Prepared remarks
Good morning, ladies and gentlemen, and welcome to Modine's First Quarter Fiscal 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations.
Hello, and good morning. Welcome to our conference call to discuss Modine's first quarter fiscal 2026 results. I'm joined by Neil Brinker, our President and Chief Executive Officer; and Mick Lucareli, our Executive Vice President and Chief Financial Officer. The slides that we will be using with today's presentation are available on the Investor Relations section of our website, modine.com. On Slide 3 of that deck is our notice regarding forward-looking statements. This call will contain forward-looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission. With that, I'll turn the call over to Neil.
Thank you, Kathy, and good morning, everyone. I'm pleased to report that Modine delivered a solid start to the year, giving us confidence to raise our revenue and earnings outlook for fiscal '26. We've completed three strategic acquisitions so far this fiscal year and announced major new investments in our manufacturing capacity for our rapidly growing North America data center business. Investments that will position us to meet continued strong market demand this year and well into the future. These investments are allowing us to maintain a balanced portfolio of businesses with a strong organic growth focus in data centers, supplemented with inorganic growth to expand product offerings and create scale in our other key Climate Solutions businesses. Mick will take us through the financial results and updated outlook. But first, I'd like to provide additional context around the quarter's key events. Our Climate Solutions segment continues to deliver, posting an 11% increase in revenue and a 10% improvement in adjusted EBITDA. This performance reflects initial contributions from two of our most recent acquisitions, AbsolutAire and L.B. White. Both of these acquisitions offer complementary solutions to our heating business, which falls within our HVAC Technologies Group. These additions broaden our product portfolio and unlock new markets and distribution channels. Modine has been in the heating business for nearly 100 years and has a large installed base for our signature line of gas-fired unit heaters. We also have a leading market share with replacements typically driving over half of our annual revenues. These recent acquisitions allow us to accelerate growth and build scale, as we continue to use our 80/20 approach to drive both revenue and cost synergies. Earlier this month, we closed a third acquisition, Climate by Design International, or CDI, a leader in desiccant dehumidification and critical process air handlers. These technologies integrate well with our previous acquisitions, namely Jetson modular chillers and Scott Springfield custom commercial air handlers. As we integrate this business, we will use 80/20 to improve their mix and raise margins, while exploring opportunities to utilize excess U.S.-based manufacturing capacity to support growth in the broader commercial HVAC businesses. All of these acquisitions are squarely in line with our business development strategy to expand our portfolio with next-generation technologies and complementary solutions in heating, indoor air quality and data center cooling. They also build the foundation for scale in these key markets within HVAC Technologies. I'd like to again welcome all the new associates from AbsolutAire, L.B. White and now CDI. Our teams are already integrating well and aligning around new opportunities to drive revenue and operational synergies. In our data center business, we continue to prioritize organic growth through capacity investments and product innovation. We recently announced a $100 million investment to expand manufacturing capacity across four U.S. sites, including a new facility in the Dallas, Texas area, further expansion in Grenada, Mississippi and repurposing two existing Performance Technologies sites. The announcement advances our local-for-local supply chain strategy to be close to our data center customers and expand capacity in our largest and best markets. This investment will also enhance engineering, product development and testing capabilities, create new jobs and support the redeployment and retraining of existing Modine employees. This expansion is a necessary response to the extraordinary demand we're seeing, especially in North America. With our current funnel of opportunities, we believe that we can approach $2 billion of data center revenues in fiscal '28. This is a lofty goal, but one that we believe is achievable. In addition to this capacity expansion, we are also innovating. An example is our new modular data center development project where we are collaborating with a large customer on a custom design built to suit their specific needs. This innovative solution offers rapid deployment and scalability, reducing the build time for a data center from over a year to mere months. An initial site can also be expanded by adding more modules to the center. As demand accelerates, our data center customers are pushing for higher efficiency and advanced cooling strategies. We're not only responding but collaborating deeply with their engineering teams to create next-generation solutions. We are and will continue to be a major part of these conversations, often supporting the additional mechanical cooling requirements needed to address changes being made at the rack level. For example, if a customer is looking for an alternative solution to distributing coolant to the rack, we will work closely with our engineering teams to collaborate on an innovative alternative to meet their cooling requirements. To be clear, these innovations aren't threats; they are outcomes of long-tenured strategic partnerships where our largest customers are seeking our expertise to meet their evolving demand. And they are unlocking new opportunities as we advance the technology required to manage heat loads in modern data centers. There's tremendous energy in this segment, and it's not slowing down. We will continue to aggressively pursue the opportunities in front of us to ensure continued execution and growth. Please turn to Page 5. As expected, the Performance Technologies segment continues to navigate tough market conditions with revenues in the quarter down 8% and corresponding declines in adjusted EBITDA. The downturn in vehicular markets is likely to persist for several more quarters. In response, we've taken decisive action to control costs, including reallocating talent to support our high-growth Climate Solutions business. As an example, we plan to transition two of our existing Performance Technologies sites to expand capacity for data center production. One of those under consideration is Franklin, Wisconsin, which was previously planned to support our EV systems business. We are also evaluating plans for our Jefferson City, Missouri manufacturing facility, which would involve consolidating those product lines into other PT plants in North America. For other select portions of the segment, we continue to explore strategic options to realign and optimize our portfolio. Our PT team is doing excellent work to remain lean and focused on our key customers. When volumes return, we're well positioned to capitalize with strong incremental margins and improved profitability. Despite the market headwinds, we are executing on our transformational strategy. This team has been through a great deal of change and has worked hard to improve margins and cut costs in light of these challenging market conditions. But our 80/20 strategy remains clear: to shift resources to high-growth, high-margin businesses. In summary, we had an extremely busy start to the fiscal year. We are investing in our growth, both organically and inorganically. These are very purposeful investments designed to build scale across our portfolio and capture near-term growth opportunities. I want to thank the Modine team for their hard work and dedication. With that, I'll turn the call over to Mick.
Thanks, Neil, and good morning, everyone. Please turn to Slide 6 to review the Q1 segment results. Climate Solutions delivered another good quarter with an 11% increase in sales, a 10% improvement in adjusted EBITDA and an adjusted EBITDA margin of 20%. Data center sales grew $24 million, or 15%, from the prior year, driven by higher sales in North America. HVAC Technologies sales increased $17 million, or 34%, driven by strong heating stock plan orders and higher indoor air quality product sales. In addition, the recent acquisitions of AbsolutAire and L.B. White contributed $10 million of revenue in the quarter. Heat Transfer Solutions sales declined 1% or $1 million due to lower volumes to commercial and residential HVAC customers. This was mostly offset by higher sales to commercial refrigeration and coatings customers. The adjusted EBITDA margin was relatively flat versus the prior year. At this point, we're focused on continuing to drive earnings growth versus maximizing profit margin. While we're currently growing revenue at an exceptional rate, we're also increasing our investments in manufacturing and engineering resources to support future growth. For example, we're once again raising our fiscal 2026 outlook for data center revenue growth to 45%. As capacity comes online and revenue grows, we expect the EBITDA margin to increase, especially in fiscal '27. With regard to the recent acquisitions, we're in the early innings with the team focused on integrating and stabilizing to ensure there are no surprises. At times, this can mean adding incremental resources and cost to capture future benefit. With that said, we're excited about the additional HVAC technology scale and the overall positive momentum in Climate Solutions. Please turn to Slide 7. As anticipated, Performance Technologies revenues were impacted by challenging end market demand and 80/20-driven product line exits. Heavy-duty equipment sales were lower by 4% or $4 million, driven by ongoing market weakness. Within the heavy-duty area, we experienced lower genset sales due to a customer moving to a dual-sourcing strategy. While we had planned on lower volumes with this customer, we anticipated an offsetting increase with a new genset customer. However, this customer and others are taking longer than anticipated to convert to the new cooling module design. As a result, we believe it's prudent to plan on lower growth than previously anticipated in the genset area. On-highway application sales decreased 8% or $15 million due to the previously mentioned lower end market demand and 80/20 product line exits. Segment adjusted EBITDA declined 14% from the prior year and adjusted EBITDA margin decreased 100 basis points to 13.1%. The margin decline was mostly driven by lower sales volume and higher material costs. This was partially offset by improved operating efficiencies, along with significant cost reductions. We're passing through increased costs from tariffs and higher material costs, and we'll continue to recover these increases through our normal pass-through mechanisms. Consistent with past practices, we recover metals on a lagged basis, averaging about six months. The tariff recovery will vary with each customer and agreement. As we highlighted last quarter, we've been working to reorganize this business and reduce costs wherever possible. These actions resulted in a $5 million reduction in SG&A expenses this quarter, helping to partially offset the impact of lower sales volume. Despite the difficult market conditions and volume headwinds, the team remains focused on delivering higher margins and earnings for this segment this fiscal year. Now let's review the total company results. Please turn to Slide 8. First quarter sales increased 3%, driven by the revenue growth in Climate Solutions. Our gross margin declined 40 basis points to 24.2%, driven primarily by the unfavorable impact of lower sales and higher materials in Performance Technologies. We continue to invest in incremental SG&A to support strong growth in Climate Solutions. In addition, SG&A includes expenses related to the acquisitions completed during the quarter, partially offset by lower SG&A costs in Performance Technologies. Adjusted EBITDA was better than we had anticipated at the beginning of the quarter, resulting in a small year-over-year increase. Our adjusted EBITDA margin was 14.9%, which was down 40 basis points from the prior year. We anticipated that the margin in Q1 would be down slightly and, on a temporary basis, due to the combined impacts of lower Performance Technologies volume and new investments in Climate Solutions. We expect to restart year-over-year margin improvements in the second half of the year on higher volume and material cost recoveries. Adjusted earnings per share was $1.06, 2% higher than the prior year. We're pleased with the start to the fiscal year. Momentum in our key growth markets allowed us to overcome challenges, and we expect positive contributions from our three recent acquisitions throughout the rest of this fiscal year. Now moving to cash flow metrics. Please turn to Slide 9. The business has generated $200,000 of free cash flow in the quarter. This was lower than the prior year, primarily due to higher inventory levels in Climate Solutions. We're building significant data center inventory to support the large number of projects and delivery schedules in the second half of our year. First quarter free cash flow also included $5 million of cash payments, primarily related to restructuring and acquisition-related costs. Net debt of $403 million was $123 million higher than the prior fiscal year-end, directly related to the acquisitions of AbsolutAire and L.B. White, which were both completed in the quarter. We invested more than $140 million in acquisitions and capital during the quarter, plus the additional acquisition in July to support future growth for Modine. With these investments and associated earnings, our balance sheet remains quite strong with a leverage ratio of approximately 1.0x. I would also like to mention that we have extended the maturity and upside to our credit facilities, providing us with additional liquidity and flexibility to support future organic and inorganic growth. Thank you to the great Modine Treasury team and our banking partners for their support with this transaction. Now let's turn to Slide 10 for our fiscal 2026 outlook. As Neil mentioned, we're raising our revenue and earnings outlook driven by our recent acquisitions and another increase in our projected data center sales. For fiscal '26, we're currently expecting total sales to grow in the range of 10% to 15%. This is an increase from the previous range of 2% to 10%. For Climate Solutions, we expect full year sales to grow 25% to 35% and expect data center sales to grow in excess of 45% this year. This is a significant increase from the previous range of 12% to 20% for Climate Solutions. The higher sales are mostly driven by our improving outlook for data center sales and the recent acquisitions in HVAC Technologies. With regard to our increase in outlook for data center sales, we anticipate a significant acceleration in the second half based on customer timing and the additional capacity plans. For example, in the first half, we anticipate data center sales will be up 20% to 25% over the prior year. In the second half, they will be up by more than 80%. For Performance Technologies, we're maintaining our sales outlook with the revenue anticipated to be down 2% to 12%. We expect that end markets will remain soft with the ongoing trade conflict having a negative impact on market recoveries. Performance Technologies is currently trending towards the higher, or more favorable, end of this range. However, the higher revenue will likely be due to incremental material and tariff cost recoveries, along with favorable foreign exchange rates. With regards to our full year earnings, we currently expect fiscal 2026 adjusted EBITDA to be in the range of $440 million to $470 million. This represents a $20 million increase from the previous range. The higher earnings will be recognized in the second half of the fiscal year, as we begin to capture the full benefit of the recent acquisitions and our data center sales accelerate significantly. The new earnings outlook represents another year of rapid growth based on the implied growth range of 12% to 20%, with a midpoint above 15%. With regards to cash flow, we recently announced a plan to invest an incremental $100 million of CapEx over the next 12 to 18 months. As a result, we'll continue to generate free cash flow, but this year will be somewhat lower as a percentage of sales at around 3%. This includes the cash required to fully fund our pension prior to our plan annuitization this year. I want to point out that we have not included cash proceeds from any potential divestitures this year. Looking ahead to the next year, we anticipate that our free cash flow margin will once again improve and be in line with our fiscal '27 target. To wrap up, we're quite pleased with the results this quarter, and these are exciting times at Modine. We're reinvesting and redeploying significant amounts of capital, which are generating high returns on investment and supporting our strategic transformation, while laying the foundation for us to generate rapid growth well into the future. With that, Neil and I will take your questions.
Questions and answers
The first question is from Matt Summerville from D.A. Davidson.
A couple of questions. First, can you talk about the magnitude of unabsorbed costs you're going to experience in the Climate business? Is it like a build-out in the second half? Can you comment on how we should be thinking about the fiscal '27 data center revenue target you set back in September of 2024 at $1 billion with your current guidance, almost knocking on that now for fiscal '26? And then I have a follow-up.
Yes, Matt, it's Mick. Thanks for the question. On the data center fixed costs, the best way to think about that is in two pieces. First, the core capacity that we put in place is rapidly filling up. We'll continue to convert at good margins at or above the Climate Solutions segment margin. Second, when we think about the incremental capital investments — the $100 million that we're making to expand facilities, adding more lines at current facilities plus a couple of brand-new facilities that Neil covered — that will start to ramp in the second half of the year and most likely won't capture meaningful volume until the beginning of the new fiscal year. So we clearly raised our outlook here this year by about $100 million in top line that will probably convert a little bit lower on margin. I think the incremental $100 million will likely convert at about a 15% net margin. In there, there's pretty good conversion at the gross profit line, but we're also adding a lot of resources and engineering to support the future growth. So the short answer is: for the core business, good conversion; the incremental $100 million probably a little bit below the normal segment average and closer to 15%. It's really hard with some moving pieces to predict. On your second question about the fiscal '27 target, I think for now, the most logical way to think about it is a straight line between where we're trending this fiscal year and the $1 billion target that we discussed last September. We're trending towards $1 billion, and we'll provide more clarity later in the year as production comes online and we can better align timing and capacity.
Yes. I mean, if you're up 45%, that roughly would equate to $925 million, $950 million in data center revenues, something in that range, but your target for fiscal '27 is $1 billion. What's the reasonable way to think about '27 based on the $1 billion number you have sitting out there?
From my side, stay tuned, but you're right. For now, probably think about it as more of a straight line, and we are trending towards $1 billion this fiscal year. When we did our IR Day last September, the growth rate we projected was implying $1 billion next year. We have a lot of moving pieces with production coming online. Short of us coming back with a more definitive update later in the year, doing a straight line between the two would be the most logical approach unless Neil wants to add anything.
No, I think that's a good approach.
Very good. And then as my follow-up, you made a comment regarding profitability and how that evolves first half, second half. When you say that margins are set to improve, is that a comment on the whole company or on both segments for Climate and Performance Technologies? And then I'll get back to the queue.
Yes. A few moving pieces with regards to margins. For the total company, we still expect a margin improvement this year, driven mostly by Performance Technologies, and we see the total company margins beginning to step up in the second half of the year — Q3 and Q4. By segment: Climate Solutions — big second half volumes coming in from the data center ramp. We're currently adding a lot of cost and preparing, so margins could be flat to down a little in the first half, not in a meaningful way. In the second half, the implied growth rate is over 80% for data centers, and that's the kind of ramp we're looking at, including the north of $40 million inventory build this quarter. From a Performance Technologies standpoint, we expect a margin lift this year even with flat to down volumes. That's been consistent with our transformation strategy. We still think we can generate roughly 100 basis points of margin improvement, and we see that coming in the back half of the year. Two drivers: continued cost reductions and then higher volumes starting to come in the second half, mainly on a year-over-year basis. So volume, cost recovery on tariffs and metals, and the cost-outs on the PT side are driving the margin improvement.
The next question is from Brian Drab from William Blair.
I just wanted to ask about the capacity expansion first and a couple of points of clarification. Your recent comments about how much capacity you had — I think you were saying we're approaching like $1.3 billion to $1.5 billion in revenue capacity. And then you talked about this week, the $100 million in investment and the ability to get to $2 billion in revenue roughly. How much revenue are we thinking about adding specifically tied to the $100 million investment?
Yes, Brian, this is Neil. Good question. The way we're thinking about it: in order for us to get to that $2 billion goal for fiscal '28, we would have to have about $2.5 billion of capacity in place. We'd want to run around 80% capacity. So that's the difference between our current capacity and what we think we need, relative to the $100 million investment.
I'm trying to get to what's the return on investment here. It sounds like you're getting like $1 billion in capacity for $100 million investment. Can you help with that? It seems like the ROIC is coming down, but this is what people are trying to calculate.
About $1 billion.
Yes, Brian, I'll jump in. The ROIs that we run on these investments are really high, among the highest we've seen — well above typical M&A or organic projects — we're talking north of 40% return on invested capital. The capacity figures depend on product and region. When Neil lays out an estimated $2.5 billion of capacity, product mix matters — air handlers, chillers, Europe versus North America, India versus North America. It's a blended, optimal number, and we'll always adjust as we grow. If we're doing our job and growing, we'll continue to evaluate more capacity additions.
I'm doing the math too simply with limited information. It seems like you're adding almost $1 billion in revenue capacity at maybe a 15% EBITDA margin and getting $100-plus million in EBITDA every year going forward on $100 million investment. It seems like better than 100% ROIC. Am I crazy in that initial thought?
No. For sure, the payback and ROI are very compelling on these. As I mentioned, we're well north of 40% to 50% returns on capital by our internal metrics. Lots of assumptions to make, but the point is valid: these investments generate substantial returns given our scale, reputation and product position.
And the roughly 15% EBITDA margin you mentioned — is that a near-term ramp-up level or a long-term level for the incremental capacity coming on?
Good clarification. No — long-term, we expect to drive significantly higher margins. There's a step function: phase one is adding capacity, phase two is filling it, phase three is optimizing and maximizing it. Our data center businesses when they're running at normal utilization are at or above our segment averages. I was commenting that with multiple new lines and greenfield facilities coming on, near-term margins on the incremental volume could be lower, but long-term margins will be higher as utilization increases and we optimize operations.
The next question is from Noah Kaye from Oppenheimer.
This back-half ramp is obviously key. I want to pair the demand visibility with what percentage of the new capacity needs to be in place. On the demand side, can you give us a sense of the visibility that allowed you to raise the guide this early in the year? Are those orders largely baked, and on the capacity side, what needs to be brought online to hit or beat the target?
Thanks, Noah. We have visibility that extends beyond a year in many instances — in some cases as far as three years. We're in close collaboration with customers on timing and how we need to stand up additional capacity to meet their data center construction timelines. We tie our schedule to their schedule, which allowed us to put additional capacity in place. First, we'll utilize existing infrastructure and workforce, which will happen in the next three to four months or in the next couple of quarters as we retool facilities and stand them up for data center operations. Second, we have some new, greenfield facilities that will take longer because we don't have established practices there, so those will likely come online closer to the end of our fiscal year.
To unpack further, going from 30% to 45% growth — is it fair to characterize this as both accelerated deployment schedules from customers and expanded builds, meaning customers have both increased scope and accelerated timing?
Yes. What's driving the expansion is certainly accelerated growth from existing customers and onboarding of new customers. We're gaining share in the market. As we bring technologies and new products to the market, there's traction. Customers are moving quicker than we anticipated, and we're winning new programs at the same time.
Last one for me: the outlook doesn't contemplate any divestiture proceeds. Can you bring us up to speed on the divestiture process and timing?
Yes. Two areas we've discussed previously: we announced plans to sell our headquarters in our European location, and we expect that to close later this year. That was estimated to be a $10 million to $15 million transaction; we're going through local regulatory approvals. Second, we continue to work on a potential sale of our light-duty business, which we discussed after the IR Day and estimated at $250 million to $300 million. That process is ongoing with a focused team. We'll provide updates when we have something definitive to share.
The next question is from Chris Moore from CJS Securities.
Can you talk more about the custom modular data center you're developing with clients? Any specifics and timeline on that project?
Thanks, Chris. We're seeing customers move toward modular solutions to satisfy speed of deployment. Think of this as a data center in a box, which allows customers to ramp up projects much quicker without requiring the same amount of construction labor and skilled trades. We're working with a very important customer and have identified a location in Calgary where we'll make this product, and we'll expand into the U.S. It's intended to help customers get to market faster with their data center solutions.
Appreciate that. Regarding ICE rationalization we've discussed, are there other areas within Performance Technologies you may deemphasize moving forward?
We're constantly evaluating our markets and applying our 80/20 approach by segmenting the business into multiple markets and establishing key account strategies. Some product lines will be grown and some de-emphasized. We mentioned genset flattening, which may allow redeploying resources elsewhere. We're evaluating different opportunities across PT.
One more on modeling: cash flow is down a bit this year due to investment; can you give a reasonable level for interest expense for fiscal '26?
Our current estimate for interest expense is $28 million to $30 million.
The next question is from David Tarantino from KeyBanc Capital Markets.
On near-term data center trends, could you give more color on the underlying demand relative to the 15% growth in the first quarter? Specifically relative to the pauses you noted in Europe last quarter versus robust demand in North America.
I'll give you my view and then Neil can add. On the positive side, we've continued to win new programs. We knew the year would be back-half loaded and had planned for slightly lower than normal data center growth, even though Q1 came in at 15%. Some of the locations we support, we've won more buildings or data centers, and customers have asked to increase or accelerate volumes. That has led to two things: internally, we needed more capacity to support the orders we have in hand, and secondly, to meet the opportunity we see in the order book for next year. We've seen an acceleration into the second half and are keeping up with increasing orders and volumes. Neil, anything to add?
I would add that we have the orders and commitments that justify the capacity expansion. We're comfortable with that. Introducing our chiller to the North American region has also driven accelerated growth. The chiller technology and demand for it has been a big contributor to the pull for more U.S.-based capacity.
Could you give more color on recent deals and how much they should contribute this year? And on capital allocation, given the investments and deals, what should we expect for M&A or other uses?
On a partial-year basis, the last two acquisitions should contribute about $100 million of incremental revenue this year. L.B. White should have initial margins in the 15% to 20% range, close to Climate Solutions and improving toward segment averages. CDI is running below the segment average initially; it had a large business supporting rapid growth in EV battery factories and was acquired to fill manufacturing capacity and drive sales synergies. We expect CDI's margins to move up over the next year toward segment averages. Capital allocation: in Q1 we spent $27 million, with about $20 million in Climate Solutions mostly on data centers. Our plan already included roughly $40 million in capital for data center growth, and the recent announcement adds an incremental $100 million on top of that. So we'll likely spend the next 12 months or so more than $140 million of capital on the data center side. Performance Technologies is in maintenance mode with mostly preventative maintenance and select program launches. On M&A, expect a pause for at least a couple of quarters while we digest three acquisitions, any divestiture work and the large data center expansion. The balance sheet is in great shape, but we expect the team to focus on integration and execution for now.
The next question is from Jeff Van Sinderen from B. Riley Securities.
Great to hear about expanding data center production. Are you also expanding data center service capabilities alongside that expansion?
Yes. Absolutely. Service is a product offering we often bring to market with our product solutions. We're hiring in North America to support growth in our service group. We need to build out further service capabilities to support the product growth — start-up, installation and long-term maintenance. One area that differentiates us is our building management and control systems; tying our equipment together to operate as an ecosystem provides efficiency gains. Given high power demand and the need to reduce water usage, these efficiencies are highly valued by our customers. So we are building out service capabilities at the pace required to support product demand and our controls offerings.
You had one large order in the D.C. area around $180 million with a colo customer announced a few months ago. Are there other opportunities of that magnitude that could result in similar announcements over the next several quarters?
Yes. That is essentially what drives the $2 billion target and the need for the $100 million investment — a collection of orders of similar magnitude is part of the opportunity set we're seeing.
You're pausing on acquisitions for a bit. When you resume, what areas might you focus on?
We love the organic growth in the data center market, but we also believe in maintaining a diversified business portfolio for the long term. We'll actively build our M&A funnel over the next two quarters with a focus on businesses that support our HVAC Technologies business and potential vertical integration of our supply chain.
The next question is from Brian Sponheimer from Gabelli & Company.
Neil, congratulations on the data center vision and the Climate Solutions acquisitions. From a strategic perspective, where do these businesses need to get to — and where does the data center need to get to — for you to consider another separation? How do you view those two businesses standing on their own financially and strategically?
Thanks, Brian. Vision is important, but execution is essential; credit to the team for executing. We'll have to re-evaluate our structure as we continue to shift the portfolio. We've divested plants, acquired businesses, and had organic growth that has changed the company's shape since we launched our current segments. This is a normal part of our ongoing 80/20 process as we rebalance and reposition the company. We'll reassess at the end of the fiscal year and beyond as needed.
The next question is from Matt Summerville from D.A. Davidson.
Just a follow-up: can you flesh out your comment about a collection of orders of that magnitude in the context of the $2 billion target — should we assume a majority of the build to that $2 billion is based on orders in hand or backlog? I know you don't disclose orders in backlog exactly, but how much of that revenue objective is known and spoken for today?
Yes, that makes sense. We have the highest data center backlog we've ever had, which gives us confidence to put forward the capital to grow and expand. We're often the incumbent in these data centers, so we have visibility into expansions and expect to be the logical choice for additional capacity. The commitments we have with customers, the orders in hand, the strategic relationships and the outlook all give us the confidence to make these investments.
As a follow-up, on the modular data center you referenced, and the large air handling unit development for a customer — are these solution sets portable across your customer base, and if so, how soon? Or is there some level of exclusivity you will be granting?
Yes. For some customers, particularly hyperscalers, there will be exclusivity on bespoke designs. But the modular data center concept will have variations and different versions for different customers. The concept is portable, but the specifics — what's inside and how they operate — may be unique and bespoke for each customer.
I'm showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.
Thank you, and thanks to everyone for joining our call this morning. A replay of the call will be available on our website in about two hours. Thanks.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.