SPX Technologies, Inc.

Thank you for standing by and welcome to SPX Technologies' second quarter 2026 earnings conference call. Currently, 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 will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Johan Rawlinson, Investor Relations. Please, go ahead.

Johan Rawlinson 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, and Mark Carano, our Chief Financial Officer. The press release containing our second quarter results was issued today after market closed. You can find the release and our earnings flyer presentation as well as a link to a live webcast of this call in the news 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 provisions. 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 gap measures in the appendix to today's presentation. Our adjusted earnings per share exclude intangible amortization expense, acquisition and integrated related costs, and non-service pension items, among other items. Finally, we look forward to meeting with investors at various events during the upcoming months. Also, we are hosting an investor site visit at our Olathe Kansas facility on November 3rd. Please let me know if you are interested in attending. and with that, I'll turn the call over to Gene.

Thanks, Johan. 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 second quarter of 2026, as well as an update on our four-year outlook. We had a strong second quarter with year-over-year growth and adjusted EBITDA of 20% and adjusted EPS of 22%. Looking at our value creation initiatives, Organically, we continue to advance our capacity expansion initiatives and now expect $1.1 billion of total data center capacity once at full production, up from our previous expectation of $750 million. Inorganically, we recently announced the addition of Neptronic to the HVAC segment. This strategic acquisition complements our existing product offering and expands our capabilities into new adjacent Touching on our four-year guidance, we are increasing the midpoint of our range to reflect higher data center volume, stronger performance from our detection and measurement segment, and the noctronic acquisition. The midpoint of our updated guidance now implies 27% adjusted EBITDA growth. Turning to our high-level results for the quarter, we grew revenue by 23% and adjusted EBITDA increased 20% As always, I'd like to update you on our value creation initiatives, starting with our organic growth activities. The capacity expansions across our HVAC facilities to meet the strong demand for our data center and custom air handling solutions are progressing well. They remain on track with the timeline and capital requirements previously outlined. In July, we launched assembly activities for the Olympus MAX at our new Madison, Alabama facility and will add production capabilities in this facility during the first half of 2027. Production of our highly engineered aluminum dampers in TAMCO's new Tennessee facility continues to ramp as expected. and in Olathe and Springfield, throughput of our data center cooling solutions has exceeded our initial expectations. Based on the meaningful progress to date, we now expect total data center capacity to reach approximately 1.1 billion once it's full production from our prior expectation of approximately $750 million. Burning Synaptronics. This acquisition represents a natural extension of our HVAC strategy and another important step in strengthening our differentiated high-value portfolio. Neptronic brings complementary product platforms, including intelligent controls, electric duct heaters, humidification solutions, and actuated valves that expand our product breadth while strengthening our capabilities across the HVAC control stack. Strategically, this acquisition advances SPX in three important ways. First, it deepens our controls and systems intelligence, moving us further up the solution stack of equipment-focused offerings towards integrated, controls-enabled solutions. Second, it expands our addressable market through complementary products serving commercial, healthcare, institutional, and mission-critical applications including data centers. And third, it gives us additional opportunities to leverage SPX's global channels, OEM relationships, and operational scale to accelerate Nemtronic's growth while preserving its culture of strong innovation. Ultimately, this acquisition positions SPX to deliver greater customer value through more intelligent, integrated HVAC solutions and improve performance, energy efficiency, and operational intelligence while driving growth and long-term margin expansion. Now, I'll turn the call back to Mark to review our financial results.

Thanks, Gene. Our second quarter results were strong. Year over year, adjusted EPS grew by 22% to $2.02. For the quarter, total company revenue increased 23% Thank you. In our HVAC segment, revenue grew by 27.6% year over year with 8.5% inorganic growth and a negligible FX tailwind. On an organic basis, revenue increased 18.9% with double-digit growth in both cooling and heating. Segment income grew by $14 million, or 15%, primarily driven by higher volume. The 260 basis point decline in segment margin primarily resulted from capacity expansion-related startup costs and the net impact of tariffs, both of which were consistent with our expectations. Segment backlog at quarter end was $919 million, up 59% organically year over year, primarily driven by strong data center demand. In our detection and measurement segment year over year, revenue grew by 13%, segment income grew by 43%, and segment margin increased by 610 basis points. These increases were largely driven by high margin project volumes including a project that executed earlier than previously forecasted. We also continue to see the benefit of segment synergy initiatives. Segment backlog at quarter end was $312 million down year over year, primarily driven by higher project volumes in the quarter. Turning now to our financial position at the end of the quarter. We ended Q2 with $168 million of cash on hand and total debt Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.7 times at quarter end. Including the effect of the Neptronic acquisition, our leverage ratio was 1.4 times. Q2 adjusted free cash flow was approximately $72 million. Moving on to our full year 2026 guidance. We are increasing our adjusted EPS guidance by 45 cents to a midpoint of $8.40. The increase reflects additional data center volume, a revised outlook for the D&M segment incorporating higher volumes and margins, and modest accretion from the Netronic acquisition. As always, you'll 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 continue to support our 2026 outlook, which implies 27% adjusted EBITDA growth.

NHVAC core end markets remain healthy, including robust demand for our data science solutions. Within detection and measurement, our run rate demand remains healthy, while project-oriented businesses continue to see an active front log. In summary, I'm very pleased with our strong second quarter results and the momentum we've built through the first half of 2026. As we look to the rest of 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including are ongoing efforts to expand capacity and deliver on increased data center demand, integration of Neptronic, and our other recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets, and an active pipeline of attractive acquisition opportunities. The strength of our execution in end markets give us confidence in our increased full-year guidance which implies 27% adjusted EBITDA growth at the midpoint. Looking ahead, I'm excited about the opportunities in front of us. With differentiated businesses, attractive end markets, and an experienced team, we believe we're well positioned to deliver sustainable long-term shareholder value. Before I close, I'd like to touch on a few organizational updates. John Swann, who has led our detection and measurement segment, will be retiring at the end of the year. John has had an outstanding career and consistently delivered results across organic and inorganic initiatives. As part of a thoughtful succession process, John has worked closely with his successor, Eric Khaled, to ensure a smooth and well-planned transition. Since joining SPX, Eric has demonstrated strong operational leadership and has delivered meaningful results across the business. Having led the transportation and contact platform since 2019, he is well positioned to guide detection and measurement through his next phase of growth. Finally, we're pleased to welcome Brian Deck to our Board of Directors as an independent member. Brian brings significant industrial and operational expertise as the CEO of JBT Morrell, and we look forward to benefiting from his perspective and experience. With that, I'll turn the call back to Johan.

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

As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. You will be limited to one question and one follow-up. to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Obin of Bank of America. Your line is open, Andrew.

Oh, thank you so much. Just a question on DNM.

It, you know, was very strong performance. How much of the strength was project timing pull forward versus sort of a durable step up in underlying demand and also cadence of DNM into the back half?

Yeah, Andrew. Yeah, good evening. That's a great question. Listen, we're very pleased with the performance we saw in the quarter at DNM. You know, I kind of break it down this way. If I think about the 610 basis point increase, really about half of that was driven by favorable project mix in the quarter relative to the project mix that we had last year. That was something that was known we were expecting coming into the quarter. The balance of it and the majority of that balance really was project timing. We referenced a project that shifted forward into Q2. That actually moved from Q3 into Q2, and it was about $15 million in size at a high margin. So that move and that impact, along with what continues to be initiatives around driving synergies across the whole DNM platform, that's really what drove the balance of that 610 basis point beat. I think we talked about this before, particularly with these projects. at these revenue levels. When a high margin project kind of moves into a quarter like that, it leverages our fixed cost base very nicely. So you see a lot of accretion in the margins with respect to that. Gotcha.

I think with your, yeah, yeah.

Your second question was?

Just cadence for the rest of the year. Yeah, I think that as I think about the back half of the year, you know,

Q4 is probably going to be larger than our Q3 numbers. You know, I would expect the margins across both quarters to be very similar.

Thank you. Our next question comes from the line of Jamie Cook of Truist Securities. Your line is open, Jamie.

Hi, congrats on a nice quarter. I guess just two questions, Gene. Can you just elaborate on the, obviously, the data center capacity is coming down quicker. I think you said it's up to 1.1 versus 750. Just color on how you got there, how much incremental is in, you know, 2026 versus 2027, you know, and, you know, how you think that contributes to the, accelerates potentially top line growth, I guess, over the next 12 to 18 months. And then second, I know we had capacity additions and tariffs that weighed on margins in the second quarter. Can you just call that out? And then it also looks like you raised your margins a little in the back half for HVAC, so any color on that. Thank you.

I'll get started, Jamie. We're going to increase with the capacity. A couple of things I'll point out here. Really, the capacity is coming from two broad areas. This is a reminder to level set, you know, kind of where we are in data center volumes. We're approximately 150 million two years ago, 200 million last year, and really came out with a plan for 300 this year. We've seen some very strong demand for our solutions. We raised that to 350 last quarter. and we subsequently raised it again to 430 for the full year as of now. So that's basically growth of about 115%. Really underpinning some of these expansions in revenue is getting more efficiencies through. And the two broad areas are, the first is the Olympus Max. This is a very big, complicated product with very, Complicated Controls. We've done a lot of work on this product over the past several years, but in the production process over the past six months, we've done a number of lean projects, we've done some productivity work, and we've also done some flow optimization. And the punchline is we're getting more throughput than we had anticipated. And this will really be seen to benefit us both As a reminder, we make the Olympus Max in both our Latha, our core main cooling facility, as well as the new Madison facility where we've just started assembling there. So one is you can get more Olympus Max throughput. And then the second area would be really our core cooling business. And this is really most commonly our Everest product. We have seen very high demand for that product as well. and we've done a lot of work on blocking and tackling. I'd say more space, better flow and a number of lean projects that have helped as well as augmented staffing and different ways to basically to get more product out the door. So it's really the combination of those two broad categories that have allowed us to really raised the $750 to $1 billion, and we have very good conviction about that. But then also, that has been a contributing factor for why we have been able to get our $300 up to $430 this year. The teams have done some really nice work, and we feel good about that. Just as a, not as a plug, but we are doing an investor relation, or an IR meeting this in November, I believe. If you guys want to come out and see some real-world Olympus Maxes at Marley Everest Towers, we'd be glad to show you. But that's a big thing. And then the second question... On margins.

Yeah, I think, you know, Jamie, maybe the easiest way to think about it is the, you know, the 260 basis point decline, you know, year over year in the Q2 margins. Really, I mean, that was primarily driven by kind of three known items that we sort of contemplated, you know, as we forecasted the year. One was the net tariff impact. That actually hasn't changed. It was where we had expected it to be. The startup costs, similarly. And then we had a prior year comp that was a tough one in Q2. But all of those equal to about 80 basis points of a decline individually, give or take. and then we did see some modest inflationary headwinds. I'd probably size that around 50 basis points or so that impacted the quarter. With respect to the full year, really the raise in HVAC was driven by NEPTRONIC. That was the 25 basis points increase. The balance of the forecast within HVAC's unchanged.

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

Thank you. Good afternoon. Congrats on the corner.

Thanks, Brian.

Another impressive step up in data center revenue expectations for this year. Given the backlog in project visibility that you have along with accelerating throughput with Neolimpus Max and Everest, How should we think about your visibility into 2027? Realistic growth ranges, perhaps, and then the increase to $1.1 billion in capacity. What's now a realistic timeline for you to ramp to that level of revenue?

Yeah, Brian, why don't I start on the first one, then I'll hand it off to Mark on kind of how to think about the future. I think the punchline is We feel very good about our competitive position in data centers and the demand profile in data centers. We're both seeing very significantly increasing demand with our existing hyperscalers. We're seeing a lot of activity with a variety of customers. And the punchline is I really think the market is shifting towards our solutions. So basically a bigger and bigger portion of the market is becoming addressable by our solutions. And I think we have very good solutions here. We are seeing a lot more liquid cooling under the roof. And then for our products, I'd say probably dry seems to be the most favored solution. But we are also seeing adiabatic, and we're also seeing nice demand for our cooling towers. We have very good relationships with the hyperscalers. We have a lot of, had some nice wins with Colos and Neoclouds as well. But, you know, as we look ahead to 27, I feel very good about 27. You know, typically our hyperscalers give us very good visibility for the Ford several years. And the reason is they're nervous that, you know, they need our product to turn the data center on. So they're very They want to make sure that we can deliver the volumes that they want. There's a lot of direct feedback back and forth. You'll find these companies in our facilities. You can see them in there for two weeks at a time with 10 people. So we have very good direct voice of customer. So the punchline is I feel very good about 27. and then going forward, you know, we see a very nice ramp in the forward years. Got to be careful at 27 guidance. You know, Mark, anyone talk about, you know, how we're going to scale the capacity?

Yeah, I think the way to think about it, Brian, is, and maybe just kind of break it down, you know, when you think about where the data center work is emanating from, you know, Olathe and Springfield have actually, you know, performed, I think, better than we Initially expected, clearly, we've been able to deliver more data center revenue this year as a result of that. And Gene, I think, kind of referenced, I mean, as we've built the Olympus Max in that facility, there's been a lot of learnings there. We've gotten much more efficient at how we've executed on that. The TAMCO business, you know, in Nashville, that's on track. We talked about that being at full capacity, production capacity sometime in 2027. And then I think as we bring Madison online and we're manufacturing our first product there now, I feel actually good about the learnings that we've developed in Olathe and the Springfield facilities that, you know, that will ramp, you know, smoothly and kind of on track. Now, what we've said to date, I think, as you know, we expect that to be at full production capacity, call it in the second half of 2028. largely I would say our view hasn't changed with respect to the ramp. That said, I would say there is a bias that it could be earlier if things continue to go well. But I think from where I sit today, it's probably a little too early to make that call.

Okay, that's fair. I appreciate all the color. With regard to Nectronic, we know modest accretion for this year. How should we think about and many more. Brian, I want to start with some data about

and so forth. But what I find is we're very excited that Neftronics is a part of SPX. You know, the way that I would think about this is pretty simply about half their business is, you know, very close to our core business, almost very similar products. Electric Duct Heating, as everyone knows, we invented duct heating with Indico. It's a very important part of our electric heat business. They're in humidification. They actually have some very strong technology in humidification. Humidification is a very important part of a number of our businesses, particularly the custom air handling. If you look at Air Enterprises and Ingenia, that's a very important part. So, you know, half their business is You know, very, you know, very is either our existing business or very close core. I'd say the newest piece would be the controls. And while we do a lot of controls, we do controls for our hydronics business. We have controls for our cooling business, controls for electric heat. They have a more advanced set of controls, particularly in the configured controls. They have really, really good capability and they win very nicely on the outside market. Our controls really that we have to date and all of our capabilities really for our own equipment. They have a very nice controls business where they work with third party fan walls and other OEM HVAC equipment and they can even operate at a higher level there. We think this is a really important part of strengthening our competencies and building our controls capabilities. I can tell you a lot of our businesses are very excited that they're joining and what they can do and how we can innovate together there. The other thing I would say here is with both their heating, humidification, and controls, we actually think we can accelerate their growth. The reason being We have a great channel. We have very good OEM relationships. We have very good data center relationships. So we can open a lot of doors and allow them to get more at-bats, which we think would yield more growth. So very much like with TAMCO, with Ingenia, with a number of actually Canadian businesses that we've acquired, We think one plus one can't equal three. And Mark, you want to talk about how we should think about this going forward?

Yeah, Brian, I think from a growth rate perspective, when you think about everything Gene said and across all the capabilities they had, I think this business is going to grow above our medium-term growth targets that we'll put out there. I would probably put it at a high single-digit growth rate. It'll be different depending on the components that they sell, the business they sell. Obviously, I think most people have gathered from the information that we provided that it does have a nice, high, sustainable margin profile. that is higher than the segment average kind of on a segment income basis. I would say it's kind of in the low 40s. The DAH basis, you know, kind of mid-40s.

Thank you.

Our next question comes from the line of Amit Muratra of UBS. Your question, please, Amit. Thank you.

Good afternoon, everybody. I wanted to ask if you can just talk about contribution margins as the data center revenue sort of increasingly scales and the contribution margin profile of that revenue relative to broader HVAC portfolio, just given, obviously, the capacity investment and incremental engineering costs. And then just related to that, how much of Niptronic's current revenue is exposed to data centers? And is there an opportunity to kind of expand That penetration through sort of your existing customer relationships. Thank you.

Yeah, thanks. Good evening. You know, with respect to the data center business, you know, what we've said, we don't really talk about it from a contribution margin perspective. We really talk about it from a segment margin incrementals perspective. We would expect those incrementals to be similar or consistent with The balance of the HVAC business. So we typically identify those as sort of, you know, high 20s to low 30s incrementals. And then do you want to talk about the Medtronic?

Yep, sorry, go ahead. Yeah, the Medtronic, they do have some nice data center presence. I would say they're very similar to our HVAC If you look at this year, and I'd say actually maybe a tad higher there, but similar, they've had some good success. And we actually see some very nice opportunities for growth there going forward.

Okay. And then after Neptronic, I mean, you still have a nice amount of capacity and net leverage is sort of under one times. And you guys have a very good track record of kind of identifying and paying the right multiple for these types of and other quality assets. Does the pipeline look good? Just be curious in terms of how you think about the go-forward opportunities after what you just did.

Yeah, sure. I think, well, the first thing, I think we were, I believe it was 0.7 at quarter end, but pro forma with Neptronic, I believe we're a 1.4. But you're right, that's still below our target of 1.5 to 2.5, and we generate so much Cash, that that will be very low by the year end. So you're right, we have a lot of capacity here. We actually see a lot of very attractive opportunities. I'd say the areas that we see a lot of activity right now would be in detection and measurement on location and inspection. We think there's some very nice opportunities there, as well as ComTech and transportation. You know, I would say electric heat. You know, we've obviously just added Thermalac and Neptronic to electric heat. So that's actually been very nice additions that really strengthens that business and provides some very complimentary products. I would say if you look across HVAC, where do we see the opportunities? The biggest number of active opportunities would be in engineered air movements. The number of very attractive opportunities I would say we're talking to or we have on the board. And so the punchline to your question is we've done a lot in the first six months. If you look at the amount of capital we've deployed, there's still a very attractive strategic set of opportunities even over the next six months.

So we would expect to continue growing here.

Our next question comes from the line of Brad Hewitt of Wolf Research. Your line is open, Brad.

Hey, good afternoon, guys. Hey, Brad. Good evening. So, as we think about DNM margins in the next year, I know they can be a little bit lumpy based on the project mix and the software patch, but is the base case expectation that DNM margins should be up year-over-year next year?

Yeah, Brad, let me talk to you a little bit about that. I think, you know, when you think about, you know, where we're forecasting for the year, I think our guide is generally for 26 is 26.5%. There's a couple kind of discrete elements that set us at that point. You know, if you back out that scope expansion we talked about you know in the first quarter in that software project and you kind of normalize for what has been sort of a favorable mix for the year back to kind of what we call a more normal mix you're kind of left with I think a structural improvement in margins based on you know a lot of the work that we've done to drive synergies across the DNM platform kind of around 25 percent now Those margins can obviously be impacted by the mix of project volume that we have in a certain year and the types of projects. So I want to be careful. I don't really provide guidance for 27, not prepared to do that, but I think that's a framework to think about it.

Okay, that's helpful. And then maybe switching back to the HVAC side of things,

So you mentioned that you expect to be at the 1.1 billion of data center capacity probably by second half of 28. I guess curious as we stand today, like how much visibility do you have to that 1.1 from a demand perspective?

We see a lot of visibility. We feel very good about the demand profile. I would say we feel very good about sustained, continued growth there, Brad.

Our next question comes from the line of Joe Giordano of TD Cohen. Your line is open, Joe. Okay.

Thanks, guys. Good afternoon. Hey, Jeff. What do you have for book-to-bill in the quarter?

You know, for which business? Yeah, I think if you did the math around both segments, which you guys can do, I think you'd find that book-to-bill in HVAC was about 1.4%. and DNM was maybe just a hair below one. Yeah.

Okay. With Neptronic, one, like how much are you adding into the guidance just from that specifically on the revenue and EBITDA side? And then with the EBITDA margins in that mid 40s, you know, obviously extremely attractive, but how do you like stress test that in your own diligence, right?

Because it's like double what you guys are doing as a company.

So how much of that margin

Do you feel like was price over the last couple of years kind of getting crazy and scarcity for some of this stuff versus how sustainable is that into the tenure of your ownership here?

One comment I'll make, John, I'll throw it over to Mark, is right now if you look at segment income for HVAC by 25, and this is probably low 40s, 41, so it's not double. and you actually, you know, we know the electric heat business and the humidification business quite well and margins, you know, I guess what I would say is we spent a lot of time on that question. I feel very good. I don't think these are anomalous. I think these are real and frankly sustainable as we go going forward. I do think, I also think there's a lot of growth here that we can help support.

Yeah, and I think, you know, maybe just to dovetail up what Gene said, and then I can kind of walk you through a little bit of the contribution map for the year, if that's helpful. But, you know, I think when you think about some of these products like controls, I mean, they're a high value, high consequence piece of equipment within these systems and very important to how they function. So, you know, we obviously disclosed the revenue, kind of $75 million. Full year, we're going to own this for about five months, right, in 2026. So, you know, that kind of gets you into the low 30s contribution for revenue. And then, you know, segment incomes in the low 40s, you know, I will tell you, we paid about 12 and a half times for the business, which should help you back into where the EBITDA ultimately is. and any sort of netting all the way down, really it's probably about five to six cents of addition or accretion to the 2026 numbers.

That's obviously built into the guide raise.

Thank you. Our next question comes from the line of Walter Liptak of Seaport Research. Your line is open, Walter.

Hey, thanks. Great quarter, guys. So I wanted to ask, and thanks for the detail about Deptronics that you just gave. I wanted to ask about the CapEx and, you know, the guidance for this year, you know, 135 to 165. You know, what does it take to get to the high end of that? and what are you thinking about for CapEx to get to that $1.1 billion? How much of it do you have to get in place in 2027?

Yeah, well, you know, with respect to the kind of the back half, your second part of your question, you know, that CapEx related to all these plant expansions is, you know, was contemplated. Some of it fell in 2025 and then the balance of it will fall into 2026. You know, it could be that some of it slips into 2027, but right now we're forecasting it to be in 2026, just given, you know, what we're seeing today. So, you know, I think when I think about the CapEx for this year and the guide range we had, you know, at the midpoint, you know, that contemplates the CapEx required to support the expansions within within the year. It is going to be back half weighted. So if you're looking at kind of the first half of the year and feeling like it's maybe a little bit behind on that guide, we always expected it to be back half weighted. You know, and then the balance of it's really our regular way CapEx, which we've always said is sort of in the one and a half, two percent range. And I expect we'll be right there.

Okay, great. And, you know, as we're thinking about you ramping for the hyperscalers, the data center customers, it sounds like the capacity can be put in place that you're going to be there mostly by the end of the year. What becomes the heavy lift to make sure that you can deliver everything into 2027, 2028?

Yeah, it's a great question. You know, I think as we You know, think about ramping up those plants. You know, I feel really good about the team that we've got in place. I mean, they've been kind of overseeing all these site expansions, plant expansions that we've got underway. They clearly have done a really nice job so far as we've kind of met or in some cases exceeded our expectations. You know, so as I look out into 2027, I think a lot of it is going to be a function of making sure we get the right employees in place and the right team up to speed and begin to ramp up into what our expectations are for 2027. That's just one example. Bringing a plant online is always complicated. There's a lot of things that need to fall into place, but I feel good about we've got a plan and we'll deliver on the The expectations we've laid out.

Thank you. Our next question comes from the line of Payesh Kattan of J.P. Morgan. Your line is open, Payesh.

Hey, thanks for taking the question. Good afternoon, guys. Just on HVAC maybe, can you help me with the cadence of the growth? in the back half of the year. And correct me if I'm wrong, if we take out the data center growth that you're embedding, the rest of the segment is like tracking right in that 5% to 6% range.

Yeah, I think to your second point that you're absolutely right. With respect to thinking about gating in the back half of the year, You know, the way I would think about it is, you know, Q3 and Q4 will have kind of similar revenue growth rates. And, you know, I would expect margins will be higher in Q4 than in Q3.

Yeah. On that margins, is there any particular reasons because the incrementals, like, go way above, I think, 40% more than up? So if you can provide some color on that one.

Are you talking about in sort of the back half of the year? Yep, yep, yep, yes. Yeah, I think, you know, you've got a handful of things going on there, depending on how you've modeled it, right? It's, you know, you've got the operating volume and the leverage off of that. You also have the contribution from Neptronic and the M&A contribution there. And then remember the startup costs and the tariffs that were... You know, kind of a headwind in the first half. Those will moderate. So I think if you kind of think through all those elements, you know, that really helps explain that sort of first half, second half ramp.

Thank you. Our next question comes from the line of Jeff Van Sinderen of B. Reilly Securities. Please go ahead, Jeff.

Hi, everyone. I want to ask you a little bit more about the really strong demand you're seeing in data center cooling solutions. I'm just wondering how you're thinking about potential for long-term agreements there. Maybe it's too early, but any thoughts around long-term agreements?

Yeah.

I mean, Jeff, we actually have long-term agreements with several customers in place. It's just not something we typically talk about. So, yeah, I think, you know, long-term agreements, I think, you know, I think it works very well. You get alignment on demand. But as you well know, that's not a purchase order per se, right? We don't put things into the backlog until they are kind of formal purchase orders. And it's a good way to get alignment with our, particularly our hyperscaler customers about demand. and then we always have the appropriate you know protections in there such that if you know the demand is not there the POs are not placed within a year or an advanced period of time that capacity frees up such that we fill that capacity with other customers so yeah we actually have very good a lot of our customers we've been working we do have some new large customers, we have some old large customers. I think we have very good relationships, very open, very direct sharing of what we're seeing and what they're planning on doing. Good to hear. And then as far as supply chain, what's the latest you're seeing there and then any steps you're taking to procure what you need without interruption? That's a great question. With this type of growth and volume, you've got to be very careful of supply chain. Any bill of materials item could be... I'd say one of the good things about our strategy is really all of the components are our own. For example, we engineer our own fans, we engineer our own gear reducers, we engineer our own fill or heat exchangers, and so it's always our design, and we own it typically for the and the vast bulk of what we provide. That gives us supply chain flexibility. So we can either in some cases do it ourselves or have outside third parties. But it's something, the point you bring up is very important and we have seen some people fall down on the supply chain side. One of the things we're very careful about and before we take on a large order, we actually have a very strong supply chain team that will scrub every bill of material item and validate that we believe we can fulfill those items so we're not flying blind. We know we have the capacity and we know we can fulfill that order. We're very careful about that because, you know, at the end of the day, our experience, particularly in the data center realm, customers are very, very engineering intensive and that aligns very well because I do believe we have the best engineering in the world for cooling. And I think we can satisfy their needs, but you've got to deliver. If you fall down and you're late and you have bad quality, that can be very problematic. And as we know, there's a smaller number of customers here. There's some level of customer concentration with a number of hyperscalers. You want to be sure you can deliver and meet your commitments. So we're very careful about that. But I think it's a very good question in a world where there's some tremendous scaling going on in a variety of different areas.

Thank you. Our next question comes from the line of Zachary Sheckman of Wells Fargo. Your line is open, Zachary.

Hey, Zachary.

I was just wondering if we could shift back to DNM and just maybe talk about the mix in ComTech and AIDS navigation, maybe the type of products that drove margins up so much, the reason for that pull forward from 3Q to 2Q, and then maybe anything to note that's on the horizon, military opportunities in your ComTech business, like drone detection demand, anything of that nature. Just curious.

Yeah. Maybe I'll I'll start with the project that moved forward. That was just driven by the customer. It moved up from the first half of Q3 into Q2. We talk about this often. We sometimes have this dynamic. We're pretty good about getting it in the year, but sometimes these projects can move from quarter to quarter. ComTech is... is largely a project business. And depending on kind of the mix of where those projects are within the types of products that they provide, that can drive the margin profile. The Aton business is a mix of run rate and project businesses. And we've just seen some nice project activities, some large orders. in certain markets that have been just very profitable relative to... Yeah, and I think we feel good about the projects.

You know, when you think projects for section and measurement, you're really talking about half of ComTech. That's really the TCI half. And I'd say there's a lot of good activity going on there. There's a lot of good innovation going on there. So we can think about that. Transportation. Transportation has had nice, sustained growth over the past several years. We expect that to continue. And then the smaller portion is in ATON, where they also have some very nice innovation coming out. In particular, one at the end of next year that we think is going to drive more demand. So yeah, I'd say overall, you know, when we look at this year, This year is relatively flattish for D&M. We would expect to return to our normal growth path going forward next year and beyond.

Thank you. I would now like to turn the conference back to Johan Rawlingson for closing remarks.

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

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