SPX Technologies, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the first quarter of 2026 XPX Technologies 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, you will need to press star 1-1 on your telephone keypad. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Mark Carano. Sir, please begin.

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. I'm also excited to be joined by our new Head of Investor Relations, Johan Rollins. He has joined us from the Hertz Corporation, where he served as Head of Investor Relations for the last five years. A press release containing our first quarter results was issued today after market close. You can find the release and our earnings slide presentation, as well as a link to a live webcast of this call in 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 St. Please also note the risk factors in our most recent SEC filings. 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 GAAP measures in the appendix to today's presentation. Our adjusted earnings per share include intangible amortization expense, acquisition, and integration-related costs non-service pension items, among other items. Finally, we look forward to 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 segment results for the first quarter of 2026, as well as an update on our full-year outlook. We had a strong start to the year with year-over-year growth and adjusted EBITDA of 23% and adjusted EPS of 22%. We continued to execute well, having significant profit growth in both segments and making meaningful progress on several key initiatives. We're raising our four-year guidance range to reflect our strong performance in Q1 and outlook for the remainder of the year. partially offset by the impact of the recent changes to the Section 232 tariffs. We do not expect these tariffs to impact 2027 earnings. Looking ahead, we remain well-positioned to continue executing on our organic and inorganic value creation initiatives supported by our robust M&A pipeline. Turning to our high-level results for the quarter, we grew revenue by 17.4%, driven by the benefit of recent acquisitions and organic growth in both segments. Adjusted EBITDA increased 23% year-over-year with 90 basis points of margin expansion. As always, I'd like to update you on our value creation initiatives. The capacity expansions across our HVAC facilities to meet the strong demand for our data center cooling and custom air handling solutions are progressing well. They remain on track with the timeline and capital requirements outlined last quarter. In Q1, we began producing highly engineered aluminum dampers in AMCO's new Tennessee facility and expect production to steadily increase throughout the year. We also began production of the Olympus Max in our Olathe, Kansas facility in the first quarter. Additionally, the Madison, Alabama facility build out is well underway. We still expect to have assembly capabilities for Olympus MAX and custom air handling products in the second half of this year and initial production capabilities in the first half of 2027. Turning to detection and measurement. We continue to advance our new product initiatives across the segment. Our location and inspection platform recently launched a new locate performance management software It meaningfully expands the real-time analysis of our customers' critical data that is seamlessly transferred from our radio detection precision locators to the field. We believe this solution significantly enhances how our customers locate underground utilities by increasing their efficiency, safety, accuracy, and overall data management capabilities. And now, I'll turn the call back to Mark to review our financial results.

Thanks, Gene. Our first quarter results were strong. Year-over-year adjusted EPS grew by 22% to $1.69. For the quarter, total company revenue increased 17.4% year-over-year, primarily driven by the benefit of acquisitions and strong organic growth in HVAC. Consolidated segment income grew by $25 million, or 22%, to $135 million. while consolidated segment margin increased 100 basis points. In our HVAC segment, revenue grew by 22% year-over-year, with 11.5% inorganic growth and a modest FX tailwind. On an organic basis, revenue increased 9.6%, with solid growth in both cooling and heating. Segment income grew by $15 million, or 20%, primarily driven by higher volume while segment margin decreased 40 basis points, largely due to startup costs associated with the capacity expansions. Segment backlog at quarter end was $755 million, up 38% organically year over year, primarily driven by data center demand. In our detection and measurement segment, revenue grew by 8.3% year over year, The one month of inorganic revenue from KTS contributed 3.9%, and FX was a modest tailwind. On an organic basis, revenue increased 3%, primarily driven by higher volumes in our transportation platform. Segment income grew by $10 million, or 28%, and segment margin increased 410 basis points. Increases in segment income and margin were primarily driven by higher volume and a favorable greater than typical high-margin software volume. Segment backlog at quarter end was $333 million, down modestly year over year. Turning now to our financial position at the end of the quarter. We ended Q1 with $158 million of cash on hand and total debt of $674 million. Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.9 times. quarter end, below our long-term target range of 1.5 to 2.5 times, giving us significant capacity to pursue accretive growth opportunities. Q1 adjusted free cash flow was approximately $16 million. In addition, during the quarter, we received approximately $60 million in cash proceeds on the completion of the sale offered United's industrial and transportation products businesses. As a reminder, These businesses were reported in discontinued operations and not part of our original 2026 guidance. And net of these proceeds, the implied EBITDA multiple for the acquisitions of Air Enterprises and RON Industries, formerly the air handling segment of Crawford United, is approximately in line with our average acquisition volume. Moving on to our full year of 2026 guidance. We are increasing our adjusted EPS guidance by 15 cents to a midpoint of $7.95 to reflect our strong Q1 results, particularly in DNM, and additional data center-related volume anticipated to be delivered in the second half of this year. Our updated guidance reflects a $0.05 to $0.10 impact from the recently announced changes to the Section 232 tariffs. This headwind is expected to predominantly affect HVAC in the second quarter. Excluding this tariff headwind in Q2, we expect first-half adjusted EPS gating to be similar to the prior year. As always, you will find our updated 2026 guidance on this slide and 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 21% adjusted EBITDA growth. Within our HVAC segment, our core end of markets remain resilient, and we continue to see strong demand for our data center solutions. In detection and measurement, our run rate businesses continue to see solid demand supported by new product introductions. For our project-oriented businesses, the front log remains active. In summary, I'm pleased with the strong start to 2026. We're executing at a high level, and our key initiatives, including the capacity expansions and the integration of recent acquisitions, are on track. We are confident in our increased four-year guidance, which implies adjusted EBITDA growth of 21% at the midpoint, and we remain well-positioned to navigate a changing tariff environment. Looking ahead, I'm excited about our future. With a proven strategy, 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 to Johan.

Thanks, Gene.

Operator, we will now go to questions.

Ladies and gentlemen, if you have a question or comment at this time, please press star 1-1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star 1-1 again. Again, if you have a question or comment at this time, please press star 1-1 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Andrew Obin from Bank of America. Mr. Obin, your line is open.

Hi, guys. Good morning. Good morning. Good afternoon. I've been on the phone today. I'm sorry. This is like hour 11 of like conference calls. Man, can we just talk, you know, just on your HVAC business, very strong growth, even with data centers. But if you back data centers out, what end markets really stand out to you in terms of strength?

Yeah, sure. I think, you know, I'd say, and if you look at it, our You're right, the growth is strongest in data center. With the change in outlook this year, we moved our data center growth somewhere from the neighborhood of 50% to 70%. If you look at the rest of HVAC, we're mid-single digits, maybe a hair above that. And really what we're seeing, I'd say outside of data centers, healthcare and pharma remains very, very strong. We're seeing power be very strong. And I think some of this is somewhat linked to data center. This would be both on new power and aftermarket. We're seeing some heavy industrial, but also a lot of activity there. And then the aftermarket has been very strong for us. So in general, we've seen a number of areas of strength across HVAC. I'd say the areas of softness, they really have not changed a lot quarter to quarter. I'd say commercial real estate still remains at a relatively low level. Same with hotels. And what I would say, if you kind of look at the more institutional market, universities, government, that's been very healthy over the past couple years. I'd say that's relatively flattish this year from what we're seeing in the early part of the year. And then we've called out softness in... Battery and semiconductor, which was very strong a couple of years ago, that has been lower recently. Having said that, we actually see some nice new opportunities coming, some bidding. So that could be something that is coming back on the upswing. But overall, we're feeling very good about our markets, both within data center and outside of data center.

Thank you. And on detection and measurement, you highlighted strength in transportation. You know, I think military was an area of strength. It was some pull forward. How should we think about that? Any benefit from what's happening? I know you have a very different business, but any benefit from what's happening in Iran on your on your business? And just general, how did the government business do?

Yeah, so I think we touched the government a lot of ways. Transportation tends to be more the U.S. municipal markets. I'd say the area of exposure, you know, that the Iran impact could affect would be more on the ComTech business. What I would say is we've had very strong demand there over the past couple of years, and we expect that to continue. You know, that, you know, ComTech as a reminder would be our legacy. TCI ECS business does a lot of drone detection and so forth with the addition of KTS. So, you know, we see continued growth there, but I wouldn't say we see any really step change in growth there because there's been a lot of activity over the past couple of years there. So I'd say it's very active. We like our value proposition, but I don't think it's something that at least at this point in time, materially changes our mid-single-digit anticipated growth rate for DNF. No, thanks for the cover and contact.

Thanks a lot.

Thank you. Our next question or comment comes from the line of Joe O'Day from Wells Fargo. Mr. O'Day, your line is open.

Hi, good afternoon. Thanks for taking my questions. Can we just talk about this Hi. The step up in the HVAC orders in the quarter and just the timing of shipments around that, as well as when you talk about the front log, as we see that backlog number step up to where it is, you're just trying to think about moving forward and expectation setting and the degree to which there was a sort of concentrated amount of activity, or as you look forward, you see that strength persisting?

Yeah, Joe, I'll start off. I mean, I think with respect to the backlog, I think we, in our prepared remarks, you know, we talked about data centers and there's real strength there in those markets, and we're seeing those orders come through. We also raised our guide for the year. You know, on the HVAC side, I think you saw in the slides on the prepared remarks, largely driven by the data center market. So we're seeing opportunities, orders, bookings going into backlog for 2026. And then as we look out into 2027, we're seeing opportunities there that will be executed next year. So that market, I would say, is obviously very healthy. The momentum is strong there. Sets us up well, I think, for 26, and we'll see as we look into 27.

Yes, I think if you kind of look at the data center market overall, we're just very pleased with what we're seeing. The demand strength is very strong, and we would say accelerating. We're seeing this across our different product lines. We're seeing some of our key customers really looking to accelerate And we're able to expand capacity in this year. That's how we've taken our growth rate from 50% to 70% in data centers this year. But beyond kind of to your question, what does this look like? We actually see some attractive runway looking ahead in 27 and 28. We think we have a really good customer mix here. We have a number of hyperscalers and colos. We have a good global presence here. We're very balanced. and we have very good line of communication and good visibility with what the expectations of demand are from our data center customers. Overall, we're very pleased with what we're seeing in data center, and we think we're really getting some nice traction in that market, and we would expect that to continue.

I appreciate the color there. And then on the tariff and cost inflation front, just in terms of your response to that and how much of that is a pricing response, how much of that is a cost mitigation response, and then, in particular, where you're manufacturing outside of the U.S., what you see as a timeline to bring more of that into the U.S. to help on the mitigation side.

Yeah, a couple comments there, Joe. You know, with respect to... you know, sort of sizing that. And, you know, we talked about, you know, $10 million of kind of gross costs, but that'll, we can offset, we believe, 50% of that, primarily through price, but we've got other levers to pull with respect to that. So that kind of gets you to a net impact. Probably 75, 80% of that is going to fall within the second quarter of this year. You know, why is that? Well, it really relates to a couple of our businesses in Canada, the Ingenia business and the Sigmund Omega business that have backlog today that's already priced. But as we go through the back half of the year, you know, we think the impact will be, you know, de minimis. And in 2027, I think as we highlighted in our prepared remarks, we don't expect to see any impact from tariffs. We've got the levers in place to offset that. You know, with respect to your kind of second part of your question, you know, we're largely in country for country, really. So we manufacture, you know, in the region, you know, that we're selling in. So, you know, when you think about those Canadian businesses, for example, the TAMCO expansion that we've highlighted in Tennessee is And then the Madison facility, a part of that is going to be for the Ingenia product, the custom air handling. You know, we were doing that, A, because there's a lot of demand, obviously, you know, in the U.S. market for those products. But also, it allows us to move that manufacturing into the U.S. and kind of create that in-country, four-country model.

That's helpful. I appreciate it.

Thank you. Our next question or comment comes from the line of Brad Hewitt from Wolf Research. Mr. Hewitt, your line is now open.

Hey, good afternoon. Thanks for taking my questions. Hey, how are you? So you mentioned there were some startup costs and related inefficiencies with HVAC capacity expansions. Curious if you'd be able to quantify how much of that HVAC margin missed versus your expectations was due to the capacity ramp. And have you seen anything so far that kind of changes your thinking about the near term timing of the ramp or the margin impact?

Yeah, Brad, I'll start. I think, you know, if you're referring to Q1, a couple comments to make. You know, we had, I think in our last call, highlighted the startup costs. I think if you did the math around what we said, it would kind of get you to $8 to $9 million startup costs, predominantly landing in the first half of the year. right, two-thirds of it, you know, will impact kind of Q1 and Q2. So you'd see that impact, and I can come back to what those costs were if that's helpful. But what I would say is, you know, first of all, I mean, those startup costs were expected. I think as we thought about the margin performance in Q1, it was on track with where we expected it to be from our perspective. And, you know, if you peel out those startup costs and just look at the operating leverage and, you know, the accretion from the acquisitions, you'd see there's sort of roughly 40 basis points of margin lift, you know, absent the startup costs.

Okay, great. And then maybe switching over to the DNM side of things, curious if we could kind of unpack some of the moving pieces there with the revenue outlook unchanged, but margins bumped up by 75 bps for the year. Sounds like there may have been some pull forward on transportation, but just any color on how that project timing shifted and kind of resulting impact on the segment will guide for the year would be helpful. Thank you.

Yeah, sure. Hey, just back on your last question, just to be clear, I was talking about year over year when I made that last kind of comment around the bridge. So when you think about where Q1 actual was for 26 versus You know, with respect to the DNM, so it wasn't a project full forward. What this was was expanded scope on an existing project we have, you know, that we're currently executing. It is in the transportation segment. It's one of our larger multi-year projects. And many of these projects, as you know, have a software scope to them. This one did, and the customer decided to expand the scope of that portion of the project. So it wasn't something that was in our forecast or in our backlog. It sort of effectively, by expanding the scope in a way, it sort of dropped in, for lack of a better word. So those projects, I think, as you know, the software components, they have high margins. We don't typically disclose what those are just for competitive reasons. But when you think about the software revenue that we have, it has a very high variable margin associated with it. So when you expand that scope, it really leverages through. And that's really what, when you think about the full year guide and raising it by 75 basis points, it's really driven in large part by the benefit from this program. expanded scope and project.

All right. Thanks, Mark.

Got it. Thank you. Our next question or comment comes from the line of Jamie Cook from Truist Securities. Mr. Cook, your line is now open.

Hi, good morning. Sorry, good afternoon. I'm sorry. I've been on 11 calls like Andrew today. It's been a busy day. Yeah, it has been a busy day. Just understanding some of the margins impact in the quarter that you spoke to for the year related to just tariffs and capacity additions. I guess, Mark, what's your comfort level in the ability to put up normalized incremental margins as we exit 2026? Just concerned capacity could continue to weigh on margins. So I guess it's my first question. And then the second question, was there anything unusual as you think about you know, the cadence of orders or sales throughout the quarter. And as we, you know, we're into, I guess, April, just given some of the, you know, macro uncertainty that's out there. Thanks.

Yeah, I'll start on margins. Listen, I'm very confident in our ability to kind of deliver, you know, our traditional kind of incremental margins that we see in the HVAC business, particularly you know, through the back half of the year and as we get into next year. You know, when you sort of look at, you know, where we ended the year in 2025 and you look at our guide, right, and if you strip out the impact of these expansion costs that I was chatting about just on an earlier call and, you know, a very modest impact from tariffs that we're going to see in Q2, you pull that out, you're going to see, if you isolated the revenue, you'd see operating leverage of, let's call it, 60 to 70 basis points. And then, you know, on top of that, you have the inorganic piece, which I think we've sized as, you know, 10 to 20 basis points. So, you know, we're seeing it right now when you strip out those costs. I know it's harder for you guys to see all those components, but I've got confidence in what we're doing now, and I'm not worried about it as we go into next

And on the end of markets question, Jamie, I think we're actually feeling very good. We do have a small amount of sales into the Middle East. I think it's under less than 1%. And we are seeing some impact there, which is to be expected, but not really material. And I would say if you look outside of the Middle East, in general, across all of our businesses, we actually track our bookings very closely. in each business, by end market. And I would say we're feeling good about what we're seeing, and I would say we're a little bit ahead about where we thought we would be in bookings. So overall, we're feeling comfortable with what we're seeing on the end market demand side.

Thank you.

Thanks.

Thank you. Our next question or comment comes from the line of Brian Blair from Oppenheimer. Blair, your line is open.

Thank you. Good afternoon, guys.

I was curious, how did radio detection perform in Q1? How's your team thinking about Q2 and full-year revenue performance? And to what extent is the outlook influenced by the new technology and product rollout that you said?

I'll do the full year, and then you guys can get into Q. We're feeling very good about what we're seeing in radio detection performance. You know, as you know, they're the global leader in underground location equipment, very strong presence, Asia, Europe, U.S. You know, if you look at their revenue, it's been modestly flattish over the past couple years, but we are seeing some, you know, and part of that's the result of, you know, some real slowness on the continent of Europe, U.K., some of the Asian countries. But we actually see some very nice momentum there. both in just the end market demand, but also the innovation that we're bringing to market. You know, we did talk about, or I did mention in the prepared remarks about, you know, locate performance management. This is an area we believe we have a very nice advantage to anyone in the market. This is an area that's really getting traction. We've also been a leader in bringing in mapping solutions as well as integration with utility ERP. So we're doing a lot, and it's actually working. So radio, and you might be asking this question because we've always said this is the canary in the coal mine, but radio is actually performing very well today. One of the things, you know, Brian, we talk about, I talk to every GM on the day of these calls, and we like what we're seeing right now.

Yeah, and I think, Brian, I mean, Gene touched on it, right? The order rates are, you know, healthy, and particularly in the U.S., that market has performed well. I would say when I think about that business overall, it's kind of this year, you know, we're forecasting, and I feel confident about kind of mid-single-digit growth, and we're seeing that in the first quarter kind of low to mid-single-digit growth, you know, in that business, so.

Okay, that's great to hear. It's obviously very early days, but maybe offer a quick update on the integration of Air Enterprises, RON, and Thermalek, and if there have been any surprises, you know, positive or negative to date. Then, as always, it would be great to hear a little more color on your M&A pipeline and the prospects for capital deployments over the next few quarters. Thank you.

Yeah, sure, Brian. I think, I mean, the prime signers were very pleased with both of these acquisitions. You know, the Air Enterprises ROM one was a little more complicated. That was where we acquired Crawford United, the pink sheet public company. And as we had announced, we successfully sold off the non-core piece within the quarter. So very quick, and I really like Air Enterprises and ROM. I think these really strengthen us. Air Enterprises, really good custom air handling solution, very unique, very good leakage rate, so very pleased with that. And then Thermalac, also, theirs is such a good team. They have such a good market position. As a reminder, the logic for Thermalac is we believe we're a leader, the leader in electric duct heating in the Americas, but we're always tiny in Canada. We believe Thermalec is the leader in Canada, and we see some really nice synergies where we can help leverage our channels to grow some of their products and technologies. And similarly, we actually think Thermalec has a very nice channel. So we see some real nice synergy there. As a reminder, know after the sale both of these are i would say very attractive valuations both of these are right around our our normal acquisition you know before synergy which is 10 and a half to 11 times and so we feel like we've gotten two really good businesses and we're off to a very nice start there um If you look at the pipeline, even after doing these two acquisitions, as Mark alluded to, we're about 0.9 times leverage, below our target leverage. We think we'd be down about where we were at the end of last year. So we have a lot of capacity. The areas where we see the most opportunity haven't really changed. In HVAC, I would say it still remains engineered air movement and electric heat. The one change I would say is we are seeing more detection and measurement opportunities, some intriguing opportunities both in transportation, ComTech, and ATON at the moment. So what I would say is the pipeline is very robust. We feel like we have a very good opportunity in front of us, and the flywheel is working. So there's a lot of activity going on, and we feel good about both the recent acquisitions and then what we have in the pipeline right now. The other point that I would bring up is, as a reminder, we also did Sigmund Omega and KTS last year, and we're also very pleased with these two. So they fit really nice. KTS has really given more scale and some really nice technology to our ComTech business, and Sigmund Omega just fits in so well. with our hydronics business. So it's very complimentary. And so, yes, I think on our inorganic strategy, I feel very good about what we're seeing in front of us, but also the companies that we brought into the family.

I appreciate all the color. Thanks again.

Thanks. Thank you. Our next question or comment comes from the line of Joe Giordano from TD Cowan. Mr. Giordano, your line is now open.

Hey, guys. Thanks for taking my questions. Just to follow up on the cap deployment side, what's the sense of, like, can a discipline acquirer be successful in the market like this right now? I mean, anything assets touching things that, really attractive right now we're kind of like spiraling in terms of spiraling higher in terms of the valuations paid and there seems to be people willing to pay it so how do you think about your you know your discipline in a market that is seemingly lacking a lot of that that's a great question i think you know we have been you know if you think about it you step back at 30 000 feet and talk about our m a strategies we've always said

It always starts with strategy. So everything starts with how we get the full potential out of our businesses organically. So new products, new channels, new geographies, lean, digital, AI. And then out of that process is really how we define our M&A strategy. So as a consequence, as you know, approximately half of our M&A targets have been proprietary deals. These are deals where there's no banker involved, there's no one else involved, and we like that. For those that do have a banker involved and are competitive processes, what I would say is you just have to be disciplined. I think there's some segments that are at valuations that we just will never play. As we have talked about, our average valuation over our 18 acquisitions before synergies is in the neighborhood of 10 and a half to 11 times. If you actually take the synergies that we capture, you're probably talking another one and a half to two times. So we're bringing these really strong businesses into our company, and we're getting them for effectively nine times EBITDA. I think when you do see some craziness, and I would say there is some areas that you will not be likely to see us playing is there's some areas of detection and measurement, larger, kind of larger businesses. You could see going in the high teens or 20 times EBITDA. We're not going to play there. We're seeing some data center companies getting acquired for 20, 25, 30 times EBITDA. That's just not, we will never be there. That's just not our cup of tea. So, you know, at the end of the day, I think you focus on strategy. You stay very disciplined. And what I would say is with what we have in front of us, we have a tremendous amount of opportunities with what we know and what we're working on. So I think, you know, we've been able to stay disciplined and still affect capital deployment and growth. So, yeah, I think by the day, I tell you, I would agree with you. There are some things you see out there and some of the valuations on there, they're rich.

Yeah, I agree. Anything noteworthy that you're seeing in terms of inflation? We're seeing some of the readings tick higher here, and just curious how you're planning around that.

Yeah, I think, you know, Joe, you know, you're probably referring to some of these costs, input costs like steel, aluminum, and things of that nature. You know, I those costs have moved up a little bit over time. I guess the bias is probably upwards, but I think from our perspective, you know, the reality is that as a total cost of goods sold, you know, they represent kind of, you know, let's call it, you know, mid single digits of exposure. But, but the reality is just given the nature of our business, a lot of what we do is engineered to order or configured to order. So, our ability to pass those incremental costs on, price real-time effectively, that really puts us in a good spot and has allowed us to mitigate any of these inflationary pressures so far. So I feel good about where we sit today. It's not something I'm clearly watching, but I'm not overly concerned about. Thank you.

Thank you. Our next question or comment comes from a line of Amit Mehrotra from UBS. Your line is now open.

Thanks. Good afternoon. Mark, maybe just give us a sense of how you're thinking about the second quarter, just so we can calibrate our expectations. I mean, there's some tariffs, there's new capacity, there's good growth in data centers. Any color on organic growth and margin by segment in the second quarter would just be helpful to calibrate our expectations.

Yeah, it's a good question. I mean, I think, you know, just broadly, I would say, you know, those markets, you know, that we participate in, I mean, all of them kind of remain healthy, right? We're not seeing, you know, any challenges or, you know, I wouldn't say we're at the tipping point of anything that would change with respect to that. You know, and, you know, when I think about the second quarter, we kind of spoke to that a little bit. in the prepared remarks, we kind of suggested the first half gating, you know, would be similar to the prior year. So, you know, when you look at that, you know, absent the tariff impact, you really need to pull that out to really kind of get a sense for what those numbers are. But, you know, I think broadly defined, we're, you know, we feel good about

as we look into the second quarter.

You know, I think the other thing I would add to that, I mean, listen, when you think about HVAC revenue, I would expect that, you know, to be up sequentially. You know, with respect to D&M, I think, obviously, you know, that business can be impacted by the timing of, you know, project revenue, And, you know, that clearly, as we often talk about, we're pretty good about getting that in the year. But where it ultimately lands quarter to quarter can create some variability for us. But we feel good about where we sit from that perspective.

And just on that, when you say sequentially up, are you talking about year on year growth is up from the 9.6 or just absolute revenue up sequentially in HVAC?

Well, year on year, but but also, yeah, absolutely. Okay. You're on your growth. Gotcha. Yeah, yeah, of course.

Okay. And then just maybe a more less tactical question, forgive me for that question, but maybe a more important question for the long term. You're obviously adding a lot of capacity. You've raised the data center growth from 50 to 70%. One, can you just update us now on where you think data centers are going to be percentage of revenue? Probably low teens, I would imagine. And then And then when you ramp up this capacity, Tennessee, Mirabel, Addison, et cetera, you know, how much more revenue you think you can lock? Because the question is, it feels like you're more capacity constrained than customers seem like they might want to, they'll take anything you can give them. And so I'm just curious about, you know, when this capacity comes online, how much more revenue you think can unlock for that market?

Yeah. Well, you know, we, I mean, we've talked a little bit about this at, uh, in our last call, maybe a couple comments. First of all, when I think about the incremental data center growth that we're going to see this year and that we've added into our guidance, you know, our Olathe facility, which is really, you know, the primary driver of that for 2026, that's just come online earlier than anticipated. So we're seeing really nice performance on that and is allowing us to meet more of the demand that's out there. But, you know, as we look out, you know, over the next, you know, the next couple of years in support of all this capacity expansion, you know, I would say as we sit today, you know, our view hasn't really changed from that perspective. We highlighted that, you know, these capacity expansions would give us the ability to serve, you know, circa $550 million of revenue. in the data center market. These sites, though, whether it's Olathe or the new facility in Huntsville, they're constructed in a way that gives us flexibility to ultimately drive the product line that's most available to us at that time. I'd say our view hasn't changed on that. That capacity is really going to ramp. I think Olathe should be at full capacity as we get into mid-2027. The Tennessee facility, which is the TAMCO business, we expect that to be at full capacity in 2027. And then the ramp on the Madison facility is not going to be as linear as those two because we're going to be doing assembly only at the back half of the year. We won't have full production capacity until the first half of 27, and then it will ramp from there. And, you know, our stated view from last quarter and still holds that that would be at full capacity, running at full capacity in the middle of 2028.

And one comment, Mark, just to clarify for people on the call, that 550 was incremental off of a 200 base. So, you know, if you kind of say, at what is the data center capacity after we get these up and rolling. Really, our expansions and our existing facilities are largely in production right now. So those have gone very well. Our TAMCO expansion is, they've already got three lines up. I believe they're adding the fourth line. They're already shipping. That's done very well. And then the Madison, Alabama expansion, facility is the longest lead time, but we will be producing product there in the back half of the year. And we actually will see a nice ramp up there next year. So point being, you know, if you kind of say we're at 200 last year, you know, say we're in the 350 neighborhood for data centers this year, you know, you could say that we have about 400 million more capacity. And we actually think there could be some more levers we could pull to potentially push more through that facility. But, yeah, that's kind of where we sit today.

Okay, that's very helpful. Thank you very much. Appreciate it.

Thank you. Our next question or comment comes from the line of Jeff Van Cenderen from B Raleigh Securities. Your line is now open.

Hi, everyone. A little bit more on the data center area. Are you guys seeing any supply chain delays or any other color on supply chain around data center for you?

You know, not for us. I think that, you know, there's several critical components that we have. And before we can take on, you know, more purchase orders, we go through a very rigorous process to ensure that we do have this supply chain. We've been very fortunate. I think with the rapid growth, we have had to expand. As a reminder, we are truly an engineered product. So we really, everything is pretty unique to us. So if you take our cooling towers, for example, we design and engineer our own fans. We have proprietary fans, proprietary gearboxes, proprietary motors, proprietary heat exchange. And so You know, it's ensuring that we have a supply chain that we can make it or the raw material inputs, you know, we can manufacture that. So, yeah, it has put a little pressure on us. We've had to expand some new suppliers, but we feel very good about where we are now, and we're actively working to ensure that we feel very comfortable as we look ahead to 27 and 28 where, we would expect continued growth.

Okay, great. And then I think you mentioned semiconductors, and I'm just wondering what kind of work you're seeing to bid on there.

Yeah, so I think, I know there's a couple of, there's some bidding going on now. I think there's one we believe we're very well positioned to be awarded on. Some of these are under confidentiality, so I don't think we can speak to the names at this point in time. But what I would say is we are very strong typically in semiconductor with a lot of the largest OEMs. Some of these have us specified in as the choice for cooling towers. So I think we have a very strong value proposition for that market. So as that market starts to bubble off, we think we'd be very well positioned to capture more opportunity. And it is nice to see some early bidding. So I don't think we'll be back where we were a couple years ago, but we are getting some new opportunities, which we think we'll be able to convert to revenue.

Okay, great. And then just one more to clarify. It sounds like with the Middle East, I realize only or less than 1% of your business is there, but It sounds like you don't anticipate any impact from higher oil prices and the macro around that on your business. Is that a fair assessment?

You know, I think Mark alluded to this, and I think it's very true. Something that is somewhat unique to us in being an engineered product company is, you know, we don't make... a product and then ship that same product for the whole year. It's very rare. So like every cooling tower, for example, is unique. We don't build a single one of those to inventory. So when we do a proposal, we have real-time information on exactly what our costs are. So it's very rare we have PPV either positively or negatively because we're very real-time. So I think You do have to manage inflation. You do need to be careful about that. But I think we have pretty good systems and processes in place. And the fact that the majority of our business is engineered or configured products also makes it such that you're pricing things on a much more real-time basis.

Okay. Thanks for taking my questions.

Thanks. Thank you. Our next question or comment comes from the line of Walter Liptack from Seaport Research. Mr. Liptack, your line is now open.

Hi, thanks. Hey, I want to stick with the data center questions. I don't mean to beat a dead horse on this, but so last quarter, you know, the numbers around data center were, you know, 200 million in 2025 going to 300 million next And I wasn't sure I fully understood why you're taking that number now up to 350 million.

Yeah, well, I'd say the punchline is the demand is there. One of the things we've seen from a lot of our large customers is pushing for accelerated deliveries. And, you know, when we put our plan together, we had capacity expansion. We've pulled some different levers, some new lines, and, you know, We've found ways to expand our capacity to be able to meet demand. This is predominantly in our Olathe facility as well as our Springfield facility.

Okay, great. And kind of a follow-on to that is the data center demand. During the quarter, did your teams make progress with new hyperscalers, with new customers? Or is it existing customers that are looking for more capacity and, you know, quicker lead times?

Yes, yes, and yes. So I would say our existing large customers want more and, you know, it's interesting the increased capex that caused a big stir from the large hyperscalers. We are seeing that front and center. Having said that, you know, several of these are existing customers. There's also some new customers, large hyperscalers and colos that we've talked to. So what I would say, while it's not just one or two customers, it's very broad-based, we're seeing a lot of activity. And it's both with, you know, everyone talks about the four to five hyperscalers, but it's also the chip manufacturers. It's also a lot of the colos. And I think we're very well positioned with our product line here. I think if you look at what we bring to the table, if you look at our different product lines and cooling powers, I do believe we're the global leader in cooling powers for data centers. I think we have a leading position with our TAMCO business. Our actuated dampers and air movement technology there is a very strong position. And then a lot of the growth is really coming in the dry and adiabatic area. That's kind of a, you know, it's more of a nascent, newer area. So we have, you know, we're talking to some customers. This is the first time they've bought this. They've, you know, that they're installing these. And I just think we bring a lot to bear in this market because the requirements are so large. And that is where we really excel. We are superb at large, complicated cooling. And so I think our background, so I think where technology is evolving for these very large-scale data centers, you're seeing some that are gigawatt, some even larger, it fits well with what we are good at. So, yeah, it's pretty broad-based. And we're very encouraged and very excited about the opportunity. You know, some of the things customers are looking for, a lot of these customers, they want custom engineering for their particular requirements. You know, it could be size, it could be thermal capacity, speed, they want modularity. And of course, they want efficiency, both on the power side and the water side. So they're looking at solutions that can help their PUE or their WE, which they typically report at. And I think that's kind of, as I said, I think it's in line with what we're typically very strong at. So yeah, it's a very active and exciting market. It's moving very quickly.

Okay, great to hear. Thank you.

Thanks. Great. Thank you all for joining today's call. We look forward to updating you again next quarter. Operator, with that, we can end the call. Thank you.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speaker, stand by.