Modine Manufacturing Q4 2025 Earnings Report

Modine Manufacturing EPS Results

• Actual EPS: $1.12
• Consensus EPS: $0.96
• Beat/Miss: Beat by +$0.16
• One Year Ago EPS: $0.77

Modine Manufacturing Revenue Results

• Actual Revenue: $647.20 million
• Expected Revenue: $633.13 million
• Beat/Miss: Beat by +$14.07 million
• YoY Revenue Growth: +7.20%

Modine Manufacturing Announcement Details

• Quarter: Q4 2025
• Date: 5/20/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 21, 2025
• Conference Call Time: 11:00AM ET

Modine Manufacturing (NYSE:MOD) Company provides thermal management products and solutions in the United States, Italy, Hungary, China, the United Kingdom, and internationally. It operates through Climate Solutions and Performance Technologies segments. The company offers heat transfer coils, including heat recovery and round tube plate fin coils; gas-fired, hydronic, electric and oilfired unit heaters; roof-mounted direct- and indirect-fired makeup air units; duct furnaces; infrared units; perimeter heating products; single packaged unit ventilators; modular chillers; air handler and condensing units; ceiling cassettes; evaporator unit coolers, remote condensers, fluid coolers, gas coolers, and dry and brine coolers; and motor and generator cooling coils, transformer oil coolers, radiators, dryers, and industrial heat exchangers. It also provides data center products consisting of IT cooling solutions, including precision air conditioning units for data center applications; computer room air conditioning and handler units; hybrid fan coils; fan walls; chillers; condensers; condensing units; and liquid cooling solutions for high-density computing, as well as replacement parts, maintenance service and control solutions for existing equipment and new building management controls and systems. In addition, the company offers powertrain cooling products, such as radiators, condensers, engine cooling modules, charge air coolers, fan shrouds, and surge tanks; cooling module generator sets; aluminum and stainless steel engine oil coolers, exhaust gas recirculation coolers, liquid charge air coolers, transmission and retarder oil coolers, and chillers; battery thermal management systems, electronics cooling packages, battery chillers, battery cooling plates, coolers and casings for electronics cooling, and coolers for electric axles; and coatings products and application services. Modine Manufacturing Company was incorporated in 1916 and is headquartered in Racine, Wisconsin.

Modine Manufacturing Q4 2025 Earnings Call Transcript

Key Takeaways

• Record fiscal 2025: Modine delivered the highest sales and profitability in company history for the third consecutive year, with adjusted EBITDA up 25% on 7% revenue growth.
• Climate Solutions posted 30% revenue growth and a 45% increase in adjusted EBITDA (21% margin), driven by strong data center demand and bolstered by the Scott Springfield acquisition, prompting expansions in Virginia and Mississippi and launch of a modular cooling solution.
• Performance Technologies improved its adjusted EBITDA margin by 200 basis points to 13.5% despite flat revenues and end-market downturns, but faces near-term headwinds from delayed EV programs and is restructuring into two product groups with further cost-reduction measures.
• For fiscal 2026, Modine forecasts total sales growth of 2–10%, led by Climate Solutions (12–20% growth, with data center up >30%), while Performance Technologies is expected to decline 2–12%, and adjusted EBITDA of $420M–$450M (≈11% growth at midpoint).
• The company generated $129M of free cash flow in FY25, reduced net debt by $92M to $279M (0.7x leverage), and initiated a $100M share repurchase program, completing $18M in buybacks in the quarter.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to Modine's Fourth Quarter and Fiscal Year twenty twenty five Earnings Conference Call. At this time, all participants are on a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. 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.

[Kathleen Powers, VP, Treasurer & Investor Relations at Modine Manufacturing Company]

Good morning, and welcome to our conference call to discuss Modine's fourth quarter and full year fiscal twenty twenty five results. I'm joined by Neil Brinker, our President and Chief Executive Officer and Mick Lucarelli, our Executive Vice President and Chief Financial Officer. The slides that we will be using for today's presentation are available on the Investor Relations section of our website, modine.com. On Slide three of that deck is our notice regarding forward looking statements. This call will contain forward looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission. With that, I'll turn the call over to Neil.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Thank you, Kathy, and good morning, everyone. We closed out the year with a strong fourth quarter performance. This was another record year for Mojito 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.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

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 eightytwenty 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 financials results and provide our outlook for fiscal twenty six. But first, I'd like to reflect on some of our accomplishments over the past year.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Please turn to slide five. 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 a 19% to 644,000,000.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

That Springfield's data center sales were a hundred and 97,000,000 in fiscal twenty twenty five, 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 Neil 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 multiphase, multilocation project. Because of this and other orders for chillers in North America, we are increasing production capacity both at our Rockbridge, Virginia facility and in Grenada, Mississippi.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

In Grenada, we are adding new production lines for the chillers and end of line testing capabilities. This is primarily in response to orders in hand and will also support growth for opportunities in our pipeline. We're also excited to launch a new modular data center cooling solution and are preparing to take our first order in North America. The powerful combination of Airedale by Modine's data center cooling solutions incorporated into a modular approach allows us to address the market's need for high density compute infrastructure that's flexible, scalable, cost effective, energy efficient, and can be deployed rapidly to meet the evolving demands of our customers. And finally, we're making progress on our India expansion and are on track to launch production in q two.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

We're actively quoting for multiple customers as we plan to service Southeast Asia and The Middle East from this location. Data centers have been a focus of our investment for some time, but we're also working to grow our commercial indoor air quality and heating businesses. We recently completed the acquisition of Absolute Air, a heating products company with a complementary product line and distribution channel to our own. Our business development team is also working on other opportunities for bolt on acquisitions to grow the product group There's a great deal of activity in the Climate Solutions segment, and the key to our success will be executing on all the growth initiatives in front of us. Please turn to page six.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

The Performance Technologies segment delivered a strong fourth quarter performance despite challenging market condition. The segment reported a 15% adjusted EBITDA margin in the fourth quarter, resulting in 13.5% adjusted EBITDA margin for the fiscal year, a 200 basis point year over year improvement. Our vehicular markets have been in an extended downturn that is currently projected to last several more quarters. In addition, we are experiencing delays in the launch and ramp of electric vehicle programs using our EV Systems products with further uncertainty ahead. This is causing us to lower our expectations for near term growth for the Advanced Solutions product group.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

In response, we are making several changes to our business. First, we had previously announced the change to our product groups in the segment and are moving forward with that, but are now pivoting to two groups rather than three. Heavy duty equipment will include off highway and stationary power products, and on highway applications will include automotive, commercial vehicle, and specialty vehicle products for both ICE and EV powertrain. Next, we are taking a renewed critical look at the business processes to streamline operations and lower costs. This involves further cost reductions throughout PT with redeployment of key resources to open positions and climate solutions wherever possible.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

These actions, along with a simplified org structure, will provide better focus on our customers and end markets while reducing operating costs, allowing us to continue improving margins during this downturn, leading to even greater conversion once the markets recover. It is challenging to improve margins on flat or lower revenue, but that's exactly what we've been doing in the PT segment. Since we started on this journey three years ago, we've improved adjusted EBITDA margins by 800 basis points on flat revenues. We are making great progress towards the EBITDA margin targets introduced at our Investor Day last September, and we are not backing away from those targets despite these challenging and uncertain market conditions. During this period of heightened global uncertainty and trade concerns, we are focusing on controlling what we can and taking decisive actions where necessary.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

It is difficult to predict the impact of tariffs on our supply chain as well as on our customers in the broader economic environment. Our market position is strengthened by our global manufacturing footprint and local for local approach. In addition, our supply chain team has navigated these hurdles in the past, and we will continue to refine their sourcing strategy to keep us cost competitive. It is clear that the execution of our strategic plans and the investments to grow in key markets have resulted in our third consecutive year of record performance, while equally setting the stage for better things to come. With that, I'll turn the call over to Mick.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Thanks, Neil, and good morning, everyone. Please turn to Slide seven 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 $69,000,000 or 80% from the prior year, driven by higher North American sales and the Scott Springfield acquisition. HVAC and R sales rose by $21,000,000 or 27%, driven by a surge in late season demand for heating products and improvements across indoor air quality and refrigeration products.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Heat transfer product sales declined 11% or $12,000,000 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 two ninety 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.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Please turn to Slide eight. 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 $8,000,000 or 2%. Advanced Solutions sales were lower by 12% or $4,000,000 driven by a decline in EV auto and EVANETIG system sales, partially offset by higher sales to specialty vehicle customers. Liquid cooled application sales decreased 7% or $8,000,000 due to the previously mentioned lower end market demand.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Lastly, air cooled application sales were lower by 13% or $22,000,000 also driven by market dynamics. Partially offsetting the lower market demand for our air cooled product was a 29% increase with genset customers. Adjusted EBITDA improved 5% from the prior year despite the lower sales. Adjusted EBITDA margin increased two twenty basis points. This segment is clearly benefiting from the proactive restructuring and other cost initiatives taken earlier in the year.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

As Neil mentioned, we're reorganizing this business and taking further actions to simplify the org structure and reduce costs. We expect these actions to generate more than $15,000,000 in annual savings as we continue to reallocate our costs and resources to the highest growth businesses. To wrap up, Performance Technologies segment achieved another year of earnings improvement and significant margin expansion. Modine's eightytwenty approach is a critical element of these results, and we will lean on these principles to drive continued improvement in the upcoming fiscal year. Despite the difficult market conditions and uncertainties around the global trade situation, we anticipate higher margins and earnings for this segment in fiscal twenty twenty six.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Now let's review total company results. Please turn to Slide nine. Fourth quarter sales increased 7%, driven by revenue growth in Climate Solutions. The Climate Solutions growth was partially offset by market related volume declines in Performance Technologies. Our gross margin improved three thirty basis points to 25.7%, driven primarily by higher sales volume and favorable mix, along with the benefit from restructuring cost savings initiatives in the Performance Technologies segment.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

We continue to invest in incremental SG and A to support the strong Climate Solutions growth. In addition, SG and A includes expenses related to the SSM acquisition, including incremental amortization related to intangible assets. Adjusted EBITDA was exceptional this quarter with an increase of 32% or 25,000,000 and the adjusted EBITDA margin was 16.1%, representing a 300 basis point improvement from the prior year. This now represents the thirteenth consecutive quarter of year over year margin improvement, and we achieved our highest adjusted EBITDA margin since beginning Modine's strategic transformation. Adjusted earnings per share was $1.12.45 percent higher than the prior year.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

We're pleased with the strong finish to the fiscal year. Momentum in our key growth markets allowed us to overcome challenges in others. Our full year adjusted EBITDA margin ended at 15.2%, which is two ten basis points above fiscal twenty twenty four. These results are on track and aligned with our Investor Day targets for fiscal twenty twenty seven. Now moving to cash flow metrics.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Please turn to Slide 10. The businesses generated $27,000,000 of free cash flow in the fourth quarter, and this included $6,000,000 of payments primarily related to restructuring. This puts our full year free cash flow at $129,000,000 allowing us to further strengthen the balance sheet. Net debt of $279,000,000 was $92,000,000 lower than the prior fiscal year end and $8,000,000 lower than last quarter. With a leverage ratio of 0.7, our balance sheet remains in great shape, and we anticipate another year of excellent free cash flow in fiscal twenty twenty six.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

During the quarter, we announced $100,000,000 stock buyback program and completed $18,000,000 of share repurchases. Now let's turn to Slide 11 for our fiscal twenty twenty six outlook. As Neil mentioned, there's a great deal of uncertainty across all markets and the global economy, and our team is continually assessing the tariff impact on our business. We're analyzing a number of factors that may, in some way, have an impact this fiscal year. These include the impact on material costs of imported products through our supply chain, any tariffs paid to ship finished products from one location to another, the cost sharing and or price adjustments to address these costs, and the overall impact on product demand for Modine or our customers.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Beyond the trade and tariff risks, there are some positive elements for Modine. First, we estimate that less than 10% of our annual purchases are subject to new tariffs based on our regional supply chain strategy. Second, and with regards to shipping of finished goods, we have commercial agreements with many customers that proactively address tariffs. And last, we have a global footprint, and that is allowing us to help customers with their new sourcing strategies, which could lead to incremental revenue. Given the volatility and uncertainty in the market, we are providing wider than usual ranges for our outlook.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

We've factored all known information at this time into our revenue and earnings outlook. We'll provide updates each quarter and tighten the ranges as the year progresses and adjust as we gain more information and certainty. In the appendix, we provided a table summarizing the current tariff situation and Modine exposure. For fiscal twenty twenty six, we currently expect total company sales to grow in the range of 2% to 10%. For Climate Solutions, we expect full year sales to grow 12 to 20%.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

This growth is largely driven by our outlook for the data center and commercial IAQ product group. With regards to this product group, we remain quite optimistic in the full year outlook for data center with anticipated revenue growth in excess of 30%. While the European market appears to be adjusting to changing hyperscaler plans, we're not seeing any slowdown in North America. In fact, their challenge remains the ability to keep up with demand. For Performance Technologies, we're anticipating sales to be down 2% to 12% based on the assumption that the end market will remain depressed and that the current trade conflicts may have a negative impact on those market recoveries.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

As Neil mentioned, we've reorganized the PT segment into two product groups. The first product group, heavy duty equipment, is presented at our Investor Day and will serve the agriculture, construction, mining, and genset markets. The second group will be on highway applications, which will serve the automotive, commercial vehicle, and specialty vehicle market, including electric vehicles. Consolidating the Performance Technologies segment into two product groups will help the team to further focus on key end markets and customers, which is a critical element of eightytwenty. And this will allow us to reduce our cost structure and further improve profit margins.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Our strategy remains consistent in this segment to exit nonstrategic businesses, which we believe will be in the best interest of all stakeholders, including our employees, customers and suppliers. The team is actively working on this and will provide more information. With regards to our full year earnings, we currently expect fiscal twenty twenty six adjusted EBITDA to be in the range of $420,000,000 to $450,000,000 Using the midpoint of this range, this results in an increase of 11% and another year of solid earnings growth. In addition, we anticipate that we'll generate a higher level of free cash flow in fiscal twenty twenty six, continuing to increase our cash generation in line with our IR day target. Before wrapping up, I want to remind everyone about the planned product group changes we reviewed at our Investor Day and during the call today.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

For Climate Solutions, we'll report revenues under the three product groups, data centers and commercial IQ, HVAC Technologies, which will include our heating and school indoor air quality businesses, and heat transfer solutions, which will include our coils, coatings, and commercial refrigeration coolers business. As I previously covered, Performance Technologies will be broken down into two product groups, heavy duty equipment and on highway applications. To assist everyone with modeling and analysis, we'll provide a restatement for fiscal twenty twenty five revenue using these new product groups, and we'll begin showing the new product groups with our first quarter results. To wrap up, we're extremely pleased with the results from the fourth quarter and fiscal twenty twenty five. The Modine team worked extremely hard to deliver a third consecutive year of record results despite some significant market headwinds.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

In addition, this team has demonstrated their ability to manage all the levers that they can control, including the successful addition of several acquisitions. We've delivered on our financial targets over the last several years and remain on track to achieve our fiscal twenty twenty six and 2027 goals. With that, Neil and I will take your questions.

[Operator]

Thank Our first question is from Chris Moore with CJS Securities. Please proceed with your question.

[Chris Moore, Senior Analyst at CJS Securities]

Congrats on another good quarter. So maybe we'll start with data center. So talking about 30% growth on fiscal 'twenty six, As you said, Europe may be 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?

[Chris Moore, Senior Analyst at CJS Securities]

Twenty four months, thirty six months? Just trying to get a sense as to kind of how far out they're giving you inclination to their plans.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Hey, Chris. This is Neil. Thanks for the question. Yeah. We're very confident in the opportunities we have in the data center market.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

We continue to build strong relationships both with our our best colocation customers as well as the hyperscalers that we've we've built relationships with over the years. As you know, we've gone from one significant relationship with a single hyperscaler to, you know, five in in a short period of time where we have opportunity to do business. And as we build those relationships with 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, you know, two years out.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

But we we have visibility with some of our customers that that go out three to five years.

[Chris Moore, Senior Analyst at CJS Securities]

Very helpful. Thanks. The the tariff disclosure slide, and it's very helpful. Couple of things there. Is there anything that you source from China that is especially hard to find elsewhere?

[Neil Brinker, President & CEO at Modine Manufacturing Company]

You know, that's a that's a good question. Thanks for that, Chris. We've worked on this over the last, you know, three to four years in terms of 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.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

So we've reduced the dependency on supply chain from China significantly over the last few years. It started with COVID the reduction of supply chain and and moving more domestically for regional regional supply chain support. And then, you know, with the the port strike in LA and then the Suez Canal. There's all kinds of reasons that we needed to to 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 gonna be an advantage for us as we move forward in this tariff environment.

[Chris Moore, Senior Analyst at CJS Securities]

Perfect. May maybe just last one on on that note. So you you kinda went through the the different areas on the on the tariffs that 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?

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yes. Chris, it's Mick. With regards to the outlook, Chris, around volume, 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 percent top line for data center. And then, you know, back on the PT side, it really will be about the rate of recovery or stability across ag, construction, and, commercial vehicle.

[Chris Moore, Senior Analyst at CJS Securities]

Got it. I appreciate it. I'll jump back in line.

[Operator]

Next question comes from Matt Summerville with D. A. Davidson. Please proceed with your question.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

Thanks. 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.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

I just wanna 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.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Yeah, Matt. Thanks for the question. Really, it's a matter of execution in North America for us. We have, we have tremendous opportunity. We recently put out a press release where we're gonna add additional capacity and employment in Mississippi to keep up with that demand.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

We, we're seeing incredible need to to continue to ship and produce products, in DC, particularly around chillers. And, you know, we had that dedicated plant in Virginia, that we've already maxed the capacity, and we're gonna now have to, increase capacity in Mississippi as well to add additional chiller lines. So we've been able to win commercially with, you know, very, very good product. We've got a lot of attention in North America, particularly with our growth, with our hyperscalers as well as colocation. So it's a matter of execution at this point.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

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 it's it again, it comes down to us being able to simply produce and ship the product that's been that our customers are standardizing around.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

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

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Yeah. Thanks. You know, we're seeing that in terms of the the trends in the EU versus North America. Definitely, the the growth is on the North America side. Certainly with our hyperscalers, there is there is an element where they're thinking about the different technologies and opportunities.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

So as we have as as we've grown with some of these folks in the hype 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, you know, some of these some of these projects can be delayed a quarter or two. No doubt about that. We're also recognizing that we got a very strong brand in Europe. It's a premium brand.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

And at times, we're not going to concede relative to pricing because of the because of who we are and the product that we have. So, you know, Europe is is is a 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 RAM schedule. If we can execute or overdeliver on the RAM schedule, then we feel very confident in in the in the data center business.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

And then lastly, maybe just spend a minute talking about m and a funnel actionability and sort of your 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. Thank you.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yeah. Hey, Matt. It's Nick. That's that's been a huge focus for us, and we have talked in the last call or two about kinda sharing with everybody incrementally how we're feeling about both the buy side and any exits. And feeling really confident right now in the funnel, and it's grown more from the last time we all connected.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

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, boy, since Neil came in and at 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 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.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

So I'd say short answer on the strategic exits, gaining 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.

[Operator]

Our next question comes from Brian Drab with William Blair.

[Brian Drab, Co-Group Head–Industrials at 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 twenty five between US and Europe?

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

I would see if I can grab that at my fingertips while we Neil, can we address any other questions you have. If not, I'll just give you a back on it, but let me see if I've got it nearby.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Okay. Yeah. I'm I'm assuming it's, like, 8020, but in line with your, you know, often mentioning eightytwenty. Bet that's the answer. And then can you talk at all about the cadence of data center revenue in expected in fiscal twenty six? We had a great year of data center performance and kind of the average quarterly revenue run rate was like $160,000,000 per quarter. And it's a big ramp up. If you're going to grow 30%, it's going to average like $210,000,000 a quarter. But how does that how does that potentially ramp throughout fiscal twenty six?

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Yeah. I can I can I can explain the process and what we're working on when I talk about execution and and the ramp cycle and Mick can come with some more specific numbers? But we have we have an a large opportunity. We have built great relationships with customers. We have a very good product set.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

We have a complete solution that solves for the problems that our customers are experiencing. And we just we we continue to invest capital and resources, redeploying some of our most talented people across the organization in order to ramp. If if we can get our Grenada, Mississippi facility up faster, then obviously it would accelerate even more. But it's it's a matter of equipment. It's a matter of getting our labs in place.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

It's a matter of getting people trained. And we're gonna have more than double our capacity that we currently have once we get Mississippi up and running. We would expect to have probably a twelve 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 equipments coming in early.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

But it's it you know, the relationships are there. We have demand. We have demand. It's a matter of ramping these facilities each quarter.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yep. Brian, I just like to wrap it. You're you're a good guess. You're close. But with the mix last year, it's about 75, 20 five, 70 five percent being on North America.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Okay. And okay. Thanks very much. And and and just on on that second question I asked, I'm just wondering, should we expect data center revenue to be more back end loaded in in fiscal twenty six? Does it ramp up throughout the year as you bring on that capacity, or do we kind of step function up from a hundred and 60 million a quarter to 210 a quarter right away?

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

No. I am glad glad you asked that. With Q week, we expect Q1 to be the softest quarter and with it ramping. So we do see Q1 being lower than 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 conditions there in Q1.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

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 running being able to keep up with all the demand by the second half of the year.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Okay. Thanks very much for taking my question.

[Operator]

Our next question comes from Noah Kaye with Oppenheimer. Please proceed with your question.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

Hey, good morning. Thanks for taking the questions. Would like to unpack the growth outlook for Climate Solutions a little bit more. So data center revenue at least 30% growth. I think off the revenue base you just said, that implies, I don't know, close to 14% total growth for the segment.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

And then you got about two points, almost two points of the M and 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?

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yeah. So, yes, generally. The heating in the school business, while it's smaller, relatively speaking, about a $200,000,000 business, we see that growing low double digits this year. The heat transfer product area, a much larger business, we're planning on that to being flat to even maybe down slightly, call it, to maybe 5%. And for there, it's a lower visibility business that Neil talked about.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Right now, still excess coil capacity in the market. We talked last quarter about some customers deciding to make more coils on in internal and 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.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

Okay. It sounds like what sort of unlocks the upside of the plus to the 30% data center is your ability to add or liberate more capacity, you know, in North America. So so please correct me if I'm mischaracterizing that. But, Neil, I mean, I think you said that, you know, you will 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?

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

Because I think when we last spoke, you know, the company's revenue capacity was was north of a billion dollars.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Yeah. It is. It's it's it's north of a billion dollars, of global capacity, but we have we have such a demand in North America, the capacity that we had built out in North America, that surge has exceeded the North America capacity. So, you know, in general, if you look at it across globally, if all the orders were to come in, you know, 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.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

Okay. So it's North America. Great. And and then I think yeah. Go ahead, Nick. Sorry.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

I was just gonna say to, ramping up the air side versus the chiller side, different requirements.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

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

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yeah. Right now, we've 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 the area we've been focused on, would be that last portion of automotive, which has been running, I would say, 202 hundred and 50,000,000. Mhmm.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

If we execute on a transaction this year, we'll we'll come back. You know, at that point, we would have certainty of something. We'd 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.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

Got it. So there's there's no, like, bleed down of that in the guide. Okay. Last one for me. You you know, I think all in for the company implied incrementals are kinda around 20%, I think, if did my math right, at at the midpoint of the guide.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

You know, the business did close to 45 incremental this past year. I guess given the mix tailwinds and some of the eightytwenty actions that you're clearly getting some traction on, those incremental 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?

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yeah. So so there's a lot to unpack there, and maybe I'll give you some some color around it. On the performance technology side, a lot of conversion we've been seeing there, and it's really been on 8020 and cost reduction for you know, you're referencing fiscal twenty five on down revenue, we were able to increase EBITDA and add the 200 basis points heavy gross margin lift there this year in 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, probably target 125 to 175 basis point type improvement in Performance Technologies. And right now, based on you can tell on our guidance and our assumptions, that's going to be heavily based on cost reduction activity and productivity improvements through eightytwenty.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Climate Solutions, probably more flat margin, and we that's not a surprise to us. Might be up a little bit. But as Neil was 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 for Climate Solutions, but we should we're really driving growth, and we're okay having a 20 plus percent type EBITDA margin. You wrap that in the most move up a little bit.

[Michael Lucareli, Executive VP & CFO at Modine Manufacturing Company]

Yep. You kinda blend that in. We should be up a little bit, but higher conversion on, PT and then the standard conversion on climate.

[Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.]

Very helpful. Thanks, Nick. Our

[Operator]

next question is from Matt Summerville with D. A. Davidson. Please proceed with your question.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

Thanks. Just a couple of quick follow ups. With this new modular data center system, if 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 the legacy, if you will, DC offering?

[Neil Brinker, President & CEO at Modine Manufacturing Company]

No. That's a great question. I it 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 center.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Because the data center customers want to move quickly, because it's 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.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

So it's it's a conversion in terms of the data centers, and 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, an advanced system for them that is easier for them to install.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

Thank you for that color. Just a couple of additional ones. As you sit here looking at that billion dollar data center target you have in terms of top line for fiscal twenty seven, 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?

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

And over time, Neil, do you start to think about strategic optionality for the DC business?

[Neil Brinker, President & CEO at Modine Manufacturing Company]

Yeah. Thanks, Matt. Yes. For sure. I mean, the at the rate of capacity that we're deploying, it it's about execution.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

I I become more confident every day as we 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 product for the for our customers that are specific for their for their their need. Purpose built specific highly engineered products for these customers.

[Neil Brinker, President & CEO at Modine Manufacturing Company]

And we're through that. We've got that, and 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.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

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

[Neil Brinker, President & CEO at Modine Manufacturing Company]

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, you know, we're focused on the the the next twenty four months because it's that that's paramount. We have to stay in execution mode.

[Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson]

Understood. Thanks, Neil.

[Operator]

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

[Kathleen Powers, VP, Treasurer & Investor Relations at Modine Manufacturing Company]

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

[Operator]

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

Participants

Executives

• Kathleen Powers, VP, Treasurer & Investor Relations
• Neil Brinker, President & CEO
• Michael Lucareli, Executive VP & CFO

Analysts

• Chris Moore, Senior Analyst at CJS Securities
• Matt Summerville, Managing Director & Senior Research Analyst at D.A. Davidson
• Brian Drab, Co-Group Head–Industrials at William Blair
• Noah Kaye, Senior Research Analyst at Oppenheimer & Co. Inc.