Prepared remarks
Hello, and good morning. Welcome to our conference call to discuss Modine's third 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 for 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 will turn the call over to Neil.
Thank you, Kathy, and good morning, everyone. Before launching into our quarterly results, I'd like to take a moment to review some of the details from last week's announcement regarding the future of our Performance Technologies segment. Since launching our transformation at our first Investor Day, we have made significant progress evolving our portfolio of businesses by investing in high-margin, high-growth businesses while improving our lower-margin businesses and making strategic divestitures. This past summer, we launched a process to divest our remaining automotive business and instead identified an opportunity to accelerate our transformation by spinning off the Performance Technologies segment and combining it with Gentherm, a leading player in thermal management and pneumatic comfort technologies. Modine will receive approximately $210 million in cash and Modine shareholders will receive stock in the new business in a tax-free distribution equaling 40% of the combined ownership. The combined business will provide renewed focus on investment and growth for Performance Technologies business and create cross-selling opportunities for Gentherm across new attractive markets. This values the Performance Technologies business at $1 billion or 6.8x the 12-month trailing EBITDA. This recognizes and reflects the hard work we put into improving margins in the business and allows current Modine shareholders to participate in future synergies and the strong earnings conversion we expect from the business once market volumes improve. The transaction presented an exceptional opportunity to find an ideal home for our PT business while maximizing value for our shareholders and further accelerating our transformation. The remaining business will consist of our current Climate Solutions segment plus corporate support functions. This is a business where we've been focusing on our investments for growth, including six acquisitions over the past three years and the significant CapEx for expanding capacity for our data centers product. The transaction will allow us to further concentrate on these high-margin, high-growth businesses, allowing us to become a pure-play, highly focused diversified climate solutions company. This is the right transaction for Modine and for the shareholders at the right time, allowing us to further our vision of always evolving our portfolio of products in pursuit of highly engineered, mission-critical thermal solutions. Now turning to our quarterly results and the strategic updates. Please turn to Slide 5. Our end markets in the Performance Technologies segment continue to be challenged and volumes remained down this quarter. However, commercial execution and cost recoveries resulted in revenues increasing 1% from the prior year. The segment's adjusted EBITDA margin increased by 400 basis points to 14.8%, reflecting the hard work done over the past year to reduce costs and reallocate resources to the Climate Solutions segment. Now that we've reached an agreement with Gentherm, the next several quarters will be spent preparing the business to be spun off in anticipation of the combination. We will also be working on getting the necessary regulatory approvals for the transaction, which we expect to close in the fourth quarter of this calendar year. The Performance Technologies team has worked very hard to improve the business over the past several years and deserves the opportunity to grow. I'm confident that Gentherm will provide a great home for this business and the structure of this transaction will allow Modine shareholders to continue to participate in their success. We are at a major turning point for Modine. We are making unprecedented investments in the future of our company while simultaneously accelerating the transformation of our portfolio by merging our Performance Technologies segment with Gentherm. Please turn to Slide 6. Our Climate Solutions segment delivered another quarter of outstanding growth with a 51% increase in revenues, including the contributions from acquisitions. Organic revenue growth from the segment was 36%, driven by a 78% increase in data center sales. Our capacity expansion remains on schedule, supporting the sequential margin improvement we saw this quarter. We commissioned four new chiller lines this quarter, including the first two lines in Jefferson City, Missouri. We have four lines scheduled to come online in the fourth quarter, the final two lines in Grenada, Mississippi and the first two lines in Dallas. We have also launched initial production in Franklin, Wisconsin, providing additional capacity for the products currently produced in Calgary, including air handling units and modular data centers. We are often asked if we are concerned about ending up with too much capacity. And the simple answer is no, not at all. Our current projections fully support the capacity we're putting in place based on known demand with existing customers. In fact, we had record order intake this past quarter, further solidifying our confidence in our strategy and financial projections. Looking forward, if there's change in the mix of the products that we need to produce, we'll easily be able to pivot to other data center products on the same lines we are building today. A chiller line can be converted to produce modular data centers or large air handling units. This gives us flexibility to manage future demand and meet customer requirements in what continues to be a dynamic environment. We've also received many questions regarding the recent comments on the ability of next-generation chips to operate at higher temperatures and the potential impact to the future of data center cooling. First off, none of this was a surprise to us. We are constantly working with our customers to ensure that we are designing the data center cooling solutions they need today and into the future. Having a higher ambient temperature for water running through the liquid cooling loop is a positive development as it potentially reduces the energy required to run mechanical cooling processes by leveraging a hybrid technology utilizing free cooling options currently available on our chillers. In fact, we recently announced the launch of a new 3-megawatt turbo chilled chiller platform that is specifically designed to provide advanced free cooling heat rejection for high-density next-generation GPU-powered data centers. Power remains a focus for data center operations, so increasing PUE by reducing energy consumption in the cooling process is a major advantage and why we continue to gain market share. It is also important to realize that there are many different approaches to data center cooling, and our goal is to provide a full range of solutions that are customizable at scale. We see our market opportunities continue to grow as we continue to invest in both capacity and product development to cement our position as a technology leader in the market. We previously shared our target of delivering over $1 billion in data center sales this year, and we remain on track to deliver on that goal. We have also shared that our current capacity expansion will allow us to reach $2 billion in data center sales by fiscal 2028. And I'm happy to report that we remain confident in this target as well, further supported by our record order intake last quarter. We've recently updated our data center revenue projections and currently expect to deliver 50% to 70% annual growth in data center revenue over the next two years, which would put us comfortably ahead of this target. Our confidence in this target comes from understanding our customers' long-term strategic road maps. The industry is moving towards long-term supply agreements that lock up supplier capacity in advance. Our team is actively engaged in these discussions, which we expect to lead to multiyear orders. Our recent success and growth stems from our 80/20 focus and market-leading technology. The feedback from our customers is clear. Our products are the most efficient on the market, resulting in substantial savings from lower energy costs. This allows us to be a key partner in developing next-generation cooling products, cementing our role as a key strategic supplier. As we scale our production capacity, we are in a prime position to continue capturing market share. I'm very proud of all the hard work put in by the Climate Solutions teams this year. We've completed three strategic acquisitions and embarked on the largest capacity expansion in the history of the company, all squarely in line with our strategic goal of investing in high-growth, high-margin businesses. With that, I'll turn the call over to Mick.
Thanks, Neil, and good morning, everyone. Please turn to Slide 7 to begin reviewing the Q3 segment results. Performance Technologies revenue increased 1% from the prior year, including a 3% decrease in heavy-duty equipment, offset by a 6% increase in on-highway product sales. Despite typical Q3 seasonality and end market challenges, adjusted EBITDA improved 38% from the prior year, and the adjusted EBITDA margin increased 400 basis points to 14.8%. The margin increase was driven by significant cost reductions and improved operating efficiencies across labor, overhead and materials. Pricing was also a benefit in the quarter, driven by tariff recovery through surcharges and our normal pass-through mechanisms. In addition, with the reorganization of this business, SG&A expenses were nearly $7 million lower versus the prior year. As we look to Q4, we expect a sequential ramp in revenue, which will be primarily driven by the typical seasonal pattern. We remain focused on costs and operating efficiencies, which will allow us to drive higher operating leverage and margins when market volumes begin to recover. Please turn to Slide 8. Climate Solutions delivered another quarter of strong revenue growth, increasing sales by 51%. The main growth driver was data centers, which grew $130 million or 78% as we begin to capitalize on our investments and utilize the new capacity. As anticipated, there was a 31% sequential revenue growth for data center products in Q3, and we expect significant incremental volumes in the fourth quarter as well. HVAC Technologies sales increased $35 million or 48%, driven by our recent acquisitions and stronger heating product sales. Heat Transfer Solutions sales grew 14% or $17 million, mainly due to higher coils and coatings demand. Climate Solutions third quarter adjusted EBITDA improved 29% given the strong top line growth. We made good progress this quarter with sequential improvement in the adjusted EBITDA margin to 17.9%, and we continue to expect further margin improvement in Q4. The Q4 margin improvement is expected to be driven by the increasing data center volumes and leveraging our recent capacity investments, along with the ongoing integration of the last three acquisitions. Before moving on, I want to reiterate that as the demand for Modine data center solutions continues to grow, we are again increasing our revenue outlook for the current fiscal year. Now let's review the total company results. Please turn to Slide 9. Third quarter sales increased 31%, driven by revenue growth in Climate Solutions. Gross profit increased 24%, driven primarily by higher data center sales volume in Climate Solutions, along with the margin improvement in Performance Technologies. SG&A expenses increased 9% due to increases in Climate Solutions, which were partially offset by the Performance Technologies cost savings initiatives. Looking at earnings, I'm pleased to report a 37% improvement in adjusted EBITDA and a 70 basis point margin improvement to 14.9%. With regards to EPS, the adjusted earnings per share increased 29% to $1.19. Please note that this excludes the $116 million noncash settlement loss recorded in connection with the termination of our U.S. pension plan. I'm happy to report that this project was completed, removing a liability from our balance sheet, along with the time and expense of the ongoing administration. To summarize our consolidated results, Q3 represents another good quarter of revenue and earnings growth. As we look to Q4, we continue to expect that the adjusted EBITDA margin will sequentially improve and begin to reach more normalized levels as the data center production volumes ramp up. Based on this outlook, we expect to exit the fiscal year at the highest quarterly margin rate and expect further margin improvement next fiscal year. Now moving on to cash flow metrics. Please turn to Slide 10. Free cash flow was negative $17 million in the third quarter. As discussed last quarter, the lower cash flow is primarily due to inventory builds and higher CapEx in Climate Solutions. However, this represents much needed and temporary investments to prepare for additional sales growth for our data center products. Also, third quarter free cash flow included $24 million of cash payments primarily related to the U.S. pension plan termination and restructuring. Net debt of $517 million was $238 million higher than the prior fiscal year, including the three acquisitions completed earlier this year, along with the incremental data center investments. Our balance sheet remains quite strong with a leverage ratio of 1.2. And based on our earnings and cash flow outlook, we expect that it will decline further by fiscal year-end. We anticipate generating positive free cash flow in the fourth quarter and are now expecting CapEx to be in the range of $150 million to $180 million for the full fiscal year. From a timing perspective, we anticipate that some of the data center capital investments will now carry over into the next fiscal year. And looking ahead to next year, we anticipate that our free cash flow will rebound, aligning with our long-term goals of improving the free cash flow margin. Now let's turn to Slide 11 for our fiscal '26 outlook. As we enter the fourth quarter, we're happy to announce that we are raising the revenue and earnings outlook. For fiscal '26, we now expect total sales to grow in the range of 20% to 25%. For Climate Solutions, we're raising our outlook for full year sales to grow 40% to 45%, up from 35% to 40%, with data center sales expected to grow in excess of 70% this year. For Performance Technologies, we're holding our sales outlook with revenue anticipated to be flat to down 7%. We expect that the end markets will remain depressed over the next quarter. As expected, more favorable foreign exchange rates and material cost recoveries will support sales, but the underlying market volumes are not recovering yet. With regards to our full year earnings, we're raising our fiscal '26 adjusted EBITDA outlook to be in the range of $455 million to $475 million. This reflects the strong performance this quarter and further improvement in Q4. To wrap up, we're encouraged with our Q4 outlook and fully expect to deliver another fiscal year of record sales and earnings. The teams have worked very hard to execute on our strategy using 80/20 as a guide. And the recent announcement to spin off Performance Technologies is truly historic. We remain confident that these actions are setting the stage for long-term sustainable growth for Modine shareholders.
With that, Mick and I will take your questions.
Questions and answers
Our first question comes from the line of Matt Summerville with D.A. Davidson.
So I want to understand a couple of things. Can you talk about kind of the puts and takes embedded in the margin outlook for both Climate and PT in the fourth quarter? On the last conference call, you had sort of led us down a path whereby Climate kind of ends the year in Q4 with further sequential margin improvement maybe in a range of 20% to 21%. So if you can kind of backfill on the margins across the two segments? And then also help us understand what defines kind of the high and low end of the algebra on that 50% to 70% CAGR because obviously, you extrapolate that out two years, it's a pretty wide range. Is it demand? Is it capacity? So a little bit of help there as well.
Yes, Neil, Matt, it's Mick. I'll go first and then Neil can add to the CAGR comment. As we assess our outlook for the remainder of the year, I want to emphasize that we are confident in the margin enhancements for Climate Solutions following a 120 basis point sequential increase in Q3. We still anticipate a sequential improvement of over 200 basis points in Q4, which keeps Climate Solutions within the 20% to 21% range. For the PT segment, we do expect a decline in the EBITDA margin, which may be something you're considering as you model. We view this as a temporary dip for Q4. We have material pass-through mechanisms that will make up for recent spikes in aluminum, copper, and steel costs, along with the timing of tariff recoveries and some Q4 inventory write-offs related to our 80/20 PLS initiatives and conversions from PT to data center plants. We're also comfortable with the analysts' estimates and figures projected for Q4, suggesting we are trending above the midpoint of the range. Climate Solutions is on track for margin improvement in Q4, driven primarily by HVAC and data centers. Meanwhile, we expect a margin dip for PT in Q4 but anticipate a recovery in Q1, bringing PT back to a range of over 14%. Let me pass it over to Neil, and then you can come back, Matt.
No, I think that's covered well, Mick. Any other questions on that, Matt?
On that note, if we can get to the kind of data center question on what defines kind of that high low-end range when you extrapolate out 50% to 70% growth off a '26 base of $1.1 billion plus, you get a wide range. Is it capacity? Is it timing? Is it demand? Maybe you can just help out a bit there, that would be great.
Yes. In terms of capacity expansion, we are providing ourselves with ample room. As we progress with our project launches in the U.S., especially in Jefferson City and Dallas, we will reach a point where the majority of our capacity will be established and operational, which would give us greater confidence to narrow that range.
Perfect. And then as a follow-up, can you maybe talk about how we should be thinking organically around the non-data center businesses in Climate over the course of calendar '26?
At a high level, we're experiencing strong performance, especially in the HVAC sector with our heating products. The indoor air quality segment has seen excellent order growth. Our acquisitions have also yielded positive results. However, we've noticed some softness in the HTS business concerning margins due to rising material costs. We've managed to address this through commercial strategies like pricing, but there's a delay in seeing the full impact. We need a bit more time to bridge that gap.
You mentioned record order intake in data center. Could you give us some color around the profile of these orders? How much of the growth is being driven by expanding relationships with customers and/or adding new ones versus your existing customer set? And what do you have embedded here in the longer-term growth profile around expanding these relationships beyond what you currently do?
Yes. So that's a good question in terms of the profile and the concentration. This expansion is coming with our existing customer base primarily. Certainly, we are actively working with all the hyperscalers, but at different degrees and different levels. And there's potential for even greater upside when you think about some of these hyperscalers if we were to win orders at the order rates that we have with the ones that we have the longest relationships with. So this order intake and the upside that we see is with our strongest relationships with our longest customers, and we're still working through and doing quite well with the other hyperscalers and some of the N cloud providers as well.
Okay. Great. That's helpful. And then maybe just on free cash flow. The CapEx investments are pretty well documented. But could you talk about the working capital investment side of things related to the ramp and specifically what gives you the confidence that free cash flow begins to return to more normalized levels next year?
Yes, it's Mick. We've been maintaining a working capital to sales ratio of about 19% to 20%. I believe this will remain stable. However, two factors will help us return to more typical free cash flow levels. First, the expansion we announced at the beginning of this year resulted in a lot of pre-buying, causing our inventory levels to exceed normal. Second, we've seen an increase in capital expenditures, both in terms of one-time expenses and as a percentage of sales. I expect that we will gradually trend back down. This won't happen abruptly; our inventory working capital will align with sales as it returns to normal ratios. The same goes for capital expenditures. We will carry some CapEx into next year, but as a proportion of our capital needs, it won't remain as high as this year, which saw around $200 million in investments with a total of about $400 million for capital expenditures and working capital expansions.
And good to see folks earlier this week at Expo. It was really helpful to get your commentary just now on the Climate Solutions margin outlook for 4Q. Basically, this is going to be then if you hit that a couple of quarters in a row where you get roughly, call it, 200 bps, 100 to 200 bps margin expansion sequentially even as you're adding a bunch of new chiller lines, right? So I guess the question is really how do we extrapolate this and thinking about where margins could be going here. You've talked about kind of mid- to high 20s as a longer-term target. But should we think about that kind of margin progression as continuing into the future quarters as you continue to add more lines but get better absorption?
There are a few things to consider, Noah. We aren’t suggesting that we will achieve 200 basis points sequentially every quarter. As we mentioned in Q2, we experienced a significant drop due to the fixed costs we added. For us to recover, we anticipated that it would take around two quarters to regain approximately 400 to 500 basis points. After that, we expect a more gradual increase. We have set a goal for Climate Solutions next year to be between 20% and 23%, and we will provide additional guidance in our Q4 report. To remind everyone, when we announced our plans for Performance Technologies, we mentioned splitting into two Climate Solutions segments, which will allow us to give further details in Q4 about data centers. Until we provide specific guidance for the two Climate Solutions segments, I think starting with the midpoint of that range for next year is reasonable, and we will refine this in Q4.
Thank you. We see a split of about 50-50 in our product offerings, with 50% attributed to chillers and the other 50% to our additional data center solutions. The majority of our revenue comes from hyperscale clients. We are confident because these projects have been in development for some time and are now converting into purchase orders. Our long-standing and robust relationships with these customers are evident as they move through the sales funnel, increasing from a probability of 40% or 50% to 80% to 90% at a much quicker pace than we have previously experienced. This progress reinforces our confidence in both our customer base and our product capacity, which aligns with our ramp schedule that we publicly shared a few quarters ago.
So obviously, as you talked about, the 50% to 70% growth in '27, '28 recognizes the market dynamic, the mix of products there might change. I think on the follow-up call on the PT spin-off, you talked about chillers potentially being better than 50% of the mix in '28. Maybe can you just talk a little bit about how the ultimate mix impacts your margins and kind of what the biggest wildcards are?
Yes. I'll start, and Neil can add some thoughts. The situation is fairly uniform across the data center sector. Looking at it from a broader perspective, one point Neil mentioned that will be helpful is that now that data centers have reached a significant scale, we believe it's the right moment to define this as a distinct segment. However, when we examine Climate Solutions from recent quarters, we see that the total segment includes the three acquisitions we've made. Additionally, as Neil pointed out regarding the coils or HTS side, we've experienced a lag effect concerning material pass-through, which has influenced the margins you've observed. Overall, the data center product portfolio displays a consistent margin profile, and we value the service component. Therefore, I wouldn't consider this a major factor. It's important to note that the main contributors to our margins are data center capacity utilization and not so much the product mix. Another aspect to consider over the last three to six months has been the increase in fixed costs associated with new facilities.
We would expect to have the capacity in place by the end of '27. However, they may not be at full utilization yet.
Apologies if I missed this on capacity utilization, but I think your guidance based on my math at least has annual data center revenues kind of exiting the year at $1.6 billion. Is that the correct way to think about the annual number? And what is the kind of capacity utilization that, that assumes?
Yes, our Q4 has implied a $400 million plus sales quarter. So yes, that would be an annualized run rate of $1.6 billion. Neil, do you want to add anything on capacity here?
Capacity is aligned with our expectations. We are becoming more efficient, which is reflected in the margin improvement this quarter. We are confident about returning to the 20% range as we continue to increase capacity in our data centers.
All right. And one more follow-up, again, on the point of demand. I know you said record orders in the quarter, but maybe just like taking a step back, like the data center pipeline as you see it, can you talk about how that's trending? And like specifically, do you have more visibility on future orders and revenues than you did, say, six to twelve months ago?
Yes. And that's an interesting question because I say yes to that every time that's asked every six to twelve months because it just gets bigger and bigger and the visibility gets broader and broader. So if you go back three years ago, we had 8 to 12 months visibility. And you go back a year ago, we had 24 months visibility, 36 months visibility. Now we're looking out as far as 5 years. And certainly, the top of the order funnel is swelling for sure.
Just kind of maybe this is a little bit premature, but given that your next fiscal year is upon us and you're ramping production, how do you think we might see the growth cadence of the Climate Solutions business trend in the next fiscal year? And might we anticipate sequential revenue growth for the next several quarters?
Total Climate Solutions. I want to make sure I understood your question. Yes. Yes. Well, I think I'd separate them again. I would expect, again, Neil can jump in that at the greater growth in order intake on the data center side, and that's becoming a much bigger piece, right, of the entire Climate Solutions segment, that we will see sequential growth for quite a while on data centers. I have to go back and study a little bit the HVAC side. We get seasonal patterns with heat. And then you have a coil HTS business that can be heavy replacement and also some of that tied to residential OE customers. So I think of that as more normal and that we've said that's probably a high single-digit organic grower annually. last thing I'd say, I don't want to be too repetitive, but it will help when we give you some more color in Q4, and I could split those two dynamics. HVAC is a very different dynamic, HVAC&R versus data center. So hopefully, that's enough color to give you some direction. So beginning in our Q1 with our new fiscal year, we will have 3 segments. We'll have a data center segment, a commercial HVAC segment, and obviously, Performance Technologies until that transaction closes. And we'll report as we have with our other segments, revenue and earnings. What we'll just do in our Q4 is we'll provide some guidance for the new year outlook. But to be clear, I won't be able to give you those segment splits until we hit our Q1.
So a few things. One is there's a lot of conversations about them now, which is securing capacity. How do we ensure that the strategic suppliers that they've selected are investing in capacity and investing in production and investing in their own internal supply chains so that they can keep up with the demand as you see the hyperscalers continue to raise their CapEx spend. Almost every quarter, they're raising their CapEx spend. So what are we doing now to ensure that we're in sync and locked in with their progress as well as their build-out? That's one. The next piece is around our innovation and technology. What are we doing to make sure that we deliver products that help them solve 2 critical problems. One is the lack of power, so energy consumption and the other is around water and the amount of water that's used typically in some data centers. So if we can continue to innovate and evolve with better use in terms of power and water, which are often measured through PUE and WUE, we can continue to improve their metrics and stay innovative in that regard. Those are 2 critical problems that we're trying to solve for in the industry in addition to keeping up with the breakneck speed of CapEx deployment.
I wanted to inquire about the capacity expansion. It seems you have secured $1.6 billion in revenue capacity as you head into the fourth quarter. However, to reach the $3 billion target, how much additional investment is required? I'm trying to understand the full framework. I believe Nick mentioned some points during last week's call, but there are many questions surrounding this. How do you plan to get to $3 billion? What is the additional investment needed beyond the previously mentioned $100 million? Additionally, will you achieve this through higher utilization or increased pricing? Can you clarify all of this for us?
Yes. High level, we can get there on the amount of capital that we've been public about in terms of what we needed to spend to get to the $3 billion. But $40 million of that will carry over from this year into the next fiscal year.
Yes. We had approximately $40 million in capital spending in Q3. In Q4, we expect to spend another $40 million to $50 million on equipment that won't generate much revenue immediately. Neil mentioned over $40 million that we'll allocate in the new year. Additionally, there is nearly $100 million remaining from the spending we've outlined, which isn't reflected in our current production sales numbers but will aid in future sales growth.
20.
Got it. And the last question is, Neil, I'm not sure if you want to provide an update on this, but you mentioned late last year about a couple of new potential hyperscaler customers for chillers who hadn't purchased them before and were looking for sample products. I'm just wondering how many total hyperscaler customers you are currently working with. Additionally, can you provide a specific update on any developments and potential new customers for chillers?
Yes. Obviously, we're working with all of them at different levels of engagement. And then if you recall from last quarter, I talked about one of the reasons that we had that miss in the margins in data centers was that we had to cut production with a couple of hyperscalers that we hadn't sold chillers to in the past, and they needed some pilot builds for fiscal year '27 and '28. So pending the results of the field trials, which we would anticipate to be in line with how we typically perform, we'll continue to grow with those other hyperscalers with chillers.
I just have one follow-up here. Neil, Mick, how are you strategically thinking about LTAs long-term agreements? How much of your capacity will you ultimately be willing to have sort of spoken for over what kind of time frame? And I guess, in turn, what price kind of considerations are you thinking about? And would you be able to structure these almost as a take-or-pay arrangement such that you're not absorbing risk?
Yes, while it's not possible to structure it in a completely risk-free way, it certainly reduces risks significantly and increases our confidence in the customers' long-term commitment. We would be open to long-term agreements for all of our capacity because it makes sense. This is a new aspect of our capacity expansion discussions with our major OEM customers, and these conversations are ongoing. There is evidence from other suppliers that such arrangements can be successful. We focus on aligning with our top customers, who we believe are the best partners, and those are the customers we would prioritize when providing additional capacity under a long-term agreement.
Yes.
Thank you, and thanks to all of you for joining us this morning. A replay of this call will be available on our website in a couple of hours. I hope you all have a great day. Thanks.
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.