Tim Moore: That’s great. That’s helpful color. I definitely enjoyed visiting your data center manufacturing facility in Virginia three months ago and got a really good appreciation of the uniqueness of the offering there. That was a great Investor Day. But what I really want to get to, I know the opening remarks you mentioned, 12 to 18-month backlog range for that. I’m just trying to get a sense if there’s a shadow backlog behind that, as you talk to your customers and they plan finding more power sources, electricity to run their co-location and hyperscale’s and you kind of think about maybe what CDU can do, the end of the calendar 2025. Do you think that, your backlog is a lot bigger than maybe the 12 to 18 months based on kind of the plans of your customers for their growth?
Neil Brinker: Yes, it’s a good question. Certainly, if we think about it in terms of our percent confidence, when we get to the point of backlog, we run it all the way through a funnel, right? So when you’re looking at backlog, this is a high degree, high visibility, high likelihood that the order is going to be placed or the order has already been placed. And even before that, we look at our commercial funnel and we say that it’s 50% visibility and it’s larger than the current backlog. And then there’s a precursor to that, which is 25%. Assuming that you have 25% visibility of it, that order is larger and bigger. As you get out in the out years, three, four, five years, it’s much more difficult to predict. But certainly we’re having conversations with our customers because as you go along that cycle, whether it’s at 25%, 50% or 75%, you have to start triggering supply chain, manufacturing, operations, and there’s an entire process.
So yes, we have those conversations. Yes, we see and we do have visibility of it. But we don’t declare victory until we have the order in hand.
Tim Moore: And that’s helpful. Thanks, Neil. I just have two more questions. Your gross margin is beat several quarters in a row versus maybe from the commentary or what the consensus number was. Any sense, if Mick wants to take a stab at this, any chance to maybe parse out how much of the gross margin expansion maybe this quarter or recently roughly is from kind of the cost-saving/efficiencies bucket versus catch-up pricing taken. We’re – I cover a lot of industrial stocks, and a lot of them have had terrific price increases the last 12 months to 16 months, but they’re starting to see it slow in October and November. So, I’m just trying to get a sense, is the 80/20 still a pretty big driver as it gets rolled out more to Performance Technologies? And are you kind of tapping out on maybe the pricing catch-up?
Mick Lucareli: Yes, yes, that’s a fair question. I would answer it two different ways or two ways. If we break it down by Climate and by Performance Technologies, Climate Solutions and very intentionally as part of the transformation, the strategy has shifted towards a heavy lean on growth. And so, most of the margin improvement we’ve been seeing in Climate Solutions over the last two quarters, I would say is driven by growth. And yes, there’s mix in there, but we’re growing. The businesses that we want to grow have high margins and margins where we want them to be. And data centers is a good example. Performance Technologies, again, and Neil’s talked about this for a couple quarters, we specifically paced that. They are deep into the early phases of 80/20.
So, for Performance Technologies over the last couple quarters, they’ve had a much bigger margin drive based on, I would combine it, it’s not just pricing, but product line simplification. And with that, it’s cost reduction and throughput and productivity. So, yes, we continue to think Performance Technologies for a bit is going to be cleaning, simplifying their business, focused on margin improvement with a heavy dose of growth in EV. And then we would expect probably a year out, Performance Technologies will continue to then identify those pockets where they see above market growth rates. So hope that answers the question for you.
Tim Moore: Mick, that definitely did. That was really good granularity and gives me more optimism about the runway for margin expansion from this technology and even climate. Unlike some other industrial companies you’re seeing your pricing power have this quarter. But my last question is around your SG&A expense. I know it ran a bit high, 11% this quarter, and it seemed like the implied guidance you gave for this year is about 2.4% or — 10.4% or so of sales. I know you guys have been focused obviously on the operation side and for a good point and the gross margin expansion has been phenomenal. But do you think maybe next year there’s some opportunity to maybe get some more SG&A leverage out and get that down to 10% instead of maybe 10.4%?
Mick Lucareli: Yes. The way I think about it, I’ll give you my view and if Neil wants to add any color. There was, if we go back again to when we announced the transformation and Neil coming in, 5 or 10 years of really leaning out Modine and focused on SG&A. Over the last year, we have reinvested in some key areas to support growth and people. It’s everything from procurement to product development. And I think everybody sees the amount of earnings growth coming from those. But we will plateau. I call it kind of maybe reloading where we needed – we had some gaps in SG&A. So I would expect we’ll have SG&A dollars growing to the range I provided. And then at that point, I think from a percentage of sales, that’s a fair question. I think we’ll start to — we’ll peak out or even start to leverage a little bit at the percentage of sales, the SG&A.
Tim Moore: Terrific, Mick, and Neil. Thanks a lot. That’s it for my questions.
Neil Brinker: Thank you.
Operator: Thank you. Our next question is from Matt Summerville with D.A. Davidson. Please go ahead.
Matt Summerville: Thanks. A couple of questions. First, talk through data center expectations a bit. You talked through the heat pump side of things. There’s three other high growth verticals that you guys have talked about in the past. Could you maybe more directly address kind of what you’re seeing there, what expectations may look like for revenue this year, where are the pluses and minuses in those remaining three, and then I have a couple quick follow-up.
Mick Lucareli: Do you want to talk GenSet?
Neil Brinker: Yes. So we continue to develop in the GenSet market some advanced products that we believe we’re going to be able to move into expanding our customer base. So certainly, we still believe in the numbers behind GenSet, we still believe in the market, we see the tailwinds behind it, and it’s favorable to the work that we’re doing. So GenSet markets on path, I’ll let Mick give the numbers when I finish on the other two. EV, we continue to develop new product. As we mentioned the expansion that we’re moving into in Europe because of the potential demand in the out years. We’re winning on platforms and programs, and we’ve launched the additional new product. In indoor air quality, we’re starting to continue to see the impact and effect of the CARES Act and the ESSER funds. We’re seeing tailwinds out to 2026 with our school unit ventilators. So again, we’re standing behind our indoor air quality growth, relative to the numbers.
Mick Lucareli: Yes. For the most part, those long-term growth rates, especially in the growth businesses Neil just went through, Matt, we still feel good about those. Well, I think with the strong data center year, we’ll probably be adjusting data center long-term growth rates up to reflect this really strong year we’re in. And then we still expect similar growth rates, high double-digit growth rates across all of those. And then on a heat pump side, that growth rate we think will based on what Neil said, we’ll take it down a little bit, still be double-digit growth rate, but we see that being a slower ramp and taking a little bit longer to get to peak volume.
Matt Summerville: Got it. And just to be clear from a modeling standpoint, embedded in the reiterated top line guide, is how much headwind from either divestitures, product line exit, or otherwise, I’ll call it deliberate revenue attrition.
Mick Lucareli: Yes. I would estimate that $40 million to $50 million, Matt, of product, for sure the divestitures, those three German businesses were $80 million to $90 million annualized. And then we do track all of our 80/20 product line simplification efforts. And just in context for you, we just updated that. And since we started, we’re over $300 million. Now, that includes the divestitures, but over $300 million of business that we’ve specifically targeted from a product line simplification.
Matt Summerville: Okay. And then, just lastly, early read on the heating season here in North America, I know that’s an important business for you, obviously. We had a really mild winter last year, but what does early sell-in look like into the channel, and what’s your assessment of inventory levels as they sit here today?
