Modine Manufacturing Company

Good morning, ladies and gentlemen, and welcome to the MoDeans second quarter fiscal 2026 earnings conference call. At this time all participants are in a listen only mode. Later we will 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 call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer, and Investor Relations. Please go ahead.

Good morning, and welcome to our conference call to discuss Modine's second quarter fiscal 2026 results. I'm joined by Neal Brinker, our President and Chief Executive Officer, and Mick Luccarelli, 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, modeen.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. Last quarter, we announced plans to significantly expand our U.S. manufacturing capacity for data center products. We are continuing to invest in our fastest-growing businesses and are actively advancing this strategy. In fact, we are accelerating other plan investments to meet the unprecedented demand for our products. Our climate solutions segment continues to deliver, posting a 24% increase in revenue. This includes contributions from our three acquisitions earlier this year. Absolute Air, L.B. White, and Climate by Design International. As we integrate these businesses, we are applying 80-20 principles to drive value by improving margins, increasing capacity utilization, and unlocking commercial opportunities to cross-sell into new markets. Bringing these respected brands into the Modine portfolio not only broadens our product offerings, but also brings scale to HVAC technologies. Excluding these acquisitions, organic sales increased 15% from prior year, driven primarily by a 42% increase in data center sales. Over this past quarter, we've made substantial progress in our capacity expansion. I'm pleased to report that we've officially launched chiller production in our Grenada, Mississippi facility. In total, we plan to have five chiller lines in Grenada and are currently producing on two of these lines. We're working on getting the incremental production lines in place and are on schedule to launch full production by the end of this fiscal year. We've also made good progress in Franklin, Wisconsin and Jefferson City, Missouri. Franklin is scheduled to launch initial production of data center products this quarter with volumes ramping through Q4. We will have four chiller lines in Jeff City with the first two launching the fourth quarter and the remainder planned for later next fiscal year. The final site for our expansion has been secured in Grand Prairie, Texas, just outside of Dallas. This facility is planned to fully come online early next fiscal year and will have five chiller lines. Both the Franklin and the Dallas locations are being designed for flexible manufacturing with the ability to produce multiple products that can be flexed based on demand. Both facilities will be able to produce modular data centers, which we see as a great opportunity. We've made initial shipments to one customer and are currently working through some design modifications. In addition, we are in early stages of discussions with others, including both Hyperscaler and Neocloud customers. We are excited to be able to support our strategic customers with an innovative product that offers rapid deployment and scalability. We are making good progress overall, but current hurdles include the hiring and training of the workforce, which is a heavy lift for the organization. In total, we've hired 1,200 employees to support data centers so far this year, including temporary and contract workers and talent we've strategically redeployed from our performance technology segment. This added significant additional cost this quarter with little incremental revenue, resulting in temporary margin erosion and climb solutions. We expect this to continue in Q3 and then improve in Q4 when volumes begin to ramp. We expect a significant jump in revenue between Q3 and Q4, driven by new capacity coming online. Outside of the US, we've successfully launched production of data center products at our new Chennai, India facility. This strengthens our ability to serve customers in the APAC region with locally manufactured product. Furthermore, we're planning to expand chiller capacity in the UK to support demand for both hyperscaler and co-location customers in Europe. This incremental capacity is anticipated to come online early next fiscal year. I currently see a path to deliver more than 60% revenue growth in data center this year on our way to achieve over $2 billion in revenues in fiscal 2028. This year marks a period of major investment in our data center businesses, driven by strong market demand. This is hard work for our organization, and we are addressing challenges and making adjustments along the way. In addition, this represents a major transition for the business, evolving from a low-volume, high-mix manufacturing operation to a high-volume producer. This is not a shift in strategy as we remain committed to serving as a premium, highly customizable provider. However, we will now be able to deliver these specialized products at scale to meet the needs of our largest customers. This is important as large data centers, especially those specializing in AI applications, require our products to be delivered at a much greater rate than we have historically provided. Fortunately, Modine is highly capable of ramping scale production on highly engineered product designs, a competency we have honed over many years with our performance technologies business. This expertise is also why we have been successful in leveraging internal resources to support these critical projects. We have the right team in place, and we are hyper-focused on execution to deliver these innovative products our customers require. I want to stress again, this is a very heavy lift for the data center team, but I remain confident in our ability to execute, meeting our targets and customer commitments. Please turn to page five. Our end markets and performance technology segment continues to be challenged, but actions we've taken in response to these conditions are having a positive impact. Although revenues this quarter were down 4% from the prior year, adjusted EBITDA was up 3%. The segment adjusted EBITDA margins increased by 90 basis points, primarily due to the cost control measures we've taken out over the past few quarters, including actively reallocating resources to the climate solution segment. We are monitoring market conditions closely, and we will continue to make adjustments as necessary. I'm pleased to announce that the segment is now being led by Jeremy Patton, who joined our team as the President of Performance Technology segment last month. Jeremy's previous experience with transformational change with an 80-20 mindset makes him uniquely qualified to take on the challenges and opportunities ahead. I'm happy to welcome Jeremy to the team and have confidence that he will continue the momentum created over these past quarters to drive margin improvement as we transform this portfolio. I'm extremely proud of the hard work being done in both segments to drive towards our vision of evolving our portfolio in pursuit of highly engineered mission-critical thermal solutions. This is creating a great deal of organizational change and a heightened level of complexity. This includes integrating three acquisitions, expanding capacity across multiple locations around the globe to support data center growth, and exploring strategic divestiture opportunities and performance technologies. We are moving people into new roles in support of these plans, and are incurring temporary cost increases to support future growth. Although we will encounter obstacles along the way, this team is up for the challenge, giving me further confidence in our ability to reach our long-term targets. With that, I'll turn the call over to Mick.