Data Center Growth & New Hyperscalers
Q: Can you discuss the data center growth and new hyperscalers?
A: Modine expects significant growth in its data center business, aiming to move from low single-digit to low double-digit teens market share. They have officially signed a master sales agreement with a third hyperscaler and anticipate orders in the coming quarters. The capacity expansions in place today, including adding lines within existing facilities, allow Modine to meet the demand from existing and new customers. Conversations with additional hyperscalers are ongoing, potentially bringing incremental growth beyond current forecasts. This expansion is incremental to previous plans to grow the data center business from $500 million to $1 billion in three years.

Margin Outlook & Mix Shift
Q: How do you see margins evolving with the business mix?
A: Margins are expected to be a bit lower in Q3 but rebound in Q4, aligning with the first half of the year. Growth in the Climate Solutions segment, particularly data centers, remains strong, with a solid order book and expectations of another good quarter. The Performance Technologies (PT) segment faces temporary challenges due to seasonal patterns and softness across agriculture, construction, commercial vehicles, and auto sectors, leading to extended production shutdowns. The mix shift towards higher-margin Climate Solutions should positively impact overall margins.

PT Business Weakness & Rationalization
Q: Can the PT downturn accelerate your rationalization plans?
A: Yes, the headwinds in the PT market allow Modine to focus on 80/20 initiatives and growth opportunities in other businesses. Lower volumes help identify underperforming product lines, enabling better decisions on long-term strategies. PT was about a year behind in 80/20 initiatives but is now actively assessing its portfolio to make strategic decisions based on the new market volumes. Modine aims to deemphasize about $300 million in non-strategic PT business over the next few years, focusing on growth in power generation and EV systems.

Advanced Solutions Business Revision
Q: Elaborate on the downward revision in Advanced Solutions.
A: The revenue outlook for Advanced Thermal Systems (ATS) was lowered due to a decrease in auto EV components, which are not a strategic focus. Despite this, battery thermal management and EV systems are expected to grow rapidly this year, in excess of 30%. The shift away from non-strategic components aligns with Modine's focus on higher-growth areas.

Acquisition Update – Scott Springfield
Q: How is the Scott Springfield acquisition performing?
A: The acquisition has exceeded expectations. By adding capacity, Modine increased volume due to the premium quality of the products. Cross-selling opportunities with the Airedale brand are building the pipeline and funnel, with strong customer uptake. Investment in additional capacity has led to more share within some customers and faster deliveries.

Heat Pump Market Recovery
Q: Any visibility on heat pump market recovery?
A: Recovery is driven by regulations and incentives, which dictate the number of permits applied for. Modine expects recovery to be several quarters out as compliance dates are pushed. They monitor regulatory changes closely to anticipate market shifts.

Auto ICE Business Outlook
Q: What's the state of the remaining Auto ICE business?
A: Modine acknowledges that while some auto customers accepted price increases temporarily, they had to reassess as competitors reacted and switching costs were analyzed. Each supplier relationship is unique, and Modine engages in commercial discussions focusing on long-term agreements of 2 to 5 years. Decisions are made based on long-term value and pricing considerations.

Production Planning & Capacity
Q: Are you capacity constrained in data centers?
A: Modine is comfortable with current capacity and can meet demand by adding lines within existing facilities. Investments in brick-and-mortar expansions allow them to support new orders from the third hyperscaler and potential new customers.

Liquid Cooling Outlook
Q: What's your outlook for liquid cooling and CDUs?
A: Modine has launched the CDU and expects some volume this year, but did not include significant contributions from liquid cooling or the third hyperscaler in previous guidance. Nothing material was included in prior forecasts for these areas.