Noah Kaye

Noah Kaye asked for expansion on the Google PPA's portfolio structure as a model for future activity, its fit for both parties, and the development optionality it provides. He also sought more insight on the blend-and-extend contracts, specifically which contracts are affected and the amount of post-2028 capacity being recontracted. Finally, he requested a walk-through of the mechanics and timing of the $675 million versus $575 million CapEx guide related to the Top Two conversion.

Answer

CEO Doron Blachar explained that the Google PPA aligns with Google's demand for clean energy and Ormat's investment in exploration and greenfield development, providing confidence for continued investment. He clarified that blend-and-extend contracts are for those ending in the next 3-5 years, with the next wave in 2032-2033. CFO Assaf Ginzburg detailed that the Top Two sale in Q1 will result in $100 million of product segment revenue and a $100 million sale of assets offsetting CapEx, leading to a net investment of $575 million for 2026.

Noah Kaye inquired about the Google PPA's portfolio structure, asking how it serves as a model for future activity, its development, and the optionality it provides. He also sought clarification on the blend-and-extend strategy, specifically which contracts beyond 2028 are being pulled forward for recontracting. Finally, he asked for the mechanics and timing of the Top Two conversion, explaining the difference between the $675 million and $575 million net CapEx guidance.

Answer

CEO Doron Blachar explained that the Google PPA aligns with Google's demand for clean, baseload energy and Ormat's investment in exploration and greenfields, providing confidence for continued investment. He noted that blend-and-extend contracts expiring in the next 3-5 years are being targeted, with the next wave of recontracting for 2032-2033. CFO Assaf Ginzburg clarified that the Top Two sale in Q1 2026 will generate approximately $100 million in revenue with a 20% margin, appearing as a sale of assets in the cash flow to offset CapEx, alongside an $80.5 million M&A acquisition in Q1.

Noah Kaye of Oppenheimer & Co. Inc. asked about the geothermal development environment, specifically the impact of expedited permitting, and sought clarification on the energy storage safe harbor strategy in light of Foreign Entity of Concern (FEOC) rules.

Answer

CEO Doron Blachar explained that supportive administrative policies are significantly accelerating BLM permitting timelines, enabling faster project releases. He also detailed the company's multi-stage safe harbor process for its energy storage pipeline, confirming that projects through 2028, and some beyond, have secured ITC eligibility without FEOC limitations by safe-harboring batteries in 2024 and 2025.

Noah Kaye of Oppenheimer & Co. Inc. asked about the electricity generation forecast for 2025, the drivers behind the increased exploration budget, and the specifics of potential PPA negotiations with hyperscalers.

Answer

CEO Doron Blachar and CFO Assaf Ginzburg confirmed that 2025 generation would see a modest increase due to late-year project completions and curtailments, setting up stronger growth in 2026. They explained the higher exploration budget is a strategic response to PPA prices exceeding $100/MWh, aimed at de-risking greenfield sites for post-2028 growth. PPA discussions with hyperscalers are for offtake after 2028 and involve both direct and utility-intermediated negotiations.

Noah Kaye of Oppenheimer & Co. Inc. inquired about the results of the recent BLM land auction, the potential for a proposed NEPA categorical exclusion to accelerate geothermal development, and the resulting impact on future capital expenditures.

Answer

CEO Doron Blachar confirmed that Ormat successfully acquired all the lands it nominated in the BLM auction, plus additional sites, bolstering its growth portfolio. He described the proposed NEPA categorical exclusion as a "big step" that will shorten the exploration phase and expedite permitting. Consequently, Blachar expects 2025 CapEx to be higher than 2024, driven by a shift from less expensive core hole programs to more costly full-size well drilling.

Noah Kaye inquired about the specific quantification of emergency response (ER) work, including the $30 million in Q4 and total for 2025, and the assumptions for ER work factored into the 2026 guidance. He also asked about the anticipated weather-related headwind for Q1, comparing it to the $10-$12 million EBITDA headwind experienced in the prior year.

Answer

Co-CEO Eric Gerstenberg and Mike Battles highlighted over 22,000 ER events in 2025 (up 5% year-over-year), with the $30 million in Q4 driving Field Services revenue growth. They noted ER is a core, baseline business factored into mid-single-digit Field Services growth for 2026. CFO Eric Dugas and Mike Battles indicated that the Q1 weather impact is expected to be flattish year-on-year, with SKSS assumptions being the primary lighter side of the Q1 guide.

Noah Kaye focused on Clean Harbors' capital allocation strategy, asking for guardrails on free cash flow conversion to EBITDA over the next few years, particularly whether the SDA investment would be formally adjusted out of free cash flow. He also sought clarification on the key assumptions underpinning the SDA unit's six to seven-year payback, including its dependence on commodity values, and inquired about the forecasting dynamics for industrial and field services, specifically if deferrals manifested late in Q3 and if normal seasonality might change.

Answer

Eric Dugas (EVP and CFO) confirmed a target of 40% free cash flow generation from EBITDA, with accretive capital investments like SDA being adjusted out. Eric Gerstenberg (Co-CEO) explained the SDA unit upgrades VTAE into a higher-value 600N base oil, used in more resilient industrial applications, with stable pricing. Mike Battles (Co-CEO) added that the model is conservative, assuming pricing decreases and not accounting for potential third-party VTAE. Regarding industrial and field services, Eric Gerstenberg (Co-CEO) noted that while turnaround counts were stable, the scope of work was reduced, and Eric Dugas (EVP and CFO) highlighted improved labor management and cost control, positioning the company well for future recovery.

Noah Kaye asked about Clean Harbors' free cash flow conversion targets, particularly in light of significant organic investments like the new SDA unit. He also sought details on the key assumptions underpinning the SDA investment's six to seven-year payback, including commodity value dependencies. Additionally, he questioned whether industrial and field services deferrals manifested late in Q3 and if future seasonality might differ.

Answer

EVP and CFO Eric Dugas stated the company targets a 40% free cash flow generation from EBITDA, with accretive capital investments like the SDA unit being adjusted out. Co-CEO Eric Gerstenberg explained the SDA unit upgrades existing VTAE into higher-value 600N base oil, which has more stable pricing than general base oil. Co-CEO Mike Battles added that the model for the SDA unit is conservative, assuming some pricing decreases and not factoring in potential third-party VTAE. Eric Gerstenberg noted that industrial services turnarounds in Q3 had reduced scope, and while Q4 guidance reflects this, the company expects better growth in 2026 as the economy recovers. Eric Dugas highlighted improved labor management and reduced subcontractor use in industrial services, positioning the business well for a rebound.

Asked for a detailed breakdown of the Environmental Services margin expansion in Q2, the outlook for the second half, and more specifics on the M&A pipeline.

Answer

Q2 ES margin expansion was broad-based across all service lines, driven by pricing and efficiencies. They are very bullish on continued, and likely accelerated, margin expansion in the second half due to easier comps and structural improvements. They declined to give specifics on M&A targets but reiterated a disciplined process and an active, full pipeline.

Noah Kaye of Oppenheimer & Company asked for an update on the PFAS solutions pipeline, revenue growth outlook, and the impact of recent EPA announcements. He also inquired about incineration pricing trends and the influence of the new Kimball facility.

Answer

Co-CEO Eric Gerstenberg confirmed a robust and growing PFAS pipeline, viewing recent EPA actions as positive momentum. He reiterated expectations for 15-20% PFAS revenue growth and noted the EPA/DoD incineration study results are expected in Q2. Regarding incineration, Gerstenberg stated that mid-single-digit price growth is a reasonable expectation and that the Kimball facility is ramping up well without creating overcapacity.

Noah Kaye asked for an update on the PFAS business, including the revenue pipeline and growth expectations, and inquired about the drivers behind the strong incineration pricing and the impact of the new Kimball facility on market demand.

Answer

Co-CEO Eric Gerstenberg confirmed a robust and growing PFAS pipeline, viewing recent regulatory momentum as positive and reaffirming a 15-20% revenue growth path. He stated that mid-single-digit incineration price growth is a sustainable assumption and that the Kimball facility is ramping up well with strong demand, potentially exceeding its 2025 tonnage goals. Co-CEO Mike Battles added that initial concerns about overcapacity from Kimball have not materialized.

Noah Kaye from Oppenheimer asked for clarification on the moving parts in the Q1 Environmental Services (ES) guidance, how the company will report on the Kimball incinerator's ramp-up, and for an update on the MACT standards for incineration.

Answer

CFO Eric Dugas explained the Q1 ES growth of 5.5% is driven by HEPACO contributions and pricing, offset by a tough comparison to a large project in the prior year. He noted the full-year ES growth is bolstered by the Kimball ramp-up. Co-CEO Eric Gerstenberg detailed the Kimball ramp, expecting 28,000 incremental tons and $8M-$12M in EBITDA for the year. Co-CEO Mike Battles added that Kimball's contribution will be backend-loaded in 2025. On MACT standards, Gerstenberg expects a multi-year implementation process that will create opportunities, particularly from captive operators needing to invest capital.

Noah Kaye inquired about the margin outlook for the Environmental Services (ES) segment in Q4, asking if year-over-year expansion should be expected. He also asked for the expected timeframe to work through the excess, higher-cost inventory in the SKSS segment and normalize its margins.

Answer

Co-CEO Michael Battles stated that the ES segment should see continued margin expansion in Q4, noting Q3 margins would have been up approximately 100 basis points absent challenges in Industrial Services. CFO Eric Dugas explained that working through the SKSS inventory will likely extend into 2025, which will cause a margin squeeze in Q4 but should lead to improvements next year. The idling of the California re-refinery is a key part of this inventory management strategy.

Noah Duke Kaye asked about the organic growth outlook, specifically the volume and yield components, questioning if it's a conservative initial outlook compared to peers. He also sought clarification on the 40 basis points underlying volume decline, distinguishing between residential shedding and other factors, and whether commercial service increases are outpacing decreases. Finally, he asked about the Environmental Solutions (ES) business growth assumptions for 2026 given tough comps.

Answer

CEO Jon Vander Ark characterized the macroeconomic environment as stable but with weaker manufacturing and construction, leading to negative demand in recycling and waste. He stated Republic Services maintains a conservative outlook until momentum is clearly seen. Mr. Vander Ark confirmed residential volume is expected to be negative in 2026, contributing to the underlying decline. He projected ES business growth to be relatively flat for the year, starting negative in the first half due to tough comps and growing in the second half. He reiterated a disciplined approach to prioritize price over volume.

Noah Kaye asked about Republic Services' organic growth outlook, specifically the volume and yield components, noting it appeared conservative compared to peers. He sought clarification on factors contributing to this conservative stance, such as the macroeconomic environment or specific market dynamics. He also inquired about the underlying volume decline, distinguishing between residential shedding and other factors, and the growth assumptions for the Environmental Solutions (ES) business in 2026.

Answer

CEO Jon Vander Ark characterized the macroeconomic environment as stable but noted weaker manufacturing and construction, leading to negative demand in recycling and waste. He stated the company maintains a conservative outlook until more momentum is observed, despite some positive signs. CFO Brian DelGhiaccio explained that residential volume is expected to be negative throughout 2026, contributing to the overall negative 40 basis points underlying volume decline (excluding landfill volumes). For the ES business, Mr. DelGhiaccio projected relatively flat growth for 2026, with a negative start in the first half due to tough comparisons, followed by growth in the second half. Mr. Vander Ark reiterated the company's disciplined approach to prioritize price over volume.

Noah Kaye from Oppenheimer & Co. Inc. sought clarification on the drivers behind the increased free cash flow guidance and the reasons for the improved margin outlook despite lower revenue expectations.

Answer

CFO Brian Delghiaccio clarified that the higher free cash flow guidance is driven by an $80 million benefit from 100% bonus depreciation, partially offset by a $25 million increase in CapEx. Regarding margins, he explained that a positive mix shift from high-margin, event-driven landfill volumes (related to hurricane and wildfire cleanup) is helping expand margins. CEO Jon Vander Ark added that achieving margin expansion in a challenging demand environment highlights the underlying strength and resilience of the business.

Noah Kaye of Oppenheimer & Co. Inc. inquired about the drivers of the increased free cash flow guidance and sought a bridge for the improved margin outlook, given the simultaneous reduction in revenue guidance.

Answer

CFO Brian Delghiaccio explained the free cash flow increase is due to an $80 million benefit from bonus depreciation, partially offset by a $25 million increase in CapEx for lease buyouts. For the margin outlook, Delghiaccio noted a positive mix shift, as high-margin event-driven landfill volumes from cleanup activities are offsetting lower-margin collection and ES volumes. CEO Jon Vander Ark added that expanding margins in a challenging demand environment highlights the business's underlying strength.

Noah Kaye asked for details on the organic growth in the Environmental Solutions segment, the net impact of fuel on margins, and whether the $1 billion M&A spending target for 2025 is now a low bar.

Answer

CFO Brian DelGhiaccio stated that Q1 organic growth in Environmental Solutions was impacted by weather and project timing, but March performance was strong. He clarified that net fuel had no year-over-year impact on margins, while one less workday provided a 40 basis point benefit. Regarding M&A, CEO Jon Vander Ark expressed confidence in exceeding the target, stating, 'I like our chances to beat it.'

Noah Kaye questioned the expected spread between the 5% yield on related revenue and cost inflation for 2025, and also asked about the anticipated EBITDA seasonality throughout the year.

Answer

CEO Jon Vander Ark estimated cost inflation at approximately 4%, indicating a positive spread against the 5% yield. CFO Brian DelGhiaccio stated that margin expansion should be more balanced quarterly in 2025 than in prior years, with positive expansion expected in every quarter.

Noah Kaye of Oppenheimer & Co. Inc. asked about the organic growth trends within the Environmental Solutions segment during the quarter and the expected pace of future margin expansion for that business.

Answer

CEO Jon Vander Ark explained that organic volume in Environmental Solutions was relatively flat due to a strategic focus on pricing and shedding less profitable accounts, a trade-off he endorsed. He reiterated that a margin expansion pace of 80-100 basis points annually across the cycle is a reasonable expectation for the segment.

Noah Kaye asked about the current trends in utility demand and behavior, seeking an update on market environment stabilization, pipeline status, and key performance indicators (KPIs) for understanding future demand. He also inquired about the Annual Recurring Revenue (ARR) metric, specifically its run rate at the end of Q4 and projected growth for 2026.

Answer

Tom Deitrich, President and CEO of Itron, highlighted strong Q4 bookings of $737 million, noting a normalization of market pace after previous exogenous delays. He pointed to key metrics such as pipeline growth (up 27% from end of 2024 to 2025), Outcomes backlog growth (up 58% year-over-year to over $1 billion), and ARR ($368 million at Q4 end, up 20% year-over-year). Joan Hooper, SVP and CFO, confirmed the ARR figure was a Q4 annualized number and projected mid-teens to 20% ARR growth for 2026, including acquisitions.

Noah Kaye from Oppenheimer inquired about current utility demand and behavior trends, market stabilization, pipeline updates, and key performance indicators (KPIs) for understanding the demand environment. He also asked for clarification on the Annual Recurring Revenue (ARR) metric, its run rate at Q4, and expectations for 2026 growth, distinguishing between organic and inorganic contributions.

Answer

Itron's President and CEO, Tom Deitrich, reported strong Q4 bookings of $737 million from hundreds of unique wins, noting that previous project delays have not continued. He highlighted key metrics including a 27% increase in pipeline growth from 2024 to 2025, 58% year-over-year growth in Outcomes backlog to over $1 billion, and a 20% year-over-year increase in ARR to $368 million at Q4 2025. SVP and CFO, Joan Hooper, added that ARR is expected to see mid-teens to 20% growth from year-end 2025 to year-end 2026, including both acquisitions.

Noah Kaye of Oppenheimer & Co. Inc. questioned the sustainability of Itron's record-high margins and sought clarity on the drivers behind the lowered revenue outlook, asking if the slowdown was related to book-and-ship business or delays in the existing project backlog.

Answer

CFO Joan Hooper attributed the strong margins to structural improvements in the Device Solutions segment, such as exiting lower-margin product lines, and stated the current margin profile is a solid baseline. CEO Tom Deitrich clarified that the revenue outlook adjustment is due to customers stretching out deployment timelines for projects already in the backlog, citing labor and annual budget constraints, rather than project cancellations. He characterized the issue as a temporary phasing of revenue.

Noah Kaye asked about the impact of tariffs on Itron's full-year guidance, given the strong Q1 results and Q2 outlook, and questioned the sustainability of record-high margins in the Device Solutions segment.

Answer

CEO Tom Deitrich stated it was premature to update full-year guidance, a practice typically done after Q2, but acknowledged the strong first-half performance amidst tariff uncertainty. CFO Joan Hooper added that first-half EPS is tracking 10% ahead of prior consensus and noted that while Device Solutions margins are ahead of plan, some quarterly variability is expected due to factors like seasonality.

Noah Kaye inquired about Itron's 2025 free cash flow conversion expectations, plans for its significant cash balance, the M&A pipeline, and the growth runway for the Outcomes segment given the large installed base of DI endpoints.

Answer

CFO Joan Hooper confirmed expectations for continued improvement in free cash flow as a percentage of revenue in 2025, noting the current cash balance contributes to EPS via interest income. CEO Tom Deitrich added that Itron is actively evaluating M&A targets, focusing on 'outcomes forward' and Grid Intelligence technologies to round out the portfolio. Deitrich also stated that the Outcomes business should be the fastest-growing segment, with significant runway to add more applications per endpoint and an ultimate target of 75-80% recurring revenue.

Noah Kaye inquired about the early adoption of the new Grid Edge Essentials solution, its potential impact on the Outcomes revenue mix toward more recurring revenue, and the company's normalized tax rate.

Answer

CEO Tom Deitrich explained that Grid Edge Essentials broadens the market for distributed intelligence (DI) to smaller utilities and that the Outcomes segment's revenue mix should shift back toward higher-margin SaaS and licensing revenue over time. CFO Joan Hooper stated that the normalized tax rate going forward is approximately 25%, noting the Q3 benefit was a one-time resolution of an old foreign tax audit.

Noah Kaye with Oppenheimer inquired if the 20% growth in HASI's pipeline, from $5.5 billion last year to $6.5 billion, indicates an increase in market share through platform investments and partnerships. He also asked how capital efficiency, individual project size, and operating leverage contribute to the higher incremental ROE and the 2028 ROE targets.

Answer

Jeff Lipson, President and CEO of HASI, acknowledged the difficulty of precise market share data but directionally affirmed an increase in market share due to competitor pullback and improved client penetration. Regarding operating leverage, Mr. Lipson confirmed that HASI has been growing revenues faster than expenses and is focused on improving operating leverage, supported by significant investments in talent and technology in 2025 and continuing into 2026.

Noah Kaye asked if HASI's pipeline growth, which is under 20%, is proportional to the growth in the total addressable market (TAM), and if the company has been able to gain market share. He also questioned how operating leverage, specifically growing revenues and profits faster than organizational expenses, contributes to the higher incremental ROE and 2028 ROE targets.

Answer

Jeff Lipson, President and CEO, indicated that directionally, HASI believes it has increased market share due to a pullback from other capital providers and improved client penetration, though precise data is unavailable. He confirmed that HASI has been and will continue to grow revenues faster than expenses, focusing on improving operating leverage through investments in talent and technology, which are expected to yield long-term dividends and contribute to profitability.

Noah Kaye questioned if the $1.2 billion investment signals a shift towards larger single projects, contrasting with Hannon Armstrong Sustainable Infrastructure Capital's historical focus on smaller, diversified investments.

Answer

Jeff Lipson, President and CEO, indicated that the transaction reflects Hannon Armstrong Sustainable Infrastructure Capital's enhanced access to capital through investment-grade ratings and the CCH1 relationship, enabling participation in larger projects while managing risk. He affirmed continued activity in both smaller and larger transactions. Charles Melko, CFO, quantified the SunStrong ABS refinancing benefit as a $24 million gain impacting the quarter's earnings.

Noah Kaye from Oppenheimer & Co posed a broader question regarding the $1.2 billion investment, asking how this significant single project signals HASI's future appetite for larger transactions, contrasting it with the historical model of smaller, numerous investments.

Answer

Jeff Lipson, President and CEO, highlighted that this milestone transaction reflects HASI's enhanced access to capital (investment-grade ratings, CCH1) enabling participation in larger deals. He affirmed HASI will continue to manage risk and remain active in both smaller, value-driven transactions and periodic larger opportunities, especially as grid-connected projects grow.

Noah Kaye from Oppenheimer & Co. Inc. asked about the primary needs of clients driving pipeline growth, the timing of the tax equity replacement opportunity, and the outlook for cash generation in the second half of the year.

Answer

Chief Client Officer Susan Nickey attributed strong client demand to fundamental drivers like increased power demand, with clients using safe harboring to navigate policy changes. CEO Jeffrey Lipson confirmed the tax equity opportunity is several years away. CFO Chuck Melko explained that cash generation can be lumpy due to one-time project-level events and that he expects cash flow growth to generally mirror portfolio growth going forward.

Noah Kaye asked for clarification on the extension of the CCH1 investment term to Q4 2026 and questioned whether the record Q1 transaction volume was a pull-forward of future deals.

Answer

President and CEO Jeffrey Lipson clarified the CCH1 extension reflects a plan to increase the vehicle's capacity with debt, not a delay in deployment. An executive, likely Chief Revenue and Strategy Officer Marc Pangburn, added that the record Q1 volume was due to growing business activity and an improved competitive position, not a pull-forward of deals.

Noah Kaye asked how HASI might leverage existing client relationships to enter the 'Next Frontier' asset classes. He also inquired about the drivers for the normalized gain on sale outlook and its effect on the multi-year EPS growth cadence.

Answer

Chief Revenue & Strategy Officer Marc Pangburn affirmed that leveraging existing client relationships is a key pillar of their model, citing the company's entry into RNG with long-standing client Ameresco as an example. President and CEO Jeffrey Lipson explained that the 2024 gain on sale was outsized due to a hard-to-replicate asset rotation, and that future earnings growth will be driven by other revenue streams to accommodate the normalization.

Noah Kaye of Oppenheimer & Co. sought clarification on the co-investment vehicle disclosure, asked about visibility into achieving the $2 billion annual origination target, and questioned how rising long-term rates affect the firm's duration risk management and refinancing strategy. He also requested a simplified explanation for the quarter's GAAP equity method loss.

Answer

President and CEO Jeffrey Lipson confirmed a key disclosure figure and noted that with $1.7 billion in originations year-to-date, the company has high confidence in reaching its $2 billion target. CFO Marc Pangburn stated that their duration strategy matches assets with long-term liabilities and that refinancing is opportunistic. Pangburn also clarified the GAAP loss was a non-cash, mark-to-market impact on power contracts, while the underlying project assets have actually increased in value.

Noah Kaye with Oppenheimer & Co. inquired about the M&A pipeline's potential for an outsized year and the capital allocation strategy for buybacks given the current stock price and valuation. Noah also asked about the underlying free cash flow conversion, specifically if 2026 marks the last big slug of sustainability CapEx and the winding down of Chiquita spend into 2027.

Answer

Ron Mittelstaedt (President and CEO) stated that the M&A pipeline and appetite remain strong, expecting another 'outsized year' similar to the past three, with no financial limitations, and reiterated an opportunistic approach to buybacks based on fundamental value. Ron Mittelstaedt (President and CEO) confirmed 2026 is the last big slug for current RNG/sustainability CapEx, leading to a 'double whammy' of no CapEx and full EBITDA/FCF contribution in 2027. For Chiquita, he expects spending to step down meaningfully in 2026 and be 'quite lower' in 2027, approaching 50% FCF conversion levels.

Noah Kaye asked about the M&A pipeline's potential for an 'outsized year' in 2026 and the capital allocation strategy for buybacks given the current stock valuation. Noah Kaye also inquired about the underlying free cash flow conversion, specifically if 2026 is the last big slug for sustainability CapEx and Chiquita Canyon spend, and the confidence in winding down these outlays by 2027.

Answer

Ron Mittelstaedt (President and CEO) stated that M&A can be lumpy but sees no reason for 2026 to be different from the past three strong years, with capacity for both M&A and shareholder returns. He reiterated their disciplined approach to M&A and opportunistic stance on buybacks, based on underlying fundamental value. Ron Mittelstaedt (President and CEO) confirmed that 2026 is expected to be the last big slug for the current RNG and major recycling facilities CapEx, with full EBITDA and free cash flow contribution expected in 2027. He explained that Chiquita Canyon outlays are stepping down meaningfully in 2026 due to EPA involvement and streamlining, with further reduction expected in 2027, aiming to approach 50% FCF conversion levels. He also clarified that ETLFs are common but California's regulatory environment makes Chiquita unique.

Noah Kaye from Oppenheimer & Co. Inc. requested a bridge for the full-year revenue guidance from the initial outlook to the current one, asking about the impact of M&A, commodities, and volumes. He also asked about the Q3 revenue outlook and share buybacks.

Answer

CFO Mary Whitney detailed the revenue bridge: +$75M from M&A and +$20M from FX, offset by -$30M from lower commodities/RINs and a 0.5% reduction in solid waste volume. She guided for a muted Q3 revenue step-up of around 1.5%. CEO Ronald Mittelstaedt added that lower E&P volumes also impacted the outlook and reiterated that buybacks remain an opportunistic tool.

Noah Kaye of Oppenheimer & Co. sought clarification on the Q1 recycling commodity headwind and the Q2 outlook, and also asked about the mix of deals in the M&A pipeline.

Answer

CFO Mary Anne Whitney explained that the Q1 headwind from lower OCC prices was offset by stronger prices for other fibers, plastics, and metals, but noted the Q2 comparison is more difficult. Executive Ronald Mittelstaedt described the M&A pipeline as a typical mix of tuck-in and standalone solid waste deals across all regions, with no large transactions expected to close by mid-year.

Noah Kaye sought to clarify the reported volume guidance including the Chiquita impact, asked about qualifying for ITC benefits on RNG projects, and requested a detailed margin bridge for 2024 and 2025.

Answer

CFO Mary Anne Whitney confirmed the reported volume guidance would be down 1.5% to 2.5% including the Chiquita impact. She also stated they believe they qualify for ITC benefits but are not including them in guidance, treating any benefit as upside. Both executives detailed the margin bridge, explaining that underlying solid waste margin expansion was around 120+ basis points in 2024, and the 2025 outlook for up to 100 bps expansion is strong despite headwinds from commodities, RINs, and FX.

Noah Kaye from Oppenheimer & Co. Inc. inquired about the current pace of unit cost inflation and its influence on 2025 pricing strategy, and sought clarification on the factors impacting Q4 margin expansion.

Answer

CFO Mary Anne Whitney confirmed that cost inflation remains in the 4-5% range, with wages at the high end, necessitating a continued price-cost spread. She clarified that the aggregate impact of commodities, storm costs, and M&A dilution on Q4 margins is closer to 60 basis points, normalizing the underlying expansion to be comparable to Q3's strong performance.

Noah Kaye asked how to extrapolate the sequential margin expansion in Climate Solutions into future quarters, considering the addition of new chiller lines and absorption. He also inquired about the magnitude and composition of the record data center orders intake, its diversification among the customer base, and implications for the customer mix next year.

Answer

Mick Lucareli, EVP and CFO, Modine Manufacturing Company, clarified that the 200 basis point sequential margin improvement is a recovery from a significant Q2 decline and not a sustainable quarterly rate, with a goal of 20%-23% for Climate Solutions next year. Neil Brinker, CEO, Modine Manufacturing Company, noted that record orders are roughly 50/50 between chillers and other full data center solutions, with the majority of revenue from Hyperscalers, and these projects are converting from the funnel to purchase orders at an accelerated rate.

Noah Kaye asked about the sustainability of the sequential margin expansion in Climate Solutions, questioning if the 100-200 basis point improvement seen in recent quarters could be extrapolated, given the long-term target of mid-to-high 20s. He also sought more details on the magnitude and composition of the record data center orders, including customer diversification and implications for the customer mix next year.

Answer

Mick Lucareli, EVP and CFO, clarified that the recent 200 basis point sequential margin improvement in Climate Solutions is a recovery from a significant Q2 decline due to fixed costs and should not be extrapolated quarterly. He indicated a more normal, step-by-step climb thereafter, targeting 20%-23% for Climate Solutions next year. Neil Brinker, CEO, stated that the record order intake is roughly 50/50 between chillers and other data center products, with the majority of revenue coming from hyperscalers. He noted these are long-standing projects progressing faster through their probability funnel, aligning with their ramp schedule.

Noah Kaye asked if Modine has largely front-loaded investments for the multi-year capacity ramp, expecting more normal incrementals in Climate Solutions and data centers starting in Q4, and what incrementals should look like in 2027. He also inquired about current focus areas for the Performance Technologies (PT) business and an update on the divestiture process.

Answer

Mick Lucareli, EVP and CFO, explained that the biggest hurdle is getting new facilities and lines operational, including equipment, training, and materials. Once launched, Modine expects profit margins consistent with its 10 years of experience. He projected incremental gross profit at around 30% per dollar of sales in existing facilities with added volume. Neil Brinker, President and CEO, stated that Jeremy Patton, the new President of Performance Technologies, will continue to drive the existing playbook of stabilizing the business, improving efficiency, and building the order funnel. Mr. Brinker added that strategic divestiture opportunities are continuously explored, with good progress being made consistent with past product line strategies.

Noah Kaye asked about the company's visibility into the significant second-half data center revenue ramp and what portion of the new capacity must be operational to meet these targets. He also requested an update on the status of previously announced divestiture plans.

Answer

President & CEO Neil Brinker confirmed they have long-term visibility (1-3 years) and are coordinating capacity additions with customer timelines, noting existing facilities will be retooled first, followed by greenfield sites. He attributed the growth to accelerated customer demand and new wins. EVP & CFO Michael Lucareli added that the European HQ sale is pending regulatory approval and the process to exit the light-duty automotive business is ongoing.

Noah Kaye sought to unpack the Climate Solutions growth outlook, asking about assumptions for non-data center businesses. He also asked if the announced capacity doubling was specific to North America, what divestitures were included in the guidance, and why the implied incremental margins for the company seemed conservative.

Answer

EVP and CFO Mick Lucareli detailed the Climate Solutions outlook: data centers growing over 30%, heating/IAQ up low-double digits, and heat transfer products flat to slightly down. President and CEO Neil Brinker confirmed the capacity doubling is specific to North America. Mick Lucareli clarified that no divestitures are included in the fiscal 2026 guidance. Regarding margins, he explained that Performance Technologies is expected to see margin improvement from cost reductions, while Climate Solutions margins will be relatively flat due to reinvestment for growth, resulting in the blended company-wide incremental margin.

Noah Kaye of Oppenheimer & Co. Inc. asked for an update on management's confidence in achieving the data center targets set at the Investor Day, details on the capacity planning to support over $1 billion in revenue, and clarification on the new revenue baseline for the Performance Technologies segment considering both 80/20 optimizations and the current market downturn.

Answer

President and CEO Neil Brinker reiterated his confidence in the Investor Day goals, citing the expansion from 1.5 to roughly 10 global facilities, which provides the footprint to exceed $1 billion in revenue by adding equipment and assembly lines. EVP and CFO Mick Lucareli clarified that the Performance Technologies baseline should be viewed as having a flat top line, with earnings growth driven by margin improvements from 80/20 initiatives and planned divestitures, which are separate from the cyclical market weakness.

Noah Kaye from Oppenheimer & Co. Inc. asked about the performance drivers for the Scott Springfield acquisition and its outlook. He also inquired about the expected margin trajectory for the remainder of the fiscal year, considering the business mix, and sought clarity on the visibility for the Performance Technologies (PT) segment.

Answer

President and CEO Neil Brinker attributed Scott Springfield's success to increased capacity driving volume and cross-selling opportunities. EVP and CFO Mick Lucareli projected a seasonally lower Q3 margin followed by a Q4 rebound, with Climate Solutions remaining strong while the PT segment faces temporary softness from market headwinds and customer shutdowns. He noted PT's Q4 outlook should firm up with customer orders and new product launches.

Noah Kaye inquired about the extent of pre-buy activity embedded in the 2026 guidance, specifically for the second half of the year, given the increased clarity on the EPA's 2027 Low NOx rule.

Answer

Chair and CEO Jennifer Rumsey stated that the guide assumes some pre-buy in the second half of 2026, influenced by the natural recovery of the truck market and tariff stability. She noted strong orders in December and January, but the magnitude of pre-buy and supply base flexibility are key watch points. CFO Mark Smith added that fundamentals have improved after a long dry spell.

Noah Kaye inquired whether engineering and development spend could be a tailwind in 2026, assuming unchanged 2027 EPA regulations, and how Cummins plans to leverage its portfolio of solutions (fuel cell, battery, natural gas, diesel gen) to capture expanded wallet share if prime power for data centers becomes a larger growth opportunity.

Answer

CEO Jennifer Rumsey stated that research and development spend is expected to remain relatively flat through 2026 until product launches, after which it could decrease, with on-highway demand being the highest uncertainty for 2026. Regarding prime power, she reiterated Cummins' strategy of maintaining a portfolio of solutions, focusing more on battery opportunities than fuel cells, and being disciplined in evaluating additional investments beyond current capacity expansion for standby power. CFO Mark Smith added that current investments offer modest capital outlay for high-growth and predictable returns.

Noah Kaye asked whether engineering and development spend is expected to be a tailwind or headwind in 2026, assuming unchanged regulations, as the company approaches year-end budgetary planning. Kaye also questioned Cummins' strategy for integrating fuel cell, battery, natural gas, and diesel generator technologies to capture expanded wallet share if prime power becomes a significant growth opportunity.

Answer

Jennifer Rumsey, Chair and Chief Executive Officer, stated that research and development spend is expected to remain relatively flat through 2026 until product launches, after which it can decrease. Rumsey emphasized that Cummins' strategy involves maintaining a portfolio of solutions, focusing more on battery opportunities than fuel cells, and being disciplined in additional investments for prime power. Mark Smith, Chief Financial Officer, added that current investments yield high predictability of returns and that while long-term R&D could be a tailwind, it won't be a significant one in the near term.

Noah Kaye of Oppenheimer & Co. Inc. asked how regulatory uncertainty is impacting engineering strategy, such as causing redundant work. He also questioned if Cummins is expanding its wallet share with data center customers by offering solutions like battery backup or microgrids.

Answer

CEO Jennifer Rumsey explained that R&D is currently peaked and focused on the 2027 product launches, with minimal resources spent on contingency plans. Regarding data centers, she noted that Cummins has limited offerings in stationary energy storage and is evaluating the microgrid space, but its primary role remains backup power generation with no firm decisions on expansion to announce.

Noah Kaye of Oppenheimer & Co. asked how regulatory uncertainty is impacting engineering strategy and about potential wallet share expansion with data center customers into microgrids.

Answer

Chair and CEO Jennifer Rumsey explained that engineering efforts are primarily focused on the planned 2027 product launches, though some contingency work is being done. Regarding microgrids, she noted that Cummins has limited offerings in stationary energy storage and natural gas today and, while it's an interesting area, no firm decisions have been made to expand the portfolio significantly.

Noah Kaye of Oppenheimer & Co. Inc. asked about the future trajectory of R&D spending after the current peak for 2027 regulations. He also inquired about the durability of the strength seen in the medium-duty truck market.

Answer

CEO Jennifer Rumsey confirmed that R&D spending is at a record level and is expected to normalize after the 2027 product launches are complete. Regarding the medium-duty market, she described demand as remaining strong, with the market expected to be flat to up 5% for the year, and noted that this strength is likely to continue into next year, partly driven by the outlook for future regulations.

Noah Kaye questioned when the destocking in the Motive Power segment might end and when an inflection in order rates could be expected, given strong e-commerce and warehouse automation trends.

Answer

Shawn O'Connell, President and CEO, acknowledged the difficulty in gauging the market due to tariffs, interest rates, and capital purchases. He cited a 40% increase in December forklift orders in the Americas as a positive sign of pent-up demand, though he cautioned that a firm recovery might take until mid-fiscal 2027 due to typical lag times. Andrea Funk, EVP and CFO, added that EnerSys is outperforming the market, with its volume down high single digits compared to industry indicators down low double digits, indicating no lost market share.

Noah Kaye (Oppenheimer) inquired about EnerSys's data center pipeline, questioning if 'healthy demand' adequately describes the market given hyperscaler CapEx and order growth, and sought insights into future scaling. He also asked about the timing of destocking completion and an inflection in Motive Power order rates, noting strong e-commerce and warehouse automation trends that should benefit EnerSys, and sought clarification on the 'normalized margin improvement' expected in Q4 for the Energy Systems segment.

Answer

Shawn O'Connell, President of Energy Systems Global, EnerSys, highlighted the company's over 50% market share in lead-acid data centers and strong demand for TPPL products. He expressed significant excitement for the upcoming lithium battery product, noting it represents a massive growth opportunity with existing customers who value EnerSys's comprehensive support services. For Motive Power, O'Connell attributed market softness to tariffs and interest rates, but highlighted a record 40% increase in December forklift orders as evidence of pent-up demand, cautioning that recovery might be choppy and extend into mid-fiscal 2027. Andrea Funk, EVP and CFO, EnerSys, added that EnerSys is outperforming the Motive Power market and clarified that Energy Systems' project-driven nature and customer order timing impacted Q3 volumes and margins, anticipating a slight step back in Q4 margins from the 10.5% peak due to normalization, but affirmed the overall positive improvement trajectory.

Noah Kaye of Oppenheimer & Co. Inc. asked for confirmation that the $80 million in cost savings could drive EBIT margins toward the mid-teens and sought details on the new 'Energize' strategic framework, specifically regarding early margin wins and organic growth drivers.

Answer

EVP & CFO Andrea Funk confirmed the $80 million in savings equates to a significant potential margin uplift but emphasized the program's strategic goal is to increase speed and customer focus, not just cut costs. President & CEO Shawn O'Connell highlighted early wins from the new COE structure in supply chain, which is helping mitigate tariff impacts. For growth, he cited examples of expanding wallet share with existing customers by adding IoT monitoring and future battery energy storage systems (BESS) to their core battery offerings.

Noah Kaye asked for a detailed bridge for the Q1 EPS guidance, which is projected to be higher year-over-year on flat revenue, and questioned the decision to pause full-year guidance given the commentary on a recent order recovery.

Answer

Incoming CEO Shawn O'Connell described near-term tariff-related disruptions in Motive Power but noted a return to normal order cycles. CFO Andrea Funk provided the EPS bridge, explaining that the year-over-year increase is driven by the Bren-Tronics acquisition and 45X benefits, which offset FX pressure and lower volumes. CEO David Shaffer added that full-year guidance was paused to await clarity on reciprocal tariff negotiations, which could have both positive and negative impacts.

Noah Kaye of Oppenheimer & Co. Inc. asked for a breakdown of the sequential revenue growth drivers from Q3 to Q4, questioned the viability of the Energy Systems segment reaching its 8% to 10% margin target in Q4, and sought more detail on the shape of the demand recovery in the communications market.

Answer

CFO Andrea Funk detailed the Q4 outlook, noting that while the 8-10% margin for Energy Systems is a near-term goal, it's unlikely in Q4 due to a slower-than-expected recovery and under-absorption at the Missouri plants. COO Shawn O'Connell and CEO David Shaffer explained that the communications recovery is bifurcated, with product sales rebounding ahead of service revenue, which is currently lagging. They noted encouraging signs of project work related to AI data demand, which is driving network power upgrades.

Noah Kaye questioned the strategic importance and funding security of the lithium Gigafactory amid a potential administration change, the timing and accounting of government funds, and the performance of the recently acquired Bren-Tronics business.

Answer

CEO David Shaffer stated they anticipate no change to the DOE award, as a domestic defense supply chain is a bipartisan priority. CFO Andrea Funk detailed the project timeline, with production expected in calendar 2028, and explained that government funds would likely be reimbursed quarterly and booked as a reduction to the asset's basis. Regarding Bren-Tronics, she noted that while performance and synergies are exceeding expectations, they are forecasting conservatively.

Noah Kaye sought clarification on the margin math, specifically reconciling the 50 basis points adjusted expansion with sustainability and healthcare contributions. He also asked for an update on the recycling outlook, particularly the $70 per ton forecast for 2026 given the Q4 basket price of $62 per ton.

Answer

EVP and CFO David Reed explained that normalization of certain corporate expenses and technology costs offset some of the margin contributions. Chief Sustainability Officer Tara Hemmer detailed the 2026 recycling outlook as a first half/second half story, with prices ramping in the back half due to green shoots in fiber (inefficient mill capacity removed, larger mills seeking material, lifted tariffs), while plastic pricing is not expected to move materially.

Noah Kaye, Managing Director and Senior Research Analyst at Oppenheimer, sought clarification on WM's 2026 margin math, specifically reconciling the 50 basis points adjusted expansion (ex-wildfires) with contributions from sustainability and healthcare. He also asked for an update on the Recycling outlook, particularly the $70 per ton basket price expectation for 2026, given the $62 per ton in Q4 2025.

Answer

CFO David Reed explained that the margin reconciliation includes normalization of certain corporate expenses and technology costs offsetting some gains. Chief Sustainability Officer Tara Hemmer detailed the 2026 Recycling outlook as a first-half/second-half story, with $60-$65 per ton in H1 ramping up in H2 due to "green shoots" in fiber and anticipated OCC price recovery, with no material movement expected in plastic pricing.

Noah Kaye asked for more details on the strength in Municipal Solid Waste (MSW) volumes and the drivers behind the positive inflection in industrial volumes during Q3, especially since wildfire cleanup was not a factor. He also sought clarification on the margin guidance for the year, specifically what factors would lead to the low versus high end of the implied range.

Answer

CEO Jim Fish and President and COO John Morris explained that industrial volume growth was the first positive since 2022, spread geographically, partly due to WM Healthcare Solutions customer conversions and stronger temporary roll-off. They noted MSW and other waste streams showed broad strength, reflecting the network's value without sacrificing price. EVP and CFO Devina Rankin expressed optimism for the upper end of the margin guide, citing strong collection and disposal margins driven by retention benefits, fleet investments, improved price-cost spread, and favorable business mix, along with expected strong Q4 RIN sales.

Noah Kaye inquired about the drivers behind the strength in Municipal Solid Waste (MSW) and the positive inflection in industrial volumes in Q3 2025, especially since wildfire cleanup was not a factor. He also asked for broad thoughts on what would lead to the low versus high end of the raised Q4 margin guidance.

Answer

Jim Fish (CEO) and John Morris (President and COO) explained that industrial volume growth was partly due to cross-selling WM Healthcare Solutions' hospital customers and stronger temporary roll-off. MSW strength was attributed to the overall network, with strong price and volume contributions across all waste streams. Devina Rankin (EVP and CFO) expressed optimism for Q4 margins, likely midpoint to upper end, driven by strong collection and disposal margins, retention benefits, fleet investments, improved price-cost spread, favorable mix from strong landfill volumes, and strong Q4 RIN sales.

Noah Kaye of Oppenheimer & Co. Inc. asked about the WM Healthcare Solutions synergy capture, including the H1 amount and Q4 exit run-rate, and also inquired about the sustainability business, focusing on renewable energy margins and RNG offtake contracting.

Answer

SVP Rafael Carrasco confirmed WM is targeting the upper end of the $80-100M synergy range for 2025, with internalization benefits ramping in H2. EVP & CFO Devina Rankin added that this positions them well for 2026. SVP & Chief Sustainability Officer Tara Hemmer stated that 90% of 2025 RNG offtake is contracted at favorable prices and that recycling EBITDA grew 17% despite lower commodity prices due to automation.

Noah Kaye asked for the company's reaction to the EPA's recent release on PFAS and its potential implications for the solid waste industry. He also sought to confirm the Q1 synergy number for WM Healthcare Solutions and asked about the plan to mitigate commodity price exposure in the Secure Information Destruction business.

Answer

Executive Tara Hemmer stated that a passive receiver exemption for PFAS would be positive and that PFAS is viewed as a business opportunity. Executive Rafael Carrasco confirmed a $16 million synergy capture in Q1. He added that while commodity prices had some impact, the plan is to leverage WM's experience to accelerate the shift to a full fee-for-service model in the Secure Information Destruction business.

Noah Kaye of Oppenheimer inquired about the components of the 2025 yield guidance, requested an updated breakdown of the increased Stericycle synergy target, and asked for details on the key moving parts bridging 2025 EBITDA to free cash flow.

Answer

EVP and CFO Devina Rankin explained that yield is impacted by business mix, such as growing landfill volumes. President and CEO Jim Fish added that significant margin opportunity remains in the residential business. Rafael Carrasco, head of WM Healthcare Solutions, detailed that the increased synergies come from larger SG&A and OpEx opportunities. Devina Rankin outlined the cash flow bridge, noting higher cash interest and taxes will partially offset strong EBITDA growth, with working capital providing less of a tailwind than in 2024.

Noah Kaye asked for details on the solid waste M&A completed year-to-date, the expected rollover revenue contribution for 2025, and the outlook for organic volume trends in Q4.

Answer

EVP & COO John Morris confirmed nearly $800 million in acquisitions in strategic markets like Arizona, Florida, and Long Island, with a strong pipeline remaining. EVP & CFO Devina Rankin quantified the 2025 rollover contribution at approximately $150 million in revenue and $35 million in EBITDA. Rankin also clarified that the Q4 outlook anticipates volume trends consistent with Q3, with any revenue moderation stemming from caution around commodity prices, not core volumes.

Noah Kaye inquired about the new build versus retrofit split as drivers for the 2026 Commercial HVAC outlook and how the back-half acceleration ties into new construction. He also asked about the customer base overlap and key differentiators of the Stellar Energy acquisition.

Answer

Dave Regnery explained that the new build/retrofit split varies by vertical, with data centers being mostly new construction, while core verticals remain majority retrofit. Regarding Stellar Energy, he noted some customer overlap but highlighted its capability to build modular chiller plants, reducing on-site skilled labor and improving testing, with opportunities beyond data centers due to skilled labor shortages.

Noah Kaye asked about the broad Commercial HVAC strength, specifically the split between new build versus retrofit as drivers for the 2026 outlook, and if the back-half acceleration ties into new construction. He also inquired about the Stellar Energy acquisition, customer base overlap, and key points of differentiation/added capabilities.

Answer

Dave Regnery, Chair and CEO, explained that the new build vs. retrofit split varies by vertical, with data centers being almost entirely new construction, while core verticals maintain a similar retrofit focus. He noted some customer overlap with Stellar Energy but highlighted its modular chiller plant capabilities, which reduce on-site skilled labor and enable factory testing, seeing opportunities for modular concepts beyond data centers due to labor shortages.

Noah Kaye of Oppenheimer & Co. Inc. asked for the updated full-year pricing assumption for the enterprise and where the company sees the most pricing power. He also inquired how recent channel investments in EMEA are expected to translate into future growth and stronger margins.

Answer

EVP & CFO Chris Kuehn updated the full-year pricing assumption to 'a bit above three points,' with volume contributing closer to five points. He explained that the EMEA investments, part of their bolt-on M&A strategy, have lower initial margins but are crucial for fortifying their channel position. This provides greater long-term optionality and confidence in outperforming the market in that region.

Noah Kaye asked about the mix within the applied HVAC business, questioning if the composition of orders and the project pipeline is shifting more towards retrofit projects versus new construction, given that new construction growth is relatively modest.

Answer

CEO David Regnery responded that while he did not have the specific level of detail on hand, it would be a 'great assumption to make' that the mix is indeed shifting more towards retrofit projects.

Noah Kaye from Oppenheimer asked management to level-set the actual impact that government policies like ESSER, CHIPS, and the IRA are having on the current pipeline and bookings for 2025.

Answer

CEO Dave Regnery acknowledged that these policies provide a tailwind and make project paybacks more attractive, but emphasized that Trane's solutions offer great paybacks even without them. He used ESSER funding as a specific example, confirming it is part of their backlog with orders for schools being fulfilled through next year. He concluded that the company is optimistic and will be successful regardless of future policy changes, as their value proposition is fundamentally strong.

Noah Kaye from Oppenheimer asked for elaboration on the absorption factor impacting Lennox in Q1, questioning if it would lead to a decremental on volumes worse than the typical 30%. He also sought clarity on the nature of the $250 million CapEx for the year, specifically whether the growth-oriented organic investments should be considered a permanent increase or if CapEx would revert to typical maintenance levels in the future.

Answer

CFO Michael Quenzer explained that Q1, being a light volume quarter, will see the largest absorption impact (estimated $10M-$15M), but cost actions and material cost reductions will mitigate it. He expects absorption to dissipate after Q1, with cost productivity returning. CEO Alok Maskara clarified that the additional $100 million in CapEx above the $125M-$150M maintenance range is for specific, deferred projects (e.g., A2L-related), and after these are completed, CapEx will revert to usual maintenance levels.

Noah Kaye asked for further explanation on the absorption factor anticipated for the first quarter, specifically whether it would lead to a decremental impact on volumes worse than the typical 30%. He also inquired about the $250 million capital expenditure planned for the year, asking if these growth-oriented organic investments should be considered a permanent increase or if future CapEx would revert closer to the typical maintenance range.

Answer

Michael Quenzer, CFO, clarified that the first quarter will see a $10-$15 million absorption headwind due to ramping up production for Q2 sales. He noted that cost actions, including SG&A productivity, material cost reductions, and tariff mitigation, will help soften this impact, and the absorption headwind is expected to dissipate after Q1. Alok Maskara, CEO, explained that the company's regular maintenance CapEx remains in the $125-$150 million range. The additional $100 million is for specific, high-return projects that were deferred due to A2L-related engineering demands, and after these projects are completed, CapEx is expected to return to the usual maintenance levels.

Noah Kaye asked for quantification of the 'meaningful' growth expected from the Samsung joint venture in 2026, specifically if it represents a point or two of top-line growth. He also sought clarification on the magnitude of low-margin R&C accounts being rationalized, asking if it's the lowest 10% or so, and its potential impact.

Answer

CEO Alok Maskara expects the Samsung JV to contribute about half a point to a point of top-line growth annually for multiple years, starting meaningfully in 2026. CFO Michael Quenzer noted that ductless products represent 2% of Lennox HCS sales compared to 10% for the industry. Alok Maskara clarified that rationalizing low-margin R&C accounts would involve the 'lowest 10%-15% of R&C volume over multiple months,' which would be margin accretive.

Noah Kaye asked for a quantification of what 'meaningful' JV growth from Samsung would look like in 2026. He also inquired about the magnitude of rationalizing low-margin residential new construction (R&C) accounts, specifically what percentage of volume would be affected.

Answer

CEO Alok Maskara expects the Samsung JV to add about half a point to a point of growth annually for multiple years, with 2026 being the first year with a full product portfolio. CFO Michael Quenzer added that ductless products are about 2% of HCS sales, while the industry is closer to 10%, indicating multi-year benefit. Alok Maskara stated that the lowest 10% to 15% of R&C volume over multiple months would be rationalized, which would be margin accretive.

Noah Kaye from Oppenheimer & Co. Inc. asked for more detail on the drivers of the Q2 inventory build and the expected cadence of its reduction. He also inquired if management anticipates a demand pull-forward ahead of the 25C tax credit expiration.

Answer

CFO Michael Quenzer explained the inventory build was a strategic decision to ensure a smooth R-454B transition and support new initiatives like Samsung products and emergency replacement. He expects inventory to normalize in the second half, consistent with the full-year free cash flow guide. CEO Alok Maskara stated he does not expect a significant demand pull-forward from the 25C credit expiration, as it impacted a relatively small percentage of units sold.

Noah Kaye asked about the differing volume behavior between direct (1-step) and indirect (2-step) distribution in Q1 and inquired about a contingency plan if USMCA exemptions were to be removed.

Answer

CFO Michael Quenzer stated that in Q1 Home Comfort Solutions, 2-step revenue grew 11% while 1-step grew 5%, reflecting sell-through of R-410A in the channel. CEO Alok Maskara addressed the USMCA hypothetical, stating Lennox has multiple scenarios planned, which could involve shifting mix towards higher-margin U.S.-made products and other productivity and pricing actions to offset impacts.

Noah Kaye inquired about Lennox's contingency planning and potential opportunities arising from policy changes, such as tariffs on USMCA partners or China, and labor market shifts.

Answer

CEO Alok Maskara detailed that Lennox would be a net beneficiary of China-specific tariffs due to its diversified supply chain and Samsung JV. He explained that potential Mexico tariffs would likely be managed through productivity, currency effects, and industry-wide price increases. He also highlighted a focus on supply chain redundancy and monitoring consumer confidence as part of their strategy.

Noah Kaye of Oppenheimer & Co. Inc. commented on the strong cash generation and asked about the outlook for share repurchases in 2025, given the goal of 100% free cash flow conversion. He also inquired about the current M&A pipeline and strategic needs.

Answer

CFO Michael Quenzer, credited by CEO Alok Maskara for driving cash flow discipline, reiterated the capital deployment priorities: annual dividend growth, disciplined bolt-on acquisitions, and using share repurchases to return excess cash. Quenzer and Maskara noted the M&A focus is on bolt-on technologies, commercial product offerings, and distribution opportunities to enhance the product assortment for dealers.

Noah Kaye asked about the implications of the lowered CapEx guidance for 2025 on the timing of planned capacity ramps, particularly at the Memphis facility. He also requested clarification on the discrete one-time items impacting the AAON Coil Products (ACP) segment and how they are expected to resolve. Finally, Noah Kaye inquired about the customer mix and demand profile for the strong data center orders within the Basics segment.

Answer

CFO Rebecca Thompson stated that the CapEx reduction is primarily a timing shift and will not impact the Memphis ramp-up, as the facility is largely built out. CEO Matt Tobolski explained that ACP's discrete items were operational inefficiencies, mostly related to ERP optimization and manufacturing process improvements, not pricing, and expressed confidence in achieving a 30% gross margin for the segment. He also confirmed strong sequential improvement for ACP and incremental gains in the Oklahoma segment. Matt Tobolski described the data center demand as broad-based, coming from hyperscalers, contract builders, colocation providers, and NeoClouds.

Noah Kaye asked about the implications of the reduced CapEx guidance on the timing of planned capacity ramps, particularly at Memphis. He also sought clarification on the discrete one-time items impacting the ACP segment's gross margin and how these would abate in Q4 and 2026. Additionally, he inquired about the customer mix and demand profile for the strong data center orders within the BASX segment.

Answer

CFO Rebecca Thompson clarified that the CapEx reduction was a timing shift and would not impact the Memphis ramp-up, as the facility is largely built out. CEO Matt Tobolski explained that the discrete items at ACP were operational inefficiencies, mostly expected to resolve with ERP optimization and manufacturing improvements, reiterating confidence in the segment achieving at least a 30% gross margin. He also noted that strong sequential improvement in Q4 gross margin would be driven by ACP and the Oklahoma segment. For BASX, Matt Tobolski described the customer mix as broad-based, including hyperscalers, contract builders, colocation providers, and NeoClouds.

Noah Kaye of Oppenheimer & Co. Inc. asked about the implications of recent policy changes, including the Department of Interior memo and finalized FOC (Foreign Entity of Concern) requirements, on the company's portfolio and development plans. He also followed up on the hedging of the 2028 bonds.

Answer

CEO Craig Cornelius detailed the company's proactive safe harbor strategy, stating they feel secure about the 13 GW of qualified projects and that equipment procurement plans already comply with FIOC provisions. CFO Sarah Rubenstein confirmed the full notional amount of the $850 million 2028 bond maturity was recently pre-hedged to lock in base rates and reduce interest rate volatility risk.

Noah Kaye of Oppenheimer & Co. Inc. asked about the impact of recent regulatory changes, including the DOI memo and Foreign Entity of Concern (FOC) rules, on Clearway's development plans. He also requested details on the hedging of the 2028 corporate bonds.

Answer

CEO Craig Cornelius stated that the company's safe harbor strategy is secure, its supply chain was proactively designed to comply with FOC provisions, and its pipeline has minimal exposure to new federal permitting risks. CFO Sarah Rubenstein confirmed that the full $850 million notional amount of the 2028 bond maturity has been pre-hedged to lock in the base interest rate.

Noah Kaye inquired about Ameresco's cash generation outlook for the second half of the year, expectations for year-end net leverage, the drivers behind the rapid conversion of awarded projects to contracted backlog, and the potential for data center opportunities following favorable regulatory changes.

Answer

Joshua Baribeau, SVP & Chief Investment Officer, stated that while no specific leverage target is being issued, the company is comfortable with its current position and expects leverage to decrease as EBITDA grows. George Sakellaris, Chairman, CEO & President, attributed the 46% year-over-year growth in contracted backlog to heightened market demand for infrastructure upgrades. Both Sakellaris and CFO Mark Chiplock confirmed that margins on this backlog are trending slightly upward. Nicole Bulgarino, President of Federal Solutions & Utility Infrastructure, added that Ameresco is well-positioned to provide energy supply solutions for the growing data center market and has several projects in early stages.

Noah Kaye asked about the positive developments in Ameresco's federal business, the shaping of gross margins for the remainder of the year, and the potential opportunities arising from recent grid reliability issues in Europe.

Answer

CFO Mark Chiplock confirmed a favorable resolution for the previously paused or canceled federal contracts, with one being rescoped and two unpaused with minor adjustments. CEO George Sakellaris added that the budget-neutral nature of their projects remains attractive to any administration. Regarding margins, Mr. Chiplock expressed confidence in the full-year guidance of 15.5% to 16%. Mr. Sakellaris also commented that events like the European blackouts highlight the growing need for distributed generation and battery storage to support grids with high renewable penetration, representing a core opportunity for Ameresco.

Noah Kaye asked for clarification on the pause in some federal ESPC projects, given their bipartisan support, and questioned how to model EBITDA growth contributions from different business segments in 2025.

Answer

President Nicole Bulgarino explained the project pauses are specific to the General Services Administration (GSA), which is evaluating the sale of certain buildings, potentially requiring projects to be rescoped. CEO George Sakellaris added that the administration still favors these budget-neutral projects. CFO Mark Chiplock detailed that 2025 EBITDA growth will come from the contracted project backlog, incremental contributions from newly operational energy assets, and linear growth in O&M.

Noah Kaye from Oppenheimer & Company asked for clarity on how the new leadership structure will impact the business, particularly in areas like capital allocation and project selection. He also questioned the company's current philosophy on CapEx and managing the energy asset development pipeline.

Answer

CEO George Sakellaris explained the new structure aims to improve project selection, investment decisions, and procurement by consolidating responsibilities and fostering collaboration among the new presidents. On capital allocation, he reiterated the goal of growing the asset base by about 20% annually while not overstressing the balance sheet. He noted that Ameresco develops more projects than it can hold and monetizes the excess, which generates strong cash flow.

Noah Kaye of Oppenheimer & Co. Inc. asked about the accelerating trend toward modular and prefabricated solutions and how this is reflected in Vertiv's backlog and overall demand.

Answer

CEO Giordano Albertazzi confirmed a clear acceleration in modular solutions, driven by the industry's need for deployment speed. He clarified that for Vertiv, this involves prefabricating its own core technology—power, cooling, and controls—into integrated systems, which is a key value-add rather than simple integration.

Noah Kaye of Oppenheimer & Co. Inc. asked about the accelerating trend toward modular and prefabricated solutions and whether Vertiv's backlog was starting to reflect a remix in that direction.

Answer

CEO Giordano Albertazzi confirmed the trend is accelerating, driven by customers' need for deployment speed and challenges with skilled labor. He clarified that for Vertiv, modular solutions are not a separate business but an integrated way to prefabricate and package their own core technologies, like power and cooling, to deliver more value.

Noah Kaye of Oppenheimer & Co. Inc. asked if overall demand trends remain consistent with the company's Investor Day model and whether any slowdown in cloud or colo was being offset by strength in other segments.

Answer

CEO Giordano Albertazzi confirmed that the market is unfolding in line with the 5-year model presented at the Investor Day. He stated that the cloud and colocation segments remain strong, consistent with the previously guided growth rate, and noted that other demand areas like sovereign AI and enterprise are also beginning to contribute.

Noah Kaye of Oppenheimer & Co. Inc. asked what drives confidence in remaining price-cost positive in 2025 given longer order conversion cycles, and inquired about the drivers behind the significant ramp in CapEx guided for Q4.

Answer

CEO Giordano Albertazzi attributed confidence in the price-cost outlook to good visibility into pricing in the backlog and pipeline, combined with strong visibility on the cost side. CFO David Fallon explained that the Q4 CapEx ramp is a typical seasonal pattern, not a strategic acceleration, with spending on identified capacity expansion projects often concentrating late in the year.

Noah Kaye asked for quantification of the margin impact from tariff-related cost inflation and questioned if the new regional operating model signaled a move away from global vertical structures, like the one for data centers.

Answer

CFO Marc Vandiepenbeeck described the tariff impact as a 'dampener' on margin rate expansion, not a headwind, due to the pass-through cost strategy. CEO Joakim Weidemanis clarified that no new structures are planned; the new regional model will house dedicated teams for key verticals like data centers, a proven approach he has used before.

Noah Kaye asked for a breakdown of the mid-single-digit organic growth guidance across different product offerings. He also inquired about the current service attachment rate and the company's long-term goal for this metric.

Answer

CFO Marc Vandiepenbeeck noted that Applied and Industrial Refrigeration would continue to see strong growth, while Controls and Fire & Security face a more challenging second half. He stated the current service attachment rate is in the low-to-high 40% range, with a long-term entitlement goal of 60-70% or higher, similar to the elevator industry.

Noah Kaye sought confirmation that the free cash flow guide excludes divestiture-related tax payments and that restructuring benefits are immaterial to the 2025 guide. He also asked for details on the cost-out program's scope and impact on the business configuration.

Answer

CFO Marc Vandiepenbeeck confirmed both assumptions were correct. He described the restructuring program as being focused on simplifying the cost structure and better leveraging resources to enhance the customer experience. The goal is to refine the operating model to facilitate greater simplicity and clarity following the significant portfolio change.

Noah Kaye asked for a more granular view of the Viessmann sales outlook, specifically the dynamics in Germany versus the rest of Europe, and inquired about the strategic opportunity presented by integrated home energy management offerings.

Answer

CEO David Gitlin acknowledged near-term political uncertainty in Germany but pointed to long-term structural tailwinds like EU climate goals and rising fossil fuel costs. He emphasized a key strategic shift towards selling complete home energy systems (PV, heat pump, battery) that are less dependent on subsidies, viewing this as a major opportunity to increase customer wallet share and differentiate the Viessmann channel.

Noah Kaye from Oppenheimer & Co. Inc. asked to level-set the Refrigeration segment's margin profile excluding the divested commercial refrigeration business. He also inquired about trends in the truck and trailer business and how they set up for 2025. Finally, he asked for an update on the Viessmann cost synergy realization for the current year and the expected cadence for 2025.

Answer

Patrick Goris, CFO, explained that the Refrigeration segment's margin, excluding commercial refrigeration, would be up about 300 basis points this year, and its absence will provide a 50 basis point lift to Carrier's total margin in 2025. David Gitlin, CEO, noted that while North American truck and trailer is having a tough year, they are positioned for growth in 2025. He also confirmed Viessmann is on track for its $75 million synergy target this year, possibly more, with a ratable capture expected going forward.

Noah Kaye sought clarification on whether the non-R&D investments planned for fiscal 2025, such as facility expansions, would be categorized as operating expenses or capital expenditures.

Answer

Blake Moret, Chairman and CEO, clarified that these investments are a mix of both OpEx and CapEx. He mentioned the expansion of the Cubic facility, a new facility in India, and IT infrastructure upgrades as examples. While they have an OpEx component reflected in the EPS bridge, they also involve capital spending.

Following up on the one-time customer recovery, Noah Kaye asked if more such recoveries could be expected over the next year, given the broader industry trend of OEMs delaying or canceling EV programs.

Answer

Executive Frederic Lissalde described the Q3 recovery as 'a little exceptional' and stated that each situation with a customer is specific. He emphasized that BorgWarner focuses on maintaining flexibility in design and production to partner with customers for the long term, rather than anticipating a recurring stream of such payments.