Madison Air Solutions Corporation Class A

Good morning and welcome to the Madison Air Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call for a question and answer session. Please be advised that today's call is being recorded. I will now turn the call over to Steve Latufo, Senior Vice President, Investor Relations. Please go ahead.

Great, Danielle, thank you, and thank you to everybody for joining. Good morning. Welcome to Madison Air's second quarter 2026 earnings call. Joining me today are Jill Wyon, President and Chief Executive Officer, and JJ Foley, Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements on this call are forward-looking in nature and are subject to risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, please see Madison Air's recent SEC filing. We undertake no obligation to update these statements as a result of new information or future events. In addition, in today's remarks, when comparing 2Q26 results to 2Q25 or referring to our 2025 performance, such information is presented on a combined basis for Madison Air and April Air, calculated as if April Air had been known since January 1st, 2025. We will also refer to certain other non-GAAP financial measures. You can find calculations and a reconciliation of these measures to the most closely comparable GAAP measure in our earnings release, presentation accompanying this call, and the supplemental information as applicable, which can be found in the investor relations section of our website at madisonair.com. With that, I'll turn the call over to Jill.

Thank you, Steve. Good morning, everyone, and thank you for joining us today for our second quarter earnings call. I'll start by walking you through an overview of the business, our strategy, and the growth momentum reflected in our second quarter results. I'll then hand the call over to JJ to discuss our second quarter 2026 financial results and updated guidance for full year 2026. And then I'll wrap it with key takeaways before we open the call for Q&A. And so with that, please turn to slide five. At Madison Air, we see air differently. Our mission is to make the world safer, healthier, and more productive through the power of better air. We build and scale superior air quality businesses that operate in high-value niches adjacent to traditional HVAC across both commercial and residential segments. Our leading brands include Addison, Aprilaire, Big Ass Fans, Brough Newton, Nortec Air Solutions, Nortec Data Center Cooling, and Reznor. Collectively, our businesses have delivered durable compounding growth, outpacing the core U.S. GDP growth rate in 16 of the last 18 years on an historic basis through 2025. Our strategy is built around three strengths that work together to deliver better air, stronger customer outcomes, and attractive long-term returns. The first strength is our return on air approach, how we help customers achieve their most critical business outcomes. We bring together technical expertise, leading brands, and collaborative partnerships to solve customer challenges in the environments we serve. whether we're helping protect critical infrastructure and reduce the risk of downtime in a data center, improve yield and asset utilization in a semiconductor facility, or create healthier homes through our healthier system, the outcome is the same. Better air produces better outcomes. The company's second strength is our leadership in attractive growth markets. Within our commercial segment, we serve 15 end markets where performance is critical and customers invest in highly engineered custom and semi-custom solutions that deliver measurable value. While data centers are an important part of that opportunity, they are just one of the markets we serve. Our brands also support hospitals and healthcare, life sciences, semiconductor chip fabs, power generation, and other mission-critical applications, supporting a broad range of high-growth opportunities. In residential, we work through our contractor and distribution channels to reach homeowners and build awareness and adoption of healthy air systems. That education creates demand that didn't previously exist, giving us avenues to grow even in soft housing and soft traditional HVAC markets. Since 2021, we estimate that we've more than tripled our addressable market by expanding into larger, faster growing sectors with more complex performance requirements. We've not only grown the business, we've repositioned the portfolio towards markets where air is mission critical and where our technical capabilities can create differentiation. That evolution reflects both the breadth of our capabilities and our ability to apply them in new attractive markets. The third strength is our value creation model. We combine a decentralized operating structure and lean corporate center with the capabilities and scale of the broader enterprise. Our businesses remain close to their customers and can move quickly to invest where they see the greatest opportunities, while they benefit from shared capabilities, talent, technology, and capital. That combination of local agility and enterprise scale is an important competitive advantage. It enables us to pursue growth rapidly and efficiently, sustain strong profitability and cash flow, and deploy capital into the highest return opportunities. Taken together, these three strengths, return on error or outcome-driven solutions, leadership and attractive markets, and a disciplined value creation model form a repeatable framework for creating long-term value. Please turn to slide six. On an LTM basis, we are a $3.75 billion revenue business with strong underlying profitability and cash generation. I'm proud of the quality of our results, 26.6% adjusted EBITDA margin and $430 million in free cash flow, which together represent the power of our unique value creation model. We built this portfolio with resilience in mind, balanced across commercial and residential, with meaningful exposure to replacement retrofit and upgrade activity that holds up across cycles. We're also seeing a growing share of demand for services and aftermarket solutions, which adds stability and increasingly recurring revenue characteristics over time. Aftermarket and services represent about 10% of total revenue, and we see significant opportunity to expand those offerings over time. We're investing in service capabilities, digital tools and simplifying how customers do business with us over the life of their systems. A great example of this is Nortec Air Solutions' new coil software selection software and mobile app. These tools are making it easier for customers to identify, quote, and order replacement parts seamlessly. Adoption has been strong with approximately 30% of orders flowing through these self-service channels. These tools simplify routine transactions and allow our teams to spend more time solving customer problems and creating real value. It's a great example of how we're using innovation and technology to strengthen customer relationships and expand our aftermarket opportunity. Geographically, the business is predominantly focused on North America, where we have established brands, strong channel positions, and longstanding customer relationships. As of June 30th, we have over 9,000 employees with 600 of them focused on R&D to drive innovation. Altogether, Madison Air is built to grow with strong profitability, cash generation, end market breadth, and a growing aftermarket opportunity, creating multiple avenues for success and a durable platform for profitable growth. Please turn to slide seven. Madison Air is everywhere air matters, from clean rooms and schools to hospitals, data centers, government institutions, and single and multi-family homes, our solutions show up everywhere people live, work, learn and play, and that's by design. We've built capabilities across the air ecosystem, from thermal management and cooling to ventilation, air handling and humidity control. This breadth enables us to solve complex customer challenges in a wide range of applications and environments. We have expanded into new applications and high value markets by building on our core capabilities and expertise. We estimate our North American addressable market at approximately $40 billion, supported by powerful secular tailwinds, including the growth of advanced manufacturing, increased demand for healthier and more energy-efficient buildings, and the rapid growth of AI and compute. These trends directly align with our strengths, and while the applications may differ, our role remains the same, helping customers get more from the air in their environments. This focus reinforces our ability to create value across a broad range of customers, applications, and markets. Please turn to slide eight. Madison Air's products and services capabilities run deep, and we see significant opportunity as we apply our capabilities across high-value performance-driven end markets in both commercial and residential segments. Our second quarter results demonstrate the strength of this approach and the value of our diversified business mix. Within commercial, we serve mission-critical applications across 15 end markets, which provides exposure to multiple demand drivers rather than reliance on any one single sector. What makes this set of end markets so attractive is that they share several common characteristics. They benefit from long-term secular tailwinds, require sophisticated air solutions, and place a premium on performance innovation and outcomes. Air is essential infrastructure in the markets we serve and mission critical to what these customers do. We believe that positions us well for continued growth. in an environment where macroeconomic trade and geopolitical conditions can shift and are shifting quickly, our diversified exposure provides resilience while significant white space remains as customers increasingly use better air to improve their business outcomes. Together, these end markets create a more durable growth profile. Please turn to slide nine. Orders are a leading indicator. They really tell us where the business is going, and based on our second quarter results, the signals are strong. Our new business pipeline remains healthy with combined company orders growing 45% in the quarter and 37% year-to-date. As we noted last quarter, orders can fluctuate based on project timing and customer schedules. And to that end, and we noted this last call, we expect year-over-year orders growth to moderate and decline in the fourth quarter against exceptionally strong comparisons from 2025. The underlying drivers of demand remain strong in our expanding pipeline continued opportunity conversion and record backlog give us confidence in our ability to deliver continued growth over the next several years despite a dynamic macroeconomic backdrop. With strong order activity and a second quarter book-to-bill ratio of 1.3 times, we exited the quarter with record backlog of $2.9 billion, up 133% year-over-year on a combined company basis. That backlog provides strong visibility into the near term and beyond with more than 50% of that backlog expected to convert in 2027 and later, positioning us well for continued growth. More importantly, that demand is translating into performance. Our pro forma net sales growth of 14% in the quarter and 13% year-to-date reflect the broad-based growth momentum we're seeing and driving across the portfolio. We remain pleased with the balanced nature of orders in our commercial segment. While Nortec Data Center cooling remains the largest contributor of commercial orders growth, Commercial orders increased nearly 50% in markets other than data centers in the second quarter, reflecting broad-based strength across the enterprise. What's driving that demand? Well, in many cases, it's our ability to deliver return on air. Nortec Air Solutions, for example, recently secured a significant project supporting a leading children's hospital. The customer needed a highly engineered air handling solution capable of delivering up to 10 times the air capacity of traditional units for their 2 million square foot pediatric facility in a southern metro area that has seen strong population growth. This is a great example of return on air in action. We're not simply selling equipment. We're helping customers reduce operational risk, extend asset life, maintain continuous care, and create better outcomes for the people, in this case, the children and families who depend on these facilities every day. That kind of differentiated value is what drives orders and backlog growth and builds long-term customer relationships that open services and aftermarket opportunity. Please turn to slide 10. The results and demand momentum we're discussing today are the result of a deliberate strategy to create value. The key elements of the Madison Air Strategy and how we translate that, our return on air approach, into sustainable growth and strong cash flow are shown here. At the center of it all is return on air. We help customers turn air from a utility into a strategic asset that improves performance, reduces energy consumption, protects critical assets and operations, and creates safer, healthier, and more productive environments. The value we create extends beyond a SKU or even a configured product. It comes from our collaboration and co-creation with customers. From our seat at the customer's design table, We're applying deep application expertise, engineering insight, and system-level thinking to help solve problems and optimize outcomes. By engaging early and partnering closely with customers, we help shape better solutions from the start. When customers achieve better outcomes, we create value together and that shared value drives sustainable growth for Madison Air. What makes this model powerful is that it is repeatable. We apply the same playbook across the portfolio. taking close customer collaboration, combining it with technical expertise, innovation, and disciplined execution to create value in a way that can scale across businesses, markets, and cycles. We then work to outperform the markets we serve through innovation, value-based selling, strong channel and customer partnerships, and investments in lifecycle services and aftermarket capabilities. The proof points are evident in our performance. We've consistently outpaced U.S. GDP, unlocked approximately $28 billion of additional addressable market, and generated strong margins and cash flow while continuing to invest for growth. Growth investment and execution are what make the model work, and that takes our team, the 9,100-plus people who power Madison Air. We invest in them to create consistency and alignment and to ensure the value creation model is embedded across the organization and shows up in how we execute every day. I always say people vote with their feet, and our people overwhelmingly are voting to stay with Madison Air. While I believe Gallup reported a three-point decline in global employee engagement, our employee net promoter score, which was measured as a part of our second quarter proprietary employee engagement survey, increased four points. On a related note, our monthly turnover rate remains 30% below manufacturing benchmarks, which reflects the strength of our culture and the deep commitment of our team. Engaged teams are also safer, healthier, and more productive teams, and that shows up directly in the results we deliver. Finally, we put capital to work where it can create the greatest value, and that means investing in organic growth, pursuing inorganic M&A opportunities where they make good discipline sense, and that gives us flexibility to reinvest behind our highest return opportunities. As we pursue opportunities in high growth markets, some parts of the portfolio will naturally be at an earlier stage of their margin journey. An example of this is the data center cooling business, which is a great business with strong fundamentals. Our experience has shown that these investments can create significant value over time as we apply the same profitable growth playbook that has driven success across Madison Air. Scaling the business, strengthening our market position, and expanding margins over time as the business matures. We improve margins through a combination of value selling, continued investment and innovation, which is a great margin lever for us, profitable top-line growth that leverages our fixed cost base, expansion of higher market aftermarket and services revenue, and an ongoing focus on 80-20 and operational disciplines. That same operating discipline also positions us to navigate ongoing inflationary pressures through pricing actions, productivity initiatives, and material cost reductions, together supporting our ability to protect and grow margins over time. These elements have been central to our success across Madison Air and give us confidence in the sustainability of our margins as we continue to invest in high return growth opportunities. The result is a business designed to deliver sustainable, profitable growth and strong cash generation over the long term. With that, I'll turn it over to JJ to walk through the second quarter financial performance and outlook.