Modine Manufacturing Company (MOD) Earnings

Management highlights

### Strategic Transformation & Transactions - Completed three strategic acquisitions (Absolute Air, LB White, Climate by Design) that added $119 million in incremental full-year FY26 revenue, expanding product offerings, end markets and channel access for Modine's HVAC businesses. - On track to complete the spinoff of the Performance Technologies segment and its merger with GenTherm by the end of calendar 2027, pending all required regulatory and shareholder approvals; all major separation workstreams are on schedule. - Announced a landmark 3-year long-term capacity locking agreement (LTA) to supply $4 billion of data center cooling products to an existing strategic customer between 2027 and 2029; received an upfront $165 million cash down payment for this agreement, recorded as a contract liability. ### Capacity Expansion Progress - The $100 million U.S. data center capacity expansion project announced in Q2 FY26 remains firmly on schedule six months into construction. - First chillers from the new Jefferson City, Missouri facility, and first air handling units and CDUs from the expanded Franklin, Wisconsin plant were shipped in Q4 FY26. - Half of the planned new chiller production capacity is operational at varying efficiency levels as of end-Q4 FY26; total chiller capacity will double by the end of FY27. ### Product Innovation & Market Position - Launched a new 3 megawatt modular chiller that delivers 50% higher cooling capacity with only a 9% larger footprint, addressing growing demand from higher density AI and compute chips; management expects this product to be a game-changer for the data center market. - Data center demand remains incredibly strong, with hyperscalers continuing large-scale investment concentrated in North America; Modine achieved its second consecutive quarter of record data center order intake in Q4 FY26. - Post-spinoff, the Climate Solutions segment will be split into two standalone segments starting FY27: Data Center (led by Art Laszlo) and Commercial HVAC (current leader Eric McGinnis will retire in June 2026, with a successor to be named later). ### Operational Execution - Severe southern U.S. weather caused 20 lost production shifts for data center operations and 35 additional lost shifts across other Climate Solutions businesses in Q4; the team recovered most output via overtime, though overtime costs negatively impacted gross margin for the quarter. - Shortages of certain key electronic components emerged late in Q4, impacting production efficiency and schedules; a dedicated team is implementing corrective actions including qualifying new vendors to resolve the issue.

Guidance

- Total company FY27 revenue is expected to grow 20% to 35% YoY, with adjusted EBITDA projected at $650 million to $680 million, representing over 40% YoY growth and 100 to 200 basis points of aggregate margin improvement. - Data Center segment revenue growth is projected at 60% to 80% YoY, an upward revision from the prior 50% to 70% multi-year growth estimate; management reaffirms a 50% to 70% YoY growth target for FY28 on the larger FY27 base. - Commercial HVAC segment revenue is expected to grow 5% to 10% YoY, driven by growth in heating, indoor air quality, and coil businesses, with a expected recovery from prior year tariff impacts. - Performance Technologies segment revenue is projected to be flat to up 5% YoY, with further margin expansion expected as commodity price and tariff adjustments are implemented. - Free cash flow as a percentage of sales is expected to be between 4% and 6% in FY27, with higher absolute free cash flow than FY26. - Margins and earnings are expected to increase sequentially throughout FY27; Q1 FY27 margins for Climate Solutions will be down YoY due to temporary component shortage impacts, but year-over-year margin comparisons will turn favorable starting in Q2 FY27 and remain positive through the end of the year. - The pending Performance Technologies spinoff is expected to close by the end of calendar 2027; guidance includes a full year of Performance Technologies results, and will be updated once the transaction closing date is confirmed.

Segment performance

For full fiscal 2026: - **Climate Solutions**: Revenue increased 43% year-over-year (YoY), including 32% organic growth; full-year data center revenue grew 73% to $1.1 billion. In Q4 FY26: Total Climate Solutions sales grew 87% YoY. Data center sales grew 158% (+$246 million), accounting for ~62% of total Q4 Climate Solutions revenue. HVAC technology sales grew 51% (+$33 million), accounting for ~13% of total Q4 Climate Solutions revenue. Heat transfer solution sales grew 19% (+$26 million), accounting for ~25% of total Q4 Climate Solutions revenue. Q4 adjusted EBITDA for Climate Solutions grew 63% YoY, with a sequential margin improvement from Q3 FY26, despite temporary headwinds from severe weather and component shortages. - **Performance Technologies**: Q4 FY26 revenue was flat YoY (a $12 million positive FX impact offset lower organic sales). Heavy-duty equipment sales fell 5% (driven by lower genset revenue), while on-highway sales grew 4% YoY. Adjusted EBITDA declined 15% YoY due to lower volume, higher material and tariff costs, but full-year FY26 adjusted EBITDA margin improved 30 basis points to 13.8% thanks to ongoing cost savings initiatives. This segment represented approximately 30% of total company revenue in Q4 FY26.

Risks & headwinds

- Late-onset shortage of certain critical components in Q4 FY26 will temporarily impact Q1 FY27 production ramp, though management expects no impact to full-year FY27 results, and is implementing mitigation including qualifying new suppliers. - New 232 aluminum tariffs have increased material costs; while most cost impacts are expected to be recovered via customer contract pricing adjustments and surcharges, there is a typical 3-6 month lag before these adjustments take effect, creating temporary near-term margin pressure. - Ongoing global macroeconomic uncertainty, volatility in input costs, and supply chain disruptions create near-term visibility challenges, reflected in the wide range of FY27 guidance. - Sustained hyper-growth in the data center business has stretched supply chain and operational capacity, requiring significant managerial and capital focus to maintain execution against customer commitments. - The Performance Technologies spinoff/GenTherm merger remains subject to regulatory approval, and any delays could impact timeline and planned segment reporting changes.

Analyst Q&A

• Q: What is the expected adjusted EBITDA margin for the Performance Technologies segment in FY27, to help investors model the remaining standalone Climate-focused business post-spinoff? /

  A: Top line for Performance Technologies will be flat to 5% YoY, consistent with last year. Adjusted EBITDA margin is expected to come in between 14% and 15%, up 25 to 100 basis points from FY26. Any corporate cost reallocation between the spun-off business and the remaining Modine is not expected to be material, so investors can use this range to back out Performance Technologies results for modeling.\n\nQ: Does the new $4 billion data center LTA change your long-term 50% to 70% CAGR outlook for the data center business, will more LTAs be pursued, and is this LTA accretive to margins? / A: Raising FY27 growth guidance to 60% to 80% does not change the 50% to 70% growth target for FY28, and does not imply a slowdown in later years as the demand funnel remains strong. The LTA is fully accretive and within the target margin range for the data center business. Management is open to smaller similar LTAs with other customers, though no additional agreements of this size are currently pending.\n\nQ: Is the LTA incremental to the previously announced U.S. capacity expansion, and how does it impact the multi-year growth trajectory? / A: All volume covered by the LTA is already included in the scope of the $100 million capacity expansion that was previously announced. The FY27 growth rate has already been lifted to reflect the LTA, and the 50% to 70% growth target for FY28 remains in place on top of the higher FY27 base. Traditional annual CapEx spend will be sufficient to add further capacity beyond this LTA to support additional demand growth.\n\nQ: What is the current and expected mix of chillers versus other data center products in FY27? / A: Chillers are expected to make up approximately 40% of FY27 data center revenue, increasing to 50% over the next year. The remaining 50% to 60% will come from other products including air handling units, CDUs, and fan walls. Modine's flexible factory design allows it to adjust product mix to match shifting customer demand.