SPX Technologies Inc (SPXC) 2025 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the SPX Technologies fourth-quarter 2025 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your speaker today, Mark Carano, Chief Financial Officer. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer.

Our press release containing our fourth-quarter and full-year results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com.

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website. As a reminder, portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings.

Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share excludes intangible amortization expenses, acquisition and integration-related costs, nonservice pension items, changes in estimated value of equity security, among other items. Finally, we will be meeting with investors at various events during the upcoming months.

And with that, I'll turn the call over to Gene.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the fourth quarter and full year of 2025. We'll also provide full-year guidance for 2026.

We had a strong close to the year. We grew full-year adjusted EBITDA and adjusted EPS by 21%, with strong performance by both segments. In addition, we continue to advance our value creation initiatives. Organically, we made further progress on our efforts to expand capacity within our HVAC segment to meet the growing demand for our highly engineered solutions.

During the fourth quarter, we completed the purchase of a new 459,000 square foot facility in Madison, Alabama, which will have capabilities to produce our data center and custom air handling solutions. Inorganically, we recently announced the addition of Thermolec, Air Enterprises and Rahn Industries to the HVAC segment. These strategic acquisitions strengthen our position in the attractive electric heat and engineered air movement markets.

Also, today, we are introducing our 2026 midpoint guidance, which implies approximately 20% adjusted EBITDA growth at the midpoint.

Turning to high-level results. For the fourth quarter, we grew revenue by 19.4%, driven by the benefit of recent acquisitions and organic growth in both segments. Adjusted EBITDA increased by approximately 22% year over year with 50 basis points of margin expansion.

As always, I'd like to update you on our value creation initiatives. Demand for our customary handling and data center cooling products remain strong. To capture the growing demand, we are investing in expanding capacity across several of our existing HVAC facilities, including Ingénia's Mirabel and cooling products' Olathe locations, and have recently added two new facilities to further accelerate our expansion efforts.

During last quarter's call, we announced the addition of a facility in Tennessee that will produce Tamco highly engineered aluminum dampers, which are seeing strong demand within the data center market. Production in this facility is expected to begin by the end of this quarter and steadily ramp throughout the year.

Additionally, in Q4, we completed the purchase of the facility in Madison, Alabama. They'll have flexible manufacturing capabilities to produce both our customer handling and data center solutions, including our new Olympus Max product. We expect to have assembly capabilities towards the latter half of this year and initial production capabilities in the first half of 2027.

We expect the expansion-related investments across all of our HVAC facilities to acquire approximately $100 million of capital in 2026, in addition to approximately $60 million invested in 2025. We anticipate these investments will enable nearly half of our HVAC segment's revenue growth in 2026 and add roughly $700 million of incremental capacity once at full production, supporting substantial growth in both data center and custom air handling volume.

We've also continued to advance our inorganic growth initiatives. During the first quarter of 2026, we completed two strategic acquisitions in our HVAC segment that strengthen our positions in the attractive electric heating and engineered air movement markets.

I'm very pleased to welcome our new colleagues to the SPX team. Air Enterprises and Rahn Industries, only the air handling segment of Crawford United, advanced our strategy to build market-leading positions in the engineered air movement market by expanding our portfolio of customer handling solutions in enhancing our capabilities with the coil offering. The combination of complementary technologies, design capabilities, and manufacturing footprint strengthens our ability to serve customers in the attractive health care, institutional, and commercial markets.

Thermolec, located in Montreal, is a natural extension of our electric heat strategy, adding a complementary custom duct heating solution and broader geographic reach to enhance the value we deliver to customers throughout the North American commercial, industrial and multifamily markets. The combination of Thermolec's exceptional service, quality and strong Canadian presence with our established electric heat channels in the US provides significant opportunity for growth.

And now I'll turn the call over to Mark to review our financial results.

Thanks, Gene. Our fourth-quarter results were strong. Year over year, adjusted EPS grew by 25% to $1.88. Full-year adjusted EPS grew by 21%, to $6.76 which are at the upper end of our guidance range of $6.65 to $6.80.

For the quarter, total company revenues increased 19.4% year over year driven by the acquisitions of KTS and Sigma & Omega, as well as organic growth. Consolidated segment income grew by $27 million or 21% to $156 million, while consolidated segment margin increased 30 basis points.

For the quarter, in our HVAC segment, revenue grew by 16.4% year over year with 5.5% inorganic growth and a modest FX tailwind. On an organic basis, revenue increased 10.3% and with solid growth in both cooling and heating.

Segment income grew by $17 million or 18%, while segment margin increased 40 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage. Segment backlog at quarter end was $585 million, up 22% organically year over year.

For the quarter in our Detection and Measurement segment, revenue increased 26.3% year over year. The KTS acquisition contributed growth of 23.2%, and FX was a modest tailwind. On an organic basis, revenue increased 1.7%, primarily driven by higher project volumes. Segment income grew by $10 million or 27%, and margin increased 20 basis points. The increases in segment income and margin were primarily driven by higher volume, including the benefit of KTS. Segment backlog at quarter end was $350 million, or up 43% organically year over year.

Turning now to our financial position at the end of the year. We ended the year with $366 million of cash on hand and total debt of $502 million. Our leverage ratio, as calculated under our bank credit agreement was approximately 0.3 times at year-end. Including the effect of the recently announced acquisitions, our leverage ratio was 1. Full-year adjusted free cash flow was $294 million, reflecting a 90% conversion of adjusted net income, inclusive of the approximately $60 million invested to support our capacity expansion efforts.

Moving on to our guidance. Today, we introduced full-year 2026 guidance inclusive of the recently announced acquisitions, Thermolec and Air Enterprises and Rahn Industries. Now Crawford United's Industrial and Transportation Products businesses are not included in our guidance. They will be reported in discontinued operations while we seek a suitable buyer.

We anticipate total company revenue in a range of $2.535 billion to $2.605 billion, and segment income margin in a range of 24.6% to 25.1%. We expect adjusted EBITDA to be in the range of $590 million to $620 million. At the midpoint, this implies year-over-year growth of approximately 20% and a margin of approximately 23.5%. Our adjusted EPS guidance range of $7.60 to $8 reflects approximately 15% growth at the midpoint.

In our HVAC segment, including the recent acquisitions, we anticipate revenue in a range of $1.8 billion or $1.84 billion and segment margin in a range of 24.5% to 25%. In our Detection and Measurement segment, we anticipate revenue in a range of $735 million to $765 million and a segment margin in a range of 24.75% to 25.5%. As a reminder, growth in 2026 will be impacted by the execution of projects in 2025, totaling approximately $20 million that were originally slated to execute in 2026.

For Q1, as a percentage of our full-year 2026 guidance midpoint, we expect revenue and segment income for both segments and adjusted EPS to be similar to the prior year. As always, you will find modeling considerations in the appendix to our presentation.

And with that, I'll turn the call back over to Gene for a review of our end markets and his closing comments.

Thanks, Mark. Current market conditions support our 2026 outlook, which implies significant growth.

Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and increasing production capacity further reinforce our confidence in HVAC's growth opportunities. In our Detection and Measurement segment, we are seeing improving global market conditions, which is supportive of growth in our run rate businesses. For our project-oriented businesses, frontlog activity remains steady and backlog is at record year-end levels yet with a higher percentage of multiyear projects.

In summary, I'm pleased with the close to 2025 and our strong full-year performance. As we look to 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our continued efforts to expand capacity to meet the growing demand for our HVAC solutions, integration of our recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets and an active pipeline of attractive acquisition opportunities.

With these initiatives and a solid demand backdrop, we are well positioned for another year of 20% growth adjusted EBITDA in 2026. Looking ahead, I remain excited about our future. With a proven strategy and highly capable experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.

With that, I'll turn the call back to Mark.

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

(Operator Instructions) Bryan Blair, Oppenheimer.

There understandably a lot of focus on your team's data center exposure. So I guess the level set on that front, how much did data center revenue grow in 2025? What percentage of revenue is now driven by data centers? And how is your team thinking about DC sales growth within your initial '26 guidance?

I'll start there, Brian. We're seeing substantial growth. I see here. We had talked about some of the numbers we shared previously that '25 would be about 9% of revenue. it's in the neighborhood of $200 million, maybe a little bit more than $200 million.

That's up quite a bit. I would give the number of 7% prior, and we would anticipate that to be, as we said, low-double digits, say, 12%. So we'd expect nice growth here, probably in the 50% neighborhood for our data centers going into '26.

That's very encouraging. And maybe offer a little more color on the strategic set of Air Enterprises and Rahn Industries in thermal like within EAM and electric heat, respectively. They seem like very down the center kind of deals for your team.

How do the asset strengthen HVAC positioning overall? How should we think about commercial synergies and the ability to accelerate growth going forward? And what exactly have you baked in for revenue and profitability in the initial '26 outlook?

Yeah. We want to touch on the strategy side. I think that a couple of things. So with Crawford United, their air handling units, really two pieces. The bigger piece is enterprises, this is custom air handling. They have a great product, a blue chip customer base.

They have a different style of product, lower leakage. And I would say they're viewed as a premium provider in this market. They really have -- you can go to the website, you'll see all of the blue-chip customers that basically have them oftentimes as basis of design. So it's a little bit different flavor of a product versus Ingénia, but a very high-quality product and one that we're very excited to have as a part of our portfolio.

We think we can help them grow. We think we can help them operationally. We also think we can help them in the building of the channels there. The wrong component of that is somewhat smaller. That's the coil manufacturer that would be coils for the customary handling units.

We actually like that because we can actually use that, not only for Air Enterprises, but also for Ingénia, which we predominantly buyout side. So we have a lot of coils and coil usage increasing across our product lines in HVAC. And this is going to give us more confidence.

We see some nice growth there not only within our own businesses, but within our customers where we have a very strong position, particularly the Tamco business. So operational synergies and channel synergies there.

With Thermolec, this is a real no-brainer. We're very strong in duct heating. As we've talked about within Deco, we invented duct heating. We had the original patent very strong position in the US, but very, very low in Canada.

Thermolec is the leader for duct heating in Canada. So very complementary. They have a very good brand, a very good channel. We really like the team, a great leader there, really engaged workforce. And we actually think that they have a variety of products that we will be able to -- they don't only sell in Canada, the majority of their business is Canada, let's say, approximately two-thirds.

We think we can help them grow more in the US. And then we actually see some products that we have not been able to successfully sell into Canada and we think we can really leverage the Thermolec channel. So we see some nice channel synergies on both sides there.

Additionally, I think we really do have a good lean process and operational experience that they are also very capacity constrained. We believe we can help them grow as we look ahead.

So Mark, do you want to make any comments on the numbers or any --

Yeah, Brian, let me add to that, your question of the impact on 2026. We've disclosed a few numbers out there. There's also some publicly available information out on some of the businesses. with respect to Air Enterprises and Rahn.

But what I would guide you to is $35 million in revenue at the Thermolec business and something in the low-80s or the -- Air Enterprise and Rahn business combined. That's on an annual basis. Obviously, we're going to own both of these businesses for 11 months. So that kind of gets you to something just shy of about $110 million.

Segment income margins for both these businesses are slightly higher than our segment average.

Andrew Obin, Bank of America.

So I know a lot of people will be talking about HVAC. Maybe I'll ask about Detection then. A couple of things. A, this $20 million pull forward of revenue, how should we model it in '26? And part two of the question, how should I think about the growth for the business given the backlog is up organically 45%? if I heard it correctly.

Yeah. Let me start. This is something we talked about. We had had a project that was -- we actually have a very nice backlog. As you have seen from our press release, we have record year-end backlog of $350 million in Detection & Measurement. This is up more than 40% organic basis.

So very -- we feel really good about how that business is doing. But what I would say is we had a project that was in '26 that the customer pulled it forward is approximately $20 million. We talked about it in Q3. If you do the math, that makes '25, $20 million higher and '26, $20 million lower. It's about a 5% growth headwind.

And so as you look at it, that would be the reason we're more flattish. If we look across the business, as a reminder, about two-thirds of this business is run rate. We actually are seeing nice growth in our run rate business. I would say GDP plus growth rates in our business is there. And then on the projects, we have a lot of projects and we also have a lot of backlog as you look at the '27 and '28. That's the reason that we're more flattish.

And you want to give a little more color there, Mark, on.

Yeah. I think, Andrew, Gene kind of touched on the top line. I think it's important if you do the math, you kind of -- he gave you a little bit of it to look at what the impact of that growth would that shifting of that project had on 2026. So had it not shipped it out into 2025, you would have been mid-single-digit top-line growth in '26.

Yeah, I think my question was simpler. Should we model in Q1, Q2? Or what should I take this $20 million out versus normal seasonality?

It was in the back half of the year. That's where we should look to adjust it. (multiple speakers)

Right. But then it was pulled forward from is all the impact in Q1 Sorry, it's just my question. I think it's a lot simpler than Europe.

Should I just take $20 million out of Q1 versus what I would normally have? Is it that simple?

Yeah, it's -- I mean, that's probably the right way to think about it. The D&M business, we always talk about the fact that there's a project element to it and the way these projects gate and how they fall within the quarters can move around on us. But I think that's probably the right approach.

And I know you sort of answered part of your question when you talked about data centers, but I think you've described the Olympus Max as your most successful product launch ever. Could you just tell us about what the feedback has been? What are booking -- any update on bookings there and applications beyond data centers?

Data centers and beyond how has reception has been particular in the life, we've been getting questions about NVIDIA announcement. Does it tie in at all to that? Or is that more about PUEs, just maybe give us a little bit more color there.

Yeah. The Olympus Max, if anything, I'm feeling more bullish than I was on our last earnings call. The punchline is we have a winner here. We have advantages with our product. We believe we have advantages on tonnage. We believe we have advantages on flexibility, specifically the fact that we -- our dry unit can be upgraded to an [80 biotic] and get a lot more thermal heat exchange additives after the fact gives you a lot of flexibility. We have integrated controls, which is a differentiator versus our competitors, and we have more robust mechanical equipment.

We have already been awarded with three customers, material amounts, and we feel good. So I mean we're not going to get into the specifics of dollars and so forth. What I would say is we targeted to get $50 million of bookings last year. We did get that and we're converting that to revenue this year.

I would say that we feel really good as we look to '27, '28, '29, we have one customer that has already locked up multiple years of demand -- growing demand and a lot of activity that we feel good about. So I would just say, I feel like I feel very good about the Olympus Max, and I think it's the right solution for the market.

Ross Sparenblek, William Blair.

Just sticking on the Olympus Max, what could we read through from the new Rubin announcement and the way that this market is heading? Do you get a sense that this will be the predominant cooling tower going forward? Or whether this will be a nice mix or water cooling as well?

Yeah. I know -- thanks, Ross. There was a little bit of -- when the Rubin announcement came out, it can run at lower water temperatures, and that caused some concern for -- do you need a chiller and there's some different variations, and I can't really speak too much. I think there are some circumstances where you may need less chillers or not lead chillers.

But we're not aware of circumstances where the Rubin chip would reduce the need for external heat rejection, which is where we play. So Rubin chip really have no impact on us. I would say it's actually some positive impact on some of the architectures that we have seen.

So the other thing, as a reminder, is as chips move towards the AI chips, like the Rubin chip, they generate a lot more heat and that heat is linear, the more electricity, the more kilowatts, you're going to need more cooling towers. And that cooling tower could either be an antibiotic, it could be a drive or it could just be a normal Marley cooling tower.

We are seeing, as we've talked about in the past, the bulk of the data center market, I think, historically has been done with air cool chillers. We don't really participate in that market. That's the smaller stand-alone rooftop unit you often see. But as the heat loads get bigger, they're moving more and more towards water cooled chilling, free cooling, and these are opportunities that are very attractive for us.

So we like the direction. Basically, the more compute power, the more heat. It's very simple, you need more cooling towers. So yes, we feel like we're well positioned with some of the trends that we're seeing in the data center market.

That's very helpful, Gene. And then maybe just taking through lead times. It takes a couple of years to build a data center, typically, these colling towers are one of the last things that go into the field. If your booking orders now, is there an expectation that, that should just start to compound and you start booking into '27 potentially '28? Or just how should we kind of conceptualize that?

Yeah. I think there's a set of hyperscalers, a couple of hyperscalers we work with, and they have different methodologies. Some will actually lock you up for four or five years, and you kind of have very clear -- you know exactly what your future demand is going to look like. And I'd say, we feel very good about the trajectory that we're seeing.

There's others that more lay out what the plan is, although you don't have a PO in-house to release the POs on a more quarterly basis but they will vigorously validate that you have the capacity to meet their demand and that you can meet their growing demand at the appropriate levels of quality. So I would say you do get different levels of visibility across different customers. But what I would say is we're growing a good amount in '26. We would expect nice growth into '27 and '28 with what we're seeing in front of us.

So there's a lot of activity. And we feel like we have a good set of solutions in order to meet that demand.

Joe O'Dea, Wells Fargo.

I wanted to on your comment around the -- can we just start on the capacity additions. I just wanted to confirm, I think you said when your full production that would equate to roughly $700 million of revenue potential. Just wanted to confirm that. And then if you could touch on the timeline to reach full production? And how much you think those capacity adds will contribute to revenue growth in 2026?

Yeah, Joe, you're correct. It was -- that is what we said $700 million. It's going to take some time to get to that full production level, particularly at our Madison facility. So both those projects, both the investments that we're making in the facility for Tamco as well as Madison, they're going to take some time to ramp up.

Some of that's driven by equipment lead times and then as we get them up and running into their respective production processes, I think just so your level set, when you think about the Tamco business that, that facility will come online at the end of Q1, it will ramp through the year. And then the Madison facility will kind of -- will come online in the second half of the year. It will be assembly-only. It really won't be in a production phase until 2027.

So I think big picture, if you sort of step back and look at it, it will be some time in 2028 before you'd see a sort of a full production capacity across these expansions. Now I'm just focused on those two expansions. We've also obviously been making incremental investments in a couple of other facilities that we noted as well, but they're all part of that collective investment to meet the market really around data centers and also customer handling.

That's helpful. And then on the D&M margin expansion in '26, I think up 140 bps at the midpoint. Can you just bridge that?

I think last quarter, you were talking about some initiatives that would require some investments, maybe some things around NPI and a couple of other initiatives and so potentially some cost adds but clearly some pretty good margin expansion expected. And so just bridging the path to that.

Yeah. Happy to do that. So when you think about that margin, I'd really kind of bucket it in two areas. One is a function of the mix that we're going to see next year across the business. Some of that is driven obviously by the project mix that we have and the margin profile of those that are forecasted for 2026.

That's probably close to two-thirds of it, and then the balance, the other third or so is really this continuation of this, we call it this cost optimization initiatives that we have. But it's really about leveraging the capabilities of engineering, of R&D, sourcing. We're looking at some rationalization of the footprint.

It's really a broad portfolio of things that we're doing across the segment as they work together more in unison, really to drive more efficiency out of those businesses. So it's really kind of that's really the way we break it down.

Jamie Cook, Truist Securities.

I guess just first a flip question on HVAC, Mark, on the margins. I think you imply, the top-line growth is fairly healthy, and the organic growth implied is healthy. I think margins at the midpoint are up about 25 basis points, which is less margin expansion than what you saw, I guess, this past quarter and this year. So just any commentary on that?

And then just my second question, just on the M&A pipeline. Obviously, you guys have been very active in the market throughout 2026, just wondering how we should think about M&A potential, given the strength you've seen so far or the amount of M&A you've done so far?

Yeah, sure. Jamie, I'll start on your question with respect to HVAC margins in the guide. I think we suggested maybe in the last call that we've sort of indicated that there will be start-up costs related to the bringing these plants online really in 2026. These are going to be temporary in nature. But I would kind of gauge them as around 50 basis points of a temporary impact.

I would expect as we ramp these facilities up to full capacity, you're going to get operating leverage off of that. So we will outstrip that initial cost. But with any plant as you're getting it stood up, there's obviously costs that are required. (multiple speakers)

Yeah. Some questions on the M&A pipeline. I would say, first of all, we're very pleased with the two transactions that we executed in Q1 that we talked about. We think these are great fits, very value accretive.

Having said that, as Mark has shared in his prepared remarks, even with the pro forma leverage, we're about 1 time net debt-to-EBITDA point being, we have a lot of capacity. And what I would say is there is a lot of activity. So we -- I said in Q3, Q2, I was talking about the amount of activity, and we've seen this come to fruition.

And it's in very similar spaces we've talked about before. So engineered air movement and electric heat, these are the two acquisitions that we -- those are the areas we highlighted. Those are the areas that we close these two transactions.

We similarly see a lot of activity as well also in engineered air movement and electric heat as well as a number of detection and measurement platform. So to your question, I would say the pipeline of opportunities is very full. It remains very full. And we feel we feel like there's a good probability that there will be more opportunities for us to invest in growth this year.

Amit Mehrotra, UBS.

I have a question about non-data center end markets within HVAC and then also in D&M. There's a lot of anticipation right now that we're seeing some sort of cyclical -- or procyclicality. And I just want to get a sense from you if you're seeing any of that in real time, if orders have worked up? I know you talked about mid-single-digit growth in D&M mix, the $20 million. But any color outside of kind of just normal procyclicality, I think, would be helpful.

This is Gene. Let's see. A couple of comments I'll make here. We have a list of where we're seeing growth and which markets are opportune a little slower, and I can kind of walk through some of these.

But if you look across HVAC, some of the areas that we're seeing some really nice strength, obviously, data centers, health care, power, heavy industrial aftermarket as well as institutional and higher ed. Some of the areas that I'd say that we see when we look at '26 are a little softer, would be battery, automotive, semiconductor, chemical, and I'd say commercial real estate, which is still active, but at a lower level.

You put it all together, and we actually see pretty solid growth even outside of data centers. So what I would say also is, when you look at the end of Q4 and the first seven weeks of bookings in this year, we've had a nice start. So I'm not going to predict the GDP of the US, but we're seeing some positive signs here.

Okay. That's very helpful. And then just, Mark, maybe a question on overall earnings growth. Obviously, you're forecasting another very, very strong year of earnings growth. And then there's also kind of this layering in of capacity as we progress through the year.

I just wonder if that kind of informs some cadence of earnings growth? If you could just give us a little bit of help or handholding around as we progress through the year, how the earnings growth kind of cadence evolves as that capacity comes online?

Yeah. No problem there. I think what I would say with respect to the gaming, we kind of gave some color with respect to Q1 in the prepared remarks. But if you step back from that and sort of think about first-half, second-half gating, it be similar to last year on a percentage basis with respect to revenue, segment income and EPS.

I mean the capacity expansions are going to ramp incrementally really each quarter. So you're going to see as they come online, through that throughout the year, you'll see the benefit of them as you get into the back half of the year.

And is there anything around the backlog of orders, particularly in data centers, that is an elongation of your typical lead times because we're seeing this across the board in other companies, just the numbers are very, very strong, but begs the question of lead times and if these orders are actually getting a little bit longer dated?

I think that with the large data center customers, this is obviously mission-critical. They can't start a data center without cooling. They give you a lot more visibility than a local hospital or local commercial building or local airport.

So I'd say you have -- you know what's coming earlier. But our lead times haven't really changed that much. If you look at across our businesses is pretty similar to where they've been.

Joe Giordano, TD Cowen.

I appreciate the color on the -- like the warmer liquid and -- warmer liquid use for cooling, what that means. I'm curious what -- like a move to significantly higher voltages in the DCs would mean where current goes down and much less copper and less heat required like per unit of compute. So like as you move into these next-generation architectures, kind of how does that have implications for you guys?

Yeah. I mean, I think all of the shifts that we have seen generate more heat. So if you look at the KW going into the racks and the amount of electricity going into the data centers, I haven't seen anything where that's basically increasing at the point in which you're seeing these gigawatt data centers, just massive, massive amounts of electricity. And the electricity correlates very well to heat, which correlates very well to the amount of data cooling you would need.

So yeah, I mean, if there were to be an invention that significantly reduced electricity, that would reduce the need in the amount of cooling towers that you have. I'm not aware of any such invention.

And then anything we should think about in terms of tariffs? I know this is only 24 hours or whatever for you guys to think that through. But what any of those changes have to mean for you guys? And the volatility you're seeing in metal prices?

Yeah. It's a great question, obviously, and timely given the tariff dynamic is back here 12 months from the last time we were talking about this.

For us, I would say the tariffs during 2025 were really not a material impact to us. We were largely able to offset that impact, whether that be through price or sourcing or CI initiatives. So it's something we're clearly going to keep our eye on and play very close attention to for obvious reasons. But our model really is we're largely US, we're largely in country, for country on the sourcing front.

So -- and when you think about our North American business, particularly the Canadian businesses, those are all covered under the US MCA. So something that we're going to keep our eye on, not something I'm overly concerned about as I sit today.

And metals prices, we'll be watching those. One of the dynamics with our business is everything that we sell -- a large part of what we sell, I should say, on the HVAC side is configured to order or engineered to order. So we're largely taking that order and pricing and manufacturing in real time, right? So we don't have kind of real exposures -- long lead-time exposures for things like steel and aluminum, where the largest metal exposure would be for us.

Jeff Van Sinderen, B. Riley Securities.

Just kind of getting back to the data center area and maybe you could just share a little bit more in terms of what you're hearing from your customers, what they're asking for most? What's top of mind to them at this point? And then really, how is that evolving?

I would say at a high level, demand is increasing, and there's push for acceleration of demand with several of the hyperscalers that we deal with. So I would say the demand that we see, both with our existing customers but also with -- there is bidding and new situations and I just -- I would say it remains very robust.

Okay. Good. And then just circling back to supply chain for a minute. Are there any areas -- did you mention any areas that you think might be increasingly tight this year that you anticipate for supply chain? Any bottlenecks potentially or not really?

Yeah. I don't -- Jeff, as I'm thinking across the supply chain that we have. I don't think there's anything that jumps out that where there's material concerns today back to the supply chain. I mean through the process as you grow, and we have our products growing pretty dramatically. You have to go through a line item by line item bill materials with you to make sure you can scale up.

And yeah, we've gotten through that, and that's something that we always do to make sure we feel good we can support the growth. And I don't think we see any red flags as of today.

I think that's right.

Okay. Good to hear. And then if I could squeeze one more in a completely different topic, but curious to know what trends you're seeing in drone detection and jamming for that business line and then the outlook there?

Yeah. I think that, that business -- our [compact] business plays in a niche. It's a very effective product. You look at the drone detection world, there's a lot of players out there. A lot of people are trying to do residential or trying to do stadiums. We've seen a lot of those kind of belly flop.

Really, we're playing more on the military side predominantly. And I think we have a very good solution there. We have one primary competitor that we typically see, a German competitor that we know very well, we compete very effectively against.

But I would say there's a good amount of activity, but I don't see anything dramatically higher or lower. I think it's pretty steady with what I see in front of us.

Walter Liptak, Seaport Research.

And I'll ask one to on data center. The CapEx is going up quite a bit. And so we might well ask about the timing of the cash out for the CapEx, and it's fairly big range. What could be there for pluses and minuses getting all that capital spending done this year?

Yeah. Walt, I mean, it's the plan is to meet that CapEx guidance for the year. So it's obviously important and relates to these plant expansions stand-ups that we're in the process of doing.

So I think if you were to see any of a shift, it would just be really related to timing of delivery of equipment. That would be and something that we're watching very carefully. We've got a great team on it. They're very focused on it, something that I think we're concerned about today. But that's really what would impact the CapEx that relates to the projects or the client expansion.

Okay. Great. Okay. And I'm interested in thinking about the capacity that's going in, and you mentioned that some of the hyperscalers are trying to lock down capacity? Is that what is there to meet or is within that $700 million run rate, is that kind of room to grow kind of projecting out future demand levels?

Is there another round of CapEx that might happen after this? Is there like a Phase 2 of this data center HVAC build out?

Yeah. I think, Walt, I think it's -- what I would say is it's nice to have hyperscaler who wants increasing growth demand over the next couple of years. With these expansions, as Mark had alluded to, we think this is approximately $700 million, which would be about $550 million for data center, about $150 million more for the customer handling predominantly Ingénia.

So I would say that this gives us some runway over the next couple of years. Where we sit today, we don't see an imminent need over the next couple of years of anything.

Now having said that, if all of a sudden, there is an increasing acceleration. We'll always look at what -- if there is an excessive growth in demand we'll always be careful to look at those opportunities. But we feel very good about this expansion. We think this is going to give us a lot of flexibility over the next several years.

Brad Hewitt, Wolfe Research.

So it looks like you're guiding to about low-double-digit organic growth in HVAC in 2026. You mentioned the 50% growth expected in data center. And then if we also adjust for the Ingénia revenue growth, it seems like the implied growth rate for the rest of the segment was around 3%. Is one of the DFS kind of in the right ballpark and how you think about some of the puts and takes to growth in core HVAC ex-Ingénia ex-data center?

Yeah. Brad, your math is directionally right. I would say kind of low-single-digits growth in the non-data center, non-air handling customer handling parts of the business exactly.

Okay. Great. And then on the D&M side, you're guiding the margins of 25% at the midpoint versus the Investor Day target of 22% to 24%. Do you still think of that as an appropriate medium-term target? Or should we think about 25% of the good baseline upon which you can then layer on normal incrementals over the next several years?

I think it's a great question. When I -- and I think I mentioned this in a question that was asked earlier today. Some of this margin improvement is related to mix, and some of it is related to some of these opportunities that we're pursuing to really drive the overall margin profile of D&M up.

Those are structural in nature. So I expect them to be durable going forward. if you kind of did the math around that, that would sort of pencil out to a margin right about at the top of our range that we guided to a couple of years ago. So the 22% to 24% segment income range.

So I think for now, I don't think we're looking to change the overall target profile of the business, but something we'll certainly look at as we go through the year and into next year.

That concludes today's question-and-answer session. I'd like to turn the call back to Mark Carano for closing remarks.

Thank you all for joining us for today's call. We look forward to updating you again next quarter.

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