WEBVTT - Madison Air President & CEO Jill Wyant Talks IPO Plans, Data Infrastructure

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>For you, your team, your employees, your investors. Let's start

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<v Speaker 2>with what this means to the company and the significance

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<v Speaker 2>of it.

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<v Speaker 1>Yes, thank you so much. Obviously, I'm a mentus stay

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<v Speaker 1>for the company as we seek to continue to drive

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<v Speaker 1>our growth journey. I think really so proud of our team,

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<v Speaker 1>our companies and brands and the impact we make on

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<v Speaker 1>the world and for our customers. So thank you. Excited

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<v Speaker 1>to be here, really proud of our team today.

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<v Speaker 2>Going back to basics, you know, Madison Air is a

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<v Speaker 2>provider of ventilation filtration systems, but you know, on Bloomberg Tech,

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<v Speaker 2>we're so focused on what's happening around the world in

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<v Speaker 2>AI infrastructure that brings the data center into the conversation.

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<v Speaker 2>Where does Madison Air fit in that story?

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<v Speaker 1>Yeah? So, data centers is about twenty percent of our

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<v Speaker 1>commercial segment, but it's also one of more than fifteen

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<v Speaker 1>verticals in the commercial segment that we cultivate and grow

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<v Speaker 1>and bring innovation and highly engineered solutions to our customers. Really,

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<v Speaker 1>I think an underlying theme of our company. We serve

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<v Speaker 1>a lot of markets benefiting from strong circular tailwinds. Data

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<v Speaker 1>centers being one of them. In the data center space,

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<v Speaker 1>we bring custom air, liquid and hybrid cooling solutions to

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<v Speaker 1>the most demanding of environments hyperscalers and co locators who

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<v Speaker 1>are really driving the AI revolution. And then once we

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<v Speaker 1>design those custom solutions, we install them and service them,

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<v Speaker 1>really adding value across the asset of that life cycle

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<v Speaker 1>of that asset.

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<v Speaker 2>I appreciate that it's place within that segment. On a

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<v Speaker 2>revenue basis, it might be smaller, but there seems to

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<v Speaker 2>be a lot of growth opportunity for you in data

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<v Speaker 2>center also pretty supportive on the bottom line, right, what's

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<v Speaker 2>the trajectory of that business for you?

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<v Speaker 1>Yeah, I think strong performance really across the board, most

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<v Speaker 1>recently as twenty twenty five, when we grew sales twelve percent.

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<v Speaker 1>We exited the back of the year with two billion

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<v Speaker 1>dollars in backlog, really embrace over four and a half

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<v Speaker 1>billion dollars of orders. So the most forward looking, strongest

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<v Speaker 1>forward looking indications we've had around the company to date

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<v Speaker 1>in the company's history. In twenty twenty five, our commercial

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<v Speaker 1>segment grew about seventeen percent. Data centers clearly contributed that,

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<v Speaker 1>but even if you strip out that growth our commercial

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<v Speaker 1>segment grew high single digits, again I think evidence of

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<v Speaker 1>our balanced portfolio. We are really working to grow and

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<v Speaker 1>win in a wide variety of segments benefiting from secular trends,

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<v Speaker 1>including data centers.

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<v Speaker 2>You'r founder, Larry, He's going to effectively control the company

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<v Speaker 2>right through ownership of all of the super voting shares

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<v Speaker 2>in the mechanics and IPO. That's very interesting. What's the

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<v Speaker 2>strategy there and how are you going to work with

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<v Speaker 2>that as you grow this company?

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<v Speaker 1>Well, the why underlying our IPO first and foremost is

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<v Speaker 1>really to gain access to permanent capital that the public

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<v Speaker 1>markets afford us to really underwrite our growth ambitions, scale

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<v Speaker 1>our mission and our impact for customers for years to come.

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<v Speaker 1>Five percent of shares will be subject to a two

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<v Speaker 1>year lock up. And really we've always operated under a

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<v Speaker 1>controlled company mindset because we think it allows us to

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<v Speaker 1>stay focused on thinking and acting long term and really

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<v Speaker 1>has been key to our ability to deliver sustained above

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<v Speaker 1>market performance. And so that's really we view that mindset

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<v Speaker 1>to continue under the new governance structure, if you will,

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<v Speaker 1>and I think we will continue to benefit from you know,

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<v Speaker 1>strong disciplined execution, good aligned interests and I you know,

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<v Speaker 1>and continuing to drive above market performance and attractive returns

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<v Speaker 1>over long cycles.

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<v Speaker 2>We started this conversation by saying how historic this IPO was, right,

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<v Speaker 2>the biggest US industrial IPOs since ninety nine. And it's

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<v Speaker 2>been interesting to read about the history of the company

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<v Speaker 2>and its growth, both organic and inorganic. And to summarize,

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<v Speaker 2>like in the M and A context, you've kind of

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<v Speaker 2>rolled up smaller brands, and I wonder at what pace

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<v Speaker 2>that might continue in what your M and A activity

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<v Speaker 2>looks like Now the big one's done, the IPO's done.

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<v Speaker 1>Yeah, we've really been purposely, intentionally building the markets leading

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<v Speaker 1>indoor air quality solutions provider for residential and industrial markets

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<v Speaker 1>since twenty seventeen, and a lot of that we have

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<v Speaker 1>accomplished on an inorganic basis. We really want investors to

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<v Speaker 1>think of us as an organic growth opportunity with MNA

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<v Speaker 1>as a lever. Over the last five years, we've grown

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<v Speaker 1>sales on a compound average basis at eight percent. As

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<v Speaker 1>I said, we exited last year growing twelve percent. So

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<v Speaker 1>we are excited. I'm humbly confident and excited in organic

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<v Speaker 1>growth prospects. We will continue to use m and A

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<v Speaker 1>as a lever. We think we have a pretty special

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<v Speaker 1>capability there as well, having really cultivated relationships over a timeframe.

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<v Speaker 1>So think of us as an organic growth company with

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<v Speaker 1>M and A as a continued growth lever.

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<v Speaker 2>I want to bring it back to AI, but you know,

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<v Speaker 2>the way that I think about Madison Air is even

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<v Speaker 2>outside of just the specific contribution to a data center

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<v Speaker 2>build out, all of the factors that they're impacting companies

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<v Speaker 2>around the country in the world apply to you too, Right,

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<v Speaker 2>access to labor, materials, supply chain, what we're seeing in energy,

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<v Speaker 2>How do you feel at medicine's position right now, and

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<v Speaker 2>what are you doing that's different in supply chain as

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<v Speaker 2>you try and come out of this IPO and growth mode.

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<v Speaker 1>Yeah, I really think that. Look today we are an

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<v Speaker 1>eight billion dollar We are an eight percent market share

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<v Speaker 1>in a forty billion dollar TAM that is distinct and

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<v Speaker 1>complementary from traditional HVAC and as you're noting, there really

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<v Speaker 1>underpin by strong secular data centers, one of which is

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<v Speaker 1>AI and compute, but manufacturing reshoring, the forever labor shortage

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<v Speaker 1>in manufacturing and logistics environments, aging building stock both both

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<v Speaker 1>homes and commercial building stock and the drive for greater

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<v Speaker 1>energy efficiency. All of those strong secular tailwinds underpin our market.

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<v Speaker 1>So we really think we have room both to grow

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<v Speaker 1>our positions where we are today and expand our opportunities,

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<v Speaker 1>whether that be in chip fabs, in pharmaceutical manufacturing production,

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<v Speaker 1>and the like. We have pointed our portfolio to what's

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<v Speaker 1>driving the economy going forward, and we're excited about our

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<v Speaker 1>growth journey as we look at it lying ahead.

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<v Speaker 2>Joe, I'm so grateful you took us there. I broke

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<v Speaker 2>a story last night with colleagues around the world that

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<v Speaker 2>Elon Musk and the Terrafab projects are really kind of

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<v Speaker 2>kicking into gear. They're basically going to the supply chain

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<v Speaker 2>for chip manufacturing and saying how quickly can you give

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<v Speaker 2>us quotes and if we place orders, how quickly can

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<v Speaker 2>you get us that equipment. Is there any relevance to

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<v Speaker 2>you guys with Terrafab. Do you see an opportunity for

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<v Speaker 2>what is on paper just unimaginable scale of chip manufacturing

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<v Speaker 2>in this country?

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<v Speaker 1>Yeah? Well, you know, we exited last year with two

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<v Speaker 1>billion in backlog, about a billion four of that was

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<v Speaker 1>in our data center business. We have very strong forwardlooking

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<v Speaker 1>demand across the company, including in data centers. And I

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<v Speaker 1>think what really differentiates us in the data center space

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<v Speaker 1>is we don't sell SKUs. We don't sell standard configured products.

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<v Speaker 1>The people driving the AI revolution, you know, like Terrafab

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<v Speaker 1>and others that you've really mentioned, come to us for

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<v Speaker 1>deep domain expertise in rejecting a lot of thermal heat

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<v Speaker 1>in complex environments, including data centers, and so we bring

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<v Speaker 1>those you know, domain experts, engineering and applications expertise that

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<v Speaker 1>are able to sit toe to toe with some of

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<v Speaker 1>those leading lights in the industry and build solutions that

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<v Speaker 1>allow them to achieve max computing and their objectives. Now

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<v Speaker 1>you hit another important point, which is we've been at

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<v Speaker 1>this for a while. You know, the data center business

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<v Speaker 1>was born out of our customer handling business, which has

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<v Speaker 1>done this for a combined three hundred and fifty years.

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<v Speaker 1>So we did not start doing this last week or

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<v Speaker 1>last quarter. We've had a triple source supply chain. We've

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<v Speaker 1>had ninety nine to one hundred percent delivery rates for

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<v Speaker 1>the hyperscalers and the co locators we've been serving for years,

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<v Speaker 1>and we are there to care for and optimize and

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<v Speaker 1>ensure those assets perform at their best. We are differentiated,

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<v Speaker 1>we are winning and I think the best part of

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<v Speaker 1>that story, and it's all within a very balanced set

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<v Speaker 1>of end markets. We are not a data center peer play.

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<v Speaker 1>We give investors great exposure to the obvious opportunity there

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<v Speaker 1>while at the same time growing nicely in other advanced

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<v Speaker 1>high performance environments in the macroeconomy where air impacts customer helps.

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<v Speaker 2>Away from the stock market. You know, a focus of

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<v Speaker 2>the Bloomberg Tech audience is the role of debt in

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<v Speaker 2>all of these projects. Let's call it the reindustrialization of America.

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<v Speaker 2>I think, correct me if I'm wrong. You know, coming

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<v Speaker 2>out of this IPO, the debt loads, I think it

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<v Speaker 2>looks like about three billion dollars for you. What's the

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<v Speaker 2>strategy do you see with time paying that down? That

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<v Speaker 2>coming down quickly? Or your sanguine on the load and

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<v Speaker 2>how you work it?

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<v Speaker 1>Well, about a one hundred one hundred percent of the

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<v Speaker 1>IPO proceeds we will use to retire debt. So now

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<v Speaker 1>I don't know the exact calculation. I've been, you know,

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<v Speaker 1>talking to a lot of folks today about green shoe execution.

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<v Speaker 1>But really we should come out of that IPO about

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<v Speaker 1>three and a half times trailing on a leverage basis,

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<v Speaker 1>and then we continue to do what we do, which

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<v Speaker 1>is grow our business and generate cash flow and expand

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<v Speaker 1>our EBITA, which should allow us to exit twenty twenty

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<v Speaker 1>six below three times levered on a trailing basis. Again,

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<v Speaker 1>we run that play into next year, and we should

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<v Speaker 1>be south of two point five times levered, as I say,

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<v Speaker 1>before New Year's eve, well before New Year's Eve in

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<v Speaker 1>twenty twenty seven. And really then it just comes back

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<v Speaker 1>to the same play. We've always been running great sales,

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<v Speaker 1>higher margins are EBITDA margins enterprise wide at twenty six

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<v Speaker 1>and a half percent or eight hundred to a thousand

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<v Speaker 1>basis points better than the most of the competition we

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<v Speaker 1>see out there. Our team is very focused and robust

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<v Speaker 1>around converting that to free cash flow. We have an

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<v Speaker 1>asset light model where we whereby we can make our

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<v Speaker 1>growth investments while remaining at a low single digit capex,

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<v Speaker 1>and we have an owner's mindset across the company, so

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<v Speaker 1>good disciplined use of cash. So we feel good about that,

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<v Speaker 1>you know, getting that balance sheet to the point where

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<v Speaker 1>investors consistently told us they wanted to be, and then

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<v Speaker 1>that just opens up more optionality and flexibility for us

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<v Speaker 1>going forward.