マディソン・エア (MAIR) 2026年度第3四半期決算説明会：売上高25%増、業績予想を引き上げ

主要ポイント

• 第3四半期の売上高は、商業向けの堅調な販売数量、住宅向けの清潔空気（ヘルシーエア）需要、および価格改定に支えられ、前年同期比25%増の11億2,700万ドルとなりました。
• 調整後EBITDAは19%増加し、調整後EBITDAマージンは26.5%となりました。経営陣は、前年同期比でのマージン低下圧力の主因として、データセンター向け冷却プログラムの急成長と、同事業の現時点での利益率の低さを挙げました。
• 総受注額は当四半期に26%増、年初来では33%増となりました。受注残高は過去最高となる前年同期比119%増の32億ドルに達し、その70%以上が2027年以降に売上計上される見込みです。
• 商業部門のオーガニック売上高は39%増の7億7,200万ドルとなりました。住宅部門の売上高は3%増の3億5,600万ドルとなり、住宅部門の調整後EBITDAマージンは225ベーシスポイント拡大しました。
• マディソン・エアーは通期業績予想を引き上げ、売上高を40億5,000万ドル〜41億2,500万ドル、調整後EBITDAを10億4,000万ドル〜10億7,000万ドルとしました。
• 同社は年末直後にEBM PASの買収を完了する見通しです。経営陣は、買収完了後3年目終了時点で年間1億6,000万ドルのコストシナジー創出という目標を維持しています。

主要財務データ

事業および営業業績

商業部門

商業部門の受注額は前年同期比37%増加し、受注残高は125%増の31億ドルに達しました。オーガニック売上高は、同社が展開する15の商業エンド市場の大半で価格改定と力強い販売数量が見られたことを反映し、39%増の7億7,200万ドルとなりました。

商業部門の調整後EBITDAは24%増の2億ドルとなり、マージンは26%でした。経営陣によると、前年同期とのマージン比較はデータセンター向け冷却の突出した成長による影響を主に受けました。2026年下半期の収益を生み出しているプログラムの多くは直近6カ月以内に導入されたものであり、立ち上げ初期の人件費、設備能力、製造面での非効率が生じました。

同社は、部品および人件費の削減、固定費吸収の改善、バリューベースの価格設定、ならびにサービスやアフターマーケット収益の拡大を通じて、データセンター向け冷却の収益性が改善すると見込んでいます。部品の調達状況やサプライチェーン環境次第ではあるものの、経営陣は今後数四半期にわたりマージンが数ポイント改善する余地があると考えています。

商業部門の成長はデータセンター向けにとどまりませんでした。経営陣は、データセンター向け以外の受注も当四半期に20%以上増加したと述べました。除湿、空調管理（エアハンドリング）、送風（エアムーブメント）、ならびに空冷・液冷・ハイブリッド冷却のすべてが需要に貢献しました。

住宅部門

住宅部門の売上高は3%増の3億5,600万ドルとなりました。住宅市場が軟調な中、販売数量はほぼ横ばいとなったものの、1桁台前半の値上げによって相殺されました。

調整後EBITDAは12%増の1億500万ドルとなり、マージンは225ベーシスポイント拡大しました。この改善には、生産性向上、コスト削減策、価格改定、関税の還付、およびエイプリル・エアー（April Air）の継続的なシナジーが反映されています。経営陣は、エイプリル・エアーの買収がコスト削減と商業的利益の双方において当初のシナジー想定を上回る成果を上げていると述べました。

同部門は、住宅着工やHVAC（空調設備）の更新需要のみに依存するのではなく、施工業者、小売チャネル、製品革新を通じて清潔空気（ヘルシーエア）システムの普及拡大に注力し続けています。

キャッシュフローと資本配分

マディソン・エアーの最初の9カ月間のフリーキャッシュフローは2億9,800万ドルとなり、純利益に対する転換率は135%に達しました。直近12カ月間のフリーキャッシュフローマージンは約11%でした。

9月30日時点の調整後純負債は、PIPE調達資金を除いて約27億ドルでした。経営陣は、キャッシュ創出力と収益成長に支えられ、年末時点の調整後純レバレッジ比率が2.5倍を下回ると予想しています。

同社は過去最高水準の受注残高を消化するため、在庫、製造機能、生産能力への投資を行ってきました。経営陣は、生産性の向上と限られたライン増設により、2027年に計画されている成長の大半を既存の製造拠点で十分に対応可能であると述べました。

EBM PAS買収

マディソン・エアーはPIPE増資を通じて約22億5,000万ドルを調達しました。この調達資金は、約28億ドルの負債および手元資金と合わせて、手続き中のEBM PAS買収の原資となる予定です。

経営陣は年末直後に取引が完了すると見込んでいます。同社によると、統合後の企業規模は売上高約69億ドル、対応可能市場（TAM）は700億ドル超に達する見込みです。

マディソン・エアーは、買収完了後3年目終了時点で年間1億6,000万ドルのコストシナジー創出という目標を維持しています。クロスセル、顧客関係の拡大、および約2億5,000万台に上るファンの既設基盤（インストールベース）からもたらされる潜在的な収益機会は、同社の現在の業績上乗せ予想には含まれていません。

経営陣による業績予想（ガイダンス）

経営陣は、今回の見通しには現在の関税環境や根強いインフレが織り込まれていると述べました。2025年第4四半期に計上された大型受注が再現しないため、第4四半期の受注は前年同期比で計算上減少する見込みです。

リスクおよび注視すべき点

• データセンター向け冷却は、新規プログラムの立ち上げや生産能力増強の途上にあり、現時点では商業部門全体と比べて利益率が低くなっています。
• 原材料、輸送費、人件費全般でインフレが高止まりしており、関税政策も流動的な状況が続いています。
• サプライチェーンの制約が、生産の伸びやデータセンター向けマージン改善の時期に影響を及ぼす可能性があります。
• データセンターの許認可規制や一時停止（モラトリアム）の可能性についても議論されました。経営陣は、冷却設備は通常建設プロセスの終盤に設置されること、また現在のパイプラインの大半はすでに許認可取得済みまたは建設中であることから、影響が生じるとしても長期的なものになる可能性が高いと述べました。
• 受注残高の70%以上が2027年以降に売上計上される見通しであり、見通しの透明性を提供する一方で、実行力、顧客の建設計画、および部材供給の確保の重要性も高まっています。
• EBM PASの買収手続きは継続中であり、目標とするコストシナジーの達成は買収完了後の統合プロセスの成否にかかっています。

アナリスト質疑応答の要点

商業部門のマージン圧迫要因：経営陣は、マージン低下のほぼ全要因がデータセンター向け冷却の急成長に伴う製品ミックスの影響であると説明しました。データセンター向けを除外した場合、年初来の全社マージンは前年同期を上回っています。

受注残高の消化：第4四半期のBBレシオ（受注出荷比率）は約1.0倍と健全な水準を維持する見通しです。32億ドルの受注残高の70%以上は、2027年以降の納入が予定されています。

データセンター向けマージンの回復：経営陣は、単一四半期での急反発ではなく、今後数四半期にわたり数ポイントのマージン拡大を見込んでいます。主な要因として、単位当たりの作業時間の削減、部品表（BOM）コストの低減、設備稼働率の改善、およびサービス収益の増加が挙げられます。

生産能力の要件：同社は2027年に向けた大規模な設備投資は計画していません。経営陣は、生産性向上と限られたライン増設により、既存の製造拠点内で堅実な成長を支えることができると考えています。

サービス事業の機会：サービス事業は全社売上高の約10%を占め、機器本体と同等以上の成長率を示しました。設置基盤の拡大に伴い、データセンターの試運転調整（コミッショニング）、据付、予防保全がさらなる事業機会をもたらすと期待されています。

データセンターの顧客基盤：マディソン・エアーは、ハイパースケールおよびコロケーション事業者の厳選された顧客層に注力しており、投機的なNeoCloud（新興クラウド）需要は追求していないと述べました。経営陣は、この厳格な顧客選定と15の商業エンド市場への展開を、同社の強靭性（レジリエンス）の重要な源泉と位置づけています。

決算説明会（アーニングスコール）全文文字起こし

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, and welcome to the Madison Air Third Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's call is being recorded.

I will now turn the call over to Steve Low-Tufo, Senior Vice President, Investor Relations. Please go ahead.

Steve Low-Tufo

Great. Dustin, thank you, and good morning, everyone. Welcome to Madison Air's Third Quarter 2026 Earnings Call. Joining me today are Jill Wyant, President and Chief Executive Officer; and J.J. Foley, Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements on this call are forward-looking in nature and are subject to risks and uncertainties that could cause actual results to differ materially.

For information concerning these risks, we see Madison Air's recent SEC filings. We undertake no obligation to update these statements as a result of new information or future events. In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find calculations and a reconciliation of these measures to the most closely comparable GAAP measure in our earnings release, the presentation accompanying this call and in the supplemental information as applicable, which can be found in the Investor Relations section of our website at manadisenir.com.

With that, I'll turn the call over to Jill.

Jill Wyant

Thank you, Steve, and good morning, everyone. Thanks for joining us. In an effort to continue to educate investors about the company, I'll start with an overview of our business and strategy, the growth momentum reflected in the third quarter results and provide an update on the announced acquisition of EBM PAS. I'll then turn it over to JJ to discuss our financial performance and updated guidance for the full year before I return with a few closing thoughts before we head to Q&A.

So we will start on Slide 5. At Madison Air, we see Air differently. Our mission is to make the world safer, healthier and more productive through the power of better air. We build and scale air quality businesses across commercial and residential segments, and our leading brands include Addison, April Air, Big A Fans, RoNewtone, Nortech Air Solutions, Nortechataoo Data center cooling and Resner. Our strategy is built around 3 strengths that work together to deliver better air for our customers, stronger business performance and attractive long-term returns for shareholders.

The first is our return on air approach, how we help customers achieve their most critical business outcomes. We bring together technical expertise, leading brands and deep customer partnerships to solve challenges in the environments we serve, creating measurable value for customers.

Our second strength is leadership in attractive growth markets. Within our Commercial segment, we serve 15 end markets where performance matters and customers invest in highly engineered custom and semi-custom solutions for mission-critical applications. Our brands support customers across health care, life sciences, advanced manufacturing, power gen, data centers and more. In residential, our healthier solutions and contractor education initiatives improve conversion, helping us gain share and deepen engagement with channel partners. Together, these efforts strengthen demand, expand adoption and make our business more resilient even in challenging housing and traditional HVAC markets.

The third strength is our value creation model. We combine a decentralized operating structure and lean corporate center with the capabilities and scale of the broader enterprise. Our businesses remain close to their customers and can move quickly to invest where they see the greatest opportunities while benefiting from shared capabilities, talent, technology and capital at scale. That combination of local agility and enterprise scale is an important competitive advantage for us. It enables us to pursue growth nimbly and efficiently, sustain strong profitability and cash flow and deploy capital into the highest return opportunities.

Taken together, these 3 strengths, return on air, leadership in durable growth markets and a disciplined value creation model form a repeatable framework for creating long-term value. Please turn to Slide 6. Over the last 12 months, Madison Air generated $3.95 billion in revenue, 26.2% adjusted EBITDA margins and $428 million in free cash flow. I'm very proud of these results, which reflect the power of our operating model and our team's commitment to solving our customers' toughest -- we built this portfolio for resilience. It's balanced across commercial and residential with significant exposure to replacement and upgrade activity that holds up across cycles.

By combining differentiated products with life cycle services, we add even more stability to our revenue base while creating value for customers. Together, Madison Air combines a track record of strong profitable growth and cash generation with broad end market exposure and an expanding aftermarket opportunity, creating a durable platform for sustained and profitable growth.

Please turn to Slide 7. From clean rooms and classrooms to hospitals, data centers and single and multifamily homes, our solutions show up everywhere people live, work, learn and play. And that's by design. We are not a traditional HVAC company. We focus on the high-value niches around it, where air performance is critical and the stakes are very high. We've built capabilities across the air ecosystem from air, liquid and hybrid cooling to air handling and precision humidity control to the 5 pillars of residential indoor air quality. This breadth enables us to solve complex challenges in a wide range of applications and environments.

We estimate our North American addressable market at approximately $40 billion, supported by powerful secular tailwinds, including the growth of advanced manufacturing, increasing demand for healthier, more resilient and energy-efficient homes and buildings and the rapid scaling of AI and compute. We believe that positions us well for continued growth. In an environment where macroeconomic trade and geopolitical conditions are shifting quickly, our diversified exposure provides resilience, while significant white space remains as customers increasingly use better air to improve their business outcomes.

Please turn to Slide 8. Our third quarter results demonstrate the power of disciplined execution against a clear long-term strategy. Across the business, we're doing what we said we would do, and the results are showing up in orders, backlog, revenue growth and cash generation. Orders are our clearest leading indicator of future performance and the signals remain strong. Our new business pipeline remains healthy and combined company orders grew 26% in the quarter and 33% year-to-date. The underlying drivers of demand remain strong and our expanding pipeline, continued opportunity conversion and record backlog give us confidence in our ability to deliver continued growth over the next several years.

We continue to actively manage these conditions and execute on the levers we can control, including pricing, productivity and close partnership with suppliers and customers. In our Commercial segment, orders growth remains broad-based. While data center cooling continued to be the largest driver, the majority of our commercial end markets grew in the third quarter.

Our dehumidification business is a great example of how targeted investment in technology is translating into growth. As advanced manufacturing and logistics become more automated, a large global e-commerce customer came to us needing increasingly precise humidity control to protect optical sensors used for robotic navigation and material handling in a highly automated fulfillment center. We recognize the emerging challenge and developed a solution.

And today, we're seeing that customer-centric innovation, combined with our nationwide channel breadth, drive strong orders growth. With strong order activity and a third quarter book-to-bill ratio of 1.26x, we exited the quarter with record backlog of $3.2 billion, up 119% year-over-year. That backlog provides strong visibility into the near term and beyond with more than 70% expected to convert in 2027 and later, positioning us well for continued growth. More importantly, we're delivering. Year-to-date net sales grew 18% on a pro forma basis and 25% in the third quarter as our teams ramped production to convert record backlog to revenue, reflecting broad-based momentum across the portfolio.

Innovation is also an important driver across the business, and April Air continues to lead in healthy air solutions, most recently with its new TRIPURE technology. TRIPURE brings professional-grade filtration to residential air filters, capturing up to 92% of household dust and pollen. It also improves airflow, which reduces strain on HVAC systems and helps lower energy bills for consumers. Innovation like TRIPURE, together with our contractor education efforts help us gain share, strengthen adoption and create new demand.

Please turn to Slide 9. Big -- as fans delivered some of our strongest commercial growth this quarter and is a great example of our return on air approach in action. A big part of that opportunity is what we call the heat tax, the hidden cost companies pay when their people are too hot, lost output and higher turnover. In manufacturing and logistics environments, labor often represents 20% to 40% of operating costs, making workforce productivity a critical business driver. Yet fewer than 20% of U.S. industrial facilities have adequate air conditioning and many large facilities simply cannot economically cool an entire building. Big -- has fans addresses that challenge.

In a study conducted by UC Berkeley and the University of Sydney, workers using Bigas fans solutions experienced conditions that felt up to 10 degrees cooler and 79% of them said they performed their jobs more effectively. That's return on air in action, improving the environment in a way that drives productivity and job satisfaction, supports retention and creates measurable value.

And the team is now applying those same insights beyond employee comfort. By helping customers manage temperature-sensitive environments, Big S Fans is unlocking new growth opportunities where temperature control protects critical inventory, equipment and operations, places like steel manufacturing, medical supplies, pharmaceuticals and food distribution. At Big S fans, the opportunity is clear: pursue a $6 billion market, which today is only 4% penetrated. Using data-driven insights to identify opportunities and generate demand, we're expanding our reach, creating customer value and driving sustained profitable growth.

Please turn to Slide 10. Our third quarter results and growth momentum reflect a deliberate long-term strategy, focus on attractive growth markets to outperform the markets we serve, drive operational excellence and allocate capital with discipline. At the center of that strategy is return on air. We help customers turn air into a strategic asset. And by earning a seat at the customer's design table, we combine application expertise, engineering insight and system-level thinking to solve problems and improve performance. It's a repeatable playbook we apply across businesses, markets and cycles.

We then work to outperform our markets through innovation, value-based selling, strong channel and customer partnerships and continued expansion of services and aftermarket. Operational excellence is what turns that growth into stronger margins and cash flow. Our approach combines value selling and innovation with operating leverage, productivity, higher-margin services and aftermarket and disciplined 80/20 execution. Data center cooling is a great example. The growth opportunity is compelling, and there's a cost to seizing an opportunity of this magnitude as we invest and grow rapidly to meet significant customer demand.

Today's margins do not reflect the data center business' long-term earnings power. This exceptional growth creates a significant opportunity to expand margins as the business matures and we penetrate a growing installed base with more services and aftermarket. We are very focused on improving productivity, optimizing product and project mix and driving operational leverage from our growing scale. These are proven elements of the same profitable growth playbook we've successfully applied across the entire company.

We've also actively managed a few near-term pressures in the macro environment, things like inflation, which remains elevated across materials, freight and labor and tariff policy, which continues to evolve. We're responding through value-based pricing, a focus on productivity and continued supplier cost actions. As we've noted in past calls, broad-based demand is putting pressure on the supply chain. We continue to work closely with suppliers to secure capacity and qualify additional sources while aligning with customers on schedules that deliver what they need, when they need it.

Finally, core to our strategy is allocating capital to where it creates the greatest value. We invest in high-return organic growth while maintaining a strong and flexible balance sheet and a clear path to organic delivering. We also pursue disciplined M&A where it can expand our capabilities, strengthen our technology platforms and create attractive long-term returns.

Our pending EBM Past acquisition, which you see on Slide 11 is a great example of that strategy in action. We announced the acquisition of EBM PAs in August and believe this combination will accelerate our strategy, significantly expand our opportunity and create substantial value over time. As I've said before, we focus on markets that are growing, that benefit from strong secular tailwinds and offer attractive return on air economics. EBM Paps fits squarely within that strategy with differentiated technology and a strong position as a trusted partner to its customers. Upon closing, our combined company will have approximately $6.9 billion in sales, and our addressable market will expand from $40 billion to more than $70 billion.

The integrated airflow technology market benefits from powerful trends, including increasing energy demand, rising efficiency requirements and the adoption of smarter, more resilient buildings. The opportunity also extends well beyond the initial sale. EBM PAPS has an installed base of approximately 250 million fans worldwide, creating significant opportunities for replacement upgrade and service revenue. We see meaningful opportunities to apply our customer-focused approach and expand life cycle revenue opportunities across this installed base.

Together, we will have greater scale and broader capabilities to improve energy efficiency, enhance performance and resiliency and unlock greater return on air across the global installed base. Since announcing the transaction, we made significant progress and our conviction in the opportunity has only strengthened. We successfully raised approximately $2.25 billion through our pipe offering, which together with approximately $2.8 billion of debt and cash, provides the funding needed to complete the acquisition.

We remain on track to close soon after the end of the year. While we continue to operate as 2 separate companies today, integration planning is well underway with dedicated resources focused on the combined operating model and positioning us to execute effectively from day 1. We remain confident in our target of $160 million of annual cost synergies exiting year 3 after close, which represents a significant and identifiable source of value creation with additional upside from cross-selling, broader customer relationships and our combined capabilities.

Importantly, these revenue synergies are not included in our current accretion expectations. We have a clear plan centered on delivering these synergies, applying our operating discipline and capturing opportunities for profitable growth. These are the same capabilities we've successfully deployed across Madison Air, and we intend to bring that discipline to the combined business to drive long-term value creation.

Last month, I visited EBMPAP's global headquarters in Germany and spent time with the leadership team and employees. I've participated in virtual forums with employees around the world. We are really excited about what we can do together. The strategic rationale is clear. Our confidence in the value creation opportunity continues to grow, and we look forward to officially welcoming EVM Pass to Madison Air.

With that, I'll turn it over to J.J. to walk through our third quarter financial performance and outlook. JJ?

JJ Foley

Thanks, Jill, and good day all. Please turn to Slide 13. Net sales grew 25% year-over-year to $1.127 billion, driven by strong volume growth across our commercial end markets and continued demand for healthy air systems and residential. Price also contributed across both segments and helped mitigate ongoing inflation. Adjusted EBITDA grew 19%, reflecting strong top line growth. Margins were 26.5% with essentially all of the year-over-year decline driven by the success-based mix from outsized growth in data center cooling, where we continue to invest and grow rapidly to meet significant customer demand. Price/cost dynamics persisted through the quarter, but were largely managed across the portfolio.

Importantly, the third quarter incremental margins were in line with our expectations. And as we discussed earlier, we see a clear opportunity to expand data center cooling margins over time as the business scales. We delivered strong adjusted EPS of $0.38 and adjusted net income of $199 million in the quarter. Adjusted net income grew 100% year-over-year, driven by net sales and pretax earnings growth mentioned above, along with tax benefits from executing our ETR strategy.

On cash, we generated $298 million of free cash flow year-to-date, which represents net income conversion of 135%. We ended the quarter with adjusted net leverage of 2.6 turns, excluding the PIPE proceeds. This represents another approximate quarter turn of improvement versus the second quarter through a combination of cash generation and earnings growth. We remain on track to close this year with less than 2.5x adjusted net leverage and continue to pace ahead of what was communicated pre-IPO. Overall, the quarter demonstrates our ability to convert net sales growth into earnings growth and cash generation.

Please turn to Slide 14. In Commercial, we drove strong orders growth, up 37% year-over-year. Backlog increased 125% year-over-year to $3.1 billion, providing good visibility and supporting solid revenue momentum into 2027. On revenue, strong customer demand drove 39% year-over-year organic net sales growth to $772 million, driven by a combination of pricing and strong volume.

Importantly, as Jill noted, we delivered strong orders and revenue growth in the majority of our 15 commercial end markets, reflecting continued momentum across key technology platforms, including air handling, air movement and air liquid and hybrid cooling, illustrating how we benefit from a diversified portfolio and decentralized operating model. Commercial segment adjusted EBITDA grew 24% to $200 million. Adjusted EBITDA margin was 26% with incremental margins in line with our expectations.

As I mentioned, the year-over-year margin comparison primarily reflects the success-based mix impact of exceptional growth in the data center cooling business as we continue to expand production and meet strong customer demand. We are making progress on production ramps, productivity and price cost initiatives. We have a clear road map to expand these margins over time, and we believe the key drivers are measurable within our control and we'll be demonstrating scaling progress into 2027. We closely track productivity, program maturity and price realization against defined operating targets, and we're progressing in line with our plan.

These are operational levers that Jill and I manage weekly with the team, giving us confidence in our ability to deliver continued healthy earnings growth. Beyond the financial results, we continue to expand our leadership in high-value applications, including clean rooms, where our solutions directly improve productivity yield, uptime and asset utilization. We're also accelerating services and aftermarket growth, capturing more value across our expanding installed base.

Overall, the segment continues to benefit from exposure to mission-critical end markets, and we remain focused on executing our backlog, innovating to meet customer demands and sustaining growth momentum.

Now please turn to Slide 15 for the residential results. The Residential segment delivered 3% organic net sales growth and 12% adjusted EBITDA growth despite a soft housing market, performing in line with our expectations.

Given the short-cycle nature of this business, as we've said before, orders and backlog are less relevant than in commercial, but for additional context, orders grew low single digits in the quarter. Importantly, we play a fundamentally different game than traditional residential HVAC providers. Our growth isn't dependent solely on housing starts or HVAC replacements. We're focused on increasing healthy air system adoption through our contractor channel with significant white space still in front of us.

Every HVAC service call or replacement creates an opportunity for our contractor partners to educate homeowners on the value of healthy air and drive greater adoption. That gives us an avenue to grow through penetration even when the underlying market is soft. We're supporting that opportunity with continued investment.

As an example, in the retail channel, where we're leveraging AI and digital tools to sharpen commercial insights, protect share and drive growth. At the same time, we continue to innovate, including the recent launch of our patented next-generation air purification technology that Jill highlighted earlier. You can see the strength of that model in the results. Residential net sales increased 3% to $356 million, supported by low single-digit pricing and approximately flat volume.

Adjusted EBITDA grew 12% to $105 million, with margins expanding 225 basis points, driven by productivity, cost actions, price, tariff refunds and importantly, the continued realization of Aprlay synergies. Overall, residential remains highly differentiated in its products, its channel and growth model. We have substantial white space that we can capture through innovation and greater channel penetration today with additional upside as the underlying market backdrop improves.

Now please turn to Slide 16 for a summary of our balance sheet. The strength and flexibility of our balance sheet are supported by continued strong cash generation. As of September 30, excluding the PIPE proceeds, adjusted net debt was approximately $2.7 billion with adjusted net leverage at 2.6x. The financial flexibility allows us to continue investing in the long term through organic growth and strategic acquisitions.

The $2.25 billion proceeds from the PIPE will be used to fund the acquisition of UBM Pass. Adjusted net leverage improved approximately 0.5 turn in the third quarter. We remain on track to exit the year at less than 2.5x trailing, supported by strong continued cash generations and earnings growth. At quarter end, we had liquidity of roughly $1.8 billion, excluding the PIPE proceeds, providing flexibility to support operations, strategic initiatives and the expected close of UVM Pass.

For the first 9 months, reported free cash flow conversion was approximately 135%, reflecting our asset-light model and disciplined working capital management. Reported LTM free cash flow margins were approximately 11%. Importantly, our strong cash generation comes while we continue to make deliberate investments to support outsized growth and meet strong customer demand. That includes investing in working capital, primarily inventory to support delivery against our record backlog as well as strategic investments in innovation and critical operational and manufacturing capabilities to support our growth.

Our 80/20 approach is an important enabler here, helping us focus resources and capital on the highest value opportunities across the portfolio.

Now please turn to Slide 17. The third quarter execution and record backlog visibility enables us to raise our full year guidance. We now expect net sales of $4.05 billion to $4.125 billion, representing mid- to high teens growth on a pro forma basis. This enables us to overdeliver against our prior guidance and long-term organic growth ambition as a result of strong execution and increasing success in key growth markets.

Looking to the fourth quarter, we expect low double-digit net sales growth. As we have noted in the last several quarters, while the underlying demand in the pipelines remain very healthy, fourth quarter orders are expected to be down mechanically year-over-year due to the non-repeat of a large order in the fourth quarter of 2025. For the full year, we now expect adjusted EBITDA of $1.04 billion to $1.07 billion, representing low double-digit to mid-teens pro forma growth. This implies adjusted EBITDA margins of approximately 26%.

As discussed earlier, our margin outlook reflects continued mix impact of exceptional data center growth in the cooling business alongside investments to bring new programs and production capacity online. We expect productivity improvements and price cost to support margin expansion as the business scales.

Beyond the headline guidance, we're updating several assumptions based on latest visibility. We continue to expect free cash flow conversion above 100% of net income with capital expenditures now less than 1.5 points of sales. Additionally, we see an effective tax rate of approximately 27%. Following the September PIPE, we now expect net cash interest expense of approximately $210 million, including interest income from the PIPE proceeds and approximately 597 million diluted shares at year-end. We also now expect central expenses of approximately $35 million, down from our prior estimate of $38 million.

Our guidance reflects current tariff environment and persistent inflation. The supply chain remains dynamic. We continue to deploy countermeasures, including pricing, supplier negotiations, freight optimization and operational productivity. Overall, demand remains healthy, execution remains strong, and we are raising our outlook while continuing to invest behind significant growth opportunities.

Our teams remain focused on what they can control, serving customers, driving productivity and executing our strategic priorities. We believe this positions us well to deliver sustainable, profitable growth and strong free cash flow generation.

With that, I'd like to turn the call back to Jill.

Jill Wyant

Thanks, J.J. Our third quarter results continue to reinforce the strength of our strategy. Our commitment to broad-based diversified growth in high-performance markets is a durable compounding model that enables us to grow through cycles. Across the board, we're applying our proven playbook to translate that growth into sustained earnings and cash flow through the work of our very committed team.

Regardless of the external environment, our priorities have not changed, backed by strong demand, record backlog visibility and great momentum. We remain focused on disciplined execution, serving our customers, caring for our team and creating long-term value for shareholders by managing the factors within our control. Our mission is to make the world safer, healthier and more productive through the power of better air. And return on air is how we measure the value we create for our customers and the impact we deliver to the world every day.

Thank you for joining us. And Dustin, I'd love to turn it back over to you to take questions. Thank you.

Operator

[Operator Instructions]. And our first question comes from the line of Tim Wojs from Baird.

質疑応答

Timothy Wojs

Just my question, just on commercial margins. I was wondering if maybe you could kind of break down for us kind of the drivers of the year-over-year compression? How much is data center mix versus price cost versus some other things? And maybe just could you kind of outline for us what success-based mix means? Just kind of what that means. I don't know if I've heard that term before.

JJ Foley

Yes, absolutely. Look, I'd say, first of all, we got to start with 27% EBITDA margins, very strong quarter, I think, particularly in the context of the year-over-year earnings growth and against the backdrop of the top line growth across the company with a slug of persistent inflation. I think as you look at the drivers here, the primary driver of margin was the success-based mix. And what that means, Tim, is that the data center business at its core right now as it's early in the scaling journey is lower margin.

So as that business mixes in against a 28% commercial segment margin last year, that's just as a nature of that, that's going to put that mix pressure in there. So I think that's the biggest driver when we talk about success-based mix. The price/cost dynamics we've talked about persisted, but we're largely managed. And I would say we're on track as we always talk about here.

We covered the dollar pressure in year 1 with rate coverage in the following year. I think many of our businesses, we are covered from a price/cost dollar standpoint, many of them covered from a rate standpoint with a few on the longer cycle side of things that will recover here as we get into 2027. I think one of the interesting points here is if you look at the business, excluding data centers, company margins are up year-to-date.

So we don't view this as broad-based mix pressure across the portfolio. It is primarily a function of where that growth is coming from. And we can talk a little bit about where we're going in terms of the data center business. Specifically to the Commercial segment margins, those were at 26%. Again, here, margins almost entirely explained by the success-based mix from outsized growth in the data center business. And the Commercial segment incrementals on the upside were somewhat lower, in line with our expectations given where that business is in its scaling journey.

We talked about the data center business margins being left of center in early days here. And I think as we said in the call or as Jill said in the call, stepping back, there's a real cost to seizing this opportunity when you think about the magnitude of it, whether it's new capacity, some inefficiency on the labor front, supporting some of those new programs, but we certainly see a compelling return on those investments, both today given that we've brownfielded most of our exposure to the data center business and then over time, as we grow and scale that business.

Timothy Wojs

And I guess just as a follow-up question, I know you've been talking about kind of orders having a tough comp in the commercial segment in the fourth quarter. Would you still expect book-to-bill to be nicely above 1? And of the $3.1 billion of backlog in commercial that you ended the quarter with, how much of that is shippable in '27?

Jill Wyant

Yes. Tim, this is Jill. So as far as orders and the orders picture, look, our pipelines are full. Our teams are all over it. I personally chair a call every 2 months where we go through every single business, every single new business pipeline, particularly down to the 30-, 60-, 90-day outlook. So I feel good about our pipelines. They continue to grow and have nice momentum.

We had a healthy book-to-bill in the quarter of 1.3x. We would expect in the fourth quarter that, that book-to-bill remains healthy. I would characterize it sort of in the range of 1. And those commercial orders over $1 billion, $3.2 billion backlog and balanced growth in both across our 15 commercial end markets. And we would estimate that over 70% of that backlog delivers 2027 or later. So we have good forward-looking visibility into 2027. And again, feel good about exiting the quarter and really the year with good growth momentum.

Operator

Our next question comes from the line of Ryan Merkel from William Blair.

Ryan Merkel

I wanted to start with the comments on data center margins showing progress in '27. Can you put a finer point on that, maybe timing or magnitude or anything else you can share?

JJ Foley

Yes, absolutely. Look, I think on the data center business, it's performing well with healthy EBITDA margins. I think for the data center business in isolation, I would tell you, we see a few points of margin expansion over the course of the next several quarters. Obviously, assuming that we can secure parts and supply chain continues to cooperate to drive that growth.

The current margin dynamic is largely a function of program maturity. And we've talked to some folks about this offline over time here. But the majority of our second half '26 data center revenue is coming from programs that were introduced within the last 6 months.

And these programs typically run anywhere from 1 to 3 years. So there's a ton of opportunity to be able to work these down the cost curve and improve the economics as they mature. And to make that a little bit more real for you with a few examples, there's really kind of 3 levers that we look at to be able to drive the margin expansion of that business.

The first is really improving the cost per unit. So think about that as driving down BOM costs and driving labor productivity as the programs ramp. And if you had a new program in the first half of this year, hours now are probably down roughly 25% versus where you jumped in. So with a path for more, very operational, real-time hours per unit targets and see that as we work those down the program maturity.

The second really is leverage on the capacity that we've built to support the growth. So for example, in Oklahoma City, we invested a bit ahead of that in volume to be able to ramp in the second half of the year here and into '27. And as that facility scales, we'll have that better overhead absorption and 80/20 is really guiding the way there. And then the third is really more of an overtime item, but also as we commission and install more units here, we grow that services and aftermarket. So participation beyond the initial equipment sale -- we delivered a record services quarter in the third quarter, and that opportunity grows with the installed base.

So much of this should sound familiar. You've studied the story here, but around our margin playbook. So we start with that value-based pricing, which we've got a number of active programs with customers today in the data center business, innovation at higher margins, the fixed cost leverage in 80/20 that we talked about here in the more operational examples and then the higher-margin aftermarket and services.

So very much confidence in the long-term margin profile. I don't necessarily see this as something that snaps back in one particular quarter, but like the path to travel and see a few points of margin expansion over the next several quarters.

Ryan Merkel

Got it. Okay. That was great color. And then just quickly, any early thoughts on the data center moratoriums? -- if you see any impact from that?

Jill Wyant

Yes. This is Jill. Ryan. So I would start there with -- we're obviously still digesting the elections. It's been just over 24 hours. But I focus in my mind on 2 or 3 things because quite frankly, this is what we've -- irrespective of the election, kind of how I've always thought about it, you guys have heard me talk about resilient demand and flexible investment. So our backlog of projects, which is very solid when you're speaking in particular to the data center industry, is a very good indicator of demand into 2027.

These are not projects that are in the pre-permitting phase, right? You're bringing in cooling equipment towards the tail end of the data center construction process. So we have strong customer engagement on these opportunities and a healthy backlog. Some of these concerns were an existing issue, right? They're not net new, although the election results in many places certainly put a pinpoint on them.

And we've always talked about how the fact that we build custom air liquid and hybrid cooling solutions that allow customers to build energy-efficient, water-efficient, reasonable sound profile data centers are an advantage. And we think over time, EVM PAPs becoming part of the family only strengthens that. And then we are always -- we've very much focused on a small subset like 10 or so hyperscalers and colos that we believe will be here in 50 years. We've not gone into the Neo clouds.

Frankly, we don't have the capacity, and we're not going to invest out in front of it. We've not pursued speculative demand. We have managed our exposure to this segment, which is 1 of 15 end market verticals as part of a diversified approach in our Commercial segment. So we are very focused on what we can control.

I am delighted that we have always managed our exposure and been very diversified here. And our commercial orders outside of the Data Center segment, the majority of those 15 end markets grew in the third quarter and orders were up more than 20% outside of the data center segment. So we are very glad that we are decentralized and diversified because we think it builds a durable profile to execute through cycles.

Operator

Our next question comes from the line of Nathan Jones from Stifel.

Nathan Jones

I guess I'll ask the regulatory and potential election result question a bit of a different way. There's obviously a backlog of projects that are under construction. And as you said, the cooling stuff comes in a bit later. Let's say, just for a hypothetical that they ban new data center tomorrow, how long would that project pipeline take for you to realize the orders and then actually deliver the revenue before it hit the wall, even if that -- obviously, that's not going to happen. But just to give us an idea of how far out that project pipeline and project deliveries go?

Jill Wyant

Yes. I think it would be out there, Nathan. I mean I can't put out what month or what quarter, but it would be a longer-term effect. I would say this, again, when we are -- we have customers who come to us and plan for several years of build-out, only a subset of which is in our reported backlog. So we have more visibility to that. I've read statistics that say in the U.S., we have a 4x megawatt build-out underway in this country more than 80% of which is permitted or under construction.

So I think we are very heavily playing in that part of the market. I would also say, again, we are not in the NeoCloud. We have a real firm know your customer approach to this market. We've managed our exposure to it through one piece of our business so that we've not student body lefted the whole organization towards one particular end market. And so I think between what we believe to be the most resilient demand, good solid discipline and focus -- we try to manage our exposure to the most resilient players in the market who we need if we want things like Netflix and some place to store our iPhone photos on the cloud, if you will.

So I think any effects of that would be longer term in nature beyond what we see in our backlog. And obviously, we have a team that begins and ends each day focused on this and has its ear to the lips of the hyperscalers and colos that we serve. So we have good market intel day-to-day, week-to-week.

Nathan Jones

And I guess the ROI on all of this is pretty high because your CapEx is very low. Can you maybe just talk a little bit about what it is that you're actually putting in place to ramp this capacity up? And then talk about how that climbs to skill hill in order to improve those margins as you go along?

Jill Wyant

Yes. Thank you for the question. We do believe, as we talked about, one of the company's strengths is our decentralized operating model and disciplined capital allocation. We measure each of our businesses on returns on tangible capital or operating return on capital. And we have, in fact, clear evidence that we have entered not just the data center market, but virtually every market we serve in a very capital-efficient way for shareowners.

Our investment here and in most places is lines, cranes, stuff to move big boxes down production lines, to some extent, working capital, getting the cash to amass what you need to make thousands of units at a time for large customers, whether they be in pharmaceuticals, semiconductor chips or data centers. So that tends to be the nature of the environment.

Our 80/20 operating model, we are constantly looking at our factory capacity to say, are we using every square inch for its highest best use. And we don't tend to invest in front of demand. We have sort of a grow-to-invest mentality in our company. We do make invest to grow investments, but I would not characterize them as the way we work routinely across the patch. So that really allows us to pursue growth in mission-critical end markets where air is critical to process control in a disciplined and capital-efficient way.

Operator

Our next question comes from the line of Steve Volkmann from Jefferies.

Stephen Volkmann

I'm curious how to think about the capacity that you're adding because I know it's not the mood in the market today, but if you continue to see the types of successes that you are in things like data center, my guess is you'll probably have to continue adding capacity. But how should we think about that? Is '27 a year where you can kind of harvest what you have planted? Or is there a potential that we'll continue to see some of these margin headwinds from capacity additions?

Jill Wyant

Yes. I would say we just went through -- first, Steve, thank you for the question. We've just completed our annual planning review, our budget cycle for 2027. I would say, at this point, we are not contemplating massive investments in capacity. We have 5 million square feet of manufacturing across the company as we sit here today. We had a good conversation with the data center business between efficiency and productivity and a few extra lines, we can accommodate the growth, the responsible growth within the 4 walls of the capacity we have today.

So again, it's sort of like we want to participate in the growth in this and other of the 15 commercial end markets that we see great opportunity in. I mean beneath the headlines of the election and the day-to-day and the VIX and all the things, like look, unemployment is low. Construction in certain subsegments of the economy is happening. And so because of our decentralized model and our ability to move quickly and deploy capital, whether that's another factory line or 10 salespeople to go chase an opportunity, we tend to be quite nimble and capital efficient in going after growth. So the net-net of it, Steve, is we feel like we have the floor space we need to meet our continued growth ambitions. And that just is kind of how we have rolled and how we plan to roll going forward.

Stephen Volkmann

Okay. Great. And then maybe switching gears on the resi side, margins are really impressive there. And J.J., I think you mentioned April Air synergies continuing. Are those -- is there more there than you had originally thought? Are those going to continue?

JJ Foley

Yes. Good question. I would tell you on the synergy side of things from the acquisition of Aprlir, they are overdelivering relative to the original underwriting case. And quite frankly, it's a combination of both the cost side, but more importantly, the commercial side from a revenue synergy standpoint. There -- there were complementary brands and capabilities, particularly in the residential dehumidification space.

We're seeing them outperform as well as in different geographies, where, as an example, our grown newtone business was stronger in Canada or maybe on the West Coast and then the same for AprlI down as you kind of think about the southern part of the United States.

So both from a cost standpoint, our materials cost reduction led by Graham from a centralized sourcing or strategic sourcing standpoint, very much delivering the same with the great work from Dale and his team and Jimmy, overdelivering on the commercial synergies and then getting after the product simplification on the back end, which has given us some benefit as you also think about productivity through the factories.

Jill Wyant

So kind of a similar story to what we foreshadowed, like hit the cost synergies, overdeliver on the growth synergies and real kudos to that entire team for grabbing that mandate and executing on it in a volatile environment.

Operator

Our next question comes from the line of Zachary Schechtman from Wells Fargo.

Zachary Schechtman

I was wondering if we could get a little more color on service, maybe the size of the revenue base at year-end, the growth profile you see going forward? And if you're seeing really an inflection yet driven by data center demand.

Jill Wyant

Yes. Thank you for the question, Zach. So very good performance both in the third quarter and year-to-date in our services business in the quarter, outpaced equipment growth, if you will, albeit on a smaller base than our equipment sales revenue. But we have good momentum in our services businesses. I would say you could still characterize it as within 10% of total company revenues. And again, -- this is because we are just growing unit volumes so quickly in a lot of places.

But very strong performance out of our data center business. That team is doing a great job ensuring that we meet our customers where they need us to be to commission and start up equipment on time, on quality. Big -- as fans had a really good performance in the third quarter. They're making a lot of investments in digital and expanding their nationwide installer network to ensure we identify and digitize our ability to take the hassle factor and the complexity of installing fans across multiunit locations.

And then in our customer handling business, our coils business, where we've made investments in digital tools to make us easier to buy from, things like coils and spare parts in the aftermarket saw really nice growth as well. So we're -- our investments in digitizing our services business on deploying more great talent continue to pay dividends. And I think we'd say, again, growth rates at or above equipment growth, ballpark 10% of total company sales.

JJ Foley

On the data center side of things, early stages, as Jill said, as we look at the revenue growth, the commissioning, the install, preventative maintenance and things of that nature typically trail the equipment sale. So I would think about that Zach as upside as we look at margins for the business and growth into 2027.

Zachary Schechtman

Got it. And then just one follow-up on the EVM deal and to the extent you could speak to that, maybe revenue performance since announcement, any updates on customer conversations and capacity expansion?

JJ Foley

Yes. In terms of financial performance, the team is executing quite well. So as you think about where we thought we'd finish from an estimated 2026 year-end, revenue kind of at that $2.8 billion mark, EBITDA at USD 343 million. Those guys are executing well, high confidence in being able to hit those numbers, possibly some upside from that standpoint and encouraged by the planning discussions as we look at 2027.

Jill Wyant

Yes. And I would say with respect to their customers, as we noted in prior calls, including when we announced the acquisition, -- our goal -- we don't compete with their global OEM customers. This is not the only acquisition we will have made where we white label for OEMs. And so we're very used to these types of arrangements. We would consider the acquisition a success if in a year or 2, those customers are saying, wow, like this is the best thing to ever happen to EVM Pass.

And along those lines, we are excited to bring our 80/20 toolkit and our broader operating discipline to helping them unlock more capacity and throughput for the products that they have that are highly differentiated and in high demand. So excited to help them continue to fortify those relationships and if anything, provide their great technology more of it.

Operator

This concludes our question-and-answer session. I would now like to turn the conference over back to Jill Wyant for closing remarks.

Jill Wyant

Thank you, Dustin, and thank you, everyone, for joining us. We appreciate you being with us on our third quarter call. We continue to work to make the world safer, healthier and more productive despite a dynamic external environment and are excited about our third quarter results and the momentum we have as we exit 2026. Again, I appreciate your support, interest and engagement, and we look forward to speaking again soon. Thank you, everyone. Take care.

Operator

This concludes today's conference call. Thank you all for joining, and you may now disconnect.