Modine Manufacturing Company

Good morning, ladies and gentlemen, and welcome to Modine's third quarter fiscal 2025 earnings conference call. At this time, all participants are in listening mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer, and Investor Relations.

Hello and good morning. Welcome to our conference call to discuss Modine's third quarter fiscal 2025 results. I'm joined by Neil Brinker, our president and chief executive officer, and Nick Buccarelli, our executive vice president and chief financial officer. The slides that we'll be using with 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 Neal.

Thank you, Kathy, and good morning, everyone. I'm pleased to report that the team delivered a strong quarter with year-over-year revenue growth and margin improvement. We are successfully leveraging data-centered growth and climate solutions to offset some challenging market conditions and performance technologies. Mick will cover the financial results in more detail, So let's dive into the segment updates. Please turn to slide four. Our climate solutions segment had another outstanding quarter, driven primarily by continued growth in the data center business. Data center revenues increased by 176% this quarter, propelled by strong organic growth and the inorganic benefit of the Scott Springfield acquisition. Scott Springfield added 63 million of data center revenue, which is more than three times the data center revenue in the same quarter in the prior year. This has been an outstanding acquisition for us, and I'm very proud of this team. They quickly increased capacity and strengthened customer relationships to drive synergies, leading to the explosive growth we've seen over the past three quarters. Another area of investment has been expanding our capabilities for liquid cooling, specifically our Coolant Distribution Unit, or CDU. Last quarter, we showcased our CDU at multiple industry shows, including the Supercomputing Show, or SC24 in Atlanta. We are receiving many requests for quotes and are in design discussions with multiple hyperscaler and colocation customers globally. It is important to remember that our CDU is an integral part of our data center cooling system and is therefore able to operate at a higher efficiency level through the use of our optimizer software and monitoring system. So as our customers prepare to meet the demands of high performance computing applications, we can custom design systems to meet their rapidly changing needs. Another area I would like to highlight is our global data center service capabilities. Our customers tell us that the consistency and the responsiveness of our support personnel is best in class. Our strong customer relationships are a critical differentiator as we partner with our customers for design to delivery to after-sales support. This, along with our purpose-built products and technologies, is why we're winning and why we expect to continue delivering above market growth. As I mentioned last quarter, We have decided to expand our manufacturing capacity in Asia Pacific region with new production facility in India. This facility will support both data center cooling products and cooling modules for stationary power generation. Both of these product groups will support the growing data center infrastructure in the region, both inside the data center hall and with the campus power infrastructure. We remain confident in our outlook for our data center business. There have been many headlines about improvements in AI modeling and concerns about a potential slowdown in data center construction. We believe that the increased efficiency in large language modeling may increase the adoption rate for AI technologies and the need for data center infrastructure and could potentially improve the ROI on these investments as processes evolve. We therefore believe that improved processing efficiency is good for the industry in the long term and are here to support our customers with the cooling technologies that they need to meet these competitive technology demands. Once again, the climate solution segment is having a fantastic year and is making the investments to continue delivering above market growth in our next fiscal year and beyond. Please turn to slide five. As we discussed last quarter, we anticipated that the performance technology segment would have a challenging quarter, with lower sales driven by extended seasonal shutdowns, along with ongoing softness across auto, commercial vehicle, and agricultural and construction equipment markets. Cyclical market declines are a normal part of the business process cycle, and the team is proactively addressing all of these areas that we can control. This includes leveraging our 80-20 processes and implementing aggressive cost controls. Our 80-20 focus is helping us to better navigate these market cycles. Over the past three years, we have raised our margins by investing in and growing higher margin product lines while exiting or improving lower margin business. In addition, we've taken further steps to accelerate this transformation. Over a year ago, we completed the divestiture of our three German automotive businesses and, as a result, have reduced the technical and administrative headcount that was supporting the business in Europe. This past quarter, we reached an agreement to sell the building that housed our European headquarters and expect the transaction to close later in 2025. We remain on track with our long-term strategy. We will continue to de-emphasize commoditized components while transitioning the portfolio mix to higher margin and growth businesses. Two great examples of that are e-mobility solutions and the Genset modules, which are at the spearhead of the strategy and transformation. These businesses have the potential to grow revenue at rapid rates while delivering much higher profit margins. I have confidence that we are making the right decisions to evolve our business portfolio for long-term sustainable growth. In fact, the new data center production facility in India that I just mentioned will also provide capacity for GENSEP production in the region. Looking ahead, we expect these markets to remain soft for a good portion of 2025 and are planning a quarterly. We are also expecting an acceleration of growth in those areas we are targeting for investment, further improving our business mix and growing market share in our strategic growth markets. We have made substantial improvements in this business, and we are looking forward to closing out the year with a strong Q4. leading into an even stronger fiscal 2026. I'll now turn the call over to Mick, who will provide some further updates on the quarter and expectations for the balance of the fiscal year.