SPX Technologies, Inc. (NYSE:SPXC) Q4 2025 Earnings Call Transcript

SPX Technologies, Inc. (NYSE:SPXC) Q4 2025 Earnings Call Transcript February 24, 2026

SPX Technologies, Inc. misses on earnings expectations. Reported EPS is $1.6 EPS, expectations were $1.86.

Operator: Good day, and thank you for standing by. Welcome to the SPX Technologies, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker today, Mark Carano, Chief Financial Officer. Please go ahead.

Mark A. Carano: Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today is Eugene Joseph Lowe, our President and Chief Executive Officer. A press release containing our fourth quarter and full year results was issued today after market close. You can find the release and our earnings slide presentation, as well as a link to a live webcast of this call, in the Investor Relations section of our website at sdx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions.

Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results, and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today’s presentation. Our adjusted earnings per share exclude intangible amortization expense, acquisition and integration-related costs, nonservice pension items, and changes in the estimated value of equity security, among other items. Finally, we are meeting with investors at various events during the upcoming months. And with that, I will turn the call over to Gene.

Eugene Joseph Lowe: Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we will provide you with an update on our consolidated and segment results for the fourth quarter and full year of 2025. We will also provide full year guidance for 2026. We had a strong close to the year. We grew full year adjusted EBITDA and adjusted EPS by 21% with strong performance by both segments. In addition, we continue to advance our value creation initiatives. Organically, we made further progress on our efforts to expand capacity within our HVAC segment to meet the growing demand for our highly engineered solutions. During the fourth quarter, we completed the purchase of a new 459,000 square foot facility in Madison, Alabama, which will have capabilities to produce our data center and custom air handling solutions.

Inorganically, we recently announced the additions of Thermalek, Air Enterprises, and Ron Industries to the HVAC segment. These strategic acquisitions strengthen our position in the attractive electric heat and engineered air movement markets. Also, today, we are introducing our 2026 midpoint guidance, which implies approximately 20% adjusted EBITDA growth at the midpoint. Turning to high-level results. For the fourth quarter, we grew revenue by 19.4%, driven by the benefit of recent acquisitions and organic growth in both segments. Adjusted EBITDA increased by approximately 22% year over year, with 50 basis points of margin expansion. As always, I would like to update you on our value creation initiatives. Demand for our custom air handling and data center cooling products remains strong.

To capture the growing demand, we are investing in expanding capacity at several of our existing HVAC facilities, including Ingenia’s Maribel and Cooling Products’ Olathe locations, and have recently added two new facilities to further accelerate our expansion efforts. During last quarter’s call, we announced the addition of a facility in Tennessee that will produce Tamco highly engineered aluminum dampers, which are seeing strong demand within the data center market. Production in this facility is expected to begin by the end of this quarter and steadily ramp throughout the year. Additionally, in Q4, we completed the purchase of the facility in Madison, Alabama, that will have flexible manufacturing capabilities to produce both our custom air handling and data center solutions, including our new Olympus Max product.

We expect to have assembly capabilities toward the latter half of this year and initial production capabilities in 2027. We expect the expansion-related investments across all of our HVAC facilities to require approximately $100,000,000 of capital in 2026, in addition to approximately $60,000,000 invested in 2025. We anticipate these investments will enable nearly half of our HVAC segment’s revenue growth in 2026 and add roughly $700,000,000 of incremental capacity once at full production, supporting substantial growth in both data center and custom air handling volume. We have also continued to advance our inorganic growth initiatives. During 2026, we completed two strategic acquisitions in our HVAC segment that strengthened our positions in the attractive electric heating and engineered air movement markets.

I am very pleased to welcome our new colleagues to the SPX Technologies, Inc. team. In the engineered air movement market, Air Enterprises and Ron Industries, only the air handling segment of Crawford United, advance our strategy to build a market-leading position by expanding our portfolio of custom air handling solutions and enhancing our capabilities with the coil offering. The combination of complementary technologies, design capabilities, and manufacturing footprint strengthens our ability to serve customers in the attractive healthcare, institutional, and commercial markets. Thermolac, located in Montreal, is a natural extension of our electric heat strategy, adding a complementary custom duct heating solution and broader geographic reach to enhance the value we deliver to customers throughout the North American commercial, industrial, and multifamily markets.

The combination of Thermolac’s exceptional service, quality, and strong Canadian presence with our established electric heat channels in the U.S. provides significant opportunity for growth. And now, I will turn the call over to Mark to review our financial results.

Mark A. Carano: Thanks, Gene. Our fourth quarter results were strong. Year over year, adjusted EPS grew by 25% to $1.88. Full year adjusted EPS grew by 21% to $6.76, or toward the upper end of our guidance range of $6.65 to $6.80. For the quarter, total company revenues increased 19.4% year over year, driven by the acquisitions of KTS, and Sigma and Omega, as well as organic growth. Consolidated segment income grew by $27,000,000, or 21%, to $156,000,000, while consolidated segment margin increased 30 basis points. For the quarter, in our HVAC segment, revenue grew by 16.4% year over year, with 5.5% inorganic growth and a modest FX tailwind. On an organic basis, revenue increased 10.3%, with solid growth in both cooling and heating.

Segment income grew by $17,000,000, or 18%, while segment margin increased 40 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage. Segment backlog at quarter end was $585,000,000, up 22% organically year over year. For the quarter, in our Detection and Measurement segment, revenue increased 26.3% year over year. The KTS acquisition contributed growth of 23.2% and FX was a modest tailwind. On an organic basis, revenue increased 1.7%, primarily driven by higher project volume. Segment income grew by $10,000,000, or 27%. Margin increased 20 basis points. The increases in segment income and margin were primarily driven by higher volume, including the benefit of KTS. Segment backlog at quarter end was $350,000,000, up 43% organically year over year.

Turning now to our financial position at the end of the year. We ended the year with $366,000,000 of cash on hand and total debt of $502,000,000. Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.3x at year end. Including the effect of the recently announced acquisitions, leverage ratio was 1.0x. Full year adjusted free cash flow was $294,000,000, reflecting a 90% conversion of adjusted net income, inclusive of the approximately $60,000,000 invested to support our capacity expansion. Moving on to our guidance. Today, we introduced full year 2026 guidance inclusive of the recently announced acquisitions: Thermalek, and Air Enterprises and Ron Industries. Now Crawford United’s industrial and transportation products businesses are not included in our guidance.

They will be reported in discontinued operations while we seek a suitable buyer. We anticipate total company revenue in a range of $2,535,000,000 to $2,605,000,000 and segment income margin in a range of 24.6% to 25.1%. We expect adjusted EBITDA to be in a range of $590,000,000 to $620,000,000. At the midpoint, this implies year over year growth of approximately 20% and a margin of approximately 23.5%. Our adjusted EPS guidance range of $7.60 to $8.00 reflects approximately 15% growth at the midpoint. In our HVAC segment, including the recent acquisitions, we anticipate revenue in a range of $1,800,000,000 to $1,840,000,000 and segment margin in a range of 24.5% to 25%. In our Detection and Measurement segment, we anticipate revenue in a range of $735,000,000 to $765,000,000 and a segment margin in a range of 24.75% to 25.25%.

As a reminder, growth in 2026 will be impacted by the execution of projects in 2025 totaling approximately $20,000,000 that were originally slated to execute in 2026. For Q1, as a percentage of our full year 2026 guidance midpoint, we expect revenue and segment income for both segments and adjusted EPS to be similar to the prior year. As always, you will find modeling considerations in the appendix to our presentation. And with that, I will turn the call back over to Gene for a review of our end markets and his closing comments.

Eugene Joseph Lowe: Thanks, Mark. Current market conditions support our 2026 outlook, which implies significant growth. Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and increasing production capacity further reinforce our confidence in HVAC’s growth opportunities. In our Detection and Measurement segment, we are seeing improving global market conditions, which is supportive of growth in our run-rate businesses. For our project-oriented businesses, front-log activity remains steady, and backlog is at record year-end levels, yet with a higher percentage of multiyear projects. In summary, I am pleased with the close to 2025 and our strong full year performance.

As we look to 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our continued efforts to expand capacity to meet the growing demand for our HVAC solutions, integration of our recent acquisitions which further scale our HVAC platforms and strengthen our positions in key end markets, and an active pipeline of attractive acquisition opportunities. With these initiatives and a solid demand backdrop, we are well-positioned for another year of 20% growth in adjusted EBITDA in 2026. Looking ahead, I remain excited about our future. With a proven strategy and highly capable, experienced team, I see significant opportunities for SPX Technologies, Inc. to continue growing and driving value for years to come.

With that, I will turn the call back to Mark.

Mark A. Carano: Thanks, Gene. Operator, we will now go to questions.

Q&A Session

Operator: Star 11 on your touch-tone telephone, and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Bryan Francis Blair with Oppenheimer.

Bryan Francis Blair: Thanks, guys. Solid finish to the year. There understandably remains a lot of focus on your team’s data center exposure. So I guess to level set on that front, how much did data center revenue grow in 2025? What percentage of revenue is now driven by data centers? And how is your team thinking about DC sales growth within your initial 2026 guidance?

Eugene Joseph Lowe: Thanks, Bryan. I will start there. We are seeing substantial growth. We had talked about some of the numbers we would share previously that 2025 would be about 9% of revenue. It is in the neighborhood of $200,000,000, maybe a little bit more than $200,000,000. That is up quite a bit. We had given the number of 7% prior. And we would anticipate that to be, as we said, low double digits, say, 12%. So we would expect nice growth here, probably in the 50% neighborhood for our data centers going into 2026.

Mark A. Carano: That is very encouraging.

Bryan Francis Blair: And maybe offer a little more color on the strategic state of Air Enterprises and Ron and Thermalek within EAM and electric heat, respectively. They seem like very down-the-center kind of deals for your team. How do the assets strengthen HVAC positioning overall? How should we think about commercial synergies and the ability to accelerate growth going forward? And what exactly have you baked in for revenue and profitability in the initial 2026 outlook?

Eugene Joseph Lowe: I will start on the strategy side. With Crawford United, their air handling units—really two pieces. The bigger piece is Air Enterprise and the custom air handling. They have a great product, a blue-chip customer base. They have a different style of product, lower leakage, and I would say they are viewed as a premium provider in this market. You can go to their website—you will see all of the blue-chip customers that basically have them, oftentimes, as basis of design. So it is a little bit different flavor of a product versus Ingenia, but a very high-quality product and one that we are very excited to have as a part of our portfolio. We think we can help them grow. We think we can help them operationally.

We also think we can help them in the building of the channels there. The Ron component of that is somewhat smaller. That is the coil manufacturer—coils for the custom air handling units. We like that because we can use that not only for Air Enterprises, but also for Ingenia, which we predominantly buy outside. We have a lot of coils and coil usage increasing across our product lines in HVAC, and this is just going to give us more confidence. We see some nice growth there, not only within our own businesses, but within our customers, where we have a very strong position, particularly the Tamco business. So operational synergies and channel synergies there. With Thermalek, this is a real no-brainer. We are very strong in duct heating, as we have talked about with Indeeco.

We invented duct heating. We have the original patent. Very strong position in the U.S., but very low in Canada. Thermalek is the leader for duct heating in Canada—very complementary. They have a very good brand, a very good channel. We really like the team, a great leader there, really engaged workforce. And we think that they have a variety of products that they do not only sell in Canada. The majority of their business is Canada—let’s say approximately two-thirds. We think we can help them grow more in the U.S. And then we see some products that we have not been able to successfully sell into Canada, and we think we can really leverage the Thermalek channel. So we see some nice channel synergies on both sides there. Additionally, we have a good lean process and operational experience.

They are also very capacity constrained. We believe we can help them grow as we look ahead. Mark, do you want to make any comments on the numbers?

Mark A. Carano: Yeah. Bryan, let me add to that—your question of the impact on 2026. We have disclosed a few numbers out there. There is also some publicly available information out on some of the businesses with respect to Air Enterprises and Ron. But what I would guide you to is, you know, $35,000,000 in revenue at the Thermalek business and something in the low $80,000,000s for the Air Enterprise and Ron business combined. That is on an annual basis. Obviously, we are going to own both of these businesses for eleven months, so that kind of gets you to something just shy of about $110,000,000. Segment income margins for both these businesses are slightly higher than our segment average.

Bryan Francis Blair: Understood. Very helpful. Thank you.

Operator: Our next question comes from Andrew Obin with Bank of America.

Andrew Obin: Hey, Gene. Hey—how are you? Maybe I know a lot of people will be talking about HVAC. I will ask about Detection and Measurement. A couple of things. A) This $20,000,000 pull-forward of revenue—how should we model it in 2026? And part two of the question, how should I think about the growth for the business? The backlog is up organically 45% if I heard it correctly.

Eugene Joseph Lowe: Let me start. We had a project—very nice backlog, as you have seen from our press release—record year-end backlog. We have $350,000,000 in Detection and Measurement, up more than 40% organically. We feel really good about how that business is doing. But we had a project that was in 2026; the customer pulled it forward. So if you do the math, that makes 2025 higher by approximately $20,000,000, and 2026 $20,000,000 lower. It is about a 5% growth headwind. That is the reason we are more flattish. If we look across the business—about two-thirds of this business is run rate—we are seeing nice growth in our run-rate business, GDP-plus growth rates. And then on the projects, we have a lot of projects and a lot of backlog. If you look at 2027–2028, that is the reason that we are more flattish. Mark, do you want to give a little more color?

Mark A. Carano: I think Gene touched on the top line. If you do the math—he gave you a little bit of it—look at what the impact of that shifting of that project had on 2026. Had it not shifted into 2025, it would have been mid-single-digit top-line growth in 2026.

Andrew Obin: My question was a little simpler. Should we model it in Q1, Q2? Or should I take this $20,000,000 out versus normal seasonality?

Mark A. Carano: It was in the back half of the year. That is where you should look to adjust it.

Andrew Obin: Right, but then it was pulled forward from—Is all the impact in Q1? Sorry—should I just take $20,000,000 out of Q1 versus what I would normally ask? Is that simple?

Mark A. Carano: That is probably the right way to think about it. The D&M business has a project element, and the way these projects gate and how they fall within the quarters can move around on us. But that is a reasonable approach.

Andrew Obin: And on Olympus Max—you have described it as your most successful product launch ever. Could you tell us about feedback, any update on bookings, and applications beyond data centers? We have been getting questions about the NVIDIA announcement—does it tie in at all to that, or is that more about PUEs? A little more color would be great.

Eugene Joseph Lowe: If anything, I am feeling more bullish than on our last earnings call. The punchline is we have a winner here. We believe we have advantages on tonnage and flexibility—specifically, our dry unit can be upgraded to an adiabatic after the fact to add a lot more thermal heat exchange, which gives you flexibility. We have integrated controls, which is a differentiator versus our competitors, and more robust mechanical equipment. We have already been awarded with three customers—material amounts—and we feel good. We targeted $50,000,000 of bookings last year; we did get that, and we are converting that to revenue this year. We feel really good as we look to 2027, 2028, 2029. We have one customer that has already locked up multiple years of growing demand and a lot of activity that we feel good about. I feel very good about the Olympus Max, and I think it is the right solution for the market.

Andrew Obin: Well, congratulations. Thank you.

Eugene Joseph Lowe: Thanks.

Operator: Our next question comes from Ross Riley Sparenblek with William Blair.

Ross Riley Sparenblek: Hey, good evening, gentlemen. Sticking on the Olympus Max, what can we read through from the new Rubin announcement and the way that this market is heading? Do you get a sense that this will be the predominant cooling approach going forward, or will there be a mix for water cooling as well?

Eugene Joseph Lowe: Thanks, Ross. When the Rubin announcement came out—it can run at lower water temperatures—and that caused some concern for whether you need a chiller. There are some different variations. There may be circumstances where you need fewer chillers or not need chillers, but we are not aware of circumstances where the Rubin chip would reduce the need for external heat rejection, which is where we play. So the Rubin chip really has no negative impact on us. I would say there is actually some positive impact in some of the architectures we have seen. As chips move toward AI chips like Rubin, they generate a lot more heat—and that heat is linear. The more electricity, the more kilowatts, you are going to need more cooling towers.

That cooling tower could be adiabatic, dry, or a normal Marley cooling tower. Historically, the bulk of the data center market has been done with air-cooled chillers; we do not really participate in that market. As the heat loads get bigger, they are moving more toward water-cooled chilling and free cooling—very attractive opportunities for us. Basically, the more compute power, the more heat—you need more cooling towers. We feel well-positioned with the trends we are seeing.

Ross Riley Sparenblek: That is very helpful. And then on lead times—it takes a couple of years to build a data center, and cooling is often one of the last things installed. If you are booking orders now, should we expect that to compound into 2027, 2028?

Eugene Joseph Lowe: There is a set of hyperscalers we work with, and they have different methodologies. Some will lock you up for four or five years, and you have very clear visibility on future demand. We feel very good about that trajectory. Others lay out the plan; although you do not have a PO in-house, they will release POs on a more quarterly basis but will vigorously validate that you have capacity and quality. You get different levels of visibility across customers, but we are growing a good amount in 2026 and expect nice growth into 2027 and 2028 with what we are seeing. There is a lot of activity, and we have a good set of solutions to meet that demand.

Ross Riley Sparenblek: Sounds exciting. I will pass along. Thanks, guys.

Eugene Joseph Lowe: Thanks.

Operator: Our next question comes from Joseph O’Dea with Wells Fargo.

Joseph O’Dea: Hey, Gene. Can we start on the capacity additions? I think you said when you are at full production, that would equate to roughly $700,000,000 of revenue potential—just wanted to confirm that. And then the timeline to reach full production and how much those capacity adds will contribute to revenue growth in 2026?

Mark A. Carano: You are correct—that is what we said: $700,000,000. It is going to take some time to get to that full production level, particularly at our Madison facility. Both the Tamco facility and Madison will take time to ramp—some of that driven by equipment lead times and then by getting them into respective production processes. Tamco will come online at the end of Q1 and ramp through the year. Madison will come online in the second half of the year for assembly only; it will not be in a production phase until 2027. Big picture, it will be sometime in 2028 before you see full production capacity on those two expansions. We have also been making incremental investments in a couple other facilities as part of that collective investment to meet data center and custom air handling demand.

Joseph O’Dea: That is helpful. And then on the D&M margin expansion in 2026—up about 140 bps at the midpoint—can you bridge that, given you talked last quarter about some initiatives that would require investments?

Mark A. Carano: I would bucket it in two areas. One is mix we will see across the business next year, driven by the project mix and the margin profile of those forecasted for 2026—that is close to two-thirds of it. The balance—the other third or so—is continuation of cost optimization initiatives: leveraging engineering, R&D, sourcing, some footprint rationalization—really a broad portfolio of actions across the segment to drive more efficiency. That is how we break it down.

Joseph O’Dea: That is helpful. Thank you.

Operator: Our next question comes from Jamie Cook with Truist Securities.

Jamie Cook: Hi, good evening and nice quarter. First, a flip question on HVAC margins. You imply the top-line growth is fairly healthy and the organic growth is healthy. I think margins at the midpoint are up about 25 basis points, which is less expansion than what you saw this past quarter and this year. Any commentary on that? And second, on the M&A pipeline—you have been very active. How should we think about further M&A potential given the strength you have seen so far?

Mark A. Carano: On HVAC margins in the guide, as we suggested previously, there will be start-up costs related to bringing these plants online in 2026. These are temporary in nature and around a 50 basis point impact. As we ramp these facilities to full capacity, we will get operating leverage that outstrips the initial costs, but as you stand up any plant, there are costs required.

Eugene Joseph Lowe: On the M&A pipeline, we are very pleased with the two transactions in Q1—great fits and value accretive. Even with pro forma leverage, we are about one time on net debt to EBITDA, so we have a lot of capacity. There is a lot of activity in the areas we have highlighted—engineered air movement and electric heat—as well as a number of Detection and Measurement platforms. The pipeline remains very full, and we see a good probability of more opportunities to invest in growth this year.

Operator: Our next question comes from Amit Mehrotra with UBS.

Amit Mehrotra: Sorry about that—still learning how to ask questions on calls, clearly. Hi, guys. Thanks for letting me ask a question. On non-data center end markets within HVAC and also in D&M—there is anticipation of some procyclicality. Are you seeing that in real time—have orders perked up? Any color outside of normal procyclicality would be helpful.

Eugene Joseph Lowe: We track where we are seeing strength and softness. Across HVAC, areas of really nice strength include data centers, healthcare, power, heavy industrial, aftermarket, and institutional/higher ed. Areas a little softer as we look at 2026 would be battery automotive, semiconductor, chemical, and commercial real estate—which is still active but at a lower level. Put it together, and we see pretty solid growth even outside of data centers. Also, the end of Q4 and the first seven weeks of this year—we have had a nice start to bookings.

Amit Mehrotra: Thanks. And Mark, on overall earnings growth—you are forecasting another strong year, and capacity is layering in as we progress. Can you help with cadence—how earnings growth evolves through the year as capacity comes online?

Mark A. Carano: We gave some color on Q1 in the prepared remarks. Stepping back to first half versus second half, I would expect a similar cadence to last year on a percentage basis for revenue, segment income, and EPS. The capacity expansions will ramp incrementally each quarter, with benefits more evident in the back half.

Amit Mehrotra: And anything around backlog or orders—particularly in data centers—suggesting elongation of typical lead times?

Eugene Joseph Lowe: With large data center customers, cooling is mission critical—they give you a lot more visibility than a local hospital or commercial building. You know what is coming earlier, but our lead times have not really changed much across our businesses—pretty similar to where they have been.

Amit Mehrotra: Very good. Thank you.

Operator: Our next question comes from Joe Giordano with TD Cowen.

Joe Giordano: Thanks for taking my questions. Appreciate the color on warmer liquid used for cooling. I am curious what a move to significantly higher voltages in data centers would mean—current goes down, less copper, less heat per unit of compute. As we move into next-gen architectures, any implications for you?

Eugene Joseph Lowe: All the shifts we have seen generate more heat. If you look at kW per rack and electricity going into data centers, I have not seen anything decreasing. You are seeing gigawatt-scale data centers—massive electricity—and electricity correlates well to heat, which correlates to the amount of cooling needed. If there were an invention that significantly reduced electricity, that would reduce the amount of cooling towers needed. I am not aware of any such invention.

Joe Giordano: Anything we should think about in terms of tariffs—any changes there—and the volatility you are seeing in metal prices?

Mark A. Carano: Timely question. For us, tariffs during 2025 were not a material impact. We largely offset through price, sourcing, and CI initiatives. We will keep a close eye on it, but our model is largely U.S., largely in-country-for-country on sourcing, and our North American businesses, particularly Canada, are covered under USMCA. Not overly concerned today. On metals, we watch prices, but a large part of HVAC is configured or engineered to order—we are taking orders and pricing/manufacturing in real time—so we do not have long lead-time exposures for steel and aluminum.

Joe Giordano: Thanks, guys.

Operator: Our next question comes from Jeff Van Sinderen with B. Riley Securities.

Jeff Van Sinderen: Hi, everyone. Back to data centers—what are you hearing from customers? What are they asking for most—what is top of mind—and how is that evolving?

Eugene Joseph Lowe: At a high level, demand is increasing, and several hyperscalers are pushing for acceleration. Demand with existing customers and in new bid situations remains very robust.

Jeff Van Sinderen: Circling back to supply chain—any areas you think might be increasingly tight this year? Any potential bottlenecks?

Mark A. Carano: Looking across our supply chain, nothing jumps out as a material concern today.

Eugene Joseph Lowe: As we grow, we go line-item-by-line-item through bills of materials to ensure we can scale up—we have gone through that as we always do, and we do not see red flags today.

Jeff Van Sinderen: Good to hear. One more—different topic: trends you are seeing in drone detection and jamming for that business line and the outlook there?

Eugene Joseph Lowe: Our Controp business plays in a niche with a very effective product. The drone detection world has many players—many trying residential or stadiums—and we have seen a lot of those belly flop. We are playing more on the military side predominantly and have a very good solution there. We have one primary competitor—a German company we know well—and we compete effectively. There is a good amount of activity, but nothing dramatically higher or lower—pretty steady.

Jeff Van Sinderen: Okay. Good to hear. Thanks for taking my questions.

Operator: Our next question comes from Walter Scott Liptak with Seaport Research.

Walter Scott Liptak: Hi, thanks. Good evening, guys. The CapEx is going up quite a bit. Can you talk about the timing of the cash out for the CapEx and the fairly big range—what could drive pluses and minuses to getting all that capital spending done this year?

Mark A. Carano: The plan is to meet the CapEx guidance for the year—it is important and relates to the plant expansions and stand-ups underway. If any shift occurs, it would be timing of equipment deliveries. We are watching that carefully with a great team focused on it. Not concerned today, but that is the primary swing factor.

Walter Scott Liptak: And on the capacity going in—you mentioned some hyperscalers trying to lock down capacity. Is the CapEx there to meet that, or within the $700,000,000 run-rate, is there room to grow projecting future demand levels? Is there a phase two of this data center HVAC build-out?

Eugene Joseph Lowe: It is nice to have hyperscalers with increasing demand over the next couple of years. With these expansions, we think this is approximately $700,000,000—about $550,000,000 for data center and about $150,000,000 for custom air handling, predominantly Ingenia. This gives us runway over the next couple of years. Where we sit today, we do not see an imminent need for additional expansion in the next couple of years. If there is accelerating demand, we will evaluate opportunities, but we feel very good about this expansion and the flexibility it provides over the next several years.

Walter Scott Liptak: Okay. Great. Thank you.

Operator: Our next question comes from Bradley Thomas Hewitt with Wolfe Research.

Bradley Thomas Hewitt: Hey, guys. Thanks for taking the questions. It looks like you are guiding to about low double-digit organic growth in HVAC in 2026. You mentioned 50% growth expected in data center, and if we adjust for Ingenia revenue growth, it seems like the implied growth rate for the rest of the segment is around 3%. Is that in the right ballpark, and how do you think about puts and takes to growth in core HVAC ex-Ingenia and ex-data center?

Mark A. Carano: Your math is directionally right—low single-digit growth in the non-data center, non-custom air handling parts of the business.

Bradley Thomas Hewitt: Great. And on D&M, you are guiding margins to 25% at the midpoint versus the Investor Day target of 22% to 24%. Is that still an appropriate medium-term target, or should we think about 25% as a baseline upon which you can layer normal incrementals?

Mark A. Carano: Great question. Some of the margin improvement is related to mix; some is related to structural opportunities we are pursuing to drive the overall margin profile up—those should be durable. If you do the math, that pencils out to around the top of the 22%–24% range we guided a couple of years ago. For now, we are not changing the target profile, but we will revisit as we go through the year and into next year.

Operator: That concludes today’s question and answer session. I would like to turn the call back to Mark A. Carano for closing remarks.

Mark A. Carano: Thank you all for joining us for today’s call. We look forward to updating you again next quarter.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.