Q2 2026 Madison Air Solutions Corp Earnings Call

July 30, 2026

Speaker #1: Participants are in a listen-only mode. Following the prepared remarks, we will open the call for a question-and-answer session. Please be advised that today's call is being recorded.

Speaker #1: I will now turn the call over to Steve Lutufo. Senior Vice President, Investor Relations, please go ahead.

Speaker #2: Great. Danielle, thank you. And thank you to everybody for joining. Good morning. Welcome to Madison Air's second quarter 2026 earnings call. Joining me today are Jill Wyant, President and Chief Executive Officer; and JJ Foley, Chief Financial Officer.

Speaker #2: Before we begin, I'd like to remind everyone that certain statements on this call are forward-looking in nature and are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker #2: For information concerning these risks, please see Madison Air's recent SEC filings. We undertake no obligation to update these statements as a result of new information or future events.

Speaker #2: In addition, in today's remarks, when comparing two Q26 results to two Q25, or referring to our 2025 performance, such information is presented on a combined basis for Madison Air and April Air, calculated as if April Air had been known since January 1, 2025.

Speaker #2: We will also refer to certain other non-GAAP financial measures. You can find calculations and a reconciliation of these measures to the most closely comparable GAAP measure in our earnings release, the presentation accompanying this call, and in the supplemental information as applicable, which can be found in the Investor Relations section of our website at madisonair.com.

Speaker #1: Good morning, and welcome to the Madison Air second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call for a question-and-answer session.

Speaker #2: With that, I'll turn the call over to Jill.

Speaker #3: Thank you, Steve. Good morning, everyone, and thank you for joining us today for our second quarter earnings call. I'll start by walking you through an overview of the business, our strategy, and the growth momentum reflected in our second quarter results.

Speaker #3: I'll then hand the call over to JJ to discuss our second quarter 2026 financial results and updated guidance for full year 2026, and then I'll wrap it with key takeaways before we open the call for Q&A.

Speaker #1: Please be advised that today's call is being recorded. I will now turn the call over to Steve Latufo, Senior Vice President, Investor Relations. Please go ahead.

Speaker #3: And so, with that, please turn to slide 5. At Madison Air, we see Air differently. Our mission is to make the world safer, healthier, and more productive through the power of better air.

Speaker #3: We build and scale superior air-quality businesses that operate in high-value niches adjacent to traditional HVAC. Across both commercial and residential segments, our leading brands include Addison, April Air, Big Ass Fans, Broad Newtone, Nortec Air Solutions, Nortec Data Center Cooling, and Resner.

Speaker #3: Collectively, our businesses have delivered durable compounding growth, outpacing the core U.S. GDP growth rate in 16 of the last 18 years, on an historic basis through 2025.

Speaker #2: In addition, in today's remarks, when comparing QQ 26 results to QQ 25, or referring to our 2025 performance, such information is presented on a combined basis for Madison Air and April Air, calculated as if April Air had been owned since January 1, 2025.

Speaker #3: Our strategy is built around three strengths that work together to deliver better air, stronger customer outcomes, and attractive long-term returns. The first strength is our return on air approach: how we help customers achieve their most critical business outcomes.

Speaker #3: We bring together technical expertise, leading brands, and collaborative partnerships to solve customer challenges in the environments we serve. Whether we're helping protect critical infrastructure and reduce the risk of downtime in a data center, improve yield and asset utilization in a semiconductor facility, or create healthier homes, through our Healthy Air System, the outcome is the same.

Speaker #2: With that, I'll turn the call over to Jill.

Speaker #3: Better air produces better outcomes. The company's second strength is our leadership in attractive growth markets within our commercial segment. We serve 15 end markets where performance is critical, and customers invest in highly engineered custom and semi-custom solutions that deliver measurable value.

Speaker #3: I'll then hand the call over to JJ to discuss our second quarter 2026 financial results and updated guidance for full year 2026. And then I'll wrap it with key takeaways before we open the call for Q&A.

Speaker #3: While data centers are important part of that opportunity, they are just one of the markets we serve. Our brands also support hospitals and healthcare, life sciences, semiconductor chip fabs, power generation, and other mission-critical applications.

Speaker #3: We build and scale superior air-quality businesses that operate in high-value niches adjacent to traditional HVAC. Across both commercial and residential segments, our leading brands include Addison, April Air, Big Ass Fans, Browne Newtone, Nortec Air Solutions, Nortec Data Center Cooling, and Resner.

Speaker #3: Supporting a broad range of high-growth opportunities. In residential, we work through our contractor and distribution channels to reach homeowners and build awareness and adoption of healthy air systems.

Speaker #3: That education creates demand that didn't previously exist, giving us avenues to grow even in soft housing and soft traditional HVAC markets. Since 2021, we estimate that we've more than tripled our addressable market by expanding into larger faster-growing sectors with more complex performance requirements.

Speaker #3: Collectively, our businesses have delivered durable compounding growth, outpacing the core U.S. GDP growth rate in 16 of the last 18 years, on a historic basis through 2025.

Speaker #3: We've not only grown the business; we've repositioned the portfolio toward markets where air is mission-critical and where our technical capabilities can create differentiation. That evolution reflects both the breadth of our capabilities and our ability to apply them in new, attractive markets.

Speaker #3: The third strength is our value creation model. We combine a decentralized operating structure and lean corporate center with the capabilities and scale of the broader enterprise.

Speaker #3: Our businesses remain close to their customers and can move quickly to invest where they see the greatest opportunities, while they benefit from shared capabilities, talent, technology, and capital.

Speaker #3: Better air produces better outcomes. The company's second strength is our leadership in attractive growth markets within our commercial segment. We serve 15 end markets where performance is critical and customers invest in highly engineered custom and semi-custom solutions that deliver measurable value.

Speaker #3: That combination of local agility and enterprise scale is an important competitive advantage. It enables us to pursue growth rapidly and efficiently, sustain strong profitability and cash flow, and deploy capital into the highest return opportunities.

Speaker #3: Taken together, these three strengths—return on air, or our outcome-driven solutions, leadership, and attractive markets—and a disciplined value creation model form a repeatable framework for creating long-term value.

Speaker #3: Please turn to slide 6. On an LTM basis, we are a 3.75 billion dollar revenue business with strong underlying profitability and cash generation. I'm proud of the quality of our results: 26.6% adjusted EBITDA margins, and 430 million in free cash flow.

Speaker #3: Which together represent the power of our unique value creation model. We built this portfolio with resilience in mind, balanced across commercial and residential, with meaningful exposure to replacement retrofit and upgrade activity that holds up across cycles.

Speaker #3: We've not only grown the business; we've also repositioned the portfolio toward markets where air is mission-critical and where our technical capabilities can create differentiation. That evolution reflects both the breadth of our capabilities and our ability to apply them in new, attractive markets.

Speaker #3: We're also seeing a growing share of demand for services and aftermarket solutions, which adds stability and increasingly recurring revenue characteristics over time. Aftermarket and services represent about 10% of total revenue, and we see significant opportunity to expand those offerings over time.

Speaker #3: The third strength is our value creation model. We combine a decentralized operating structure and lean corporate center with the capabilities and scale of the broader enterprise.

Speaker #3: We're investing in service capabilities, digital tools, and simplifying how customers do business with us over the life of their systems. A great example of this is Nortec Air Solutions' new coil software selection, software and mobile app.

Speaker #3: These tools are making it easier for customers to identify, quote, and order replacement parts seamlessly. Adoption has been strong, with approximately 30% of orders flowing through these self-service channels.

Speaker #3: That combination of local agility and enterprise scale is an important competitive advantage. It enables us to pursue growth rapidly and efficiently, sustained strong profitability and cash flow, and deploy capital into the highest return opportunities.

Speaker #3: These tools simplify routine transactions and allow our teams to spend more time solving customer problems and creating real value. It's a great example of how we're using innovation and technology to strengthen customer relationships and expand our aftermarket opportunity.

Speaker #3: Please turn to slide 6. On an LTM basis, we are a 3.75 billion dollar revenue business with strong underlying profitability and cash generation. I'm proud of the quality of our results: 26.6 percent adjusted EBITDA margin, and 430 million in free cash flow.

Speaker #3: Geographically, the business is predominantly focused on North America, where we have established brands, strong channel positions, and longstanding customer relationships. As of June 30, we have over 9,000 employees with 600 of them focused on R&D to drive innovation.

Speaker #3: Altogether, Madison Air is built to grow. With strong profitability, cash generation, end-market breadth, and a growing aftermarket opportunity, creating multiple avenues for success and a durable platform for profitable growth.

Speaker #3: Please turn to slide 7. Madison Air is everywhere air matters, from clean rooms and schools to hospitals, data centers, government institutions, and single and multifamily homes, our solutions show up everywhere people live, work, learn, and play.

Speaker #3: And that's by design. We've built capabilities across the air ecosystem, from thermal management and cooling to ventilation, air handling, and humidity control. This breadth enables us to solve complex customer challenges in a wide range of applications and environments.

Speaker #3: We have expanded into new applications and high-value markets by building on our core capabilities and expertise. We estimate our North American addressable market at approximately 40 billion dollars, supported by powerful secular tailwinds, including the growth of advanced manufacturing, increased demand for healthier and more energy-efficient buildings, and the rapid growth of AI and compute.

Speaker #3: These tools are making it easier for customers to identify, quote, and order replacement parts seamlessly. Adoption has been strong, with approximately 30 percent of orders flowing through these self-service channels.

Speaker #3: These trends directly align with our strengths and, while the applications may differ, our role remains the same: helping customers get more from the air in their environments.

Speaker #3: Geographically, the business is predominantly focused on North America, where we have established brands, strong channel positions, and long-standing customer relationships. As of June 30, we have over 9,000 employees with 600 of them focused on R&D to drive innovation.

Speaker #3: This focus reinforces our ability to create value across a broad range of customers, applications, and markets. Please turn to slide 8. Madison Air's products and services capabilities run deep, and we see significant opportunity as we apply our capabilities across high-value performance-driven end markets in both commercial and residential segments.

Speaker #3: All together, Madison Air is built to grow. With strong profitability, cash generation, end-market breadth, and a growing aftermarket opportunity, creating multiple avenues for success and a durable platform for profitable growth.

Speaker #3: Our second quarter results demonstrate the strength of this approach and the value of our diversified business mix. Within commercial, we serve mission-critical applications across 15 end markets, which provides exposure to multiple demand drivers rather than reliance on any one single sector.

Speaker #3: What makes this set of end markets so attractive is that they share several common characteristics. They benefit from long-term secular tailwinds, require sophisticated air solutions, and place a premium on performance innovation and outcomes.

Speaker #3: Air is essential infrastructure in the markets we serve, and mission-critical to what these customers do. We believe that positions us well for continued growth.

Speaker #3: In an environment where macroeconomic trade and geopolitical conditions can shift and are shifting quickly, our diversified exposure provides resilience while significant white space remains, as customers increasingly use better air, to improve their business outcomes.

Speaker #3: Together, these end markets create a more durable growth profile. Please turn to slide 9. Orders are a leading indicator. They really tell us where the business is going.

Speaker #3: These trends directly align with our strengths, and while the applications may differ, our role remains the same: helping customers get more from the air in their environments.

Speaker #3: And based on our second quarter results, the signals are strong. Our new business pipeline remains healthy, with combined company orders growing 45% in the quarter and 37% year to date.

Speaker #3: This focus reinforces our ability to create value across a broad range of customers, applications, and markets. Please turn to slide 8. Madison Air's products and services capabilities run deep, and we see significant opportunity as we apply our capabilities across high-value, performance-driven end markets in both commercial and residential segments.

Speaker #3: As we noted last quarter, orders can fluctuate based on project timing and customer schedules, and to that end, and we noted this last call, we expect year-over-year orders growth to moderate and decline in the fourth quarter, against exceptionally strong comparisons from 2025.

Speaker #3: The underlying drivers of demand remain strong, and our expanding pipeline continued opportunity conversion and record backlog give us confidence in our ability to deliver continued growth over the next several years, despite a dynamic macroeconomic backdrop.

Speaker #3: With strong order activity and a second quarter book-to-bill ratio of 1.3 times, we exited the quarter with record backlog of 2.9 billion dollars, up 133% year-over-year on a combined company basis.

Speaker #3: That backlog provides strong visibility into the near-term and beyond, with more than 50% of that backlog expected to convert in 2027 and later, positioning us well for continued growth.

Speaker #3: Air is essential infrastructure in the markets we serve, and mission-critical to what these customers do. We believe that positions us well for continued growth.

Speaker #3: More importantly, that demand is translating into performance. Our pro forma net sales growth of 14% in the quarter and 13% year to date reflect the broad-based growth momentum we're seeing and driving across the portfolio.

Speaker #3: In an environment where macroeconomic trade and geopolitical conditions can shift and are shifting quickly, our diversified exposure provides resilience while significant white space remains as customers increasingly use better air, to improve their business outcomes.

Speaker #3: We remain pleased with the balanced nature of orders in our commercial segment. While Nortec data center cooling remains the largest contributor of commercial orders growth, commercial orders increased nearly 50% in markets other than data centers in the second quarter.

Speaker #3: Together, these end markets create a more durable growth profile. Please turn to slide 9. Orders are a leading indicator. They really tell us where the business is going, and based on our second quarter results, the signals are strong.

Speaker #3: Reflecting broad-based strength across the enterprise. What's driving that demand? Well, in many cases, it's our ability to deliver return on air. Nortec Air Solutions, for example, recently secured a significant project supporting a leading children's hospital.

Speaker #3: Our new business pipeline remains healthy, with combined company orders growing 45 percent in the quarter and 37 percent year to date. As we noted last quarter, orders can fluctuate based on project timing and customer schedules, and to that end, and we noted this last call, we expect year-over-year orders growth to moderate and decline in the fourth quarter, against exceptionally strong comparisons from 2025.

Speaker #3: The customer needed a highly engineered air-handling solution capable of delivering up to 10 times the air capacity of traditional units for their 2 million square foot pediatric facility, in a southern metro area that has seen strong population growth.

Speaker #3: This is a great example of return on air in action. We're not simply selling equipment. We're helping customers reduce operational risk, extend asset life, maintain continuous care, and create better outcomes for the people, in this case, the children and families, who develop depend on these facilities every day.

Speaker #3: With strong order activity and a second quarter book-to-bill ratio of 1.3 times, we exited the quarter with record backlog of 2.9 billion dollars, up 133 percent year-over-year on a combined company basis.

Speaker #3: That kind of differentiated value is what drives orders and backlog growth and builds long-term customer relationships that open services and aftermarket opportunity. Please turn to slide 10.

Speaker #3: That backlog provides strong visibility into the near term and beyond, with more than 50% of that backlog expected to convert in 2027 and later, positioning us well for continued growth.

Speaker #3: The results and demand momentum we're discussing today are the result of a deliberate strategy to create value. The key elements of the Madison Air strategy and how we translate that are return on air approach into sustainable growth and strong cash flow are shown here.

Speaker #3: More importantly, that demand is translating into performance. Our pro forma net sales growth of 14 percent in the quarter and 13 percent year to date reflect the broad-based growth momentum we're seeing and driving across the portfolio.

Speaker #3: At the center of it all is return on air. We help customers turn air from a utility into a strategic asset that improves performance, reduces energy consumption, protects critical assets and operations, and creates safer, healthier, and more productive environments.

Speaker #3: We remain pleased with the balanced nature of orders in our commercial segment. While Nortec data center cooling remains the largest contributor of commercial orders growth, commercial orders increased nearly 50 percent in markets other than data centers in the second quarter, reflecting broad-based strength across the enterprise.

Speaker #3: The value we create extends beyond a SKU or even a configured product. It comes from our collaboration and co-creation with customers. From our seat at the customer's design table, we're applying deep application expertise, engineering insight, and system-level thinking to help solve problems and optimize outcomes.

Speaker #3: What's driving that demand? Well, in many cases, it's our ability to deliver return on air. Nortec Air Solutions, for example, recently secured a significant project supporting a leading children's hospital.

Speaker #3: The customer needed a highly engineered air handling solution capable of delivering up to 10 times the air capacity of traditional units for their 2 million square foot pediatric facility, in a southern metro area that has seen strong population growth.

Speaker #3: By engaging early and partnering closely with customers, we help shape better solutions from the start. When customers achieve better outcomes, we create value together, and that shared value drives sustainable growth for Madison Air.

Speaker #3: What makes this model powerful and that is that it is repeatable. We apply the same playbook across the portfolio. Taking close customer collaboration, combining it with technical expertise, innovation, and disciplined execution, to create value in a way that can scale across businesses, markets, and cycles.

Speaker #3: This is a great example of return on air in action. We're not simply selling equipment; we're helping customers reduce operational risk, extend asset life, maintain continuous care, and create better outcomes for the people, in this case, the children and families, who develop depend on these facilities every day.

Speaker #3: We then work to outperform the markets we serve through innovation, value-based selling, strong channel, and customer partnerships, and investments in lifecycle services and aftermarket capabilities.

Speaker #3: That kind of differentiated value is what drives orders and backlog growth, and builds long-term customer relationships that open services and aftermarket opportunity. Please turn to slide 10.

Speaker #3: The proof points are evident in our performance. We've consistently outpaced US GDP, unlocked approximately 28 billion of additional addressable market, and generated strong margins and cash flow while continuing to invest for growth.

Speaker #3: The results and demand momentum we're discussing today are the result of a deliberate strategy to create value, the key elements of the Madison Air strategy, and how we translate that.

Speaker #3: Our return-on-air approach into sustainable growth and strong cash flow are shown here. At the center of it all is return on air.

Speaker #3: Growth investment and execution are what make the model work, and that takes our team: the 9,100-plus people who power Madison Air. We invest in them to create consistency and alignment and to ensure the value creation model is embedded across the organization and shows up in how we execute every day.

Speaker #3: We help customers turn air from a utility into a strategic asset that improves performance, reduces energy consumption, protects critical assets and operations, and creates safer, healthier, and more productive environments.

Speaker #3: The value we create extends beyond a skew or even a configured product. It comes from our collaboration and co-creation with customers. From our seat at the customer's design table, we're applying deep application expertise, engineering insight, and system-level thinking to help solve problems and optimize outcomes.

Speaker #3: I always say people vote with their feet, and our people overwhelmingly are voting to stay with Madison Air. While I believe Gallup reported a 3-point decline in global employee engagement, our employee net promoter score which was measured as a part of our second quarter proprietary employee engagement survey increased 4 points.

Speaker #3: On a related note, our monthly turnover rate remains 30% below manufacturing benchmarks, which reflects the strength of our culture and the deep commitment of our team.

Speaker #3: Engaged teams are also safer, healthier, and more productive teams, and that shows up directly in the results we deliver. Finally, we put capital to work where it can create the greatest value, and that means investing in organic growth, pursuing inorganic M&A opportunities where they make good disciplined sense, and that gives us flexibility to reinvest behind our highest return opportunities.

Speaker #3: What makes this model powerful is that it is repeatable. We apply the same playbook across the portfolio. Taking close customer collaboration, combining it with technical expertise, innovation, and disciplined across businesses, markets, and cycles.

Speaker #3: As we pursue opportunities in high-growth markets, some parts of the portfolio will naturally be at an earlier stage of their margin journey. An example of this is the data center cooling business, which is a great business with strong fundamentals.

Speaker #3: Our experience has shown that these investments can create significant value over time. As we apply the same profitable growth playbook that is driven success across Madison Air, scaling the business, strengthening our market position, and expanding margins over time is the business matures.

Speaker #3: Growth investment and execution are what make the model work, and that takes our team: the 9,100-plus people who power Madison Air, we invest in them to create consistency and alignment, and to ensure the value creation model is embedded across the organization, and shows up in how we execute every day.

Speaker #3: We improve margins through a combination of value selling, continued investment and innovation, which is a great margin lever for us, profitable top-line growth that leverages our fixed cost base, expansion of higher market aftermarket and services revenue, and an ongoing focus on 80/20 and operational discipline.

Speaker #3: I always say people vote with their feet, and our people overwhelmingly are voting to stay with Madison Air. While I believe Gallup reported a 3-point decline in global employee engagement, our employee net promoter score, which was measured as a part of our second quarter proprietary employee engagement survey, increased 4 points.

Speaker #3: That same operating discipline also positions us to navigate ongoing actions, productivity initiatives, and material cost reductions. Together, supporting our ability to protect and grow margins over time.

Speaker #3: These elements have been central to our success across Madison Air, and give us confidence in the sustainability of our margins as we continue to invest in high-return growth opportunities.

Speaker #3: On a related note, our monthly turnover rate remains 30 percent below manufacturing benchmarks, which reflects the strength of our culture and the deep commitment of our team.

Speaker #3: The result is a business designed to deliver sustainable, profitable growth and strong cash generation over the long term. With that, I'll turn it over to JJ to walk through the second quarter financial performance and outlook.

Speaker #1: Thank you, Jill, and good morning, everyone. If you could please turn to slide 12, I'll pick up there. On a pro forma basis, net sales for the quarter were up 14%, and adjusted EBITDA grew 12%.

Speaker #1: We delivered strong free cash flow, so far this year, approaching 140 million dollars year to date. Pro forma net sales grew 14% year over year to 991 million, with low single-digit price realization across both segments, and double-digit volume growth driven by broad-based demand across our commercial end markets and continued strong demand for healthy air systems in the residential segment.

Speaker #1: Top-line growth translated into 12% pro forma adjusted EBITDA growth. Margins of 26.8% were up 155 basis points from the first quarter. Year over year, margins contracted approximately 59 basis points.

Speaker #1: Margins were generally in line with our expectations, as we called out on the second quarter on the first quarter call. This is impacted by the timing of net tariff and inflation costs, commercial segment mix, which more than offset productivity gains and discipline cost management.

Speaker #3: That same operating discipline also positions us to navigate ongoing inflationary pressures through pricing actions, productivity initiatives, and material cost reductions. Together, supporting our ability to protect and grow margins over time.

Speaker #1: Because of the timing of the April IPO, the weighted average share count for Q2 is slightly lower than we are assuming for the remaining quarters this year.

Speaker #3: These elements have been central to our success across Madison Air, and give us confidence in the sustainability of our margins, as we continue to invest in high-return growth opportunities.

Speaker #1: Given this dynamic, we'll be reporting our adjusted net income figure here in the presentation. Our adjusted net income was 148 million dollars in the quarter and represented 83% pro forma year over year growth driven by net sales and pre-tax earnings growth mentioned above.

Speaker #3: The result is a business designed to deliver sustainable profitable growth and strong cash generation over the long term. With that, I'll turn it over to JJ to walk through the second quarter financial performance and outlook.

Speaker #1: On the quarter, we generated 140 million dollars of free cash flow year to date, which represents net income conversion of 123%. We ended the quarter with net leverage of 2.8 turns, which represented a 0.2-turn improvement versus the first quarter pro forma for the IPO.

Speaker #1: Thank you, Jill, and good morning, everyone. If you could please turn to slide 12, I'll pick up there. On a proforma basis, net sales for the quarter were up 14 percent, and adjusted EBITDA grew 12 percent.

Speaker #1: We delivered strong free cash flow so far this year, approaching $140 million year to date. Pro forma net sales grew 14 percent year over year to $991 million, with low single-digit price realization across both segments and double-digit volume growth driven by broad-based demand across our commercial end markets and continued strong demand for healthy air systems in the residential segment.

Speaker #1: This continued improvement came from earnings growth and cash generation, which we expect to accelerate in the second half. Overall, the quarter demonstrates our ability to convert net sales into earnings growth and cash generation.

Speaker #1: With that, let me review our segment-level performance on slide 13. In commercial, we drove solid orders growth. Orders were up over 70% year over year on a combined company basis, reflecting continued momentum in key platforms.

Speaker #1: Top-line growth translated into 12% pro forma adjusted EBITDA growth. Margins increased 155 basis points from the first quarter. Year over year, margins contracted approximately 59 basis points.

Speaker #1: Including air, liquid, and hybrid cooling, air handling in air movement. Backlog for the segment increased 142% year over year on a combined company basis, providing very good visibility and supporting solid revenue momentum into 2027.

Speaker #1: Margins were generally in line with our expectations, as we called out on the second quarter on the first quarter call. This has impacted by the timing of net tariff and inflation costs, commercial segment mix, which more than offset productivity gains and discipline cost management.

Speaker #1: Importantly, commercial orders were up almost 50% year over year for markets other than data centers, and that backlog is up over 20% year over year.

Speaker #1: Because of the timing of the April IPO, the weighted average share count for Q2 is slightly lower than we are assuming for the remaining quarters this year.

Speaker #1: Strong customer demand drove 22% year over year combined company net sales growth to 659 million dollars, driven by a combination of low single-digit pricing and high teams volume.

Speaker #1: Given this dynamic, we'll be reporting our adjusted net income figure here in the presentation. Our adjusted net income was 148 million percent proforma year over year growth driven by net sales and pre-tax earnings growth mentioned above.

Speaker #1: This quarter reflects continued progress across our 15 commercial end markets that Jill spoke about, as we benefit from our diversified portfolio and decentralized operating model.

Speaker #1: Reported commercial segment adjusted EBITDA grew 11% to 173 million dollars, and reported adjusted EBITDA margin was 26.3%, in line with our expectations coming into the quarter.

Speaker #1: On the quarter, we generated 140 million dollars of free cash flow year to date, which represents net income conversion of 123 percent. We ended the quarter with net leverage of 2.8 turns, which represented a 0.2-turn improvement versus the first quarter proforma for the IPO.

Speaker #1: The year over year margin comparison primarily reflects rapid growth in large data center programs, including project mix and capacity addition investments. Program RAM costs and the timing of inflation and tariff recovery actions across the broader segment.

Speaker #1: We have a clear roadmap to expand margins in the second half, and we believe the key drivers are measurable and within our control. We closely track productivity, program actualization, and price realization across defined operating targets, and each is progressing in line with our plan.

Speaker #1: With that, let me review our segment-level performance on slide 13. In commercial, we drove solid orders growth. Orders were up over 70 percent year over year on a combined company basis, reflecting continued momentum in key platforms.

Speaker #1: These operating levers we manage every single day, giving us confidence in our ability to deliver sequential margin improvement in year over year margin expansion in the second half.

Speaker #1: Including air, liquid, and hybrid cooling, air handling, and air movement, backlog for the segment increased 142 percent year-over-year on a combined company basis, providing very good visibility and supporting solid revenue momentum into 2027.

Speaker #1: Overall, the segment continues to benefit from exposure to mission-critical end markets, including data centers, aerospace, education, health care, and life sciences, and we remain focused on executing our backlog, innovating to meet customer demands, and sustaining growth momentum.

Speaker #1: Importantly, commercial orders were up almost 50 percent year over year for markets other than data centers, and that backlog is up over 20 percent year over year.

Speaker #1: Now please turn to slide 14 for the residential segment results. The residential segment delivered 2% net sales growth on a combined company basis, despite a soft housing market.

Speaker #1: Strong customer demand drove 22 percent year over year combined company net sales growth to 659 million dollars, driven by a combination of low single-digit pricing and high teams volume.

Speaker #1: Performing in line with our expectations. As we've mentioned before, given the short cycle nature of this business, orders and backlog are less relevant than in commercial, but with that said, orders grew low single digits in the quarter.

Speaker #1: This quarter reflects continued progress across our 15 commercial end markets that Jill spoke about, as we benefit from our diversified portfolio and decentralized operating model.

Speaker #1: We continue to expand healthy air system awareness and adoption through our contractor partners. Every HVAC replacement and service call creates an opportunity to engage homeowners amounting to roughly 40 million annual in-home touch points.

Speaker #1: Reported commercial segment adjusted EBITDA grew 11 percent to 173 million dollars, and reported adjusted EBITDA margin was 26.3 percent, in line with our expectations coming into the quarter.

Speaker #1: That's 40 million chances every single year to educate homeowners on the value of a healthy air systems and to make a sale. Our contractor education conversion efforts support white space penetration and market expansion, and in the second quarter, did just that, despite softer housing and HVAC environment.

Speaker #1: Overall, our residential segment continues to make sequential progress on healthy air system penetration channel conversion and price realization and productivity. April Air delivered double-digit revenue growth supported by contractor and distribution conversions and new product launches.

Speaker #1: These operating levers we manage every single day, giving us confidence in our ability to deliver sequential margin improvement in year over year margin expansion in the second half.

Speaker #1: Our second quarter results demonstrate the resilience of our model, which is perfectly built to be able to navigate broader market headwinds like these with vast white space penetration opportunity opening paths to growth and otherwise muted residential conditions.

Speaker #1: Overall, the segment continues to benefit from exposure to mission-critical end markets, including data centers, aerospace, education, healthcare, and life sciences, and we remain focused on executing our backlog, innovating to meet customer demands, and sustaining growth momentum.

Speaker #1: Reported net sales increased 16% or 2% on a combined basis to 334 million dollars, which was supported by low single-digit pricing and approximately flat volume overall.

Speaker #1: Now please turn to slide 14 for the residential segment results. The residential segment delivered 2 percent net sales growth on a combined company basis, despite a soft housing market.

Speaker #1: In addition, reported segment adjusted EBITDA grew 36% to 99 million dollars, with 423 basis points of margin expansion driven by productivity, cost actions, price, and favorable mix.

Speaker #1: Performing in line with our expectations. As we've mentioned before, given the short-cycle nature of this business, orders and backlog are less relevant than in commercial, but with that said, orders grew low single digits in the quarter.

Speaker #1: Tariff refunds provided a modest benefit, and margins expanded meaningfully excluding that impact. Overall, the segment continues to demonstrate strength and remains differentiated in product, channel, and overall opportunity compared to the more traditional residential HVAC providers.

Speaker #1: We remain focused on driving growth through innovation and channel penetration to effectively position when demand inflects. Now please turn to slide 15, and our balance sheet.

Speaker #1: The strength and flexibility of our balance sheet is supported by continued strong cash generation. As of June 30th, net debt was approximately 2.8 billion dollars, with net leverage at 2.8 times trailing.

Speaker #1: The 2.6 billion dollar net proceeds from the April IPO and concurrent private placement were used to retire debt, including interest. This improved flexibility allows us to continue investing for the long term.

Speaker #1: Overall, our residential segment continues to make sequential progress on healthy air system penetration, channel conversion, price realization, and productivity. AprilAire delivered double-digit revenue growth, supported by contractor and distribution conversions and new product launches.

Speaker #1: In organic growth, delevering the balance sheet, and strategic acquisitions. Our second quarter leverage improved approximately 0.2 turns to 2.8 times trailing net leverage compared to an IPO proforma net leverage of roughly 3 at the end of March.

Speaker #1: We believe we have a clear line of sight to organically achieve our longer term targeted range of less than 2 and a half times net debt to EBITDA by year end 2026, driven by continued strong cash generation.

Speaker #1: Reported net sales increased 16 percent or 2 percent on a combined basis to 334 million dollars, which was supported by low single-digit pricing and approximately flat volume overall.

Speaker #1: In addition, as of June 30th, we maintain solid liquidity of roughly 1.6 billion dollars, including 262 million dollars of cash on hand and about a 1.3 billion dollar undrawn revolver, which increased from 340 million dollars in the second quarter, providing ample flexibility to support operations and strategic initiatives.

Speaker #1: In addition, reported segment adjusted EBITDA grew 36 percent to 99 million dollars, with 423 basis points of margin expansion driven by productivity, cost actions, price, and favorable mix.

Speaker #1: The business continues to generate strong free cash flow and reported free cash flow of approximately 123% in the first half, driven by our asset light model and disciplined working capital management.

Speaker #1: Reported LTM free cash flow margins were about 11 and a half percent. Organically, we continue to expect free cash flow conversion of net income above 100%.

Speaker #1: We remain focused on driving growth through innovation and channel penetration to effectively position when demand inflects. Now please turn to slide 15, and our balance sheet.

Speaker #1: Now please turn to slide 16 to discuss our capital allocation priorities. Our capital allocation framework remains consistent and disciplined, focused on deploying cash to maximize shareholder returns, centered on three key priorities.

Speaker #1: First, we continued to invest in high return organic growth opportunities, particularly in mission critical defensible technology platforms and durable end markets where we see the strongest demand and margin expansion potential.

Speaker #1: In organic growth, delevering the balance sheet, and strategic acquisitions. Our second quarter leverage improved approximately 0.2 turns to 2.8 times trailing net leverage compared to an IPO performance net leverage of roughly 3.0 at the end of March.

Speaker #1: Second, we're committed to maintaining a strong and flexible balance sheet with a clear path to organic delevered. Third, we intend to pursue strategic and disciplined M&A to accelerate growth and strengthen the portfolio, focused on assets that expand our capabilities enhance our technology platforms, and deliver clear strategic and long term financial returns.

Speaker #1: As noted, we are willing to be flexible for the right opportunities while remaining committed to rapid integration and post acquisition delevering. Our integration of April Air and the leverage reduction achieved since the closing of that transaction in May of last year demonstrated our ability to do just that while maintaining financial discipline.

Speaker #1: Overall, we believe this balanced approach positions us well to drive long term value creation while maintaining financial flexibility. Now please turn to slide 17.

Speaker #1: The business continues to generate strong free cash flow and reported free cash flow of approximately 123 percent in the first half, driven by our asset-light model and disciplined working capital management.

Speaker #1: The strength of our first half, particularly within our commercial segment, together with visibility provided by our record backlog, supports an increase to our full year net sales guidance.

Speaker #1: Reported LTM free cash flow margins were about 11 and a half percent. Organically, we continue to expect free cash flow conversion of net income above 100 percent.

Speaker #1: We now expect net sales to be about 75 million dollars higher than prior guidance at the midpoint. Our range of 3.825 billion to 3.925 billion.

Speaker #1: This represents high single-digit plus growth on a proforma basis. This 2026 growth outlook is above the longer term organic mid single-digit growth ambition we discussed at the last earnings.

Speaker #1: First, we continue to invest in high return organic growth opportunities, particularly in mission-critical defensible technology platforms and durable end markets where we see the strongest demand and margin expansion potential.

Speaker #1: Looking ahead to the third quarter, we expect net sales growth of high single-digit plus with a jumping off point of 898 million dollars in the third quarter of 2025.

Speaker #1: On adjusted EBITDA, we anticipate 1,020,000,000 to 1,065,000,000 for the full year or high single-digit to low double-digit growth on a proforma basis. We continue to expect adjusted EBITDA growth that outpaces revenue growth with resulting full year adjusted EBITDA margins of about 27%.

Speaker #1: Second, we're committed to maintaining a strong and flexible balance sheet with a clear path to organic delevering. Third, we intend to pursue strategic and disciplined M&A to accelerate growth and strengthen the portfolio, focus on assets that expand our capabilities, enhance our technology platforms, and deliver clear strategic and long term financial returns.

Speaker #1: The implied second half margin rate represents a modest step up from the first half, driven by operating leverage, productivity initiatives, and further price realization.

Speaker #1: As noted, we are willing to be flexible for the right opportunities, while remaining committed to rapid integration and post-acquisition delevering. Our integration of April Air and the leverage reduction achieved since the closing of that transaction in May of last year demonstrated our ability to do just that, while maintaining financial discipline.

Speaker #1: Beyond the headline guidance, our assumptions remain largely unchanged. We continue to expect strong free cash flow conversion. CapEx investments of less than 2% of sales, cash interest of approximately 240 million dollars reflecting the IPO and our latest debt repricing, and an effective tax rate of 29% in the diluted share count of approximately 507 million, at year end.

Speaker #1: Overall, we believe this balanced approach positions us well to drive long term value creation while maintaining financial flexibility. Now please turn to slide 17.

Speaker #1: We also included approximately 38 million dollars in central expenses, a modest improvement from our prior estimate, which includes the required activities that come with being a public company.

Speaker #1: We now expect net sales to be about 75 million dollars higher than prior guidance at the midpoint. Our range of 3.825 billion to 3.925 billion.

Speaker #1: Our guidance continues to assume growth exposure to the current tariff landscape and, as discussed in the last call, we expect to offset those impacts over time through a combination of additional pricing and operational activities.

Speaker #1: This represents high single-digit plus growth on a pro forma basis. This 2026 growth outlook is above the longer term organic mid single-digit growth ambition we discussed at the last earnings.

Speaker #1: At the same time, we continue to invest in innovation, commercial execution, and productivity initiatives that support our longer term growth agenda. Stepping back, our outlook assumes a generally stable demand environment and continued strength across commercial end markets, including data centers, logistics, and healthcare.

Speaker #1: Looking ahead to the third quarter, we expect net sales growth of high single-digit plus with a jumping off point of 898 million dollars in the third quarter of 2025.

Speaker #1: On adjusted EBITDA, we anticipate 1,020,000,000,000 to to 1,065,000,000,00 for the full year or high single-digit to low double-digit growth on a pro forma basis, we continue to expect adjusted EBITDA growth that outpaces revenue growth with resulting full year adjusted EBITDA margins of about 27 percent.

Speaker #1: In residential, we continue to expect growth driven by white space opportunity for healthier systems. While geopolitical and macroeconomic conditions remain fluid, our teams are really focused on what they can control.

Speaker #1: Serving customers, driving productivity, and executing our strategic priorities. We believe that approach positions us well to navigate an evolving macroeconomic environment and deliver on our commitments.

Speaker #1: The implied second half margin rate represents a modest step up from the first half, driven by operating leverage, productivity initiatives, and further price realization.

Speaker #1: With that, I'd love to turn the call back to Jill.

Speaker #2: Thank you, JJ. Our second quarter performance demonstrates the strength of Madison Air across our brands. We're participating in the right markets. Our innovation is delivering meaningful customer outcomes and our diverse exposure continues to drive both resilience and momentum across the business.

Speaker #1: Beyond the headline guidance, our assumptions remain largely unchanged. We continue to expect strong free cash flow conversion. Capex investments of less than 2 percent of sales, cash interest of approximately 240 million dollars reflecting the IPO and our latest debt repricing, and an effective tax rate of 29 percent in the diluted share count of approximately 507 million, at year end.

Speaker #2: Regardless of the external environment, our priorities have not changed. Backed by strong demand, record backlog visibility, and a clear roadmap for growth, we remain focused on disciplined execution and focusing on the factors within our control.

Speaker #2: The work ahead is clear. Deliver on our backlog and our longer cycle commercial businesses. Execute our proven playbook to protect and expand margins over time as our growth investments scale.

Speaker #2: Accelerate healthy air penetration in residential and deploy capital where it generates the highest return. Our mission is to make the world safer, healthier, and more productive through the power of better air.

Speaker #2: And return on air is how we measure the value we create for our customers and the impact we deliver every day. Thanks again for joining us, and Danielle, we'd now love to open the call for questions.

Speaker #3: Thank you. We will now begin the question and answer session. To allow as many participants as possible, the opportunity to ask questions, please limit yourself to one question.

Speaker #3: To ask a question, you may press star one on your touchdown phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker #3: To withdraw your question, please press star two. At this time, we'll pause momentarily to assemble the roster. The first question comes from Andrew Obin from Bank of America.

Speaker #3: Please go ahead.

Speaker #4: good morning. Thank you very much. I guess my first question is going to be I know everybody is going to ask, about data centers.

Speaker #4: So why don't I ask about the fact that X data centers you were up 50%. Can you just unpack for us what verticals, drove this and how sustainable it is?

Speaker #4: Thank you.

Speaker #2: The work ahead is clear, deliver on our backlog and our longer cycle commercial businesses. Execute our proven playbook to protect and expand margins over time as our growth investments scale.

Speaker #2: Yeah. Good morning, Andrew and, and thank you for the, question. Yeah, to your point, outside of data centers in the second quarter, the commercial segment, had really great balanced growth.

Speaker #2: We saw broad-based growth across a variety of our markets. So that included advanced manufacturing, and this is things like cleanroom manufacturing and, and, and clean energy, end markets, healthcare, and other institutional segments that were really supported by demand for our air movement and customer handling platforms.

Speaker #2: And return on air is how we measure the value we create for our customers and the impact we deliver every day. Thanks again for joining us and Danielle, we'd now love to open the call for questions.

Speaker #2: And so I think we talked about that backlog, 2.9 billion in commercial. It was actually up about 142%. more than half of which will convert in 2027 and beyond.

Speaker #3: Thank you. We will now begin the question and answer session. To allow as many participants as possible, the opportunity to ask questions, please limit yourself to one question.

Speaker #2: Orders, you know, because of that balanced demand, up 70% for the segment, 50% excluding data centers. And, you know, our pipeline is bigger than it, you know, as we sit here today, our, our new business pipeline bigger than when we exited the year, bigger than we exited the first quarter, larger than year on year.

Speaker #3: To ask a question, you may press star, one, on your touchdown phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker #3: To withdraw your question, please press star two. At this time, we'll pause momentarily to assemble the roster. The first question comes from Andrew Obin from Bank of America.

Speaker #2: And so I think showing the benefit of how intentionally positioned and well diversified the portfolio is, we have you know, a diversified portfolio, very focused teams that create a more resilient growth profile.

Speaker #3: Please go ahead.

Speaker #4: good morning. Thank you very much. I guess my first question is going to be I know everybody is going to ask, about data centers.

Speaker #2: So we see it, you know, to answer your question as sustainable. Our decentralized model is also been a very meaningful advantage to this kind of balanced growth.

Speaker #4: So why don't I ask about the fact that X data centers you were up 50 percent. Can you just unpack for us what verticals, drove this and how sustainable it is?

Speaker #2: So we have dedicated teams who drive very deep customer intimacy, are innovating for that diverse set of 15 end markets, drive sharp execution, and that helps us to stay very focused across the breadth of our commercial core.

Speaker #4: Thank you.

Speaker #2: And then, you know, last but not least, we think that that, that kind of growth, you know, if we have anything to say about it, is sustainable as a function of the fact that over half of our portfolio, 60%, is replacement upgrade and aftermarket demand.

Speaker #2: We saw broad-based growth across a variety of our markets. So that included advanced manufacturing and this is things like cleanroom manufacturing and, and, and clean energy, end markets, healthcare, and other institutional segments that were really supported by demand for our air movement and customer handling platforms.

Speaker #2: So we ought to be able to perform by virtue of our diversification supported by a diver you know, a decentralized model such that we have teams focused across the portfolio and that very attractive, you know, 60% of demand from replacement upgrade and aftermarket.

Speaker #2: And so I think we talked about that backlog, 2.9 billion in commercial, it was actually up about 142 percent. more than half of which will convert in 2027 and beyond.

Speaker #2: You know, we feel, good about the future to the extent we're trying to control what we can control.

Speaker #3: The next question comes from Tim Wise from Baird. Please go ahead.

Speaker #2: Orders, you know, because of that balanced demand, up 70 percent for the segment, 50 percent excluding data centers. And, you know, our pipeline is bigger than it, you know, as we sit here today, our, our new business pipeline bigger than when we exited the year, bigger than we exited the first quarter, larger than year on year.

Speaker #4: Good morning, Tim. Hey, hey everybody. Good, good morning. maybe just, you know, my question is we kind of just maybe step back on, on the capital allocation side.

Speaker #4: I mean, you're I, I'd say de-levering a, a little faster than I think, you know, we expected and, and maybe investors expected. So I mean, is there an opportunity here to, to maybe think about incremental capital deployment, you know, in terms of, of acquisitions?

Speaker #4: you know, over the next 6 to 12 months? And I guess how's the pipeline?

Speaker #2: So we see it, you know, to answer your question, as sustainable. Our decentralized model has also been a very meaningful advantage to this kind of balanced growth.

Speaker #2: Great. thank you for the question, Tim. great to have you with us. So, you know, as if we go backwards in time here, whether it's, you know, over the last few years or even in the first quarter, we talked about we really think about Madison Air as an organic growth company with M&A as a lever.

Speaker #2: So we have dedicated teams who drive very deep customer intimacy, are innovating for that diverse set of 15 end markets, drive sharp execution and that helps us to stay very focused across the breadth of our commercial core.

Speaker #2: but clearly, as JJ outlined and, and I mentioned in the prepared remarks as well, our capital allocation really is, is all about continuing to organically de-lever the balance sheet investing in our core organic growth opportunities and continuing to do strategic disciplined M&A.

Speaker #2: So, we are very delighted with our team's progress on converting great growth, and profit to cash and, and using that coupled with the IPO proceeds to continue to get our balance sheet in the spot where M&A, can continue to serve as an accelerator for our strategy.

Speaker #2: So we ought to be able to perform by virtue of our diversification, supported by a diver you know, a decentralized model such that we have teams focused across the portfolio and that very attractive, you know, 60 percent of demand from replacement upgrade and aftermarket.

Speaker #2: So what are we look at? First and foremost, we look at acquisitions that can strengthen our technology platforms. You know, how do we beef up our ability to deliver tangible return on air?

Speaker #2: You know, we feel, good about the future to the extent we're trying to control what we can control.

Speaker #3: The next question comes from Tim Wise from Baird. Please go ahead.

Speaker #2: So we love great technology. Second of all, we look for, for businesses that strengthen our channel presence, things like a direct channel. You know, a direct path to the customer.

Speaker #4: Good morning, Tim. Hey, hey everybody. Good, good morning. maybe just, you know, my question is we kind of just maybe step back on, on the capital allocation side.

Speaker #2: for example. And lastly, you know, acquisitions that really expand our capabilities in attractive end markets. And increasingly, we love, you know, M&A deals that increase our exposure to services and aftermarket potential.

Speaker #2: So we that's the sort of the sweet spot, that we look for. And we have, just completed our, you know, annual strategy cycle with the board.

Speaker #4: you know, over the next six to twelve months? And I guess how's the pipeline?

Speaker #2: We are excited about the funnel, both of organic growth prospects, but also our M&A funnel is, is very active. As we talked about in the past, we have a very special capability here.

Speaker #2: We have a long track record of having done M&A successfully as an acquirer choice. 80% of those acquisitions have been sourced on a proprietary basis, i.e., they never went to auction.

Speaker #2: but clearly as JJ outlined and, and I mentioned in the prepared remarks as well, our capital allocation really is, is all about continuing to organically de-lever the balance sheet investing in our core organic growth opportunities and continuing to do strategic disciplined M&A.

Speaker #2: And JJ mentioned April Air, right, which really shows the power a business we acquired 13 months ago that is truly firing on all cylinders.

Speaker #2: And we have continued to march along the de-leverage path as we committed to you all. So given where we sit, at 2.8 times, and, you know, and the, the, the healthy path we remain on through a combination of EBITDA and cash flow generation, we feel good about our financial and strategic flexibility and, and M&A absolutely remains center played as a capital allocation priority.

Speaker #2: So what do we look at? First and foremost, we look at acquisitions that can strengthen our technology platforms. You know, how do we beef up our ability to deliver tangible return on air?

Speaker #3: The next question comes from Jim Sprague from Vertical Research. Please go ahead.

Speaker #2: So, we love great technology. Second of all, we look for businesses that strengthen our channel presence—things like a direct channel, you know, a direct path to the customer.

Speaker #4: Good morning, Jeff.

Speaker #5: Hi, good morning, everyone. It's Jeff Sprague here. hey, good to connect. I was wondering if you could unpack for us a bit, just the, the margin pressure in commercial between, you know, those kind of three items, mix production, ramp, and tariffs cost.

Speaker #2: for example. And lastly, you know, acquisitions that really expand our capabilities in attractive end markets. And increasingly, we love, you know, M&A deals that it, it increase our exposure to services and aftermarket potential.

Speaker #5: I assume they're listed in order of prominence, but maybe you could shed a little bit of light on that and, you know, in particular where we're at on the margin ramp on the CDU business.

Speaker #2: So we that's the sort of the sweet spot, that we look for. And we have, just completed our, you know, annual strategy cycle with the board.

Speaker #4: Yep, absolutely. So I think the second quarter, you know, as expected, we ended up continuing to make the sequential progress, in the second quarter with the overall EBITDA rate at 26.8.

Speaker #2: We are excited about the funnel, both of organic growth prospects, but also our M&A funnel is, is very active. As we talked about in the past, we have a very special capability here.

Speaker #4: the second quarter margins, as we highlighted, were definitely shy of the prior year through a combination of the inflation and tariff timing. where we expect our the actions that we took, starting in the in the beginning of the quarter with the new 232 tariffs, those, those actions to further take effect in the second half.

Speaker #2: We have a long track record of having done M&A successfully as an acquirer of choice, 80 percent of those acquisitions have been sourced on a proprietary basis, i.e., they never went to auction.

Speaker #2: And JJ mentioned April Air, right? Which really shows the power a business we acquired 13 months ago that is truly firing on all cylinders and we have continued to march along the de-leverage path as we committed to you all.

Speaker #4: as well as as you highlighted, the rapid growth in the data center business. I think, you know, together these dynamics were partially offset by the fixed cost leverage.

Speaker #4: So we are seeing the fixed cost leverage that we expected, but the headwinds I highlighted, you know, are, are things that, you know, improve, as you get into the back half of the year.

Speaker #2: So given where we sit, at 2.8 times, and, you know, and the, the, the healthy path we remain on through a combination of EBITDA and cash flow generation, we feel good about our financial and strategic flexibility and, and M&A absolutely remains center played as a capital allocation priority.

Speaker #4: I think stepping back on the first half, you know, margins at 26.1% were approximately flat. a lot of the same drivers, including inflation and tariff timing in the data center mix.

Speaker #4: And we feel confident about the ability to get to the, the total year guide on, you know, roughly 27% margins. I think on commercial, as you highlighted, you know, I would kind of bucket it into, mix, the incremental tariffs and then the ramp costs.

Speaker #3: The next question comes from Jim Sprog from Vertical Research. Please go ahead.

Speaker #4: Good morning, Jeff.

Speaker #5: Hi, good morning everyone. Jeff Sprague here. good to connect. I was wondering if you could unpack for us a bit, just the, the margin pressure in commercial between you know, those kind of three items, mix production ramp and tariffs cost.

Speaker #4: in that order. you know, the, the mix-driven piece of this, as we, you know, really grow that data center business, I think Jill highlighted that as a, a strong business, you know, early innings as it relates to the margin side of things.

Speaker #4: and then the headwind from, the inflation and tariffs, as well as the, the ramp costs. I think the ramp costs, improve as you get into the second half of the year.

Speaker #4: And then just remember on the, the tariff side of things, that's more the impact of our Canada sites. shipping into the US and so those, those, recovery actions, take hold as we get into the back half.

Speaker #4: the second quarter margins as we highlighted were definitely shy of the prior year through a combination of the inflation and tariff timing. where we expect our the actions that we took starting in the in the beginning of the quarter with the new 232 tariffs, those, those actions to further take effect in the second half.

Speaker #4: But I feel really good about the first half margins and the, the modest step up as we get into the back half of the year.

Speaker #2: Yeah, and maybe just to, to add to that, Jeff, this is Jill. Y-you know, as JJ mentioned, so sequentially up 155 basis points, basically, you know, down slightly versus last year, which is where we predicted we would be when we last spoke.

Speaker #4: as well as as you highlighted, the rapid growth in the data center business. I think, you know, together these dynamics were partially offset by the fixed cost leverage.

Speaker #2: I would, you know, double-click data center mix was, was certainly a contributor, but it wasn't the only factor. As JJ noted, we had tariffs and inflation timing, and then we're investing in this, you know, continued growth ramp.

Speaker #4: So we are seeing the fixed cost leverage that we expected, but the headwinds I highlighted, you know, are, are things that, you know, improve as you get into the back half of the year.

Speaker #2: We continue to view the data center business as a highly attractive business with very strong fundamentals. it is also you know, one of, of 15 verticals in our portfolio.

Speaker #4: I think stepping back on the first half, you know, margins at 26.1 percent were approximately flat. a lot of the same drivers including inflation and tariff timing in the data center mix.

Speaker #2: So, so we, you know, it's just really earlier in its scaling journey. So you I want you guys to know that, you know, we are going to use, as I mentioned in my remarks, the same set of levers we always have that have a have driven us to this point.

Speaker #4: And we feel confident about the ability to get to the, the total year guide on, you know, roughly 27 percent margins. I think on commercial, as you highlighted, you know, I, I would kind of bucket it into, mix, the incremental tariffs and then the ramp costs.

Speaker #2: Our margin playbook, if you will, value selling, focused on return on air, investments in innovation, which are great margin lever for us because we're bringing more value to customers.

Speaker #4: In that order. You know, the mix-driven piece of this as we, you know, really grow that data center business—I think Jill highlighted that as a strong business, you know, early innings as it relates to the margin side of things.

Speaker #2: Profitable top-line growth, we know how to, you know, leverage our fixed costs as we scale and upcycle. Continuing to expand services and aftermarket and continuing to apply our 80/20 model.

Speaker #4: and then the headwind from, the inflation and tariffs a-as well as the, the ramp costs. I think the ramp costs, improve as you get into the second half of the year.

Speaker #2: And so while this data center business created and, you know, and a few other, factors that were all over in terms of pricing, tariffs, inflation, and the like, we are very clear-eyed as a team.

Speaker #2: We know what we have to do. Each business leader in the spirit of 80/20, knows there are three things, right, to deliver the back half.

Speaker #4: But I feel really good about the first half margins and the, the modest step up as we get into the back half of the year.

Speaker #2: And, we are we've seen it work before and we're laser-focused and very clear-eyed on the work to do in the second half.

Speaker #3: The next question comes from Nigel Coe from Wolf Research. Please go ahead.

Speaker #6: Oh, thanks. Good morning.

Speaker #2: Hello, Nigel.

Speaker #6: Hello. Hello, Jill. How are you? I hear JJ.

Speaker #2: I would, you know, double-click—data center mix was certainly a contributor, but it wasn't the only factor. As JJ noted, we had tariffs and inflation timing, and then we're investing in this continued growth ramp.

Speaker #4: Good morning.

Speaker #6: Good morning. yeah, so just on, on the backlog, obviously, you know, really, really impressive. and it seems like some really good traction with, Nortek, air handling.

Speaker #2: We continue to view the data center business as a highly attractive business with very strong fundamentals. It is also, you know, one of 15 verticals in our portfolio.

Speaker #6: I'd be curious, just a couple a couple of sub-points on, on the backlog. Number one, what's driving the broad-based strength in, air handling? I know it's been a theme, but I'm just curious, is this new builds?

Speaker #2: So so we, you know, it's just really earlier in its scaling journey. So you I want you guys to know that, you know, we are going to use as I mentioned in my remarks, the same set of levers we always have that have a have driven us to this point.

Speaker #6: Is it, upgrades? just, just curious on what's driving the strength there? And then just in terms of that backlog, how does the price and margin look within that backlog?

Speaker #2: Yeah, so thank you for the question. Yeah, we are we are delighted, with our, you know, orders and, and backlog performance in the second quarter.

Speaker #2: Again, very strong 2.9 billion, up 133% year over year and 14% sequentially. This is really a function of the work we continue to do to build pipelines, bring more innovation, you know, and, and keep our very focused teams, you know, devoted to end markets, calling on customers and, and controlling our own destiny.

Speaker #2: Profitable top line growth, we know how to, you know, leverage our fixed costs as we scale and upcycle. Continuing to expand services and aftermarket and continuing to apply our 80/20 model.

Speaker #2: So, about nine months, TTM average sales in the backlog. So effectively half of it will deliver 2027, and beyond. And I would say on new build versus existing construction, it's balanced.

Speaker #2: We know what we have to do. Each business leader in the spirit of 80/20, knows there are three things, right, to deliver the back half.

Speaker #2: And we are we've seen it work before and we're laser focused and very clear-eyed on the work to do in the second half.

Speaker #2: So I, I would say, you know, it's, it's I don't know if it's exactly 50/50, but we feel you know, it's, it's largely in line with the overall portfolio, which is 60% replacement upgrade and services aftermarket.

Speaker #3: The next question comes from Nigel Koh from Wolf Research. Please go ahead.

Speaker #5: Oh, thanks. Good morning.

Speaker #3: Hello, Nigel.

Speaker #2: And 40% new construction, which is more of that data center piece. Do you want to comment on sort of price margin and backlog?

Speaker #5: Hello. Hello, Jill. How are you? I hear JJ.

Speaker #4: Good morning.

Speaker #5: Good morning. yeah, so just on, on the backlog, obviously, you know, really, really impressive. and it seems like some really good traction with, Nortek, air handling.

Speaker #4: Yeah, absolutely. I, I think as you look at the, the backlog, you know, I think it supports the second half step up that we've talked about, you know, the combination of the bookings, but also the productivity efforts that are in flight, as well as some of that incremental price coming through.

Speaker #5: I'd be curious, just a couple, couple of sub-points on, on the backlog. Number one, what's driving the broad-based strength in, air handling? I know it's been a theme, but I'm just curious, is this new builds?

Speaker #4: So I would say the, the margins and backlog, we feel good about. as well as, you know, supporting the second half step up on EBITDA rate for the total company that we outlined in the, the implied guide midpoint.

Speaker #5: Is it, upgrades? just, just curious on what's driving the strength there? And then just in terms of that backlog, how does the price and margin look within that backlog?

Speaker #3: The next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.

Speaker #2: Yeah, so thank you for the question. Yeah, we are, we are delighted, with our, you know, orders and, and backlog performance in the second quarter.

Speaker #2: Morning, Jill.

Speaker #5: hi. Good morning. Good morning, Jill. Good morning, JJ. so. So let's just stick with data center for, for a second. can you maybe just, just break down give us a little bit of the composition of those wins?

Speaker #2: Again, very strong 2.9 billion, up 133 percent year over year and 14 percent sequentially. This is really a function of the work we continue to do to build pipelines, bring more innovation, you know, and, and keep our very focused teams, you know, devoted to end markets, calling on customers and, and controlling our own destiny.

Speaker #5: Maybe between, like, liquid, hybrid, traditional air cooling, and then and then also, you had an OEM yesterday talk about, capacity constraints that they're starting to see.

Speaker #5: just, just talk, talk to us about your supply chain, and your ability to deliver on the on the backlog that you've already booked.

Speaker #2: So about nine months, TTM average sales in the backlog. So effectively half of it will deliver 2027, and beyond. And I would say on new build versus existing construction, it's balanced.

Speaker #2: Yep. So, in terms of the composition, we feel very good about the balanced mix between hyperscalers and colocators as we've said before. Our strategy in the data center space, which we've built entirely organically, is to really pursue what we believe to be the most, resilient demand.

Speaker #2: So I, I would say, you know, it's, it's I don't know if it's exactly 50/50, but we feel you know, it's, it's largely in line with the overall portfolio, which is 60 percent replacement upgrade and services aftermarket.

Speaker #2: You know, folks who are building, in response to this sort of global shortage of compute. And so we feel very good about our, you know, balance between hyperscalers and, and colos.

Speaker #2: And 40 percent new construction, which is more of that data center piece. Do you want to comment on sort of price margin and backlog?

Speaker #4: Yeah, absolutely. I, I think as you look at the, the backlog, you know, I think it supports the second half step up that we've talked about, you know, the combination of the bookings, but also the productivity efforts that are in flight as well as some of that incremental price coming through.

Speaker #2: And particularly on the hyperscaler front, you know, they I mean, they had strong earnings in the first quarter, you know, Microsoft announced very strong results.

Speaker #2: This morning. So we feel good about our exposure there. we love the ongoing mix, whether it be on a unit and dollars basis between air and liquid.

Speaker #2: liquid is what you would expect. It's growing very rapidly. obviously, the legacy of this is, you know, air, but we have a ver-very balanced mix between air and liquid cooling.

Speaker #3: The next question comes from Joe Richie from Goldman Sachs. Please go ahead.

Speaker #2: And I would also say this, I, I, I think these this idea that, you know, air cooling is going to disappear is overstated. we, you know, there's just a lot of thermal energy in a data center that needs to be reject rejected.

Speaker #2: Good morning, Jill.

Speaker #6: Hi, good morning. Good morning, Jill. Good morning, JJ. So let's just stick with data center for a second. Can you maybe just break down, give us a little bit of the composition of those wins?

Speaker #2: So we see a future for both air and liquid cooling, but we like the mix. our mix, of air and liquid cooling solutions is moving where the market is moving.

Speaker #6: Maybe between like liquid, hybrid, traditional air cooling, and then and then also, you had an OEM yesterday talk about, capacity constraints that they're starting to see.

Speaker #2: So we feel good about that. And we have a wide range of CDU products. With, you know, 300 kilowatt to, to 5 megawatt capacity skidded, non-skidded options.

Speaker #6: just, just talk, talk to us about your supply chain. and your ability to deliver on the, on the backlog that you've already booked.

Speaker #2: And we think our, CDUs are inherently very serviceable, which is one of our, unique differentiators there. And they are underpinned, as we've talked about, by our C4's approach in the data center business.

Speaker #2: This idea that we are not shipping you a catalog, you know, order a, a CDU at a given capacity, but rather it is part of a total thermal management solution, for the leading lights in the industry.

Speaker #2: You know, folks who are building in response to this sort of global shortage of compute. And so we feel very good about our, you know, balance between hyperscalers and, and colos.

Speaker #2: So that's a little bit of the balance. We feel good about the balance in the data center business. As I mentioned, you know, thinking back to just a few years ago, when we had one customer, one product, that team has come a long way.

Speaker #2: And particularly on the hyperscaler front, you know, they I mean, they had strong earnings in the first quarter, you know, Microsoft announced very strong results.

Speaker #2: in terms of our supply chain, yeah, I mean, as we said last time, look, the data center demand is, it is straining aspects of the global supply chain.

Speaker #2: This morning. So we feel good about our exposure there. we love the ongoing mix, whether it be on a unit and dollars basis between air and liquid.

Speaker #2: And I think we see that, particularly in electrical components, right, which we watch, very closely. So we have worked over the course of, of years to deepen and strengthen our supply chain across the company.

Speaker #2: liquid is what you would expect. It's growing very rapidly. obviously the legacy of this is, you know, air, but we have a ve-very balanced mix between air and liquid cooling.

Speaker #2: and obviously, that work has, disproportionately benefited us at this moment in time. We work very proactively and collaboratively, not only with customers. So when we talk about the importance of half that backlog is 27 and beyond, that gives us very good forward-looking visibility into what we have to have lined up to deliver.

Speaker #2: So we see a future for both air and liquid cooling, but we like the mix. our mix, of air and liquid cooling solutions is moving where the market is moving.

Speaker #2: so we work with our supply base. And our customers. And I think a great proof point, again, of this C4's embedded at the design table advantage is one of our hyperscale customers actually came to us recently and said, "We want to use your lab and your very talented lab team to help us look at additional and qualify additional sources of supply." So that's trust.

Speaker #2: So we feel good about that. And we have a wide range of CDU products. With, you know, 300 kilowatt to, to 5 megawatt capacity skidded non-skidded options.

Speaker #2: And we think our CDUs are inherently very serviceable, which is one of our unique differentiators there. And they are underpinned, as we've talked about, by our C4's approach in the data center business.

Speaker #2: And that's how we benefit from the forward-thinking nature of serving the most demanding leading players in the industry. And so I look along with our team at the status of our supply chain every week.

Speaker #2: This idea that we are not shipping you a catalog, you know, order a, a CDU at a given capacity, but rather it is part of a total thermal management solution for the leading lights in the industry.

Speaker #2: We deep dive it every month. And we look at production lines that are on the floor today and production lines that are going to have to be on the line in three or four quarters.

Speaker #2: So that's a little bit of the balance. We feel good about the balance in the data center business. As I mentioned, you know, thinking back to just a few years ago when we had one customer, one product, that team has come a long way.

Speaker #2: So while we can't control all the variables, we certainly start and end each day, controlling what we can control. And so and then, you know, maybe a, a last comment here.

Speaker #2: in terms of our supply chain, yeah, I mean, as we said last time, look, the data center demand is it is straining aspects of the global supply chain.

Speaker #2: Both in data centers and across the company, we have the capacity we need to deliver. So you know, I would not say that we see, space on the line floor as a short or medium-term constraint.

Speaker #2: And I think we see that, particularly in electrical components, right, which we watch very closely. So we have worked over the course of, of years to deepen and strengthen our supply chain across the company.

Speaker #3: The next question comes from Dean Dray from RBC Capital Markets. Please go ahead.

Speaker #2: and obviously that work has disproportionately benefited us at this moment in time. We work very proactively and collaboratively, not only with customers. So when we talk about the importance of half that backlog is 27 and beyond, that gives us very good forward-looking visibility into what we have to have lined up to deliver.

Speaker #6: Thank you. Good morning, everyone.

Speaker #2: Hello, Dean. Congratulations on your, pending second next chapter. We're excited for you.

Speaker #6: I really am.

Speaker #2: Congratulations.

Speaker #6: I really really appreciate that. Thank you. I just wanted to follow up on, the, the last question. from Joe's on, you know, specifically capacity expansion.

Speaker #6: I think you just said you have enough capacity, for the near term, but just kind of given the growth rates that we're seeing, where would you need to start to add capacity?

Speaker #6: what product lines and, you know, what the overall kind of capex plan in order to support this growth?

Speaker #2: Yeah. Thank you, Dean. And congratulations again. So excited for you and appreciate all you have done with your team to onboard to our company and, and learn our story and, and, it's been, wonderful to have a albeit short in my case, opportunity to work with you, personally.

Speaker #2: We deep dive it every month. And we look at production lines that are on the floor today and production lines that are going to have to be on the line in three or four quarters.

Speaker #2: Look, broadly across the company, Dean, I would say we have the footprint we need. we have the footprint we need, and we have, accommodated that within our asset light model.

Speaker #2: So, while we can't control all the variables, we certainly start and end each day controlling what we can control. And so, and then, you know, maybe a last comment here.

Speaker #2: So this is where our 80/20 approach, where we focus on, you know, what are the best customers, and the best products that we want to have the ability to deliver short, medium, and long term.

Speaker #2: Both in data centers and across the company, we have the capacity we need to deliver. So you know, I would not say that we see space on the line floor as a short or medium-term constraint.

Speaker #2: So we can we have done and will continue to do all of that within our asset light model, you know, kind of low single-digit capex as a percentage of sales.

Speaker #2: so we have, brownfielded to date, our data center capacity. We've added a bit of capacity there. we've also added, you know, capacity in, in our parts capability for our 15, commercial end markets that are buying more proprietary services and, and aftermarket.

Speaker #3: The next question comes from Dean Dre from RBC Capital Markets. Please go ahead.

Speaker #5: Thank you. Good morning, everyone.

Speaker #2: Hello, Dean. Congratulations on your pending second next chapter. We're excited for you.

Speaker #5: I really am.

Speaker #2: Congratulations.

Speaker #2: We are, building out, you know, innovating and, and adding additional air purification capacity in our April Air business. So all of that, you know, very forward-thinking, if you will, in terms of matching firm demand with the right level of capacity we need.

Speaker #5: I really, really appreciate that. Thank you. I just wanted to follow up on the last question from Joe's—on, you know, specifically, capacity expansion.

Speaker #5: I think you just said you have enough capacity for the near term but just kind of given the growth rates that we're seeing, where would you need to start to add capacity?

Speaker #2: So we, we like where we're sitting. We've accommodated and will continue to accommodate it within our asset light model. And, we feel like, you know, we are ready as ready as we can be, for the next several years as we sit here today across the enterprise.

Speaker #5: what product lines and, you know, what the overall kind of capex plan in order to support this growth?

Speaker #3: The next question comes from Scott Davis from Melius Research. Please go ahead.

Speaker #2: Yeah. Thank you, Dean. And congratulations again. So excited for you and appreciate all you have done with your team to onboard to our company and, and learn our story and, and it's been short in my case, opportunity to work with you personally.

Speaker #7: Good morning. Jill and JJ.

Speaker #2: Good morning, Scott. Good morning.

Speaker #7: Good morning. Good morning to you guys. And congrats on a great, first four months here. the, The, the order I know this is just math, but the orders that you commented on orders being down in, in 4Q and obviously the, the comp is, is, is pretty meaty there.

Speaker #2: Look, broadly across the company, Dean, I would say we have the footprint we need. we have the footprint we need and we have accommodated that within our asset light model.

Speaker #7: Do you expect backlog to also be down, or, or is that still even a declining order environment potentially stay flat or even potentially grow?

Speaker #2: So we can we have done and we'll continue to do all of that within our asset light model, you know, kind of low single-digit capex as a percentage of sales.

Speaker #7: How does that math work?

Speaker #5: Yeah. I think it's a good callout. So as you said, you know, second quarter orders are up 45%. That's up 37% for the first half, you know, with book to bill well over one.

Speaker #2: so we have brownfielded to date our data center capacity. We've added a bit of capacity there. we've also added, you know, capacity in, in our parts capability for our 15 commercial end markets that are buying more proprietary services and, and aftermarket.

Speaker #5: demand, as Jill has highlighted in the pipeline and whatnot, remained very strong. I think we expect while orders will be down, book to bill will remain quite healthy in the second half.

Speaker #5: And as such, the full year. So I, I guess the rest of it is just sort of math as you think about where the backlog ends.

Speaker #2: We are building out, you know, innovating and adding additional air purification capacity in our AprilAire business. So all of that is very forward-thinking, if you will, in terms of matching firm demand with the right level of capacity we need.

Speaker #5: and I would just, you know, as you highlighted, we did a billion, six of orders in the fourth quarter of '25, which is just a, a big number even after you see us, you know, delivering a billion three here in the second quarter this year.

Speaker #2: So we, we like where we're sitting. We've accommodated and we'll continue to accommodate it within our asset light model. And we feel like, you know, we are ready as ready as we can be for the next several years as we sit here today across the enterprise.

Speaker #7: Okay. And just to, to go back, I know this is a couple questions on the on the cost issue and scaling has been brought up.

Speaker #7: I think almost every company we cover is mentioned scaling in some way, shape, or form. This quarter is a headwind. But does does scaling become sequentially less a, a headwind as we get through the rest of the year, or, or is it, it remains pretty firm?

Speaker #3: The next question comes from Scott Davis from Melius Research. Please go ahead.

Speaker #5: Good morning. Good morning. Good morning to you guys. And congrats on a great first four months here. the the, the order I know this is just math.

Speaker #5: No. I think it becomes, less of a headwind as we move in, right? I think as we look at the call it 26.8%. I think, you know, as you look at what we see in the third and the fourth quarter, the rates probably between 27 and 28, kind of at the midpoint of the guide.

Speaker #5: but the orders you commented on orders being down in, in 4Q and obviously the, the comp is, is, is pretty meaty there. Do you expect backlog to also be down or, or is that still even a declining order environment potentially stay flat or even potentially grow?

Speaker #5: and so that's a combination of feeling like we gained some ground on price cost, as well as some of those headwinds, offsetting. And really frankly, the team's getting a little bit more time on the clock to be able to execute a number of the key productivity initiatives and the material cost reduction programs that we have, in some of the critical product lines.

Speaker #5: How does that math work?

Speaker #4: Yeah. I think it's a good callout. So as you said, you know, second quarter orders are up 45%. That's up 37% for the first half, you know, with book to bill well over one.

Speaker #4: Demand, as Jill has highlighted, and the pipeline and whatnot remain very strong. I think we expect, while orders will be down, book-to-bill will remain quite healthy in the second half.

Speaker #3: The next question comes from Andy Kapl Kaplowitz from Citigroup. Please go ahead.

Speaker #2: Hey, Andy.

Speaker #4: Good morning, everyone. How you doing? Good morning. so maybe you can give us a little more color regarding what's going on in residential. you mentioned modest organic volume declines in your professional distribution channels.

Speaker #4: And as such, the full year. So, I guess the rest of it is just sort of math as you think about where the backlog ends.

Speaker #4: and I would just, you know, as you highlighted, we did a billion six of orders in the fourth quarter of '25, which is just a, a big number even after you see us, you know, delivering a billion three here in the second quarter this year.

Speaker #4: So could we double-click on what you're seeing there? But it also seems like April Air penetration's continuing or maybe even accelerating. So, so maybe if you could talk about that a little more.

Speaker #2: Yeah. Absolutely. So, you know, as we noted, our residential segment sales grew about 2%, Andy, despite a, a soft housing backdrop. That was really driven by continued very strong growth in healthy air systems, good progress on contractor conversion, price execution, and frankly, continuing to open white space.

Speaker #5: Okay. And just to, to go back, I know this is a couple questions on the on the cost issue and scaling has been brought up.

Speaker #5: I think almost every company we cover has mentioned scaling in some way, shape, or form. This quarter is a headwind. But does does scaling become sequentially less of a headwind as we get through the rest of the year or, or is it it remains pretty firm?

Speaker #2: yes. And that and the April Air business continues to perform, very strongly, great brand, innovative technology. you know, and, and just bigger picture in our residential segment, we are playing a fundamentally different game, if you will, than, than traditional residential.

Speaker #4: No. I think it becomes less of a headwind as we move in, right? I think as we look at the call it 26.8%. I think, you know, as you look at what we see in the third and the fourth quarter, the rates probably between 27 and 28 kind of at the midpoint of the guide.

Speaker #2: We don't heat and cool the air. We make it better. We improve the quality of, of air. And so, and at the end of the day, 92% of US homes have nothing.

Speaker #4: and so that's a combination of feeling like we gained some ground on price cost as well as some of those headwinds offsetting. And really frankly, the team's getting a little bit more time on the clock to be able to execute a number of the key productivity initiatives and the material cost reduction programs that we have on some of the critical product lines.

Speaker #2: And boy, I don't know about you, but there was a day a few weeks ago when our air quality here in the Midwest was extremely hazardous due to, you know, wildfires in Canada and in northern Minnesota to a lesser degree.

Speaker #2: So, you know, this business is ri prime for white space. They've got great innovation, a great channel presence. And our residential exposure is really predominantly exposed and tied to replacement and upgrade demand drivers.

Speaker #3: The next question comes from Andy Capital Capitalitz from Citigroup. Please go ahead.

Speaker #2: Hey, Andy.

Speaker #6: Good morning, everyone. How you doing? Good morning.

Speaker #5: so maybe you can give us a little more color regarding what's going on in residential. you mentioned modest organic volume declines in your professional distribution channels.

Speaker #2: All of which is underpinned by two very strong brands, you know, April Air and, and Brone Newtone. So, we think that we deliver more consistent, durable performance as a result.

Speaker #5: So could we double-click on what you're seeing there? But it also seems like April Air penetration's continuing or maybe even accelerating. So, so maybe if you could talk about that a little more.

Speaker #2: We don't have, you know, we, we pull demand through the channel. We don't have this, stocking and destocking and restock stocking dynamic, that we work through.

Speaker #2: Yeah. Absolutely. So, you know, as we noted, our residential segment sales grew about 2%, Andy. Despite a, a soft housing backdrop, that was really driven by continued very strong growth in healthy air systems, good progress on contractor conversion, price execution, and frankly, continuing to open white space.

Speaker #2: We didn't have that, in 2025. And, and we don't foresee, that dynamic in, in 2026, which I think allows us to just be a little smoother and more durable.

Speaker #2: it's all part of the reason why since 2007 that April Air business has compounded sales growth at, you know, 8% top line, just a great business, a strong brand, lots of white space to penetrate, lots of contractors left to convert, and a great team, very focused on doing that.

Speaker #2: yes. And that and the April Air business continues to perform very strongly, great brand, innovative technology. you know, and, and just bigger picture in our residential segment, we are playing a fundamentally different game if you will, than, than traditional residential.

Speaker #3: The next question comes from Zachary Schechtman from Wells Fargo. Please go ahead.

Speaker #2: We don't heat and cool the air. We make it better. We improve the quality of, of air. And so and at the end of the day, 92% of US homes have nothing.

Speaker #5: Good morning, Zach.

Speaker #6: Hey, guys.

Speaker #5: Good morning.

Speaker #6: Thanks for taking my question.

Speaker #5: Of course.

Speaker #6: I do want to say I'm moving into a, a house tomorrow with an April Air system, so I'm excited to, to feel the benefits of that, especially, in the winter and these New England winters can be super dry.

Speaker #2: Yes. And we have a new 720 dehumidifiers, Zach. You'll be glad to know. It, can de or humidifier, excuse me. It can humidify up to 6,200 square feet.

Speaker #2: So you know, this for white space. They've got great innovation, a great channel presence. And our residential exposure is really predominantly exposed and tied to replacement and upgrade demand drivers.

Speaker #2: And it can use up to 15,000 less gallons of water due to a proprietary humidification platform, patented. which is about equivalent to what the average US home consumes in terms of internal water usage.

Speaker #2: All of which is underpinned by two very strong brands, you know, April Air and, and Bro Newtone. So we think that we deliver more consistent, durable performance as a result.

Speaker #2: So, we, we are delighted that you will have a safe and, and comfortable, winter whenever it should come to your part of the world.

Speaker #5: You'll have to report back on it. Reporter.

Speaker #2: We don't have, you know, we, we pull demand through the channel. We don't have this stocking and destocking and restock stocking dynamic that we work through.

Speaker #6: Yeah.

Speaker #2: And if your unit's old. You'll know if you have a solution for that.

Speaker #6: Awesome. So, yeah. I just wanted to, obviously, two-queue resin margin, I think, was a bit better than most expected. despite the volume pressure. So, just kind of wanted to unpack that, how much of that was April Air synergies, maybe you could give some color on how much was realized in '25, the first half of this year, and moving forward.

Speaker #2: We didn't have that in 2025. And, and we don't foresee that dynamic in, in 2026, which I think allows us to just be a little smoother and more durable.

Speaker #6: And then I'm assuming the tariff refunds received were also a tailwind to resin, given resin saw the bigger headwind last year. So just some color on that, sizing, what to expect in the second half of this year, and maybe the split between segments.

Speaker #5: Yep. Very good. So I think, you know, as you highlighted, resin up 425 basis points in the quarter, about a third of that was mixed be meaning more April Air, the remaining two-thirds was stronger price and productivity, and that does include net tariffs.

Speaker #3: The next question comes from Zachary Scheckman from Wells Fargo. Please go ahead.

Speaker #4: Good morning, Zach.

Speaker #7: Hey, guys. Good morning. Thanks for taking my question.

Speaker #4: Of course.

Speaker #7: I do want to say I'm moving into a a house tomorrow with an April Air system, so I'm excited to to feel the benefits of that, especially in the winter and these New England winters can be super dry.

Speaker #5: i-in as you kind of think about the overall path of travel on margins, sequentially, I would expect the residential margin to be a down a bit from the second quarter.

Speaker #5: We had some, you know, really favorable, elements around pricing and productivity, as well as we did have a little bit of benefit from the tariff refunds.

Speaker #2: Yes. And we have a new 720 dehumidifier Zach. You'll be glad to know. It can de or humidifier, excuse me. It can humidify up to 6,200 square feet.

Speaker #5: You know, I think for us, as we kind of think about this, you know, we're ultimately focused on delivering more customer more value for customers against this sort of think of tariffs inclusive of refunds as one of the many dynamics with it.

Speaker #2: And it can use up to 15,000 less gallons of water due to a proprietary humidification platform patented. which is about equivalent to what the average US home consumes in terms of internal water usage.

Speaker #2: So we—we are delighted that you will have a safe and comfortable winter, whenever it should come to your part of the world.

Speaker #5: So, we haven't necessarily quantified that. you know, it was part of our overall price-cost management, not a material impact in the quarter, but I would say very strong margin in residential, even excluding refunds.

Speaker #4: You'll have to report back on that. Reporter.

Speaker #7: Yeah.

Speaker #2: And if your unit's old, you'll be able to look into that.

Speaker #5: and then as you think about for the total company as we've talked about, you know, third quarter, fourth quarter, even a margin rate in that 27, 28 percent range, probably around flattish in the third quarter, and then seeing more expansion in the fourth.

Speaker #7: Awesome. So yeah, I just wanted to obviously, two Q resin margin I think was a bit better than most expected. despite the volume pressure.

Speaker #7: So just kind of wanted to unpack that, how much of that was April Air synergies, maybe you could give some color on how much was realized in '25, the first half of this year, and moving forward.

Speaker #5: Thanks, Zach.

Speaker #3: This concludes our question and answer session. I would like to turn the conference back over to Jill Wyant for closing remarks.

Speaker #7: And then I'm assuming the tariff refunds received were also a tailwind to resin, given resin saw the bigger headwind last year. So just some color on that, sizing, what to expect in the second half of this year, and maybe the split between segments.

Speaker #2: Thank you, Danielle. And thank you all, to the research analyst community, to our investors who are on the call, other stakeholders, our team members.

Speaker #4: Yep. Very good. So I think you know, as you highlighted, resin up 425 basis points in the quarter, about a third of that was mixed mea-meaning more April Air the remaining two-thirds was stronger price and productivity, and that does include net tariffs.

Speaker #2: really appreciate all the questions, particularly from the sell side. Thank you. We also just want to extend our sincere thanks to our 9,100 colleagues.

Speaker #2: Who are out there in a in an interesting world, you know, making it happen, making the world safer, healthier, and more productive to the power of better air every single day.

Speaker #4: i-i-as you kind of think about the overall path of travel on margins, sequentially I, I would expect the residential margin to be a down a bit from the second quarter.

Speaker #2: Controlling what they can control. Our team is really, truly one of our biggest sources of competitive differentiation. We are excited, as I hope you've heard, about the, the company that we are building, the momentum that we have ignited and work every day to sustain and so.

Speaker #4: We had some, you know, really favorable elements around pricing and productivity, as well as we did have a little bit of benefit from the tariff refunds.

Speaker #4: You know, I think for us, as we kind of think about this, you know, we're ultimately focused on delivering more customer more value for customers against this sort of inflation and, and geopolitical backdrop.

Speaker #2: We look forward to staying in touch. Please be safe, enjoy. The rest of this beautiful summer, and, and we look forward to speaking again soon.

Speaker #4: And we kind of think of tariffs inclusive of refunds as one of the many dynamics with it. So we haven't necessarily quantified that. you know, it was part of our overall price cost management, not a material impact in the quarter, but I would say very strong margin in residential, even excluding refunds.

Speaker #2: Thank you, everyone.

Speaker #4: and then as you think about for the total company as we've talked about, you know, third quarter, fourth quarter, even a margin rate in that 27, 28 percent range, probably around flattish in the third quarter, and then seeing more expansion in the fourth.

Speaker #4: Thanks, Zach.

Speaker #3: This concludes our question and answer session. I would like to turn the conference back over to Jill Wyant for closing remarks.

Speaker #2: Thank you, Danielle. And thank you all to the research analyst community, to our investors who are on the call, other stakeholders, our team members.

Speaker #2: really appreciate all the questions, particularly from the sell side. Thank you. We also just want to extend our sincere thanks to our 9,100 colleagues who are out there in a in an interesting world.

Speaker #2: you know, making it happen, making the world safer, healthier, and more productive through the power of better air every single day. Controlling what they can control.

Speaker #2: Our team is really, truly one of our biggest sources of competitive differentiation. We are excited, as I hope you've heard, about the, the company that we are building, the momentum that we have ignited and work every day to sustain and so we look forward to staying in touch.

Speaker #2: Please be safe. Enjoy the rest of this beautiful summer, and we look forward to speaking again soon. Thank you, everyone.

Operator: Good morning. Welcome to the Madison Air Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call for a question and answer session. Please be advised that today's call is being recorded. I will now turn the call over to Steve Low-Tufo, Senior Vice President, Investor Relations. Please go ahead.

Steve Low-Tufo: Great. Danielle, thank you. Thank you to everybody for joining. Good morning. Welcome to Madison Air's Q2 2026 earnings call. Joining me today are Jill Wyant, President and Chief Executive Officer, and JJ Foley, Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements on this call are forward-looking in nature and are subject to risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, please see Madison Air's recent SEC filings. We undertake no obligation to update these statements as a result of new information or future events. In addition, in today's remarks, when comparing Q2 2026 results to Q2 2025, or referring to our 2025 performance, such information is presented on a combined basis for Madison Air and AprilAire, calculated as if AprilAire had been owned since 1 January 2025.

Steve Low-Tufo: We will also refer to certain other non-GAAP financial measures. You can find calculations and a reconciliation of these measures to the most closely comparable GAAP measure in our earnings release, the presentation accompanying this call, and in the supplemental information, as applicable, which can be found in the investor relations section of our website at madisonair.com. With that, I'll turn the call over to Jill.

Jill Wyant: Thank you, Steve. Good morning, everyone. Thank you for joining us today for our Q2 earnings call. I'll start by walking you through an overview of the business, our strategy, and the growth momentum reflected in our Q2 results. Then I'll hand the call over to JJ to discuss our Q2 2026 financial results and updated guidance for full year 2026. Then I'll wrap it with key takeaways before we open the call for Q&A. With that, please turn to slide five. At Madison Air, we see air differently. Our mission is to make the world safer, healthier, and more productive through the power of better air. We build and scale superior air quality businesses that operate in high-value niches adjacent to traditional HVAC, across both commercial and residential segments.

Jill Wyant: Our leading brands include Addison, AprilAire, Big Ass Fans, Broan-NuTone, Nortek Air Solutions, Nortek Data Center Cooling, and Reznor. Collectively, our businesses have delivered durable compounding growth, outpacing the core US GDP growth rate in 16 of the last 18 years on an historic basis through 2025. Our strategy is built around three strengths that work together to deliver better air, stronger customer outcomes, and attractive long-term returns. The first strength is our Return on Air approach, how we help customers achieve their most critical business outcomes. We bring together technical expertise, leading brands, and collaborative partnerships to solve customer challenges in the environments we serve. Whether we're helping protect critical infrastructure and reduce the risk of downtime in a data center, improve yield and asset utilization in a semiconductor facility, or create healthier homes through our healthy air system, the outcome is the same. Better air produces better outcomes.

Jill Wyant: The company's second strength is our leadership in attractive growth markets. Within our commercial segment, we serve 15 end markets where performance is critical and customers invest in highly engineered custom and semi-custom solutions that deliver measurable value. While data centers are an important part of that opportunity, they are just one of the markets we serve. Our brands also support hospitals and healthcare, life sciences, semiconductor chip fabs, power generation, and other mission-critical applications, supporting a broad range of high-growth opportunities. In residential, we work through our contractor and distribution channels to reach homeowners and build awareness and adoption of healthy air systems. That education creates demand that didn't previously exist, giving us avenues to grow even in soft housing and soft traditional HVAC markets. Since 2021, we estimate that we've more than tripled our addressable market by expanding into larger, faster-growing sectors with more complex performance requirements.

Jill Wyant: We've not only grown the business, we've repositioned the portfolio towards markets where air is mission-critical and where our technical capabilities can create differentiation. That evolution reflects both the breadth of our capabilities and our ability to apply them in new, attractive markets. The third strength is our value creation model. We combine a decentralized operating structure and lean corporate center with the capabilities and scale of the broader enterprise. Our businesses remain close to their customers and can move quickly to invest where they see the greatest opportunities while they benefit from shared capabilities, talent, technology, and capital. That combination of local agility and enterprise scale is an important competitive advantage. It enables us to pursue growth rapidly and efficiently, sustain strong profitability and cash flow, and deploy capital into the highest return opportunities.

Jill Wyant: Taken together, these three strengths, Return on Air or our outcome-driven solutions, leadership and attractive markets, and a disciplined value creation model form a repeatable framework for creating long-term value. Please turn to slide six. On an LTM basis, we are a $3.75 billion revenue business with strong underlying profitability and cash generation. I'm proud of the quality of our results, 26.6% Adjusted EBITDA margin, and $430 million in free cash flow, which together represent the power of our unique value creation model. We built this portfolio with resilience in mind, balanced across commercial and residential, with meaningful exposure to replacement retrofit and upgrade activity that holds up across cycles. We're also seeing a growing share of demand for services and aftermarket solutions, which adds stability and increasingly recurring revenue characteristics over time.

Jill Wyant: Aftermarket and services represent about 10% of total revenue, and we see significant opportunity to expand those offerings over time. We are investing in service capabilities, digital tools, and simplifying how customers do business with us over the life of their systems. A great example of this is Nortek Air Solutions' new coil selection software and mobile app. These tools are making it easier for customers to identify, quote, and order replacement parts seamlessly. Adoption has been strong, with approximately 30% of orders flowing through these self-service channels. These tools simplify routine transactions and allow our teams to spend more time solving customer problems and creating real value. It is a great example of how we are using innovation and technology to strengthen customer relationships and expand our aftermarket opportunities. Geographically, the business is predominantly focused on North America, where we have established brands, strong channel positions, and long-standing customer relationships.

Jill Wyant: As of 30 June, we have over 9,000 employees, with 600 of them focused on R&D to drive innovation. Altogether, Madison Air is built to grow with strong profitability, cash generation, end market breadth, and a growing aftermarket opportunity, creating multiple avenues for success and a durable platform for profitable growth. Please turn to slide seven. Madison Air is everywhere air matters, from clean rooms and schools to hospitals, data centers, government institutions, and single and multi-family homes. Our solutions show up everywhere people live, work, learn, and play, and that is by design. We have built capabilities across the air ecosystem, from thermal management and cooling to ventilation, air handling, and humidity control. This breadth enables us to solve complex customer challenges in a wide range of applications and environments. We have expanded into new applications and high-value markets by building on our core capabilities and expertise.

Jill Wyant: We estimate our North American addressable market at approximately $40 billion, supported by powerful secular tailwinds, including the growth of advanced manufacturing, increased demand for healthier and more energy-efficient buildings, and the rapid growth of AI and compute. These trends directly align with our strengths, and while the applications may differ, our role remains the same: helping customers get more from the air in their environments. This focus reinforces our ability to create value across a broad range of customers, applications, and markets. Please turn to Slide eight. Madison Air's products and services capabilities run deep, and we see significant opportunity as we apply our capabilities across high-value, performance-driven end markets in both commercial and residential segments. Our Q2 results demonstrate the strength of this approach and the value of our diversified business mix.

Jill Wyant: Within commercial, we serve mission-critical applications across 15 end markets, which provides exposure to multiple demand drivers rather than reliance on any one single sector. What makes this set of end markets so attractive is that they share several common characteristics. They benefit from long-term secular tailwinds, require sophisticated air solutions, and place a premium on performance, innovation, and outcomes. Air is essential infrastructure in the markets we serve and mission-critical to what these customers do. We believe that positions us well for continued growth. In an environment where macroeconomic trade and geopolitical conditions can shift and are shifting quickly, our diversified exposure provides resilience while significant white space remains as customers increasingly use better air to improve their business outcomes. Together, these end markets create a more durable growth profile. Please turn to Slide nine. Orders are a leading indicator. They really tell us where the business is going.

Jill Wyant: Based on our Q2 results, the signals are strong. Our new business pipeline remains healthy with combined company orders growing 45% in the quarter and 37% year to date. As we noted last quarter, orders can fluctuate based on project timing and customer schedules. To that end, we noted this last call, we expect year-over-year orders growth to moderate and decline in Q4 against exceptionally strong comparisons from 2025. The underlying drivers of demand remain strong and our expanding pipeline, continued opportunity conversion, and record backlog give us confidence in our ability to deliver continued growth over the next several years, despite a dynamic macroeconomic backdrop. With strong order activity and a Q2 book-to-bill ratio of 1.3 times, we exited the quarter with record backlog of $2.9 billion, up 133% year over year on a combined company basis.

Jill Wyant: Based on our Q2 results, the signals are strong. Our new business pipeline remains healthy with combined company orders growing 45% in the quarter and 37% year to date. As we noted last quarter, orders can fluctuate based on project timing and customer schedules. To that end, we noted this last call, we expect year-over-year orders growth to moderate and decline in Q4 against exceptionally strong comparisons from 2025. The underlying drivers of demand remain strong and our expanding pipeline, continued opportunity conversion, and record backlog give us confidence in our ability to deliver continued growth over the next several years, despite a dynamic macroeconomic backdrop. With strong order activity and a Q2 book-to-bill ratio of 1.3x, we exited the quarter with record backlog of $2.9 billion, up 133% year over year on a combined company basis.

Jill Wyant: That backlog provides strong visibility into the near term and beyond, with more than 50% of that backlog expected to convert in 2027 and later, positioning us well for continued growth. More importantly, that demand is translating into performance. Our pro forma net sales growth of 14% in the quarter and 13% year to date reflect the broad-based growth momentum we're seeing and driving across the portfolio. We remain pleased with the balanced nature of orders in our commercial segment. While Nortek Data Center Cooling remains the largest contributor of commercial orders growth, commercial orders increased nearly 50% in markets other than data centers in Q2, reflecting broad-based strength across the enterprise. Well, what's driving that demand? Well, in many cases, it's our ability to deliver Return on Air. Nortek Air Solutions, for example, recently secured a significant project supporting a leading children's hospital.

Jill Wyant: The customer needed a highly engineered air handling solution capable of delivering up to 10 times the air capacity of traditional units for their 2-million-square-foot pediatric facility in a southern metro area that has seen strong population growth. This is a great example of Return on Air in action. We're not simply selling equipment. We're helping customers reduce operational risk, extend asset life, maintain continuous care, and create better outcomes for the people, in this case, the children and families who depend on these facilities every day. That kind of differentiated value is what drives orders and backlog growth and builds long-term customer relationships that open services and aftermarket opportunities. Please turn to Slide 10. The results and demand momentum we're discussing today are the result of a deliberate strategy to create value.

Jill Wyant: The customer needed a highly engineered air handling solution capable of delivering up to 10x the air capacity of traditional units for their 2-million-square-foot pediatric facility in a southern metro area that has seen strong population growth. This is a great example of Return on Air in action. We're not simply selling equipment. We're helping customers reduce operational risk, extend asset life, maintain continuous care, and create better outcomes for the people, in this case, the children and families who depend on these facilities every day. That kind of differentiated value is what drives orders and backlog growth and builds long-term customer relationships that open services and aftermarket opportunities. Please turn to Slide 10. The results and demand momentum we're discussing today are the result of a deliberate strategy to create value.

Jill Wyant: The key elements of the Madison Air strategy and how we translate that, our Return on Air approach, into sustainable growth and strong cash flow are shown here. At the center of it all is Return on Air. We help customers turn air from a utility into a strategic asset that improves performance, reduces energy consumption, protects critical assets and operations, and creates safer, healthier, and more productive environments. The value we create extends beyond a SKU or even a configured product. It comes from our collaboration and co-creation with customers. From our seat at the customer's design table, we're applying deep application expertise, engineering insight, and system-level thinking to help solve problems and optimize outcomes. By engaging early and partnering closely with customers, we help shape better solutions from the start.

Jill Wyant: When customers achieve better outcomes, we create value together, that shared value drives sustainable growth for Madison Air. What makes this model powerful is that it is repeatable. We apply the same playbook across the portfolio, taking close customer collaboration, combining it with technical expertise, innovation, and disciplined execution to create value in a way that can scale across businesses, markets, and cycles. We work to outperform the markets we serve through innovation, value-based selling, strong channel and customer partnerships, and investments in lifecycle services and aftermarket capabilities. The proof points are evident in our performance. We have consistently outpaced US GDP, unlocked approximately $28 billion of additional addressable market, and generated strong margins and cash flow while continuing to invest for growth. Growth investment and execution are what make the model work, and that takes our team, the 9,100-plus people who power Madison Air.

Jill Wyant: We invest in them to create consistency and alignment and to ensure the value creation model is embedded across the organization and shows up in how we execute every day. I always say people vote with their feet, our people overwhelmingly are voting to stay with Madison Air. While I believe Gallup reported a 3-point decline in global employee engagement, our employee Net Promoter Score, which was measured as a part of our Q2 proprietary employee engagement survey, increased 4 points. On a related note, our monthly turnover rate remains 30% below manufacturing benchmarks, which reflects the strength of our culture and the deep commitment of our team. Engaged teams are also safer, healthier, and more productive teams, that shows up directly in the results we deliver.

Jill Wyant: We invest in them to create consistency and alignment and to ensure the value creation model is embedded across the organization and shows up in how we execute every day. I always say people vote with their feet, our people overwhelmingly are voting to stay with Madison Air. While I believe Gallup reported a three point decline in global employee engagement, our employee Net Promoter Score, which was measured as a part of our Q2 proprietary employee engagement survey, increased four points. On a related note, our monthly turnover rate remains 30% below manufacturing benchmarks, which reflects the strength of our culture and the deep commitment of our team. Engaged teams are also safer, healthier, and more productive teams, that shows up directly in the results we deliver.

Jill Wyant: Finally, we put capital to work where it can create the greatest value, that means investing in organic growth, pursuing inorganic M&A opportunities where they make good disciplined sense, that gives us flexibility to reinvest behind our highest return opportunities. As we pursue opportunities in high-growth markets, some parts of the portfolio will naturally be at an earlier stage of their margin journey. An example of this is the data center cooling business, which is a great business with strong fundamentals. Our experience has shown that these investments can create significant value over time as we apply the same profitable growth playbook that has driven success across Madison Air, scaling the business, strengthening our market position, and expanding margins over time as the business matures.

Jill Wyant: We improve margins through a combination of value selling, continued investment in innovation, which is a great margin lever for us, profitable top-line growth that leverages our fixed cost base, expansion of higher market aftermarket and services revenue, an ongoing focus on 80/20 and operational discipline. That same operating discipline also positions us to navigate ongoing inflationary pressures through pricing actions, productivity initiatives, and material cost reductions. Together, supporting our ability to protect and grow margins over time. These elements have been central to our success across Madison Air, give us confidence in the sustainability of our margins as we continue to invest in high-return growth opportunities. The result is a business designed to deliver sustainable profitable growth and strong cash generation over the long term. With that, I will turn it over to JJ to walk through the Q2 financial performance and outlook.

JJ Foley: Thank you, Jill, and good morning, everyone. If you can please turn to slide 12, I'll pick up there. On a pro forma basis, net sales for the quarter were up 14% and Adjusted EBITDA grew 12%. We delivered strong free cash flow so far this year, approaching $140 million year to date. Pro forma net sales grew 14% year over year to $991 million, with low single-digit price realization across both segments and double-digit volume growth driven by broad-based demand across our commercial end markets and continued strong demand for healthy air systems in the residential segment. Top-line growth translated into 12% pro forma Adjusted EBITDA growth. Margins of 26.8% were up 155 basis points from the Q1. Year over year margins contracted approximately 59 basis points. Margins were generally in line with our expectations as we called out on the Q1 call.

JJ Foley: This is impacted by the timing of net tariff and inflation costs, commercial segment mix, which more than offset productivity gains and disciplined cost management. Because of the timing of the April IPO, the weighted average share count for Q2 is slightly lower than we are assuming for the remaining quarters this year. Given this dynamic, we'll be reporting our adjusted net income figure here in the presentation. Our adjusted net income was $148 million in the quarter and represented 83% pro forma year over year growth driven by net sales and pre-tax earnings growth mentioned above. On the quarter, we generated $140 million of free cash flow year to date, which represents net income conversion of 123%. We ended the quarter with net leverage of 2.8 turns, which represented a 0.2 turn improvement versus the Q1 pro forma for the IPO.

JJ Foley: This continued improvement came from earnings growth and cash generation, which we expect to accelerate in the H2. Overall, the quarter demonstrates our ability to convert net sales into earnings growth and cash generation. With that, let me review our segment level performance on slide 13. In commercial, we drove solid orders growth. Orders were up over 70% year over year on a combined company basis, reflecting continued momentum in key technology platforms, including air, liquid, and hybrid cooling, air handling, and air movement. Backlog for the segment increased 142% year over year on a combined company basis, providing very good visibility and supporting solid revenue momentum into 2027. Importantly, commercial orders were up almost 50% year over year for markets other than data centers, and that backlog is up over 20% year over year.

JJ Foley: Strong customer demand drove 22% year over year combined company net sales growth to $659 million, driven by a combination of low single-digit pricing and high teens volume. This quarter reflects continued progress across our 15 commercial end markets that Jill spoke about as we benefit from our diversified portfolio and decentralized operating model. Reported commercial segment Adjusted EBITDA grew 11% to $173 million, and reported Adjusted EBITDA margin was 26.3%, in line with our expectations coming into the quarter. The year over year margin comparison primarily reflects rapid growth in large data center programs, including project mix and capacity addition investments, program ramp costs, and the timing of inflation and tariff recovery actions across the broader segment. We have a clear roadmap to expand margins in the H2, and we believe the key drivers are measurable and within our control.

JJ Foley: We closely track productivity, program maturization, and price realization across defined operating targets. Each is progressing in line with our plan. These operating levers we manage every single day, giving us confidence in our ability to deliver sequential margin improvement and year-over-year margin expansion in H2. Overall, the segment continues to benefit from exposure to mission-critical end markets, including data centers, aerospace, education, healthcare, and life sciences. We remain focused on executing our backlog, innovating to meet customer demands, and sustaining growth momentum. Now please turn to slide 14 for the Residential segment results. The Residential segment delivered 2% net sales growth on a combined company basis despite a soft housing market, performing in line with our expectations. As we've mentioned before, given the short cycle nature of this business, orders and backlog are less relevant than in Commercial.

JJ Foley: With that said, orders grew low single digits in the quarter. We continue to expand healthy air system awareness and adoption through our contractor partners. Every HVAC replacement and service call creates an opportunity to engage homeowners amounting to roughly 40 million annual in-home touchpoints. That's 40 million chances every single year to educate homeowners on the value of the healthy air systems and to make a sale. Our contractor education conversion efforts support white space penetration and market expansion. In Q2 did just that despite softer housing and HVAC environment. Overall, our Residential segment continues to make sequential progress on healthy air system penetration, channel conversion, and price realization and productivity. AprilAire delivered double-digit revenue growth supported by contractor and distribution conversions and new product launches.

JJ Foley: Our Q2 results demonstrate the resilience of our model, which is perfectly built to be able to navigate broader market headwinds like these with vast white space penetration opportunity, opening paths to growth in otherwise muted residential conditions. Reported net sales increased 16%, or 2% on a combined basis, to $334 million, which was supported by low single-digit pricing and approximately flat volume overall. In addition, reported segment Adjusted EBITDA grew 36% to $99 million, with 423 basis points of margin expansion driven by productivity, cost actions, price, and favorable mix. Tariff refunds provided a modest benefit. Margins expanded meaningfully excluding that impact. Overall, the segment continues to demonstrate strength and remains differentiated in product, channel, and overall opportunity compared to the more traditional Residential HVAC providers. We remain focused on driving growth through innovation and channel penetration to effectively position when demand influx.

JJ Foley: Now please turn to slide 15 and our balance sheet. The strength and flexibility of our balance sheet is supported by continued strong cash generation. As of 30 June, net debt was approximately $2.8 billion, with net leverage at 2.8x trailing. The $2.6 billion net proceeds from the April IPO and concurrent private placement were used to retire debt, including interest. This improved flexibility allows us to continue investing for the long term in organic growth, delevering the balance sheet, and strategic acquisitions. Our Q2 leverage improved approximately 0.2 turns to 2.8x trailing net leverage compared to an IPO pro forma net leverage of roughly 3 at the end of March.

JJ Foley: We believe we have a clear line of sight to organically achieve our longer-term targeted range of less than 2.5x net debt to EBITDA by year-end 2026, driven by continued strong cash generation. In addition, as of 30 June, we maintained solid liquidity of roughly $1.6 billion, including $262 million of cash on hand and about a $1.3 billion undrawn revolver, which increased from $340 million in Q2, providing ample flexibility to support operations and strategic initiatives. The business continues to generate strong free cash flow and reported free cash flow of approximately 123% in H1, driven by our asset-light model and disciplined working capital management. Reported LTM free cash flow margins were about 11.5%. Organically, we continue to expect free cash flow conversion of net income above 100%. Now please turn to slide 16 to discuss our capital allocation priorities.

JJ Foley: Our capital allocation framework remains consistent and disciplined, focused on deploying cash to maximize shareholder returns centered on three key priorities. First, we continue to invest in high-return organic growth opportunities, particularly in mission-critical, defensible technology platforms and durable end markets where we see the strongest demand and margin expansion potential. Second, we're committed to maintaining a strong and flexible balance sheet with a clear path to organic deleveraging. Third, we intend to pursue strategic and disciplined M&A to accelerate growth and strengthen the portfolio, focused on assets that expand our capabilities, enhance our technology platforms, and deliver clear strategic and long-term financial returns. As noted, we are willing to be flexible for the right opportunities while remaining committed to rapid integration and post-acquisition delevering.

JJ Foley: Our integration of AprilAire and the leverage reduction achieved since the closing of that transaction in May 2023 demonstrate our ability to do just that while maintaining financial discipline. Overall, we believe this balanced approach positions us well to drive long-term value creation while maintaining financial flexibility. Now please turn to slide 17. The strength of our H1, particularly within our commercial segment, together with visibility provided by our record backlog, supports an increase to our full year net sales guidance. We now expect net sales to be about $75 million higher than prior guidance at the midpoint, or a range of $3.825 to 3.925 billion. This represents high single-digit plus growth on a pro forma basis. This 2026 growth outlook is above the longer-term organic mid-single-digit growth ambition we discussed at the last earnings.

JJ Foley: Looking ahead to Q3, we expect net sales growth of high single-digit plus with a jumping off point of $898 million in Q3 2025. On Adjusted EBITDA, we anticipate $1.02 to 1.065 billion for the full year, or high single-digit to low double-digit growth on a pro forma basis. We continue to expect Adjusted EBITDA growth that outpaces revenue growth, with resulting full year Adjusted EBITDA margins of about 27%. The implied H2 margin rate represents a modest step-up from the H1, driven by operating leverage, productivity initiatives, and further price realization. Beyond the headline guidance, our assumptions remain largely unchanged.

JJ Foley: We continue to expect strong free cash flow conversion, CapEx investments of less than 2% of sales, cash interest of approximately $240 million reflecting the IPO and our latest debt repricing, and an effective tax rate of 29% and a diluted share count of approximately 507 million at year-end. We also included approximately $38 million in central expenses, a modest improvement from our prior estimate, which includes the required activities that come with being a public company. Our guidance continues to assume gross exposure to the current tariff landscape. As discussed on the last call, we expect to offset those impacts over time through a combination of additional pricing and operational activities. At the same time, we continue to invest in innovation, commercial execution, and productivity initiatives that support our longer-term growth agenda.

JJ Foley: Stepping back, our outlook assumes a generally stable demand environment and continued strength across commercial end markets, including data centers, logistics, and healthcare. In residential, we continue to expect growth driven by white space opportunity for healthier systems. While geopolitical and macroeconomic conditions remain fluid, our teams are really focused on what they can control: serving customers, driving productivity, and executing our strategic priorities. We believe that approach positions us well to navigate an evolving macroeconomic environment and deliver on our commitments. With that, I'd love to turn the call back to Jill.

Jill Wyant: Thank you, JJ. Our Q2 performance demonstrates the strength of Madison Air. Across our brands, we're participating in the right markets, our innovation is delivering meaningful customer outcomes, and our diverse exposure continues to drive both resilience and momentum across the business. Regardless of the external environment, our priorities have not changed. Backed by strong demand, record backlog visibility, and a clear roadmap for growth, we remain focused on disciplined execution and focusing on the factors within our control. The work ahead is clear. Deliver on our backlog and our longer cycle commercial businesses, execute our proven playbook to protect and expand margins over time as our growth investments scale, accelerate healthy air penetration in residential, and deploy capital where it generates the highest return. Our mission is to make the world safer, healthier, and more productive through the power of better air.

Jill Wyant: Return on Air is how we measure the value we create for our customers and the impact we deliver every day. Thanks again for joining us, and Danielle, we'd now love to open the call for questions.

Operator: Thank you. We will now begin the question and answer session. To allow as many participants as possible the opportunity to ask questions, please limit yourself to one question. To ask a question, you may press star one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star two. At this time, we'll pause momentarily to assemble the roster. The first question comes from Andrew Obin from Bank of America. Please go ahead.

Andrew Obin: Good morning. Thank you very much. I guess my first question is, I know everybody is going to ask about data centers, why don't I ask about the fact that ex data centers, you were up 50%. Can you just unpack for us what verticals drove this and how sustainable it is? Thank you.

Jill Wyant: Good morning, Andrew, and thank you for the question. To your point, outside of data centers in the Q2, the commercial segment had really great balanced growth. We saw broad-based growth across a variety of our markets. That included advanced manufacturing, and this is things like clean room manufacturing and clean energy end markets, healthcare, and other institutional segments that were really supported by demand for our air movement and custom air handling platforms. I think we talked about that backlog, $2.9 billion in commercial. It was actually up about 142%, more than half of which will convert in 2027 and beyond. Orders, because of that balanced demand, up 70% for the segment, 50% excluding data centers.

Jill Wyant: Our pipeline is bigger than. As we sit here today, our new business pipeline bigger than when we exited the year, bigger than we exited the Q1, larger than year-on-year. I think showing the benefit of how intentionally positioned and well-diversified the portfolio is. We have a diversified portfolio, very focused teams that create a more resilient growth profile. We see it, to answer your question, as sustainable. Our decentralized model has also been a very meaningful advantage to this kind of balanced growth. We have dedicated teams who drive very deep customer intimacy, are innovating for that diverse set of 15 end markets, drive sharp execution, and that helps us to stay very focused across the breadth of our commercial core.

Jill Wyant: Last but not least, we think that that kind of growth, if we have anything to say about it, is sustainable as a function of the fact that over half of our portfolio, 60%, is replacement, upgrade, and aftermarket demand. We ought to be able to perform by virtue of our diversification, supported by a decentralized model such that we have teams focused across the portfolio and that very attractive 60% of demand from replacement, upgrade, and aftermarket. We feel good about the future to the extent we're trying to control what we can control.

Operator: The next question comes from Tim Wojs from Baird. Please go ahead.

JJ Foley: Morning, Tim.

Tim Wojs: Hey, everybody. Good morning. My question is, we kind of just maybe step back on the capital allocation side. I mean, you're, I'd say, de-levering a little faster than I think we expected and maybe investors expected. Is there an opportunity here to maybe think about incremental capital deployment in terms of acquisitions for the next 6 to 12 months? I guess, how's the pipeline?

Jill Wyant: Great. Thank you for the question, Tim. Great to have you with us. If we go backwards in time here, whether it's over the last few years or even in Q1, we talked about we really think about Madison Air as an organic growth company with M&A as a lever. Clearly as JJ outlined, and I mentioned in the prepared remarks as well, our capital allocation really is all about continuing to organically de-lever the balance sheet, investing in our core organic growth opportunities, and continuing to do strategic disciplined M&A. We are very delighted with our team's progress on converting great growth and profit to cash and using that coupled with the IPO proceeds to continue to get our balance sheet in the spot where M&A can continue to serve as an accelerator for our strategy. What do we look at?

Jill Wyant: First and foremost, we look at acquisitions that can strengthen our technology platforms. How do we beef up our ability to deliver tangible return on air? So we love great technology. Second of all, we look for businesses that strengthen our channel presence, things like a direct channel, a direct path to the customer for example. And lastly, acquisitions that really expand our capabilities in attractive end markets. And increasingly, we love M&A deals that increase our exposure to services and aftermarket potential. So that's the sort of the sweet spot that we look for. And we have just completed our annual strategy cycle with the board. We are excited about the funnel, both of organic growth prospects, but also our M&A funnel is very active. As we talked about in the past, we have a very special capability here.

Jill Wyant: We have a long track record of having done M&A successfully as an acquired choice. 80% of those acquisitions have been sourced on a proprietary basis, i.e., they never went to auction. And JJ mentioned AprilAire, which really shows the power. A business we acquired 13 months ago that is truly firing on all cylinders, and we have continued to march along the de-leverage path as we committed to you all. So given where we sit at 2.8 times, and the healthy path we remain on through a combination of EBITDA and cash flow generation, we feel good about our financial and strategic flexibility, and M&A absolutely remains center plate as a capital allocation priority.

Operator: The next question comes from Jim Sprague from Vertical Research. Please go ahead.

Operator: The next question comes from Jeff Sprague from Vertical Research. Please go ahead.

JJ Foley: Morning, Jeff.

Jeff Sprague: Good morning, everyone. It's Jeff Sprague here. Hey, good to connect. I was wondering if you could unpack for us a bit just the margin pressure in commercial between those kind of three items mix, production ramp, and tariff cost. I assume they're listed in order of prominence, but maybe you could shed a little bit of light on that and in particular, where we're at on the margin ramp on the CDU business.

JJ Foley: Yep, absolutely. I think the Q2, as expected, we ended up continuing to make the sequential progress in the Q2 with the overall EBIT rate of 26.8. The Q2 margins, as we highlighted, were definitely shy of the prior year through a combination of the inflation and tariff timing, where we expect the actions that we took starting in the beginning of the quarter with the new 232 tariffs, those actions to further take effect in the H2. As well as you highlighted, the rapid growth in the data center business. I think together these dynamics were partially offset by the fixed cost leverage. We are seeing the fixed cost leverage that we expected. The headwinds I highlighted are things that improve as you get into the H2.

JJ Foley: I think stepping back on the H1, margins at 26.1% were approximately flat. A lot of the same drivers, including inflation and tariff timing and the data center mix, we feel confident about the ability to get to the total year guide on roughly 27% margins. I think on commercial, as you highlighted, I would kind of bucket it into mix, the incremental tariffs, and then the ramp costs. In that order. The mix-driven piece of this as we really grow that data center business, I think Jill highlighted that as a strong business, early innings as it relates to the margin side of things. The headwind from the inflation and tariffs, as well as the ramp costs. I think the ramp costs improve as you get into the H2.

JJ Foley: Just remember on the tariff side of things, that's more the impact of our Canada sites shipping into the US. Those recovery actions take hold as we get into the H2. I feel really good about the H1 margins and the modest step up as we get into the H2 of the year.

Jill Wyant: Maybe just to add to that, Jeff, this is Jill. As JJ mentioned, sequentially up 155 basis points. Basically down slightly versus last year, which is where we predicted we would be when we last spoke. I would double-click. Data center mix was certainly a contributor, it wasn't the only factor. As JJ noted, we had tariffs and inflation timing. We're investing in this continued growth ramp. We continue to view the data center business as a highly attractive business with very strong fundamentals. It is also one of 15 verticals in our portfolio, it's just really earlier in its scaling journey. I want you guys to know that we are going to use, as I mentioned in my remarks, the same set of levers we always have that have driven us to this point. Our margin playbook, if you will.

Jill Wyant: Value selling, focused on Return on Air, investments in innovation, which are a great margin lever for us because we're bringing more value to customers. Profitable top-line growth. We know how to leverage our fixed costs as we scale and up cycle, continuing to expand services and aftermarket, continuing to apply our 80/20 model. While this data center business created, and a few other factors that we're all over in terms of pricing, tariffs, inflation, and the like, we are very clear-eyed as a team. We know what we have to do. Each business leader, in the spirit of 80/20, knows there are three things, right, to deliver the H2. We've seen it work before, and we're laser-focused and very clear-eyed on the work to do in the H2.

Operator: The next question comes from Nigel Coe from Wolfe Research. Please go ahead.

Nigel Coe: Oh, thanks. Good morning.

Jill Wyant: Hello, Nigel.

Nigel Coe: Hello. Hello, Jill. How are you? Hi. Hey, JJ.

JJ Foley: Morning.

Nigel Coe: Morning. Yeah. Just on the backlog, obviously, really impressive, and it seems like some really good traction with Nortek Air Solutions. I'd be curious, just a couple of sub-points on the backlog. Number 1, what's driving the broad-based strength in air handling? I know it's been a theme. I'm just curious, is this new builds? Is it upgrades? Just as curious on what's driving the strength there. Then just in terms of that backlog, how does the price and margin look within that backlog?

Jill Wyant: Yeah. Thank you for the question. Yeah, we are delighted with our orders and backlog performance in Q2. Again, very strong, $2.9 billion, up 133% year over year and 14% sequentially. This is really a function of the work we continue to do to build pipelines, bring more innovation, and keep our very focused teams devoted to end markets, calling on customers and controlling our own destiny. About 9 months TTM average sales in the backlog, effectively half of it will deliver 2027 and beyond. I would say on new build versus existing construction, it's balanced. I would say, I don't know if it's exactly 50/50, but we feel it's largely in line with the overall portfolio, which is 60% replacement, upgrade, and services aftermarket, and 40% new construction, which is more of that data center piece.

Jill Wyant: Do you want to comment on sort of price margin and backlog?

JJ Foley: Absolutely. I think as you look at the backlog, I think it supports the H2 step up that we've talked about. The combination of the bookings, but also the productivity efforts that are in flight, as well as some of that incremental price coming through. I would say the margins and backlog we feel good about, as well as supporting the H2 step up on EBITDA rate for the total company that we outlined in the implied guide midpoint.

Operator: The next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.

Jill Wyant: Morning, Joe.

Joe Ritchie: Hi, good morning. Good morning, Jill. Good morning, JJ.

JJ Foley: Morning.

Joe Ritchie: Let's just stick with data center for a second. Can you maybe just break down, give us a little bit of the composition of those wins, maybe between liquid, hybrid, traditional air cooling? You had an OEM yesterday talk about capacity constraints that they're starting to see. Just talk to us about your supply chain, and your ability to deliver on the backlog that you've already booked.

Jill Wyant: Yep. In terms of the composition, we feel very good about the balanced mix between hyperscalers and co-locators. As we've said before, our strategy in the data center space, which we've built entirely organically, is to really pursue what we believe to be the most resilient demand. Folks who are building in response to this sort of global shortage of compute. We feel very good about our balance between hyperscalers and co-los, and particularly on the hyperscaler front. They had strong earnings in the Q1. Microsoft announced very strong results this morning, so we feel good about our exposure there. We love the ongoing mix, whether it be on a unit and dollars basis between air and liquid. Liquid is what you would expect. It's growing very rapidly.

Jill Wyant: The legacy of this is air, but we have a very balanced mix between air and liquid cooling. I would also say this, I think this idea that air cooling is going to disappear is overstated. There's just a lot of thermal energy in a data center that needs to be rejected, so we see a future for both air and liquid cooling, but we like the mix. Our mix of air and liquid cooling solutions is moving where the market is moving, so we feel good about that. We have a wide range of CDU products with 300 kW to 5 MW capacity skidded, non-skidded options, and we think our CDUs are inherently very serviceable, which is one of our unique differentiators there. They are underpinned, as we've talked about, by our C-Force approach in the data center business.

Jill Wyant: This idea that we are not shipping you a catalog, order a CDU at a given capacity, but rather it is part of a total thermal management solution for the leading lights in the industry. That's a little bit of the balance. We feel good about the balance in the data center business. As I mentioned, thinking back to just a few years ago, we had one customer, one product. That team has come a long way. In terms of our supply chain, as we said last time, look, the data center demand is straining aspects of the global supply chain, and I think we see that particularly in electrical components, which we watch very closely. We have worked over the course of years to deepen and strengthen our supply chain across the company. Obviously, that work has disproportionately benefited us at this moment in time.

Jill Wyant: We work very proactively and collaboratively, not only with customers. When we talk about the importance of half that backlog is 2027 and beyond, that gives us very good forward-looking visibility into what we have to have lined up to deliver. We work with our supply base and our customers. I think a great proof point, again, of this C-Force embedded at the design table advantage is one of our hyperscale customers actually came to us recently and said, We want to use your lab and your very talented lab team to help us look at additional and qualify additional sources of supply. That's trust, and that's how we benefit from the forward-thinking nature of serving the most demanding leading players in the industry. I look, along with our team, at the status of our supply chain every week.

Jill Wyant: We deep dive it every month, and we look at production lines that are on the floor today and production lines that are going to have to be on the line in three or four quarters. While we can't control all the variables, we certainly start and end each day controlling what we can control. Maybe a last comment here, both in data centers and across the company, we have the capacity we need to deliver. I would not say that we see space on the line floor as a short or medium-term constraint.

Operator: The next question comes from Deane Dray from RBC Capital Markets. Please go ahead.

Deane Dray: Thank you. Good morning, everyone.

Jill Wyant: Hello, Deane. Congratulations on your pending next chapter. We're excited for you.

Deane Dray: I really appreciate that. Thank you. I just wanted to follow up on the last question from Joe's on specifically capacity expansion. I think you just said you have enough capacity for the near term, but just kind of given the growth rates that we're seeing, where would you need to start to add capacity? What product lines and what the overall kind of CapEx plan in order to support this growth?

Jill Wyant: Yeah. Thank you, Deane, and congratulations again. Excited for you and appreciate all you have done with your team to onboard to our company and learn our story, and it's been wonderful to have, albeit short in my case, opportunity to work with you personally. Look, broadly across the company, Deane, I would say we have the footprint we need. We have the footprint we need, and we have accommodated that within our asset light model. This is where our 80/20 approach, where we focus on what are the best customers and the best products that we want to have the ability to deliver short, medium, and long term. We have done and will continue to do all of that within our asset light model, kind of low single-digit CapEx as a percentage of sales. We have brownfielded to date our data center capacity.

Jill Wyant: We've added a bit of capacity there. We've also added capacity in our parts capability for our 15 commercial end markets that are buying more proprietary services and aftermarket. We are building out, innovating, and adding additional air purification capacity in our AprilAire business. All of that, very forward-thinking if you will, in terms of matching firm demand with the right level of capacity we need. We like where we're sitting. We've accommodated and will continue to accommodate it within our asset light model, and we feel like we are as ready as we can be for the next several years as we sit here today across the enterprise.

Operator: The next question comes from Scott Davis from Melius Research. Please go ahead.

Scott Davis: Good morning.

Jill Wyant: Morning, Scott.

Scott Davis: How's it going?

Jill Wyant: Good morning.

Scott Davis: Morning. Morning to you guys, and congrats on a great first 4 months here.

Jill Wyant: Thank you.

Scott Davis: I know this is just math, you commented on orders being down in Q4, obviously the comp is pretty meaty there. Do you expect backlog to also be down, or is that still even in a declining order environment potentially stay flat or even potentially grow? How does that math work?

JJ Foley: Yeah, I think it's a good call-out. As you said, Q2 orders were up 45%. That's up 37% for the H1, with book-to-bill well over one. Demand, as Jill has highlighted, the pipeline whatnot remain very strong. I think we expect while orders will be down, book-to-bill will remain quite healthy in the H2, as such, the full year. I guess the rest of it is just sort of math as you think about where the backlog ends. I would just, as you highlighted, we did $1.6 billion of orders in the Q4 2025, which is just a big number, even after you see us delivering $1.3 billion here in the Q2 this year.

Scott Davis: Okay. Just to go back, I know this is a couple questions on the cost issue, scaling has been brought up. I think almost every company we cover has mentioned scaling in some way, shape, or form this quarter as a headwind. Does scaling become sequentially less of a headwind as we get through the rest of the year? Or it remains pretty firm?

JJ Foley: No, I think it becomes less of a headwind as we move in. Right. I think as we look at the, call it 26.8%, I think as you look at what we see in Q3 and Q4, the rate's probably between 27% and 28%, kind of at the midpoint of the guide. That's a combination of feeling like we gained some ground on price costs, as well as some of those headwinds offsetting. Really, frankly, the team's getting a little bit more time on the clock to be able to execute a number of the key productivity initiatives and the material cost reduction programs that we have on some of the critical product lines.

Operator: The next question comes from Andy Kaplowitz from Citigroup. Please go ahead.

Jill Wyant: Hey, Andy.

JJ Foley: Hey, Andy.

Andy Kaplowitz: How you doing? Good morning. Maybe you can give us a little more color regarding what's going on in residential. You mentioned modest organic volume declines in your professional distribution channels. Could we double-click on what you're seeing there? It also seems like AprilAire penetration's continuing or maybe even accelerating. Maybe if you could talk about that a little more.

Jill Wyant: Yeah, absolutely. As we noted, our residential segment sales grew about 2%, Andy, despite a soft housing backdrop. That was really driven by continued very strong growth in healthy air systems, good progress on contractor conversion, price execution, and frankly, continuing to open white space. Yes, and the AprilAire business continues to perform very strongly. Great brand, innovative technology, and just bigger picture in our residential segment, we are playing a fundamentally different game, if you will, than traditional residential. We don't heat and cool the air. We make it better. We improve the quality of air. At the end of the day, 92% of US homes have nothing.

Jill Wyant: Boy, I don't know about you, but there was a day a few weeks ago when our air quality here in the Midwest was extremely hazardous due to wildfires in Canada and in northern Minnesota to a lesser degree. This business is prime for white space. They've got great innovation, a great channel presence, and our residential exposure is really predominantly exposed and tied to replacement and upgrade demand drivers, all of which is underpinned by two very strong brands, AprilAire and Broan-NuTone. We think that we deliver more consistent, durable performance as a result. We pull demand through the channel. We don't have this stocking and de-stocking and restocking dynamic that we work through. We didn't have that in 2025, and we don't foresee that dynamic in 2026, which I think allows us to just be a little smoother and more durable.

Jill Wyant: It's all part of the reason why since 2007, that AprilAire business has compounded sales growth at 8% top line. Just a great business, a strong brand, lots of white space to penetrate, lots of contractors left to convert, and a great team very focused on doing that.

Operator: The next question comes from Zachary Schechtman from Wells Fargo. Please go ahead.

JJ Foley: Morning, Zach.

Zachary Schechtman: Morning.

Zachary Schechtman: Hey, guys. Good morning. Thanks for taking my question.

JJ Foley: Of course.

Zachary Schechtman: I do want to say I'm moving into a house tomorrow with an AprilAire system, so I'm excited to feel the benefits of that, especially in the winter, and these New England winters can be super dry.

Jill Wyant: Yes, we have a new 720 dehumidifier, Zach, you'll be glad to know. Or humidifier, excuse me. It can humidify up to 6,200 square feet, and it can use up to 15,000 less gallons of water due to a proprietary humidification platform, patented, which is about equivalent to what the average US home consumes in terms of internal water usage. We are delighted that you will have a safe and comfortable winter whenever it should come to your part of the world.

JJ Foley: You'll have to report back on that.

Jill Wyant: Yeah, let us know.

JJ Foley: Quarter.

Zachary Schechtman: Yeah.

Zachary Schechtman: If your unit's old, we'll be able to look into that.

Zachary Schechtman: Amazing. I'll have to look into that.

Zachary Schechtman: Awesome. Yeah, I just wanted to, obviously, Q2 resi margin, I think, was a bit better than most expected, despite the volume pressure. Just kind of wanted to unpack that. How much of that was AprilAire synergies? Maybe you could give some color on how much was realized in 2025, H1 of this year, and moving forward. Then I'm assuming the tariff refunds received were also a tailwind to resi, given resi saw the bigger headwind last year. Just some color on that sizing, what to expect in H2 of this year, and maybe the split between segments.

JJ Foley: Yep, very good. I think as you highlighted, resi up 425 basis points in the quarter. About a third of that was mix, meaning more AprilAire. The remaining two thirds was stronger price and productivity, and that does include net tariffs. As you think about the overall path of travel on margins, sequentially, I would expect the residential margin to be down a bit from Q2. We had some really favorable elements around pricing and productivity, as well as we did have a little bit of benefit from the tariff refunds. I think for us, as we think about this, we're ultimately focused on delivering more value for customers against this sort of inflation and geopolitical backdrop. We think of tariffs inclusive of refunds as one of the many dynamics with it. We haven't necessarily quantified that.

JJ Foley: It was part of our overall price cost management, not a material impact in the quarter, but I would say very strong margin in residential, even excluding refunds.

Operator: Yeah.

JJ Foley: As you think about for the total company, as we've talked about Q3, Q4, EBITDA margin rate in that 27% to 28% range probably around flattish in Q3, then seeing more expansion in Q4. Thanks, Zach.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Jill Wyant for closing remarks.

Jill Wyant: Thank you, Danielle. Thank you all to the research analyst community, to our investors who are on the call, other stakeholders, and our team members. Really appreciate all the questions, particularly from the sell side. Thank you. We also just want to extend our sincere thanks to our 9,100 colleagues who are out there in an interesting world making it happen, making the world safer, healthier, and more productive through the power of better air every single day, controlling what they can control. Our team is really truly one of our biggest sources of competitive differentiation. We are excited, as I hope you've heard, about the company that we are building, the momentum that we have ignited and work every day to sustain. We look forward to staying in touch. Please be safe. Enjoy the rest of this beautiful summer, and we look forward to speaking again soon.

Jill Wyant: Thank you, everyone.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Q2 2026 Madison Air Solutions Corp Earnings Call

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