Oct 29, 2026 earnings call — Added FIS Water; HVAC capacity ramp and margin update
Updated guidance implies approximately 25% adjusted EBITDA growth at the midpoint.
Revenue $0.7B (est $0.7B) · EPS $2.21 (est $2.12)
Key quotes
"We continue to expect approximately $1.1 billion of total data center capacity once it's in full production."
"So as we began to ramp our capabilities to really meet this demand, and we rolled into the third quarter as that sort of unfolded, quite honestly, I don't think we felt like we -- our capabilities or our productivity was ramping fast enough."
"This acquisition enhances our cooling platform with complementary water management and control solutions that broaden our offering to customers and strengthen our position in attractive end markets, including data centers."
Analyst Q&A 11
HVAC growth problems and supply chain
Q (Andrew Obin · BofA): He asked what is causing HVAC inefficiencies, whether they will improve in Q4, and what will stop or reverse them. He also asked about the state of the supply chain into Q4 and early 2027.
A: Management said HVAC demand grew quickly and they intentionally accelerated hiring and added suppliers to meet it. They expect the inefficiencies to continue into Q4, expect labor productivity to improve next year, and said metal fabrication outsourcing raised costs while the overall supply chain is being watched closely.
"We do expect these, obviously, to continue on into Q4." — Mark Carano (CFO)
What drove HVAC margin change and Q4 outlook
Q (Bryan Blair · Oppenheimer): He asked how much of the Q3 margin hit came from growth-related inefficiencies versus input-cost inflation and how to think about Q4. He also asked whether D&M's medium-term margin target needs updating.
A: They said roughly two-thirds of the year-over-year margin change was from volume net of growth-related inefficiencies and about one-third from higher input costs. For Q4 the guide implies about 150 basis points sequential improvement, mostly from operating leverage and some acquisition accretion; they said D&M is running at higher margins and may update targets when they roll out next year's guide.
"That said, the guide will imply about 150 basis points of change of increase sequentially." — Mark Carano (CFO)
Inflation risk and other market trends
Q (Jamie Cook · Truist): He asked whether inflation could make backlog projects less profitable into 2027 and how exposed margins are. He also asked about organic growth in other markets outside data centers.
A: They said input costs like steel and diesel rose and that they are roughly price/cost neutral on a dollar basis for the full year, but margins were impacted; they are raising prices and expect a better price-cost position next year. They said data centers are accelerating and other HVAC markets—power, industrial, semiconductor, health care, pharma, sports and commercial replacement—are healthy while education, government and new commercial are softer.
"When I think about this year, we're really now kind of roughly price/cost neutral on a dollar basis for the full year, but it's clearly had a margin impact as a result." — Mark Carano (CFO)
When supply issues appeared and lease options
Q (Amit Mehrotra · UBS): He asked when the supply chain problems became evident, whether contract manufacturing weakens visibility, and what gives comfort that the issue is addressed. He also asked if leased facilities could accelerate growth toward the $1.1 billion target.
A: They said a late Q2 increase in data center demand added north of $100 million and they ramped several hundred people; cut/punch steel and metal fabrication needed more outsourcing at higher cost but performance improved in September and October. They said most products are IP they control so they can shift fabrication to other suppliers, and that leased facilities are an option (giving Springfield as an example) while Madison is a capital-intensive, fully integrated plant.
"As we ramped up, you're talking ramping several hundred people into the facility." — Eugene Lowe (CEO)
Deals done this year and impact
Q (Daniel DiCicco · BMO): He asked for a recap of M&A this year, how accretive the deals are, which markets stand out, and what to expect into 2027.
A: They listed four strategic deals—Crawford (Air Enterprises and Rahn), Thermolec, Neptronic and FIS Water—and said they deployed about $1.2 billion of capital for roughly $310 million of revenue run rate. They said integrations are on track or slightly ahead, the blended purchase multiple was about 11.7x, and the four acquisitions added roughly 60 basis points of margin accretion for the year.
"If you look at the amount of capital deployed, it was about $1.2 billion." — Eugene Lowe (CEO)
Data center revenue and contract inflation rules
Q (Joseph Giordano · TD Cowen): He asked whether the data center guide is still $430 million now that FIS was added, and how backlog contracts handle inflation—automatic pass-throughs or case-by-case adjustments.
A: They said data center revenue is modestly above $430 million, probably another 20 or 30 above that, and they are still calculating percentages for Neptronic and FIS to include in next year's guide. They said frame agreements with hyperscalers include mechanisms for price adjustments that typically require showing the actual input-cost delta and a process of meetings; it works but is not immediate.
"We think it's modestly above that. It was probably another 20 or 30 above that." — Eugene Lowe (CEO)
Backlog trend and pricing pushback
Q (Piyush Khaitan · JPM): He asked whether HVAC backlog will continue to grow quarter-to-quarter given data center demand, and whether customers are pushing back on price increases.
A: They said backlog is $1.1 billion and at a record level and they expect more data center opportunities to keep backlog higher. They added they have not seen pricing pushback and have been effective at moving prices across HVAC businesses.
"The backlog is $1.1 billion. It's at a record level." — Mark Carano (CFO)
Coil supply and cooling competition
Q (Zachary Schechtman · Wells Fargo): He asked if Rahn or the industry is facing coil shortages and whether that gives a competitive edge. He also asked about competition and new entrants for dry coolers and air-cooled chiller architectures.
A: They said they have not had any coil shortages, they make some coils internally and use external fabricators, and they will expand coil manufacturing at Madison as volumes scale. They said data center cooling architectures vary—water-cooled chillers with dry coolers are common, some designs use air-cooled chillers or free-cooling—and their addressable opportunity is becoming a larger share of the market.
"We haven't had any coil shortages. I do think you have to develop your supply chain." — Eugene Lowe (CEO)
Dollar cost headwinds and next-year outlook
Q (Joseph O'Dea · Vertical): He asked if the Q3/Q4 margin gap implies about $25–30 million of extra costs and whether those costs will persist into late next year or be worked through.
A: They said the cost impact is about $25 million, with roughly $15 million tied to growth-related inefficiencies and the remainder from price/cost dynamics. They expect labor productivity and some insourcing to improve throughput, though some of the dynamics will carry into 2027; they said next year's margins should be toward the high end of their medium-term range.
"It's about $25 million or so of cost." — Mark Carano (CFO)
Insourcing versus outsourcing choices
Q (Walter Liptak · Seaport): He asked in hindsight whether they could have chosen different outsourcing or ramping approaches to avoid the efficiency and cost issues.
A: They said rapid hiring led to lower productivity and higher turnover, so they have changed recruiting, training and scaling practices and learned lessons. They said they may have overinvested a bit but believe it was the right decision to meet customer demand and to position the company for 2027.
"What I would say is where we had some material differences in how we thought things were going to play, we did have higher turnover in the quarter." — Eugene Lowe (CEO)
Customer mix and data center demand outlook
Q (Jeff Van Sinderen · B. Riley): He asked how customer concentration in data center is evolving among hyperscalers, neoclouds and colos, and for a high-level view of the scope and timing of builds given uncertainty.
A: They said data center work has structural customer concentration and that north of 90% of their data center work is with hyperscalers, with some neocloud and smaller activity. They said customers show very good visibility for the next 2 to 3 years and that demand is increasing and accelerating versus three months ago.
"The majority of what we have, I would say, north of 90%, is really pointed to the hyperscalers." — Eugene Lowe (CEO)