Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: For you, your team, your employees, your investors. Let's start
Speaker 2: with what this means to the company and the significance
Speaker 2: of it.
Speaker 1: Yes, thank you so much. Obviously, I'm a mentus stay
Speaker 1: for the company as we seek to continue to drive
Speaker 1: our growth journey. I think really so proud of our team,
Speaker 1: our companies and brands and the impact we make on
Speaker 1: the world and for our customers. So thank you. Excited
Speaker 1: to be here, really proud of our team today.
Speaker 2: Going back to basics, you know, Madison Air is a
Speaker 2: provider of ventilation filtration systems, but you know, on Bloomberg Tech,
Speaker 2: we're so focused on what's happening around the world in
Speaker 2: AI infrastructure that brings the data center into the conversation.
Speaker 2: Where does Madison Air fit in that story?
Speaker 1: Yeah? So, data centers is about twenty percent of our
Speaker 1: commercial segment, but it's also one of more than fifteen
Speaker 1: verticals in the commercial segment that we cultivate and grow
Speaker 1: and bring innovation and highly engineered solutions to our customers. Really,
Speaker 1: I think an underlying theme of our company. We serve
Speaker 1: a lot of markets benefiting from strong circular tailwinds. Data
Speaker 1: centers being one of them. In the data center space,
Speaker 1: we bring custom air, liquid and hybrid cooling solutions to
Speaker 1: the most demanding of environments hyperscalers and co locators who
Speaker 1: are really driving the AI revolution. And then once we
Speaker 1: design those custom solutions, we install them and service them,
Speaker 1: really adding value across the asset of that life cycle
Speaker 1: of that asset.
Speaker 2: I appreciate that it's place within that segment. On a
Speaker 2: revenue basis, it might be smaller, but there seems to
Speaker 2: be a lot of growth opportunity for you in data
Speaker 2: center also pretty supportive on the bottom line, right, what's
Speaker 2: the trajectory of that business for you?
Speaker 1: Yeah, I think strong performance really across the board, most
Speaker 1: recently as twenty twenty five, when we grew sales twelve percent.
Speaker 1: We exited the back of the year with two billion
Speaker 1: dollars in backlog, really embrace over four and a half
Speaker 1: billion dollars of orders. So the most forward looking, strongest
Speaker 1: forward looking indications we've had around the company to date
Speaker 1: in the company's history. In twenty twenty five, our commercial
Speaker 1: segment grew about seventeen percent. Data centers clearly contributed that,
Speaker 1: but even if you strip out that growth our commercial
Speaker 1: segment grew high single digits, again I think evidence of
Speaker 1: our balanced portfolio. We are really working to grow and
Speaker 1: win in a wide variety of segments benefiting from secular trends,
Speaker 1: including data centers.
Speaker 2: You'r founder, Larry, He's going to effectively control the company
Speaker 2: right through ownership of all of the super voting shares
Speaker 2: in the mechanics and IPO. That's very interesting. What's the
Speaker 2: strategy there and how are you going to work with
Speaker 2: that as you grow this company?
Speaker 1: Well, the why underlying our IPO first and foremost is
Speaker 1: really to gain access to permanent capital that the public
Speaker 1: markets afford us to really underwrite our growth ambitions, scale
Speaker 1: our mission and our impact for customers for years to come.
Speaker 1: Five percent of shares will be subject to a two
Speaker 1: year lock up. And really we've always operated under a
Speaker 1: controlled company mindset because we think it allows us to
Speaker 1: stay focused on thinking and acting long term and really
Speaker 1: has been key to our ability to deliver sustained above
Speaker 1: market performance. And so that's really we view that mindset
Speaker 1: to continue under the new governance structure, if you will,
Speaker 1: and I think we will continue to benefit from you know,
Speaker 1: strong disciplined execution, good aligned interests and I you know,
Speaker 1: and continuing to drive above market performance and attractive returns
Speaker 1: over long cycles.
Speaker 2: We started this conversation by saying how historic this IPO was, right,
Speaker 2: the biggest US industrial IPOs since ninety nine. And it's
Speaker 2: been interesting to read about the history of the company
Speaker 2: and its growth, both organic and inorganic. And to summarize,
Speaker 2: like in the M and A context, you've kind of
Speaker 2: rolled up smaller brands, and I wonder at what pace
Speaker 2: that might continue in what your M and A activity
Speaker 2: looks like Now the big one's done, the IPO's done.
Speaker 1: Yeah, we've really been purposely, intentionally building the markets leading
Speaker 1: indoor air quality solutions provider for residential and industrial markets
Speaker 1: since twenty seventeen, and a lot of that we have
Speaker 1: accomplished on an inorganic basis. We really want investors to
Speaker 1: think of us as an organic growth opportunity with MNA
Speaker 1: as a lever. Over the last five years, we've grown
Speaker 1: sales on a compound average basis at eight percent. As
Speaker 1: I said, we exited last year growing twelve percent. So
Speaker 1: we are excited. I'm humbly confident and excited in organic
Speaker 1: growth prospects. We will continue to use m and A
Speaker 1: as a lever. We think we have a pretty special
Speaker 1: capability there as well, having really cultivated relationships over a timeframe.
Speaker 1: So think of us as an organic growth company with
Speaker 1: M and A as a continued growth lever.
Speaker 2: I want to bring it back to AI, but you know,
Speaker 2: the way that I think about Madison Air is even
Speaker 2: outside of just the specific contribution to a data center
Speaker 2: build out, all of the factors that they're impacting companies
Speaker 2: around the country in the world apply to you too, Right,
Speaker 2: access to labor, materials, supply chain, what we're seeing in energy,
Speaker 2: How do you feel at medicine's position right now, and
Speaker 2: what are you doing that's different in supply chain as
Speaker 2: you try and come out of this IPO and growth mode.
Speaker 1: Yeah, I really think that. Look today we are an
Speaker 1: eight billion dollar We are an eight percent market share
Speaker 1: in a forty billion dollar TAM that is distinct and
Speaker 1: complementary from traditional HVAC and as you're noting, there really
Speaker 1: underpin by strong secular data centers, one of which is
Speaker 1: AI and compute, but manufacturing reshoring, the forever labor shortage
Speaker 1: in manufacturing and logistics environments, aging building stock both both
Speaker 1: homes and commercial building stock and the drive for greater
Speaker 1: energy efficiency. All of those strong secular tailwinds underpin our market.
Speaker 1: So we really think we have room both to grow
Speaker 1: our positions where we are today and expand our opportunities,
Speaker 1: whether that be in chip fabs, in pharmaceutical manufacturing production,
Speaker 1: and the like. We have pointed our portfolio to what's
Speaker 1: driving the economy going forward, and we're excited about our
Speaker 1: growth journey as we look at it lying ahead.
Speaker 2: Joe, I'm so grateful you took us there. I broke
Speaker 2: a story last night with colleagues around the world that
Speaker 2: Elon Musk and the Terrafab projects are really kind of
Speaker 2: kicking into gear. They're basically going to the supply chain
Speaker 2: for chip manufacturing and saying how quickly can you give
Speaker 2: us quotes and if we place orders, how quickly can
Speaker 2: you get us that equipment. Is there any relevance to
Speaker 2: you guys with Terrafab. Do you see an opportunity for
Speaker 2: what is on paper just unimaginable scale of chip manufacturing
Speaker 2: in this country?
Speaker 1: Yeah? Well, you know, we exited last year with two
Speaker 1: billion in backlog, about a billion four of that was
Speaker 1: in our data center business. We have very strong forwardlooking
Speaker 1: demand across the company, including in data centers. And I
Speaker 1: think what really differentiates us in the data center space
Speaker 1: is we don't sell SKUs. We don't sell standard configured products.
Speaker 1: The people driving the AI revolution, you know, like Terrafab
Speaker 1: and others that you've really mentioned, come to us for
Speaker 1: deep domain expertise in rejecting a lot of thermal heat
Speaker 1: in complex environments, including data centers, and so we bring
Speaker 1: those you know, domain experts, engineering and applications expertise that
Speaker 1: are able to sit toe to toe with some of
Speaker 1: those leading lights in the industry and build solutions that
Speaker 1: allow them to achieve max computing and their objectives. Now
Speaker 1: you hit another important point, which is we've been at
Speaker 1: this for a while. You know, the data center business
Speaker 1: was born out of our customer handling business, which has
Speaker 1: done this for a combined three hundred and fifty years.
Speaker 1: So we did not start doing this last week or
Speaker 1: last quarter. We've had a triple source supply chain. We've
Speaker 1: had ninety nine to one hundred percent delivery rates for
Speaker 1: the hyperscalers and the co locators we've been serving for years,
Speaker 1: and we are there to care for and optimize and
Speaker 1: ensure those assets perform at their best. We are differentiated,
Speaker 1: we are winning and I think the best part of
Speaker 1: that story, and it's all within a very balanced set
Speaker 1: of end markets. We are not a data center peer play.
Speaker 1: We give investors great exposure to the obvious opportunity there
Speaker 1: while at the same time growing nicely in other advanced
Speaker 1: high performance environments in the macroeconomy where air impacts customer helps.
Speaker 2: Away from the stock market. You know, a focus of
Speaker 2: the Bloomberg Tech audience is the role of debt in
Speaker 2: all of these projects. Let's call it the reindustrialization of America.
Speaker 2: I think, correct me if I'm wrong. You know, coming
Speaker 2: out of this IPO, the debt loads, I think it
Speaker 2: looks like about three billion dollars for you. What's the
Speaker 2: strategy do you see with time paying that down? That
Speaker 2: coming down quickly? Or your sanguine on the load and
Speaker 2: how you work it?
Speaker 1: Well, about a one hundred one hundred percent of the
Speaker 1: IPO proceeds we will use to retire debt. So now
Speaker 1: I don't know the exact calculation. I've been, you know,
Speaker 1: talking to a lot of folks today about green shoe execution.
Speaker 1: But really we should come out of that IPO about
Speaker 1: three and a half times trailing on a leverage basis,
Speaker 1: and then we continue to do what we do, which
Speaker 1: is grow our business and generate cash flow and expand
Speaker 1: our EBITA, which should allow us to exit twenty twenty
Speaker 1: six below three times levered on a trailing basis. Again,
Speaker 1: we run that play into next year, and we should
Speaker 1: be south of two point five times levered, as I say,
Speaker 1: before New Year's eve, well before New Year's Eve in
Speaker 1: twenty twenty seven. And really then it just comes back
Speaker 1: to the same play. We've always been running great sales,
Speaker 1: higher margins are EBITDA margins enterprise wide at twenty six
Speaker 1: and a half percent or eight hundred to a thousand
Speaker 1: basis points better than the most of the competition we
Speaker 1: see out there. Our team is very focused and robust
Speaker 1: around converting that to free cash flow. We have an
Speaker 1: asset light model where we whereby we can make our
Speaker 1: growth investments while remaining at a low single digit capex,
Speaker 1: and we have an owner's mindset across the company, so
Speaker 1: good disciplined use of cash. So we feel good about that,
Speaker 1: you know, getting that balance sheet to the point where
Speaker 1: investors consistently told us they wanted to be, and then
Speaker 1: that just opens up more optionality and flexibility for us
Speaker 1: going forward.