Modine Q3 2026 Modine Manufacturing Co Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 Modine Manufacturing Co Earnings Call
Speaker #1: Good morning, ladies and gentlemen, and welcome to MODINE's third quarter fiscal 2026 earnings conference call. At this time, all participants are on a listen-only mode.
Operator: Good morning, ladies and gentlemen, and welcome to Modine's Q3 fiscal 2026 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press Star, then zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer, and Investor Relations.
Operator: Good morning, ladies and gentlemen, and welcome to Modine's Q3 fiscal 2026 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press Star, then zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer, and Investor Relations.
Speaker #1: Later, we will conduct a question and answer session. An instruction will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your telephone keypad.
Speaker #1: As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathleen Powers, Vice President, Treasurer, and Investor
Speaker #1: Relations. Hello and good morning.
Kathy Powers: Hello, and good morning. Welcome to our conference call to discuss Modine's Q3 fiscal 2026 results. I'm joined by Neil Brinker, our President and Chief Executive Officer, and Mick 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 3 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 will turn the call over to Neil.
Kathleen Powers: Hello, and good morning. Welcome to our conference call to discuss Modine's Q3 fiscal 2026 results. I'm joined by Neil Brinker, our President and Chief Executive Officer, and Mick 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 3 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 will turn the call over to Neil.
Speaker #2: Welcome to our conference call to discuss MODINE's third quarter fiscal 2026 results. I'm joined by Neil Brinker, our President and Chief Executive Officer, and Mick Lucareli, our Executive Vice President and Chief Financial Officer.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: With that, I will turn the call over to
Speaker #2: Neil: Thank you, Kathy, and good morning,
Neil Brinker: Thank you, Kathy, and good morning, everyone. Before launching into our quarterly results, I'd like to take a moment to review some of the details from last week's announcement regarding the future of our Performance Technologies segment. Since launching our transformation at our first Investor Day, we have made significant progress evolving our portfolio of businesses by investing in high-margin, high-growth businesses while improving our lower-margin businesses, and making strategic divestitures. This past summer, we launched a process to divest our remaining automotive business and instead identified an opportunity to accelerate our transformation by spinning off the Performance Technologies segment and combining it with Gentherm, a leading player in thermal management and pneumatic comfort technologies. Modine will receive approximately $210 million in cash, and Modine shareholders will receive stock in the new business and a tax-free distribution equaling 40% of the combined ownership.
Neil Brinker: Thank you, Kathy, and good morning, everyone. Before launching into our quarterly results, I'd like to take a moment to review some of the details from last week's announcement regarding the future of our Performance Technologies segment. Since launching our transformation at our first Investor Day, we have made significant progress evolving our portfolio of businesses by investing in high-margin, high-growth businesses while improving our lower-margin businesses, and making strategic divestitures. This past summer, we launched a process to divest our remaining automotive business and instead identified an opportunity to accelerate our transformation by spinning off the Performance Technologies segment and combining it with Gentherm, a leading player in thermal management and pneumatic comfort technologies. Modine will receive approximately $210 million in cash, and Modine shareholders will receive stock in the new business and a tax-free distribution equaling 40% of the combined ownership.
Speaker #3: everyone. Before launching into our quarterly results, I'd like to take a moment to review some of the details from last week's announcement regarding the future of our performance technology segment.
Speaker #3: Since launching our transformation at our first investor day, we have made significant progress evolving our portfolio of businesses by investing in high-margin, high-growth businesses while improving our lower-margin businesses and making strategic divestitures.
Speaker #3: This past summer, we launched a process to divest our remaining automotive business and instead identified an opportunity to accelerate our transformation by spinning off the performance technology segment and combining it with Gen Therm, a leading player in thermal management and pneumatic comfort technologies.
Speaker #3: MODINE will receive approximately $210 million in cash, and MODINE shareholders will receive stock in the new business and a tax-free distribution equaling 40% of the combined ownership.
Speaker #3: The combined business will provide renewed focus on investment and growth for performance technologies business and create cross-selling opportunities for Gen Therm across new, attractive markets.
Neil Brinker: The combined business will provide renewed focus on investment and growth for Performance Technologies business and create cross-selling opportunities for Gentherm across new, attractive markets. This values the Performance Technologies business at $1 billion, or 6.8 times the 12-month trailing EBITDA. This recognizes and reflects the hard work we put into improving margins in the business and allows current Modine shareholders to participate in future synergies and the strong earnings conversion we expect from the business once market volumes improve. The transaction presented an exceptional opportunity to find an ideal home for our PT business while maximizing value for our shareholders and further accelerating our transformation. The remaining business will consist of our current Climate Solutions segment, plus corporate support functions.
Neil Brinker: The combined business will provide renewed focus on investment and growth for Performance Technologies business and create cross-selling opportunities for Gentherm across new, attractive markets. This values the Performance Technologies business at $1 billion, or 6.8 times the 12-month trailing EBITDA. This recognizes and reflects the hard work we put into improving margins in the business and allows current Modine shareholders to participate in future synergies and the strong earnings conversion we expect from the business once market volumes improve. The transaction presented an exceptional opportunity to find an ideal home for our PT business while maximizing value for our shareholders and further accelerating our transformation. The remaining business will consist of our current Climate Solutions segment, plus corporate support functions.
Speaker #3: This values the performance technologies business at $1 billion, or 6.8 times the 12-month trailing EBITDA. This recognizes and reflects the hard work we've put into improving margins in the business and allows current Modine shareholders to participate in future synergies and the strong earnings conversion we expect from the business once market volumes improve.
Speaker #3: The transaction presented an exceptional opportunity to find an ideal home for our PT business while maximizing value for our shareholders and further accelerating our transformation.
Speaker #3: The remaining business will consist of our current climate solution segment plus corporate support functions. This is the business where we've been focusing on our investments for growth, including six acquisitions over the past three years, and the significant CapEx for expanding capacity for our data centers product.
Neil Brinker: This is a business where we've been focusing on our investments for growth, including six acquisitions over the past three years, and a significant CapEx for expanding capacity for our data centers product. The transaction will allow us to further concentrate on these high-margin, high-growth businesses, allowing us to become a pure-play, highly focused, diversified Climate Solutions company. This is the right transaction for Modine and for the shareholders at the right time, allowing us to further our vision of always evolving our portfolio of products in pursuit of highly engineered, mission-critical thermal solutions. Now turning to our quarterly results and the strategic updates. Please turn to slide 5. Our end markets in the Performance Technologies segment continue to be challenged, and volumes remained down this quarter. However, commercial execution and cost recoveries resulted in revenues increasing 1% from the prior year.
Neil Brinker: This is a business where we've been focusing on our investments for growth, including six acquisitions over the past three years, and a significant CapEx for expanding capacity for our data centers product. The transaction will allow us to further concentrate on these high-margin, high-growth businesses, allowing us to become a pure-play, highly focused, diversified Climate Solutions company. This is the right transaction for Modine and for the shareholders at the right time, allowing us to further our vision of always evolving our portfolio of products in pursuit of highly engineered, mission-critical thermal solutions. Now turning to our quarterly results and the strategic updates. Please turn to slide 5. Our end markets in the Performance Technologies segment continue to be challenged, and volumes remained down this quarter. However, commercial execution and cost recoveries resulted in revenues increasing 1% from the prior year.
Speaker #3: The transaction will allow us to further concentrate on these high-margin, high-growth businesses, allowing us to become a pure-play, highly focused, diversified climate solutions company.
Speaker #3: This is the right transaction for Modine and for the shareholders at the right time, allowing us to further our vision of always evolving our portfolio of products in pursuit of highly engineered, mission-critical thermal solutions.
Speaker #3: Now turning to our quarterly results and the strategic updates. Please turn to slide five. Our end markets in the performance technology segment continue to be challenged and volumes remain down this quarter.
Speaker #3: However, commercial execution and cost recoveries resulted in revenues increasing 1% from the prior year. The segment's adjusted EBITDA margin increased by 400 basis points, to 14.8%, reflecting the hard work done over the past year to reduce costs and reallocate resources to the climate solutions segment.
Neil Brinker: The segment's adjusted EBITDA margin increased by 400 basis points to 14.8%, reflecting the hard work done over the past year to reduce costs and reallocate resources to the Climate Solutions segment. Now that we've reached an agreement with Gentherm, the next several quarters will be spent preparing the business to be spun off in anticipation of the combination. We will also be working on getting the necessary regulatory approvals for the transaction, which we expect to close in Q4 of this calendar year. The Performance Technologies team has worked very hard to improve the business over the past several years and deserves the opportunity to grow. I'm confident that Gentherm will provide a great home for this business, and the structure of this transaction will allow Modine shareholders to continue to participate in their success.
Neil Brinker: The segment's adjusted EBITDA margin increased by 400 basis points to 14.8%, reflecting the hard work done over the past year to reduce costs and reallocate resources to the Climate Solutions segment. Now that we've reached an agreement with Gentherm, the next several quarters will be spent preparing the business to be spun off in anticipation of the combination. We will also be working on getting the necessary regulatory approvals for the transaction, which we expect to close in Q4 of this calendar year. The Performance Technologies team has worked very hard to improve the business over the past several years and deserves the opportunity to grow. I'm confident that Gentherm will provide a great home for this business, and the structure of this transaction will allow Modine shareholders to continue to participate in their success.
Speaker #3: Now that we've reached an agreement with Gen Therm, the next several quarters will be spent preparing the business to be spun off in anticipation of the combination.
Speaker #3: We will also be working on getting the necessary regulatory approvals for the transaction, which we expect to close in the fourth quarter of this calendar year.
Speaker #3: The Performance Technologies team has worked very hard to improve the business over the past several years, and deserves the opportunity to grow. I'm confident that Gen Therm will provide a great home for this business, and the structure of this transaction will allow Modine shareholders to continue to participate in their success.
Speaker #3: We are at a major turning point for Modine. We are making unprecedented investments in the future of our company, while simultaneously accelerating the transformation of our portfolio by merging our Performance Technology segment with Gen Therm.
Neil Brinker: We are at a major turning point for Modine. We are making unprecedented investments in the future of our company, while simultaneously accelerating the transformation of our portfolio by merging our Performance Technologies segment with Gentherm. Please turn to slide 6. Our Climate Solutions segment delivered another quarter of outstanding growth, with a 51% increase in revenues, including the contributions from acquisitions. Organic revenue growth from the segment was 36%, driven by a 78% increase in data center sales. Our capacity expansion remains on schedule, supporting the sequential margin improvement we saw this quarter. We commissioned 4 new chiller lines this quarter, including the first 2 lines in Jefferson City, Missouri. We have 4 lines scheduled to come online in Q4, the final 2 lines in Grenada, Mississippi, and the first 2 lines in Dallas.
Neil Brinker: We are at a major turning point for Modine. We are making unprecedented investments in the future of our company, while simultaneously accelerating the transformation of our portfolio by merging our Performance Technologies segment with Gentherm. Please turn to slide 6. Our Climate Solutions segment delivered another quarter of outstanding growth, with a 51% increase in revenues, including the contributions from acquisitions. Organic revenue growth from the segment was 36%, driven by a 78% increase in data center sales. Our capacity expansion remains on schedule, supporting the sequential margin improvement we saw this quarter. We commissioned 4 new chiller lines this quarter, including the first 2 lines in Jefferson City, Missouri. We have 4 lines scheduled to come online in Q4, the final 2 lines in Grenada, Mississippi, and the first 2 lines in Dallas.
Speaker #3: Please turn to slide six. Our climate solutions segment delivered another quarter of outstanding growth, with a 51% increase in revenues, including the contributions from acquisitions.
Speaker #3: Organic revenue growth from the segment was 36%, driven by a 78% increase in data center sales. Our capacity expansion remains on schedule, supporting the sequential margin improvement we saw this quarter.
Speaker #3: We commissioned four new chiller lines this quarter, including the first two lines in Jefferson City, Missouri. We have four lines scheduled to come online in the fourth quarter: the final two lines in Grenada, Mississippi, and the first two lines in Dallas.
Speaker #3: We have also launched an initial production in Franklin, Wisconsin, providing additional capacity for the products currently produced in Calgary, including air handling units and modular data centers.
Neil Brinker: We've also launched initial production in Franklin, Wisconsin, providing additional capacity for the products currently produced in Calgary, including air handling units and modular data centers. We are often asked if we are concerned about ending up with too much capacity, and the simple answer is no, not at all. Our current projections fully support the capacity we're putting in place based on known demand with existing customers. In fact, we had record order intake this past quarter, further solidifying our confidence in our strategy and financial projections. Looking forward, if there's change in the mix of the products that we need to produce, we'll easily be able to pivot to other data center products on the same lines we are building today. A chiller line can be converted to produce modular data centers or large air handling units.
Neil Brinker: We've also launched initial production in Franklin, Wisconsin, providing additional capacity for the products currently produced in Calgary, including air handling units and modular data centers. We are often asked if we are concerned about ending up with too much capacity, and the simple answer is no, not at all. Our current projections fully support the capacity we're putting in place based on known demand with existing customers. In fact, we had record order intake this past quarter, further solidifying our confidence in our strategy and financial projections. Looking forward, if there's change in the mix of the products that we need to produce, we'll easily be able to pivot to other data center products on the same lines we are building today. A chiller line can be converted to produce modular data centers or large air handling units.
Speaker #3: We are often asked if we are concerned about ending up with too much capacity, and the simple answer is no. Not at all. Our current projections fully support the capacity we're putting in place based on known demand with existing customers.
Speaker #3: In fact, we had record order intake this past quarter, further solidifying our confidence in our strategy and financial projections. Looking forward, if there's a change in the mix of the products that we need to produce, we'll easily be able to pivot to other data center products on the same lines we are building today.
Speaker #3: A chiller line can be converted to produce modular data centers or large air handling units. This gives us flexibility to manage future demand and meet customer requirements in what continues to be a dynamic environment.
Neil Brinker: This gives us flexibility to manage future demand and meet customer requirements in what continues to be a dynamic environment. We've also received many questions regarding the recent comments on the ability of next-generation chips to operate at higher temperatures and the potential impact to the future of data center cooling. First off, none of this was a surprise to us. We are constantly working with our customers to ensure that we are designing the data center cooling solutions they need today and into the future. Having a higher ambient temperature for water running through the liquid cooling loop is a positive development, as it potentially reduces the energy required to run mechanical cooling processes by leveraging a hybrid technology, utilizing free cooling options currently available on our chillers.
Neil Brinker: This gives us flexibility to manage future demand and meet customer requirements in what continues to be a dynamic environment. We've also received many questions regarding the recent comments on the ability of next-generation chips to operate at higher temperatures and the potential impact to the future of data center cooling. First off, none of this was a surprise to us. We are constantly working with our customers to ensure that we are designing the data center cooling solutions they need today and into the future. Having a higher ambient temperature for water running through the liquid cooling loop is a positive development, as it potentially reduces the energy required to run mechanical cooling processes by leveraging a hybrid technology, utilizing free cooling options currently available on our chillers.
Speaker #3: We've also received many questions regarding next-generation chips designed to operate at higher temperatures, and the potential impact on the future of data center cooling.
Speaker #3: First off, none of this was a surprise to us. We are constantly working with our customers to ensure that we are designing the data center cooling solutions they need today and into the future.
Speaker #3: Having a higher ambient temperature for water running through the liquid cooling loop is a positive development, as is potentially reduces the energy required to run mechanical cooling processes, by leveraging a hybrid technology utilizing free cooling options currently available on our chillers.
Speaker #3: In fact, we recently announced the launch of a new three-megawatt TurboChill chiller platform that is specifically designed to provide advanced free-cooling heat rejection for high-density, next-generation GPU-powered data centers.
Neil Brinker: In fact, we recently announced the launch of a new 3-megawatt TurboChill chiller platform that is specifically designed to provide advanced free cooling heat rejection for high-density, next-generation GPU-powered data centers. Power remains a focus for data center operations, so increasing PUE by reducing energy consumption in the cooling process is a major advantage and why we continue to gain market share. It's also important to realize that there are many different approaches to data center cooling, and our goal is to provide a full range of solutions that are customizable at scale. We see our market opportunities continue to grow as we continue to invest in both capacity and product development to cement our position as a technology leader in the market. We previously shared our target of delivering over $1 billion in data center sales this year, and we remain on track to deliver on that goal.
Neil Brinker: In fact, we recently announced the launch of a new 3-megawatt TurboChill chiller platform that is specifically designed to provide advanced free cooling heat rejection for high-density, next-generation GPU-powered data centers. Power remains a focus for data center operations, so increasing PUE by reducing energy consumption in the cooling process is a major advantage and why we continue to gain market share. It's also important to realize that there are many different approaches to data center cooling, and our goal is to provide a full range of solutions that are customizable at scale. We see our market opportunities continue to grow as we continue to invest in both capacity and product development to cement our position as a technology leader in the market. We previously shared our target of delivering over $1 billion in data center sales this year, and we remain on track to deliver on that goal.
Speaker #3: Power remains a focus for data center operations, so increasing PUE by reducing energy consumption in the cooling process is to gain market share. It is also important to realize that there are many different approaches to data center cooling, and our goal is to provide a full range of solutions that are customizable at scale.
Speaker #3: We see our market opportunities continue to grow as we continue to invest in both capacity and product development to cement our position as a technology leader in the market.
Speaker #3: We previously shared our target of delivering over $1 billion in data center sales this year, and we remain on track to deliver on that. Current capacity expansion will allow us to reach $2 billion in data center sales by fiscal 2028, and I'm happy to report that we remain confident in this target as well, further supported by our record order intake last quarter.
Neil Brinker: We have also shared that our current capacity expansion will allow us to reach $2 billion in data center sales by fiscal 2028, and I'm happy to report that we would remain confident in this target as well, further supported by our record order intake last quarter. We've recently updated our data center revenue projections and currently expect to deliver 50% to 70% annual growth in data center revenue over the next two years, which would put us comfortably ahead of this target. Our confidence in this target comes from understanding our customers' long-term strategic roadmaps. The industry is moving towards long-term supply agreements that lock up supplier capacity in advance. Our team is actively engaged in these discussions, which we expect to lead to multiyear orders. Our recent success and growth stems from our 80/20 focus and market-leading technology.
Neil Brinker: We have also shared that our current capacity expansion will allow us to reach $2 billion in data center sales by fiscal 2028, and I'm happy to report that we would remain confident in this target as well, further supported by our record order intake last quarter. We've recently updated our data center revenue projections and currently expect to deliver 50% to 70% annual growth in data center revenue over the next two years, which would put us comfortably ahead of this target. Our confidence in this target comes from understanding our customers' long-term strategic roadmaps. The industry is moving towards long-term supply agreements that lock up supplier capacity in advance. Our team is actively engaged in these discussions, which we expect to lead to multiyear orders. Our recent success and growth stems from our 80/20 focus and market-leading technology.
Speaker #3: We've recently updated our data center revenue projections and currently expect to deliver 50 to 70% annual growth in data center revenue over the next two years.
Speaker #3: Which would put us comfortably ahead of this target. Our confidence in this target comes from understanding our customers' long-term strategic roadmaps. The industry is moving towards long-term supply agreements that lock up supplier capacity in advance.
Speaker #3: Our team is actively engaged in these discussions, which we expect to lead to multi-year orders. Our recent success and growth stems from our 80/20 focus and market-leading technology.
Speaker #3: The feedback from our customers is clear. Our products are the most efficient on the market, resulting in substantial savings from lower energy costs. This allows us to be a key partner in developing next-generation cooling products.
Neil Brinker: The feedback from our customer is clear: Our products are the most efficient on the market, resulting in substantial savings from lower energy costs. This allows us to be a key partner in developing next-generation cooling products, cementing our role as a key strategic supplier. As we scale our production capacity, we are in prime position to continue capturing market share. I'm very proud of all the hard work put in by the Climate Solutions teams this year. We've completed three strategic acquisitions and embarked on the largest capacity expansion in the history of the company, all squarely in line with our strategic goal of investing in high-growth, high-margin businesses. With that, I'll turn the call over to Mick.
Neil Brinker: The feedback from our customer is clear: Our products are the most efficient on the market, resulting in substantial savings from lower energy costs. This allows us to be a key partner in developing next-generation cooling products, cementing our role as a key strategic supplier. As we scale our production capacity, we are in prime position to continue capturing market share. I'm very proud of all the hard work put in by the Climate Solutions teams this year. We've completed three strategic acquisitions and embarked on the largest capacity expansion in the history of the company, all squarely in line with our strategic goal of investing in high-growth, high-margin businesses. With that, I'll turn the call over to Mick.
Speaker #3: Cementing our role as a key strategic supplier. As we scale our production capacity, we are in prime position to continue capturing market share. I'm very proud of all the hard work put in by the climate solutions teams this year.
Speaker #3: We've completed three strategic acquisitions and embarked on the largest capacity expansion in the history of the company—all squarely in line with our strategic goal of investing in high-growth, high-margin businesses.
Speaker #3: With that, I'll turn the call over to Mick.
Speaker #2: Thanks, Neil. And good morning, everyone. Please turn to slide seven to begin reviewing the Q3 segment results. Performance technologies revenue increased 1% from the prior year, including a 3% decrease in heavy-duty equipment, offset by a 6% increase in on-highway product sales.
Mick Lucarelli: Thanks, Neil, and good morning, everyone. Please turn to slide 7 to begin reviewing the Q3 segment results. Performance Technologies revenue increased 1% from the prior year, including a 3% decrease in heavy-duty equipment, offset by a 6% increase in on-highway product sales. Despite typical Q3 seasonality and end market challenges, adjusted EBITDA improved 38% from the prior year, and the adjusted EBITDA margin increased 400 basis points to 14.8%. The margin increase was driven by significant cost reductions and improved operating efficiencies across labor, overhead, and materials. Pricing was also a benefit in the quarter, driven by tariff recovery through surcharges and our normal pass-through mechanisms. In addition, with the reorganization of this business, SG&A expenses were nearly $7 million lower versus the prior year.
Michael Lucarelli: Thanks, Neil, and good morning, everyone. Please turn to slide 7 to begin reviewing the Q3 segment results. Performance Technologies revenue increased 1% from the prior year, including a 3% decrease in heavy-duty equipment, offset by a 6% increase in on-highway product sales. Despite typical Q3 seasonality and end market challenges, adjusted EBITDA improved 38% from the prior year, and the adjusted EBITDA margin increased 400 basis points to 14.8%. The margin increase was driven by significant cost reductions and improved operating efficiencies across labor, overhead, and materials. Pricing was also a benefit in the quarter, driven by tariff recovery through surcharges and our normal pass-through mechanisms. In addition, with the reorganization of this business, SG&A expenses were nearly $7 million lower versus the prior year.
Speaker #2: Despite typical Q3 challenges, adjusted EBITDA seasonality and end-market improved 38% from the prior year, and the adjusted EBITDA margin increased 400 basis points to 14.8%.
Speaker #2: The margin increase was driven by significant cost reductions and improved operating efficiencies across labor, overhead, and materials pricing. This was also a benefit in the quarter.
Speaker #2: Driven by tariff recovery through surcharges and our normal pass-through mechanisms. In addition, with the reorganization of this business, SG&A expenses were nearly $7 million lower versus the prior year.
Speaker #2: As we look to Q4, we expect a sequential ramp in revenue, which will be primarily driven by the typical seasonal pattern. We remain focused on cost and operating efficiencies, which will allow us to drive higher operating leverage and margins when market volumes begin to recover.
Mick Lucarelli: As we look to Q4, we expect a sequential ramp in revenue, which will be primarily driven by the typical seasonal pattern. We remain focused on costs and operating efficiencies, which will allow us to drive higher operating leverage and margins when market volumes begin to recover. Please turn to slide 8. Climate Solutions delivered another quarter of strong revenue growth, increasing sales by 51%.... The main growth driver was data centers, which grew $130 million or 78%, as we begin to capitalize on our investments and utilize the new capacity. As anticipated, there was a 31% sequential revenue growth for data center products in Q3, and we expect significant incremental volumes in the fourth quarter as well. HVAC technology sales increased $35 million or 48%, driven by our recent acquisitions and stronger heating product sales.
Michael Lucarelli: As we look to Q4, we expect a sequential ramp in revenue, which will be primarily driven by the typical seasonal pattern. We remain focused on costs and operating efficiencies, which will allow us to drive higher operating leverage and margins when market volumes begin to recover. Please turn to slide 8. Climate Solutions delivered another quarter of strong revenue growth, increasing sales by 51%.... The main growth driver was data centers, which grew $130 million or 78%, as we begin to capitalize on our investments and utilize the new capacity. As anticipated, there was a 31% sequential revenue growth for data center products in Q3, and we expect significant incremental volumes in the fourth quarter as well. HVAC technology sales increased $35 million or 48%, driven by our recent acquisitions and stronger heating product sales.
Speaker #2: Please turn to slide eight. Climate solutions delivered another quarter of strong revenue growth, increasing sales by 51%. The main growth driver was data centers, which grew 130 million or 78%.
Speaker #2: As we begin to capitalize on our investments and utilize the new capacity, as anticipated, there was a 31% sequential revenue growth for data center products in Q3 and we expect significant incremental volumes in the fourth quarter as well.
Speaker #2: HVAC technology sales increased 35 million or 48%, driven by our recent acquisitions, and stronger heating product sales. Heat transfer solution sales grew 14% or 17 million mainly due to higher coils and coatings demand.
Mick Lucarelli: Heat transfer solution sales grew 14% or $17 million, mainly due to higher coils and coatings demand. Climate Solutions' third quarter adjusted EBITDA improved 29%, given the strong top-line growth. We made good progress this quarter with sequential improvement in the adjusted EBITDA margin to 17.9%, and we continue to expect further margin improvement in Q4. The Q4 margin improvement is expected to be driven by the increasing data center volumes and leveraging our recent capacity investments, along with the ongoing integration of the last three acquisitions. Before moving on, I want to reiterate that as the demand for Modine data center solutions continues to grow, we are again increasing our revenue outlook for the current fiscal year. Now, let's review the total company results. Please turn to slide 9. Third quarter sales increased 31%, driven by revenue growth in Climate Solutions.
Michael Lucarelli: Heat transfer solution sales grew 14% or $17 million, mainly due to higher coils and coatings demand. Climate Solutions' third quarter adjusted EBITDA improved 29%, given the strong top-line growth. We made good progress this quarter with sequential improvement in the adjusted EBITDA margin to 17.9%, and we continue to expect further margin improvement in Q4. The Q4 margin improvement is expected to be driven by the increasing data center volumes and leveraging our recent capacity investments, along with the ongoing integration of the last three acquisitions. Before moving on, I want to reiterate that as the demand for Modine data center solutions continues to grow, we are again increasing our revenue outlook for the current fiscal year. Now, let's review the total company results. Please turn to slide 9. Third quarter sales increased 31%, driven by revenue growth in Climate Solutions.
Speaker #2: Climate Solutions third quarter adjusted EBITDA improved 29%, given the strong top-line growth. We made good progress this quarter with sequential improvement in the adjusted 17.9% and EBITDA margins. We continue to expect further margin improvement in Q4.
Speaker #2: The Q4 margin improvement is expected to be driven by increasing data center volumes and leveraging our recent capacity investments, along with the ongoing integration of the last three acquisitions.
Speaker #2: Before moving on, I want to reiterate that as the demand for MODINE data center solutions continues to grow, we are again increasing our revenue outlook for the current fiscal year.
Speaker #2: Now let's review the total company results. Please turn to slide nine. Third quarter sales increased 31%, driven by revenue growth and climate solutions. Gross profit increased 24%, driven primarily by higher data center sales volume and climate solutions.
Mick Lucarelli: Gross profit increased 24%, driven primarily by higher data center sales volume and Climate Solutions, along with the margin improvement in Performance Technologies. SG&A expenses increased 9% due to increases in Climate Solutions, which were partially offset by the Performance Technologies cost savings initiative. Looking at earnings, I'm pleased to report a 37% improvement in adjusted EBITDA and a 70 basis point margin improvement to 14.9%. With regards to EPS, the adjusted earnings per share increased 29% to $1.19. Please note that this excludes the $116 million non-cash settlement loss recorded in connection with the termination of our US pension plan. I'm happy to report that this project was completed, removing a liability from our balance sheet, along with the time and expense of the ongoing administration.
Michael Lucarelli: Gross profit increased 24%, driven primarily by higher data center sales volume and Climate Solutions, along with the margin improvement in Performance Technologies. SG&A expenses increased 9% due to increases in Climate Solutions, which were partially offset by the Performance Technologies cost savings initiative. Looking at earnings, I'm pleased to report a 37% improvement in adjusted EBITDA and a 70 basis point margin improvement to 14.9%. With regards to EPS, the adjusted earnings per share increased 29% to $1.19. Please note that this excludes the $116 million non-cash settlement loss recorded in connection with the termination of our US pension plan. I'm happy to report that this project was completed, removing a liability from our balance sheet, along with the time and expense of the ongoing administration.
Speaker #2: Along with the margin improvement in Performance Technologies, SG&A expenses increased 9% due to increases in Climate Solutions, which will be partially offset by the Performance Technologies cost savings initiative.
Speaker #2: Looking at earnings, I'm pleased to report a 37% improvement in adjusted EBITDA and a 70-basis-point margin improvement to 14.9%. With regards to EPS, the adjusted earnings per share increased 29% to $1.19.
Speaker #2: Please note that this excludes the 116 million non-cash settlement loss recorded in connection with the termination of our U.S. Pension Plan. I'm happy to report that this project was liability from our balance completed.
Speaker #2: Sheet along with the time and removing an expense of the ongoing administration. To summarize our consolidated results, Q3 represents another good quarter of revenue and earnings growth.
Mick Lucarelli: To summarize our consolidated results, Q3 represents another good quarter of revenue and earnings growth. As we look to Q4, we continue to expect that the adjusted EBITDA margin will sequentially improve and begin to reach more normalized levels as the data center production volumes ramp up. Based on this outlook, we expect to exit the fiscal year at the highest quarterly margin rate and expect further margin improvement next fiscal year. Now, moving on to cash flow metrics. Please turn to slide 10. Free cash flow was -$17 million in the third quarter. As discussed last quarter, the lower cash flow is primarily due to inventory builds and higher CapEx in Climate Solutions. However, this represents much needed and temporary investments to prepare for additional sales growth for our data center products.
Michael Lucarelli: To summarize our consolidated results, Q3 represents another good quarter of revenue and earnings growth. As we look to Q4, we continue to expect that the adjusted EBITDA margin will sequentially improve and begin to reach more normalized levels as the data center production volumes ramp up. Based on this outlook, we expect to exit the fiscal year at the highest quarterly margin rate and expect further margin improvement next fiscal year. Now, moving on to cash flow metrics. Please turn to slide 10. Free cash flow was -$17 million in the third quarter. As discussed last quarter, the lower cash flow is primarily due to inventory builds and higher CapEx in Climate Solutions. However, this represents much needed and temporary investments to prepare for additional sales growth for our data center products.
Speaker #2: As we look to Q4, we continue to expect that the adjusted EBITDA margin will sequentially improve and begin to reach more normalized levels as the data center production volumes ramp up.
Speaker #2: Based on this outlook, we expect to exit the fiscal year at the highest quarterly margin rate and expect further margin improvement next fiscal year.
Speaker #2: Now moving on to cash flow metrics. Please turn to slide 10. Free cash flow was negative 17 million in the third quarter. As discussed last quarter, the lower cash flow is primarily due to inventory builds and higher CapEx and climate solutions.
Speaker #2: However, this represents much-needed and temporary investments to prepare for additional sales growth for our data center products. Also, third quarter free cash flow included 24 million of cash payments primarily related to the U.S.
Mick Lucarelli: Also, Q3 free cash flow included $24 million of cash payments, primarily related to the US pension plan termination and restructuring. Net debt of $517 million was $238 million higher than the prior fiscal year, including the three acquisitions completed earlier this year, along with the incremental data center investments. Our balance sheet remains quite strong, with a leverage ratio of 1.2, and based on our earnings and cash flow outlook, we expect that it will decline further by fiscal year-end. We anticipate generating positive free cash flow in the fourth quarter and are now expecting CapEx to be in the range of $150 to 180 million for the full fiscal year. From a timing perspective, we anticipate that some of the data center capital investments will now carry over into the next fiscal year.
Michael Lucarelli: Also, Q3 free cash flow included $24 million of cash payments, primarily related to the US pension plan termination and restructuring. Net debt of $517 million was $238 million higher than the prior fiscal year, including the three acquisitions completed earlier this year, along with the incremental data center investments. Our balance sheet remains quite strong, with a leverage ratio of 1.2, and based on our earnings and cash flow outlook, we expect that it will decline further by fiscal year-end. We anticipate generating positive free cash flow in the fourth quarter and are now expecting CapEx to be in the range of $150 to 180 million for the full fiscal year. From a timing perspective, we anticipate that some of the data center capital investments will now carry over into the next fiscal year.
Speaker #2: Pension Plan termination and restructuring. Net debt of $517 million was $238 million higher than the prior fiscal year, including the three acquisitions completed earlier this year along with the incremental data center investments.
Speaker #2: Our balance sheet remains quite strong with a leverage ratio of 1.2 and based on our earnings and cash flow outlook, we expect that it will decline further by fiscal year-end.
Speaker #2: We anticipate generating positive free cash flow in the fourth quarter and are now expecting CapEx to be in the range of $150 to $180 million.
Speaker #2: year, from a For the full fiscal timing perspective, we anticipate that some of the data center capital investments will now carry over into the next fiscal year.
Speaker #2: And looking ahead to next year, we anticipate that our free cash flow will rebound, aligning with our long-term goals of improving the free cash flow margin.
Mick Lucarelli: Looking ahead to next year, we anticipate that our free cash flow will rebound, aligning with our long-term goals of improving the free cash flow margin. Now, let's turn to slide 11 for our fiscal 2026 outlook. As we enter Q4, we're happy to announce that we are raising the revenue and earnings outlook. For fiscal 2026, we now expect total sales to grow in the range of 20 to 25%. For Climate Solutions, we're raising our outlook for full-year sales to grow 40 to 45%, up from 35 to 40%, with data center sales expected to grow in excess of 70% this year. For Performance Technologies, we're holding our sales outlook, with revenue anticipated to be flat to down 7%. We expect that the end markets will remain depressed over the next quarter.
Michael Lucarelli: Looking ahead to next year, we anticipate that our free cash flow will rebound, aligning with our long-term goals of improving the free cash flow margin. Now, let's turn to slide 11 for our fiscal 2026 outlook. As we enter Q4, we're happy to announce that we are raising the revenue and earnings outlook. For fiscal 2026, we now expect total sales to grow in the range of 20 to 25%. For Climate Solutions, we're raising our outlook for full-year sales to grow 40 to 45%, up from 35 to 40%, with data center sales expected to grow in excess of 70% this year. For Performance Technologies, we're holding our sales outlook, with revenue anticipated to be flat to down 7%. We expect that the end markets will remain depressed over the next quarter.
Speaker #2: Now let's turn to slide 11 for our fiscal '26 outlook. As we enter the fourth quarter, we're happy to announce that we are raising the revenue and earnings outlook.
Speaker #2: For fiscal 26, we now expect total sales to grow in the range of 20 to 25%. For climate solutions, we're raising our outlook for full year sales to grow 40 to 45% up from 35 to 40%.
Speaker #2: With data center sales expected to grow in excess of 70% this year, for Performance Technologies, we're holding our sales outlook with revenue anticipated to be flat to down 7%.
Speaker #2: We expect that the end markets will remain depressed over the next quarter. As expected, more favorable foreign exchange rates and material cost recoveries will support sales, but the underlying market volumes are not recovering yet.
Mick Lucarelli: As expected, more favorable foreign exchange rates and material cost recoveries will support sales, but the underlying market volumes are not recovering yet. With regards to our full year earnings, we're raising our fiscal 2026 adjusted EBITDA outlook to be in the range of $455 million to $475 million. This reflects the strong performance this quarter and further improvement in Q4. To wrap up, we're encouraged with our Q4 outlook and fully expect to deliver another fiscal year of record sales and earnings. The teams have worked very hard to execute on our strategy, using 80/20 as a guide, and the recent announcement to spin off Performance Technologies is truly historic. We remain confident that these actions are setting the stage for long-term, sustainable growth for Modine shareholders. With that, Neil and I will take your questions.
Michael Lucarelli: As expected, more favorable foreign exchange rates and material cost recoveries will support sales, but the underlying market volumes are not recovering yet. With regards to our full year earnings, we're raising our fiscal 2026 adjusted EBITDA outlook to be in the range of $455 million to $475 million. This reflects the strong performance this quarter and further improvement in Q4. To wrap up, we're encouraged with our Q4 outlook and fully expect to deliver another fiscal year of record sales and earnings. The teams have worked very hard to execute on our strategy, using 80/20 as a guide, and the recent announcement to spin off Performance Technologies is truly historic. We remain confident that these actions are setting the stage for long-term, sustainable growth for Modine shareholders. With that, Neil and I will take your questions.
Speaker #2: With regards to our full year earnings, we're raising our fiscal 26 adjusted EBITDA outlook to be in the range of $455 million to $475 million.
Speaker #2: This reflects the strong performance this quarter and further improvement in Q4. To wrap up, we're encouraged with our Q4 outlook and fully expect to deliver another fiscal year of record sales and earnings.
Speaker #2: The teams have worked very hard to execute on our strategy using 80/20 as a guide. And the recent announcement to spin off performance technologies is truly historic.
Speaker #2: We remain confident that these actions for long-term sustainable growth at Modine are setting the stage for shareholders. With that, Neil and I will take your questions.
Speaker #2: Thank you. If you have a question at this time, please press the star, then one key on your telephone keypad. A confirmation tone will indicate a line is in the question queue.
Operator: Thank you. If you have a question at this time, please press the star, then one key on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Matt Summerville with D.A. Davidson. Please proceed with your question.
Operator: Thank you. If you have a question at this time, please press the star, then one key on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Matt Summerville with D.A. Davidson. Please proceed with your question.
Speaker #2: You may press star, then two, if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker #2: Our first question comes from the line of Matt Somerville with DA Davidson. Please proceed with your question.
Speaker #3: Thanks. Good morning. So I want to understand a couple of things. Can you talk about the puts and takes embedded in the margin outlook for both Climate and PT in the fourth quarter?
Matt Summerville: Hi, morning. So I want to understand a couple things. Can you talk about kind of the puts and takes embedded in the margin outlook for both Climate and PT in the fourth quarter? You know, on the last conference call, you sort of led us down a path whereby, you know, Climate kind of ends the year in Q4 with further sequential margin improvement, maybe in a range of 20 to 21%. So if you can kind of backfill on the margins across the two segments, and then also help us understand what defines kind of the high and low end of the algebra on that 50 to 70% CAGR, because obviously, you extrapolate that out two years, it's a pretty wide range. Is it demand? Is it capacity? So a little bit of help there as well. Thank you.
Matt Summerville: Hi, morning. So I want to understand a couple things. Can you talk about kind of the puts and takes embedded in the margin outlook for both Climate and PT in the fourth quarter? You know, on the last conference call, you sort of led us down a path whereby, you know, Climate kind of ends the year in Q4 with further sequential margin improvement, maybe in a range of 20 to 21%. So if you can kind of backfill on the margins across the two segments, and then also help us understand what defines kind of the high and low end of the algebra on that 50 to 70% CAGR, because obviously, you extrapolate that out two years, it's a pretty wide range. Is it demand? Is it capacity? So a little bit of help there as well. Thank you.
Speaker #3: On the last conference call, you had sort of let us down a path whereby in Q4 with further sequential margin improvement, maybe in a range of 20 to 21%.
Speaker #3: So if you can kind of backfill on the margins across the two segments, and then also help us understand what defines kind of the high and low end of the algebra on that 50 to 70% CAGR.
Speaker #3: Because, obviously, if you extrapolate that out two years, it's a pretty wide range. Is it demand? Is it capacity? So a little bit of help there as well.
Speaker #3: Thank you.
Speaker #4: Yeah. Neil, hey, Matt, Nick, good on the CAGR morning. comment. So yeah, as we look I'll go and then Neil can add at the outlook and for the balance of the year, I want to be clear about that.
Mick Lucarelli: Yeah, Neil, hey, Matt, it's Mick. Good morning. I'll go, and then Neil can add on the CAGR comment. So, yeah, as we look at the outlook and for the balance of the year, I want to be clear about that. We are comfortable with the margin improvements in Climate Solutions after the 120 basis points sequential in Q3. We're still on track for a 200+ basis point sequential improvement in Q4. So we still see Climate Solutions in that 20 to 21% range. On the PT side, we do expect a step down in the EBITDA margin. So that might be one thing that you're trying to model out. And we couple things happening there. One is we see this as a Q4 temporary dip. We've got some material pass-through mechanisms that will be catching up.
Michael Lucarelli: Yeah, Neil, hey, Matt, it's Mick. Good morning. I'll go, and then Neil can add on the CAGR comment. So, yeah, as we look at the outlook and for the balance of the year, I want to be clear about that. We are comfortable with the margin improvements in Climate Solutions after the 120 basis points sequential in Q3. We're still on track for a 200+ basis point sequential improvement in Q4. So we still see Climate Solutions in that 20 to 21% range. On the PT side, we do expect a step down in the EBITDA margin. So that might be one thing that you're trying to model out. And we couple things happening there. One is we see this as a Q4 temporary dip. We've got some material pass-through mechanisms that will be catching up.
Speaker #4: We are comfortable with the margin improvements in Climate Solutions. After the 120 basis points sequential in Q3, we're still on track for a 200-plus basis point sequential improvement in Q4.
Speaker #4: So, we still see Climate Solutions in that 20% to 21% range. On the PT side, we do expect a step down in the EBITDA margin.
Speaker #4: So that might be one thing that you're trying to model out. And we have a couple of things happening there. One, we see this as a Q4 temporary dip; we've got some material pass-through mechanisms that will be catching up.
Speaker #4: We've had a spike in aluminum, copper, and steel; we also have some timing of the tariff recovery. And also some Q4 inventory cleanup, write-off work that's been tied to our 80/20 PLS activities and some of the plant conversions we did from going from PT plants to data center plants.
Mick Lucarelli: We've had a spike in aluminum, copper, and steel. We also have some timing of the tariff recovery and also some Q4 inventory cleanup, write-off work that's been tied to our 80/20 PLS activities and some of the plant conversions we did from going from PT plants to data center plants. So, we're comfortable. I should also say we're comfortable with analyst estimates in dollars that have been out there in Q4, and that would imply we're trending above the midpoint of the range. So, we are trending towards that, above the midpoint in the range in dollars.
Michael Lucarelli: We've had a spike in aluminum, copper, and steel. We also have some timing of the tariff recovery and also some Q4 inventory cleanup, write-off work that's been tied to our 80/20 PLS activities and some of the plant conversions we did from going from PT plants to data center plants. So, we're comfortable. I should also say we're comfortable with analyst estimates in dollars that have been out there in Q4, and that would imply we're trending above the midpoint of the range. So, we are trending towards that, above the midpoint in the range in dollars.
Speaker #4: So we're comfortable. I should also say we're comfortable with analyst estimates in dollars that have been out there in Q4. And that would imply we're trending above the midpoint of the range.
Speaker #4: So we are trending towards that above the midpoint of the range in dollars. But again, CF fully on track for a Q4 margin improvement.
Mick Lucarelli: But again, CS, fully on track for a Q4 margin improvement, and that's, being led by HVAC and data centers, and then a Q4 dip in margin for PT, and we expect PT to rebound in Q1 back to, you know, that 14%+ type range. So let me throw it over to Neil, and then you can come back, Matt.
Michael Lucarelli: But again, CS, fully on track for a Q4 margin improvement, and that's, being led by HVAC and data centers, and then a Q4 dip in margin for PT, and we expect PT to rebound in Q1 back to, you know, that 14%+ type range. So let me throw it over to Neil, and then you can come back, Matt.
Speaker #4: And that's being led by HVAC, and then a Q4 dip in margin for PT and we data centers. And expect PT to rebound in Q1 back to that 14-plus percent type range.
Speaker #4: So let me throw it over to Neil, and then you can come back, Matt.
Speaker #3: Covered well, Nick. Any other questions on that?
Neil Brinker: No, I think that's covered well, Mick. Any other questions on that, Matt?
Neil Brinker: No, I think that's covered well, Mick. Any other questions on that, Matt?
Speaker #5: On that, no. If we can get to the kind of data center question on what defines kind of that high low end range when you extrapolate out 50% to 70% growth off the 26 basis, $1.1 billion plus.
Matt Summerville: On that, no. If we can get to the kind of data center question on, you know, what defines kind of that high and low end range when you extrapolate out 50 to 70% growth off a 2026 base of $1.1 billion plus, you get a wide range. Is it capacity? Is it timing? Is it demand? If you can just help out a bit there, that'd be great.
Matt Summerville: On that, no. If we can get to the kind of data center question on, you know, what defines kind of that high and low end range when you extrapolate out 50 to 70% growth off a 2026 base of $1.1 billion plus, you get a wide range. Is it capacity? Is it timing? Is it demand? If you can just help out a bit there, that'd be great.
Speaker #5: You get a wide range. The capacity is the timing is the demand. If you can just help out a bit there, that'd be
Speaker #5: great. Yeah.
Speaker #4: When we think about that in terms of the capacity expansion, we give ourselves we're giving ourselves plenty of space there. As we get to further as we get further along in our project launches, in the US, particularly in Jefferson City and Dallas, I think that we'll have we'll be at a tipping point of having the majority of capacity in place.
Neil Brinker: Yeah, when we think about that in terms of the capacity expansion, we're giving ourselves plenty of space there. As we get further along in our project launches, in the US, particularly in Jefferson City and Dallas, I think that we'll be at a tipping point of having the majority of capacity in place and online, and that would give us more confidence to tighten that range.
Neil Brinker: Yeah, when we think about that in terms of the capacity expansion, we're giving ourselves plenty of space there. As we get further along in our project launches, in the US, particularly in Jefferson City and Dallas, I think that we'll be at a tipping point of having the majority of capacity in place and online, and that would give us more confidence to tighten that range.
Speaker #4: And online, and that would give us more confidence to tighten that range.
Speaker #3: Perfect. And then as a follow-up, can you maybe talk about how we should be thinking organically around the non-data center businesses and climate over the course of calendar '26?
Matt Summerville: Perfect. And then as a follow-up, can you maybe talk about how we should be thinking organically around the non-data center businesses in Climate over the course of calendar 2026? Thanks, guys.
Matt Summerville: Perfect. And then as a follow-up, can you maybe talk about how we should be thinking organically around the non-data center businesses in Climate over the course of calendar 2026? Thanks, guys.
Speaker #3: Thanks, guys.
Speaker #4: Yeah. At a high level, we're seeing good business, particularly in the HVAC side and our heating product line. We've seen great business in orders in the indoor air quality portion of the group.
Neil Brinker: Yeah, at a high level, you know, we're seeing good business, particularly in the HVAC side and our heating product line. We've seen great business in orders in the indoor air quality portion of the group. We've seen obviously really good results from the acquisitions, and then we've seen some softness in the HTS business relative to the margins. There's been some pressure on the margins there as we've seen a spike in materials, and we've been able to obviously counter that through commercial activities like pricing. But there's a lag there, so we've got a little bit of time to catch that up.
Neil Brinker: Yeah, at a high level, you know, we're seeing good business, particularly in the HVAC side and our heating product line. We've seen great business in orders in the indoor air quality portion of the group. We've seen obviously really good results from the acquisitions, and then we've seen some softness in the HTS business relative to the margins. There's been some pressure on the margins there as we've seen a spike in materials, and we've been able to obviously counter that through commercial activities like pricing. But there's a lag there, so we've got a little bit of time to catch that up.
Speaker #4: We've seen from the acquisitions, and then obviously, really good results. We've seen some softness in the HTS business relative to the margins—there's been some pressure on the margins there.
Speaker #4: As we've seen a spike in materials, and we've been able to obviously counter that through commercial activities like pricing. But we've there's a lag there.
Speaker #4: So, we've got a little bit of time to catch that.
Speaker #4: up. Got it.
Speaker #3: I can get back into Q. Thanks, Neil. Thanks,
Speaker #3: I can get back into Q. Thanks, Neil. Thanks, Nick. Thank you.
Mick Lucarelli: Got it. I'll get back to you. Thanks, Bill. Thanks, man.
Michael Lucarelli: Got it. I'll get back to you. Thanks, Bill. Thanks, man.
Speaker #2: Our next question comes from the line of David Tarantino with KeyBanc Capital Markets. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of David Tarantino with KeyBank Capital Markets. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of David Tarantino with KeyBank Capital Markets. Please proceed with your question.
Speaker #2: question. Hey, good morning,
Speaker #6: everyone. You in data center. Could you give us some mentioned record order intake how much of the growth is being driven by expanding relationships with customers and/or adding new ones versus your existing customer set?
David Tarantino: Hey, good morning, everyone.
David Tarantino: Hey, good morning, everyone.
Neil Brinker: Good morning.
Neil Brinker: Good morning.
David Tarantino: You mentioned record order intake in data center. Could you give us some color around the profile of these orders? How much of the growth is being driven by expanding relationships with customers and/or adding new ones versus your existing customer set? And what do you have embedded here in the longer term growth profile around expanding these relationships beyond what you currently do?
David Tarantino: You mentioned record order intake in data center. Could you give us some color around the profile of these orders? How much of the growth is being driven by expanding relationships with customers and/or adding new ones versus your existing customer set? And what do you have embedded here in the longer term growth profile around expanding these relationships beyond what you currently do?
Speaker #6: And what do you have embedded here in the longer-term growth profile around expanding these relationships beyond what you currently
Speaker #4: Yeah. So that's
Speaker #4: So that's a good question. In terms of the profile and the concentration, this expansion is coming with our existing customer base primarily.
Neil Brinker: Yeah, so that's a good question in terms of the profile and the concentration. This expansion is coming with our existing customer base, primarily. Certainly, we are actively working with all the hyperscalers, but at different degrees and different levels. And, you know, there's potential for, you know, even greater upside when you think about some of these hyperscalers, if we were to win orders at the order rates that we have with the ones that we have the longest relationships with. So this order intake and the upside that we see is with our strongest relationships, with our longest customers, and we're still working through and doing quite well with the other hyperscalers and some of the neo cloud providers as well.
Neil Brinker: Yeah, so that's a good question in terms of the profile and the concentration. This expansion is coming with our existing customer base, primarily. Certainly, we are actively working with all the hyperscalers, but at different degrees and different levels. And, you know, there's potential for, you know, even greater upside when you think about some of these hyperscalers, if we were to win orders at the order rates that we have with the ones that we have the longest relationships with. So this order intake and the upside that we see is with our strongest relationships, with our longest customers, and we're still working through and doing quite well with the other hyperscalers and some of the neo cloud providers as well.
Speaker #4: Certainly, we are actively working with all the hyperscalers, but at different degrees and different levels. And there's potential for even greater upside when you think about some of these hyperscalers if we were to win orders at the order rates that we have with the ones that we have the longest relationships with.
Speaker #4: So this order intake and the upside that we see is with our strongest relationships with our longest customers. And we're still working through and doing quite well with the other hyperscalers and some of the Neil call providers as
Speaker #6: Okay. Great. That's helpful. And then maybe just on free cash flow, the CapEx investments are pretty well documented. But could you talk about the working capital investment side of things related to the ramp and specifically what gives you the confidence that free cash flow begins to return a more normalized levels next year?
David Tarantino: Great. That's helpful. And then maybe just on free cash flow, the CapEx investments are pretty well documented, but could you talk about the working capital investment side of things related to the ramp? And specifically, what gives you the confidence that free cash flow begins to return to more normalized levels, next year?
David Tarantino: Great. That's helpful. And then maybe just on free cash flow, the CapEx investments are pretty well documented, but could you talk about the working capital investment side of things related to the ramp? And specifically, what gives you the confidence that free cash flow begins to return to more normalized levels, next year?
Speaker #4: Yeah. That's Nick. We've been trending about 19 to 20 percent working capital to sales. So I think that's going to hold relatively well. But two things that were happening that'll kind of cause us to get back to more normal free cash flow levels was the rate of the ramp that when we did the expansion this year, when we announced it beginning of the year, a lot of pre-buy.
Mick Lucarelli: Yeah, it's Mick. We've been trending about 19 to 20 percent working capital to sales, so I think that's gonna hold relatively well. But two things that were happening that'll kind of cause us to get back to more normal free cash flow levels was the rate of the ramp, that when we did the expansion this year, when we announced it, beginning of the year, a lot of pre-buy. So we actually have spiked above our normal inventory carrying levels. And then secondly, the amount of CapEx, whether you look at it as the one-time spends or percentage of sales, also had a spike. So I think what will happen, David, is we'll trend back down. It's. I don't think it'll be a step function.
Michael Lucarelli: Yeah, it's Mick. We've been trending about 19 to 20 percent working capital to sales, so I think that's gonna hold relatively well. But two things that were happening that'll kind of cause us to get back to more normal free cash flow levels was the rate of the ramp, that when we did the expansion this year, when we announced it, beginning of the year, a lot of pre-buy. So we actually have spiked above our normal inventory carrying levels. And then secondly, the amount of CapEx, whether you look at it as the one-time spends or percentage of sales, also had a spike. So I think what will happen, David, is we'll trend back down. It's. I don't think it'll be a step function.
Speaker #4: So we actually have spiked above our normal inventory carrying levels. And then secondly, the amount of CapEx, whether you look at it as the one-time spends or percentage of sales, also had a spike.
Speaker #4: So, I think what'll happen, David, is we'll trend back down. I don't think it'll be a step function. Inventory working capital will trend to normal ratios to grow with sales.
Mick Lucarelli: Inventory, working capital will trend back towards normal ratios, to grow with sales, and same with CapEx. We'll still have some CapEx carrying over into next year and elevated, but as a ratio or driver of capital, we won't have... You know, this year is probably $200 million. We probably had $400 million that we invested in capital spending and working capital builds.
Michael Lucarelli: Inventory, working capital will trend back towards normal ratios, to grow with sales, and same with CapEx. We'll still have some CapEx carrying over into next year and elevated, but as a ratio or driver of capital, we won't have... You know, this year is probably $200 million. We probably had $400 million that we invested in capital spending and working capital builds.
Speaker #4: And same with CapEx. We'll still have some CapEx carrying over in the next year and elevate it. But as a ratio, our driver of capital, we won't have this year is probably 200 million.
Speaker #4: We probably had $400 million that we invested in capital spending and working capital.
Speaker #4: builds. Okay.
Speaker #6: Great, thanks for the color, guys.
Speaker #4: Yep.
David Tarantino: Okay, great. Thanks for the color, guys.
David Tarantino: Okay, great. Thanks for the color, guys.
Mick Lucarelli: Yep.
Michael Lucarelli: Yep.
Speaker #2: Okay. Thank you. Our next question comes from the line of Noah K. with Oppenheimer. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Speaker #6: Hey, thanks for taking the questions. And good to see folks earlier this week at Expo. It was really helpful to get your commentary just now on the climate solutions margin outlook for Q4.
Noah Kaye: Hey, thanks for taking the questions. You know, good to see folks earlier this week at Expo. Was really helpful to get your commentary just now on the Climate Solutions margin outlook for Q4. You know, basically, this is gonna be then if you, if you hit that a couple of quarters in a row where you get, you know, roughly, call it, 200 basis points, 100 to 200 basis points, margin expansion sequentially, even as you're adding a bunch of new chiller lines, right? So I guess the question is really, how do we extrapolate this in thinking about, you know, where margins could be going here?
Noah Kaye: Hey, thanks for taking the questions. You know, good to see folks earlier this week at Expo. Was really helpful to get your commentary just now on the Climate Solutions margin outlook for Q4. You know, basically, this is gonna be then if you, if you hit that a couple of quarters in a row where you get, you know, roughly, call it, 200 basis points, 100 to 200 basis points, margin expansion sequentially, even as you're adding a bunch of new chiller lines, right? So I guess the question is really, how do we extrapolate this in thinking about, you know, where margins could be going here?
Speaker #6: Basically, this is going to be then if you hit that a couple of quarters in a row where you get roughly call it a 200 bips, 100, 200 bips margin expansion sequentially, even as you're adding a bunch of new chiller lines, right?
Speaker #6: So I guess the question is really how do we extrapolate this in thinking about where margins could be going here? You've talked about kind of mid to high 20s as a longer-term target.
Noah Kaye: You've talked about kind of, you know, mid- to high 20s is a longer term target, but should we think about that kind of margin progression as continuing into, you know, the future quarters as you continue to add more lines but get better absorption?
Noah Kaye: You've talked about kind of, you know, mid- to high 20s is a longer term target, but should we think about that kind of margin progression as continuing into, you know, the future quarters as you continue to add more lines but get better absorption?
Speaker #6: But should we think about that kind of margin progression as continuing into the future quarters as you continue to add more lines but get better?
Speaker #6: absorption? A couple of things,
Speaker #4: Noah, I wouldn't extrapolate, and we're not implying that we'll have 200 bps sequentially every quarter. I think this was— and we talked about it in Q2.
Mick Lucarelli: A couple things, Noah, that, I don't, I wouldn't extrapolate, and we're not implying that we'll have 200 basis points sequentially every quarter. I think this was, and we talked about it in Q2, we had a significant decline, and it was tied to the amount of fixed costs we added. So to climb back out, we said we'd expect it to be kind of two quarters to pick up whatever that was, 400, 500 basis points. And then from there, it's gonna be more of a normal climb, step by step up. We've been clear with Climate Solutions that the goal next year would be 20 to 23%. We'll provide some guidance in our Q4.
Michael Lucarelli: A couple things, Noah, that, I don't, I wouldn't extrapolate, and we're not implying that we'll have 200 basis points sequentially every quarter. I think this was, and we talked about it in Q2, we had a significant decline, and it was tied to the amount of fixed costs we added. So to climb back out, we said we'd expect it to be kind of two quarters to pick up whatever that was, 400, 500 basis points. And then from there, it's gonna be more of a normal climb, step by step up. We've been clear with Climate Solutions that the goal next year would be 20 to 23%. We'll provide some guidance in our Q4.
Speaker #4: We had a significant decline, and it was tied to the amount of fixed costs we added. So, to decline back out, we said we'd expect it to be kind of two quarters to pick up whatever that was—400, 500 basis points.
Speaker #4: And then from there, it's going to be more of a normal climb step by step up. We've been clear with climate solutions that the goal next year would be 20 to 23 percent.
Speaker #4: We'll provide some guidance in our Q4 and a reminder for the group when we announce our announcement on Performance Technologies. We're going to split and have two Climate Solution segments.
Mick Lucarelli: And a reminder for the group, when we announced our announcement on Performance Technologies, we're going to split and have two Climate Solutions segments, so we can provide some other color in Q4 for data centers. But I'd say short until we come out with specific guidance by the two Climate Solutions segments, I think next year taking that midpoint of that range is a fair starting point, and we'll tighten that up and give you some more color in Q4.
Michael Lucarelli: And a reminder for the group, when we announced our announcement on Performance Technologies, we're going to split and have two Climate Solutions segments, so we can provide some other color in Q4 for data centers. But I'd say short until we come out with specific guidance by the two Climate Solutions segments, I think next year taking that midpoint of that range is a fair starting point, and we'll tighten that up and give you some more color in Q4.
Speaker #4: So we can provide some other color in Q4 for data centers. But I'd say short until we come out with specific guidance by the two climate solution segments.
Speaker #4: I think next year taking that midpoint of that range is a fair starting point. And we'll tighten that up and give you some more color in
Speaker #4: Q4. Okay.
Speaker #6: Very helpful. Neil, it was good to hear you talk about the record orders intake. Obviously, not historically disclosed, orders, but can you talk a little bit about just sort of a sense of magnitude of that orders intake, and also the composition?
Noah Kaye: Okay. Very helpful. You know, Neil, it's good to hear you talk about the record orders intake. You know, obviously, not historically disclosed orders, but can you talk a little bit about just sort of a sense of magnitude of that orders intake and also the composition, you know, how diversified it is among the customer base? What does it imply about kind of your customer mix, as we head into next year?
Noah Kaye: Okay. Very helpful. You know, Neil, it's good to hear you talk about the record orders intake. You know, obviously, not historically disclosed orders, but can you talk a little bit about just sort of a sense of magnitude of that orders intake and also the composition, you know, how diversified it is among the customer base? What does it imply about kind of your customer mix, as we head into next year?
Speaker #6: How diversified it is among the customer base? What does it imply about kind of your customer mix as we head into next year?
Speaker #4: Yeah. Thank you. It's roughly 50/50 in terms of the products where 50% of it is with chillers and 50% is with the rest of the products that we have for the full solutions and data center.
Neil Brinker: Yeah, thank you. It's roughly 50/50 in terms of the products, where 50% of it is with chillers and 50% is with the rest of the products that we have to, for the full solutions in data center. It's a larger, more of the majority of the revenue is with our hypers. And, you know, what gives us great confidence is these are projects and programs that we've seen, that have been in the funnel for a while, and they're starting to come to fruition in terms of purchase orders. So, long-standing relationships, strong relationships with these customers, seeing these things progress through our probability funnel, moving from 40% or 50% probability into the 80% to 90% category at a much heavier and faster rate than we've ever seen.
Neil Brinker: Yeah, thank you. It's roughly 50/50 in terms of the products, where 50% of it is with chillers and 50% is with the rest of the products that we have to, for the full solutions in data center. It's a larger, more of the majority of the revenue is with our hypers. And, you know, what gives us great confidence is these are projects and programs that we've seen, that have been in the funnel for a while, and they're starting to come to fruition in terms of purchase orders. So, long-standing relationships, strong relationships with these customers, seeing these things progress through our probability funnel, moving from 40% or 50% probability into the 80% to 90% category at a much heavier and faster rate than we've ever seen.
Speaker #4: It's a larger more of the majority of the revenue is with our hypers. And what gives us great confidence is these are projects and programs that we've seen that have been in the funnel for a while and they're starting to purchase orders.
Speaker #4: So, longstanding relationships—strong relationships—with these customers, seeing these things progress through our probability funnel, moving from 40 or 50 percent probability into the 80 to 90 percent category.
Speaker #4: And at a much heavier and faster rate than we've ever seen. So those are the things that give us confidence in terms of our customers who we're serving as well as the products.
Neil Brinker: So those are the things that give us confidence in terms of our customers who we're serving, as well as the products, knowing that we have the capacity to keep and it consists with our ramp schedule that we were public about a couple quarters ago.
Neil Brinker: So those are the things that give us confidence in terms of our customers who we're serving, as well as the products, knowing that we have the capacity to keep and it consists with our ramp schedule that we were public about a couple quarters ago.
Speaker #4: Knowing that we have the capacity to keep and it consists with our ramp schedule that we were public about a couple of quarters
Speaker #4: ago. All right.
Speaker #6: I'll take the rest of the questions offline. Appreciate you.
Speaker #6: it. Thank Thank
Noah Kaye: All right. I'll take the rest of the questions offline. Appreciate it. Thank you.
Noah Kaye: All right. I'll take the rest of the questions offline. Appreciate it. Thank you.
Speaker #2: you. Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your
Operator: Thank you. Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
Speaker #5: morning, guys. Thanks for taking a couple. So obviously, as you talked
Chris Moore: Hey, good morning, guys. Thanks for taking a couple. So obviously, as you've talked about the 50 to 70% growth in 2027, 2028, you know, recognizes the market's dynamic, the mix of products there, you know, might change. I think on the follow-up call on the PT spin-off, you talked about chillers potentially being, you know, better than 50% of the mix in 2028. Maybe can you just talk a little bit about how the ultimate mix impacts your margins and, you know, kind of what the biggest wild cards are?
Chris Moore: Hey, good morning, guys. Thanks for taking a couple. So obviously, as you've talked about the 50 to 70% growth in 2027, 2028, you know, recognizes the market's dynamic, the mix of products there, you know, might change. I think on the follow-up call on the PT spin-off, you talked about chillers potentially being, you know, better than 50% of the mix in 2028. Maybe can you just talk a little bit about how the ultimate mix impacts your margins and, you know, kind of what the biggest wild cards are?
Speaker #5: about, the 50 to 70 percent growth in '27, question. '28, recognizes the market's dynamic, the mix of products there is might change. I think on the follow-up call on the PT spin-off you talked about chillers, potentially being better than 50% of the mix in '28.
Speaker #5: Maybe can you just talk a little bit about how the ultimate mix impacts your margins and kind of what the biggest wildcards are?
Speaker #5: are? Yeah.
Speaker #4: I'll go first. And Neil, can I add? It's pretty uniform across the data center space. And so just take a step back. One thing I think Neil had covered and it'll help is we now the data centers has gotten to the scale we think it's the right time to carve that out as a segment.
Mick Lucarelli: Yeah, I, I'll go first, and Neil can add. It's pretty uniform across the data center space. So just take a step back. One thing I think Neil had covered, and I'll help, is we now the data centers has gotten to the scale, we think it's the right time to carve that out as a segment. But when you peel back the onion and Climate Solutions, what we've had over the last few quarters, right? So total segment is the three acquisitions we brought on, and then Neil said on the coils or HTS side, we've had some lag effects on material pass-through. So kind of putting that off to the side, that's had some impact in the margins that you've all seen. Across the data center then product portfolio, it's a pretty uniform margin profile.
Michael Lucarelli: Yeah, I, I'll go first, and Neil can add. It's pretty uniform across the data center space. So just take a step back. One thing I think Neil had covered, and I'll help, is we now the data centers has gotten to the scale, we think it's the right time to carve that out as a segment. But when you peel back the onion and Climate Solutions, what we've had over the last few quarters, right? So total segment is the three acquisitions we brought on, and then Neil said on the coils or HTS side, we've had some lag effects on material pass-through. So kind of putting that off to the side, that's had some impact in the margins that you've all seen. Across the data center then product portfolio, it's a pretty uniform margin profile.
Speaker #4: But when you peel back the onion in Climate Solutions, what we've had over the last few quarters, right? So, total segment is the three acquisitions we brought on, and then, Neil said on the coils or HTS side, we've had some lag effect on material pass-through.
Speaker #4: So kind of putting that off to the side, that's had some impact in the margins that you've all seen. Across the data center then, product portfolio, it's a pretty uniform margin profile.
Speaker #4: Obviously, we really like the service element. So I don't think it's as much there I would leave it at it's a pretty uniform mix is not going to be as big of a driver for us.
Mick Lucarelli: Obviously, we really like the service element, so I don't think it's as much there. I would leave it at, it's a pretty uniform. It mix is not gonna be as big of a driver for it. The other one, then the factor, as you know, over the last 3 to 6 months, was just the amount of fixed costs we brought on with greenfield facilities. So not to punt on your question, I think the main drivers are in data center, capacity utilization, and then less about product mix.
Michael Lucarelli: Obviously, we really like the service element, so I don't think it's as much there. I would leave it at, it's a pretty uniform. It mix is not gonna be as big of a driver for it. The other one, then the factor, as you know, over the last 3 to 6 months, was just the amount of fixed costs we brought on with greenfield facilities. So not to punt on your question, I think the main drivers are in data center, capacity utilization, and then less about product mix.
Speaker #4: The other one then, the factor is—you know, over the last three to six months—was just the amount of fixed costs we brought on with Greenfield facilities.
Speaker #4: So not to punt on your question, I think the main drivers are in data center capacity utilization, and then less about product mix.
Speaker #6: Got it. I appreciate that. And maybe just a follow-up in terms of the capacity ramp. So is the expectation that by the end of fiscal '27, you will have the capacity in place to manage the high end, the 70% CAGR for both '27 and '28, or '28 specifically?
Chris Moore: Got it. I appreciate that. And maybe just a follow-up on, in terms of, the capacity ramp. So is the expectation that by the end of fiscal 2027, you will have the capacity in place to manage the high end, the 70% CAGR for both 2027 and 2028, or 2028 specifically? Is there more? If you're doing that 70%, you know, that implies in that, you know, $3 billion range in 2028. Will you have that capacity in place by the end of 2027?
Chris Moore: Got it. I appreciate that. And maybe just a follow-up on, in terms of, the capacity ramp. So is the expectation that by the end of fiscal 2027, you will have the capacity in place to manage the high end, the 70% CAGR for both 2027 and 2028, or 2028 specifically? Is there more? If you're doing that 70%, you know, that implies in that, you know, $3 billion range in 2028. Will you have that capacity in place by the end of 2027?
Speaker #6: Is there more? If you're doing the 70%, that implies in that $3 billion range, in '28, will you have that capacity in place by the end of '27?
Speaker #4: We would expect to have the capacity in place by the end of '27. However, they may not be at full utilization
Neil Brinker: We would expect to have the capacity in place by the end of 2027. However, they may not be at full utilization yet.
Neil Brinker: We would expect to have the capacity in place by the end of 2027. However, they may not be at full utilization yet.
Speaker #4: yet.
Speaker #6: Got it. Makes sense. I will leave
Speaker #6: it there. Appreciate
Chris Moore: Got it. Makes sense. I will leave it there. Appreciate it.
Chris Moore: Got it. Makes sense. I will leave it there. Appreciate it.
Speaker #6: it. Thank you.
Speaker #2: Our next question comes from the line of Neil Burke with UBS. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Neil Burke with UBS. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Neil Burke with UBS. Please proceed with your question.
Speaker #5: Hey, thanks for taking my question. Apologies if I missed this. On capacity utilization—I think your guidance, based on my math at least, has annual data center revenues kind of exiting the year at $1.6 billion.
Noah Kaye: Hey, thanks for taking my question. Apologies if I missed this, on capacity utilization, but, you know, I think your guidance, based on my math at least, has annual data center revenues kind of exiting the year at $1.6 billion. Is that the correct way to think about the annual number? And what is the kind of capacity utilization that that assumes?
Neal Burk: Hey, thanks for taking my question. Apologies if I missed this, on capacity utilization, but, you know, I think your guidance, based on my math at least, has annual data center revenues kind of exiting the year at $1.6 billion. Is that the correct way to think about the annual number? And what is the kind of capacity utilization that that assumes?
Speaker #5: Is that the correct way to think about the annual number? And what is the kind of capacity utilization that that
Speaker #5: assumes? Yeah.
Speaker #4: I'll be quick. I'll jump in on that. Neil, where you're going is, yeah, our Q4 has implied a $400 million-plus sales quarter. So yeah, that would be an annualized run rate of $1.6 billion.
Mick Lucarelli: ... Yeah, quick, I'll jump in on that, where, Neil, where you're going if— Yeah, our Q4, you know, is implied of, what, $400 million plus sales quarter. So yeah, that would be, annualized run rate of 1.6. Neil, you want to add anything on capacity here?
Michael Lucarelli: ... Yeah, quick, I'll jump in on that, where, Neil, where you're going if— Yeah, our Q4, you know, is implied of, what, $400 million plus sales quarter. So yeah, that would be, annualized run rate of 1.6. Neil, you want to add anything on capacity here?
Speaker #4: Neil, you want to add anything on capacity here?
Speaker #3: Yeah, again, capacity is in line with where we want it to be. It's as expected. We're getting more efficient. You saw it in the margin improvement this quarter.
Neil Brinker: Yeah, again, capacity is in line with where we want it to be. We're, it's as expected, we're getting more efficient. You saw it in the margin improvements this quarter, and we're very comfortable in terms of getting back into that 20% range as we continue to add more capacity to data centers.
Neil Brinker: Yeah, again, capacity is in line with where we want it to be. We're, it's as expected, we're getting more efficient. You saw it in the margin improvements this quarter, and we're very comfortable in terms of getting back into that 20% range as we continue to add more capacity to data centers.
Speaker #3: And we're very comfortable in terms of getting back into that 20% range as we continue to add more capacity to data centers.
Speaker #5: All right. Thanks. And one more follow-up. Again, on the point of demand, I know you said record orders in the quarter, but maybe just taking a step back, the data center pipeline as you see it, can you talk about how that's trending and specifically do you have more visibility on future orders and revenues than you did, say, 6 to 12 months ago?
Neil Burke: All right, thanks. And one more follow-up, again, on the point of demand. I know you said record orders in the quarter, but maybe just like taking a step back, like, the data center pipeline as you see it, can you talk about how that's trending? And like, specifically, do you have more visibility on future orders and revenues than you did, say, six to twelve months ago? Thank you.
Neal Burk: All right, thanks. And one more follow-up, again, on the point of demand. I know you said record orders in the quarter, but maybe just like taking a step back, like, the data center pipeline as you see it, can you talk about how that's trending? And like, specifically, do you have more visibility on future orders and revenues than you did, say, six to twelve months ago? Thank you.
Speaker #5: Thank you.
Speaker #3: Yeah. And that's an interesting question because I say yes to that every time that's asked every 6 to 12 months because it just gets bigger and bigger.
Neil Brinker: Yeah, you know, and that's an interesting question because I say yes to that every time that's asked every 6 to 12 months, because it just gets bigger and bigger, and the visibility gets broader and broader. So, you know, if you go back three, three years ago, we had 8 to 12 months visibility, and you go back a year ago, we had 24 months visibility, 36 months visibility. Now, we're looking out as far as 5 years, and certainly the top of the order funnel is swelling for sure.
Neil Brinker: Yeah, you know, and that's an interesting question because I say yes to that every time that's asked every 6 to 12 months, because it just gets bigger and bigger, and the visibility gets broader and broader. So, you know, if you go back three, three years ago, we had 8 to 12 months visibility, and you go back a year ago, we had 24 months visibility, 36 months visibility. Now, we're looking out as far as 5 years, and certainly the top of the order funnel is swelling for sure.
Speaker #3: And the visibility gets broader and broader. So if you go back three years ago, we had 8 to 12 months’ visibility. And you go back a year ago, we had 24 months’ visibility, 36 months’ visibility.
Speaker #3: Now we're looking out as far as five years, and certainly the top of the order funnel is swelling for
Speaker #3: sure. Thank you.
Speaker #5: Thank
Speaker #5: you. Thank
Neil Burke: Thank you. Thank you.
Neal Burk: Thank you. Thank you.
Speaker #2: Thank you. Our next question comes from the line of Jeff Van Sinderen with B. Riley Securities. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Jeff Van Sinderen with B. Riley Securities. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Jeff Van Sinderen with B. Riley Securities. Please proceed with your question.
Speaker #2: question. Hi.
Speaker #5: Good morning, everyone. Just kind of—maybe this is a little bit premature—but given that your next fiscal year is upon us and you're ramping production, how do you think we might see the growth cadence of the Climate Solutions business trend in the next fiscal year?
Jeff Van Sinderen: Hi, good morning, everyone. Just kind of maybe this is a little bit premature, but given that your next fiscal year is upon us and you're ramping production, how do you think we might see the growth cadence of the Climate Solutions business trend in the next fiscal year? And might we anticipate sequential revenue growth for the next several quarters?
Jeff Van Sinderen: Hi, good morning, everyone. Just kind of maybe this is a little bit premature, but given that your next fiscal year is upon us and you're ramping production, how do you think we might see the growth cadence of the Climate Solutions business trend in the next fiscal year? And might we anticipate sequential revenue growth for the next several quarters?
Speaker #5: And might we anticipate sequential revenue growth for the next several quarters?
Speaker #4: Total climate solutions? I just want to make sure I understood your
Mick Lucarelli: Total, total Climate Solutions?
Michael Lucarelli: Total, total Climate Solutions?
Speaker #5: Yeah.
Speaker #4: Yeah, yeah. Well, I think I separate them. Again, I would expect—again, and Neil can jump in—that the greater growth in order intake is on the data center side, and that's becoming a much bigger piece, right, of the entire Climate Solutions segment.
Jeff Van Sinderen: Yeah.
Jeff Van Sinderen: Yeah.
Mick Lucarelli: I want to make sure I answered your question. Yeah. Yeah, well, I think I'd separate them again. I would expect, again, where Neil can jump in, that at the greater growth in order intake on the data center side, and that's becoming a much bigger piece, right, of the entire Climate Solutions segment, that we will see sequential growth for quite a while on data centers. I have to go back and study a little bit the HVAC side. We get seasonal patterns with heat, and then you have a coil HTS business that can be heavy replacement and also some of that tied to residential OE customers. So I think of that as more normal, and that we've said that's probably a high single-digit organic grower annually.
Michael Lucarelli: I want to make sure I answered your question. Yeah. Yeah, well, I think I'd separate them again. I would expect, again, where Neil can jump in, that at the greater growth in order intake on the data center side, and that's becoming a much bigger piece, right, of the entire Climate Solutions segment, that we will see sequential growth for quite a while on data centers. I have to go back and study a little bit the HVAC side. We get seasonal patterns with heat, and then you have a coil HTS business that can be heavy replacement and also some of that tied to residential OE customers. So I think of that as more normal, and that we've said that's probably a high single-digit organic grower annually.
Speaker #4: That we will see sequential growth for quite a while on data centers. Have to go back and study a little bit the HVAC side we get seasonal patterns with heat.
Speaker #4: And then you have a coil HTS business that can be heavy replacement, and also some of that tied to residential OE customers. So, I think of that as more normal, and we've said that's probably a high single-digit organic grower annually.
Speaker #4: I don't want to be too repetitive, but the last thing I'd say is that I don't want to help until we give you some more color in Q4. And I could split those two dynamics—HVAC is a very different dynamic, HVAC in R versus data center.
Mick Lucarelli: The last thing I'd say, I don't want to be too repetitive, but it'll help when we give you some more color in Q4, and I could split those two dynamics. HVAC is a very different dynamic, HVAC&R versus data center. So hopefully, that's enough color to give you some direction.
Michael Lucarelli: The last thing I'd say, I don't want to be too repetitive, but it'll help when we give you some more color in Q4, and I could split those two dynamics. HVAC is a very different dynamic, HVAC&R versus data center. So hopefully, that's enough color to give you some direction.
Speaker #4: So hopefully, that's enough color to give you some direction.
Speaker #5: Okay. And I'm sorry, just to clarify—breaking out in the, for Q4, are you going to start P&L, the two segments for Climate?
Jeff Van Sinderen: Okay, and I'm sorry, just to clarify, for Q4, are you going to start breaking out in the P&L the two segments for Climate Solutions or-
Jeff Van Sinderen: Okay, and I'm sorry, just to clarify, for Q4, are you going to start breaking out in the P&L the two segments for Climate Solutions or-
Speaker #5: solutions? So beginning our
Speaker #4: Q1, with our new fiscal year, we will have three segments. We'll have a Data Center segment, a Commercial HVAC segment, and, obviously, Performance Technologies until that transaction closes. We will report, as we have with our other segments, revenue and earnings.
Mick Lucarelli: So beginning our Q1 with our new fiscal year, we will have three segments. We'll have a data center segment, a commercial HVAC segment, and obviously, Performance Technologies until that transaction closes. We'll report, as we have with our other segments, revenue and earnings. What we'll just do in our Q4 is we'll provide some guidance for the new year outlook. But to be clear, I won't be able to give you those segment splits until we hit our Q1.
Michael Lucarelli: So beginning our Q1 with our new fiscal year, we will have three segments. We'll have a data center segment, a commercial HVAC segment, and obviously, Performance Technologies until that transaction closes. We'll report, as we have with our other segments, revenue and earnings. What we'll just do in our Q4 is we'll provide some guidance for the new year outlook. But to be clear, I won't be able to give you those segment splits until we hit our Q1.
Speaker #4: What we'll just do in our Q4 is we'll provide some guidance for the new year outlook. But to be clear, I won't be able to give you those segments split until we hit our Q1.
Speaker #5: Okay. Fair enough. And then maybe for Neil, as you're talking to your data center customers, what is really top of mind for their go-forward cooling needs?
Jeff Van Sinderen: Okay, fair enough. And then maybe for Neil, as you're talking to your data center customers, what is really top of mind for them at this point in determining their go-forward cooling needs? How are those needs evolving? And then, I guess, as a result, how is Modine evolving its products for the future?
Jeff Van Sinderen: Okay, fair enough. And then maybe for Neil, as you're talking to your data center customers, what is really top of mind for them at this point in determining their go-forward cooling needs? How are those needs evolving? And then, I guess, as a result, how is Modine evolving its products for the future?
Speaker #5: How are those needs evolving? And then, I guess as a result, how is Modine evolving its products for the future?
Speaker #3: So, a few things. One is, there's a lot of conversations about the now, which is securing capacity. How do we ensure that the strategic suppliers that they've selected are investing in capacity, and investing in production, and investing in their own internal supply chains so that they can keep up with the demand as you see the hyperscalers continue to raise their CapEx spend?
Neil Brinker: So a few things. One is there's a lot of conversations about the now, which is securing capacity. How do we ensure that, you know, the strategic suppliers that they've selected are investing in capacity, investing in production, and investing in their own internal supply chains so that they can keep up with the demand, as you see the hyperscalers continue to raise their CapEx spend? Almost every quarter, they're raising their CapEx spend. So, you know, what are we doing now to ensure that we're in sync and locked in with their progress as well as their build-out? That's one. The next piece is around our innovation and technology. What are we doing to make sure that we deliver products that help them solve two critical problems?
Neil Brinker: So a few things. One is there's a lot of conversations about the now, which is securing capacity. How do we ensure that, you know, the strategic suppliers that they've selected are investing in capacity, investing in production, and investing in their own internal supply chains so that they can keep up with the demand, as you see the hyperscalers continue to raise their CapEx spend? Almost every quarter, they're raising their CapEx spend. So, you know, what are we doing now to ensure that we're in sync and locked in with their progress as well as their build-out? That's one. The next piece is around our innovation and technology. What are we doing to make sure that we deliver products that help them solve two critical problems?
Speaker #3: Almost every quarter, they're raising their CapEx spend. So, what are we doing now to ensure that we're in sync and locked in with their progress, as well as their build-out?
Speaker #3: That's one. The next piece is around our innovation and technology. What are we doing to make sure that we deliver products that help them solve two critical problems?
Speaker #3: One is the lack of power so energy consumption. And the other is around water. And the amount of water that's used typically in some data centers.
Neil Brinker: One is the lack of power, so energy consumption, and the other is around water and the amount of water that's used typically in some data centers. So if we can continue to innovate and evolve with better use in terms of power and water, which are often measured through PUE and WUE. We can continue to improve their metrics, and stay innovative in that regard. Those are two critical problems that we're trying to solve for in the industry, in addition to keeping up with the breakneck speed of CapEx deployment.
Neil Brinker: One is the lack of power, so energy consumption, and the other is around water and the amount of water that's used typically in some data centers. So if we can continue to innovate and evolve with better use in terms of power and water, which are often measured through PUE and WUE. We can continue to improve their metrics, and stay innovative in that regard. Those are two critical problems that we're trying to solve for in the industry, in addition to keeping up with the breakneck speed of CapEx deployment.
Speaker #3: And evolve with better use in—so if we can continue to innovate in terms of power and water, which are often measured through PUE and WUE, we can continue to improve their metrics and stay innovative in that regard.
Speaker #3: Those are two critical problems that we're trying to solve for in the industry, in addition to keeping up with the breakneck speed of CapEx deployment.
Speaker #3: Those are two critical problems that we're trying to solve for in the industry, in addition to keeping up with the breakneck speed of CapEx deployment.
Speaker #5: Okay. Thanks for taking my questions.
Matt Summerville: Okay, thanks for taking my questions.
Matt Summerville: Okay, thanks for taking my questions.
Speaker #2: Thanks. This is Brian Drab with William Blair. Please go ahead with your question.
Operator: Thank you. Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question.
Speaker #6: Okay. Yeah, thanks for taking my questions. First, I wanted to ask about the capacity expansion. You have, it sounds like, $1.6 billion in revenue capacity for sure.
Brian Drab: Okay. Yeah, thanks for taking my questions. You know, first, I wanted to ask, you know, on the capacity expansion, you know, you have, it sounds like $1.6 billion in revenue capacity for sure now as you're going into Q4. But to get to, you know, the $3 billion, you know, how much additional investment is this going to take? Just trying to, you know, get this whole framework in place. I think that, you know, Mick made some comments on the call last week, but, and we're getting a lot of questions on this. Like, how do you get to $3 billion? And does it, how much additional investment beyond the $100 million that you had talked about before?
Brian Drab: Okay. Yeah, thanks for taking my questions. You know, first, I wanted to ask, you know, on the capacity expansion, you know, you have, it sounds like $1.6 billion in revenue capacity for sure now as you're going into Q4. But to get to, you know, the $3 billion, you know, how much additional investment is this going to take? Just trying to, you know, get this whole framework in place. I think that, you know, Mick made some comments on the call last week, but, and we're getting a lot of questions on this. Like, how do you get to $3 billion? And does it, how much additional investment beyond the $100 million that you had talked about before?
Speaker #6: Now, as you're going into the fourth quarter, to get to the $3 billion, how much additional investment is this going to take? Just trying to get this whole framework in place.
Speaker #6: I think that MIC made some comments on the call last week, but I'm getting a lot of questions on this. How do you get to $3 billion?
Speaker #6: And does it, how much additional investment beyond the $100 million that you had talked about before? And then also, are you just getting there from some higher utilization or increased pricing?
Brian Drab: And then also, are you just getting there from some higher utilization or, increased pricing? Can you frame all of that for us?
Brian Drab: And then also, are you just getting there from some higher utilization or, increased pricing? Can you frame all of that for us?
Speaker #6: Can
Speaker #6: us? Yeah.
Speaker #3: High level, we can get there on the amount of capital that we've been public about in terms of what we need to spend to get to the $3 billion.
Neil Brinker: Yeah, high level, we can get there on the amount of capital that we've been public about in terms of what we need to spend to get to the $3 billion. Forty million of that will carry over from this year into the next fiscal year.
Neil Brinker: Yeah, high level, we can get there on the amount of capital that we've been public about in terms of what we need to spend to get to the $3 billion. Forty million of that will carry over from this year into the next fiscal year.
Speaker #3: But $40 million of that will carry over from this year into the next fiscal.
Speaker #4: Yeah. And we'll have
Speaker #4: Another, we had about $40 million of capital-year spending in Q3. So just in Q4, and this will be equipment that won't even be producing really much in revenue.
Mick Lucarelli: Yeah, and they, we'll have another—we had about $40 million of capital spending in Q3. So just in Q4, and this is—this will be equipment that won't even be producing really much in revenue. We'll have another $40 to 50 million in Q4, and Neil just mentioned the $40 million plus amount that we'll spend in the new year. So one other maybe data point, if you take that, almost $100 million left of that spending that Neil talked about that we've laid out, that isn't even in these, production, you know, sales numbers yet, that'll be supporting future sales growth.
Michael Lucarelli: Yeah, and they, we'll have another—we had about $40 million of capital spending in Q3. So just in Q4, and this is—this will be equipment that won't even be producing really much in revenue. We'll have another $40 to 50 million in Q4, and Neil just mentioned the $40 million plus amount that we'll spend in the new year. So one other maybe data point, if you take that, almost $100 million left of that spending that Neil talked about that we've laid out, that isn't even in these, production, you know, sales numbers yet, that'll be supporting future sales growth.
Speaker #4: million in Q4. And Neil just mentioned a 40 million-plus amount that we'll spend in the new year. So one We'll have another 40 to 50 other maybe data point, if you take that, almost 100 million left of that spending that Neil talked about that we've laid out that isn't even in these production sales numbers yet.
Speaker #4: be supporting future sales. That'll drive growth.
Speaker #6: How many can I ask how many chiller lines would you be at as you enter fiscal 28 to execute on the
Brian Drab: Can I ask how many chiller lines would you be at as you enter fiscal 2028 to execute on the plan?
Brian Drab: Can I ask how many chiller lines would you be at as you enter fiscal 2028 to execute on the plan?
Speaker #6: Plan? 20. Got it. And last question, Neil, I don't know if you want to provide—or if there's any update to provide on this—but you had talked late last year about a couple of new potential hyperscaler customers for chillers, who had not purchased chillers in the past, looking for sample product. Just wondering, how many total hyperscaler customers are you working with?
Neil Brinker: Twenty.
Neil Brinker: Twenty.
Brian Drab: Got it. And last question is, Neil, I don't know if you want to provide or if there's any update to provide on this, but you had talked late last year about a couple new potential hyperscaler customers for chillers who had not purchased chillers in the past, looking for sample product. And I'm just wondering how many total hyperscaler customers are you working with? And then can you give a specific update on anything that's developed and potential new customers for chiller, specifically?
Brian Drab: Got it. And last question is, Neil, I don't know if you want to provide or if there's any update to provide on this, but you had talked late last year about a couple new potential hyperscaler customers for chillers who had not purchased chillers in the past, looking for sample product. And I'm just wondering how many total hyperscaler customers are you working with? And then can you give a specific update on anything that's developed and potential new customers for chiller, specifically?
Speaker #6: And then, can you give a specific update on anything that's developed and potential new customers for chillers specifically?
Speaker #3: Yeah, obviously, we're working with all of them at different levels of engagement. And then, if you recall, one of the reasons that we had that miss in the margins in data centers was that we had to cut production, and we had a couple of sold chillers, too, in the past.
Neil Brinker: Yeah. Obviously, we're working with all of them at different levels of engagement. And then if you recall from last quarter, I talked about, one of the reasons that we had that miss in the margins in data centers was that we had to cut production, and with a couple of hyperscalers that we hadn't sold chillers to in the past, and they needed some pilot builds, for fiscal year 2027 and 2028. So, you know, pending the results of the field trials, which we would anticipate to be, you know, in line with how we typically perform, we'll continue to grow those other hyperscalers on with the, with chillers.
Neil Brinker: Yeah. Obviously, we're working with all of them at different levels of engagement. And then if you recall from last quarter, I talked about, one of the reasons that we had that miss in the margins in data centers was that we had to cut production, and with a couple of hyperscalers that we hadn't sold chillers to in the past, and they needed some pilot builds, for fiscal year 2027 and 2028. So, you know, pending the results of the field trials, which we would anticipate to be, you know, in line with how we typically perform, we'll continue to grow those other hyperscalers on with the, with chillers.
Speaker #3: And they needed some pilot builds for fiscal year '27 and '28. So, pending the results of the field trials—which we wouldn't anticipate to be in line with how we typically perform—we'll continue to grow those other hyperscalers with chillers.
Speaker #3: And they needed some pilot builds for fiscal year '27 and '28. So, pending the results of the field trials—which we wouldn't anticipate to be in line with how we typically perform—we'll continue to grow those other hyperscalers with
Speaker #6: Did they give you any visibility to
Speaker #6: results? Yeah.
Brian Drab: Do they give you any visibility to when you'd hear about the field trial results?
Brian Drab: Do they give you any visibility to when you'd hear about the field trial results?
Speaker #3: Typically, it'll
Speaker #3: Be well, we'll hear about it all the time in terms of we'll get feedback when you'd hear about the field trial regularly. But a decision won't be made of hyperscalers that we hadn't for a couple of—
Neil Brinker: Yeah, typically, it'll be, well, we'll hear about it all the time in terms of we'll get feedback regularly, but a decision won't be made for a couple of quarters.
Neil Brinker: Yeah, typically, it'll be, well, we'll hear about it all the time in terms of we'll get feedback regularly, but a decision won't be made for a couple of quarters.
Speaker #3: quarters. Got it.
Speaker #6: Okay. Thanks for taking my
Speaker #6: question. Thank
Brian Drab: Got it. Okay. Thanks for taking my question.
Brian Drab: Got it. Okay. Thanks for taking my question.
Speaker #2: You. Our next question comes from the line of Matt Somerville with D.A. Davidson. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Matt Summerville with D.A. Davidson. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Matt Summerville with D.A. Davidson. Please proceed with your question.
Speaker #7: So I just have one follow-up here. Neil, MIC, how are you strategically thinking about LTA's, long-term agreements? How much of your capacity will you ultimately have spoken for, over what kind of timeframe?
Matt Summerville: So I just have one follow-up here. Neil, Mick, how are you strategically thinking about LTAs long-term agreements? How much of your capacity will you ultimately be willing to have sort of spoken for over what kind of time frame? And I guess, in turn, what price kind of considerations are you thinking about? And would you be able to structure these almost as a take or pay arrangement such that you're not absorbing risk?
Matt Summerville: So I just have one follow-up here. Neil, Mick, how are you strategically thinking about LTAs long-term agreements? How much of your capacity will you ultimately be willing to have sort of spoken for over what kind of time frame? And I guess, in turn, what price kind of considerations are you thinking about? And would you be able to structure these almost as a take or pay arrangement such that you're not absorbing risk?
Speaker #7: And I guess, in turn, what price kind of considerations are you thinking about? And would you be able to structure these almost as a take-or-pay arrangement, such that you're not absorbing risk?
Speaker #3: Yeah. Well, it's not that we couldn't structure it. It's not as if we could structure it in a way that's completely risk-free. But certainly, it's de-risked substantially.
Neil Brinker: Yeah. Well, it's not that we couldn't structure it. It's not as if we could structure it in a way that is completely risk-free, but certainly, it de-risks substantially, and it gives you higher confidence and great confidence that the commitment of the customer is there as well, particularly long term. So certainly, I mean, we'd be willing to do LTAs for all of our capacity. Why wouldn't you, right? So, we're-- that's different-- that's definitely new and certainly part of the, part of this capacity expansion equation that we're seeing with our large OEM customers. So those conversations are being had. I think you've seen evidence of this happening with other suppliers, that these things can happen.
Neil Brinker: Yeah. Well, it's not that we couldn't structure it. It's not as if we could structure it in a way that is completely risk-free, but certainly, it de-risks substantially, and it gives you higher confidence and great confidence that the commitment of the customer is there as well, particularly long term. So certainly, I mean, we'd be willing to do LTAs for all of our capacity. Why wouldn't you, right? So, we're-- that's different-- that's definitely new and certainly part of the, part of this capacity expansion equation that we're seeing with our large OEM customers. So those conversations are being had. I think you've seen evidence of this happening with other suppliers, that these things can happen.
Speaker #3: And it gives you higher confidence, and great confidence, that the commitment of the customer is there as well, particularly long-term. So, certainly, I mean, we'd be willing to do LTAs for all of our capacity.
Speaker #3: Why wouldn't you, right? So that's definitely new, and certainly part of the capacity expansion equation that we're seeing with our large OEM customers.
Speaker #3: So those conversations are being had. I think you've seen evidence of this happening with other suppliers that these things can happen. And we strategically align ourselves behind our 80s customers that we believe are our best customers.
Neil Brinker: We strategically align ourselves behind our 80/20 customers that we believe are our best, our best customers, and those would be the ones that we would lean in in terms of providing more capacity with an LTA.
Neil Brinker: We strategically align ourselves behind our 80/20 customers that we believe are our best, our best customers, and those would be the ones that we would lean in in terms of providing more capacity with an LTA.
Speaker #3: And those would be the ones that we would lean in on in terms of providing more capacity. With an
Speaker #3: LTA. Do you think,
Speaker #7: Neil, obviously, it's been tough for you to name or use specific customer names. If you sort of begin to go down the road where LTAs start getting signed, maybe absent specific customer names, is this something we can expect to be publicly announced and communicated?
Matt Summerville: You think, Neil, obviously, it's been tough for you to name customer, you know, use specific customer names. If you sort of begin to go down the road where LTAs start getting signed, you know, maybe absent specific customer names, is this something we can expect to be publicly announced and communicated?
Matt Summerville: You think, Neil, obviously, it's been tough for you to name customer, you know, use specific customer names. If you sort of begin to go down the road where LTAs start getting signed, you know, maybe absent specific customer names, is this something we can expect to be publicly announced and communicated?
Speaker #3: Yes.
Neil Brinker: Yes.
Neil Brinker: Yes.
Speaker #7: Good. Thank you, guys. Okay. Very.
Speaker #3: Thank
Speaker #3: you. Thank you.
Matt Summerville: Okay. Very good. Thank you, guys.
Matt Summerville: Okay. Very good. Thank you, guys.
Neil Brinker: Thank you.
Neil Brinker: Thank you.
Speaker #2: Our next question comes from the line of Brian Sponheimer with Gabelli Funds. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Brian Sponheimer with Gabelli Funds. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Brian Sponheimer with Gabelli Funds. Please proceed with your question.
Speaker #8: Having me on again. I'm curious—hi, everyone. Thanks for the heavy focus on data centers, and yet within this past fiscal year, you found LBY and Climate by Design.
Brian Sponheimer: Hi, everyone. Thanks for having me on again. I'm curious, you know, the heavy focus on data centers, and yet within this past fiscal year, you found L.B. White and Climate by Design. I'm just curious about that, that pipeline, maybe outside of the data center set on climate from an M&A perspective, you're gonna end, you know, pro forma, you'll be less than 1x levered when this is all said and done with Gentherm.
Brian C. Sponheimer: Hi, everyone. Thanks for having me on again. I'm curious, you know, the heavy focus on data centers, and yet within this past fiscal year, you found L.B. White and Climate by Design. I'm just curious about that, that pipeline, maybe outside of the data center set on climate from an M&A perspective, you're gonna end, you know, pro forma, you'll be less than 1x levered when this is all said and done with Gentherm.
Speaker #8: I'm just curious about that pipeline, maybe outside of the data center set on climate from an M&A perspective. You're going to end pro forma you'll be less than one times levered when this is all said and done with Gentherm.
Speaker #3: Yeah, you're right. CDI, Absolute Air, and LBY are certainly inside that HVAC business. As we continue to look at ways to diversify around some of these higher-margin businesses that are not typically in data centers, we believe we have what we need in the data center space.
Neil Brinker: Yeah, you're right. CDI, AbsolutAire, and L.B. White, certainly inside of that HVAC business. As we continue to look at ways to diversify around some of these higher margin businesses that are not typically in data centers. We believe we have what we need in the data center space. Right now, we continue to cultivate the funnel. We're often in conversations and at different milestones with many potential targets. Probably over the next couple of quarters, it's all hands on deck on our project with Gentherm. But we can still work in the background on the active funnel that we currently have around additional businesses and technologies that we see would continue to help evolve our portfolio inside of the HVAC business for sure.
Neil Brinker: Yeah, you're right. CDI, AbsolutAire, and L.B. White, certainly inside of that HVAC business. As we continue to look at ways to diversify around some of these higher margin businesses that are not typically in data centers. We believe we have what we need in the data center space. Right now, we continue to cultivate the funnel. We're often in conversations and at different milestones with many potential targets. Probably over the next couple of quarters, it's all hands on deck on our project with Gentherm. But we can still work in the background on the active funnel that we currently have around additional businesses and technologies that we see would continue to help evolve our portfolio inside of the HVAC business for sure.
Speaker #3: Right now, we continue to cultivate the funnel. We're often in conversations and at different milestones with many potential targets. Probably over the next couple of quarters, it's all hands on deck on our project with Gentherm.
Speaker #3: But we can still work in the background on the active funnel that we currently have around additional businesses and technologies that we see would continue to help evolve our portfolio inside of the HVAC business.
Speaker #3: Sure. Could you give—I mean, with the—
Speaker #8: Understanding Gentherm probably happened fairly quickly. Could you give any color as to what that pipeline looked like prior to you engaging with Gentherm?
Brian Sponheimer: I mean, with the understanding, Gentherm probably happened fairly quickly. Could you give any color as to what that pipeline looked like prior to you engaging with Gentherm?
Brian C. Sponheimer: I mean, with the understanding, Gentherm probably happened fairly quickly. Could you give any color as to what that pipeline looked like prior to you engaging with Gentherm?
Speaker #3: Yes, MIC, Brian. It's good. There are some things we paused on when that accelerated. But that HVAC space is a lot of privately owned and fragmented businesses.
Mick Lucarelli: Yes, Mick, Brian. It's good. There are some things we paused on when that accelerated, but that HVAC space is a lot of privately owned and fragmented businesses. So I'd say I classify it as there's a funnel of businesses from $50 million to 100 million sweet spot in revenue that we can relaunch discussions with.
Michael Lucarelli: Yes, Mick, Brian. It's good. There are some things we paused on when that accelerated, but that HVAC space is a lot of privately owned and fragmented businesses. So I'd say I classify it as there's a funnel of businesses from $50 million to 100 million sweet spot in revenue that we can relaunch discussions with.
Speaker #3: So, I'd say I'd classify it as there's a funnel of businesses in the $50 million to $100 million sweet spot in revenue that we can relaunch discussions with.
Speaker #8: Okay, great. Congratulations again, and I look forward to talking to you soon.
Speaker #3: Thank you.
Brian Sponheimer: Okay, great. Congratulations again, and look forward to talking to you soon.
Brian C. Sponheimer: Okay, great. Congratulations again, and look forward to talking to you soon.
Neil Brinker: Thank you.
Neil Brinker: Thank you.
Speaker #2: Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Kathleen Powers.
Operator: Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.
Operator: Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.
Speaker #9: Thank you. And thanks to all of you for joining. This call will be available on our website in a couple of hours. Hope you all have a great day.
Kathy Powers: Thank you, and thanks to all of you for joining us this morning. A replay of this call will be available on our website in a couple of hours. Hope you all have a great day. Thanks.
Kathleen Powers: Thank you, and thanks to all of you for joining us this morning. A replay of this call will be available on our website in a couple of hours. Hope you all have a great day. Thanks.
Speaker #2: Thank
Operator: Thank you. This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.
Operator: Thank you. This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.
