MODINE MANUFACTURING CO Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Climate Solutions Accomplishments:
  • 30% revenue growth, 45% adjusted EBITDA growth. Data center sales surge (119% growth, $644M), Scott Springfield acquisition contribution. Expansion in Grenada, Mississippi (adding production lines), new modular data center cooling solution, India expansion on track for Q2 launch. Acquisition of AbsolutAire, active on bolt-on acquisitions.
• Performance Technologies Actions:
  • Restructuring into two product groups (Heavy Duty Equipment and On-Highway Applications), cost reduction initiatives, expecting over $15M annual savings from reallocating costs, focusing on key end markets and customers.

Segment Performance

• Climate Solutions:
  • Fiscal 2025: Revenues increased 30%, adjusted EBITDA up 45%, adjusted EBITDA margin to 21%. Data center sales up 119% to $644M, including $197M from Scott Springfield acquisition. HVAC&R sales up 27%, heat transfer product sales down 11%.
  • Fourth quarter: Sales up 28%, adjusted EBITDA up 48%, adjusted EBITDA margin 21.4%. Data center sales grew 80% ($69M increase), HVAC&R sales up 27% ($21M), heat transfer down 11% ($12M).
• Performance Technologies:
  • Fiscal 2025: Adjusted EBITDA margin 13.5%, 200 basis points improvement. Vehicular markets in downturn, EV programs delayed.
  • Fourth quarter: Adjusted EBITDA margin 15%, full year 13.5%. Advanced Solutions sales down 12% ($4M), liquid cooled applications down 7% ($8M), air-cooled applications down 13% ($22M), but GenSet customers up 29%. Adjusted EBITDA up 5%, margin up 220 basis points.

Guidance

• Fiscal 2026:
  • Total company sales growth 2%-10%.
  • Climate Solutions: Sales growth 12%-20%, data center revenue growth over 30%.
  • Performance Technologies: Sales down 2%-12%, focus on restructuring and cost savings, expecting higher margins and earnings.
  • Adjusted EBITDA: $420M-$450M range, midpoint 11% growth.
  • Free cash flow expected to be higher in fiscal '26.

Risks

• Tariff Impact: Uncertainty around tariff impact on material costs, finished product shipping, and overall product demand.
• Market Conditions: Performance Technologies facing extended downturn in vehicular markets, delays in EV program launches, global trade uncertainties affecting market recovery.

Q: About data center visibility and customer build schedules A: Neil Brinker says visibility up to 5 years, high confidence in 1-year outlook, moderate to high in 2 years, some customers have 3-5 year visibility.

Q: Tariff sourcing from China A: Neil Brinker states reduced dependency on China through local-for-local supply chain strategy, 38 facilities in 14 countries, reduced reliance due to COVID, port strikes, etc.

Q: Data center revenue cadence in fiscal '26 A: Mick Lucareli says Q1 expected to be soft, ramping up capacity in North America, with Q3/Q4 seeing increased capacity to keep up with demand.