Financial Data and Key Metrics Changes - The company reported a 12% increase in total sales for the second quarter, driven primarily by growth in the Climate Solutions segment [19] - Adjusted earnings per share (EPS) was $1.06, reflecting a 9% increase compared to the prior year [20] - The gross margin declined by 290 basis points to 22.3%, primarily due to increased costs associated with the data center capacity expansion [19][22] Business Line Data and Key Metrics Changes - Climate Solutions segment revenue increased by 24%, with data center sales growing by 42% [14][24] - Performance Technologies segment revenue declined by 4%, but adjusted EBITDA improved by 3%, with adjusted EBITDA margins increasing by 90 basis points to 14.7% [10][18] - HVAC Technologies revenue increased by 25% due to acquisitions, offset by lower indoor air quality sales [14] Market Data and Key Metrics Changes - The company anticipates a significant increase in data center sales, projecting over 60% growth for the fiscal year [8][24] - The company is expanding its manufacturing capacity in the U.S., U.K., and India to meet growing demand in the APAC region [7][8] Company Strategy and Development Direction - The company is focused on expanding its U.S. manufacturing capacity for data center products and investing in its fastest-growing businesses [3] - The strategy includes integrating recent acquisitions to improve margins and capacity utilization while unlocking new commercial opportunities [3][4] - The company aims to evolve from a low-volume, high-mix manufacturing operation to a high-volume producer, particularly in the data center segment [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to meet targets and customer commitments despite current challenges, including workforce hiring and training [7][9] - The company expects a significant jump in revenue between Q3 and Q4, driven by new capacity coming online [7][21] - Management raised the revenue outlook for fiscal 2026, expecting total company sales to grow in the range of 15%-20% [10][24] Other Important Information - Free cash flow was negative $31 million in the second quarter, primarily due to higher inventory builds and capital expenditures [22] - The company plans to fully fund its U.S. pension plan prior to a planned annuitization in the third quarter [26] Q&A Session Summary Question: Can you parse out year-over-year margin contraction on the climate side of the business? - The margin contraction was primarily driven by data center expansion costs, accounting for about 225-250 basis points, with additional impacts from HVAC Technologies and heat pump settlements [31][32] Question: What gives confidence that margins should normalize going into Q4? - Confidence stems from learning and efficiency improvements from previous product launches, which will help improve margins as production ramps up [50][51] Question: How do you view the total addressable market in calendar 2027? - The company anticipates that reaching $2 billion in sales by fiscal 2028 could represent 15%-20% of the available HVAC market [60] Question: How is customer concentration evolving in the data center area? - The company is building strong relationships with hyperscalers and neo-cloud providers, which is expected to drive further demand [86] Question: What is the outlook for liquid cooling business? - The liquid cooling market is evolving, and the company sees potential for growth in this area, complementing existing air cooling solutions [95]