Good afternoon, everyone, and welcome back to day four of Oppenheimer's 20th Annual Industrial Growth Conference. I'm Noah Kay, Managing Director and Equity Research here at Opco. We're very happy to welcome back the management team of Modine to our conference: Neil Brinker, President CEO; Mick Lucareli, CFO; Kathy Powers, VP of IR. Thank you all for being here, and looking forward to a great discussion. Good afternoon, everyone, and welcome back to day four of Oppenheimer's 20th Annual Industrial Growth Conference. I'm Noah Kay. I'm getting some interesting feedback. We're back. Technical difficulties have been resolved, we hope. Life is always fraught with uncertainty, but one thing's for certain, we're going to have a great discussion. I do want to remind everyone at the start of the call, the company is reporting coming up here, I believe, on the 21st. There are certain forward-looking things that we just won't be able to address. With that, let's get into it. On data center, you started out fiscal 2025 with an outlook of 60%-70% growth in the vertical. In your latest guide, you're looking at 110%-120% for the year. Just help us understand how the company's realized upside versus that original outlook that you started with in 2025. Yeah, it's a good question in a couple of different areas. One is we've seen some growth on the hyperscaler side. You go back a couple of years ago, we really only had one significant relationship with one hyperscaler. You fast forward to where we're at today, and we're at four, where we have relationships at different levels, but they're advancing and they're improving. To be able to sell opportunities into each of these hyperscalers is a big deal. The other area is Scott Springfield. The Scott Springfield acquisition was really an important acquisition for us for a couple of different reasons. One is it added a technology that we didn't have. We were basically blocked out of half of the market without having the evaporative cooling technology. Bringing Scott Springfield on board allowed us to access 100% of the market on the hyperscaler and colocation side. That growth there was through our data center factory expansion and capacity expansion. We have moved up significantly in terms of our share placement with one of our largest hyperscalers because of that expansion and our product quality and technology. That has exceeded expectations. We knew we were going to invest in it. That was part of the thesis of the acquisition. We did not realize the potential positive impact that would come from that based on their technology and their delivery. Hyperscaler growth, the growth with Scott Springfield, and then really, really importantly is the growth in North America and our chiller markets. Having the facility in Buena Vista and Rockbridge, Virginia, expanding the capabilities outside of Virginia into Mississippi, we have a really good core technology that's niche in the market, and that niche segment continues to grow. Our position there is really well put, and it's helped us win in some significant orders in some interesting spaces. North America, chillers, Scott Springfield, evaporative cooling, and the expansion of our growth inside of each of the hyperscalers and to some extent colocations on the chiller side in North America. By core technology, you're referring to free cooling? Can you expand on that a little bit? We had free cooling technology with the Airedale business that was kind of a closed water loop. The water does not escape from the system, and it helps with the total cost of ownership to reduce the amount of power and/or water. Those are two key elements in data center: water use effectiveness and power use effectiveness. The Scott Springfield uses a different technology, which is evaporative cooling. They use more water, but they use less power. Are you trying to solve for water? Are you trying to solve for the electricity? Each have their own lane for those technologies. Yep. Yep. I think it's clear that ongoing data center strength has been a common theme during earnings season for any of the vendors we track selling into the space. It has been a reassuring moment for a lot of investors. When I look at your recent orders announcement, you'd set a bogey, I think, 30% at least organic growth in data center for fiscal 2026. Maybe just remind us how you build up your pipeline, how pipeline has trended, and how to think about conversion times from pipeline to orders to revenue for the company. The conversion time can vary depending on the complexity of what we're trying to solve for. As you know, Noah, we get involved very early on. We're in the design of the data center. Typically, it's not the design has been completed, and they're calling Airedale Modine for a part out of a catalog. We're typically in the actual phases of how to best optimize the cooling and precision cooling inside the data center. A byproduct of that is us developing the product and then producing and shipping. That can take some time. Say the engineering work takes six to eight months, maybe nine months. The execution of it in operations is relatively short. You can do it in a quarter. The full life cycle could be anywhere between, say, six and 18 months, depending on the complexity of the problem we're trying to solve for the customer. Relative to the growth is our funnel and our funnel of opportunities. We have them at all varying degrees of probability. The funnel is a very big funnel when you look at the potential that's out there. We kind of narrow it down based on region, based on our attachment to the customer, based on the technology that they want to use, based on the product that they want to use in terms of the product quality and/or innovation. If it's a custom and it's unique and they desire more of a premium product, that's where we see the increase in our probability. If it is a standalone or if it is a generic kind of cookie cutter, we see it as an opportunity, but less in terms of probability. As we move that down to the probability funnel, we look at what we think we can execute on over the next 12-24 months. That is what gives us confidence to start investing in the business to build the capacity out. Those are more higher probability, medium to high probability to say, "Okay, these are likely from anywhere from 70%-90%. Let's make sure that we are putting the capacity in place." I mean, we have gone on a tear with capacity expansion. It is well over a billion. When we started out a year and a half, two years ago, we were at $500 million. We've more than doubled the capacity based on the visibility we have within our funnel and our probability analysis. Yeah. Again, to make this somewhat backward-looking, or up to this past quarter, I mean, how wide or deep was the funnel compared to kind of the revenue, right? I mean, you talked about 70%-90% probability on later stage. Just help us understand the full potential of the pipeline versus. Yeah. It's five times that, five, six times that. When you look at it out into 2028, 2029, it's much greater. That's assuming they get power. That's assuming they've purchased the property. That's assuming that they get through any local regulatory hurdles. That's assuming that the construction schedules are allowed. There are a lot of assumptions when you get that far out. If you've won the first phase of the project, or you've won the first two buildings, and they plan to build eight over the next five years, and you got the first two, it's yours to lose. You put it in the funnel, but there are a lot of steps that they have to achieve before they actually physically complete the building and we can actually ship to. You started talking a little bit earlier about customer diversification and adding more hyperscalers. There was one player in the data center vendor space talking about not just growth from hyperscaler, but also Sovereign, NeoCloud, other new customer pools starting to diversify and kind of deepen the opportunity set. I think your customer base today is, if I'm not mistaken, around 50/50 hyperscaler/colo. How might that trend over the next few years? Yeah, I'm not sure who that is. But what I can tell you, it's kind of the same thing. I mean, whether you're Sovereign or Enterprise or you're NeoCloud, that is going to be done through a hyperscaler or a colo. So when we talk about the we put out a press release. We won a $180 million pure AI order, pure AI chillers. And that's for a NeoCloud provider, right? And it happens to be a colocation. We don't necessarily break out that it's NeoCloud. We assume it's all AI. You know there's only four NeoCloud providers out there. If it happens to be a colocation, that we can all back into who those four NeoCloud players are. So we're in that space, and we're doing it today. We just kind of categorize it as either colocation or hyperscalers. Those subsegments that you just described are inside of our numbers. Right. And still that 50/50 split is the right way to think about it. Correct. Today, last year was 60/40. It could be 40/60 the next year. It usually typically vacillates between 40/60, 60/40. Today, we're 50/50. It depends on how they deploy their growth. Are they going to do it through CapEx expansion? If they're doing CapEx expansion, then it's going to increase on the hyperscaler side. If they move to a leasing model, which we're seeing some of them do, our colocation spend is going to go up, and our hyperscaler is going to go down. We sell to both sides. We can capture growth regardless of the decision they make. It's the same product. It's the same units. It's the same margin. It's the same technology. It's the same qualification process. We're not going to spend this entire discussion on data center, but I got to get one more in. Just wanted to touch on competitive dynamics in the sector. Obviously, there's been a lot of entrance in liquid cooling. I think certainly many large chiller players have significantly expanded their capacity. And yet you've been gaining share now for several quarters, really years. I think your 30% plus assumption for 2026 in your release implies you'll continue to outgrow the market. Really, the question is, to what extent should investors and we view this as sustainable? I think we put out 45%-55% CAGR for investor day. We feel that we continue to expand. As long as we win market share, we'll exceed our expectation. It's based on there's a lot of assumptions there that are outside of our control. Again, we have the relationships. We have the technology. We have the capacity to do it. There's a whole lot of things that need to line up. They get power. They get permits. They buy the land. They get approval. If that happens, then we're in a good position to continue to exceed expectations. It's hard to say because it's outside of our control. I think if this continues to grow at the rate that it's growing, there's more upside than there is downside based on our position that we have today with the customers. Going to HVAC more broadly, maybe just talk us through the Absolute Air acquisition rationale. I think there was a $25 million revenue baseline. Are there revenue synergies to consider to drive contribution higher than that? How much overlap is there with some of the existing business, whether it's schools, IAQ? Yeah, most of the overlap is inside of our heating business. It's interesting. This was a partner that we had for quite some time. We've known Absolute Air, and we've been partnered with them for many decades. We had a heating product vertical that, through its expansion, stopped at a certain segment at a certain point in terms of capacity. To get beyond that, to get to the higher, more industrial and larger commercial applications, we partnered with Absolute Air. We bought and sometimes branded through Absolute Air. We saw them as a natural extension of our product line. It was an individually owned company. The buyer decided to retire. He's done well. This was a natural extension of who we are. It was an opportunity for us to acquire the business, add an additional channel, add the product line that we've already been moving that our customers are familiar with, and then bring together some synergies that we have from materials and overhead and other opportunities that we can. It was a natural fit. Right. The synergies were more on the procurement cost side of the equation, you think? Correct. Okay. All right. Very helpful. How to think about the pipeline for further M&A? Obviously, this is, in our view, a great source of potential upside for the company. There is a lot of white space for you. Maybe just give us a sense of the pipeline now, the size of the opportunities, focus areas, and the level of seller conversations you are having. I'll turn it over to Mick on this one. What I'll start with is we spent a lot of time on M&A activity on the DC side of the business so that we could shore up gaps, close channel, and bring in technologies that we didn't have. I feel really good about where we're at with data centers and capacity, technologies, and relationships. We're pivoting some of this activity into some other areas that Mick's been working diligently on. Yeah. I would just add that the funnel on the buy side keeps getting stronger. We talked about that last earnings call. We started with building a world-class team. And then you have to build relationships. There are the large auctions led by investment banks. We are still seeing those, and we will participate. There are also the deals like we have done, which are smaller, more relationship-driven, and obviously can extract a lot of value. If we overlay 80/20, it is really a competitive advantage as far as extracting value and ROI. Noah, we are encouraged, enthusiastic that we can get more deals done. Looking forward to that. On the organic trends, I think based on peers reporting, it kind of seems like there's been some crosswinds for heat transfer products. I mean, obviously applied, large commercial HVAC, very strong. Light commercials benefit soft. Starting to see some recovery in heat pumps in Europe. Maybe just remind us of the end market's exposure in your coils business, any kind of implications for the business as we exit the full year. Yeah. That business has gone through a pretty strategic transformation through 80/20. We had literally tens of thousands of SKUs and thousands of end users and customers. We have really worked on simplification of that business. We brought down some revenue. We brought down revenue deliberately and improved the overall margins in the business from single digits to double digit. That is kind of how we are running the business. It will operate at market levels, but generate cash so that we can redeploy that cash into other areas that we see more strategic. It is a business that is in a lot of different places. Heat pumps is one for sure. If that were to ever come back, we are in a very good position there in Europe with our Serbia facility. We have four of the five largest heat pump manufacturers. We have the relationships with them. We're on their designs. We're not counting on it. In North America and other areas, we're in pool heaters and RVs and some data center. We make refrigeration units. There's coils and a lot of different things. Those are the markets. It's a very diverse set, very diverse set. I think within the HVAC product group, I think peers have messaged some softness in around K to 12. It sounds like some of that seems like timing of bond financing. I think that's only about 20% of the product mix. Is that kind of consistent with the trends you've been seeing? Any offsets to call out? Honestly, no, because this business, the IAQ business and HVAC is for schools specifically. It is a $60 million-$70 million business and a couple% of the overall revenue. That has tripled in the last few years based on ESSER funding. We know ESSER funding has stopped, but the supply chain has not kept up with the orders. You see another year's worth of potential orders that are still tied to that, that the factory has not backlogged. We have done other things. We all knew that this was going to happen. It was a three-year run. We wanted to saturate the market as much as we could. We can provide services and retrofit kits once you get that saturation over time. We wanted to offset any of that downside with some inorganic growth. We have done some inorganic growth in indoor air quality, part of that being Scott Springfield, as well as our Jetson business that we acquired. Right. Right. I think pivoting to PT, Neil, you resume leadership of Performance Technologies on an interim basis. Just help us understand your priorities and how long before you would maybe potentially hand the reins over to a successor and honestly what you'd like to accomplish before that happens. It's really not that different. I've gone from one direct report in PT to two. That business is cut into two different operating groups. These individuals I've worked with for quite some time. I've worked with one at Danaher at length, and it was actually running the business prior to the individual that has exited. The second one that I brought over was a segment president for me at Advanced Energy. Really good relationships, and it's pretty seamless. The idea here is to grow fast, to go fast in terms of cost controls and simplifying and collapsing the organization. There are some challenges with the markets that it serves and it plays in. We're not looking for revenue growth and significant revenue growth in PT. It's a margin play. It's about accelerating our EBITDA percentage and hitting our investor goals that we put in place. I'm there to accelerate that. I'm there to collapse the organization. I'm there to help continue to get cost out. I think, I mean, it was a bit of an open-ended question right about sort of timing of a succession. I do think that you've laid out some fairly clear margin targets. Is that the right way to think about timing of a transition when you feel comfortable that you're going to hit those margin targets? Yeah, I think that's a fair way of looking at it. I mean, we've got time. It's just been a few months, and we want to get some stability back into the business. We're driving 80/20 a little bit deeper than we have in the past. There are some key relationships that need to be kept here as we make some pretty significant changes. Some of those relationships have to be done CEO to CEO. I will maintain that for some time. Okay. That makes sense. I think you bracketed $250 million-$300 million in primarily automotive revenue still for divestiture. Maybe talk through kind of the thought process around that and the cadence and whether or not macro and tariff considerations might be factoring into your process. The macro conditions, believe it or not, have improved. That is for us okay. Tariff, no, because this is a regional play. The automotive business is regional. It is Europe for Europe. That is not an issue. When we gave the guidance on how to think about divestitures and exiting revenue, we went off the trends of the last four years. When we started the 80/20, when we started the 80/20 implementation of the organization, we, on average, have exited about $100 million a year over the last four years through product line exits and divestitures of assets, offset and replaced beyond that with data center. We suggested, "Hey, over the next couple of years, as you are thinking about our new IR targets, our trend has been $100 million." That seems to be something that you could draw a straight line with. Our desire is to do it all in one transaction. I mean, our desire would be to exit the $250 million-plus or $300 million that remains in auto into one. It's not strategic for us. It's not core. We know right now there's an opportunity with these product lines that they support. There's an extension that even generates more cash long-term for the investor, the buyer, because of the ICE, the need for internal combustion engine that's advanced. They're pulling off of EV platforms and going back into some of the—so now this capital is paid for. The plants are paid for. The customers are in place. They have the customer lists. They have the contracts. Instead of it being a two- or three-year, it may be five years. It's more marketable. We have got it to double-digit, low double-digit EBITDA, which is some of the higher profits that you will see in this space. We feel like this is an attractive business. It is a good business, not for us, but for somebody. If we could do it in one move, we would do it in one move. I think you just mentioned that some of the mobility markets are actually improving. We had seen a deteriorating outlook for commercial vehicle demand in the back half as an example. Maybe you can kind of expand on your comments around mobility markets, how they're evolving on highway versus off-highway. Are you referencing internal combustion engine or EV? Internal combustion engine. We'll get to EV in a second. Yeah. On an internal combustion engine, we're seeing there are some market drivers. There are some regulations that's coming in next year in Europe that's going to drive some behavior on the CV side. We're seeing when we're following the information that's coming from our customers that are saying, "Hey, recovery is going to come later in the year." We're kind of aligning behind that. Similar comments to what you're seeing publicly. Okay. And then e-mobility, I mean, I would say that the near-term growth prospects to us at least seem stronger in China and Europe versus the U.S. And correct me if I'm wrong. I think more of your programs may be skewed towards the U.S. So just how is the business responding to demand trends? Essentially, all of them are in North America. Wherever we need to adjust, we'll make adjustments. This is part of the PT adjustment and where we're looking at opportunities with cost. It's an area that we're going to continue to ebb and flow based on the demand. Certainly, the federal funding has dried up for that. I mean, I think we all saw that. The Department of Transportation, Department of Education, they set the money out. They put out $4 billion or $5 billion. That kind of was in flight. It drove a lot of this behavior. Now it's more along the lines of where you see regional plays, where you see investments through the state of California, the state of New York, the state of Massachusetts that want to still continue to grow their EV platforms on the municipal bus sides and school bus sides. I want to ask you about tariffs management broadly. I think you did a good job on the last earnings call outlining your expectations. We've seen a number of companies kind of partitioning their tariff exposure between what they plan to address through supply chain versus what they plan to address through pricing pass-throughs. How are you kind of balancing those two tools in managing the company's exposure? To what extent does that balance differ between the two segments? Very different between the two segments. On the climate solutions, it's pretty simple. We work through channel. We work through our channels through distribution into our ANG models. That's passed through. We pass that through just like our competitors are passing it through. That's what we're doing there. With our key accounts on the data center side, that's written in our long-term agreements that they'll take on the responsibility of the tariff, not us. They're okay with that. I think that's okay short-term. Longer-term, this could be another level of conversations you have to have commercially. If we're a year or a year and a half into this, we may have to do something different. We're open to that. We've provided some opportunities. It's just a matter of do they want to make that shift into the United States or Canada. We have the facilities. We have the people. Do you want to take that risk of moving production or not? It's up to them ultimately. When they say they want to do it, we'll do it. We have the playbooks. We're just not sure exactly what playbook to play because of the uncertainty on is this a long-term tariff engagement or this short-term in order to we'll find out. We are actively in those conversations with our data center customers. No issue there. On the performance technology side, it's a little different. We have the ability to pass that through in price, no doubt. Certainly, we're passing some of it through with some of our lower-volume customers through a surcharge. That takes a long time to negotiate that. In the meantime, we're trying to set up our operations because we have the benefit of being a global operations provider, meaning we've got 36, 37 facilities in 15 countries. We've got a dozen facilities in the United States and several facilities in Mexico and several in Canada. We can move things around based on where the OEM wants to go. Our OEMs that are in Mexico, we're already in Mexico. We're in a good spot. Our OEMs that are staying with their assembly in the United States, we're in a good spot. Our plants are typically one or two hours away from our OEMs' end users for their assembly sites because of just-in-time delivery. It's usually local for local. If they decide to move to a different country, that's fine. We can just go back to the old plants that we were in before we put them in Mexico. That seems to be okay. On the supply chain side, in terms of buying for us from Modine, we really reduced our reliance on China. China spend for Modine on the supply chain is for China, for Wuxi and Shanghai. Where they spend is typically for that. We have about $100 million of export out of China that we buy, but most of that's going to Mexico to support our Mexican facilities for our OEMs that have moved to Mexico. There are some puts and takes, and there's some ability for us to move around. For the most part, there is not anything significant or material that will happen with these tariffs. There could be a couple of million dollars here or there based on a quarter and timing that we'll have to manage. Yeah. I think you had in your last earnings call, aggregate Canada, Mexico, China, like 10% of your annual spend. I assume a large portion of that, possibly all, is exempted under USMCA. Maybe you can kind of give us some parameters. It is. Okay. Okay. All right. Good. Let's just kind of close with talking about capital allocation. Stock has come in from the highs a pretty significant amount. It was a good time to establish a buyback program as you did. We talked about M&A earlier. Where do buybacks fall within your current capital allocation priorities? I think you talked about being opportunistic, but just curious to understand where that sits. I know you have the priorities one through five with capital allocation, M&A being number one. Internal CapEx for growth and data center ranks it. I can't remember where buybacks was at, four or five. It was really low. Yeah. I mean, I think that's the message. We're believers that the long-term value creation opportunity is, A, organic growth, the data center needs. Somewhere in there is any kind of restructuring elements that we would need to do. Also, acquisitions, which are a key part of our transformation. Buybacks are right there, Noah, in terms of order. As you said, we have a new $100 million facility. Certainly, with the balance sheet where it's at, assuming we fund everything, we will be active in the buyback market at these valuations. Yeah. I mean, I think with where the balance, I mean, your balance sheet's in very good shape, right? I mean, you've got a good amount of dry powder for whatever you want to do. You should have pretty healthy cash conversion. I mean, I think there's optionality here. Has the level of leverage or cash on hand where you feel comfortable shifted at all over the past few months? I think, Mick, obviously, you've been CFO through some tough cycles at a time when the business was much more cyclical. Any lessons from those experiences you're bringing to bear or any kind of change in kind of leverage targets? No. We're going to continue to run the balance sheet conservative. You're right. Prior to Neil stepping in, when we were known as a vehicular company, we purposely ran low debt for a cyclical nature. I just think that's what we do. That's the right way to run the company and to keep that dry powder. Our plan is to keep leverage between one and two times. We're running under one. The only thing that can get a little bit odd, and it's just where we're at at times, we're working on acquisitions, and we have a funnel that all of you may not see. Once in a while, we'll get questions about, "Hey, I see some cash building." If we're working on two or three deals, Kathy and I are just looking ahead. One of the gray areas can just be sometimes. If the deals, if one or two of them fall out, great. Just know that we're always trying to balance forward-looking with keeping the balance sheet, especially in this climate. We'll keep it under-levered. Maybe in closing, I think since we followed you, I mean, there's been, as we talked about earlier, really strong growth on the data center side, some cyclicality in end markets elsewhere, kind of ongoing 80/20. Neil, you kind of said that the way that you're running the business, 80/20 never really stops. You're just trying to drive consistent and ongoing shareholder value creation. In that spirit, I mean, what are you most excited about as we look ahead to the coming year? Where do you think are perhaps unappreciated opportunities within the business? One of the best things about it is that we're diversified. We can constantly move in and out of markets that are attractive. We have visibility to multiple markets and geographies. We're not tied to any specific thing that requires us to ebb and flow based on those market conditions. We are, in my opinion, the best in the world in thermal management. We've applied a lot of that expertise over the last century in this vehicular space. That is a level of physics that can be transferred into better markets and to better opportunities that have longer-lasting potential for the company. Shifting that engineering expertise that we do so well in a very specific market, that applies. It's thermal management. It's physics. It's the same. It applies in areas outside of things that have wheels or treads. Us getting into different markets like we did with data centers and getting into different markets like looking at healthcare and life sciences and test and measurement and other spaces that require heat transfer solutions. Wherever there is power and electricity and high voltage, there is heat transfer. Thinking about it differently and allowing us to pivot over time is, to me, very exciting. Those are long-term and middle-term initiatives and potentials. We got a little bit of a lift here first, right? Right now, service the data center market, doing exceedingly well and delighting our customers while we are cleaning up things like automotive and doing some further divestitures, generate more cash so that we can redeploy it in those markets that we think that are longer-term and more attractive, that are at our core, who we are, experts in precision thermal management. We look forward to seeing that journey continue. We thank you all for the time and the great discussion today. It's a good conference every year, having you guys all the more so. Thank you, Neil, Mick, Kathy. We'll speak in a few weeks around your earnings. Until then, have a great conference, everyone. Thanks for doing it, Noah. Take care.