Modine — Second Quarter Fiscal 2027 Earnings Summary

Financial Performance:

• Net sales for the quarter ended September 30, 2026, reached $994.4 million, a 35% increase from $738.9 million in the prior year.
• Net earnings were $30.3 million, a 32% decrease from $44.8 million in the prior year, impacted by $29.5 million in income tax expense related to legal entity restructuring for the Performance Technologies spin-off.
• Adjusted EBITDA was $136.2 million, a 31% increase from $103.8 million in the prior year.
• Earnings per share (EPS) was $0.56, a 33% decrease from $0.83 in the prior year.
• Adjusted EPS was $1.35, a 27% increase from $1.06 in the prior year.
• Gross profit increased 25% to $205.4 million, while gross margin decreased 160 basis points to 20.7%.
• Selling, general and administrative (SG&A) expenses increased 24% to $104.6 million.
• Operating income increased 33% to $97.8 million.
• Net cash used for operating activities for the six months ended September 30, 2026, was $57.1 million, a decrease of $86.2 million from the prior year.
• Free cash flow for the six months ended September 30, 2026, was a use of $145.6 million, a decrease of $115.3 million from the prior year.
• Total debt was $724.3 million as of September 30, 2026.
• Cash and cash equivalents totaled $150.6 million as of September 30, 2026.
• Net debt was $573.7 million as of September 30, 2026, an increase of $210.9 million from the end of fiscal 2026.

Guidance and Future Outlook:

• Modine updated its Fiscal 2027 financial outlook to reflect higher expectations for core businesses and the spin-off of Performance Technologies.
• Starting in the third fiscal quarter, historical results for Performance Technologies will be reported as discontinued operations.
• Revenue is expected to increase 50% to 55% from the prior year, excluding Performance Technologies from both periods.
• Full-year adjusted EBITDA for the continuing business is expected to be $470 to $500 million, representing growth in excess of 50% from the prior year, excluding Performance Technologies.
• Fiscal 2027 Net Sales outlook is $3.1 to $3.2 billion.
• Fiscal 2027 Adjusted EBITDA outlook is $470 to $500 million.
• Management plans to share longer-term revenue and earnings targets during the Analyst and Investor Day on November 18.
• The company expects to incur approximately $20 to $25 million of additional costs during the second half of fiscal 2027 related to the Reverse Morris Trust transaction with Gentherm.

Business Segments and Product Lines:

• Data Centers: Sales increased 95% to $439.7 million, driven by higher sales to hyperscale customers in North America. Gross margin was 19.7%, down 470 basis points from the prior year due to higher material, component, and tariff costs. Operating income increased 70% to $61.2 million, and adjusted EBITDA increased 66% to $67.6 million.
• Commercial HVAC: Sales increased 23% to $285.5 million, driven by higher sales of coils, coatings, and heating and ventilation products. Gross margin was 23.1%, down 140 basis points due to unfavorable sales mix and higher material and tariff costs. Operating income increased 30% to $34.3 million, and adjusted EBITDA increased 22% to $43.0 million.
• Performance Technologies: Sales increased less than 1% to $287.7 million. Higher sales to power generation and commercial vehicle customers were offset by lower sales to automotive and off-highway customers. Gross margin was 18.6%, down 30 basis points due to higher material and tariff costs. Operating income increased 8% to $32.1 million, while adjusted EBITDA decreased 3% to $40.9 million.
• The company entered into long-term agreements with multiple strategic suppliers to secure critical components for the Data Centers segment.

Market and Competitive Landscape:

• Demand for products remains very robust, highlighted by record orders and backlog in the Data Centers segment.
• The company is expanding opportunities to serve the data center cooling market within the Commercial HVAC segment.
• The spin-off of Performance Technologies was completed on October 1, 2026, via a Reverse Morris Trust transaction with Gentherm.

Risks and Challenges:

• Gross margin decreases were driven by higher material, component, and tariff costs across segments.
• Free cash flow was negatively impacted by higher capital expenditures to increase production capacity in the Data Centers segment and increased inventory levels to support growing customer demand.
• Net debt increased due to working capital increases and purchases of stock in conjunction with the equity compensation plan.
• Forward-looking statements note risks including geopolitical tensions, supply chain challenges, inflation, energy costs, tariffs, foreign currency fluctuations, and potential delays in customer product launches or construction projects.

Management Commentary and Tone:

• CEO Neil D. Brinker stated that Data Centers and Commercial HVAC delivered strong quarters with revenue growth of 95% and 23%, respectively.
• Management expressed confidence in the higher revenue outlook for the core business following the successful spin-off of Performance Technologies.
• The company remains well-equipped to drive long-term sustainable growth.

Other Key Points:

• The company recorded $3.0 million of restructuring expenses during the quarter, primarily severance expenses and equipment transfer costs.
• The company incurred $14.1 million in costs related to the spin-off of the Performance Technologies business.
• Cash payments for restructuring activities, disposition costs, and certain other items totaled $27.7 million during the six months ended September 30, 2026.
• Purchases of treasury stock totaled $65.7 million during the six months ended September 30, 2026, to satisfy individual tax withholding obligations under the equity compensation plan.
• The company has operations in North America, Europe, and Asia with more than 9,000 employees worldwide.