SPXC FY2026 Q2 Earnings Call Transcript
Date: 2026-07-30
Source: Financial Modeling Prep

Operator: Thank you for standing by, and welcome to SPX Technologies Second Quarter 26 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. I would now like to hand the call over to Johann Rawlinson, Investor Relations. Please go ahead.
Johann Rawlinson: 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 and Mark A. Carano, our Chief Financial Officer. A press release containing our second quarter 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 news 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 exclude intangible amortization expense acquisition and integration-related costs, and nonservice pension items among other items. Finally, we look forward to meeting with investors at various events during the upcoming months. Also, we are hosting an investor site visit at our Olathe Kansas facility. On November 3rd. Please let me know if you are interested in attending. And with that, I will turn the call over to Gene.
Eugene Joseph Lowe: Thanks, John. Good afternoon, everyone, and thank you for joining us. On the call today, we will provide you with an update on our consolidated and segment results for the second quarter of 26 as well as an update on our full year outlook. We had a strong second quarter with year over year growth in adjusted EBITDA of 20%, adjusted EPS of 22%. Looking at our value creation initiatives. Organically, we continue to advance our capacity expansion initiatives and now expect $1.1 billion of total data center capacity once at full production up from our previous expectation of $750 million. Inorganically, we recently announced the addition of Thermolec to the HVAC segment. This strategic acquisition complements our existing product offering and expands our capabilities into new adjacencies. Touching on our full year guidance, we are increasing the midpoint of our range to reflect higher data center volume stronger performance from our Detection and Measurement segment, and the Thermolec acquisition. The midpoint of our updated guidance now implies 27% adjusted EBITDA growth. Turning to our high level results for the quarter. We grew revenue by 23%, and adjusted EBITDA increased 20% year-over-year primarily driven by strong organic growth in both segments and the benefit of recent acquisitions. As always, I would like to update you on our value creation initiatives starting with our organic growth activities. The capacity expansions across our HVAC facilities to meet the strong demand for our data center and customer handling solutions are progressing well. They remain on track with the timeline and capital requirements previously outlined. In July, we launched assembly activities for the OlympusMAX at our new Madison, Alabama facility and will add production capabilities in this facility during the first half of 27. Production of our highly engineered aluminum dampers in Tampa's new Tennessee facility continues to ramp as expected. And in Olathe and Springfield, throughput of our data center cooling solutions has exceeded our initial expectations. Based on the meaningful progress to date, we now expect total data center capacity to reach $1.1 billion once at full production up from our prior expectation of approximately $750 million in that--in that trunk. This acquisition represents a natural extension of our strategy and another important step in strengthening our differentiated high value portfolio. Thermolec brings complementary product platforms including intelligent controls, electric duct heaters, humidification solutions, and actuated valves, that expand our product breadth while strengthening our capabilities across the HVAC control stack. Strategically, this acquisition advances us in 3 important ways. First, it deepens our controls and systems intelligence moving us further up the solution stack from equipment-focused offerings towards integrated, control-enabled solutions. Second, it expands our addressable market through complementary products serving commercial, healthcare, institutional, and mission critical applications including data centers. And third, it gives us additional opportunities to leverage SPX's global channels OEM relationships, and operational scale to accelerate Thermolec's growth while preserving its culture of strong innovation. Ultimately, this acquisition positions SPX to deliver greater customer value with more intelligent, integrated HVAC solutions that improve performance, energy efficiency, and operational intelligence while driving growth and long term margin expansion. Now I will turn the call back to Mark to review our financial results.
Mark A. Carano: Thanks, Gene. Our second quarter results were strong. Year over year adjusted EPS grew by 22%, to $2.02. For the quarter, total company revenue increased 23% year-over-year with 17% organic growth. Consolidated segment income grew by $31.3 million, or 23%, to $167.1 million while consolidated segment margin remained at 24.6%. In our HVAC segment, revenue grew by 27.6% year over year with 8.5% inorganic growth and a negligible FX tailwind. On an organic basis, revenue increased 18.9%, with double-digit growth in both cooling and heating. Segment income grew by $14 million, or 15%, primarily driven by higher volume. The 260-basis-point decline in segment margin primarily resulted from capacity expansion related startup costs, and the net impact of tariffs. Both of which were consistent with our expectations. Segment backlog at quarter end was $919 million, up 59% organically year-over-year, primarily driven by strong data center demand. In our Detection and Measurement segment, year-over-year, revenue grew by 13%. Segment income grew by 43%. Segment margin increased by 610 basis points. These increases were largely driven by high margin project volumes including a project that executed earlier than previously forecast. We also continue to see the benefit of segment synergy initiatives. Segment backlog at quarter end was $312 million, down year-over-year, primarily driven by higher project volumes in the quarter. Turning now to our financial position. At the end of the quarter, we ended Q2 with $168 million of cash on hand and total debt of $615 million. Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.7x at quarter end. Including the effect of the Thermolec acquisition, our leverage ratio was 1.4x. Q2 adjusted free cash flow was approximately $72 million. Moving on to our full year 2026 guidance. We are increasing our adjusted EPS guidance by $0.45 to a midpoint of $8.40. The increase reflects additional data center volume, our revised outlook for the D&M segment, incorporating higher volumes and margins and modest accretion from the Thermolec acquisition. As always, you will find our updated 2026 guidance on this slide, and modeling considerations in the appendix to our presentation. And with that, I will turn the call back over to Gene for a review of our end markets, and for his closing comments.
Eugene Joseph Lowe: Thanks, Mark. Current market conditions continue to support our 2026 outlook, which implies 27% adjusted EBITDA growth. In HVAC, core end markets remain healthy including robust demand for our data center solutions. Within detection and measurement, our run rate demand remains healthy, while project oriented businesses continue to see an active front log. In summary, I am very pleased with our strong second quarter results and the momentum we have built through the first half of 26. As we look to the rest of 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our ongoing efforts to expand capacity and deliver on increased data center demand, integration of Thermolec and our other recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets, and an active pipeline of attractive acquisition opportunities. The strength of our execution and end markets give us confidence in our increased full year guidance which implies 27% adjusted EBITDA growth at the midpoint Looking ahead, I am excited about the opportunities in front of us. With differentiated businesses attractive end markets, and an experienced team, we believe we are well positioned to deliver sustainable, long term shareholder value. Before I close, I would like to touch on a few organizational updates. John William Swann, who has led our Detection and Measurement segment, will be retiring at the end of the year. John has had an outstanding career in consistently delivered results across organic and inorganic initiatives. The part of a thoughtful succession process, Don has worked closely with his successor, Eric Kaled, to ensure a smooth and well planned transition. Since joining SPX, Eric has demonstrated strong operational leadership and has delivered meaningful results across the business. Having led the transportation and contact platform since 2019, he is well positioned to guide detection and measurement through its next phase of growth. Finally, we are pleased to welcome Bryan Deck to our board of directors as an independent member. Bryan brings significant industrial and operational expertise as the CEO of JBT Corporation, and we look forward to benefiting from his perspective and experience. With that, I will turn the call back to John.
Johann Rawlinson: Thanks, Gene. Operator, we will now go to questions.
Operator: To ask a question, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. You will be limited to 1 question and 1 follow-up. To allow everyone the opportunity to participate. Please standby while we compile the Q and A roster. Our first question comes from the line of Andrew Obin of Bank of America. Your line is open, Andrew.
Andrew Obin: Oh, thank you so much. Just a question on D&M. It, it was very strong performance. How much of the strength was project timing pull-forward, sort of a durable step up in underlying demand and also cadence of D&M into the back half?
Mark A. Carano: Yeah. Andrew, yeah, good evening. that is a great question. We were-- listen, we are very pleased with the performance we saw in the quarter at D&M. I kind of break it down this way. If I think about the 610 basis point increase. Really about half of that was driven by favorable project mix. In the quarter relative to the project mix that we had last year. That was something that was known we were expecting coming into the quarter. The balance of it and the majority of that balance really was project timing. We referenced a project that shifted forward into Q2. That actually moved from Q3 into Q2. And it was about $15 million in size at a high margin. So that move and that impact along with what continues to be initiatives around driving synergies across the whole D&M platform, that is really what drove the balance of that 610 basis point beat. I think we have talked about this before. Particularly with these projects. At these revenue levels. When a high margin project kind of moves into a quarter like that, it leverages our fixed cost base very nicely. So you see a lot of accretion in the margins with respect to that. Gotcha. I think with your-- Yeah. And your second question was just cadence for the rest of the year. Yeah. I think that as I think about the back half of the year, Q4 is probably going to be larger than our Q3 numbers. I would expect the margins across both quarters to be very similar.
Operator: Our next question comes from the line of Jamie Cook of Truist Securities. Your line is open, Jamie.
Jamie Cook: Congrats on a nice quarter. I guess just 2 questions. Gene, can you just elaborate on the obviously, the data center capacity is coming on quicker. I think you said it is up to 1.1 billion versus 750 million. Just color on how you got there, how much incremental is in 2026 versus 2027. You know, and, you know, how you think that contributes to the accelerates potentially top line growth, I guess, the next 12 to 18 months? And then second, Mark, just on the I know you we had capacity additions and tariffs that weighed on margins in the second quarter. Can you just call that out? And then it also looks like you raised your margins a little in the back half for HVAC. So any color on that? Thank you.
Eugene Joseph Lowe: Yes. I will just start, Jamie. The yeah. We are very pleased with the capacity. You know, a couple things. I will point out here. Really, the capacity is coming from 2 broad areas, and this is a reminder to level set, you know, kind of where we are in data center volumes. We are approximately $150 million 2 years ago. $200 million last year, and really came out with a plan for $300 million this year. We have seen some very strong demand for our solutions. We raised that to $350 million last quarter. and we subsequently raised it again to $430 million for the full year as of now. that is basically growth of about 115%, really underpinning some of these expansions in revenue is getting more efficiencies through And the 2 broad areas are the first is the OlympusMAX This is a very big complicated product with very complicated controls. We have done a lot of work on this product over the past several years, in the production process over the past 6 months, we have done a number of lean projects. Done some productivity work, and we have also done some flow optimization. Again, the punch line is we are getting more throughput than we had anticipated. And this will really be seen to benefit us both. As a reminder, we make the OlympusMAX in both Olathe, our core main cooling facility, as well as the new Madison facility where we have just started assembling there. So 1 is we can get more OlympusMAX throughput. And then the second area would be really our core cooling business. And this is really most commonly our Everest product. We have seen very high demand for that product as well. And we have done a lot of work on blocking and tackling, I would say, more space better flow, a number of lean projects that have helped, as well as augmented staffing and different ways to basically to get more product out the door. So it is really the combination of those 2 broad categories that have allowed us to really raise the $750 million to $1.1 billion, and we have very good conviction about that. But then also, that has been a contributing factor for why we have been able to get our 300 up to 430 this year is we the teams have done some really nice work, and feel good about that. Just as a not as a plug, but we are doing an investor relations or an IR meeting in November, I believe. November 3rd in Olathe. So if you guys want to come out and see some real world, OlympusMAX is at Marley Everest Towers, we would be glad to show you. But that is a big that is a big thing. And then the second question On margins.
Mark A. Carano: Yeah. Yeah. I think, Jamie, maybe the easiest way to think about it is the 260-basis-point decline year over year in the Q2 margins. Really, I mean, that was primarily driven by kind of 3 known items that we sort of contemplated. You know, as we forecasted the year. 1 was the net tariff impact. That actually has not changed. It was where we had expected it to be. The start up costs similarly then we had a prior year comp that was a tough 1 in Q2. But all of those equal to about 80 basis points of a decline individually, give or take. And then we did see some modest inflationary headwinds I would probably size that around 50 basis points or so that impacted the quarter. With respect to the full year really the raise in HVAC was driven by Thermolec. That was the 25 basis point increase. The balance of the forecast within HVAC is unchanged. Thank you.
Operator: Our next question comes from the line of Bryan Blair of Oppenheimer. Your line is open, Bryan.
Bryan Blair: Thank you. Good afternoon. Congrats on the quarter. Thanks, Bryan. Another impressive step up in data center revenue expectations for this year. Given the backlog and project visibility that you have along with accelerating throughput with OlympusMAX and Everest. How should we think about your visibility into 2027,, realistic growth ranges perhaps? And then you know, the increase to $1.1 billion in capacity. what is now a realistic timeline for you to ramp to that level of revenue?
Eugene Joseph Lowe: If I wanna start on the first 1, then I will I will hand it off to Mark on kinda how to think about the future. I think the punch line is we feel very good about our competitive position in data centers and the demand profile in business. We are both seeing existing or very significantly increasing demand with our existing hyperscalers We are seeing a lot of activity with a variety of customers. And the punch line is I really think the market is shifting towards our solutions. So, basically, a bigger and bigger portion of the market is coming becoming addressable by our solutions. And I think we have very good solutions here. We are seeing a lot more liquid cooling under the roof. And then for our products, say probably dry. Seems to be the most favored solution, but we are also seeing adiabatic We are also seeing nice demand for our cooling towers. We have very good relationships with the hyperscalers. We have a lot of we have had some nice wins with colos and neo clouds as well. But, you know, as we look ahead to 2027, I feel very good about 2027. Typically, hyperscalers give us very good visibility for the forward several years And the reason is they are nervous that, you know, they need our product to turn the data center on. So they are very they want to make sure that we can deliver the volumes that they want. there is a lot of direct feedback back and forth You will find these companies in our facilities gets him in there for 2 weeks at a time with 10 people. So we have very good direct voice of customer So the punch line is I feel very good about 27. And then going forward, I you know, we see a very nice ramp in the forward years. Gotta be careful at 2027 guidance. Know, Mark, anyone talk about, you know, how we are gonna scale the capacity?
Mark A. Carano: Yeah. I think the way to think about it, Bryan, is maybe just kind of break it down. When you think about where the data center work is emanating from, Olathe and Springfield have actually performed, I think, better than we initially expected. Clearly, we have been able to deliver more data center revenue this year as a result of that. And Gene, I think kind of referenced, I mean, as we have built the OlympusMAX in that facility, there is been a lot of learnings there. We have gotten much more efficient. At how we have executed on that. The Tamco business in Nashville, that is on track. We have talked about that being at full capacity. Production capacity sometime in 2027. And then I think as we bring Madison online, and we are manufacturing our first product there now, I feel actually good about the learnings that we have developed in Olathe the Springfield facilities that will ramp smoothly and kind of on track. Now what we have said to date, I think, as you know, we expect that to be in full at full production capacity call it, in the second half of 28. So largely, I would say our view has not changed. With respect to the ramp. That said, I would say there is a bias that it could be earlier. If things continue to go well. But I think from where I sit today, it is probably a little too early to make that call.
Bryan Blair: Okay. that is fair. I appreciate all the color. With regard to Thermolec, we know modest accretion for this year. How should we think about growth rates going forward and, importantly, the sustainability of you know, very healthy margins. And then given the complementary applications and some of the new technology that you are bringing into the fold, how does Thermolec affect HVAC TAM?
Eugene Joseph Lowe: Yeah. Bryan, why I start with kind of some data about kind of the logic, and then Mark can kinda dive into how he thinks it is gonna affect us, you know, financially in the broad base and so forth. But what is fun is we are very excited that Thermolec's a part of SPX. You know, the way that I would think about this is pretty simply about half their businesses you know, very close to our core business, almost very similar products. They do electric duct heating. As everyone knows, we invented duct heating. Within DECO. it is a very important part of our electric heat business. They are in humidification. They actually have some very strong technology in humidification. I mean, humidification is a very important part of a number of our business particularly the custom air handling. If you look at our enterprises and Ingenia, that is a very important part. So you know, half their business is either our existing business or very close core. I would say the newest piece would be the controls. And while we do a lot of controls, we do controls for our hydronics business. We have controls for our cooling business. We have controls for electric heat. They have a more advanced set of controls particularly in the configured controls. They have really, really good capability. And they win very nicely on the outside market. Our controls really that we have to date and all of our capabilities really for our own equipment. They have a very nice controls business where they work third party fan walls and other OEM HVAC equipment. And they can even operate at a higher level there. So we think this is a really important part of strengthening our competencies and building our controls capabilities. I can tell you a lot of our businesses are very excited that they are joining and what they can do and how we can innovate together there, And the other thing I would say here is you know, with both their heating, humidification controls, we actually think we can accelerate their growth. The reason being we have a great channel We have very good OEM relationships. We have very good data center relationships. We can open a lot of doors and allow them to get more at batch we think would yield more growth. So very much like with Tamco, with Ingenia, with a number of actually Canadian businesses that we have acquired we think 1 plus 1 can equal 3. And, Mark, you want to talk about how to how we should think about this going forward?
Mark A. Carano: Yeah. I Bryan, I think, you know, from a growth rate perspective, when you think about everything Gene said and across all the capabilities they had, they have, I think that this business is going to grow above our medium term growth targets that we put out there. I would probably put it at a high-single-digit growth rate It will be different depending on the components that they sell in the business. They sell. And, obviously, I think most people have gathered from the information that we provided that it does have a nice, high sustainable margin profile that is higher than the segment average, kind of in on a segment income basis. I would say it is kind of in the low 40s. On an EBITDA basis, you know, kind of mid-40s. Thank you.
Operator: Our next question comes from the line of Amit Mehrotra of UBS. Your question, please, Amit.
Amit Mehrotra: Thank you. Afternoon, everybody. I wanted to ask if you can just talk about contribution margins as the data center revenue sort of increasingly scales and the contribution margin profile of that revenue relative to broader HVAC portfolio just given obviously the capacity investment and incremental engineering costs? And then just related to that, how much of Thermolec's current revenue is exposed to data centers? And is there an opportunity to kind of expand that penetration through sort of your existing customer relationships? Thank you.
Mark A. Carano: Yeah. Amit, thanks. it is a good evening. With respect to the data center business, what we have said, we do not really talk about it from a contribution margin perspective. We really talk about it from a segment margin incrementals perspective. We would expect those incrementals to be similar or consistent with the balance of the HVAC business. So we typically identify those as sort of you know, high 20s to low 30s incrementals. And then do you want to talk about Thermolec?
Eugene Joseph Lowe: Yep. Sorry. Go ahead. Yeah. The Thermolec, they do have some nice data center presence. I would say they are very similar to our HVAC data center percentage. If you look at this year and I would say, actually, maybe a tad higher there. But similar, they have had some good success And we actually see some very nice opportunities for growth there going forward. Okay.
Amit Mehrotra: And then and then after Thermolec, I mean, you still have nice amount of capacity and net leverage is sort of under 1x. And you guys have a very good track record of kind of identifying and paying the right multiple for these types of quality assets. Does the pipeline look good? Just be curious in terms of how you how you think about the go forward opportunities after what you just did.
Eugene Joseph Lowe: Yeah. Sure. I think well, the first thing I think we were I believe it is 0.7x at quarter end, but pro forma with Thermolec, I believe we are 1.4x. 1.4x. Yeah. But you are right. that is still below our, you know, our target of 1.5 to 2.5. And we generate so much cash that will be very low by the year end. So you are right. We have a lot of capacity here We actually see a lot of very attractive opportunities. I would say the areas that we see a lot of activity right now would be in detection and measurement. On location and inspection. We think there is some very nice opportunities there. As well as content and transportation. You know, I would say electric heat You know, we have obviously just added Thermolec and Thermolec to electric heat. So that is actually been very nice additions that really strengthens that business. And provides some very complementary products I would say if you look across HVAC, where do we see the opportunities, the biggest number of active opportunities would be in engineered air movement. The number of very attractive opportunities, I would say, we are talking to or we have, you know, on the board. And so the punch line to your question is we have done a lot in the first 6 months. You look at the amount of capital we have deployed, there is still a very attractive strategic set of opportunities even over the next 6 months. So we would expect to continue growing here.
Operator: Our next question comes from the line of Bradley Hewitt of Wolfe Research. Your line is open, Bradley.
Brad Hewitt: Hey. Good afternoon, guys. Hey, Brad. Good So as we think about D&M margins in the next year. I know they can be a little bit lumpy based on the project mix and the software attach. But is the base case expectation that D&M margin should be up year over year next year?
Mark A. Carano: Yes. Bradley, let me talk to you. a little bit about that. I think when you think about where we are forecasting for the year, I think our guide generally for 2026 is 26.5%. there is a couple kind of discrete elements that set us at that point. If you back out that scope expansion, we talked about, in the first quarter in that software project, And you kind of normalize for what has been sort of a favorable mix. For the year back to kind of what we would call a more normal mix, you are kind of left with, I think, a structural improvement in margins based on, you know, a lot of the work that we have done to drive synergies across the D&M platform kind of around 25%. Now, those margins can obviously be by mix of project volume that we have in a certain year and the types of projects So I want to be careful. I do not really provide guidance for 2027. I am not prepared to do that. But I think that is a framework to think about it. Okay. that is helpful.
Brad Hewitt: And then maybe switching back to the HVAC side of things. So you mentioned that you expect to be at the $1.1 billion of data center capacity probably by second half of 28. I guess curious as we stand today, how much visibility do you have to that $1.1 billion from a demand perspective?
Eugene Joseph Lowe: I would see we see a lot of visibility. there is the We feel very good about the demand profile. And feel good about our value prop. So I would say we feel very good about sustained continued growth there, Bradley.
Operator: Our next question comes from the line of Joe Giordano of TD Cohen. Your line is open, Joe.
Joe Giordano: Hey. Thanks, guys. Good afternoon. Hey, Joe. Hey, good afternoon. Just quick. What do you have for book to bill in the quarter?
Mark A. Carano: You know, for are you talking about for which business? I got for both. Yeah. Yeah. I think if you kind of did you did the math around you know, both segments, which you guys can do, I think you would find that you know, book to bill in HVAC was about 1.4x. And D&M was maybe just a hair below 1.0.
Analyst: Yeah.
Joe Giordano: Okay. With Thermolec, 1, like, how much are you adding into the guidance just from that specifically on the revenue and EBITDA side? And then with the EBITDA margins in the mid-40s, obviously extremely attractive, but how do you, like, stress test that in your own diligence? Right? Because it is so if I double what you guys are doing as a company. So how much of that margin you feel like was priced over the last couple years kinda getting crazy and scarcity for some of this stuff? And, like, versus, like, how sustainable is that until, like, you know, the tenure of your ownership here?
Eugene Joseph Lowe: I mean, 1 comment I will make, Joe, I will throw it over to Mark. Right now, if you look at segment income, you know, for HVAC by 2025, right, and this is probably low forties, 2041 or you know? So it is not double. And you actually you know, we know the electric heat business and the humidification business quite well. And margins you know, I guess what I would say is we spend a lot of time on that question. I feel very good. I do not think these are anomalous. I think these are real and, frankly, sustainable as we go forward. I also think there is a lot of growth here that we can we can help support Yeah.
Mark A. Carano: And I think, you know, maybe just to dovetail off of what Gene said, and then I can kind of walk you through a little bit of the contribution math for the year. If that is helpful. But I think when you think about some of these products like controls, I mean, they are a high value high consequence piece of equipment. within these systems and very integral to how they function. So you know, we obviously disclosed the revenue, kind of $75 million full year. We are going to own this for about 5 months. right, in 2026. So you know, that kinda gets you into the low 30s in contribution For revenue. And then segment income's in the low 40s. I will tell you, we paid about 12.5x for the business, which should help you back into where the EBITDA ultimately is. And sort of netting all the way down, really, it is probably $5 million to $6 million of addition or accretion to the 2026 numbers. that is obviously built into the guide. Raise. Thank you.
Operator: Our next question comes from the line of Walter Liptak of Seaport Research. Your line is open, Walter.
Walter Liptak: Hey. Thanks. Great quarter, guys. Thanks. So I wanted to ask, and thanks for the detail about Thermolec That you just gave. The I wanted to ask about the CapEx and the guidance for this year, you know, year-end to year-end. You know, what does it take to get to the high end of that? And what are you thinking about for CapEx to get to that $1.1 billion How much of it do you have to get in place in 2027?
Mark A. Carano: Yeah. Walter, you know, with respect to the kind of the back half of your second part of your question, that CapEx related to all these plant expansions is, you know, was contemplated. Some of it fell in 2025. And then the balance of it will fall into 2026. It could be that some of it slips into 2027. But right now, we are forecasting it to be in 2026 just given you know, what we are seeing today. So I think when I think about the CapEx for this year and the guide range we had, at the midpoint that contemplates the CapEx required to support the expansions within the year. It is going to be back half weighted. So if you are looking at kind of the first half of the year and feeling like it is maybe a little bit behind on that guide, We always expected it to be back half weighted And then the balance of it is really our regular way CapEx, which we have always said is sort of in the 1.5% to 2% range. And I expect we will be right there.
Walter Liptak: Okay. Great. And, you know, as we are thinking about you ramping for the hyperscalers, the data center customers, It sounds like the capacity can be put in place that you are you are going to be there mostly by the end of the year. What becomes the heavy lift to make sure that you can deliver everything into 2027 and 2028?
Mark A. Carano: Yeah. it is a great question. I think as we think about ramping up those plants, I feel really good about the team that we have got in place. I mean, they have been kind of overseeing all these site expansions, plant expansions that we have got underway. They clearly have done a really nice job so far as we have kind of met or, in some cases, exceeded our expectations. So as I look out into 2027, I think a lot of it is going to be a function of you know, making sure we get the right employees in place and the right you know, team up to speed and begin to ramp up into what our expectations are for 2027. that is just 1 example. I mean, bringing a plant online is always complicated. And there is a lot of things that have that need to fall into place. But I feel good about but we have got a plan, and then we will deliver on the expectations we have laid out. Thank you.
Operator: Our next question comes from the line of Piyush Ketan of JPMorgan. Your line is open, Piyush.
Analyst: Hey. Thanks for taking the question. Good afternoon, guys. Hey. Just on hi. Just on HVAC maybe, can you help me with, like, the cadence of the growth? In the back half of the year And correct me if I am wrong. If we take out the data center growth that you are embedding, rest of the segment is, like, tracking right in that 5% to 6% range.
Mark A. Carano: Yeah. I think to your second point that you are you are absolutely you are absolutely right. With respect to cadence in the back half of the year, way I would think about it is Q3 and Q4 will have kind of similar revenue growth rates And I would expect margins will be higher in Q4 than in Q3. Yes. On that margins, there any particular reasons, but because the incrementals, like, go way above, I think, 40% more than the ramp. So if you can provide some color on that 1. Are you talking about in sort of the back half of the year? Yes. Yeah. I think you know, you have you have got a handful of things going on there. I am depending on how you have modeled it. you have got the operating volume And the leverage off of that. You also had the contribution from Thermolec and the M&A contribution there. And then remember, the startup costs and the tariffs that were a headwind in the first half, those will moderate. So I think if you think through all those elements, you know, that really helps explain that sort of first half, second half ramp. Thank you.
Operator: Our next question comes from the line of Jeff Van Sinderen. Of B. Riley Securities. Please go ahead, Jeff.
Jeff Van Sinderen: Hi, everyone. I wanted to ask you a little bit more about the really strong demand you are seeing in data center cooling solutions. I am just wondering how you are thinking about potential for long term agreements there? Maybe it is too early, but any thoughts around long term agreements?
Eugene Joseph Lowe: Yeah. I mean, Jeff, we actually have long term agreements with several customers in place. it is just not something we typically talk about. So yeah, I think, you know, long term agreement I think you know, I think works very well. You get alignment on demand. But as you well know, that is not a purchase order per se. Right? And we do not put things into the backlog until they are kind of formal purchase orders. And it is a good way to get alignment with our hyperscaler customers about demand. And then we always have the appropriate, you know, protections in there such that if you know, the demand is not there, the POs are not placed within a year or an advanced period of time. That capacity frees up. Such that we fill that capacity with other customers. So, yeah, we actually have very good a lot of our customers we have been working. We do have some new large customers. We have some old large customers. I think we have very good relationships, very open, very direct sharing of what we are seeing and what they are planning on doing. Good to hear.
Jeff Van Sinderen: And then as far as supply chain, what is the latest you are seeing there? And then any steps you are taking to procure what you need without interruption?
Eugene Joseph Lowe: that is a great question. With this type of growth in volume, you have to be very careful of the supply chain. Any bill of materials item could be I would say 1 of the good things about our strategy is really all of the components are our own For example, we engineer our own fans. We engineer our own gear reducers. We engineer our own fill. Or heat exchangers. And so it is always our design, and we own it. Typically for the vast bulk of what we provide That gives us supply chain flexibility. So we can either, in some cases, do it ourselves or have outside third parties. But it is something the point you bring up is very important, and we have seen some people fall down on the supply chain side 1 of the things we are very careful about and before we take on a large order we actually have a very strong supply chain team. That will scrub every bill of material item and validate that we believe we can fulfill those items. So we are not flying blind. We know we have the capacity, and we know we can fulfill that order. We are very careful about that because at the end of the day, our experience, particularly in the data center realm, customers are very, very engineering intensive. And that aligns very well because I do believe we have the best engineering in the world for cooling. And I think we can satisfy their needs, but you have to deliver. If you fall down and you are late and you have bad quality, that can be very problematic. And as we know, there is a smaller number of customers here. there is some level of customer concentration with you know, a number of hyperscalers. You wanna be sure you can deliver and meet your commitments. So very careful about that. But that is a I think it is a very good question. In a world where there is some tremendous scaling going on in a variety of areas. Thank you.
Operator: Our next question comes from the line of Zachary Schekman of Wells Fargo. Your line is open, Zachary.
Analyst: Hey, Good afternoon. I was just wondering if we could circle back to D&M and just maybe talk about the mix in Comtech. Comtech and Aton's navigation, maybe the type of products that drove margins up so much. The reason for that pull forward from Q3 to Q2 and then maybe anything to note that is on the horizon, military opportunities in your Comtech business? Like, drone detection demand, anything of that nature? Just curious.
Mark A. Carano: Yeah. Think the maybe I will start with the project that moved forward. That was just driven by the customer. It moved up from the first half of Q3 into Q2. We talk about this often. it is we sometimes have this dynamic. We are pretty good about getting it in the year. But sometimes these projects can move from quarter to quarter. Both Comtech is largely a project business. And depending on kind of the mix of where those projects are within the types of products that they provide. That can drive the margin profile. The Aton business is a mix of run rate and project businesses. And, you know, we have just seen some nice project activity, some large orders. In certain markets that have been just very profitable. Relative to Yeah.
Eugene Joseph Lowe: And I think we feel good about the projects You know, when you think projects for Detection and Measurement, you are really talking about half of Comtech. that is really the TCI half. And I would say there is a lot of good activity going on there, as a lot of good innovation going on there. So we like-- Transportation, Transportation has had nice sustained growth over the past several years. We expect that to continue. And then the smaller portion is in Aton, And they also have some very nice innovation coming out Yeah. In particular, 1 at the end of next year that we think is gonna drive more demand. So, yeah, I would say overall, when we look at this year, this year is relatively flattish for D&M. We would expect to our normal growth path going forward. Next year and beyond. Thank you.
Operator: I would now like to turn the conference back to Johann Rawlinson for closing remarks.
Johann Rawlinson: Great. Well, thank you all for joining today's call, and we look forward to updating you again next quarter. Thank you, operator. We can end the call.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.