And then, if you go through where we’re at on our 80/20 journey, early days, there’s a lot of simplifying the business, looking at pricing, and there’s still elements of that for us. But also, then move into a heavy focus on operational and productivity, right? Leaning out and getting the benefits of those things where you simplified your businesses. So, it will be kind of like this year and where we started the journey. Some of our businesses, we are not going to worry about the top line. We’re going to drive earnings and margins through PLS – product line simplification 80/20, while continuing to accelerate growth in the targeted areas.
Chris Moore: Got it. Very helpful. Maybe talk a little bit more about M&A. I know that in the prepared remarks, you guys talked about primarily looking at bolt-on acquisitions. At the Investor Day, you talked about needing roughly $400 million to $600 million in M&A between 2024 and 2025 to comfortably reach your Climate Solutions goals. You have subsequently indicated not necessarily need to get to that level. I’m just wondering if you can give kind of any updates in terms of what a more reasonable range might look like moving forward.
Michael Lucareli: Yeah. Again, Mick, I’ll go first just from kind of the math, and then Neil can add some more color. Early days, when we — Neil first came in that we’re literally assembling the current team and we’re spinning through the data. We look at it from an 80/20 perspective. We weren’t really sure how much business we want to retain, how much stays when we go through all of our activities. And I think as we’ve had the last four to six really strong quarters, one of the messages Neil and I’ve had is we’re getting everything we thought we would get from the improvement. In many cases, as we better serve our customers, focus on key customers, orders are up. All of that said, the reason why we don’t see the need for large acquisitions to get to our financial targets is really around the lessons we’ve learned from an 80/20 about the stickiness of some of our business.
And then the second thing I’d say to turn it over to Neil, we’ve continued to uncover jewels within Modine that we didn’t necessarily know were there that we can grow organically.
Neil Brinker: Yeah. That’s a great point, Mick, and thanks for the question. The 400, 600 number was the very first days of our 80/20 journey a couple years ago. We’ve learned so much more, especially with the fact that we’ve got more organic growth that we can drive within the company, which requires less inorganic growth for us to meet our inorganic — for us to meet our financial targets. So, we have spent a lot of time on the organic growth and the businesses that we want to stand up and create organizations around it to drive. And then at the same time, we have been active on the M&A front. We’ve done multiple divestitures and a couple small deals in the last couple quarters. And we’re doing that in strategic areas where it helps us build out our product portfolio, helps us expand in a geography, or most importantly, it helps us improve our technology in the areas that we want to serve.
Michael Lucareli: Just on that last point, really hard to quantify due to timing and opportunity, but I think it’s safe to say that that original number is at least half, right, from what we thought we would need. So, again, it really depends on the funnel and exact timing, but it’s significantly below what we’ll still be doing outlooking at M&A.
Chris Moore: Got it. Very helpful. I will jump back in queue. Thanks guys.
Operator: Our next question comes from the line of Jeff Van Sinderen with B. Riley. Please proceed with your question.
Jeff Van Sinderen: Good morning, everyone. Let me first say impressive work on margins and overall cash flow. Maybe you can give a little bit more color on the status of the heat pump market, what you’re seeing there, the latest, and then also on the GenSet business, how is that evolving, and then I guess the outlook there and any quantification around that for those two businesses.
Neil Brinker: Yeah. On the heat pump market, we continue to see some softness there as this heat pump adoption has been elongated out over an additional couple years based on the European regulations, some excess inventory in the system, and we’re pacing our investments in heat pump to adjust to that. Long-term, I’m personally with what we’re doing and the actions that we put in place, we’re confident in this space and this market. It’s just a short-term reset based on the extension of the adoption rate. So, that’s what we’re seeing. We’re working through it. It’s real-time. It’s live, and the team’s making the appropriate adjustments. On the GenSet side, we’ve got a nice technology there. We’re helping essentially the industry move towards a lower cost, more reliable, higher quality product that is starting to get adopted.
The earlier adopters are starting to win share, and I think a lot of people are taking notice of and they’re looking for the solution that we can provide with Modine.
Jeff Van Sinderen: Okay. That’s helpful. And I know there’s been a lot of talk about 80/20, and you seem to be executing phenomenally well on everything you’re doing there. I guess, are there other low-margin businesses that you are planning to exit or you might contemplate exiting? As you look at your entire enterprise, how much business do you have that you’d like to either divest or wind down at this point if we were to look at that in overall dollars?
Neil Brinker: Yeah. It’s a good question. So, certainly, as we continue to improve our profit profile and we expand margin in the business, it sets the bar and it raises the bar. Then you always have some bottom quartile business that needs to be addressed. That’s just the evolution of 80/20, and that will essentially be how we operate the company going forward. So, there’s always going to be that level of business that we have to question. Is it strategic that we want to be in it if it’s low margin? If not, then we have a series of different approaches and activities in terms to address it. We haven’t gone out with a specific number in terms of what that looks like, but I can see it being in the same range of what we’ve been able to address over the last 18 months within 80/20.
It’s what, $300 million to $400 million of revenue that we’ve through divestitures and product line simplification so far. And I would expect somewhere in that $100 million-plus range as we go forward that there’s always going to be something that’s underneath the threshold.
Michael Lucareli: Yeah. I think too we look at the data. It aligns where Neil was going. As Neil was saying, there’s always the bottom quadrant, the quad four stuff. And just for any company, for us, that’s going to be 4% or 5% of sales. I think where we’re at, it’s probably a little bit more than that. So, there’s probably a $200 million to $250 million type number of what we would call when we say that quad four. It’s the lowest volume product, the lowest volume, kind of margin products with customers that are lower on our volume scale.
Jeff Van Sinderen: Okay. That’s helpful. And then if I could just squeeze in one more. I wanted to circle back to the liquid-cooled for data centers for just a moment. Just to clarify, I think you said that you’ll start to go after data centers that previously you did not. Maybe just touch on strategy to win in those.
Neil Brinker: Yeah. Absolutely. We’ve cast a net on the hyperscaler side to go into it. Make sure that the hyperscalers that are winning share in this space understand the technology advantages that we have with Modine and our Airedale brand. 100% we’re having those conversations and that takes time to cultivate those relationships. Relative to the liquid-cooling piece, this allows us to get into conversations of next-generation data centers that are planning for high-performance computing where air cooling, traditional mechanical cooling solutions are not sufficient. It needs to be augmented. It typically is augmented through a liquid cooling or immersion cooling technique. So, we did not have that product and we did not have those assets, which meant we weren’t invited to those conversations on how do we use technology to solve for high-performance computing.
