Good morning, ladies and gentlemen. And welcome to Modine's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations. Thank you. You may begin.

Good morning. And welcome to our conference call to discuss Modine's fourth quarter and full year fiscal 2025 results. I'm joined by Neil Brinker, our President and Chief Executive Officer; and Mick Lucareli, our Executive Vice President and Chief Financial Officer. The slides that we will be using for today's presentation are available on the Investor Relations section of our Web site, modine.com. On Slide 3 of the 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'll turn the call over to Neil.

Thank you, Kathy. And good morning, everyone. We closed out the year with a strong fourth quarter performance. This was another record year for Modine with the highest reported sales and profitability in our history for the third year in a row. For the past three years, our strategy has been to shift our business mix to drive top line growth and expand EBITDA margin. We've made significant investments in order to spur this growth. And for the first time in our history, the Climate Solutions segment reported higher revenues than Performance Technologies. The rate of earnings growth has far outpaced revenue growth, driven by 80/20 and the favorable business mix shift. This year, our adjusted EBITDA was up 25% on a 7% sales increase. Mick will cover our fourth quarter financial results and provide our outlook for fiscal '26. But first, I'd like to reflect on some of our accomplishments over the past year. Please turn to Slide 5. Climate Solutions delivered another outstanding year. The segment reported a 30% increase in revenues, including the benefit of the Scott Springfield acquisition and a 45% increase in adjusted EBITDA. This resulted in a 220 basis point improvement in adjusted EBITDA margins to 21%. Sales growth in the segment was driven by data centers, which were up 119% to $644 million. Scott Springfield data center sales were $197 million in fiscal 2025, meaning that about half of the increase came from organic data center growth. Most of the organic growth was in North America and demand for our chillers continues to be extremely strong. The past quarter, we announced an exciting business with a new cloud customer who is building out AI infrastructure for a new hyperscaler. This is an important win for us as this is planned to be a…

Thanks, Neil. And good morning, everyone. Please turn to Slide 7 to review the Q4 segment results. Climate Solutions delivered another strong quarter with a 28% increase in sales, a 48% improvement in adjusted EBITDA and an adjusted EBITDA margin of 21.4%. Data center sales grew $69 million or 80% from the prior year, driven by higher North American sales and the Scott Springfield acquisition. HVAC&R sales rose by $21 million or 27%, driven by a surge in late season demand for heating products and improvements across indoor air quality and refrigeration products. Heat transfer product sales declined 11% or $12 million due to lower volume to commercial and residential HVAC and commercial refrigeration customers. Overall, we're very pleased with Climate Solutions strong earnings and conversion, which resulted in a 290 basis point improvement in adjusted EBITDA margin to 21.4%. This quarter completed another great year for Climate Solutions. We anticipate continued revenue and earnings growth in the new fiscal year. And as Neil said, our business development team is actively pursuing additional acquisitions. Please turn to Slide 8. As we anticipated, Performance Technologies delivered strong sequential earnings and margin improvement despite weakness we are experiencing across most of our end markets. Foreign exchange rates were an additional headwind this quarter, negatively impacting sales by nearly $8 million or 2%. Advanced Solutions sales were lower by 12% or $4 million driven by a decline in EV auto and EVantage system sales partially offset by higher sales to specialty vehicle customers. Liquid cooled application sales decreased 7% or $8 million due to the previously mentioned lower end market demand. Lastly, air-cooled application sales were lower by 13% or $22 million, also driven by market dynamics. Partially offsetting the lower market demand for our air cooled product was a 29% increase with…

[Operator Instructions]. Our first question is from Chris Moore with CJS Securities.

Congrats on another good quarter. So maybe we'll start with data centers. So talking about 30% growth on fiscal '26. As you said Europe, maybe a little more cautious, North America is strong. Can you maybe just talk a little bit about the data center visibility? How far out are your customers sharing their build schedules, is it 24 months, 36 months? Just trying to get a sense as to kind of how far out they give you information to their plant?

Yes, we're very confident in the opportunities we have in the data center market. We continue to build strong relationships both with our best colocation customers as well as the hyperscalers that we've built relationships with over the years. As you know, we've gone from one significant relationship with a single hyperscaler to five in a short period of time where we have opportunity to do business. And as we build those relationships with our customers, both on colocation as well as on the hyperscaler side, we have visibility of upwards of five years, we have high confidence in a year outlook. We have moderate to high confidence in two years out, but we have visibility with some of our customers that go out three to five years.

The tariff disclosure slide and its very helpful, a couple of things. Is there anything that you source from China that is especially hard to find elsewhere?

We've worked on this over the last three to four years in terms of a local-for-local strategy relative to our supply chain. Having 38 facilities in 14 different countries, it's really important to do that, for one, making sure that we have a redundant supply chain and funnel also, because of just total landed costs. So we've reduced the dependency on supply chain from China significantly over the last few years. It started with COVID and the reduction of supply, supply chain and moving more domestically for regional supply chain support and then with the port strike in LA and then the Suez Canal, there's all kinds of reasons that we needed to reduce our dependency on China. So we feel very comfortable where we're at with our local-for-local supply chain and we think that's going to be an advantage for us as we move forward in this tariff environment.

Maybe just last one on that note. So you kind of went through the different areas on the tariffs that could be an issue. It sounds like ultimate product demand is probably the biggest uncertainty. Is that a fair statement and is it in one segment more than another?

With regards to the outlook, around volumes, I think the largest uncertainty for us will definitely be about the rate of market recovery and specifically in Performance Technologies that you and Neil covered on the climate side, the heating and school IAQ business, we expect to have steady double digit growth this year, which is great. the 30%-plus top line for data center. And then back on the PT side, it really will be about the rate of recovery or stability across ag, construction and commercial vehicle.

Our next question comes from Matt Summerville with D.A. Davidson.

A couple of questions back on the DC business. Can you put a little bit of finer point on your comment regarding having a hard time keeping up with demand in North America. Is that primarily being driven by these newer relationships? And then Neil you mentioned five hyperscalers. I just want to make sure that, that count is accurate. And then also if you could address in Europe, some of the tentativeness you're seeing on spend. Is that a function of macro or repurposing of original build plans to include AI? And then I have a follow-up.

Really, it's a matter of execution in North America for us. We have tremendous opportunity. We recently put out a press release where we're going to add additional capacity and employment in Mississippi to keep up with that demand. We're seeing incredible need to continue to ship and produce products in DC, particularly around chillers. And we had that dedicated plant in Virginia that we've already maxed the capacity and we're going to now have to increase capacity in Mississippi as well to add additional chiller lines. So we've been able to win commercially with very, very good products. We've got a lot of attention in North America, particularly with our growth with our hyperscalers as well as co-location. So it's a matter of execution at this point. We feel very comfortable with the relationships. We feel very comfortable with the pipeline. We understand the need. We understand the growth schedules with these customers. And again, it comes down to us being able to simply produce and ship the product has been -- that our customers are standardizing around.

And then I just wanted to put a little finer point on what the comments with respect to Europe, whether or not the tentativeness on spend there is more macro driven or more reflective of repurposing of original build plans to include AI. And then I just want to make sure we have the hyperscale customer count, right, I thought you mentioned five, and I was kind of thinking that number was maybe four.

We're seeing that in terms of the trends in the EU versus North America, definitely, the growth is on the North America side. Certainly, with our hyperscalers, there is an element where they're thinking about the different technologies and opportunities. So as we have -- as we've grown with some of these folks in our hyperscalers in Europe, we're having technical conversations in terms of what it looks like for the next generations and the current generations of the builds. And certainly, some of these projects can be delayed a quarter or two. No doubt about that. We're also recognizing that we've got a very strong brand in Europe. It's a premium brand and at times we're not going to concede relative to pricing because of who we are and the product that we have. So Europe is good -- is in somewhat of a good position. We're seeing some downturn there relative to some of our customers based on the technologies that they're adjusting to. But again, it comes back to North America and what we can do in North America with the relationships that we've been able to build there and that we can keep this ramp schedule. If we can execute or over deliver on the ramp schedule then we feel very confident in the data center business.

And then lastly, maybe just spend a minute talking about M&A funnel actionability and sort of your views on whether or not you think you might have a reasonable chance of being successful in moving on from the businesses that you had previously publicly identified as being nonstrategic to Modine?

That's been a huge focus for us. And we have talked in the last call or two about kind of sharing with everybody incrementally how we're feeling about both the buy side and any exit since feeling really confident right now in the funnel, and it's grown more from the last time we all connected. I think from our side, we're gaining a lot of confidence that we can execute at least one transaction on the buy side in the first half of the year, which is really great. We'll keep filling that funnel and pursuing those. And then on the strategic exits of the divestitures, we've been public, since Neil came in and in our IR Day about the strategic exit from automotive, and we think that really is in the best long term interest of employees, the customers, our shareholders and make sure that business is in the right long term hands. We're -- our focus this year is going to be heavy on executing on that strategy. And we've been really transparent and public about the goal would be to do that in one transaction versus a series of smaller ones. So I'd say a short answer on the strategic exits, gaining a little more confidence and energy to execute there. And then as I mentioned, building a lot more confidence of getting at least one by another acquisition done here in the next quarter or two.

Our next question comes from Brian Drab with William Blair.

The first one on my mind is just can you tell us what your split in data center revenue was roughly for fiscal '25 between US and Europe?

I will see if I can grab that at my fingertips, well Neil can address any other questions you have. If not, I can give you background, but let me see if I've got it nearby.

I'm assuming it's like 80-20, but in line with your -- often mentioning 80/20, I thought that's the answer. And then can you talk at all about the cadence of data center revenue expected in fiscal '26? You had a great year of data center performance and the kind of the average quarterly revenue run rate was like $160 million per quarter. And it's a big ramp up if you're going to grow 30%, it's going to average like $210 a quarter, but how does that potentially ramp throughout fiscal '26.

I can explain the process and what we're working on when I talk about execution and the ramp cycle and that can come with some more specific numbers. But we have a large opportunity. We have built great relationships with customers. We have a very good product set. We have a complete solution that solves for the problems that our customers are experiencing. And we just -- we continue to invest capital and resources, redeploying some of our most talented people across the organization in order to ramp. If we can get our Grenada, Mississippi fiscally up faster, then obviously, it would accelerate even more. But it's a matter of equipment. It's a matter of getting our labs in place, it's a matter of getting people trained. And we're going to have more than double our capacity that we currently have once we get Mississippi up and running. Now we would expect to have probably a 12 month cycle to get to that point. Some of these things can accelerate. We could potentially move a little bit faster based on hiring based on equipment coming in early. But it's -- the relationships are there. We have demand, we have demand, it's a matter of ramping these facilities each quarter.

You're good guess. You're close, but with the mix last year is about 75%, 25%, 75% being North America.

And just on the second question I asked, I'm just wondering, should we expect data center revenue to be more back end loaded in fiscal '26? Does it ramp up throughout the year as you bring on that capacity or do we kind of step function up from $160 million a quarter to $210 million a quarter right away?

No, I'm glad you asked that with -- we expect Q1 to be the softest quarter and with it ramping. So we do see Q1 being lower -- growth rate lower than what we've been experiencing, and it really goes back to the discussion Matt and Neil had. So we saw some volume declines in Europe based on the market conditions there in Q1. And at the same time, we are rapidly ramping up capacity in North America in this quarter. So we're adding capacity. I think we're getting daily reports. So it's building. But as you can imagine, in our Q1, we won't have -- we won't have had all the capacity in place. for the full year, as Neil said, and certainly as you get to Q3 and Q4, we're going to be running not at full capacity, but we're going to have -- meaning we'll have excess capacity, but we're going to be being able to keep up with all the demand by the second half of the year.

[Operator Instructions]. Our next question comes from Noah Kaye with Oppenheimer.

I would like to unpack the growth outlook for Clean Solutions a little bit more. So data center revenue at least 30% growth I think of the revenue base, you just said that that implies, I don't know, close to 14% total growth for the segment. And then you got about 2 points, almost 2 points of the M&A contribution. So is sort of the assumption close to the midpoint of the guide that all of the revenues besides those are kind of flat. And importantly, I think is that kind of consistent with the trajectory you're seeing in those other businesses?

So yes, generally, the heating in the school business, while it's smaller, relatively speaking, about a $200 million business, we see that growing low double digits this year. The heat transfer products area, a much larger business, we're planning on that to being flat to maybe down slightly call it, zero to maybe 5%. And for there, it's a lower visibility business that Neil talked about right now, still excess coil capacity in the market. We talked last quarter about some customers deciding to make more coils on internal in-sourcing those using those to their capacity to fill that production. And so that would be the balance. So you've got the 30-plus percent data center growth, low double digit on HVAC heating. And then we're taking a pretty cautious stance on the coil side.

It sounds like what sort of unlocks the upside of the plus down the 30% data center is your ability to add or liberate more capacity in North America. So please correct me if I'm mischaracterizing that. But Neil, I think you said that you will have more than double your current revenue capacity in data center. Was that in reference to North America specifically or is that global? Because I think when we last spoke, the company's revenue capacity was north of $1 billion.

Yes, it is. It's north of $1 billion of global capacity, but we have such a demand in North America, the capacity that we had built out in North America, that surge has exceeded the North American capacity. So in general, if you look at it across globally, if all the orders were to come in, a third, a third, a third, then we would be okay, but that's not the case. So we have to double the capacity in North America.

So it's North America. Great. And then I think -- yes, go ahead, Mick…

I'm just going to say, to ramping up the air side versus the chiller side, different requirements.

And then can we understand your -- to the point around PT, just what divestitures or kind of planned business exits are embedded in the guide for the year?

Right now, we anniversaried the last three or four divestitures. And so in the guidance, we don't have any divestitures built into that. What the area I talked about a little while ago, which would be the area we've been focused on would be that last portion of automotive, which has been running, I would say, between $200 million and $250 million. If we execute on a transaction this year, will come back. At that point, we would have certainty of something. We have timing and we'd be able to look at how that will impact the fiscal year. But just to be clear, we have the automotive business in here for the full year.

So there's no like bleed down of that in the guide? Okay. Last one from me. I think all in for the company implied incrementals are kind of around 20%, I think, that's right at the midpoint of the guide. The business did close to 45% incremental this past year. I guess given the mix tailwinds and some of the 80/20 actions that you're clearly getting some traction on those incrementals seem a little conservative. So can you maybe help us understand how to think about the margins by segment within the guide, what kind of operating leverage in Climate Solutions, what's the trajectory for margins in PT?

So there's a lot to unpack there. And maybe I'll give you some color around it. On the Performance Technology side, a lot of conversion we've been seeing there, and it's really been on 80/20 and cost reduction for -- you're referencing fiscal '25 on down revenue we were able to increase EBITDA and add the 200 basis points heavy gross margin lift there this year on Performance Technologies. As we look to the new year, we're expecting to do more of the same, especially while the markets are staying down and probably target 125 to 175 basis point type of improvement in Performance Technologies. And right now, based then you can tell in our guidance and our assumptions that's going to be heavily based on cost reduction activity and productivity improvements through 80/20. Climate Solutions, probably more flat margin and that's not a surprise to us, might be up a little bit. But as Neil is just covering the balance we have is every time we see increasing demand on the data center side there will be a few quarters where we're reinvesting not only in the people and engineering but in the fixed cost to support that future growth. So I don't see it being a headwind for Climate Solutions, but we should -- we're really driving growth and we're okay having a 20% plus type EBITDA margin. If you wrap that, move up a little bit, yes, you kind of blend that in, we should be up a little bit but higher conversion on PT and then the standard conversion on climate.

Our next question is from Matt Summerville with D.A. Davidson.

Just a couple of quick follow-ups. With this new modular data center system, if that's the right word Neil, does that unlock incremental TAM for you guys? And can you help me maybe understand the use case versus a system like that versus maybe the legacy, if you will, beat the offering?

I don't believe it unlocks additional TAM. I think this is -- well, I'm certain it's a different product solution to solve for the speed at which the data center wants to add capacity in the global market. So traditionally, we would sell our systems to a system integrator. We would sell our systems to the end user and they would have a group of engineers and trades people that would assemble our product in the data center. Because the data center customers want to move quickly because it's literally a race to build capacity here they are looking for a more convenient way to start up their data centers. So they're looking for us to build modular DCs that they can plug and play. So essentially, our product in addition to some supply chain that they would traditionally buy, we would take that supply chain internally we would put the product together into a modular data center unit, it would go to the DC and it would be more of a plug-and-play versus more of a -- versus the assembly process that they go through today. So it's a conversion in terms of the data centers and it will allow them to move much quicker. So similar TAM but just the speed in which they can start-up a data center is accelerated because we do a lot of the work internally, and we build more of a system and advanced system for them that is easier for them to install.

Just a couple of additional ones. As you sit here looking at that $1 billion data center target you have in terms of top line for fiscal '27. Are you more confident in attaining and/or beating that target, is that maybe part of the signal here with the doubling of chiller capacity in North America? How should we interpret that in the context of that target? And over time, Neil, do you start to think about strategic optionality for the DC business?

Yes, for sure, I mean, if the rate of capacity that we're deploying it's about execution. I've become more confident every day as we've gone through the hard part. The hard part was building the relationships. The hard part was getting the customer profile. The hard part was providing and developing highly engineered products for our customers that are specific for their need purpose built specific highly engineered products for these customers. And we're through that. We've got that, and it's a matter of execution, build, produce, ship. And the more the more capacity that we put inside of North America, the more confident that I get.

And then, Neil, just the question on potential strategic optionality as you further scale this business realizing that the vision extends beyond 27, certainly, given, in some instances, you have a three to five year broad look ahead. How are you thinking about that?

I'm really focused on execution right now and making sure that we can deliver on the needs of our customers today. The pipeline is extremely healthy. And we're focused on the next 24 months because that's paramount. We have to stay in execution mode.

I am showing no further questions at this time. I'd like to turn the conference back to Kathy Powers.

Thank you, and thanks to everyone for joining us this morning. A replay of the call will be available on our Web site in about two hours. We hope everyone has a great day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.