매디슨 에어(MAIR) 2026 회계연도 3분기 실적 발표 컨퍼런스 콜: 매출 25% 증가, 가이던스 상향

핵심 요약

• 3분기 순매출은 견조한 상업용 물량, 주거용 청정 공기 수요 및 가격 인상에 힘입어 전년 동기 대비 25% 증가한 11억 2,700만 달러를 기록했다.
• 조정 EBITDA는 19% 증가한 반면, 조정 EBITDA 마진율은 26.5%를 기록했다. 경영진은 전년 동기 대비 마진 압박 요인으로 주로 데이터센터 냉각 프로그램의 급격한 성장과 이에 따른 현재의 낮은 마진 구조를 꼽았다.
• 통합 수주는 3분기에 26%, 연초 이후 누적으로는 33% 증가했다. 총 수주잔고는 전년 동기 대비 119% 증가한 32억 달러로 사상 최대치를 기록했으며, 이 중 70% 이상이 2027년 이후 매출로 전환될 것으로 예상된다.
• 상업용 자체(유기적) 매출은 39% 증가한 7억 7,200만 달러를 기록했다. 주거용 매출은 3% 증가한 3억 5,600만 달러를 기록한 반면, 주거용 조정 EBITDA 마진율은 225bp 확대됐다.
• 매디슨 에어(Madison Air)는 연간 전망치를 순매출 40억 5,000만~41억 2,500만 달러, 조정 EBITDA 10억 4,000만~10억 7,000만 달러로 상향 조정했다.
• 회사는 연말 직후 EBM PAS 인수를 완료하기 위한 절차를 순조롭게 진행하고 있다. 경영진은 인수 완료 후 3년 차 종료 시점 기준 연간 1억 6,000만 달러의 비용 시너지 창출 목표를 유지하고 있다.

핵심 재무 데이터

사업 및 운영 실적

상업용 부문

상업용 부문 수주는 전년 동기 대비 37% 증가했으며, 수주잔고는 125% 늘어난 31억 달러를 기록했다. 유기적 순매출은 가격 정책과 회사의 15개 상업용 최종 시장 대부분에서의 견조한 물량 성장을 반영해 39% 증가한 7억 7,200만 달러를 나타냈다.

상업용 조정 EBITDA는 24% 증가한 2억 달러, 마진율은 26%를 기록했다. 경영진은 데이터센터 냉각 부문의 이례적인 급성장이 전년 대비 마진 비교에 주된 영향을 미쳤다고 밝혔다. 2026 회계연도 하반기 매출을 견인하는 다수의 프로그램이 직전 6개월 이내에 도입되면서 초기 인력, 설비 및 생산 비효율이 발생했다.

회사는 부품 및 인건비 절감, 고정비 흡수 개선, 가치 기반 가격 책정, 서비스 및 애프터마켓 매출 확대를 통해 데이터센터 냉각 부문의 수익성이 개선될 것으로 예상하고 있다. 경영진은 부품 수급 상황과 공급망 여건에 따라 향후 몇 분기에 걸쳐 마진율이 수 퍼센트포인트 확대될 잠재력이 있다고 보고 있다.

상업용 부문의 성장은 데이터센터에만 국한되지 않았다. 경영진은 데이터센터 부문 외 수주가 당분기 20% 이상 증가했다고 밝혔다. 제습, 공조, 송풍 및 공랭식·액랭식·하이브리드 냉각 부문 모두 수요 확대에 기여했다.

주거용 부문

주거용 순매출은 3% 증가한 3억 5,600만 달러를 기록했다. 주택 시장 둔화 속에서 한 자릿수 초반의 가격 인상이 보합세를 보인 물량을 상쇄했다.

조정 EBITDA는 12% 증가한 1억 500만 달러를 기록했고, 마진율은 225bp 확대됐다. 이러한 개선은 생산성 향상, 비용 절감 조치, 가격 정책, 관세 환급 및 지속적인 에이프릴 에어(April Air) 시너지 효과를 반영했다. 경영진은 에이프릴 에어 인수가 비용 절감과 상업적 이점 모두에서 당초 시너지 가정을 상회하는 성과를 내고 있다고 밝혔다.

해당 부문은 주택 착공이나 HVAC 교체에만 전적으로 의존하기보다 시공업체, 유통 채널 및 제품 혁신을 통해 청정 공기 시스템의 도입을 늘리는 데 지속적으로 집중하고 있다.

현금흐름 및 자본 배분

매디슨 에어는 첫 9개월 동안 2억 9,800만 달러의 잉여현금흐름을 창출해 순이익의 135%에 달하는 전환율을 기록했다. 최근 12개월 잉여현금흐름 마진율은 약 11%였다.

PIPE 조달액을 제외한 9월 30일 기준 조정 순부채는 약 27억 달러였다. 경영진은 현금 창출력과 이익 성장에 힘입어 연말 조정 순레버리지가 2.5배 미만을 기록할 것으로 예상하고 있다.

회사는 사상 최대 수주잔고를 소화하기 위해 재고자산, 제조 역량 및 생산능력에 투자해 왔다. 경영진은 생산성 향상과 제한적인 추가 생산 라인 구축을 통해 기존 제조 거점 내에서 2027년 계획된 성장을 상당 부분 수용할 수 있다고 밝혔다.

EBM PAS 인수

매디슨 에어는 PIPE 발행을 통해 약 22억 5,000만 달러를 조달했다. 이 조달액은 약 28억 달러의 부채 및 현금과 함께 진행 중인 EBM PAS 인수의 자금으로 충당될 예정이다.

경영진은 연말 직후 거래가 종결될 것으로 예상하고 있다. 회사 측에 따르면 통합 법인의 매출은 약 69억 달러, 전체 잠재시장(TAM)은 700억 달러를 상회할 전망이다.

매디슨 에어는 인수 완료 후 3년 차 종료 시점 기준 연간 1억 6,000만 달러의 비용 시너지 창출 목표를 유지하고 있다. 교차 판매, 광범위한 고객 관계, 약 2억 5,000만 대에 이르는 송풍기 설치 기반에서 발생하는 잠재적 매출 수혜는 회사의 현재 이익 증대(accretion) 전망치에 포함되지 않았다.

경영진 가이던스

경영진은 이번 전망치에 현재의 관세 환경과 지속적인 인플레이션이 반영되어 있다고 밝혔다. 4분기 수주는 2025 회계연도 4분기에 기록된 대규모 주문이 반복되지 않음에 따라 전년 동기 대비 기계적으로 감소할 것으로 예상된다.

리스크 및 주요 관전 포인트

• 데이터센터 냉각 부문은 신규 프로그램 도입과 생산능력 증설이 진행됨에 따라 현재 상업용 부문 전체보다 낮은 마진율을 나타내고 있다.
• 원자재, 운송비, 인건비 전반에서 인플레이션이 여전히 높은 수준을 유지하고 있는 반면, 관세 정책은 지속적으로 변하고 있다.
• 공급망 제약은 생산 성장과 데이터센터 마진 개선 시점에 영향을 미칠 수 있다.
• 데이터센터 인허가 규제 및 모라토리엄(신규 착공 유예) 가능성이 논의되었다. 경영진은 냉각 장비가 통상 건설 공정 후반부에 설치되고 현재 파이프라인의 상당 부분이 이미 인허가를 취득했거나 건설 중이기 때문에 그 영향은 장기적일 가능성이 높다고 밝혔다.
• 수주잔고의 70% 이상이 2027년 이후 매출로 전환될 것으로 예상되어 가시성을 확보하고 있으나, 동시에 납기 실행, 고객 일정 및 자재 수급의 중요성도 커지고 있다.
• EBM PAS 인수는 아직 완료되지 않았으며, 목표로 하는 비용 시너지는 인수 완료 후 성공적인 통합에 달려 있다.

애널리스트 Q&A 주요 내용

상업용 마진 압박: 경영진은 마진율 하락이 급격한 데이터센터 냉각 성장에 따른 믹스 효과에 거의 전적으로 기인한다고 밝혔다. 데이터센터를 제외할 경우 연초 이후 회사 마진율은 전년 대비 더 높은 수준이었다.

수주잔고 전환: 4분기 수주출하비율(Book-to-Bill)은 약 1.0배로 양호한 수준을 유지할 것으로 예상된다. 32억 달러 규모의 수주잔고 중 70% 이상이 2027년 이후 인도될 예정이다.

데이터센터 마진 회복: 경영진은 단 한 분기 만의 반등보다는 향후 몇 분기에 걸쳐 수 퍼센트포인트 수준의 마진 확대를 예상하고 있다. 주요 견인 요인으로는 단위당 투입 시간 감축, 부품원가(BOM) 절감, 가동률 개선 및 서비스 매출 증가 등이 있다.

생산능력 요구 수준: 회사는 2027년을 위한 대규모 설비 투자를 계획하고 있지 않다. 경영진은 생산성 향상과 소수의 추가 라인만으로도 기존 제조 거점 내에서 안정적인 성장을 뒷받침할 수 있다고 보고 있다.

서비스 사업 기회: 서비스는 회사 전체 매출의 약 10%를 차지하며 장비 매출 성장률 이상의 성장세를 보였다. 설치 기반이 확대됨에 따라 데이터센터 시운전(커미셔닝), 설치 및 예방 유지보수 분야에서 추가적인 기회가 창출될 것으로 예상된다.

데이터센터 고객 익스포저: 매디슨 에어는 소수의 하이퍼스케일 및 코로케이션 고객에 집중하고 있으며, 투기적인 네오클라우드(NeoCloud) 수요는 좇지 않았다고 밝혔다. 경영진은 이러한 엄격한 고객 선별 기조와 15개 상업용 최종 시장에 대한 회사의 익스포저를 중요한 위기 극복(회복탄력성)의 원천으로 평가하고 있다.

실적 발표 컨퍼런스콜 전문

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전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

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.

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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.