker Change: First I'd like to reflect on some of our accomplished.

Neil Brinker: please turn to slide 5. Climate Solutions delivered another outstanding year. The segment reported a 30% increase in revenues, including the benefit of the Scott Springfield Equity Fund. and a 45% increase in adjusted EBITDA. This resulted in a 220 basis point improvement and adjusted EBITDA margins to 21%. Sales growth in the segment was driven by data centers, which were up 119% to $644 million. That Springfield's data center sales were $197 million in fiscal 2025, meaning that about half of the increase came from organic data center growth.

Speaker Change: Over the past year.

Speaker Change: Please turn to slide five.

Speaker Change: Climate solutions delivered another outstanding year.

Speaker Change: The segment reported a 30% increase in revenues, including the benefit of the Scott Springfield acquisition, and a 45% increase in adjusted EBITDA.

Speaker Change: This resulted in a 220 basis point improvement in adjusted EBITDA margins to 21%.

Speaker Change: Sales growth in this segment was driven by data centers, which were up 119% to $644 million.

Speaker Change: Got Springfield data center sales were $197 million in fiscal 2025 and about half of the increase came from organic data center growth.

Neil Brinker: Most of the organic growth was in North America and demand for our chillers continues to be extremely The past quarter, we announced an exciting business with a Neocloud customer who is building out AI infrastructure for a new hyperscaler. This is an important win for us, as this is planned to be a multi-phase, multi-location project. Because of this and other orders for chillers in North America, we're increasing production capacity, both at our Rockbridge, Virginia facility and in Grenada, Mississippi. In Grenada, we are adding new production lines for the chillers and end-of-line testing capabilities. This is primarily a response to orders in hand and will also support growth for opportunities in our pipeline.

Speaker Change: Most of the organic growth was in North America and demand for our Chillers continues to be extremely strong.

Speaker Change: The past quarter, we announced an exciting business with a new cloud customer who is building our AI infrastructure for a new hyperscale or this is an important win for us.

Speaker Change: Planned to be a multi phase multi location project.

Speaker Change: Because of this and other orders for Chillers in North America, we are increasing production capacity, both at our Rockbridge, Virginia facility and in Grenada, Mississippi.

Speaker Change: In Grenada, we're adding new production lines for the Chillers and end of line testing capabilities.

Speaker Change: This was primarily response to orders in hand.

Neil Brinker: We're also excited to launch a new modular data center cooling solution and are preparing to take our first order in North America. The powerful combination of Airedale by Modine, Datacenter Cooling Incorporated into a modular approach allows us to address the market's need for high-density compute infrastructure that's flexible, scalable, cost-effective, energy-efficient, and can be deployed rapidly to meet the evolving demands of our customers.

Speaker Change: And will also support growth for opportunities in our pipeline.

Speaker Change: We're also excited to launch a new modular data center cooling solutions and are preparing to take our first order in North America.

Speaker Change: The powerful combination of Airedale by Moody data center cooling solutions incorporated into a modular approach allows us to address the market's need for high density compute infrastructure, that's flexible scalable cost effective energy efficient and can be deployed rapidly to meet the evolving demands of our customers.

Neil Brinker: And finally, we're making progress on our India expansion and are on track to launch production in 2022. We're actively quoting from multiple customers as we plan to service Southeast Asia and the Middle East from this location.

Speaker Change: And finally, we're making progress on our India expansion and are on track to launch production in Q2.

Speaker Change: We're actively quoting for multiple cost as we plan to service Southeast Asia, and the Middle East from this location.

Neil Brinker: Data centers have been a focus of our investment for some time, but we're also working to grow our commercial indoor air quality and heating We recently completed the acquisition of Absolute Air, a heating products company with a complementary product line and distribution channel to our own. Our business development team is also working on other opportunities for bolt-on acquisitions for the product group. There's a great deal of activity in the climate solution segment, and the key to our success will be executing on all the growth initiatives in front of us.

Speaker Change: Data centers have been a focus of our investment for some time, but we're also working to grow our commercial indoor air quality and heating businesses.

Speaker Change: We recently completed the acquisition of absolute error, a heating products company with a complementary product line and distribution channels through our own.

Speaker Change: Our business development team is also working on other opportunities for bolt on acquisitions for these product groups.

Speaker Change: Thanks.

Speaker Change: There's a great deal of activity in the climate solutions segment and the key to our success will be executing on all the growth initiatives in front of us.

Neil Brinker: Please turn to page 6.

Neil Brinker: The performance technology segment delivered a strong four-quarter performance despite challenging market conditions. The segment reported a 15% adjusted EBITDA margin in the fourth quarter, resulting in 13.5% adjusted EBITDA margin for the fiscal year, a 200 basis point year over year.

Speaker Change: Please turn to page six.

Speaker Change: The performance technologies segment delivered a strong fourth quarter performance despite challenging market conditions.

Speaker Change: The segment reported a 15% adjusted EBITDA margin in the fourth quarter.

Speaker Change: Resulting in 13, 5% adjusted EBIT margin for the fiscal year.

Neil Brinker: Our vehicular markets have been in an extended downturn that is currently projected to last four more quarters. In addition, we are experiencing delays in the launch and ramp of electric vehicle programs using our EP systems products with further uncertainty ahead. This is causing us to lower our expectations for near term growth for the advanced solutions product.

Speaker Change: A 200 basis point year over year improvement.

Speaker Change: Our vehicular markets have been in an extended downturn that is currently projected to last for one more quarter.

Speaker Change: In addition, we are experiencing delays in the launch and ramp of electric vehicle programs using our E Systems' products with further uncertainty ahead.

Speaker Change: This is causing us to lower our expectations for near term growth pretty advanced solutions product group and.

Neil Brinker: In response, we are making several changes to our business. First, we had previously announced the change to our product groups in the segment and are moving forward with that, but are now pivoting to two groups rather than three. Heavy-duty equipment will include off-highway and stationary power products, and on-highway applications will include automotive, commercial vehicle, and specialty vehicle products for both ICE and EV-powered vehicles.

Speaker Change: In response, we're making several changes to our business.

Speaker Change: First we had previously announced the change to our product groups. In this segment and are moving forward with that but are now pivoting to two groups rather than three.

Speaker Change: Heavy duty equipment will include off highway and stationary power products and on highway applications will include automotive commercial vehicle and specialty vehicle products for both ice and EV powertrain.

Neil Brinker: Next, we are taking a renewed critical look at the business processes to streamline operations and lower costs. This involves further cost reductions throughout PT with redeployment of key resources to open positions and climate solutions wherever possible. These actions, along with a simplified structure, will provide better focus on our customers and end markets while reducing operating costs, allowing us to continue improving margins during the sound term, leading to even greater conversion once the market recovers. It is challenging to improve margins on flat or lower revenue, but that's exactly what we've been doing in the PTSECA. Since we started on this journey three years ago, we've improved adjusted EBITDA margins by 800 basis points on flat revenue.

Speaker Change: Next we are taking a renewed critical look at the business processes to streamline operations and lower costs.

Speaker Change: This involves further cost reductions throughout P. T with redeployment of key resources to open positions in climate solutions wherever possible.

Speaker Change: These actions along with a simplified structure will provide better focus on our customers and end markets.

Speaker Change: Reducing operating costs, allowing us to continue improving margins during this downturn.

Speaker Change: Leading to even greater conversion once the markets recover.

Speaker Change: It is challenging to improve margins on flat or lower revenue, but that's exactly what we've been doing in the pizza segment.

Speaker Change: Since we started this journey three years ago, we've improved adjusted EBIT margins by 800 basis points on flat revenue.

Neil Brinker: We are making great progress towards the EBITDA margin targets introduced at our Investor Day last September, and we are not backing away from those targets despite these challenging and uncertain market conditions.

Speaker Change: We are making great progress towards the EBIT margin targets introduced at our Investor Day last September and we are not backing away from those targets. Despite these challenging and uncertain market conditions.

Neil Brinker: During this period of heightened global uncertainty and trade concerns, we're focusing on controlling what we can and taking decisive actions where necessary. It is difficult to predict the impact of tariffs on our supply chain as well as on our customers in the broader economic environment. Our market position is strengthened by our global manufacturing footprint and local for local approach. In addition, our supply chain team has navigated these hurdles in the past and will continue to refine their sourcing strategies to keep us cost competitive.

Speaker Change: During this period of heightened global soybean.

Speaker Change: Trade concerns, we're focusing on controlling what we can and taking decisive actions where necessary.

Speaker Change: It is difficult to predict the impact of tariffs on our supply chain as well as on our customers and the broader economic environment.

Speaker Change: Our market position is strengthened by our global manufacturing footprint and local for local approach.

Speaker Change: In addition.

Speaker Change: Supply chain team has navigated these hurdles in the past and we will continue to refine their sourcing strategy to keep us cost competitive.

Neil Brinker: It is clear that the execution of our strategic plans and the investments to grow in key markets have resulted in our third consecutive year of record performance, while equally setting the stage for better things to come.

Speaker Change: It is clear that the execution of our strategic plans and the investments to grow in key markets have resulted in our third consecutive year of record performance, while equally setting the stage for better things to come.

Michael Lucarelli: I'll turn the call over to Thanks, Neil, and good morning, everyone.

Michael Lucarelli: Please turn to slide 7 to review the Q4 segment results. Climate Solutions delivered another strong quarter with a 28% increase in sales. 48% improvement in adjusted EBITDA and an adjusted EBITDA margin of 21.4%. Data center sales grew 69 million or 80% from the prior year, driven by higher North American sales and the Scott Springfield acquisition. HVAC and our sales rose by $21 million. or 27%. driven by a surge in late season demand for heating products and improvements across indoor air quality and refrigeration products. eTransfer product sales declined 11% 12 million due to lower volume to commercial and residential HVAC and commercial refrigeration customers.

Mike: I'll turn the call over to Mike.

Mike: Thanks, Neil and good morning, everyone.

Mike Lucarelli: Please turn to slide seven to review the Q4 segment results.

Mike: Climate solutions delivered another strong quarter.

Mike: With a 28% increase in sales of 48% improvement in adjusted EBITDA.

Mike: And an adjusted EBITDA margin of 21, 4%.

Mike: Data center sales grew $69 million or 80% from the prior year, driven by higher North American sales and the Scot Springfield acquisition.

Mike: HVA CNR sales rose by $21 million or 27%.

Mike: Driven by a surge in late season demand for heating products and improvements across indoor air quality and refrigeration products.

Mike: Heat transfer products sales declined 11%.

Mike: $12 million due to lower volume to commercial and residential HVAC and commercial refrigeration customers.

Michael Lucarelli: Overall, we're very pleased with Climate Solutions strong earnings and conversion, which resulted in a 290 basis point improvement in adjusted EBITDA margin of 21.4%.

Mike: Overall, we're very pleased with the climate solutions strong earnings and conversion, which resulted in a 290 basis point improvement in adjusted EBITDA margin.

Michael Lucarelli: This quarter completed another great year for climate solution. We anticipate continued revenue and earnings growth in the new fiscal year.

Mike: 21, 4%.

Mike: This quarter completed another great year for climate solutions we.

Michael Lucarelli: And as Neil said, our business development team is actively pursuing additional acquisitions.

Mike: We anticipate continued revenue and earnings growth in the new fiscal year.

Michael Lucarelli: Please turn to slide 8. As we anticipated, performance technologies delivered strong sequential earnings and margin improvement, despite weakness we are experiencing across most of our end markets. foreign exchange rates were an additional headwind this quarter, negatively impacting sales by nearly 8 million or 2% advanced solution sales were lower by 12% or 4 million driven by decline in EV auto and eVantage system sales. partially offset by higher sales to specialty vehicle customers. Liquid cooled application sales decreased 7% or 8 million due to the previously mentioned lower end market demand. Lastly, air-cooled application sales were lower by 13%, or $22 million.

Neil: And as Neil said, our business development team is actively pursuing additional acquisitions.

Speaker Change: Please turn to slide eight.

Speaker Change: As we anticipated performance technologies delivered strong sequential earnings and margin improvement. Despite weakness we are experiencing across most of our end markets.

Speaker Change: Foreign exchange rates were an additional headwind this quarter negatively impacting sales by nearly $8 million or 2%.

Speaker Change: Advanced solution sales were lower by 12% or $4 million.

Speaker Change: Driven by a decline in EV auto and E vantage system sales.

Speaker Change: Partially offset by higher sales of specialty vehicle customers.

Speaker Change: Liquid cooled application sales decreased 7% or $8 million.

Speaker Change: Due to the previously mentioned lower end market demand.

Michael Lucarelli: Also driven by market dynam Partially offsetting the lower market demand for air cooled products was a 29% increase with gen set Adjusted EBITDA improved 5% from the prior year, despite the lower sales. adjusted EBITDA margin increased 220. This segment is clearly benefiting from the proactive restructuring and other cost initiatives taken earlier in the year. As Neil mentioned, we're reorganizing this business and taking further action to simplify the org structure and reduce costs.

Eric: Lastly, Eric.

Eric: Air cooled application sales were lower by 13% or $22 million.

Eric: Also driven by market dynamics.

Eric: Partially offsetting the lower market demand for air cooled product was at 29% increase with Gen set customers.

Eric: Adjusted EBITDA improved 5% from the prior year, despite the lower sales adjust.

Eric: Adjusted EBITDA margin increased 220 basis points.

Eric: This segment is clearly benefiting from the proactive restructuring and other cost initiatives taken earlier in the year.

Michael Lucarelli: We expect these actions to generate more than $15 million in annual savings. as we continue to reallocate our costs and resources to the highest growth.

Eric: As Neil mentioned, we're reorganizing the business and taking further action.

Eric: To simplify the org structure and reduced costs.

Eric: We expect these actions.

Eric: More than $15 million in annual savings.

Michael Lucarelli: to wrap up. performance technology segment achieved another year of earnings improvement and significant margin expansion. Modine's 80-20 approach is a critical element of these results.

Eric: We continue to reallocate our costs and resources to the highest growth businesses.

Eric: To wrap up.

Speaker Change: <unk> technologies segment achieved another year of earnings improvement and significant margin expansion.

Michael Lucarelli: And we will lean on these principles to drive continued improvement in the upcoming fiscal year.

Eric: <unk> 20th.

Eric: <unk> approach is a critical element of these results.

Michael Lucarelli: Despite the difficult market conditions and uncertainties around the global trade situation, we anticipate higher margins and earnings for this segment in fiscal Now let's review total company results.

Eric: And we will lean on these principles to drive continued improvement in the upcoming fiscal year.

Eric: Despite the difficult market conditions and uncertainties around the global trade situation, we anticipate higher margins and earnings for this segment in fiscal 'twenty.

Michael Lucarelli: Please turn the slide now. fourth quarter sales increased 7% driven by revenue growth and climate solution The climate solutions growth is partially offset by market related volume declines in performance technology. Our gross margin improved 330 basis to 25.7%. driven primarily by higher sales volume and favorable myth.

Eric: Now, let's review total company results.

Eric: Please turn to slide nine.

Eric: Fourth quarter sales increased 7% driven by revenue growth and climate solutions the.

Eric: The climate solutions growth was partially offset by market related volume declines in performance right now.

Eric: Allergy.

Eric: Our gross margin improved 330 basis points to 25, 7% driven.

Michael Lucarelli: along with the benefits from restructuring cost savings initiative in the performance technology We continue to invest in incremental SG&A to support the strong climate solutions growth. In addition, FG&A includes expenses related to the SSM acquisition, including incremental amortization related to intangible assets. Adjusted EBITDA was exceptional this quarter with an increase of 32% or $25 million. And the adjusted EBITDA margin was 16.1%, representing a 300 basis point improvement from the prior year. This now represents the 13th consecutive quarter of year-over-year margin improvement. And we achieved our highest adjusted EBITDA margin since beginning Modine's strategic transformation.

Eric: Driven primarily by higher sales volume and favorable mix.

Eric: Along with the benefits from restructuring and cost savings initiatives.

Eric: Performance technologies.

Eric: We continue to invest in incremental SG&A to support the strong climate solutions growth.

Eric: In addition.

Eric: SG&A includes expenses related to the SSM acquisition, including incremental amortization related.

Eric: To intangible assets.

Eric: Adjusted EBITDA was exceptional this quarter with an increase of 32% or $25 million.

Eric: And the adjusted EBITDA margin was 16, 1%.

Eric: Presenting a 300 basis point improvement from the prior year.

Eric: This now represents the 13th consecutive quarter of year over year margin improvement.

Michael Lucarelli: Adjusted earnings per share was $1.12, 45% higher than the prior year. We're pleased with the strong finish to the fiscal year. Momentum at key growth markets allowed us to overcome challenges and other Our full year adjusted EBITDA margin ended at 15.2%, which is 210 basis points above fiscal 24. These results are on track and aligned with our Investor Day targets for Fiscal 27.

Eric: And we achieved our highest adjusted EBITDA margin since beginning modine strategic transformation.

Eric: Adjusted earnings per share was $1 12.

Eric: 45% higher than the prior year.

Eric: We're pleased with the strong finish to the fiscal year momentum.

Eric: Key growth markets allowed us to overcome challenges than others.

Eric: Our full year adjusted EBITDA margin ended at 15, 2%, which is 210 basis points above fiscal 'twenty four.

Michael Lucarelli: Now moving to cash flow metrics.

Michael Lucarelli: Please turn the slide. The businesses generated $27 million of free cash flow in the fourth quarter, and this included $6 million of payments primarily related to restructuring.

Eric: These results are on track and aligned with our Investor day targets for fiscal 'twenty seven.

Eric: Now moving to cash flow metrics.

Eric: Please turn to slide 10.

Michael Lucarelli: This puts our full year free cash flow at $129 million, allowing us to further strengthen the balance sheet. net debt of $279 million with $92 million lower than the prior fiscal year end and $8 million lower than last quarter. With a leverage ratio of 0.7, our balance sheet remains in great shape and we anticipate another year of excellent cash flow in FYSB 26.

Eric: The businesses generated $27 million of free cash flow in the fourth quarter.

Eric: And this included $6 million of payments primarily related to restructuring.

Eric: This puts our full year free cash flow of $129 million, allowing us to further strengthen the balance sheet.

Eric: Net debt of $279 million was $92 million lower than the prior fiscal year, and an $8 million lower than last quarter.

Michael Lucarelli: During the quarter, we announced $100 million stock buyback program and completed $18 million of share repurchase.

Eric: With a leverage ratio of zero point.

Eric: Our balance sheet remains in great shape, and we anticipate another year of excellent free cash flow in fiscal 'twenty six.

Michael Lucarelli: Now let's turn to slide 11 for our fiscal 26 outlook. As Neil mentioned, there's a great deal of uncertainty across all markets and the global economy. And our team is continually assessing the tariff impact on our We're analyzing a number of factors that may in some way have an impact this fiscal year. These include the impact on material costs of imported products through our supply chain. Any tariffs paid to ship finished products from one location to another. Cost Sharing and or Price Adjustment. address these costs. and the overall impact on product demand for Modine or our customers.

Eric: During the quarter, we announced the $100 million stock buyback program and completed $18 million of share repurchases.

Eric: Now, let's turn to slide 11 for our fiscal 'twenty six outlook.

Speaker Change: As Neil mentioned Theres, a great deal of uncertainty across all markets and the global economy.

Speaker Change: Our team is continually assessing the tariff impact on our business.

Speaker Change: We're analyzing a number of factors that may cause.

Speaker Change: Suddenly have an impact this fiscal year.

Speaker Change: These include the.

Speaker Change: The impact on material cost of imported products through our supply chain.

Speaker Change: Any tariffs paid to ship finished products from one location to another.

Michael Lucarelli: Beyond the trade and tariff risks, there are some positive elements for Modine. First, we estimate that less than 10 percent of our annual purchases are subject to new tariffs based on a regional supply chain strategy. Second, and with regards to shipping of finished goods, we have commercial agreements with many customers that proactively address tariffs. And last, we have a global footprint. And that is allowing us to help customers with their new sourcing strategies, which could lead to incremental revenue.

Speaker Change: The cost sharing <unk> price adjustments.

Speaker Change: The address these costs.

Speaker Change: And the overall impact on product demand for modine or our customers.

Speaker Change: Beyond the trade and tariff risks there are some positive elements for modine.

Speaker Change: First we estimate that less than 10% of our annual purchases are subject to new tariffs.

Speaker Change: Just on regional supply chain strategies.

Speaker Change: Second and with regards to shipping a finished goods we have commercial agreements with many customers that proactively address tariffs.

Michael Lucarelli: Given the volatility and uncertainty in the market We are providing wider than usual ranges for our outlook. We've factored all known information at this time into our revenue and earnings outlook. will provide updates each quarter and tighten the ranges as the year progresses. and adjust as we gain more information and certainty.

Speaker Change: And last.

Speaker Change: We have a global footprint and that is allowing us to help customers with their new sourcing strategies, which could lead to incremental revenue.

Speaker Change: Given the volatility and uncertainty in the market.

Speaker Change: We are providing wider than usual ranges for our outlook.

Speaker Change: We had factored all known information at this time into our revenue and earnings outlook.

Michael Lucarelli: in the appendix. We provided a table summarizing the current tariff situation and Modine exposure for fiscal 26. We currently expect total company sales to grow in the range of 2 to 10%.

Speaker Change: We will provide updates each quarter and tightened the range as the year progresses.

Speaker Change: And adjust as we gain more information and certainty.

Speaker Change: In the appendix.

Speaker Change: We provided a table summarizing the current tariff situation and modine exposure for.

Michael Lucarelli: For climate solutions, we expect full year sales to grow 12 to 20 This growth is largely driven by our outlook for the data center and commercial IAQ product group. with regards to this product group. We remain quite optimistic in the full year outlook for data. Anticipated revenue growth in excess of 30%. While the European market appears to be adjusting to changing hyperscaler We're not seeing any slowdown in North America.

Speaker Change: For fiscal 2006, we currently expect total company sales to grow.

Speaker Change: In the range of 2% to 10%.

Speaker Change: For our climate solutions, we expect full year sales to grow 12% to 20%.

Speaker Change: This growth is largely driven by our outlook for the data center and commercial <unk> product group.

Speaker Change: With regards to this product group.

Speaker Change: We remain quite optimistic and the full year outlook for data centers.

Michael Lucarelli: In fact, their challenge remains the ability to keep up with demand.

Speaker Change: With anticipated revenue growth in excess of 30%.

Michael Lucarelli: for performance technologies. We're anticipating sales to be down two to 12%. Based on the assumption that the end market will remain depressed. and that the current trade conflicts may have a negative impact on those market recoveries.

Speaker Change: While the European market appears to be adjusting to changing hyperscale or plans, we're not seeing any slowdown in North America. In fact, their challenge remains the ability to keep up with demand.

Speaker Change: For performance technologies, we're anticipating sales to be down 2% to 12%.

Michael Lucarelli: As Neil mentioned, we've reorganized the PT segment into two products. first product. Heavy Duty Equipment is presented at our Investor Day and will serve the Agriculture, Construction, Mining, and Gensys. second group will be on highway applications. Automotive, Commercial Vehicle and Specialty Vehicle Markets, including electric vehicles. consolidating the performance technology segment into two products. will help the team to further focus on key end markets and customers, which is a critical element of 8020. And this will allow us to reduce our cost. and Further Improved Profit Mark Our strategy remains consistent. in the segment to exit non-strategic business.

Speaker Change: Based on the assumption that the end markets will remain depressed.

Speaker Change: And that the current trade conflicts may have a negative impact on those market recovery.

Neil: As Neil mentioned, we've reorganized the Pts segment into two product groups.

Speaker Change: The first product group.

Speaker Change: Heavy duty equipment as presented at our Investor Day, and we'll serve the agriculture construction and mining engine markets.

Speaker Change: The second group will be on highway applications.

Speaker Change: Which will automotive commercial vehicle and specialty vehicle markets.

Speaker Change: Including electric vehicles.

Speaker Change: Consolidated performance technologies segment into two product groups.

Speaker Change: Will help the team to further focus on key end markets and customers, which is a critical element of 80 20.

Michael Lucarelli: which we believe will be in the best interest of all stakeholders, including our employees, customers, and suppliers.

Speaker Change: And this will allow us to reduce our cost structure and further improve profit margins.

Speaker Change: Our strategy remains consistent in this segment to exit.

Michael Lucarelli: The team is actively working on.

Michael Lucarelli: and we're going to provide more information on some of the things that have been identified. with regards to our full year earning We currently expect fiscal 26 adjusted EBITDA to be in the range of $420 to $450 million. Using the midpoint of this range, this results in an increase of 11% in another year of solid earnings growth. In addition, we anticipate that we'll generate a higher level of free cash flow in fiscal 26. continuing to increase for cash generation. in line with our IR day target.

Speaker Change: Non strategic businesses.

Speaker Change: Which we believe will be in the best interests of all stakeholders, including our employees customers and suppliers.

Speaker Change: The team is actively working on that.

Speaker Change: We'll provide more information.

Speaker Change: Okay.

Speaker Change: With regards to our full year earnings.

Speaker Change: We currently expect fiscal 'twenty six adjusted EBITDA to be in the range of $420 million to $450 million.

Speaker Change: Using the midpoint of this range. This results in an increase of 11% and another year of solid earnings growth.

Michael Lucarelli: Before wrapping up, I want to remind everyone about the planned product group changes we reviewed at our investor day and during the call today. For climate solutions, we'll report revenues under three product groups. data centers and commercial I do. HVAC Technologies, which will include our heating and school indoor air quality businesses. and Heat Transfer Solution. which will include our coil coatings and commercial refrigeration coolers. As I previously covered, performance technologies will be broken down into two products. heavy-duty equipment, and on-highway applications.

Speaker Change: In addition, we anticipate that will generate a higher level of free cash flow in fiscal 'twenty six.

Speaker Change: Continuing to increase our cash generation in line with our IR day target.

Speaker Change: Before wrapping up I want to remind everyone about the planned product group changes, we reviewed at our Investor day and during the call today.

Speaker Change: For climate solutions will report revenues under the three product groups.

Speaker Change: Data centers and commercial I do.

Speaker Change: HVAC technologies, which will include our heating and school indoor air quality businesses.

Speaker Change: And heat transfer solutions, which will include our coil coatings and commercial refrigeration coolers business.

Michael Lucarelli: To assist everyone with modeling and analysis, we'll provide a restatement for fiscal 25 revenue using these new product groups, and we'll begin showing the new product groups with our first quarter results.

Speaker Change: As I previously covered performance technologies will be broken down into two product groups.

Speaker Change: Heavy duty equipment.

Michael Lucarelli: To wrap up, we're extremely pleased with the results from the fourth quarter and RICOH-25. The Modine team worked extremely hard to deliver a third consecutive year of record results. by some significant market headwinds. In addition, this team has demonstrated their ability to manage all the levers that they can control, including the successful addition of several acquisitions. We've delivered on our financial targets over the last several years and remain on track to achieve our fiscal 26 and 27 goals.

Speaker Change: In on highway applications.

Speaker Change: To just everyone with modeling and analysis will provide a restatement for fiscal 'twenty five revenue.

Speaker Change: Using these new product groups and will begin showing the new product groups with our first quarter results.

Speaker Change: To wrap up we're extremely pleased with the results from the fourth quarter and 25.

Speaker Change: Promoting team worked extremely hard to deliver.

Speaker Change: Third consecutive year of record results.

Speaker Change: Quite some significant market headwinds.

Speaker Change: In addition, this team has demonstrated their ability to manage all of the levers that they can control, including the successful addition of several acquisitions.

Kathy powers: With that, Neil and I will take your questions. Thank you.

Operator: If you have a question at this time, please press star one on your telephone keypad. Make a confirmation to indicate your line is in the question.

Speaker Change: We've delivered on our financial targets over the last several years.

Speaker Change: And remain on track to achieve our fiscal 2000.

Operator: You may start two if you'd like to remove your question from the queue.

Speaker Change: And 'twenty seven goals with that Neil and I will take your questions.

Christopher Moore: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start Our first question is from Chris Moore with CJS Securities, please proceed with your Hey, good morning, guys. Congrats. Another good quarter. Thanks for taking a couple.

Speaker Change: Thank you if you have a question at this time, please press star one on your telephone keypad.

Speaker Change: The confirmation tone will indicate your line is in the question queue.

Speaker Change: They start to if you like to remove your question from the queue.

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

Christopher Moore: So maybe we'll start with data center. So talking about 30% growth, fiscal 26.

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

Chris Moore: Hey, good morning, guys congrats.

Speaker Change: Another good quarter.

Speaker Change: Thanks for taking a couple so maybe I will start with data center, so talking about 30% growth.

Neil Brinker: Unknown Attendee, Matt Powell, Robert Bedard, Modine Manufacturing Co., Unknown Attendee, Inclination to their Hey, Chris, this is Neil. Thanks for the question. Yeah, we're very confident in the opportunities we have in the data center market. We continue to build strong relationships, both with our best co-location customers as well as the hyperscalers that we've built relationships with over the years. As you know, we've gone from one significant relationship with a single hyperscaler to, you know, five in a short period of time where we have opportunity to do business. As we build those relationships with our customers, both on co-location as well as on the hyperscaler side, we have visibility of upwards of five years.

Speaker Change: Fiscal 2006, as you said Europe, maybe a little more cautious North America strong.

Speaker Change: Maybe just talk a little bit about the data center visibility how far out are your customers sharing their build schedules.

Speaker Change: 24 months 36 months, just trying to get a sense as to you know kind of how far out there there to give you.

Speaker Change: Inclination to their plant.

Speaker Change: Hey, Chris This is Neil Thanks for the question, Yes, we're very confident in.

Speaker Change: The opportunities we have in the data center market.

Speaker Change: We continue to build strong relationships both with R. R.

Speaker Change: Our best co location customers as well as the Hyperscale is that we've built relationships with over the years as you know we've gone from one significant relationship with a single hyperscale or two.

Neil Brinker: We have high confidence in a year outlook. We have moderate to high confidence in, you know, two years out, but we have visibility with some of our customers that go out three to five years.

Speaker Change: Five in a short period of time, where we have opportunity to do business.

Speaker Change: We built those relationships with our with our customers both on co location as well as on the Hyperscale side, we have visibility of upwards of five years.

Christopher Moore: Very helpful. Thanks.

Christopher Moore: The tariff disclosure slide, I think, is very helpful. A couple of things there.

Speaker Change: We have high confidence in your outlook, we have moderate to high confidence and two years out, but we have visibility with some of our customers that go out three to five years.

Neil Brinker: Is there anything that you source from China that is especially hard to find elsewhere? You know, that's a that's a good question. Thanks for that, Chris. We've worked on this over the last, you know, three to four years in terms of a local for local strategy relative to our supply chain. Having, you know, 38 facilities in 14 different countries, it's really important to do that. For one, making sure that we have a redundant supply chain and funnel, also because of just total landed costs. We've reduced the dependency on supply chain from China significantly over the last few years.

Speaker Change: Very helpful. Thanks.

Speaker Change: The tariff disclosure slide and its very helpful.

Speaker Change: Couple of things there is there anything that you source from China.

Speaker Change: It is especially hard to find elsewhere.

Chris Moore: That's a good question. Thanks for that Chris we've worked on this over the last.

Chris Moore: Three to four years in terms of.

Chris Moore: Our local for local strategy relative to our supply chain having.

Neil Brinker: It started with COVID and the reduction of supply, supply chain and moving more domestically for regional, regional supply chain support. And then, you know, with the port strike in LA, and then the Suez Canal, there's all kinds of reasons that we needed to reduce our dependency on China. So we feel very comfortable where we're at with our local for local supply chain. And we think that's going to be an advantage for us as we move forward in this tariff environment. Perfect.

Chris Moore: 38 facilities in 14 different countries, it's really important to do that for one.

Chris Moore: Making sure that we have a redundant supply chain and funnel also because of just total landed cost.

Chris Moore: We've reduced the dependency on supply chain from China significantly over the last few years. It started with Covid and the reduction of supply supply chain and moving more domestically for regional regional supply chain support and then with the <unk>.

Christopher Moore: Maybe just the last one on that note. So, you kind of went through the different areas on the tariffs that could be an issue. It sounds like ultimate product demand is probably the biggest uncertainty. Is that a fair statement and is it in... one segment more than another.

Chris Moore: Short strike in L. A and then the Suez Canal with all kinds of reasons that we needed to.

Chris Moore: Reduce our dependency on China, So we feel very comfortable where we're at with our local for local supply chain and we think that's going to be an advantage for us as we move forward in this tariff environment.

Speaker Change: Perfect and then maybe just last one on that note. So.

Speaker Change: You kind of went through the different areas.

Michael Lucarelli: Yeah, that's Chris. It's Mick. With regards to the outlook, Chris Brown volume, I think the largest uncertainty for us would definitely be about the rate of market recovery and specifically in performance technologies as you and Neil covered on the climate side, the heating and school IAQ business. We expect to have steady double-digit growth this year, which is great. the 30 plus percent top line for data center. And then You know, back on the PT side, it really will be about the rate of recovery or stability across ag, construction, and commercial vehicles.

Speaker Change: On the tariffs.

Speaker Change: That could.

Speaker Change: It could be an issue it sounds like ultimate product demand is probably the biggest uncertainty is is that a fair statement and is it in March.

Speaker Change: One segment more than another.

Speaker Change: Yes.

Speaker Change: Chris It's Nick with regards to the outlook.

Speaker Change: So brown volume.

Speaker Change: Thank you.

Speaker Change: Largest uncertainty for us, we'll definitely be about the rate of market recovery and specifically in performance technologies that you and Neil.

Speaker Change: Covered on the climate side.

Speaker Change: Leading in school IQ business.

Speaker Change: We expect.

Speaker Change: Steady double digit growth this year, which is great.

Christopher Moore: I appreciate it. I'll jump back in line.

Speaker Change: 30, plus percent topline for a data center and then.

Matt Summerville: Our next question comes from Matt Summerville with D.A. Davidson. Please proceed with your question. Thanks.

Speaker Change: Back on the PT side, it's really will be about the rate of recovery or stability across the.

Matt Summerville: A couple of questions. Back on the BC business, can you put a little bit of finer point on your comment regarding having a hard time keeping up with demand in North America? Is that primarily being driven by these newer relationships?

Speaker Change: AG construction and commercial vehicles.

Speaker Change: Got it I appreciate it I'll jump back in line.

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

Matt Summerville: And then, Neil, you mentioned five hyperscalers. I just want to make sure that that count is accurate.

Matt Summerville: Thanks couple of questions back on the <unk> business can you put a little bit of a finer point on it.

Matt Summerville: And then also, if you could address in Europe some of the tentativeness you're seeing on spend. Is that a function of macro or repurposing of original build plans to include AI? And then I would follow.

Matt Summerville: Your.

Matt Summerville: Comment regarding having a hard time keeping up with demand.

Speaker Change: In North America is that primarily being driven by these newer relationships and then Neill you mentioned, 5% hyperscale or I just want to make sure that that count is accurate and then also if you could address.

Neil Brinker: Yeah, Matt, thanks for the question. Really, it's a matter of execution in North America for us. We have we have tremendous opportunity. We recently put out a press release where we're going to add additional capacity and employment in Mississippi to keep up with that demand. We were seeing incredible need to continue to ship and produce products in DC, particularly around chillers. And, you know, we had that dedicated plant in Virginia, that we've already maxed the capacity, and we're going to now have to increase capacity in Mississippi as well to add additional chiller lines. So we've been able to win commercially with, you know, very, very good product.

Speaker Change: In Europe, some of the Tentativeness youre seeing on spend is that a function of macro or repurposing of original build plans to include AI.

Speaker Change: Sure.

Matt Summerville: Yeah, Matt Thanks for the question.

Matt Summerville: Really it's a matter of execution in North America for US we have we have a tremendous opportunity.

Speaker Change: Suddenly put out a press release, where we're going to add additional capacity in employment in Mississippi to keep up with that demand.

Speaker Change: We're seeing incredible need to.

Neil Brinker: We've got a lot of attention in North America, particularly with our growth with our hyperscalers, as well as colocation. So it's a matter of execution. At this point, we feel very comfortable with the relationships, we feel very comfortable with the pipeline, we understand the need, we understand the growth schedules with these customers. And it's, again, it comes down to us being able to simply produce and ship the product has been that our customers are standard around.

Speaker Change: Can you to ship and produce products at <unk>.

Speaker Change: You see particularly around Chillers, and we had that dedicated plant in Virginia that we've already Max capacity and we're going to now have to increase capacity in Mississippi as well to add additional two airlines. So we've been able to win commercially with.

Speaker Change: Very very good product, we've got a lot of attention in North America, particularly with our growth with our hyperscale as well as co locations. So it's a matter of execution at this point, we feel very comfortable with the relationships, we feel very comfortable with the pipeline we understand the need we understand the growth schedules with these customers.

Neil Brinker: Thanks, Neil.

Neil Brinker: And then I just wanted to put a little finer point on what the comments with respect to Europe, whether or not the dependent on spend there is more macro driven, or more reflective of repurposing of original build plans to include AI. And then I just want to make sure we have the hyperscale customer count, right? I thought you mentioned five, and I was kind of thinking that number was maybe four. Yeah, thanks. You know, we're seeing that in terms of the trends in the EU versus North America, definitely, the growth is on the North America side.

Speaker Change: Again, it comes down to us being able to simply produce and ship the product has been.

Speaker Change: So that our customers are standardizing around.

Speaker Change: Okay.

Speaker Change: Thanks, Bill and then I'm sorry, just.

Speaker Change: I wanted to put a little finer point on what.

Speaker Change: The the comments with respect to Europe, whether or not the tentativeness. Some spend there is more macro driven or more reflect of a repurposing of original build plans to include AI and then I just want to make sure we have the hyperscale customer or cap rate I thought you mentioned five and I was kind of thinking.

Neil Brinker: Certainly with our hyperscalers, there is, there is an element where they're thinking about the different technologies and opportunities. So as we have, as we've grown with some of these folks in the hype, our hyperscalers in Europe, we're having technical conversations in terms of what it looks like for the next generations and the current generations of the builds. And certainly, you know, some of these, some of these projects can be delayed a quarter or two, no doubt about that. We're also recognizing that, you know, we got a very strong brand in Europe, it's a premium brand.

Speaker Change: That number was maybe four.

Speaker Change: Yes, we're seeing that in terms of the trends in the EU versus North America definitely.

Speaker Change: Growth is on the North America side, certainly with our Hyperscale or is there is there is an element where they're thinking about the different technologies and opportunities. So as we have.

Speaker Change: As we've grown with some of these folks and our hyperscale or in Europe.

Neil Brinker: And at times, we, you know, we're not going to, we're not going to concede relative to pricing because of the, because of who we are and the product that we have. So, you know, Europe is, is, is a good is in somewhat of a good position. We're seeing some downturn there relative to some of our customers based on the technologies that they're adjusting to. But again, it comes back to North America, and what we can do in North America with the relationships that we've been able to build there, and that we can keep this RAM schedule.

Speaker Change: We're having technical conversations in terms of.

Speaker Change: What it looks like for the next generations and the current generations of the builds and certainly.

Speaker Change: Some of these some of these projects can be delayed a quarter or two no doubt about that we're also recognizing that we've got a very strong brand in Europe, It's a premium brand and at times.

Speaker Change: We're not going to.

Speaker Change: We're not going to concede.

Speaker Change: Relative to pricing because of the.

Speaker Change: Because of who we are and the product that we have so.

Neil Brinker: If we can execute or over deliver on the RAM schedule, then we feel very confident in the data center.

Speaker Change: Europe is is it good is in somewhat of a good position, we're seeing some downturn there.

Michael Lucarelli: And then lastly, Maybe just spend a minute talking about M&A Funnel Actionability, and sort of your views on whether or not you think you might have a reasonable chance of being successful in moving on from the businesses that you had previously publicly identified as being non-strategic to Modine. Thanks. Yeah, hey, Matt. It's Nick. That's, um, that's been a huge focus for us. And we talked in the last call or two about kind of sharing with everybody incrementally how we're feeling about both the buy side and any exits. I'm feeling really confident right now in the funnel, and it's grown more from the last time we all connected.

Speaker Change: Relative to some of our customers based on the technologies that they are adjusting.

Speaker Change: But again it comes back to North America, and what we can do in North America, where the relationships that we've been able to build there and that we can keep this ramp schedule, if we can execute or over deliver on the ramp schedule. Then we feel very confident.

Speaker Change: And then in the data center business.

Speaker Change: Yes.

Speaker Change: And then.

Speaker Change: <unk>.

Speaker Change: Maybe just spend a minute talking about.

Speaker Change: M&A funnel action ability and sort of your views on whether or not you think you might have a reasonable chance of being successful and moving on from the businesses that you had previously publicly identified as being non strategic to Moody's. Thank you.

Speaker Change: Yeah, Hey, Matt it's Nick.

Michael Lucarelli: I think from our side, we're gaining a lot of confidence that we can execute at least one transaction on the buy side in the first half of the year, which is really great. filling that funnel and pursuing those.

Speaker Change: That's been a huge focus for us and we have talked in the last call or two about kind of sharing with everybody incrementally how we're feeling about.

Speaker Change: Both Dubai.

Speaker Change: Any exits.

Michael Lucarelli: And then on the strategic exit to the divestitures, we've been public, boy, since Neil came in and at our IR day about the strategic exit from automotive. And we think that really is in the best long term interest of employees, the customers are shareholders and make sure that business is in the right long term hand. We're, our focus this year is going to be heavy on executing on that strategy. And we've been really transparent in public about the goal would be to do that in one transaction versus a series of smaller ones. So I'd say short answer on the strategic exit.

Speaker Change: Feeling really confident right now in the funnel and it's grown more from the last time, we all connected.

Speaker Change: I think tomorrow.

Speaker Change: From our side, we're gaining.

Speaker Change: A lot of confidence that we can execute at least one transaction on the buy side and the first half of the year, which is really great.

Speaker Change: We will keep filling that funnel on pursuing those and then on the.

Speaker Change: Strategic exit to the divestitures, we've been public void Neal came in and at our IR day about.

Speaker Change: This strategic.

Speaker Change: Exit from automotive and we think that really is in the best long term interest of the.

Speaker Change: The employees the customers our shareholders and make sure that business is in the right long term hands.

Michael Lucarelli: gaining more confidence and energy to execute there and then, as I mentioned, building a lot more confidence of getting at least one buy, another acquisition done here in the next quarter or two.

Speaker Change: We're.

Speaker Change: Our focus this year is.

Speaker Change: Can be heavy.

Speaker Change: Executing on that strategy.

Speaker Change: We've been really transparent in public about the goal would be to do that in one transaction versus a series of smaller ones. So I would say short answer on the strategic exit.

Brian Drab: Our next question comes from Brian Drab with William Blair. Please proceed with your question. Hi, thanks for taking my question. The first one on my mind is just what can you tell us what your split in data center revenue was roughly for fiscal 25 between U.S. and Europe? I don't see if I can grab that at my fingertips.

Speaker Change: Gaining more confidence and energy too.

Speaker Change: Executing there and then.

Speaker Change: As I mentioned.

Speaker Change: Building a lot more confidence of getting at least one by another acquisition done here in the next quarter or two.

Speaker Change: Thanks, Mike.

Neil Brinker: Well, wait, Neil, can we address any other questions you have? If not, I'll just give you a back on it, but let me see if I've got it nearby. Okay, yeah, I'm assuming it's like 80-20, but in line with your, you know, often mentioning 80-20, I bet that's the answer. And then, can you talk at all about the cadence of data center revenue expected in fiscal 26? You know, we had, you know, a great year of data center performance and the, you know, kind of the average quarterly revenue run rate was like $160 million per quarter.

Speaker Change: Our next question comes from Brian Drab with William Blair. Please proceed with your question.

Brian Drab: Hi, Thanks for taking my questions. The first one on my mind is just what can you tell us what your split.

Speaker Change: Data center revenue was roughly for.

Speaker Change: For fiscal 'twenty five between U S and <unk>.

Speaker Change: Europe.

Speaker Change: Let's see if I can grab that at my fingertips Nielsen ethylene dressed any other questions you have at <unk>.

Speaker Change: If you back out, but let me see if I have got a nearby.

Speaker Change: Yes, I'm, assuming it's like 80 20.

Speaker Change: In line with your Uh Huh.

Michael Lucarelli: And, you know, it's a big ramp up if you're going to grow 30 percent, it's going to, you know, average like $210 a quarter. But how does that potentially ramp throughout fiscal 26?

Speaker Change: Often mentioning 80, 20th that if that's the answer.

Speaker Change: And then can you talk at all about the cadence of.

Speaker Change: Data center revenue.

Neil Brinker: Yeah, I can I can, I can explain the process and what we're working on when I talk about execution. The Ramp Cycle, and Mick can come with some more specific numbers. But we have a large opportunity. We have built great relationships with customers. We have a very good product set. We have a complete solution that solves for the problems that our customers are experiencing. And we continue to invest capital and resources, redeploying some of our most talented people across the organization in order to ramp. If we can get our Grenada, Mississippi facility up faster, then obviously it would accelerate even more.

Speaker Change: <unk> expected in fiscal 'twenty six we had.

Speaker Change: A great year of data center performance.

Speaker Change: The average quarterly revenue run rate was like $160 million per quarter.

Speaker Change: It's a big ramp up if youre going to grow 30%, it's going to average like 210 a quarter, but.

Speaker Change: How does that how does that potentially ramp throughout fiscal 'twenty six.

Speaker Change: Yes, I can I can I can explain the process and what we're working on when I talk about execution.

Speaker Change: That ramp cycle that can come with some more specific numbers.

Speaker Change: But we have we have a large opportunity we have built great relationships with customers. We have a very good product set we have as a complete solution that solves for the problems that our customers are experiencing and we just we we continue to invest capital and resources redeploying.

Neil Brinker: But it's a matter of equipment. It's a matter of getting our labs in place. It's a matter of getting people trained. And we're going to have more than double our capacity that we currently have once we get Mississippi up and running. We would expect to have... You know, probably a 12-month cycle to get to that point. Some of these things can accelerate. We could potentially move a little bit faster based on hiring, based on equipment coming in early. But it's, you know, the relationships are there. We have demand. It's a matter of ramping these facilities each quarter.

Speaker Change: Some of our most talented people across the organization in order to ramp.

Speaker Change: If we can get our Grenada, Mississippi facility up.

Speaker Change: Faster than obviously it would accelerate.

Speaker Change: Even more but it's a matter of equipment, it's a matter of getting our labs in place. It's a matter of getting people trained and we're going to we're going to have more than double our capacity that we currently have once we get Mississippi up and running we.

Michael Lucarelli: Yep, Brian, I just like grabbed it. You're you're good. Yes, you're close. But with Nick's last year's about 75 2575% being north Okay, and okay, thanks very much.

Speaker Change: We would expect to have.

Speaker Change: Probably a 12 month cycle to get to that point. Some of these things can accelerate we could potentially move a little bit faster based on hiring based on equipment coming in early but.

Michael Lucarelli: And just on that second question I asked, I'm just wondering, did we expect data center revenue to be more back end loaded in fiscal 26? Is it ramped? up throughout the year as you bring on that capacity? Or do we kind of step function up from 160 million a quarter to 210 a quarter right away? No, I'm glad. I'm glad you look you you asked with We expect Q1 to be the softest quarter, and with it ramping. So we do see Q1 being a growth rate lower than what we've been experiencing, and it really goes back to the discussion Matt and Neil had.

Speaker Change: The relationships are there.

Speaker Change: <unk> demand, we have demand, it's a matter of ramping these facilities each quarter.

Brian Drab: Yes, Brian I would just say good.

Speaker Change: Good gas Youre close.

Speaker Change: Mix last year was about 70 525, 75% in North America.

Speaker Change: Okay. Okay.

Speaker Change: Okay. Thanks very much.

Speaker Change: And just on that second question I ask just.

Speaker Change: I'm wondering.

Speaker Change: Should we expect data center revenue to be more backend loaded in fiscal 'twenty six does it ramp.

Speaker Change: Throughout the year as you bring on that capacity or do we kind of step function up from 160 million a quarter to 210, a quarter right away.

Michael Lucarelli: So we saw some volume declines in Europe based on the market conditions there in Q1, and at the same time we are rapidly ramping up capacity in North America in this quarter. So we're adding capacity. I think we're getting daily reports, so it's building. But as you can imagine in our Q1, we won't have had all the capacity in place. For the full year, as Neil said, and certainly as you get to Q3 and Q4, we're going to be running not at full capacity, meaning we'll have excess capacity, but we're going to be able to keep up with all the demand by the second half.

Speaker Change: No.

Speaker Change: I'm glad you look to you.

Speaker Change: <unk> with <unk>.

Speaker Change: <unk> week, we expect Q1 to be.

Speaker Change: The softest quarter and with it ramping so we do see Q1 being lower than our growth rate lower than what we've been experiencing and it really goes back to.

Speaker Change: The discussion.

Speaker Change: Neil had so we saw some volume declines in Europe based on the market conditions. There in Q1 and at the same time, we are wrapped.

Speaker Change: Rapidly ramping up capacity in North America in this quarter.

Michael Lucarelli: Okay, thanks very much for taking my question.

Speaker Change: We're adding capacity I think we're getting daily report so it's building, but as you can imagine in our Q1, we won't have we won't have had all of the capacity in place for the full year as Neil said and certainly as you get to.

Operator: As a remind, if you'd like to ask a question, please press star one on your telephone keypad.

Operator: One moment, please, while we hold for questions.

Noah Kaye: Our next question comes from Noah Kaye with Oppenheimer. Please proceed with your question. Hey, good morning. Thanks for taking the questions. I would like to unpack the growth outlook for climate solutions a little bit more. So, data center revenue at at least 30% growth. I think off the revenue base you just did, that implies, I don't know, close to 14% total growth for the segment. And then you got about two points, almost two points of the M&A contribution. So, you know, it's sort of the assumption, close to the midpoint of the guide, that all of the revenues besides those are kind of flat.

Speaker Change: Q3, and Q4, we're going to be running not at full capacity, but we're going to have meaning we'll have excess capacity, but we're going to be Ryan being able to keep up with all the demand.

Speaker Change: By the second half of the year.

Speaker Change: Okay. Thanks, very much for taking my question.

Speaker Change: Okay.

Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we.

Speaker Change: For questions.

Speaker Change: Our next question comes from Noah Kaye with Oppenheimer. Please proceed with your question.

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

Noah Kaye: We'd like to unpack the growth outlook for climate solutions, a little bit more so data center revenue at least 30% growth.

Michael Lucarelli: And importantly, I think, is that kind of consistent with the trajectory you're seeing in those other businesses? Yeah, so, um, yes, generally the Heating in the school business, while it's smaller, relatively speaking, about a $200 million business, we see that growing low double digits this year. The heat transfer products area, a much larger business, we're planning on that to being...

Noah Kaye:

Noah Kaye: The revenue base, you just said that that implies I don't know close to 14% total growth for the segment.

Noah Kaye: And then you got about two points almost two points of M&A contribution so.

Noah Kaye: It was sort of the assumption close to the midpoint of the guide that that all of the revenues besides.

Noah Kaye: Flat.

Noah Kaye: And importantly, I think is that kind of consistent with the trajectory you're seeing in those other businesses.

Michael Lucarelli: , and Keith Walsh. relatively flat, maybe down slightly, call it 0 to maybe 5%. For there, it's a lower visibility business than Neil talked about right now. Still excess coil capacity in the market. We talked last quarter about some customers deciding to And so that would be the balance. You've got the 30 plus percent data center growth, low double digit on HVAC heating, and then we're taking a pretty cautious stance on the coil side. Okay, it sounds like what what sort of unlocks the upside of the plus to the 30% data center is your ability to add or liberate more capacity, you know, in North America.

Noah Kaye: Yes so.

Noah Kaye: Yes generally the.

Noah Kaye: Heating in the school business.

Noah Kaye: Smaller relatively speaking about two.

Noah Kaye: $200 million business, we see that growing low double digits. This year.

Noah Kaye: E transfer products area, a much larger business, we're planning on that to being <unk>.

Noah Kaye: Slack season may be down slightly.

Noah Kaye: Zero to <unk>, 5% and our there is lower visibility business and Neil talked about right now.

Noah Kaye: Still excess coil capacity in the markets, we talked last quarter about some customers deciding to make more coil.

Noah Kaye: Internal and sourcing those using those to their capacity to fill that production.

Neil Brinker: So, so please correct me if I'm characterizing that. But Neil, I mean, I think you said that. You know, you will you will have more than double your current revenue capacity and data center. Was that in reference to North America specifically? Or is that global? Because I think when we last spoke, you know, the company's revenue capacity was was north of a billion dollars. Yeah, it is it's it's it's north of a billion dollars, a global capacity. But we have we have such a demand in North America, the capacity that we had built out in North America, that surge has exceeded the North America capacity.

Noah Kaye: And so that would be the balance so you've got the 30 plus percent data center growth low double digit on HVAC heating and then we're taking a pretty cautious stance on the coil side.

Noah Kaye: Okay.

Speaker Change: Sounds like what what sort of unlock the upside of the plus 30% in data centers your ability to add or liberate more capacity.

Speaker Change: In North America.

Speaker Change: So.

Speaker Change: Please correct me if I'm mischaracterizing that.

Speaker Change: Neil I think you said that.

Neil Brinker: So, you know, in general, if you look at it across globally, if all the orders were to come in, you know, a third, a third, a third, then we would be okay. But that's not the case. So we have to double the capacity in North America.

Speaker Change:

Speaker Change: You will you will have more than double your current revenue capacity and data center was that in reference to North America, specifically or is that global because I think when we last spoke.

Neil Brinker: Okay, so it's North America. Great.

Michael Lucarelli: And then I think, yeah, go ahead, Nick. I was just going to say, too, ramping up the air side versus the chiller side, different requirements. Make sense.

Speaker Change: <unk> revenue capacity was north of $1 billion.

Speaker Change: Yes. It is.

Speaker Change: North of $1 billion.

Speaker Change: Our global capacity, but we have we have such a demand in North America. The capacity that we have built out in North America that surge has exceeded the North America capacity.

Michael Lucarelli: And then can we understand, you know, your, to the point around PT Just what divestitures or kind of planned business exits are embedded in the guide for the year? Yeah, right now, we anniversary the three or four divestitures. And so in the guidance, we don't have any divestitures built into that. The area I talked about a little while ago, which would be the area we've been focused on would be that last portion of automotive, which has been running, I would say between 200 and 250 million.

Speaker Change: So in general if you look at it across globally, if all the orders were to come in.

Speaker Change: Third a third a third then we would be okay, but that's not the case.

Speaker Change: So we have to double the capacity in North America.

Speaker Change: Okay. So it's North America.

Speaker Change: And then I think yes go ahead, Nick sorry.

Nick: I was just going to say too.

Speaker Change: Ramping up the air side versus the chiller side different requirements.

Speaker Change: Makes sense and then can we understand you.

Speaker Change: You.

Speaker Change: To the point around <unk>.

Speaker Change: Just what.

Speaker Change: Divestitures or kind of planned business exits are embedded in the guide for the year.

Michael Lucarelli: If we execute on a transaction this year, we will come back, you know, at that point, we would have certainty of something, we'd have timing, and we'd be able to Look at how that will impact the fiscal year. But just to be clear, we have the automotive business in here for the Got it. So there's no like bleed down of that in the guide. Okay.

Speaker Change: Yes, right now.

Speaker Change: Anniversaried.

Speaker Change: Three or four divestitures and so in the guidance.

Speaker Change: We don't have any divestitures built into that what.

Speaker Change: The area I talked about a little while ago, which would be the bay area. We've been focused on would be that flat portion of automotive, which has been running I would say between 200 and $250 million.

Michael Lucarelli: Last one for me, you know, I think all in for the company implied incrementals are around 20%, I think, if I'm not right at the midpoint of the guide. You know, business did Most 45% incremental this past year, I guess, given the mixed tailwinds and some of the 80-20 actions that you're clearly getting some traction on, those incrementals seem a little conservative.

Speaker Change: If we execute on a transaction this year.

Speaker Change: We will come back at that point, we would have certainty of something we'd have timing and we'd be able to.

Speaker Change: Look at how that will impact fiscal year, but just to be clear we have the automotive business in here for the full year.

Michael Lucarelli: So can you maybe help us understand how to think about the margins by segment within the guide? What kind of operating leverage and climate solutions? What's the trajectory for margins in PT? Yeah, so there's a lot to unpack there. And maybe I'll give you some some color around it on the performance technology side, a lot of conversion we've been seeing there. And it's really been on 8020 and cost reduction for As you were referencing, fiscal 25 on down revenue, we were able to increase EBITDA and add the 200 basis points, heavy gross margin lift there this year in performance technology.

Speaker Change: Got it so there's no like bleed down to that.

Speaker Change: And the guide.

Speaker Change: Okay.

Speaker Change: Last one for me I think all in for the company implied Incrementals or.

Speaker Change: Right around 20.

Speaker Change: I think the math right at the midpoint of the guide.

Speaker Change: The business did.

Speaker Change: Close to 45% incremental this past year.

Speaker Change: Hey, I guess, given the mixed tailwind in some of the 80 20 actions.

Speaker Change: That you are clearly getting some traction on.

Speaker Change: Those incrementals seem a little conservative.

Speaker Change:

Speaker Change: So can you maybe help us understand how to think about the margins by segment within the guide.

Speaker Change: What kind of operating leverage in climate solutions, what's the trajectory for margins in P. J.

Speaker Change: Yes, so there is a lot to unpack there and.

Michael Lucarelli: As we look to the new year, we're expecting to do more of the same, especially while the markets are staying down and probably target 125 to 175 basis point type improvement in performance technologies. And right now, based on you can tell in our guidance and our assumptions, that's going to be heavily based on cost reduction activity and productivity improvements through 8020. Climate solutions, probably more flat margin, and that's not a surprise to us, might be up a little bit, but as Neil was just covering, the balance we have is every time we see increasing demand on the data center side, there will be a few quarters where we're reinvesting not only in the people and engineering, but in the fixed cost to support that future growth.

Speaker Change: Maybe I'll give you some.

Speaker Change: Some color around it on the.

Speaker Change: Performance technologies side, a lot of conversion, we've been seeing there and it's really been an 80 20 and cost reduction for.

Speaker Change: Youre referencing fiscal 'twenty five on down revenue.

Speaker Change: To increase EBITDA and add the 200 basis points heavy gross margin.

Speaker Change: <unk> there this year in performance technologies.

Speaker Change: As we look to the new year, we are expecting to do more of the same especially and while the markets are.

Speaker Change: Going down probably target a 125 to 175 basis point type improvement in performance technologies.

Speaker Change: Right now base, then you can tell on our guidance and our assumptions that's going to be heavily based on cost reduction activity and productivity improvements.

Michael Lucarelli: I don't see it being a headwind for climate solutions, but we're really driving growth and we're okay having a 20 plus percent type EBITDA margin. You wrap that up, move up a little bit. Yep. You kind of blend that in we should be up a little bit but higher conversion on PT and then the standard conversion on climate.

Speaker Change: <unk>.

Speaker Change: Climate solutions probably.

Speaker Change: More flat margin and that's not a surprise to us might be up a little bit, but yes. Neal is just covering the balance we have is.

Speaker Change: Every time, we use.

Speaker Change: The increase in demand on the datacenter side, there will be a few quarters.

Michael Lucarelli: Very helpful. Thanks, Michael.

Speaker Change: Re investing not only in the people in engineering, but in the fixed cost to support that future growth. So I don't see it being a headwind for for our climate solutions, but wish.

Matt Summerville: Our next question is from Matt Summerville with D.A. Davidson. Please proceed with your question. Thanks. A couple of quick follow-ups. With this new modular data center system, if that's the right word, Neil, does that unlock incremental TAM for you guys? And can you help me maybe understand the use case versus a system like that versus maybe the legacy, if you will, DC offering? No, that's a great question. I don't believe it unlocks additional TAM. I think this is, I'm certain it's a different product solution to solve for the speed at which the data center wants to add capacity in the global market.

Speaker Change: Wish you were really driving growth and we're okay, having 20 plus percent type EBITDA margin.

Speaker Change: The rap.

Speaker Change: You can move up a little bit yes.

Speaker Change: Blend that and we should be up a little bit but higher conversion on.

Speaker Change: And then the standard conversion on climate.

Mike Lucarelli: Very helpful. Thanks, Mike.

Mike Lucarelli: Yeah.

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

Matt Summerville: Thanks, just a couple of quick follow ups.

Matt Summerville: With this new modular data center.

Neil Brinker: So traditionally, we would sell our systems to a system integrator, we would sell our systems to the end user, and they would have a group of engineers and tradespeople that would assemble our product in the data center. Because the data center customers want to move quickly, because it's literally a race to build capacity here, they are looking for a more convenient way to start up their data centers, so they're looking for us to build modular DCs that they can plug and play. So traditionally by, we would take that supply chain internally, we would put the product together into a modular data center unit, it would go to the DC, and it would be more of a plug and play versus the assembly process that they go through today.

Speaker Change: If that's the right word Neil does that unlock incremental Tam.

Speaker Change: Are you guys and can you help me maybe understand the use case versus a system like that versus maybe the.

Speaker Change: Legacy if you will <unk> offering.

Matt Summerville: No that's a great question.

Matt Summerville: I don't believe it unlocks additional Tam I think this is why I'm certain it's.

Matt Summerville: Different product solution to solve for the speed at which the data center wants to add capacity in the global market. So traditionally we would sell our systems to a system integrator, we would sell our systems to the end user and they would have a group of engineers and.

Matt Summerville: Tradespeople that would assemble our product.

Matt Summerville: And the data center.

Neil Brinker: So it's a conversion in terms of the data centers, and it will allow them to move much quicker. So similar TAM, but just the speed in which they can start up a data center is accelerated, because we do a lot of the work internally and we build more of a system, an advanced system for them that is easier for them to install.

Matt Summerville: Because the data center customers want to move quickly because it's literally a race to build capacity here. They are looking for a more convenient way to start up their data centers. So they're looking for us to build modular D sees that they can plug and play so essentially our product in addition to some.

Matt Summerville: Supply chain that they would traditionally buy we would take the supply chain internally, we would put the product together into a modular data center unit. It would go to the D C and it would be more of a plug and play versus more of it versus the assembly process that they go through today. So it's a conversion in terms of the data.

Neil Brinker: Thank you for that, Collar. Just a couple of additional ones. As you sit here looking at that billion-dollar data center target you have in terms of top-line for Fiscal 27, are you more confident in attaining and or beating that target? Is that maybe part of the signal here with the doubling of chiller capacity in North America? How should we interpret that in the context of that target? And over time, Neil, do you start to think about strategic optionality for the D.C. budget? Yeah, thanks, Matt. Yes, for sure. I mean, the rate of capacity that we're deploying.

Matt Summerville: Centers.

Matt Summerville: And it will allow them to move much quicker so similar Tam, but just the speed in which they can.

Matt Summerville: Startup of data centers accelerated because we do a lot of the work internally and we build more of a system.

Matt Summerville: And advanced system for them that is easier for them to install.

Speaker Change: Thank you for that color.

Neil Brinker: It's about execution. I've become more confident every day. As we as we've gone through the hard part, the hard part was building relationships. The hard part was getting the customer profile. The hard part was providing and developing highly engineered product for that for our customers that are specific for their for their, their need purpose built specific, highly engineered products for these customers. And we're through that we've got that. And it's a matter of execution, build, produce ship. And the more the more capacity that we put inside of North America, the more confident that I get.

Speaker Change: A couple of additional ones as you sit here looking at a $1 billion data center target you have.

Speaker Change: For fiscal 2007 are you more confident in obtaining <unk>, beating that target is that maybe part of the signal here with a doubling of chiller capacity in North America, how should we interpret that in the context of that target and overtime. Neil do you start to think.

Speaker Change: Strategic Optionality for the DC business.

Speaker Change: Yes, Thanks, Matt, Yes for sure I mean.

Speaker Change: The capacity that we're deploying.

Speaker Change: It's about execution.

Speaker Change: I become more confident everyday as we as we've gone through the hard part the hard part was building relationships. The hard part was getting the customer profile. The hard part was providing and developing highly engineered product for the for our customers that are specific for their for their their need purpose.

Neil Brinker: Um, Neil, just the question on potential strategic optionality. If you further scale this business, you know, realizing that the vision, you know, extends beyond 27, certainly given, in some instances, you have a three to five year broad look ahead. How are you thinking about that? I'm really focused on execution right now and making sure that we can deliver on the needs of our customers today. The pipeline is extremely healthy and, you know, we're focused on the next 24 months because that's paramount. We have to stay in execution mode. Understood. Thanks, Neil.

Speaker Change: Built specific highly engineered products for these customers and we're through that we've got that and it's a matter of execution build produce ship and the more the more capacity that we put inside of North America, the more confident that I get.

Neil: Neil just.

Operator: I am showing no further questions at this time.

Neil: Question on potential strategic Optionality to further scale this business.

Kathy powers: I'd like to turn the conference back to Kathy Powell. Thank you and thanks to everyone for joining us this morning. A replay of the call will be available on our website in about two hours.

Neil: Realizing that division.

Neil: Extends beyond 'twenty seven certainly given.

Neil: Some instances you have a three to five year broad look ahead, how are you thinking about that.

Operator: We hope everyone has a great day.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Neil: I'm really focused on execution right now and making sure that we can deliver on the needs of our customers.

Neil: The pipeline is extremely healthy and we're focused on the next 24 months because that's paramount we have to stay in execution mode.

Neal: Understood. Thanks Neal.

Speaker Change: I am showing no further questions at this time I'd like to turn the conference back to Kathy powers.

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

Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Kathy powers: Yeah.

Kathy powers: Okay.

Kathy powers: Oh.