Madison Air CEO On Data Center Moratoriums: 'We've Not Pursued Speculative Demand'

Madison Air CEO Jill Wyant, asked on the company's third-quarter earnings call about data center moratoriums after the elections, said the company has "not pursued speculative demand" and has stayed out of neocloud customers, citing a $3.2 billion record backlog as cover. Madison Air, which makes indoor air products and systems for commercial and residential buildings, saw its shares trade at $21.91, down 7.2%, in Thursday trading.

A narrow customer list

Wyant said the company is focused on a small subset of about 10 hyperscalers and colocation providers it believes will be around in 50 years. "We've not gone into the neoclouds frankly we don't have the capacity," she said, adding that the company will not invest ahead of demand.

Data centers are one of 15 commercial end markets, she said, and orders outside data centers rose more than 20% in the quarter. She said management is "delighted" to have kept that exposure diversified.

Company-wide orders grew 26% in the quarter and 33% year to date. Backlog stood at $3.2 billion, up 119% from a year earlier, and more than 70% of it is expected to convert to revenue in 2027 and later.

Why the backlog is not at risk yet

Wyant said she was still digesting the election results, which came just over 24 hours earlier. The backlog is not in the pre-permitting phase, she said, because cooling equipment arrives "towards the tail end of the data center construction process." Moratorium worries were already an issue and not net new, she said, though the results "put a pinpoint on them."

A Stifel analyst asked how far the pipeline would run if new data centers were banned tomorrow. Wyant said she could not name a month or quarter, but any effect would be longer term and beyond what the backlog shows. She cited a statistic she had read that more than 80% of a U.S. build-out underway is permitted or under construction.

Margins: a few points, not a snap-back

Net sales rose 25% to $1.127 billion, and adjusted EBITDA margin was 26.5%. Chief Financial Officer JJ Foley said nearly all of the year-over-year margin decline came from fast growth in lower-margin data center cooling.

Foley said data center margins should gain "a few points" over the next several quarters, assuming the company can secure parts. He said he does not see a snap-back in one quarter. Most second-half data center revenue comes from programs launched in the last six months, he said, and labor hours on a newer program are down roughly 25%.

The company raised full-year guidance to net sales of $4.05 billion to $4.125 billion and adjusted EBITDA of $1.04 billion to $1.07 billion. Wyant said no massive capacity investment is planned, given 5 million square feet of manufacturing space.

EBM Papst deal and the fourth quarter

The company expects to close its acquisition of EBM Papst soon after year-end, funded by about $2.25 billion from a private placement and about $2.8 billion of debt and cash. The combined company would have about $6.9 billion in sales.

For the fourth quarter, management expects low double-digit net sales growth, with orders down mechanically because a large order a year earlier will not repeat.

Management expects the EBM Papst deal to close soon after the end of the year, with $160 million of annual cost synergies targeted by the end of year three after closing.

Sources

• Document — sec.gov