Modine Manufacturing Company (NYSE:MOD) Q4 2026 Earnings Call Transcript

Modine Manufacturing Company (NYSE:MOD) Q4 2026 Earnings Call Transcript May 27, 2026

Operator: Greetings, and welcome to Modine’s Fourth Quarter Fiscal 26 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kathy Powers. Thank you. You may begin.

Kathleen T. Powers: Hello, and good morning. Welcome to our conference call to discuss Modine’s Fourth Quarter Fiscal 26 Results. I am joined by Neil D. Brinker, our President and Chief Executive Officer and Mick Lucarelli, our Executive Vice President and Chief Financial Officer. The slides that we will be using with today’s presentation are available on the Investor Relations section of our website, modine.com. On Slide 3 of that deck is our notice regarding forward looking statements. This call will contain forward looking statements as outlined in our earnings release as well as in our company’s filings with the Securities and Exchange Commission. With that, I will turn the call over to Neil.

Neil D. Brinker: Thank you, Kathy, and good morning, everyone. I am pleased to report another strong quarter capping off our fourth consecutive year of record breaking revenue and adjusted EBITDA. This is a testament to the hard work and dedication of the entire team. Even more importantly, we have built strong business momentum and significantly advanced our strategic transformation accelerating the evolution of our portfolio to become more focused on higher margin and higher growth businesses. Earlier in the year, we announced 3 strategic acquisitions, Absolute Air, L. B. White, and Climate By Design, which collectively added $119 million in incremental revenue this year. These acquisitions added key products to our portfolio and new end markets and channel partners for our HVAC businesses.

In the second quarter, we announced an incremental $100 million investment to expand capacity for our data center products in the US. We are more than 6 months into this work, and I am happy to report that we are firmly on schedule with this crucial initiative. When completed, investment to expand our operations footprint in the US will provide critical capacity close to our North American customers. Allowing us to further advance our market positions in this hyper growth market. In January, we announced that we will further accelerate our transformation by spinning off our performance technology segment and combining it with Gentherm. This transaction will allow us to focus on our high growth businesses while providing an ideal home for our performance technology team.

And finally, to close out this remarkable year, I am proud to announce a landmark long term capacity locking agreement with a key strategic data center customer. Under the terms of this LTA, we will guarantee capacity to supply more than $4 billion of data center cooling products during calendar years 2027 through 2029. This agreement highlights the confidence our customers have in Modine and validates our need for our current investment in capacity expansion. This has been a year of tremendous accomplishments. I am so proud of our team’s execution and commitment. While we celebrate these successes, we are even more energized by the significant opportunities that lie ahead. Please turn to slide 5. Climate solutions delivered another outstanding record breaking year.

The segment reported a 43% increase in revenues for the full fiscal year, including acquisitions. Organic sales grew 32% in fiscal 26. Sales growth in this segment was also driven by data centers, which increased 73% to $1.1 billion. We ended the year with a strong fourth quarter performance in data centers with over $400 million in revenue. To put this in perspective, our chiller production in North America increased 5x. As compared to the prior year. This was despite production delays where we lost 20 shifts due to severe weather in the South. The team worked extremely hard to overcome the impact of this missed production and make sure we delivered on our customers’ commitments which included significant overtime hours. In addition, we ended the year with our second consecutive quarter of record order intake.

I recently toured several of our data center facilities, and I am pleased to report that the expansion plans are progressing well. We have already shipped our first chillers from Jeff City, Missouri and we shipped air handling units and CDUs from our Franklin, Wisconsin plant in the fourth quarter. Overall, I am very pleased and proud of this team’s work. Their efforts have been instrumental to our revenue growth this quarter and will continue to allow us to grow to meet future demand. As we continue to execute on our capacity expansion, we are proactively managing our supply chain to ensure our growth trajectory. We are currently addressing challenges with a few key suppliers, which is affecting our production schedules and efficiency. We began to see a shortage of certain components late in the quarter, and we are implementing corrective actions.

We have a dedicated team actively working on solutions, including qualifying new vendors to ensure a stable supply of components. We are confident in our ability to manage through these short term challenges, And while this will temporarily impact our Q1 production plans, we do not anticipate any impact on our full year outlook. From a market demand standpoint, we are in a great competitive position. The outlook remains incredibly strong, and we see no signs of slowdown. The hyperscalers are continuing their significant investments with a heavy concentration in North America. We are deepening our partnership with strategic customers, codeveloping innovative products to meet their current and future cooling needs. 1 of the products I am most excited about is our groundbreaking 3 megawatt chiller.

Which delivers a 50% increase in cooling capacity with only a 9% increase in footprint. As chip density increases, data centers will require more cooling capacity, within the same footprint. Our 3 megawatt chillers modular design will be the solution for handling higher heat loads, within the same space. We believe this will be a game changer. Innovating alongside our customers for what our dynamic cooling requirements over multiyear periods is giving us greater visibility into future demand. Allowing us to invest in our key growth initiatives and products with greater conviction. Now turning to the rest of our climate solutions segment. Our HTS business delivered a great quarter with revenues up 19%, This was largely driven by higher coil sales to data center and heat pump customers.

In HVAC technologies, revenues increased 51% from the prior year. Driven by recent acquisitions. Our HVAC business on the East Coast and in the South also lost significant production time due to severe weather. Looking forward, we have a great deal to be excited about across this segment. The commercial HVAC portion of the Scott Springfield business is poised for a strong recovery from a down year. This business was negatively impacted by tariffs this past year, but is expected to rebound in fiscal 27. We are also seeing continued momentum in our coils business. Not only with data center customers, but also in commercial HVAC markets. Similarly, our heating businesses are also expected to have a good year. Led by agricultural heating, and markets served by LB White.

In summary, I am very pleased with the performance of the climate solutions segment and I am confident in our strategy as we head into the fiscal year 2027. Please turn to page 6. The performance technology segment is making excellent progress on preparing for the planned spin off and merger with Gentherm. There are numerous work streams preparing for the separation. Including standing up IT systems to ensure that we can deliver a stand alone operating business to Gentherm at close. We have completed several major milestones and have others ahead of us, including Gentherm’s 4 submission, to the SEC, and its subsequent shareholder approval. As well as a receipt of our IRS determination letter on the tax treatment of the reverse mortgage trust transaction.

Overall, this process remains on track, and we are still expecting to close this transaction before the end of the calendar year. Presuming that all these necessary approvals are received. The team is excited about the road ahead. We have worked diligently to improve our business with higher adjusted EBITDA margins on flat to down revenues. Margins were lower this quarter as anticipated, primarily due to higher material costs, including the impact of tariffs. We expect this to improve in fiscal 27 as we pass through and recover these costs. While our vehicular markets have been challenging, we are seeing bright spots in opportunities for growth. The stationary power market continues to be strong, and we expect this to return to growth in fiscal 27.

We are also encouraged by the emerging growth in our automotive and construction equipment businesses. Regarding the latest 32 aluminum tariffs, we are proactively working to mitigate their impact on our business. We have a proven track record of managing these situations, and are in the process of working through this current round. We have factored a range of expected costs in our guidance, which Mick will discuss in more detail. Before I hand it over to Mick, I would like to remind you of our upcoming changes to our segment reporting structures. The performance technology segment under the leadership of Jeremy Patten will continue to be reported as a segment. Until the expected spinoff and merger with Gentherm closes later this year. Our climate solutions segment has been split into 2 segments, beginning in fiscal 27.

Data centers led by Arthur Laszlo, commercial HVAC currently led by Eric S. McGinnis. Eric has announced that he will be retiring in June, and his successor will be named at a later date. I would like to sincerely thank Eric for his leadership and invaluable contributions to Modine over the past 5 years. We wish Eric a long, happy, and well deserved retirement. With that, I will turn the call over to Mick.

Michael Lucareli: Thanks, Neil, and good morning, everyone. Please turn to Slide 7. To begin reviewing the Q4 segment results Climate Solutions delivered a strong quarter with sales up 87% over the prior year. The main driver was data centers, which grew $246 million or 158%. HVAC technology sales increased $33 million or 51% driven by our recent acquisitions, partially offset by slightly lower sales of heating and indoor air quality products, Heat transfer solution sales grew 19% or $26 million primarily driven by coils, with higher sales to commercial HVAC and data center customers. I am pleased to report that Climate Solutions fourth quarter adjusted EBITDA grew 63% driven by strong data center earnings growth from the prior year.

As anticipated, the Climate Solutions adjusted EBITDA margin was down versus the prior year but improved sequentially from the prior quarter. And all 3 product groups generated strong year over year earnings growth including a near doubling in our data center business. 1 headwind during the quarter was severe weather and storms across the United States. As Neil stated, we lost 20 production shifts in data centers, and another 35 shifts in other parts of the business due to weather related shutdowns. Team largely made up this work, but with additional cost for overtime, that negatively impacted gross margin. As we discussed last quarter, HVAC Technologies is currently experiencing a negative mix impact along with higher costs while we are integrating the several acquisitions.

These factors are temporary, and we expect that the margins will continue to improve. We also saw a nice sequential margin improvement in Heat Transfer Solutions, contributing to the rapid earnings growth. With regards to the data center group, I am happy to say that we saw another sequential margin gain in Q4. While the margin improved, there were some negative margin impacts during the lost production days tied to the weather and a shortage of some critical parts. As Neil discussed, we expect the team will address the shortage of a few critical components during our first quarter and I will provide some additional information in our guidance section. Despite some planned and unplanned challenges, in growing revenue by more than 85%, our Climate Solutions segment delivered over 60% earnings growth.

As Neil noted, starting in fiscal 2027, this segment will be split into 2. Data centers, and commercial HVAC. I will discuss our outlook in more detail at the end, but we anticipate another year of earnings growth driven by strong top line growth and further margin improvement. Please turn to Slide 8. Performance Technologies revenue remained relatively flat from the prior year, with lower sales offset by FX, which positively impacted sales by $12 million Heavy duty equipment sales were down 5% primarily driven by lower Genset revenue On highway sales were up 4% with higher sales to automotive and commercial vehicle customers. As expected, the EBITDA margin was down versus the prior year, primarily due to lower sales volume along with higher material and tariff costs.

Given the difficult market conditions in higher material costs, adjusted EBITDA declined 15% from the prior year. As we have done in the past, we will recover tariffs through surcharges, and mitigate increasing metals prices with pricing mechanisms in our customer contracts. As a reminder, there is typically a 3- to 6-month lag before these price adjustments take effect. SG&A expenses were $5 million lower versus the prior year as the segment continues to benefit from cost savings initiatives implemented earlier in the year. The team has been quite diligent in managing all controllable costs this year, with the full fiscal year EBITDA margin improving 30 basis points to 13.8%. This was a nice improvement given the lower revenue and various cost headwinds We expect margins to further improve during fiscal 2027.

As we adjust commodity related pricing, recover tariffs, and maintain our eightytwenty focus and discipline. Now let’s review the total company results Please turn to Slide 9. Fourth quarter sales increased 47% driven by revenue growth in Climate Solutions. Gross profit increased 29% driven primarily by higher data center sales volume along with contributions from the acquisitions in Climate Solutions. The lower gross margin was due to the combination of factors that I covered, with climate solutions and performance technologies. SG&A expenses increased but at a much lower rate than overall revenue growth, We increased SG and A spending in climate solutions, partially offset that with Performance Technologies, cost savings initiatives. As a result, SG&A as a percentage of sales fell by 190 basis points to 10.7%.

I would also like to note that the reported SG&A included $12.5 million of disposition costs related to the pending spinoff of Performance Technologies. These have been added back to arrive at adjusted SG&A and are referenced in the reconciliation schedule. From an earnings standpoint, I am pleased to report a 40% improvement in adjusted EBITDA, And while I reviewed the temporary items that have impacted this year’s margin, the adjusted EBITDA margin continues to improve. With a 40 basis point increase from the third quarter, while growing revenue in an exponential rate. Adjusted earnings per share increased 53% to $1.71 To summarize our consolidated results, Q4 represented another strong quarter of revenue and earnings growth, We are pleased to have delivered another record year The team is managing well through a strategic transformation, and exponential data center growth This year represents the 4th year of earnings growth of 20% or more resulting in a compound annual growth rate in excess of 40%.

As we look ahead, we expect to continue to capitalize on momentum and drive further margin improvement. As the data center production volumes ramp Now moving to the cash flow metrics, please turn to Slide 10. Free cash flow was a positive $153 million in the fourth quarter, As Neil announced, we reached a long term capacity agreement with a key strategic data center customer and received an upfront cash payment of $165 million. This payment is intended to support our capacity expansion, and to meet future volume commitments under this agreement. From an accounting standpoint, the customer payment represents a down payment to secure future volumes. It did not impact the income statement, and was recorded as a contract liability. And this liability will be reduced over the life of the contract based on future volumes.

Net debt of $363 million was $84 million higher than the prior fiscal year end. This included the funding for the 3 acquisitions completed earlier this year. The investments in CapEx and working capital required to grow our data center business. Our balance sheet remains quite strong with a leverage ratio of 0.8x, And based on our earnings and cash flow outlook, we expect it will decline further in fiscal 2027. CapEx for fiscal 2026 totaled $143 million As I explained last quarter, some of the data center capital investments will carry over into the next fiscal year. As we continue with our capacity expansion to meet our future customer demands. Now let’s turn to Slide 11 for our fiscal 2027 outlook. Similar to last year, there is a great deal of uncertainty across the markets in the global economy, especially around input costs tariffs, and the overall supply chain.

With regard to trade and tariff risk, our team is continually assessing the impact on our business, including the recently announced 32 tariffs on metals. We believe that we will be able to recover the majority of these impacts with pricing and surcharges While the net risk is quite manageable, we can be impacted by the timing of the material price adjustments. Our guidance ranges to start the year reflect the current level of uncertainty in the markets and input costs. Also, our outlook includes a full year of Performance Technologies, Once we know when the pending transaction will close, we will provide an update on our full year outlook for the remaining business. For fiscal 2027, we expect total company sales to grow in the range of 20% to 35%.

For the data center segment, we expect sales to grow 60% to 80%. This is ahead of our previous multiyear estimate of 50% to 70%. We do not anticipate that the part shortages we started to experience in Q4 will impact our full year production. But will temporarily impact our capacity ramp Consistent with the previous year, we expect that each of the quarters will show very rapid year over year sales growth in excess of 50% And from a sequential standpoint, we anticipate that Q2, Q3 and Q4 will all show sequential increases. For commercial HVAC, we expect sales to grow 5% to 10% this year, This is driven by accelerated growth in our heating and IAQ businesses. In addition, we expect that the recent growth trends in the coils business will continue with mid single digit growth in fiscal 2027.

For Performance Technologies, we anticipate sales to be flat to up 5% driven primarily by material pass through agreements and growth in stationary power programs we are expecting most other markets to be flat with opportunity for improvement in the back half of the fiscal year. With regards to our full year earnings, we expect fiscal 2027 adjusted EBITDA to be in the range of $650 million to $680 million representing a growth rate in excess of 40%. And this implies at least of 100 to 200 basis points of margin improvement. We expect that this will be driven by a margin increase in all 3 business segments. From a free cash flow perspective, we expect we will generate a higher level of free cash flow And as a percentage of sales, we believe it will be between 4% and 6%.

Please see the appendix in this presentation for all our key assumptions. Including interest expense, taxes, depreciation, and amortization expense. As we currently look at the next several quarters, we expect that margins and earnings will increase sequentially throughout the year driven by the data center trends I described and our material cost recovery plans. From a year over year perspective, we anticipate that each quarter will result in double digit earnings growth with favorable margin comparisons to begin in Q2 and continuing through year end. As Neil and I previously noted, we are now operating under 3 business segments. And to assist everyone with modeling and analysis, we will provide a recast fiscal 2026 segment results and we will begin reporting this way with our first quarter results.

To wrap up, we are excited about our fiscal 2027 outlook and fully expect to deliver another year of record sales and adjusted EBITDA Very few companies are planning to grow earnings in excess of 40% year. And drive meaningful margin improvements. I am proud to say that this team has executed on these types of results over the last several years. They worked hard to execute on our strategy using 8.02 thousand as a guide. The recent announcements related to the LTA and pending spinoff of Performance Technologies are truly historic We remain confident that these actions are setting the stage for long term, sustainable growth for Modine shareholders. With that, Neil and I will take your questions.

Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. If you like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset. Before pressing the star keys. 1 moment please while we poll for questions. Our first question comes from Matt Summerville with D.A. Davidson. Your line is now live.

Analyst (Matt Summerville): Thanks. Good morning. Mick, I was wondering, just a question on margins. As we kind of think about looking at Modine in the context of a climate only sort of remain co entity, what would your profitability expectation be the PT business that is been factored into your guide? As again, we think about how to best build and for others to best build, you know, a climate only remainco sort of model looking ahead.

Michael Lucareli: Yeah. Hey, Matt. I think it is gonna be good news is relatively clean and your ability to estimate it until we do the recast and then eventually the disc ops after the deal closes. We are looking at this year. So I mentioned already from a top line, flat to 5%. So relatively consistent top line with, last year. From a margin we see it early this year being between probably like a 14% to 15%, maybe up that would be up maybe 25 to 100 basis points. So that will give you a good idea of the impact to PT or how to back that out. there is some complexities around corporate costs that will stay or go with. But net, there was not a large material difference in you know, remaining SG and A. So for the most part, I think you will have the pieces to try to estimate Lodin without PT.

Analyst (Matt Summerville): Thank you. that is helpful. And then maybe if you guys could talk a little bit you are guiding fiscal 27 data center business to up 60% to 80%. You have this massive long term agreement for you disclosed yesterday. How does all of this influence the multiyear CAGR of 50% to 70% that you previously discussed for the data center business. And secondarily, do you see more LTAs? And is the 1 you just signed accretive to profitability? And if so, maybe talk about that. Thank you, guys.

Michael Lucareli: Yeah. The I will go first. The We are not– we do not see a reason to change our longer term outlook. And we will do later this year, we will do probably we will go out another year, a more formal guidance But in short, Matt, raising this year up to 60% to 80%, I do not think that changes our outlook for the next year being 50% to 70% in. Some people have asked does that mean imply a decline. No. We still do not see the funnel shrinking or squeezing the back end of the funnel. So I would say for now, we would still hold with the fiscal 28 70% up. And before Neil jumps in, the LTA would definitely be accretive to where we are today or say it another way, it is absolutely within the target margins of where we want the data center business to be.

Neil D. Brinker: Yeah. I agree, Nick. And we are we are in those conversations with customers. We will always entertain a conversation with the customer relative to an LTA or a derivative of an LTA, some form of it Honestly, that is we are we are seeing a the market move, but nothing of this significance for sure. But, yeah, there could be potential opportunities for smaller versions of that. Yes.

Analyst (Matt Summerville): Thanks, guys. I will get back in queue.

Operator: Our next question is from Noah Kaye with Oppenheimer. Your line is now live.

Analyst (Noah Kaye): Hey, just a follow-up and congratulations, by the way, on inking that LTA. So 2 related questions on it. First, does this result in you expanding capacity beyond the scope of the expansion that you outlined in July? Other words, is this incremental as an increase in your in your revenue capacity? How much if so And second, I think I understood you, Mick, but I just wanna be crystal clear. The LTA, you are saying, is not really incremental to the targets you have already given us? Or is it more that you are after this fiscal year going back to the 50% to 70% CAGR on top of where you will exit fiscal 27.

Neil D. Brinker: Hey, Noah. This is Neil. I will take the first part of that question. it is in the that the LTA that was announced is in the numbers of the capacity expansions that we have talked about over the last few quarters. And we believe with the annual CapEx that we traditionally spend each year, particularly in the data center business, that annual cycle of CapEx spend will be sufficient for us to continue to grow capacity. Beyond this LTA.

Operator: And then to your question on growth rates, no, I will try again.

Michael Lucareli: I am glad to make sure there is no confusion. This year, we see revenue growth higher, 60% to 80%, And after, as we roll forward to the next fiscal year, I would still hold to a 50% to 70% growth rate on top of the year. We will finish this year.

Analyst (Noah Kaye): Alright. that is extremely helpful. Thank you. And then just you called out the weather impacts across the business in the quarter. Just so we kind of have that as a as a data point heading into next year. Can you maybe dimension what the cost impact was, whether it was sort of a lost profitability or lost EBITDA numbers? Is that something that you can have and can share with us?

Michael Lucareli: Yes. From a climate solutions side, Noah, I think the weather costs about 50 to 100 basis points in the climate business. From a gross margin standpoint.

Analyst (Noah Kaye): Okay. Thank you very much.

Michael Lucareli: Sure.

Operator: Our next question is from Neil Burke with UBS. Your line is now live.

Analyst (Neal Burk): Hey, thanks for the question. Mick, I think you just mentioned data center growth of 60% to 80% for this year, but also for fiscal 2028, if I heard that right. Can you just kind of remind us, like, the number of production lines that you had running, exiting the year, and how many you are expecting to get to by year end.

Michael Lucareli: Yes. I will go quick and Neil then can talk about capacity. We see 60% to 80% growth this year on the data center side. So that is, you know, call it $1.8 billion to the $2 billion range this year. And then for the following fiscal year, I would still use a 50 to 70% range for our fiscal 28 We will dial that in, and we will know more. that is why I said later this calendar year, either through an IR meeting or an IR day, we will likely give a more firm fiscal 28 or even in 2029 outlook for all of you. But in the interim, I would assume next year is still gonna be a 50% to 70% growth rate.

Neil D. Brinker: 51 capacity, we have this is specific to chillers and data centers. We have half of the capacity running it various rates of efficiency today. We will be doubling it by the end of the fiscal year.

Analyst (Neal Burk): that is that is helpful. And then just to follow-up on just to make sure I understand the current year. You know you said calendar 2027 is when you start recognizing revenue for that $4 billion long term agreement. Do you have enough visibility to say, like, is there just basically 1 quarter assumed in the guide for this year of revenue recognition? Because 1 quarter alone off of that $4 billion should be pretty substantial.

Michael Lucareli: We actually have a little bit of that built in to our current guide. And part of it is we know where the LTA is and we have windows where they give us firm commits I do not think we are quite there yet to What that exact number will be in Q4. And then also, I would just add, as we have tried to do in previous years, I would say we have got the most firm commitments and delivery schedules for the next 6 months, Neil. And when we get to our Q4 and where we have– where we tended to update our Q4 or raise guidance if we are fortunate would be probably we get halfway through the year. So Q4 is kind of our best placeholder for this time, and we are just balancing the known and unknown at this point with regards to that LTA.

Analyst (Neal Burk): Okay. Thank you.

Operator: Our next question comes from Christopher Moore with CJS Securities. Your line is now live.

Analyst (Chris Moore): Hey. Good morning, guys. So in terms of obviously, data center growth 60 to 80% this year, continued rapid, you know, 50 to 70% and strong beyond that. So that recognizes the market is a dynamic. The mix of products you know, to get there might change. May maybe just strictly from a from a fiscal 27 perspective, is the mix pretty locked in? And if so, roughly,, what percentage of that is chillers?

Michael Lucareli: So you are right.

Neil D. Brinker: And that is why we have the modularity with our factory that we can adjust and pivot to whichever design that we move forward with. The last number we gave was around half of that was chillers. About 40%. 40%. This year. This year. going to be. And it will probably about 50%, up to 50%.

Michael Lucareli: Yep. Rest to be specific. So there is a little bit of a mix shift there. And then the balance of that, the other side would be air handling units, you know, CDUs, other products, fan walls, That would be the that is what we have factored into the mix so far.

Analyst (Chris Moore): Gotcha. Very helpful. And just on the heat transfer side, so the growth this quarter is you have talked about driven both by data center and heat pump customers. Moving forward, just from a data center perspective, how you know, how much of that growth is on the data center side, and is that gonna be kind of a constant moving forward, you know, over the over the next 5 years, that piece of the heat transfer growth?

Michael Lucareli: And so within the coil side of heat transfer solutions, clearly, the largest rate of growth is coming out of say, the data center side. I would say the balance of it is tends to be more based on replacement cycles or GDP cycles. Neil, anything you wanna add?

Neil D. Brinker: Yeah. And it is pretty it is it is pretty new in terms of the growth on the data center side that we are seeing. Over the last quarter or so. We are still building out the funnel. We are engaging with customers to understand you know, what the short term and long term commitments are. But, definitely, there is interest there. On the data center side as we see our customers wanting to lock up some supply.

Analyst (Chris Moore): Got it. I appreciate it, guys. I will jump back in line.

Operator: Our next question comes from David Tarantino with KeyBanc Capital Markets. Your line is now live.

Analyst (David Tarantino): Maybe following up on the LTA, understanding that there is often NDAs covering this. But could you give any color on kind of profile of the customers that new or an existing customer? And what technologies the agreement covers? And then maybe within that, how should we be thinking about how the $4 billion shows through in terms of time line as the capacity continues to ramp here?

Neil D. Brinker: Yes. Thanks, David. So with an existing customer, yes, it is someone who you know, we have had relationship. We have got great relationships with the with our data center customers, and this is just for the evidence. And this LTA, specific for our chillers.

Analyst (David Tarantino): Okay. Great. And any thoughts on how oh, go ahead.

Michael Lucareli: Noah. Go ahead, David. Just any thoughts on how the $4 billion shows through kind of as capacity is still ramping here? Yes. So we mentioned a minute ago, it is calendar. So we will see some ramp beginning in Q4. We will know more here probably in, you know, another quarter or so. And then it is over 3 years in do not know the exact ramp, but we do not see any more than $2 billion here right now. So it is still early days, but, hopefully, that kinda helps if you look at $4 billion over 3 years and no more than $2 billion in any 1 year. Definitely in a ramp up.

Analyst (David Tarantino): Okay. Great. And then maybe looking at data center as a whole, could you give any some more color on the pipeline here, maybe x the LTA? I think you mentioned another quarter of record order intake, but kind of any color on continued opportunities as we think about the log term growth profile? And then maybe talk about your confidence in delivering those other customers as you ramp capacity for the LTA as well?

Neil D. Brinker: Yeah. Certainly, we will balance the we will balance this to make sure that we meet our commitments with all of our data center customers. there is no doubt about that. So before we commit to this, we agree to any kind of long term agreement around capacity. We wanna make sure that we keep all of our customers in mind, and we are able to deliver on those commitments. So that is that is considered to your point, What was the second part of your question, David? it is just the pipeline as a whole if you kinda exclude LTA from this quarter, kinda give some color on how it continues to evolve as you put up these record order numbers, how much more is out there. Yeah. It continues to evolve. You are right. And it is growing at significant rates.

I think if you look at the trends in the last couple years, it continues to follow that trend line. And as we move things through our probability funnel, we get to points where we can publicly announce LTAs, which gets hopefully, everybody further confidence that we can execute on these things. So the funnel is large. It continues to grow. We our hit rate continues to increase because of our technology, and because of that, we feel very confident with the guidance that we gave relative to data centers.

Analyst (David Tarantino): Okay. Great. Thank you, guys.

Operator: Our next question comes from Brian Drab with William Blair. Your line is now live.

Analyst (Brian Drab): Hi, thanks for taking my questions. I am curious if you would say anything about what the probability was that you had assigned to the orders or the, you know, the opportunity associated with the LTA when you gave us the 50 to 70% forecast for 2027 and 2028?

Michael Lucareli: From my side with factored in Neil always talks about the funnel and when we set those longer term goals, we are really building it customer by customer and program by program. So we were aware of this opportunity. So there is some of that gets factored in, but we do not obviously know we did not know at the time what the magnitude or the scale or the would flow over prime.

Analyst: Yeah.

Analyst (Brian Drab): So yeah, so it I am trying to get a sense for is it really incremental You know, we do not know if it if you if you had know, $4 billion in sales over that period with a 80% you know, probability on it, or was this something like a win where it was, like 30%, and it is more of a surprise. But you cannot you cannot help any further with that.

Michael Lucareli: Noah. Maybe the way I would say and maybe it will help is when we give a multiyear look like that and we talk about the funnel, we will we have been we will clear that short of an LTA. We do not have multiyear POs. And what this 1 did is it gave us a really high confidence in a big portion of our 2- to 3-year outlook. If you run that 60% to 80% and 50% to 70%, right, it implies we had talked about being north of $2 billion and that implies we are at, you know, a $3 billion-plus type. This is a big component of it that in that funnel that gives us more visibility and certainty of that outlook.

Analyst (Brian Drab): Yeah.

Neil D. Brinker: I would just say when we get out to outside of the fiscal year we are in, it is really difficult to have certainty and on what those order rates could potentially be. You see the projects, for sure, have them in that 25% to 50% range, but anything out of the calendar year can be really, really difficult to predict. So if you are looking at things in 2027 and 2028 and 2029, those are gonna be the lower end of the profitability funnel. The LTA simply you know, accelerates it through the probability funnel to a high degree of confidence. So it is it is significant, Brian.

Analyst (Brian Drab): Yeah. I mean, it feels really significant. I am just gonna press 1 with 1 more on it just because you know, if it is $4 billion over 3 years and you are doing you know, you said not over $2 billion in a year, I think, a second ago. But, I mean, on average, like $1.4 billion And if you are you are hitting a run rate you know, in fiscal 28 of 3 billion plus in data center and a little more than half of that is chillers that, you know, you are you are doing, like $1.5 billion-plus in chillers, but this 1 LTA is $1.4 billion on average over 3 years. So I am just trying to you know, see if that you know, thinking makes sense. Because it what I am what I am what it feels like observing from the outside here is that there is a big step up, like, step function increase in data center revenue coming in either fiscal 28 or 2029.

Because you have a lot more customers than just this 1. But I know there was not a question there. But yeah. Yeah. that is well, no. it is true. that is the way you are thinking about it in terms they absorb a huge amount of capacity. And we can always add further capacity based on demand with our annual CapEx budget that we have in place. We have looked at that. We have done the analysis, and we are comfortable with growing with our customers. And having further conversations on if we wanna invest in more chiller lines and how to go about it. So it is a fair point. Okay. And then just the last 1. Can you give any further color on the first quarter? You said supply chain impacting volume. Do not know if you said if volume would be down year over year or up year over year.

You know? Like, how directionally, like, can you give us some sense for how to model first quarter? And then also first quarter margins for Climate Solutions?

Michael Lucareli: Yeah. Are you Brian? Just narrow that down, are you were you talking about data centers and particular or the total company or I guess, climate solutions EBITDA margin, first of all. I am wonder because I think I think you said favorable comparisons or something along those lines for the second, third and fourth quarter. I am just wondering what you are trying to tell us about the first quarter for Climate Solutions EBITDA margin and then also you know, how much is volume sales volume gonna be impacted for I guess, data center or, you know, or climate solutions, however you wanna talk about it for the first quarter. Yes. So from a margin standpoint, actually, maybe I will just kinda talk about revenue. I think total company revenue in the first quarter should be right in line with our annual revenue range, probably closer to the midpoint from a total top line From a margin standpoint, versus prior year, we expect that the HVAC commercial HVAC, and data center businesses will be margin will be down year over year in Q1 similar to the trend we have had the last few quarters starting Q2 last year where we have been improving the margin, but on a year over year basis, it is been down from a year over year comparability And then as I mentioned at the beginning of the call, we expect that to flip in Q2 for actually all 3 segments we had expect beginning in Q2 and then continuing in Mark favorable year over year that in addition to that top line growth, we will have margins for the balance of the year.

So Q1 the q 1’s really working through from a data center the supply chain shortage, and then we will and we will then be able to continue to ramp our volumes on the data center side And then HVAC, it is we will be on a holiday. We will kinda anniversary on those 3 acquisitions. And that will have A positive impact there beginning in Q2.

Analyst (Brian Drab): Okay. Thank you very much.

Michael Lucareli: Yeah. Sure.

Operator: As a reminder, if you like to ask a question, please press Our next question comes from Jeff Van Sinderen with B. Riley Securities. Your line is now live.

Analyst (Jeff Van Sinderen): Good morning, everyone. I am just wondering, is there a way to break out how much of your data center business is AI related versus cloud and I guess, what are your latest thoughts on how the longer term mix of that will evolve between AI and cloud? And then just maybe how long do you believe the rapid growth of AI data centers can continue Just trying to get, I guess, a sense of how you think about longevity there versus kind of the ongoing cloud demand?

Neil D. Brinker: We look at we have projects at different levels of scale in our funnels that go beyond So if we look at and we talk to customers and we have our technology road maps that obviously go beyond that as well. So we feel pretty confident over the next several years into 2030 with our projections and our guidance based on supply chain and the data center capacity. that is being added globally. it is difficult for us to know where the product is being used in certain applications. Our product is universal, so it can go into cloud. It can go into compute. It can go into you know, AI. it is it is the product can serve multiple end use applications. So it is really hard to know exactly what some of these data centers are actually used for based on the product type that they buy from us.

But when it is specific for a CDU, then we know that it is for liquid cooling, and there is a high degree of certainty with that part of the AI infrastructure ramp up. And that continues to grow at the rate that is pretty public. I have I do not see a reason to think it is gonna be any less than that over the next couple years.

Analyst (Jeff Van Sinderen): Okay. Fair enough. And then just I guess, thinking about, obviously, LTAs gonna be a pretty substantial part of your business. And I guess as we think about kind of challenges that you are navigating relevant to further ramping production, Maybe you can just touch a little bit more to the degree that you want to on those. And maybe speak to initiatives to kind of get beyond those obstacles to getting production higher.

Neil D. Brinker: Yeah. that is good. You know, it is a good question, and I just have to commend the team at Modine for this. I mean, all the businesses pitching in to support the data center business, the entire organization pitching in to support that center because that there is such great technology and product that the demand is so high. it is all hands on deck. You know, we have doubled the data center business 4 years in a row. And to double that business every single year, it is been extremely hard. And this is the first time we have actually started to bump up against some headwinds on the supply chain side. We are getting to that level of scale. So we are talking with our suppliers. We are working with our suppliers.

And we are engaging in a way we have not engaged in the past to ensure continuity of supply We are looking at our suppliers strategically and then we are also helping our suppliers with the daily cadence and the daily management to ensure that we can keep the capacity at the rate that we wanna keep it. So it is a it is a balancing act. it is a mix of tactics and strategy. it is 1 of our top priorities as a company. We have invested there significantly with the human capital to support that. We have hired some very talented people to support that. And it is the it is the front of the radar for us as we continue to double our capacity. Or I should say double the business. Over the last several years.

Analyst (Jeff Van Sinderen): Okay. Great. Thanks for taking my questions. I will take the rest offline.

Operator: We have a follow-up question from Matt Summerville with D.A. Davidson. Your line is now live.

Analyst (Matt Summerville): I am Just a couple quick ones. As we think about the context of the LTA and the chiller lines that you publicly disclosed you are standing up the 14 lines in The US, the 2 lines in The UK. When all of those lines are ramped how much of your chiller capacity will be spoken for potentially by this LTA? And how should we think about Modine’s sort of playbook to at some point down the road, you know, serve the 2 hyperscalers that you currently have onboarded as customers but those that you are not able to supply chillers to at this moment. And then I have another quick 1.

Neil D. Brinker: Yeah. Well, the ones that we are having conversations with that are beyond the LTA today. Absolutely. We can make adjustments, and we can make pivots, but we are looking for certainty. To deploy any additional CapEx. So we would engage in similar conversations and discussions of how we could potentially lock up capacity for specific customer. We know how to do it. We know we know the process. We know the playbook. We can do more of it. it is just once we get to that point and negotiations long term, what years would that impact? I do not have an answer for that right now because we are in discussions. The existing capacity that we have today, a high degree of it is going to be for the LTA. cannot give you a specific number because these are all ramping at different rates.

And the with the LTA and how we put this together, it is not, you know, it is not equal amount each year. it is different based on project timings and completion of construction. it is it is high degree, and we have the ability to adjust if we need to make adjustments to add additional customers.

Analyst (Matt Summerville): Got it. And then just finally, maybe, to kind of get off of the DC topic for a minute. You just talk about your M&A funnel actionability and how we should be thinking about M&A in the context of fiscal 28 or excuse me, fiscal 2027 for Modine. Thanks.

Michael Lucareli: Yeah. We are still maintaining an active funnel map and that is important. It took us a while to build those relationships. And we wanna keep doing our homework on those. In the next you know, I would say for the bulk of this calendar year, it is still gonna be heads down. And we talk a lot about the data center business and how many people at Modine and Neil talked about are supporting a business growing at that rate. And then some of the same people or those that are not doing that are also actively working daily to, stand up the performance technologies group so we can complete that spin off. So if I would say for the bulk of this calendar year, that is a lot plus the 3 acquisitions we are integrating in HVAC. Anything could happen, but I really think for our sake or where Neil and I are focused the next 6 months or so, it is gonna be just heavily focused on the spin off and the data center growth.

Analyst (Matt Summerville): Makes sense. Thank you, guys.

Operator: We have reached the end of the question and answer session. I would now like to turn the call over to Kathy Powers for closing comments.

Kathleen T. Powers: Thank you. Thanks to everyone for joining our call this morning. A replay will be available through our website in about 2 hours. We hope everyone has a great day.

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