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.

Thanks, Neil, and good morning, everyone. Please turn to slide six to review the segment results. Climate Solutions achieved outstanding results again this quarter, with a 42% increase in sales, a 57% improvement in adjusted EBITDA, and an adjusted EBITDA margin of 21%. This includes strong organic growth along with 74 million of revenue from the Scott Springfield acquisition. Data center sales grew 106 million or 176% from the prior year driven by Scott Springfield and higher sales to North American co-location customers. Modine's data center business continues to exceed our expectations and we're once again raising the revenue forecast for this product group. HVAC and our sales rose by 14 million, or 15%, driven by indoor air quality revenue from Scott Springfield, along with higher sales of school products. Heat transfer product sales declined 13%, or 13 million, due to lower sales to commercial and residential HVAC, refrigeration, and European heat pump customers. Market demand in the European heat pump market accounted for about half of the decline, along with the recent insourcing decision by a large HVAC customer and lower sales of custom replacement coils. Overall, we're very pleased with Climate Solutions' strong earnings conversion, which resulted in a 200 basis point improvement in their adjusted EBITDA margin to 21%. As we look to the fourth quarter, Our outlook remains strong in targeted markets, particularly in data centers where we continue to invest to promote rapid growth. Please turn to slide seven. We anticipated significant performance technologies revenue headwinds in the quarter due to normal seasonal trends, extended customer shutdowns, and ongoing weakness in our vehicular markets. There remains weakness across all markets, including automotive, commercial vehicle, and off-highway customers, along with the impact of the prior year automotive divestitures. Advanced solution sales were lower by 7% or 2 million, driven by a decline in EV auto and EVantage systems, partially offset by higher sales to specialty vehicle and military customers. The lower advantage sales were driven by temporary supply chain issues impacting key North American bus customers. Liquid cooled application sales decreased 19% or 21 million due to the previously mentioned lower end market demand along with the prior year divestitures. Lastly, air cooled application sales were lowered by 17% or 28 million also driven by market dynamics and the prior year divestitures. Partially offsetting the lower market demand was a 16% increase in sales to Genset customers. Adjusted EBITDA was down 22% from the prior year and adjusted EBITDA margin decreased by 90 basis points. The lower earnings and margin were a direct result of the lower Q3 sales volume, especially from a fixed cost absorption perspective. While most industry experts believe that these markets will begin to recover at some point during 2025, we believe it was prudent to take additional proactive actions to reduce our fixed costs. During the quarter, we took a number of severance charges with a targeted annual savings rate of nearly $15 million. These were very difficult decisions, but necessary until we are clearly seeing the market recoveries. In addition, as Neil mentioned, we signed an agreement to sell the performance technologies headquarters in Germany. We expect this transaction to close later this calendar year and we'll receive approximately 12 million in proceeds once local government approvals are finalized. As we look to Q4, we expect a sequential ramp in revenue and earnings, which will be primarily driven by the typical seasonal pattern that we've experienced in previous years. Now let's review total company results. Please turn to slide eight. Third quarter sales increased 10% driven by Scott Springfield and organic growth in climate solutions. Climate solutions growth was partially offset by 8 million of divestitures along with the market related volume declines in performance technologies. Our growth margin improved 160 basis points to 24.3%, driven primarily by higher data center and IAQ sales volume, more than offsetting the lower vehicular revenue. This sizable margin improvement was directly attributable to our overall transformation strategy and 80-20 methodology. SG&A includes acquired expenses from the SSM business including incremental amortization related to intangible assets. It also includes higher salary and incentive compensation expenses directly related to our growth and improved performance. As previously mentioned, we implemented several cost savings measures this quarter, resulting in $8.3 million of restructuring expenses. Adjusted EBITDA was strong again this quarter with an increase of 18% or 13 million adjusted EBITDA margin with 14.2% representing a 100 basis point improvement from the prior year. This quarter now represents the 12th consecutive quarter of year-over-year margin improvement. And these consistent results are being generated during very difficult market conditions across performance technologies. Our actions and performance will only continue to improve when those markets turn. Adjusted earnings per share was $0.92, 24% higher from the prior year. It was another good quarter with revenue and earnings growth. Momentum in our key growth markets allowed us to overcome challenges and others. Now moving to the cash flow metrics, please turn to slide nine. We generated $45 million of free cash flow in the third quarter, consistent with the second quarter. Please note that the quarterly cash flow included $9 million of cash restructuring payments. This puts our year-to-date free cash flow at $102 million, which remains on track with our full-year outlook. Net debt of $287 million was $85 million lower than the prior fiscal year end and $40 million lower than last quarter. With a leverage ratio of 0.8, our balance sheet remains strong, and we anticipate another year of excellence. cash flow. Now let's turn to slide 10 for our fiscal 25 outlook. With much of the year behind us, we're maintaining our fiscal 25 outlook for sales, adjusted EBITDA, and adjusted EPS. Based on our Q3 results and market conditions, we now see full-year revenue growth trending towards the lower end of the guidance range. This is primarily due to two factors. The first being softer than anticipated markets for performance technologies, and the second being the recent negative impact of foreign exchange changes. We remain quite positive for the overall climate solutions outlook. We are increasing the data center outlook while adjusting down HVAC and R and e-transfer products. We now expect data center sales to grow 110 to 120 percent. which follows 69% growth in the previous year. For performance technologies, we have adjusted all ranges to reflect the current FX environment and ongoing weakness in all global commercial vehicle, off highway, and automotive markets. As for adjusted EBITDA, we anticipate a sequential improvement in Q4 earnings to be more in line with Q1 and Q2, which would put the full year slightly above the midpoint of the current adjusted EBITDA guidance range. We currently expect adjusted EPS to remain in a range of 365 to 395 and are currently trending towards the higher end of that range. Please note that assumptions for interest expense, taxes, amortization, depreciation expenses are summarized in the appendix attached to this presentation. Our view of cash flow remains consistent with prior quarters with free cash flow expected to be in line or above the prior fiscal year. And before wrapping up, I'd like to make some comments regarding potential tariffs on US imports from Canada, Mexico, and China. We're anticipating a lot of chaos across the markets as the countries and customers navigate through the evolving situation. but we are confident in our ability to mitigate the risks for a number of reasons. First, for the majority of Modine's global operations, we source, manufacture, and sell within one geographic region, which eliminates most trade risks. In addition, we have a truly global footprint and can adjust their manufacturing and sourcing strategies as needed. For climate solutions, we have exposure tied to Canada and Mexico, but the vast majority of those sales are covered through commercial agreements with the ability to pass through tariffs to customers. With regards to performance technologies, our tariff exposure is mostly related to our Mexico plant and an associated Maquiladora structure. As we've done in the past, we'll implement a tariff surcharge that will remain in place through the length of the tariff. From a supply chain perspective, we have less than 10% of our annual spend that is subject to the proposed tariff. For these materials, we'll implement a number of strategies, including renegotiating with suppliers, passing through increases through pricing, or resourcing as needed. In terms of financial risks, our analysis shows that we can mitigate the majority of the combined tariff exposure. We'll also work to minimize any margin or lag effects tied to the pass-through or recovery of tariffs. We'll address each customer on a case-by-case basis using our 80-20 principles. The Modine team is accustomed to dealing with large, raw material price swings, as we've seen over the years in copper, aluminum, and steel. The tariffs will certainly add a lot of complexity into the markets, but we can manage through it as we've done in the past. To wrap up, we're pleased with the third quarter results and look forward to finishing this year strong. Our leaders have proven the ability to deliver in all market conditions, capturing exponential growth from certain megatrends and aggressively managing costs while other markets are down. 80-20 is about treating businesses differently, and we'll continue to execute on our strategic transformation. while delivering another year of record results and corresponding shareholder returns. With that, Neil and I will take your questions.

Thank you. If you have a question at this time, please press the star then 1 key on your telephone keypad. The confirmation tone indicate your line is in the question queue. You may press star then 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question comes from Chris Moore with CGS Securities. Please proceed with your question.

Hey, good morning, guys. Thanks for taking a couple. Neil, you touched on this a little bit in terms of improved processing efficiency, large language modeling. From your perspective, it sounds like longer term, you're not worried. Are you seeing or hearing anything from customers regarding changes in build schedules for data center? you know, after the deep seek announcement?

Hey, Chris, thanks for the question. Yes, certainly we've been, we're in frequent conversations with our largest customers, particularly the hyperscaler customers. And this obviously has come up over the last several weeks. And, you know, we've talked to our customers and they've assured us, they've assured us this does not change any of their build schedules over the next couple of years. They don't think it'll be a slowdown for them. They continue to be firm in terms of their demand. for AI applications. And, you know, we've seen that in some of the most recent earnings announcements from some of the large hyperscalers that have confirmed their cap expense for data center construction in the coming years.

I got it. Very, very helpful. Maybe we just go a little bit deeper in terms of you talk about many requests for quotes on the CDU. Are these competitive bidding situations? You know, are there You talked about customization, just trying to get a better sense in terms of timeframes and if it's just Modine in there or in the beginning, are you competing with other people on some of these things?

Yeah, no, that's a great question. Certainly, there's lots of competition out there, but typically where we're at is it's a combination of you're doing competitive bidding, but at the same time, we're doing new product development. So, as we're developing these solutions that are bespoke for the end user, bespoke for the co-location or the hyperscaler, we go through this competitive bidding process, but typically where we land is that we have the specifications that are in line with their needs and we can provide those specifications. So, although there's some competitive bidding out there, if we do the new product development right, we'll have the necessary features that will be desired by the customer that will help us pull us over the finish line or win the job ultimately.

Got it. Maybe just last one for me. Heat transfer product sales down again. Maybe just your thoughts there in the medium term.

Yeah, no, it's a good question. I mean, we've still seen the heat pump market go in the wrong direction. We've seen some of the, where we have overflow capacity with some of our larger customers, They're not utilizing our overall capacity. They have enough capacity internally that they're not leveraging us for some of those coils. It's starting to flatten out. We've seen orders kind of stabilize over the last couple quarters. Year-over-year comparisons aren't the best, but in terms of the order rate, we haven't seen the decline that we had in the beginning of the year, so we're starting to see that kind of taper off. Got it.

I'll leave it there. Thanks, Chris.

You got it. Our next questions are from the line of Matt Somerville with DA Davidson. We'll just use your questions.

Good morning. You've got Canyon Hayes on for Matt Somerville. Thanks for taking my questions. As we think about SSM being up 40% sequentially and multiples larger on the data center side year over year, what's driving that upside? How does the call it one to two year growth outlook look like for this business? How have orders and backlogs progressed to date within this business? And then I've got to follow up.

So I'll talk about what's driving the business. You know, we've established a really good relationship with a hyperscaler and we're gaining share. So, you know, our ability to develop new product for the next generation data centers, our investment in our facilities, our investment in capital for the specific customer. Our investment in R&D and labs for us to work together to create product for the next generation data center has built a lot of credibility and trust. And with that credibility and trust and that investment comes additional revenue and additional market share. So, you know, we've been able to scale. We've been able to prove that we can scale with best in class on time delivery, best in class quality standards. And as long as we maintain those key performance indicators, then the customer's gonna stick with us as we continue to work with them to evolve into the next generation. So we've been winning share, and we're just building them out. That's where we're able to get a lot of the growth within Scott Springfield.

Great, thanks. Switching over to performance technologies, based on where OEM indications are coming in, inventories, and then any other data points that Modine might look to when forecasting demand on this side, When should we start to think about the vehicular markets inflecting and returning to positive year-over-year growth?

Yeah, that's Nick. I'll take that one. So if we break it down by market, one of the things we've really started to see a little bit is a turn on the auto side, especially in Europe after a really slow December quarter. A lot of articles coming out this week about pickup in January, especially on the European side and on EV auto sales. So a little bit of rebound after a lot of shutdowns around the holidays on the auto side. Across medium and heavy duty truck, I think the expectations are for us, and we're just following market conditions, It's going to be a soft 2025 on medium and heavy truck. And then when you look at ag and construction, people are expecting a little bit of pickup in called the second half of 2025. And the only other thing I would say there is when we think about ag and construction. we play in very specific niche areas on the much larger engine excavators, mining equipment, and so forth. So that can be a positive for us, and it could also be just a different data point than when people just put out a general agri-construction data point. Thank you.

Our next question is from the line of Noel Kay with Oppenheimer. Please proceed with your questions.

Thanks for taking the questions. You know, Neil, maybe you already gave the most important answer in the opening around, you know, the signals from your customers and data center. But I just want to double click on this. You know, you talked about no changes in customer plans for the next couple of years. What's your confidence level today in the ability to achieve the targets you laid out at Investor Day? And what gives you that confidence?

Yeah, no, it's a fair question. And I remain as confident as I did when we presented the goals in Racine in September. We continue to build out the capacity. We continue to develop the product. We continue to build a moat with great relationships with these large customers. We continue to win market share in the co-location side. So those are the things that give me confidence. And we talk to the hyperscalers, we talk to the co-location customers, and the general comment is this news does not change their plans. Assuming that that's true, that gives me confidence.

You talked about the capacity planning that you're doing. Maybe just sort of benchmark for us, I think in the past you've shared a number of the capacity announcements you made in recent quarters. we kind of get you to or above that billion dollar mark, but just sort of level set for us how you're doing capacity planning now and moving over the next couple of years to support those revenue levels.

Yeah, fair question. That's a good question. No, it's always good for a reminder there because there's a lot. We've done a lot and there's a lot of moving pieces. So our expansion in Guadalajara, Spain for continental Europe was a big piece as we converted an HDP plant into data centers. Our additional an additional building that we acquired an additional factor that we acquired in Leeds region of the UK. So we've double our capacity there in terms of square footage. You know, we've, we've done that in the United States and Mississippi and Virginia. We've done in Canada by adding a plan. So we went from essentially a year to two years ago from one and a half plans to roughly ten facilities. And those ten facilities have labs and the capability to for us to grow beyond a billion dollars of data center revenue, above a billion dollars. And then most recently, as you're aware now, the expansion in Asia as well is gonna be helpful in terms of our ability to have reach globally, knowing that you have to be in region for region for infrastructure for data centers.

Right, and to further clarify, there's the footprint there to support the greater than a billion, and you're just gonna be layering in you know, incremental lines or shifts to basically ramp the revenues within the footprint. Is that the right way to think about it?

Totally. I mean, it's all about adding additional capital in terms of, you know, just machine equipment, press breaks, lasers, and then assembly lines. So, you know, for example, what we're doing in our Virginia facility is we set up the very first pilot line. We're now into three lines in that same facility, and then we're expanding additional lines in Grenada as well. So you just kind of repeat, rinse, repeat, And you essentially duplicate the process and add a little bit of equipment inside of the brick and mortar.

Great. Last one for me, I think for now. You know, you talked a little bit about the actions you're taking in PET and, you know, Mick, thank you for sharing sort of the outlook across the end markets. I just think it's helpful to understand what the new baseline will be because we've also, you know, talked about doing more 80-20 and you shared the target of, you know, taking out another, I think, 300 million of revenues through that process over a couple of years. So, you know, when we do get the sort of, you know, upswing back in PT, you know, how do we think about a new baseline? How much sort of 80-20 optimization is kind of coming out of prior revenue totals at this point? How much more do you expect to do, you know, say by the time we're seeing that upswing later next year?

all right hey no it's mick thanks for the the question and there's a lot um you touched on a lot there and it is a lot of the complexity so um we still believe and we're planning on about 300 million of planned product line exits divestitures so um that we're still sticking to that the complexity this year has been the market downturn on top of that. So I'd say you kind of blend all the markets. There's a 10, 15 plus percent volume drop across our base, you know, and that's some of it's non-strategic, but other parts is absolutely core. And I talked about the heavy duty engines on the off highway side. it's been a nice sweet spot for us. And that's been, you know, part that's pulled down the revenue. All that said, I think the best way to think about it, honestly, is when we were at our IR day, we've guided to, and we've talked about the performance technology business kind of being flat in that flat range. I think we had it zero to 3%. And Neil and I started that a couple of years ago too. If you just kind of bake everything in, Ups and downs of the market is probably best as we think about it more again as a more on a flat top line side. With a big lift on margins and we'll drive earnings through the margin improvement. Could we do a little bit? Could we do better than that? If the markets recover. Or when they do sure and then at the same time, we'll naturally have a little bit of offset with some divestiture activity. So, again, I think. Strategically, we're not looking to grow the top line there, but drive a lot of margin and earnings through the 80-20 activities.

I appreciate that. Thanks, Mick.

Thank you. As a reminder, if you'd like to ask a question, you may press star, then number one on your telephone keypad. The next question is in the light of Brian Drapp with William Blair. Please proceed with your question.

Hi, thanks for taking my questions. Maybe just to kind of continue on with that last line of thinking. We're talking about 16% to 18% EBITDA margin, of course, at the investor day as well. And I'm just wondering if you could give us an update, like some more current thoughts. Where do you think you can exit fiscal 25 in terms of EBITDA margin and have the market dynamics at all change your expectation for where you end up in fiscal 27?

Yeah, this is Mick again. I'll take the first crack at that. We expect to end this fiscal year and in the Q4, as I commented, typical to other patterns where we see a lot of fewer production days in Q3. we see a step up in revenue in Q4 that happened last year. And I'm sure if we look back over time, that's been a consistent. So with that step up in sequential volume and the cost reduction, we expect to end the year with a nice margin step up from Q3 and probably could be the highest margin of the year. So exiting this fiscal year at a higher margin well in that 15 to 16% range. The climate solutions group and the leverage of the data center business has been phenomenal. They are, that business is well ahead of our plans and trajectory. Next year, we are going to manage and we will drive margin improvements on performance technologies, assuming the markets stay at these levels. And as the markets recover or when they recover, that'll be additional upside. So we still believe quite strongly that by fiscal 27, so in one year out, that performance technologies can be in that 15 to 18% range. At that point, if you blend it with climate solutions, we'll be well within the targeted range that we set the company out to achieve.

Okay, thanks very much. And then on data center, when you say that you're gaining share in data center, can you just help me think about that? Are you saying in part that maybe you're selling air handlers in large part and now you're selling chillers to hyperscalers, or is it that you're winning in a particular geography, maybe Europe, and now you're winning business with that customer in North America? Can you just speak a little more specifically about those share gains?

Yeah, the majority of the share gains are in North America. We're winning share in North America against the competition. So where we didn't compete in the past, we have facilities, factories, labs, products, and that ranges from everything that you mentioned, chillers to cracks, crawls, fan walls, CDUs, you know, our optimizer software. That product set, that product portfolio that we've introduced into North America is where we're gaining shares.

Okay, got it. And then I'll just ask one more for now if I can. In India, you know, there are some massive projects being discussed. I mean, there's one project even talked about to be, you know, three gigawatts eventually. Are these the types of opportunities that you're seeing that you're going after in India? And it seems like you're trying to ramp up capabilities there pretty quickly.

No, that's a great question. And, you know, we're going to India because our customers have asked us to follow them. And where those opportunities are, it's not just in India, but it's in Southeast Asia. It's in, you know, Malaysia, Singapore, Thailand. All those areas or all those regions are ripe for growth. You know, they're not all 3 gigawatts. I mean, those are unique and special, but there's plenty there. that are more on the traditional side that we can serve and support. Certainly, we would love to be able to participate in those larger projects, and we'll put the capacity in place as needed. But we're working with our customers, and where our customers ask us, we're going to deploy our products, and we're going to set up facilities to support them as they win share in those regions. That's a great question.

Yeah, thanks very much.

Thank you. The next question is from the line of Justin Sindren with the Riley Securities. Please proceed with your question.

Good morning, everyone. Just wanted to follow up on the hyperscalers. Just wondering, at this point, are you working with all the hyperscalers? And then regarding the RFQs for the CDU, I don't know if you mentioned sort of what the dollar size could be in initial orders there, and then when first deliveries might happen.

Yeah, that's a good question. Yeah, so we are working with all the hyperscalers to some level. It doesn't necessarily mean we have orders with all of them, but we do have conversations, and we're building relationships with all of them, and they're at varying degrees of how far along we are in the process. Some, obviously, we have large orders with, and we have long-term relationships with one of them over a decade, but it doesn't preclude us from talking to the others. Certainly, we're in those conversations. They're interested. In our product are interested in our solutions. They're all they all want to talk about our lab capabilities and You know some of the different features that we provide into this environment for our total cost of ownership I think we have a great brand out there and we're recognized for so yes We were in conversations with all of them and have orders with some of them Relative to the CDU You know we look to be we look to have revenue middle of middle of our next fiscal year You know, that's an interesting product because we're developing that real time with our customers. So, there's a lot of testing and validation that has to go into place because, you know, we don't want to have just a traditional CDU, standard CDU, black box CDU. Other people can provide that. We're looking to provide differentiation and value. So, in order to do that, we want to make sure that we can provide a product that can work in tandem with our chillers or our cracks so that they can get full efficiency and better total cost of ownership. So as we do that new product development, we're okay with taking our time and making sure we're doing it right so that we can differentiate in the market.

Okay, that's helpful. And then you also mentioned service as part of the data center business and, you know, kind of building a moat with some great customer relationships there. Can you speak more about, I guess, the strategy with service, how much of your business that is running at this point, kind of what the attach rate is?

Yeah, so we primarily, our concentration for service in the data center business is primarily in the UK, where we started. You go back a couple years ago, we were a relatively small data center business, and the majority of that was in the UK. And we had anywhere between 70 and 100 service personnel just supporting the London area alone. We like that model, and we want to replicate that model as we continue to grow inside of North America. As you know, with our chiller facilities that we've expanded and our ability to shift more cracks and craws out of the United States. And as we've gained share in the United States, we'll have to build that capability. And we're in the process of doing that. So we brought over some fantastic talent from the UK to help us start that up. And we can start to saturate specific areas in the United States and Atlanta and Northern Virginia, Seattle, areas where we can have concentrations of service people to support our customers. And we can provide value real time. We can provide startup installation. We can do proactive maintenance, reactive maintenance, all the things that they're going to need so that we can stay close to our customers and we can help them real time. And obviously that's just another foot in the door as a selling feature to say, hey, we're not only here with our product, but we're here to make sure that that product is running at optimized production rates. So it's a model that we used in the UK. It's a model that we've been told by our customers, particularly in the co-location side in the UK, that they appreciate it and they like it. We want to replicate it because we did so well with it in the UK. We want to replicate it in the US.

Okay, good to hear. Thanks for taking my questions. I'll take the rest offline. Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.

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