SPX Technologies, Inc.

Good day and thank you for standing by. Welcome to the SPX Technologies fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Mark Carano, Chief Financial Officer. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer. A press release containing our fourth quarter and full year results was issued today after market closed. You can find the release in our earnings slide presentation, as well as a link to a live webcast the investor relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provision. Please also note the risk factors in our most recent SEC filing. Our comments today will largely focus on adjusted financial results, and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective gap measures in the appendix to today's presentation. Our adjusted earnings per share exclude intangible amortization expenses, acquisition and integration-related costs, non-service pension items, changes in estimated value of equity security, among other items. Finally, we'll be meeting with investors at various events during the upcoming months. And with that, I'll turn the call over to Gene.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the fourth quarter and full year of 2025. We'll also provide full-year guidance for 2026. We had a strong close to the year. We grew full year adjusted EBITDA and adjusted EPS by 21% with strong performance by both segments. In addition, we continue to advance our value creation initiatives. Organically, we made further progress on our efforts to expand capacity within our HVAC segment to meet the growing demand for our highly engineered solutions. During the fourth quarter, we completed the purchase of a new 459,000-square-foot facility in Madison, Alabama, which will have capabilities to produce our data center and custom air handling solutions. Inorganically, we recently announced the additions of Thermalec, Air Enterprises, and RON Industries to the HVAC segment. These strategic acquisitions strengthen our position in the attractive electric heat and engineered air movement market. Also, today, we are introducing our 2026 midpoint guidance, which implies approximately 20% adjusted EBITDA growth at the midpoint. Turning to high-level results. For the fourth quarter, we grew revenue by 19.4%, driven by the benefit of recent acquisitions and organic growth in both segments. Adjusted EBITDA increased by approximately 22% year-over-year

50 basis points of margin expansion.

As always, I'd like to update you on our value creation initiatives. Demand for our custom air handling and data center cooling products remains strong. To capture the growing demand, we are investing in expanding capacity across several of our existing HVAC facilities, including Ingenia's Maribel and cooling products Olathe locations, and have recently added two new facilities to further accelerate our expansion efforts. During last quarter's call, we announced the addition of a facility in Tennessee that will produce TAMCO highly engineered aluminum dampers, which are seeing strong demand within the data center market. Production in this facility is expected to begin by the end of this quarter and steadily ramp throughout the year. Additionally, in Q4, we completed the purchase of a facility in Madison, Alabama that will have flexible manufacturing capabilities to produce both our custom air handling and data center solutions, including our new Olympus MAX product. We expect to have assembly capabilities toward the latter half of this year and initial production capabilities in the first half of 2027. We expect the expansion-related investments across all of our HVAC facilities to require approximately $100 million of capital in 2026, in addition to approximately $60 million invested in 2025. We anticipate these investments will enable nearly half of our HVAC segments' revenue growth in 2026 and add roughly $700 million of incremental capacity once at full production supporting substantial growth in both data center and custom air handling volume. We've also continued to advance our inorganic growth initiatives. During the first quarter of 2026, we completed two strategic acquisitions in our HVAC segment that strengthened our positions in the attractive electric heating and engineered air movement markets. I'm very pleased to welcome our new colleagues to the SPX team. Air Enterprises and RON Industries, only the air handling segment of Crawford United, advance our strategy to build market meeting positions in the engineered air movement market by expanding our portfolio of custom air handling solutions and enhancing our capabilities with a coil offering. The combination of complementary technologies, design capabilities, and manufacturing footprint strengthens our ability to serve customers in the attractive healthcare, institutional, and commercial markets. Thermalec, located in Montreal, is a natural extension of our electric heat strategy, adding a complimentary custom duct heating solution and broader geographic reach to enhance the value we deliver to customers throughout the North American commercial, industrial, and multifamily markets. The combination of Thermalax's exceptional service, quality, and strong Canadian presence with our established electric heat channels in the U.S. provides significant opportunity for growth. And now, I'll turn the call over to Mark to review our financial results.

Thanks, Gene. Our fourth quarter results were strong. Year over year, adjusted EPS grew by 25% for $1.88. Full-year adjusted EPS grew by 21% to $6.76, or toward the upper end of our guidance range, of $6.65 to $6.80. For the quarter, total company revenues increased 19.4% year-over-year, driven by the acquisitions of KTS and Sigma and Omega, as well as organic growth. Consolidated segment income grew by $27 million, or 21%, to $156 million, while consolidated segment margin increased 30 basis points. For the quarter, in our HVAC segment, revenue grew by 16.4% year-over-year, with 5.5% inorganic growth and a modest FX tailwind. On an organic basis, revenue increased 10.3%, with solid growth in both cooling and heating. Segment income grew by $17 million, or 18%, while segment margin increased 40 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage. Segment backlog at quarter end was $585 million, up 22% organically year over year. For the quarter in our detection and measurement segment, revenue increased 26.3% year-over-year. The KTS acquisition contributed growth of 23.2%, and FX was a modest tailwind. On an organic basis, revenue increased 1.7%, primarily driven by higher project volumes. Segment income grew by $10 million, or 27%, and margin increased 20 basis points. The increases in segment income and margin were primarily driven by higher volume, including the benefit of KTS. Segment backlog at quarter end was $350 million. We're up 43% organically year over year. Turning now to our financial position at the end of the year. We ended the year with $366 million of cash on hand and total debt of $502 million. Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.3 times at year end. including the effect of the recently announced acquisitions, our leverage ratio was one. Full year adjusted free cash flow was $294 million, reflecting a 90% conversion of adjusted net income, inclusive of the approximately $60 million invested to support our capacity expansion efforts. Moving on to our guidance. Today we introduced full year 2026 guidance, inclusive of the recently announced acquisitions, Thermalec, and Air Enterprises and Ron Industries. No, Crawford United's industrial and transportation products businesses are not included in our guidance. They will be reported in discontinued operations while we seek a suitable buyer. We anticipate total company revenue in a range of $2.535 billion to $2.605 billion and segment income margin in a range of 24.6% to 25.1%. We expect adjusted EBITDA to be in a range of $590 million to $620 million. At the midpoint, this implies year-over-year growth of approximately 20% and a margin of approximately 23.5%. Our adjusted EPS guidance range of $7.60 to $8 reflects approximately 15% growth at the midpoint. In our HVAC segment, including the recent acquisitions, we anticipate revenue in a range of $1.8 billion to $1.84 billion, and segment margin in a range of 24.5% to 25%. In our detection and measurement segment, we anticipate revenue in a range of $735 million to $765 million. and a segment margin in a range of 24.75% to 25.25%. As a reminder, growth in 2026 will be impacted by the execution of projects in 2025, totaling approximately $20 million that were originally slated to execute in 2026. For Q1, as a percentage of our full year of 2026 guidance midpoint, We expect revenue and segment income for both segments and adjusted EPS to be similar to the prior year. As always, you will find modeling considerations in the appendix to our presentation. And with that, I'll turn the call back over to Gene for a review of our end markets and his closing comments.

Thanks, Mark. Current market conditions support our 2026 outlook, which implies significant growth. Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and increasing production capacity further reinforce our confidence in HVAC's growth opportunities. In our detection and measurement segment, we are seeing improving global market conditions, which is supportive of growth in our run rate businesses. For our project-oriented businesses, front log activity remains steady and backlog is at record year-end levels, yet with a higher percentage of multi-year projects. In summary, I'm pleased with the closed 2025 and our strong full-year performance. As we look to 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our continued efforts to expand capacity to meet the growing demand for our HVAC solutions, integration of our recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets, and an active pipeline of attractive acquisition opportunities. With these initiatives and a solid demand backup, we are well positioned for another year of 20% growth in adjusted EBITDA in 2026. Looking ahead, I remain excited about our future. With a proven strategy and highly capable, experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come. With that, I'll turn the call back to Mark.

Thanks, Gene. Operator, we will now go to questions.

If you'd like to ask a question at this time, please press star 1-1 on your touchtone telephone. and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Brian Blair with Oppenheimer.

Thanks, guys. Solid finish to the year. Thanks, Brian.

There understandably remains a lot of focus on your team's data center exposure. So I guess to level set on that front, how much did data center revenue grow in 2025? What percentage of revenue is now driven by data centers? And how is your team thinking about DC sales growth within your initial 26 guidance?

So I'll start there, Brian. You know, we're seeing substantial growth. see here is we had talked about some of the numbers we'd share previously that 25 would be about 9% of revenue. It's in the neighborhood of 200 million, maybe a little bit more than 200 million. That's up quite a bit. We'd give the number of 7% prior. And we would anticipate that to be, as we said, low double digits, say 12%. So we'd expect Nice growth here, probably in the 50% neighborhood for our data centers going into 26.

That's very encouraging.

And maybe offer a little more color on the strategic state of air enterprises and run industries and thermoelectric and EAM and electric heat, respectively. They seem like very down-the-center kind of deals for your team. How do the assets strengthen HVAC positioning overall? How should we think about commercial synergies and the ability to accelerate growth going forward? And what exactly have you baked in for revenue and profitability in the initial 26 outlets? Thank you.

Yeah, I want to start on the strategy side. I think that a couple things. So, you know, with Crawford United, their air handling unit is really two pieces. The bigger piece is air enterprises. This is custom air handling. They have a great product, a blue chip customer base. They have a different style of product, lower leakage, and I would say they're viewed as a premium provider in this market. They really have – you can go to their website. You'll see all of the blue chip customers that basically have them oftentimes as basis of design. So it's a little bit different flavor of a product versus Ingenia, but a very high-quality product. One that we're very excited to have as a part of our portfolio. We think we can help them grow. We think we can help them operationally. We also think we can help them in the building of the channels there. The ROM component of that is somewhat smaller. That's the coil manufacturer. That would be coils for the custom air handling units. We actually like that because we can actually use that not only for air enterprises, but also for Ingenia. which we predominantly buy outside. So we have a lot of coils and coil usage increasing across our product lines in HVAC. And this is just going to give us more confidence. We see some nice growth there, not only within our own businesses, but within our customers where we have a very strong position, particularly at the TAMCO business. So operational synergies and channel synergies there. With Thermalink, This is a real no-brainer. We're very strong. And duct heating, as we've talked about with Indico, we invented duct heating. We have the original patent. Very strong position in the U.S., but very, very low in Canada. Thermalec is the leader for duct heating in Canada. So very complimentary product. They have a very good brand, a very good channel. We really like the team, a great leader there, really engaged workforce. And we actually think that they have a variety of products that we will be able to, that they don't only sell in Canada. The majority of their business is Canada, let's say approximately two-thirds. We think we can help them grow more in the U.S., And then we actually see some products that we have not been able to successfully sell into Canada that we think we can really leverage the Thermalec channel. So we see some nice channel synergies on both sides there. Additionally, I think we really do have a good lean process and operational experience that they are also very capacity-constrained. We believe we can help them grow as we look ahead. So, Mark, do you want to make any comments on the numbers?

Yeah, Brian, let me add to that your question of the impact on 2026. We've disclosed a few numbers out there. There's also some publicly available information out on some of the businesses with respect to Air Enterprises and Ron. But what I would guide you to is, you know, 35 million – in revenue at the Thermalink business and something in the low 80s for the Air Enterprise and RON business combined. That's on an annual basis. Obviously, we're going to own both of these businesses for 11 months. So, you know, that kind of gets you to something just shy of about $110 million. Segment income margins for both these businesses are slightly higher than our segment average.

Understood. Very helpful. Thank you. Thanks.

Our next question comes from Andrew Obin with Bank of America.

Yes, good afternoon.

Hey, Andrew. Hey.

Hey, how are you? So maybe I know a lot of people will be talking about HVAC. Maybe I'll ask about detection at DNM. A couple of things. A, this $20 million pool forward of revenue is how should we model it in 26? And part two of the question, how should I think about the growth for the business dealing with your backlog is up organically 45%, if I heard it correctly.

Yeah, let me start. This is something we talked about. We had had a project that was, you know, we actually have a very nice backlog, as you have seen, you know, from from our press release, we have record year-end backlog. We have $350 million in detection and measurement. This is up more than 40% organically. So it's a very, you know, we feel really good about how that business is doing. But what I would say is we had a project that was in 26 that the customer pulled it forward. It was approximately $20 million. We talked about it in Q3. So if you do the math, that makes 25, 20 million higher in 26. 20 million lower. It's about a 5% growth headwind. And so as you look at it, that would be the reason we're more flattish. If we look across the business, as a reminder, about two-thirds of this business is run rate. And we actually are seeing nice growth in our run rate business. I would say GDP plus growth rates in our business is there. And then on the projects, We have a lot of projects, and we also have a lot of backlog as you look at it, 27 and 28. But that's the reason that we're more flattish. And you want to give a little more color there, Mark?

Yeah, I think, Andrew, Gene kind of touched on the top line. I think it's important if you do the math. He gave you a little bit of it to look at what the impact of that growth, that shifting of that project had on 2026. So had it not shifted out, into 2025, you would have been mid-single-digit pipeline growth in 2025.

Yeah, I think my question was a little simpler. Should we model in Q1, Q2, or where should I take this $20 million out versus normal seasonality?

It was in the back half of the year. That's where you should look to adjust it.

So I should take this right? Right, but then it was pulled forward from is all the impact in Q1? Sorry, it's just my question. I think it's a lot simpler than yours. Should I just take 20 million out of Q1 versus what I would normally ask? Is that, is it that simple?

Yeah, I mean, that's, that's probably the right way to think about it. Uh, you know, the, the DNM business, we always talk about the fact that, uh, you know, there's a project element to it and, uh, the way these projects gate and how they fall within the quarters, it can move around on us. But, uh, I think that's probably the right approach.

And I know you sort of answered part of your question when you talked about data centers, but I think you've described Olympus Max as your most successful product launch ever. You know, could you just tell us about what the feedback has been, what a booking, you know, any update on bookings there, and, you know, applications beyond data centers as well. Data centers and beyond, but how has reception has been particular In the life, we've been getting questions about, you know, NVIDIA announcement. Does it tie in at all to that, or is that more about PUEs? Just maybe give us a little bit more color there. Thanks so much.

Yeah, the Olympus Max, if anything, I'm feeling more bullish than I was on our last earnings call. The punchline is we have a winner here. We have advantages with our product. We believe we have advantages on tonnage. We believe we have advantages on flexibility, specifically the fact that our dry unit can be upgraded to an ADB attic and get a lot more thermal heat exchange additives after the fact, gives you a lot of flexibility. We have integrated controls, which is a differentiator versus our competitors. And we have more robust mechanical equipment We have already been awarded with three customers, material amounts, and we feel good. So, I mean, we're not going to get into the specifics of dollars and so forth. What I would say is we targeted to get 50 million of bookings last year. We did get that, and we're converting that to revenue this year. I would say that we feel really good as we look to 27, 28, 29. We have one customer that has already locked up multiple years of demand, growing demand, and a lot of activity that we feel good about. So I would just say I feel very good about the Olympus Max, and I think it's the right solution for the market.

Congratulations. Thank you.

Thanks. Our next question comes from Ross Sparenbleck with William Blair.

Hey, good evening, gentlemen.

Hey, Ross.

Hey, sticking on the Olympus Max, what can we read through from the new ribbon announcement and the way that this market is heading? Do you get a sense that this will be the predominant cooling power going forward, or will there still be a nice mix for water cooling as well?

Yeah, I know. Thanks, Ross. You know, there was a little bit of, when the Rubin announcement came out, it can run at lower water temperatures, and that caused some concern for, do you need a chiller? You know, and there's some different variations, and I can't really speak too much. I think there are some circumstances where you may need less chillers or not need chillers. But we're not aware of circumstances where the Ruben chip would reduce the need for external heat rejection, which is where we play. So the Ruben chip really has no impact on us. I would say it's actually some positive impact in some of the architectures that we have seen. So the other thing as a reminder is as chips move towards the AI chips, like the Rubin chip, they generate a lot more heat. And that heat is linear. The more electricity, the more kilowatts, you're going to need more cooling towers. And that cooling tower could either be an adb attic it could be a dry or could just be a normal a normal marley cooling tower um we are seeing as we've talked about in the past you know the bulk of the uh data center market i think historically has been done with air-cooled chillers we don't really participate in that market that's that's a you know the smaller standalone rooftop units you'll often see but as the heat loads get bigger they're moving more and more towards water-cooled uh chilling free cooling, and these are opportunities that are very attractive for us. So we like the direction. Basically, the more compute power, the more heat. It's very simple. You need more cooling towers. So, yeah, we feel like we're well positioned with some of the trends that we're seeing in the data center markets.

Yeah, that's very helpful, Gene. And then maybe just taking through lead times. It takes a couple of years to build a data center. Typically, these cleaning towers are one of the last things that go into the field. If you're booking orders now, is there an expectation that that should just start to compound and you start booking into 27, potentially 28? Or how should we kind of conceptualize that?

Yeah, I think, you know, there's a set of hyperscalers, a couple of hyperscalers we work with and they have different methodologies. Some will actually lock you up for four or five years and you kind of have very clear you know exactly what your future demand is going to look like and I'd say feel very good about the trajectory that we're seeing. There's others that that more lay out what the plan is, although you don't have a PO in-house, they'll release the POs on a more quarterly basis, but they will vigorously validate that you have the capacity to meet their demand and that you can meet their growing demand at the appropriate levels of quality. So I would say you do get different levels of visibility across different customers, but what I would say is You know, we're growing a good amount in 26. We would expect nice growth into 27 and 28 with what we're seeing in front of us. There's a lot of activity. And we feel like we have a good set of solutions in order to meet that demand.

That sounds exciting. I'll pass it along. Thanks, guys.

Thanks.

Our next question comes from Joe O'Day with Wells Fargo.

Hi, good afternoon. I wanted to join your comment around the, hey, can we just start on the capacity additions? Just wanted to confirm, I think you said when you're at full production, that would equate to roughly $700 million of revenue potential. Just wanted to confirm that, and then if you could touch on the timeline to reach full production, um, and, and how much you think those capacity ads will contribute to revenue growth in, in 2026.

Yeah, Joe, you're correct. It was, that is what we said, 700. Um, you know, it's going to take some time to get to that full production level, uh, particularly at our Madison facility. Um, you know, so both those projects, both, um, the investments that we're making in the facility for TAMCO as well as Madison, they're going to take some time to ramp up. Some of that's driven by equipment lead times, and then as we get them up and running into their respective production processes. I think just so you're level set, when you think about the TAMCO business, that facility will come online at the end of Q1. It will ramp through the year. and then the Madison facility will come online the second half of the year. It will be assembly only. It really won't be in a production phase until 2027. So I think big picture, if you sort of step back and look at it, it will be sometime in 2028 before you'd see a sort of a full production capacity across these expansions. Now, I'm just focused on those two expansions. We've also... obviously been making incremental investments in a couple other facilities that we noted as well, but they're all part of that collective investment to meet the market really around data centers and also customer handling.

That's helpful. And then on the D&M margin expansion in 26, I think up 140 bps at the midpoint, Can you just bridge that? I think last quarter you were talking about some initiatives that would require some investments, maybe some things around NPI and a couple other initiatives, and so potentially some cost adds, but clearly some pretty good margin expansion expected. And so just bridging the path to that.

Yeah, happy to do that. So when you think about that margin, I'd really kind of bucket it in two areas. One is a function of the mix that we're going to see next year across the business. Some of that's driven, obviously, by the project mix that we have and the margin profile of those that are forecasted for 2026. That's probably close to two-thirds of it. And then the balance, the other third or so, is really this continuation of this We call it this COPS optimization initiatives that we have, but it's really about leveraging the capabilities of engineering, of R&D, sourcing. We're looking at some rationalization of the footprint. It's really a broad portfolio of things that we're doing across the segment as they work together. more in unison, really to drive more efficiency out of the businesses. So it's really kind of, that's really the way we break it down.

That's helpful. Thank you.

Great. Our next question comes from Jamie Cook with Truist Securities.

Hi, good evening and nice quarter. I guess just first, a flip question on HVAC, Mark, on the margins. I think you imply, you know, that the top line growth is fairly healthy and the organic growth implied is healthy. You know, I think margins at the midpoint are up, you know, about 25 basis points, which is less margin expansion than 20 than what you saw, I guess, this past quarter and this year. So just any commentary on that. And then just my second question is, Just on the M&A pipeline, obviously, you guys have been, you know, very active in the market throughout 2026. Just wondering how we should think about, you know, M&A potential, you know, given the strength you've seen so far or the amount of M&A you've done so far. Thank you.

Yeah, sure. Jamie, I'll start on your question with respect to HVAC margins in the guide. You know, I think we suggested maybe in the last call, but we've sort of indicated that You know, there'll be startup costs related to bringing these plants online really in 2026. These are going to be, you know, temporary in nature, but I would kind of gauge them as around 50 basis points of a temporary impact. I would expect, you know, as we ramp these facilities up, you know, to full capacity, you're going to get operating leverage off of that. You know, so we'll outstrip that initial cost, but, you know, with any plant, as you're getting it stood up, there's obviously costs that are required.

Second question.

Yeah, some questions on the M&A pipeline. I would say, you know, first of all, we're very pleased with the two transactions that we executed in Q1 that we talked about. We think these are great fits, very value accretive. Having said that, as Mark had shared in his prepared remarks, even with the pro forma leverage, we're about one time on net debt to EBITDA. The point being, we have a lot of capacity. And what I would say is there is a lot of activity. So I said in Q3, Q2, I was talking about the amount of activity, and we've seen this come to fruition. And it's in very similar spaces we've talked about before. So engineered air movement and electric heat, these are the two acquisitions that we – those are the areas we highlighted. Those are the areas that we closed these two transactions. We similarly see a lot of activity as well also in engineered air movement and electric heat. as well as a number of the detection and measurement platforms. So to your question, I would say the pipeline of opportunities is very full. It remains very full. And we feel like there's a good probability that there will be more opportunities for us to invest in growth this year.

Thank you. Our next question comes from Amit Mehrotra with UBS. Good evening, Amit. Amit, your line may be on mute.

Sorry. Sorry about that. Still learning how to ask questions on calls clearly. Hi, guys. Thanks for letting me ask a question. I had a question about... you know, non-data center end markets, you know, within HVAC and then also in DNM, there's a lot of anticipation right now that we're seeing some sort of cyclical or pro-cyclicality. And I just want to get a sense from you if you're seeing any of that in real time, if orders have perked up. I know you talked about mid-single digit growth and DNM X to 20 million, but any color outside of kind of just normal pro-cyclicality I think would be helpful.

Yeah, there's Gene. Let's see, a couple of comments I'll make here. You know, we have a list of where we're seeing growth and which markets are up, which ones are a little slower, and I can kind of walk through some of these. But if you look across HVAC, some of the areas that we're seeing some really nice strength, obviously data centers, healthcare, power, heavy industrial, aftermarket, as well as institutional and higher ed. Some of the areas that I'd say that we see when we look at 26 are a little softer, would be battery, automotive, semiconductor, chemical, and I'd say commercial real estate, which is active but at a lower level. You put it all together and we actually see pretty solid growth even outside of data centers. What I would say also is when you look at the end of Q4 and the first, you know, seven weeks of bookings in this year, we've had a nice start. So, you know, I'm not going to predict the GDP of, you know, the U.S., but we're seeing some positive signs here.

Okay, that's very helpful. Thank you. And then Just, Mark, maybe a question on overall earnings growth. Obviously, you're forecasting another very, very strong year of earnings growth. And then there's also kind of this layering in of capacity as we progress through the year. I just wonder if that kind of informs some cadence of earnings growth, if you could just give us a little bit of help or hand-holding around as we progress through the year, how the earnings growth kind of cadence evolves as that capacity comes online. Thank you.

Yeah, no problem there. I think what I would say with respect to the gating, we kind of gave some color with respect to Q1 and the prepared remarks, but if you step back from that and sort of think about first half, second half gating, I think it would be similar to last year on a percentage basis with respect to revenue, segment income, and EPS. I mean, the capacity expansions are going to ramp incrementally, really each quarter. So you're going to see as they come online, you know, through that throughout the year, you'll see the benefit of them, you know, as you get into the back half of the year.

And is there anything around the backlog or orders, particularly in data centers that, you know, is an elongation of your typical lead times? Because we're seeing this across the board in other companies, just the numbers are very, very strong. but begs the question of lead times and if these orders are actually getting a little bit longer dated.

I think that with the large data center customers, this is obviously mission critical. They can't start a data center without cooling. They give you a lot more visibility than a local hospital or a local commercial building or a local airport. So I'd say you have, you know what's coming earlier, but our lead times haven't really changed that much. If you look at across our businesses, it's pretty similar to where they've been.

Okay. Very good. Thank you for the help. Appreciate it.

Our next question comes from Joe Giordano with TD Cowan.

Hey, guys. Thanks for taking my questions. Hey. I appreciate the color on the warmer liquid and warmer liquid use for cooling, what that means. I'm curious what a move to significantly higher voltages in the DCs would mean, where current goes down and much less copper and less heat required per unit of compute. So as you move into these next generation architectures, how does that have implications for you guys?

Yeah, I mean, I think all of the shifts that we have seen generate more heat. So if you look at the KWs going into the racks and the amount of electricity going into the data centers, I haven't seen anything where that's basically increasing, you know, at the point of which you're seeing these, you know, gigawatt data centers, just massive, massive amounts of electricity. And the electricity correlates very well to heat, which correlates very well to the amount of data cooling you would need. So yeah, I mean, if there were to be an invention that significantly reduced electricity, that would reduce the amount of cooling towers that you have. I'm not aware of any such invention.

Anything we should think about in terms of tariffs? I know this is only 24 hours or whatever for you guys to think that through, but what any of those changes have to mean for you guys and the volatility you're seeing in metal prices?

Yeah, that's a great question, obviously, and timely given the tariff dynamic is back here 12 months from the last time we were talking about this. You know, for us, I would say, you know, the tariffs, you know, during 2025 were really not a material impact to us. We were largely able to, you know, offset that impact, whether that be through price or sourcing or CI initiatives. So it's something we're clearly going to, you know, keep our eye on and play very close attention to for obvious reasons, but... you know, our model really is, you know, we're largely U.S., we're largely in-country, port country on the sourcing front. So, and, you know, when you think about our North American business, particularly Canadian businesses, those are, you know, all covered under the U.S. MCA. So, something that we're going to keep our eye on, not something I'm overly concerned about as I sit today, you know, and metals prices, you know, we'll be watching those. I You know, one of the dynamics with our business is, you know, everything that we sell, a large part of what we sell, I should say, on the HVAC side is configured to order, engineered to order. So, you know, we're largely taking that order and pricing and manufacturing in real time, right? So we don't have kind of real exposures, long lead time exposures for things like steel and aluminum.

know where the uh the largest metal exposure would be for us thanks guys our next question comes from jeff van cinderin with b riley securities uh hi everyone um just kind of getting back to the data center area and Maybe you could just share a little bit more in terms of what you're hearing from your customers, what they're asking for most, what's top of mind to them at this point, and then really how is that evolving?

I would say at a high level, demand is increasing, and there's push for acceleration of demand with several of the hyperscalers that we deal with. So I would say the demand that we see, both with our existing customers, but also with various bidding and new situations, I would say it remains very robust.

Okay, good. And then just circling back to supply chain for a minute, are there any areas, did you mention any areas that you think might be increasingly tight this year that you anticipate for supply chain, any bottlenecks potentially or not really?

Yeah, I don't, Jeff, as I'm thinking across the supply chain that we have, I don't think there's anything that jumps out that, you know, where there's material concerns today with respect to the supply chain.

You go through the process as you grow, and we have some of our products growing pretty dramatically. You have to go through a line item by line item bill of filling materials review to make sure you can scale up. And, yeah, we've gone through that, and that's something that we always do to make sure we feel good, we can support the growth. And I don't think we see any red flags as of today. I think that's right.

Okay, good to hear. And then if I could squeeze one more and completely different topic, but, uh, curious to know, um, what trends you're seeing in, in drone detection and jamming for that business line. Um, and then the outlook there.

Yeah, I think, um, I think that that business, our contact business plays in the niche. Um, it's a very effective product. Um, You know, you look at the drone detection world, there's a lot of players out there. A lot of people are trying to do residential or trying to do stadiums. I've seen a lot of those kind of belly flop. You know, really, we're playing more on the military side predominantly, and I think we have a very good solution there. We have one primary competitor that we typically see, a German competitor that we know very well, we compete very effectively against. But I would say there's a good amount of activity, but I don't see anything dramatically higher or lower. I think it's pretty steady with what I see in front of us.

Okay, good to hear. Thanks for taking my questions.

Our next question comes from Walter Liptak with Seaport Research.

Hi, thanks. Good evening, guys. And I'll ask one, too, on data center. The CapEx is going up quite a bit, and so I might as well ask about the timing of the cash out for the CapEx, and it's a fairly big range. you know, what could be there for pluses and minuses getting all that capital spending done this year?

Yeah, Walt, I mean, it's, you know, the plan is to meet that CapEx guidance for the year. So, you know, it's obviously important and relates to these plant expansions, stand-ups that we're in the process of doing. So, You know, I think, you know, if you were to see any of it shift, it would just be really related to timing of delivery of equipment. That would be something that we're watching very carefully. We've got a great team on it. They're very focused on it. It's something that I think we're concerned about today. But that's really what would impact the, you know, the CapEx that relates to the projects or the plant expansions.

Okay, great. Okay, and I'm interested in thinking about the capacity that's going in. And you mentioned that some of the hyperscalers are trying to lock down capacity. Is that what the CapEx is there to meet, or is within that 700 million run rate, is that kind of room to grow, kind of projecting out future demand levels? Is there another round of CapEx that might happen after this? Is there like a phase two of this data center HVAC build-out?

Yeah, I think, you know, Walt, I think it's, you know, what I would say is it's nice to have, you know, a hyperscaler who wants increasing growth demand over the next couple of years. You know, with these expansions, You know, as Mark had alluded to, we think this is approximately $700 million, which would be about $550 for data center, about $150 more for the customer handling, predominantly in Genia. You know, so I would say that this gives us some runway over the next couple of years. Where we sit today, we don't see an imminent need over the next couple of years of anything. Now, having said that, You know, if all of a sudden there is an increasing acceleration, you know, we'll always look at what, you know, if there is an excessive growth in demand, you know, we'll always be careful to look at those opportunities. But we feel very good about this expansion. We think this is going to give us a lot of flexibility over the next several years.

Okay, great. Okay, thank you. Thanks.

Our next question comes from Brad Hewitt with Wolf Research.

Hey, guys. Thanks for taking the questions.

Hey, Brad. Hey, Brad.

So it looks like you're guiding to about low double-digit organic growth in HVAC in 2026. You mentioned the 50% growth expected in data center. And then if we also adjust for the ingenia revenue growth, it seems like the implied growth rate for the rest of the segment is around 3%. Just wanted to see if that's kind of in the right ballpark and how you think about some of the puts and takes to growth in core HVAC X Ingenia and X data center.

Yeah, Brad, your math's directionally right. I would say kind of low single digits growth in the, you know, non-data center, non-air handling, customer air handling parts of the business, exactly.

Okay, great.

And then on the D&M side, you're getting the margins of 25% at the midpoint versus the invested-aid target of 22% to 24%. Do you still think of that as an appropriate medium-term target, or should we think about 25% as a good baseline upon which you can then layer on normal incrementals over the next several years?

You know, I think it's a great question. You know, when I, and I think I mentioned this in question, was asked earlier today you know some of this uh margin improvement is uh you know related to mix and uh some of it's related to some of these uh opportunities that we're uh pursuing to really you know drive the overall margin profile of dnm up you know those are structural in nature uh so i expect them to be you know durable uh going forward um you know if you kind of did the math around that, that would sort of pencil out to a margin, you know, right about at the top of our range that we guided to a couple of years ago. So the 22 to 24% segment income range. So, you know, I think, I think for now, you know, I don't, I don't think we're looking to change the overall target profile of the, of the business, but something we're certainly look at, you know, as, as we go through the year and in the next year.

Great. Thanks, Mark. Got it.

That concludes today's question and answer session. I'd like to turn the call back to Mark Carano for closing remarks.

Thank you all for joining us for today's call. We look forward to updating you again next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.