Financial Data and Key Metrics Changes - Reported revenues increased by 15% year-over-year, reaching $131.7 million for the quarter [16] - Adjusted EBITDA rose by 29% to $30.6 million, with adjusted EBITDA margins at 23.2%, up from 20.8% last year [17][18] - Gross profit increased by 20% to $61 million, resulting in a gross margin of 46%, up from 44% [17] - GAAP earnings per share increased by 61% to $0.45, while adjusted earnings per share rose by 45% to $0.55 [18] Business Line Data and Key Metrics Changes - Large project revenue was $24.7 million, a 41% increase year-over-year, driven by several CapEx projects moving to execution [17] - OPEX revenues were $107 million, up 10% year-over-year, representing 81% of total revenues [16][17] - Organic revenue growth, excluding FOTI, was 9% year-over-year [16] Market Data and Key Metrics Changes - U.S. land sales increased by 8%, while Canada saw a 10% increase in revenue [19] - EMEA revenue doubled, driven by strong performance in organic business and contributions from FOTI [19] - APAC experienced a 4% decline, primarily due to uncertainties surrounding global trade policies with China [19] Company Strategy and Development Direction - The company is focused on a 3D strategy of decarbonization, digitization, and diversification to drive organic growth [9][25] - The establishment of a global engineering center in Mexico aims to handle increased project workloads [8] - The company is actively pursuing opportunities in the data center market, particularly with liquid-cooled data centers and medium voltage heaters [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver strong second-half results and raised full-year 2026 financial guidance [23][24] - The company is well-positioned to benefit from favorable secular demand trends, including reshoring, electrification, and decarbonization [7][25] - Management noted that the current tariff structures are expected to remain stable, which is crucial for maintaining customer sentiment [24] Other Important Information - The company ended the quarter with total liquidity of $129 million and a net leverage ratio of 1.0 times [8][22] - The backlog increased by 17% year-over-year, with a 4% organic increase due to positive book-to-bill ratios [18][19] Q&A Session Summary Question: Expectations for large CapEx projects, particularly in LNG - Management indicated robust activity in the LNG market, with a 140% year-over-year increase in the LNG pipeline [29] Question: Details on digitization efforts and their impact - Management highlighted that digitization differentiates the company from competitors and enhances customer engagement, leading to recurring revenues [30][31] Question: Dynamics of gross margin in relation to large projects - Management acknowledged that large projects typically have lower margins but noted that increased volumes and productivity gains helped maintain solid margins [34][35] Question: Timing for other large projects to move to execution - Management confirmed that a broader range of projects across various sectors is moving to execution, not just LNG [38] Question: Impact of data center and medium voltage heater opportunities on results - Management stated that there was no impact in the second quarter, but they are beginning to book orders and see high-probability opportunities [39] Question: Balance between organic and inorganic growth investments - Management emphasized a priority on organic growth initiatives while also tracking potential inorganic opportunities [45]

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 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 within Climate Solutions saw a 25% increase in sales, driven by acquisitions, but faced lower margins due to a negative mix impact [14][15] Market Data and Key Metrics Changes - The company anticipates data center sales to grow in excess of 60% for the fiscal year, with expectations of over 90% year-over-year growth in the second half [24] - The Performance Technologies segment is expected to see revenue flat to down 7%, improving from a prior range of down 2% to 12% [24] Company Strategy and Development Direction - The company is focused on expanding its U.S. manufacturing capacity for data center products and has secured additional facilities in Texas and the UK [3][5][8] - The strategy includes integrating recent acquisitions to enhance product offerings and improve margins through the application of 80/20 principles [3][11] - The company aims to transition from low-volume, high-mix manufacturing to high-volume production to meet the demands of large data centers, particularly those specializing in AI applications [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to meet customer demands and execute on strategic plans despite current challenges in hiring and training a workforce [7][9] - The company expects significant revenue growth in Q4 as new production lines come online, with a path to achieve over $2 billion in revenues by fiscal 2028 [8][24] - Management acknowledged temporary margin erosion due to increased costs from capacity expansion but anticipates a return to normalized margins by Q4 [15][21] 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 raised its revenue outlook for fiscal 2026, expecting total sales growth in the range of 15% to 20% [24][25] 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 to 250 basis points, with additional impacts from HVAC technologies and mix issues [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 enhance margins as production ramps up [50][51] Question: How does the company view the total addressable market for data centers? - The company estimates that reaching $2 billion in sales could represent 15% to 20% of the available HVAC market, indicating significant growth potential [60] Question: What is the expected contribution of liquid cooling to the business? - Liquid cooling is seen as a complementary product to air cooling, with ongoing developments expected to enhance its market presence [95]

Financial Data and Key Metrics Changes - The company's first quarter revenue was $108.9 million, representing a year-over-year decrease of 5% [17] - Organic revenue, excluding contributions from the Fati acquisition, decreased by 11% [17] - Gross profit was $48 million, down 5% year-over-year, with a gross margin of 44.1%, up from 43.8% last year [19] - Adjusted EBITDA was $21.2 million, down 9% from the previous year, with an adjusted EBITDA margin of 19.5% [19] - GAAP earnings per share increased by 4% to $0.26, while adjusted earnings per share decreased by 5% to $0.36 [20] Business Line Data and Key Metrics Changes - OpEx revenues were $93.3 million, a decrease of 4% compared to last year, representing 86% of total revenues [18] - Large project revenue was $15.6 million, down 11% from last year, with many projects still in the engineering phase [18] - The backlog increased by 13% organically, supported by a positive book-to-bill ratio of 1.11 times [21] Market Data and Key Metrics Changes - Revenue in the U.S. and Canada declined by 17% due to delayed backlog conversion and reduced customer demand [22] - EMEA region saw strong growth, with revenue more than doubling, driven by organic business performance and contributions from the Fati acquisition [22] - APAC revenue decreased to $6.6 million from $9 million in the prior year, reflecting softer demand [22] Company Strategy and Development Direction - The company is focused on driving a higher quality, more profitable revenue mix and has implemented proactive tariff mitigation efforts [6] - Strategic initiatives include targeting growth in the data center market, rail and transit, and leveraging the Fati acquisition to capitalize on electrification opportunities in Europe [11][15] - The company aims to maintain a strong balance sheet while balancing capital allocation between share repurchases and growth investments [10] Management's Comments on Operating Environment and Future Outlook - Management noted that revenue declines were primarily due to temporary delays in backlog conversion and project execution timing, which are expected to translate into realized revenue in upcoming quarters [6] - The company remains confident in its strategic positioning to benefit from long-term growth drivers despite near-term unpredictability in the market [7] - Fiscal 2026 guidance remains unchanged, with expected revenue between $495 million and $535 million and adjusted EBITDA between $104 million and $114 million [29] Other Important Information - The company returned nearly $10 million in capital through its share repurchase program during the quarter [10] - The M&A pipeline remains active, with ongoing searches for opportunities to augment strategic growth initiatives [10][48] - The company ended the quarter with a net leverage ratio of 1.0 times and total cash and available liquidity of $130.8 million [25] Q&A Session Summary Question: What is the status of the capital improvement project that caused production delays? - The capital improvement project has been resolved and is now fully operational, with expected revenue conversion in Q2 and the balance of the year [32] Question: Can you elaborate on the liquid load bank opportunity in the data center market? - Liquid load banks are used to test cooling systems in liquid-cooled data centers, and the company expects to build a 20% to 25% market share in this growing opportunity [35][37] Question: What are the gross margin expectations for the next quarter? - There may be margin headwinds in Q2, but pricing adjustments are expected to offset tariff impacts in the latter half of the year [38] Question: What is the demand environment for the Fati acquisition? - The backlog for Fati has doubled since the acquisition, driven by strong demand in electrification opportunities in Europe and the Middle East [44] Question: What are the capital allocation priorities moving forward? - The M&A pipeline is active, and the company will continue share repurchases if no attractive growth opportunities arise [48]