Good morning, and welcome to the Madison Air First Quarter 2026 Earnings Conference Call. Operator provided 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.

Thank you. Good morning, and welcome to Madison Air's first earnings call as a public company. We're thrilled to speak with you today about Madison Air and our first quarter 2026 earnings performance. Joining me today, Jill Wyant, President and Chief Executive Officer; and JJ 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, please 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, when comparing 1Q 2026 results to 1Q 2025, or referring to our 2025 performance, such information is presented on a combined basis for Madison Air and AprilAire, calculated as if AprilAire had been owned since January 1, 2025. We will also refer to certain other non-GAAP financial measures. You can find calculations and 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 madisonair.com. With that, I'll turn the call over to Jill.

Thank you, Steve. Good morning, everyone, and thank you for joining us for our first quarter earnings call. This call marks a historic milestone for the Madison Air team to present our earnings for the first time as a public company following our successful IPO. I'll begin by providing an overview of our business and our value creation model. I'll then hand the call over to JJ to discuss our first quarter 2026 financial results and guidance for full year 2026, and then I'll wrap things up with key takeaways before we open the call for Q&A. Before we dive in a bit of context as you get to know Madison Air and our team. I joined the company as President and CEO in 2021 after serving several leadership roles with Ecolab, most recently as President, Global Regions and Global Life Sciences and Healthcare. My career has spanned advanced manufacturing, operational execution on a global scale and large-scale growth transformation and the sum of my experiences shapes how we're building this company. And it's what gives me confidence in the opportunity ahead of us. With that, please turn to 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 superior air quality businesses that operate in high-value niches adjacent to traditional HVAC across commercial and residential markets. Our portfolio of leading brands, which includes Addison, AprilAire, Big Ass Fans, Broan-NuTone, Nortek Air Solutions, Nortek Data Center Cooling and Reznor has delivered durable compounding growth and in fact, outpaced the U.S. GDP growth rate in 16 of the last 18 years on a historical basis through 2025. Our recent IPO was a significant milestone, enabling us to advance our strategy to deliver scalable, profitable long-term growth. And we believe we have a sustainable performance trajectory for 2026 and beyond. Our 3 core strengths deliver better air, stronger customer outcomes and superior returns for our investors. Madison Air's first core strength is what we call Return on Air, the tangible value created when air becomes a strategic asset. It's the tangible impact our solutions have on customer outcomes in high-value environments where air affects uptime, efficiency, compliance, productivity and health. From reducing costly downtime in data centers, which can cost our customers up to $9,000 per minute to contributing to improved consistency and yield in semiconductor clean rooms by reducing contamination incidents or reducing harmful volatile organic compound concentrations in homes. Madison Air delivers Return on Air in mission-critical environments where air quality is vital to customer success. Our second core strength is leadership in growth markets. In our Commercial segment, we serve 15 structurally attractive high-growth end markets where performance matters and customers are willing to invest in highly engineered air quality solutions because of their capacity to deliver tangible results. In residential, we train contractors to identify indoor air quality opportunities and communicate the value of our complete healthy air system. And the company's third core strength is a disciplined value creation model that seeks to convert that demand into consistent profitability and strong cash flow with a leadership team focused on strategically deploying capital to drive durable returns. Our decentralized organization structure allows us to invest closest to the point of impact, that is to stay close to the customer. And our entrepreneurial culture drives dedicated teams to wake up every day focused on the markets and customers they serve. We estimate that we've more than tripled our total addressable market since 2021 by sharpening our focus on high-growth sectors with more complex process requirements and are well positioned to create durable vectors for long-term value. This model has allowed us to scale efficiently, sustain performance through cycles and compound enterprise value over time. Being locally agile at enterprise scale is a competitive advantage for us. The powerful combination of outcome-driven solutions, focus on growth markets, a scalable operating model and consistent execution underpins both our near-term opportunities and long-term potential. Please turn to Slide 6. At a high level, as of 2025, Madison Air is a $3.5 billion revenue business with strong underlying profitability and cash generation, delivering 26.6% EBITDA margins and $440 million in free cash flow last year. We've intentionally built a balanced portfolio across commercial and residential segments with meaningful exposure to replacement and upgrade activity, which helps drive resilience across cycles. We're also seeing an increasing share of demand from the aftermarket, which adds stability and more recurring revenue characteristics. Our aftermarket sales are approximately 10% of total revenue today, and the services opportunity is growing at a double-digit CAGR. The available growth in services and potential life cycle value is very attractive. We estimate this is around 3x for Nortek, and up to 9x for AprilAire. We're accelerating that growth through initiatives like Nortek Care+, expanding our services and parts capabilities and by building momentum in businesses like Big Ass Fans, where we're growing installation and preventive maintenance. Geographically, the business is predominantly North America focused, where we have strong market positions and established customer relationships. As of March 31, 2026, we had over 8,800 employees with about 600 of those focused on R&D to drive innovation. Altogether, we believe our margin profile, strong cash conversion and end market mix gives us a durable and balanced model for revenue growth and earnings. Please turn to Slide 7. We believe Madison Air's portfolio brings together broad product and service capabilities with significant opportunity as we apply our Return on Air approach to high-value performance-driven end markets spanning both commercial and residential segments. We operate within an estimated $40 billion North American addressable market, supported by powerful secular tailwinds, including the reshoring of advanced manufacturing, growing demand for energy efficiency, aging buildings and housing stock, increased focus on human health and wellness and of course, the rapid growth of AI and compute. On the commercial side, we focus on mission-critical environments like data centers, hospitals and advanced manufacturing facilities where performance, reliability and energy efficiency directly impact customer outcomes. Our capabilities span the full range from thermal management and air handling, humidity control and beyond, allowing us to deliver integrated solutions rather than stand-alone products. In residential, we play a leading role in advancing healthier solutions for single- and multifamily homes. As homes become more air tight to improve energy efficiency, the need for indoor air quality solutions, including purification, ventilation, humidification, dehumidification and sensors and digital controls becomes even more important. Through our channel partners, we have about 40 million annual in-home touch points with potential customers through HVAC replacement and service opportunities, creating a powerful route to drive adoption of these solutions. Across both segments, the common thread is our focus on solving complex air challenges in ways that are tangible, differentiated and essential to our customers. Please turn to Slide 8. Our new business pipeline remains strong with continued growth across key end markets. Combined company orders grew 29%, including AprilAire orders prior to the AprilAire acquisition and reached a 1.4x book-to-bill ratio in the first quarter. While our orders can naturally fluctuate quarter-to-quarter based on project timing and customer schedules, our first quarter results reflect solid underlying demand despite a dynamic macro backdrop. We exited the first quarter with record backlog of $2.5 billion, up 116% year-over-year on a combined company basis, providing good visibility into near-term revenue. And our pro forma net sales growth of 13% reinforces the growth momentum we are driving across the portfolio. At the same time, we are closely monitoring the potential impact of the Middle East conflict on our supply chain, where we have been building resilience since the post-COVID dynamics of 2021. We are also watching the pace of customer decision-making while staying focused on execution and on controlling what we can control operationally. As of today, we are not seeing a material impact. Additionally, as a reminder, orders faced tougher comps in the second half, particularly in the fourth quarter of 2025, where the Commercial segment printed a book-to-bill of 2.2x last year. On the right, this example with Big Ass Fans illustrates how our innovation can translate directly into customer value to deliver tangible productivity, gains, safety improvements and cost savings, which is central to our customers and to our ability to sustain both growth and value pricing. This example demonstrates what Return on Air means for our customers. Our Velocity Trailer Comfort solution, which is mounted on the side of a manufacturing dock door enables the Big Ass Fans customer to gain up to 5 additional trailer loads per dock per day and delivers cooling performance in approximately half of the time of our closest competitor. It's also a great example of how our innovation is often born through the deep customer insights we gain over the course of long-standing relationships, which in this case was through our direct sales channel. Slide 9 ties together how we translate our Return on Air value proposition into consistent value creation. At the core, we transform air from a commodity into a strategic asset that drives tangible business outcomes. For customers, this means higher productivity, lower energy costs, health, comfort and home preservation and protection of mission-critical operations. We strive to leverage this to expand our presence in advantaged higher-growth end markets where we believe there's meaningful runway for continued growth. We actively drive both organic growth and disciplined capital allocation into adjacencies, supported by a focused 80/20 operating model and a strong ownership mindset across our culture. The result is a business designed to deliver sustainable, profitable growth and strong cash generation over time. One essential element of our unique value creation model is our team, the 8,800-plus people who power Madison Air. We invest in our team and our culture to create consistency and alignment and to ensure the value creation model is embedded across the organization and shows up in how we execute every day. Over the past few weeks alone, we've put more than 60 leaders from across Madison Air through rigorous sales and 80/20 training courses, sharpening our focus on the highest impact levers that drive growth across our businesses. We hosted immersive sessions equipping our team to use AI as a growth enabler and to build capability throughout the organization so we can move faster and deliver stronger outcomes. We also held an enterprise-wide innovation summit, which I host at least twice every year. These summits convene a diverse cross-section of leaders from engineers and R&D to sales and marketing to solve our customers' thorniest challenges through innovation, all while sharing ideas, servicing opportunities and scaling best practices across the company. This is collaboration with impact grounded in solving real customer problems and delivering Return on Air. When our people are aligned, equipped and moving with speed and with clarity, it shows up in how we perform and the result is a business designed to deliver sustainable, profitable growth and strong cash generation over time. And with that, I'll turn it over to JJ to walk through our first quarter financial performance and the outlook.

Thanks, Jill, and good morning, everyone. I'm excited to be here with you today on our first earnings call as a public company. It's been an energizing and rewarding journey to get here. And for those of you ramping on Madison Air, I've been with the company since early 2021. Prior to joining, I held several executive finance roles at GE, most recently serving as the Senior Director of Investor Relations. At Madison Air, we're focused on building credibility and transparency with our new public market stakeholders. With that, please turn to Slide 11. On a pro forma basis, net sales were up 13% and adjusted EBITDA grew 16% with adjusted EBITDA margins expanding 70 basis points. All 3 demonstrate the power of consistent execution. Pro forma net sales grew 13% year-over-year to $924 million with strong volume growth and price realization in the Commercial segment as well as strong demand for healthy air systems and price realization in the Residential segment. That top line growth, along with productivity gains and disciplined cost management translated into pro forma 16% adjusted EBITDA growth with margins increasing by approximately 70 basis points to 25.3% despite ongoing growth investments in the business. Because of the organizational transactions associated with our AprilAire IPO, the share count for the first quarter EPS is not comparable to what we expect for the remainder of the year. To that end, we're reporting our adjusted net income figure here, which was $93 million in the quarter and represents 36% pro forma growth year-on-year, driven by revenue and pretax earnings growth mentioned above. On cash, we generated $50 million of reported free cash flow in the quarter, which represents free cash flow conversion of 117%. Moreover, we met our pre-IPO de-leveraging goals for the quarter, reducing net leverage by nearly 0.25x from year-end 2025. It's important to note that the first quarter cash flow generation was in line with our expectations, which included a normal seasonal working capital build that we expect will normalize throughout the course of the year and is enabled by our asset-light model. Overall, the quarter demonstrates our ability to convert revenue growth into earnings growth and cash generation. With that, let's review the segment level performance on Slide 12. In Commercial, we drove solid orders growth. Orders were up 41% year-over-year on a combined company basis, reflecting continued momentum in key technology platforms, including thermal management, air handling and energy efficiency. Backlog increased 124% on a combined company basis, providing good visibility and solid future revenue momentum. Strong customer demand drove 24% year-over-year reported net sales growth or 18% growth on a combined company basis to $610 million, which was driven by a combination of volume, pricing and favorable mix. This is particularly applicable in higher-value applications. Reported segment adjusted EBITDA grew 25% to $161 million, outpacing revenue growth, reflecting operating leverage supported by volume growth, ongoing productivity investments, expense management and pricing discipline. Overall, the segment continues to benefit from exposure to mission-critical end markets, including data centers, clean energy, healthcare and other commercial applications, and we remain focused on executing our backlog and sustaining our growth momentum. Now please turn to Slide 13 for Residential results. The Residential segment performance was solid, reflecting a more balanced demand environment. Given the short-cycle nature of this business, order and backlog is less relevant than in commercial. But with that said, we saw orders growth in the low single digits in the quarter. We continue to benefit from strong demand for AprilAire's healthy air system. Despite softness in housing starts and remodeling activity, our first quarter results demonstrate the resilience of our model, which is purpose-built to navigate headwinds like these with vast whitespace penetration opportunity, opening paths to growth in otherwise suboptimal residential conditions. In addition to a full suite of trusted brands and patent-protected solutions across the portfolio, AprilAire has trained all new contractors to sell indoor air quality solutions like purification and humidification throughout cycles. Reported net sales increased 60% or 4% on a combined company basis to $316 million, supported by pricing, while overall volume was roughly flat. In addition, reported segment adjusted EBITDA grew 84% to $79 million, with margin expansion driven by cost actions, productivity and favorable mix. Overall, the segment continues to demonstrate strength and remains differentiated in product, channel and results from more traditional residential HVAC providers. We remain focused on driving growth through innovation and channel penetration execution to effectively position us as demand inflection. Please now turn to Slide 14. We'll talk a little bit about balance sheet. The strength and flexibility of the balance sheet is supported by continued strong cash generation. As of March 31, net debt was approximately $5.5 billion with net leverage of 5.7x. As a reminder, as of March 31, Madison Air was still a private company, and therefore, the first quarter debt levels do not yet reflect the approximately $2.6 billion in net proceeds from the IPO where the full green shoe was exercised and we executed a concurrent private placement. The IPO was a first and important step in strengthening our balance sheet. 100% of the net proceeds were used to retire debt, including accrued and unpaid interest. This includes our full $2.4 billion initial term loan and an incremental additional $200 million on the incremental term loan, improving financial flexibility and positioning us to continue investing in organic growth, de-leveraging the balance sheet and strategic acquisitions. If we include the proceeds from the IPO and the concurrent private placement, our net leverage would be 3x trailing. We believe we have clear line of sight to achieve our long-term targeted range of less than 2.5x net debt to EBITDA in the next 12 months. As of the first quarter, we maintained solid liquidity of roughly $563 million, including $229 million of cash on hand and $334 million of available capacity on our revolver, providing ample flexibility to support operations and strategic initiatives. In the second quarter, our ratings were upgraded 2 notches by the rating agencies, reflecting our lower leverage and financial performance. Additionally, we completed an upsizing of our revolver of $1.3 billion, which will become active in the second quarter. We want to reiterate our thanks to our great banking partners for their continued support. The business continues to generate strong cash flow and reported free cash flow conversion of approximately 117% in the first quarter was driven by disciplined working capital management and earnings growth. Reported LTM free cash flow margins were 12%. And organically, we expect free cash flow conversion of net income above 100%. With that, please now turn to Slide 15 to discuss capital allocation priorities. Our capital allocation framework remains consistent, disciplined, focused on deploying cash to maximize shareholder returns centered on 3 clear priorities: First, we continue to invest in high-return organic growth opportunities, particularly in mission-critical, defensible technologies and durable end markets where we see the strongest demand for margin expansion potential. Second, we're committed to maintaining a strong flexible balance sheet with a clear path to be able to deliver net leverage of less than 2.5x net debt to EBITDA in the next 12 months. And third, we intend to pursue disciplined and strategic M&A to accelerate growth and strengthen the portfolio. We're focused on assets that expand our capabilities, enhance our technology platforms and deliver clear strategic and financial long-term returns. We're willing to flex leverage modestly above our targeted range for the right opportunities, but with a clear commitment to delever post-acquisition. Overall, we believe this balanced approach positions us to drive long-term value while creating or maintaining our financial flexibility. Please turn to Slide 16. As a newly public company, we're taking a disciplined approach to evaluating our financial guidance strategy to support long-term value creation and transparency. For 2026, we're providing annual guidance and as appropriate, may offer directional or qualitative updates throughout the year. We expect to further refine and communicate more formal guidance framework next year. We're introducing full year 2026 guidance that reflects continued growth and disciplined execution across the portfolio. We are planning for net sales of $3,750 million to $3,850 million, representing mid-single to high single-digit growth year-over-year on a pro forma basis, which we expect will be driven by sustained growth offense in our core markets. This 2026 growth outlook is above our longer-term mid-single-digit growth ambition that we discussed throughout the IPO process. Looking at second quarter visibility, we see mid-single-digit plus total net sales growth against a tough prior year comp of mid-teens growth. That's using $868 million as a second quarter 2025 pro forma jumping off point. Margins in the second quarter will step up sequentially. However, the year-on-year comparison is a tough comp. We anticipate full year 2026 adjusted EBITDA of $1,020 million to $1,065 million or high single-digit growth to low double-digit growth on a pro forma basis. This is also an increase from our longer-term high single-digit growth ambition with 27% resulting in adjusted EBITDA margins as a result of expected continued operating leverage, productivity initiatives and favorable mix. On free cash flow, we continue to plan free cash flow conversion to be greater than 100% of net income. Our outlook assumes a demand environment that remains stable overall with continued strength in our core commercial end markets, including data centers, logistics and healthcare. In Residential, we're assuming slow but steady improvement in the housing sector with potential growth underpinned by our healthier whitespace opportunity. In addition to the headline guide, we expect CapEx investments to be less than 2% of sales, interest expense of approximately $250 million, an adjusted effective tax rate of 29% and diluted share count of approximately 510 million. We've also included approximately $40 million in central expenses, which includes the required activities that come with being a public company. Our guidance assumes gross tariff costs in the range of $100 million, which are a near-term margin headwind that we expect to offset over time through a number of actions, including pricing and operational activities. We are not yet seeing meaningful near-term impact from the Middle East conflict at present, but continue to monitor the global environment closely. And as Jill mentioned, we've been proactively building our supply chain resilience since 2021, and that work is paying off. We feel like we're in a position to play growth offense despite some of the challenges or uncertainty in the macro backdrop. With that, I'll turn the call back to Jill.

Thank you, JJ. Our recent IPO was a significant milestone and our team at Madison Air is excited for the future. Entering the public markets will provide us the opportunity to invest through cycles, strengthen our position in high-growth end markets, and accelerate innovation where performance matters most. What will remain constant is who we are. Our mission to make the world safer, healthier and more productive through the power of better air guides us. Return on Air is the standard for the value we create for our customers. Our values, trust, bias for action, entrepreneurialism and our focus on safety define the way we lead and how we serve our customers. And our decentralized growth-oriented culture empowers our people and fuels our performance into the future. We thank you for listening to today's call. And now we'd like to open it up for questions. Thank you. And Amy, I'll turn it back to you.

Operator provided instructions. The first question is Deane Dray, RBC Capital.

Congrats to the entire team on the public company launch. One of your top growth verticals is data center. I would love to get some additional color there. Talk about data center orders, if possible, and maybe kind of separate what you're seeing in terms of liquid cooling versus what would be kind of traditional air conditioning, computer room air conditioning, what kind of growth you're seeing there? And anything about the hyperscale mix would be helpful.

Yes. Thanks for the question, Deane. I agree that data centers were a primary driver of commercial orders and revenue growth in the quarter, but they are only one of 15 end markets we serve. We saw broad-based growth across the majority of our markets, including institutional and government and clean energy, which are supported by our broad technology platform in air movement, air handling, thermal energy and energy efficiency. We like how we are intentionally positioned across mission-critical end markets. Data centers remain strong. On the second part of your question, air versus liquid is very balanced. Liquid is a larger share of the pie than it was last year, and we see that trending nicely. As we discussed late last year and early 2026, we like the diversification not only within the hyperscale community but also between hyperscalers and colocators. We continue to make good progress diversifying across the players we believe are the right ones to partner with in the quarters and years ahead. So we feel good about data centers and, more broadly, the broad-based growth across most of our end markets. We think our portfolio is well positioned, and our decentralized operating model means we have not abandoned our core customers while pursuing data center growth.

The next question comes from Julian Mitchell of Barclays.

Congratulations on the first set of results. Maybe just wanted to understand how you're thinking about the commercial business. So it looks like you're guiding about $600 million of sales each quarter, which is what you did in Q1. So it looks odd because sequentially, there should be a step-up through the year, and you had orders of, I think, $1 billion in Q1 almost. So maybe help us understand that conversion of orders to revenues in Commercial. And is that just a lot of conservatism in that revenue guide for the year in terms of very limited sequential step-up from Q1 sales?

Julian, thanks for the question. I think just grounding everybody back on where we were. So we saw 13% growth of net sales in the quarter, 18% of that are Commercial. Orders up 29% with orders in Commercial up 41%. I think you saw about $610 million of sales for Commercial in the quarter. I would expect some step-up as we get into the second quarter, not only when you think about businesses like Big Ass Fans, which do pick up as you kind of get into that heating season. But we do expect to ramp the data center business throughout the year. I would remind you again that same seasonality that we see pick up going into the hot months do kind of come off. So there is a little bit of that. And so you kind of have the data center business filling in some of that seasonality. So I think as you look in the back half of the year, we are playing with a range of outcomes here, but I think we feel confident about the orders momentum here in the quarter and feel good about that high single-digit type plus guide that we talked about for commercial for the year.

The next question comes from Scott Davis at Melius Research.

Can you guys talk about your customer inventories in your different channels? I mean it's a fair amount of price that you probably have had to get here and there. I'm trying to get a sense if there's anything pulled forward in the backlog, or perhaps a better sense of where inventories stand, particularly on the residential side, which might be a little volatile.

Yes. I would say if I zoom out of our 13% net sales growth, volume was about 9 points and price was about 4. Commercial growth was mostly volume driven; that's typically a backlog-driven business. On the Residential side across the segment, volumes were more flattish while price was positive on a pro forma basis. Broad comment with regards to pricing: obviously there is a lot of inflation from tariffs and commodities, some of which has been induced by the tariffs, and we have to stay on top of that. At the end of the day, we are very focused on delivering value for customers, driving their Return on Air, and better tangible business outcomes, and we feel like we get paid fairly for that value. So from a pricing standpoint, our interests are aligned with those of our customers. I would say no big change from a residential perspective in terms of channel-based backlogs. That business was up mid-single digits, which I think is a great hallmark of our continued resilience, and there is particularly good demand for the healthier solutions in the AprilAire business. We still feel like we are in the early innings of a very significant penetration opportunity; 92% of U.S. homes have nothing that we offer in terms of the healthier solution. That is how I would characterize our point of view on pricing and what we are seeing in terms of residential inventories and the like.

The next question comes from Nigel Coe at Wolfe Research.

Congrats on the IPO as well. I just wondered if you could fill in some more details around the business unit performance. Clearly, the data center had a very strong quarter; I think it's up about 50%. It looks like Big Ass Fans had a very strong quarter as well, so could you fill in some details there? And perhaps, JJ, could you clarify the tariffs — you said $100 million of gross impact; is that over and above what you were planning, or broadly in line with where you expected to be?

Yes. Nigel, thank you for the question and for being here today. I'll start. You're right, a very good first quarter in terms of broad-based growth across the majority of our end markets. We talked about the 15 verticals, the majority of them grew in Q1. Yes, strong demand across institutional markets, government end markets, clean energy, especially as we talk about behind-the-meter power and the like. So all of that growth supported by the air movement, air handling and energy efficiency platforms in Commercial. So we were very encouraged by both the orders and the sales performance there in Q1 and I think that bodes well for broad-based continued strength and performance across the portfolio. So again, I think a good function of how intentionally positioned we are across a number of mission-critical end markets, not just the data center space, but also the fact that our decentralized model, we align focused teams to ensure that we have balanced growth because we get up every day and focus on driving innovation and moving the needle from a return on air perspective in a broad array of end markets, all while pursuing this nice up cycle, if you will, in data centers. JJ, I'll turn it to you for the second half of that question.

Perfect. Nigel, I would say on tariffs, we definitely, on a net basis, expect more inflation. So that's including raw materials and tariffs, and we expect to be able to manage that for the full year. It's incorporated in the guidance we shared earlier. That being said, it's approximately a $50 million increase in 2026. So $50 million was in the run rate last year, $50 million incremental to $100 million total given the latest tariff announcements. And those are gross figures, excluding our mitigation actions. And as we said earlier, expect to recover on a dollar basis in the year and a rate basis exiting the year. I would say it's important to note those figures that I just walked through exclude any potential refunds. We'll submit for those refunds, but that is a smaller piece of the total landscape and not factored into the guidance. And then related to margins, we covered cost and margin in the first quarter at the total company level, given the work that we did last year, and we're confident that we're making continued progress in '26.

The next question comes from Joe Ritchie at Goldman Sachs.

Jill and JJ, I echo my congratulations as well. I guess the question I have is really around backlog. So I think your backlog was up around $500 million sequentially. I'm curious as you're thinking about the duration of that backlog now given that you are seeing continued strength in data center, how much of that is actually pushing out into 2027 at this point?

Yes. Thank you for the question. I would address backlog in a couple of key respects. First and foremost, we're confident in our positive sales momentum, and the backlog, particularly on the Commercial side, gives us good visibility into near-term revenue. About two-thirds of the company is backlog driven. The backlog tends to extend one to three quarters in duration typically. In some verticals, data centers being one of them, that is being extended—not because our lead times are necessarily extending, but because the customer wants longer-term visibility. They want us to have the supply chain ready, and we want to be partnered with them to see the orders coming down the pipe so that we can continue to execute. So that backlog, principally in the thermal management technology platform and the data center business, may be four to five quarters in duration, a little bit longer than what we continuously see. The only other thing I'd add is to put a finer point on what we talked about in the prepared remarks: we continue to monitor the potential impact of what's going on in the world, whether that be the Middle East conflict and its effects on supply chains or the pace of customer decision-making, but we're not seeing anything today that we expect will materially impact us. We will continue to focus on solid execution, delivering that backlog according to the customers' timetable, and controlling what we can control operationally.

The next question comes from Jeff Sprague at Vertical Research.

Congrats. Just one on sort of price mix for me, if we could. Just on mix specifically within Commercial. I think, JJ, I think you said it was positive in the quarter. I would have thought the really strong data center growth would have been mix negative as opposed to positive. So maybe just touch on that. And then 4% price is very significant in the quarter. I just wonder what you're expecting on a full year basis for price.

Yes. So maybe in reverse order, I would say on the pricing side of things, first of all, Jeff, we're thinking probably a few points of price for the total year. To your point, 4 points of price in the quarter was pretty strong. Much of that was carrying as a function of the work that we had done last year, primarily linked to the conversation that we had around offsetting inflation and tariff pressures. As it relates to the commercial business itself, we saw very good volume growth. There is a little bit of business mix pressure that kind of nets out when you kind of think about that falling to the bottom line. But there were a number of the smaller businesses that had very nice incremental margins, and that was really what drove that positive mix. So the more that we can get some of those DU businesses contributing to top line growth, they're going to come through with very solid incrementals and allow us to kind of deliver that full year guidance that we talked about.

Next question comes from Tim Wojs at Baird.

Congrats. Maybe just the question I wanted to focus on is just on AprilAire. I guess, a, if I do the calculations on the M&A contribution, it looks like that business might have been up mid-teens on a year-over-year basis. So I just want to verify that. And is that type of growth something that you could expect to continue this year because it's meaningfully above what we're seeing on the resi HVAC side?

Tim, thank you for the question. Our Residential segment was up 4% in Q1; I'm very proud of the team for showing strong resilience and outperformance versus more traditional HVAC shipments in Q1. AprilAire, as you noted, grew very nicely in the quarter—real kudos to that team. We saw demand for healthier solutions in the low double-digit growth range, so this has been a terrific addition to our Residential segment. I would attribute that to a couple of things. As we noted throughout the process of going public, the AprilAire business has grown at a high single-digit CAGR since 2007. They are still in the very early innings of penetrating and opening up a lot of whitespace. Ninety-two percent of U.S. homes have no purification, ventilation, humidification, dehumidification, sensing, or controls, so we have a lot of whitespace to penetrate with healthier systems. We really benefit from those 40 million at-bats: about 30 million times a year an HVAC contractor is in the home to do an annual or biannual service checkup, and the remaining roughly 10 million are typically HVAC replacements. That leaves the business very strongly poised to make the purchase decision, coupled with a contractor conversion opportunity that largely still lies ahead of us. I think there are more than 70,000 HVAC contractors in the U.S., if my facts are correct, and we are maybe 15 to 20% penetrated. When you combine those factors, it provides a durable growth runway for us in residential. Not to say we're immune from housing starts or OEM volumes, but we focus on controlling what we can and cracking into that whitespace, which you saw again in Q1.

The next question comes from Stephen Volkmann at Jefferies.

Jill, I think actually maybe both you and JJ mentioned the services opportunity. Can you just sort of talk about how you view that evolving over the medium term? Where can that go for you? And how do you prosecute that?

Thank you, Steve. Thanks for being here. Yes, we're excited about the services opportunity. We expect our aftermarket opportunity to continue to grow at a faster rate than equipment volumes, which it did; it's been growing at a strong double-digit CAGR. It cleared that hurdle again here in Q1. As we've talked about in the past, we don't target a specific percentage of sales from aftermarket, but I would expect it to continue to grow as a percentage of sales. It's a little bit of the equipment sales number continuing to grow quite rapidly, and so that impacts the math mapping, if you will. But for us, services is all about focus. There are no structural barriers there. It's really about focus, and it's part of our total story around being in the early innings of a long and profitable growth story. And so we're investing. We prioritized the four businesses that we're really excited to continue to build our service presence around. Each of them, as I sit here today, is what we call a segment leader or more commonly referred to as a business unit leader. We are deploying growth capital into our services businesses, whether that be more people, digital tools, digital platforms, parts and distribution infrastructure. And like I said, we saw continued strong growth in the first quarter and are very excited about our momentum here. So whether it's at Big Ass Fans, where we've basically built from the ground up a certified nationwide installer network that allows us to, with one phone call, serve multiunit customers across the nation, or in Nortek Data Center Cooling, where we are literally sending our own personnel in to start up, commission and service those data center assets, which get run pretty hard out in the field with our own personnel, we're excited about services. And in Q1, again, we showed good strong growth and the focus is paying off.

Next question comes from Andrew Kaplowitz at Citi.

This is Natalia on behalf of Andy Kaplowitz. Congrats on the IPO on the quarter as well. You reiterated a path toward under 2.5x net leverage within 12 months, and your free cash flow conversion was strong this quarter as well. So should we think about deleveraging as the primary use of cash flow near term? Or is there some flexibility for incremental M&A sooner? And if so, what would make it the right opportunity to acquire another company?

Yes, I'm happy to address leverage, and Jill, maybe you can discuss M&A and our thinking on that front. As we mentioned in the prepared remarks, we're at 3x trailing after applying the net proceeds. We continue to invest first in organic growth, and we want you to view us as an organic growth company with M&A as an upside lever. The second priority for us is deleveraging, and the third is being able to pursue M&A. We have about 0.5x of leverage reduction to go, which, as we said earlier, both EBITDA and cash flow will contribute to achieving over the next 12 months, and we feel pretty good about doing that. Our near-term focus is getting down to less than 2.5x.

Yes. Very proud of the team. I think we are below, right around 3x trailing, ahead of what we had committed. Not only was that a function of the IPO proceeds, 100% of which on a net basis were used to retire debt, but also a result of the continued efficient generation of free cash flow that our team continues to deliver. As JJ mentioned, the capital allocation priorities have not shifted. From an M&A perspective, Natalia, you should think of us as an organic growth company with M&A as a lever. I'm really excited and hopefully Q1 builds broader excitement as well about our organic growth prospects. We continue to be busy deploying growth capital in the core. As JJ noted, we're committed to delivering on that deleveraging of our balance sheet, and M&A is very much within our sights. We believe we have a pretty special and proprietary M&A capability. A real shout out to Larry Gies, who's been planting seeds—our founder and the chair of our board—cultivating relationships for many, many years. Over time, you will see us continue to do high-return M&A where it strengthens our ability to grow. We're always underwriting what's next, and we're never in a hurry. While we would be willing to flex leverage for the right deal with a path to bring that leverage back down, we remain very much aligned with investors in seeing a long-term leverage target of below 2.5x. That's how I size it out.

The next question comes from Ryan Merkel of William Blair.

Nice job this quarter. I wanted to ask about the Commercial air handling business. You mentioned in the release, it was down a little bit. Just a little more color on what's driving that. And then what's the outlook look like? Do you think you'll return to growth this year?

Yes. On that front, we were referring really to sales in the first quarter. Here, I would say, I mean, first and foremost, I'd start with the benefits of a diversified portfolio and our decentralized operating model such that the majority of our 15 end market verticals grew in the first quarter. This is the dynamic we saw on the air handling technology platform sales in the first quarter really dates back to what JJ and I talked about sort of late last year, which was in the aftermath of Liberation Day 2025, sort of the middle of last year, our pipelines were healthy. They continue to grow. Our pipeline was as big as it has been at the time, but customers were just a little bit hesitant to press the go button on new projects. And so we saw that in the first quarter on sales. That said, if you look at orders rates in Q4, momentum picked up very nicely in that and other technology platforms and that strong orders performance year-on-year continued in the first quarter. So between just some hesitancy on behalf of customers, as we noted in the prepared remarks, orders can be lumpy. They come in at different points in time. But at the end of the day, exiting the year and saw continued orders momentum in the first quarter and really continuing to benefit from our diverse exposure to both Residential and Commercial markets and 15 end markets in the Commercial segment.

The next question comes from Nathan Jones at Stifel.

My congratulations on the IPO as well. I'll ask one on AprilAire. It's been about a year since you've owned that business now. Can you just talk about the integration, whether that's complete, synergy generation and whether there's more to generate out of that as we go forward here? And then if there are any cost synergies or revenue synergies remaining to come out of other acquisitions that you've made along the way over the years would be helpful.

I'll take the AprilAire question first, and then JJ can address residual synergies from other deals. We're delighted with the acquisition of AprilAire, also known as Research Products — it's a phenomenally mission-driven, committed team of people who have dedicated their professional lives to making the world safer, healthier and more productive through better air. AprilAire grew nicely in the quarter with strong demand for healthier solutions. It's a $15 billion residential market, and 92% of homes have no indoor air quality solutions, so there is a large contractor conversion opportunity ahead. We're very proud of our Residential segment teams and grateful for the AprilAire acquisition. We don't really call these integrations; we call them transitions, because we buy businesses to allow them to continue to do what they do, and you've seen AprilAire operate that way since we acquired them in May 2025. Synergies from the AprilAire acquisition are on track to meet the commitments we outlined for exiting 2026, driven by a combination of growth acceleration and some cost reductions. A few weeks ago at an innovation summit I host, Gabriella and her team showcased their innovation roadmap, following launches like Wi‑Fi‑enabled humidification and one of the most water‑efficient humidification platforms on the market. They have a strong lineup, and there’s a lot to look forward to in terms of entering whitespace and delivering better Return on Air for contractors and homeowners through current and upcoming innovations. Synergies are on track and the business is performing well. We’re very grateful to that team. JJ, do you have anything to add on broader deal synergies?

Yes, Nathan, I appreciate the question. You know with our 80/20 approach, you're never done; it's a mindset. There are a number of places where we're doubling back into different parts of the portfolio to make sure those 80/20 benefits come through, particularly with a focus on growth. We actually took one of the commercial businesses that came with the AprilAire acquisition through that process, so to Jill's point, that's really just getting started. More broadly, you will see this in material cost reduction, freight optimization, and productivity in the factories. There are still a number of mindset and operational synergies to be achieved at Nortek and several of the other businesses over time. But thanks for the question.

The next question comes from Zachary Schechtman at Wells Fargo.

Congrats on your first print as a public company. Just on the AprilAire and IAQ piece and just want to dive a little deeper on the building blocks to penetration. If I remember correctly, the 8% market penetration assumes just 1 device per household. I think AprilAire has 5. I'm assuming that one device can mean just a stand-alone plug-in humidifier. So like on average, how many devices does AprilAire sell on a first-time sale? I'm just trying to think through how much growth you expect to be from market penetration in terms of homes versus just more content in the home?

Yes, I think there's more opportunity. It's about expanding beyond the 8% of U.S. homes that on average have one device to more of the healthier pillars around purification, ventilation, humidification, dehumidification, sensing and controls. Even within that 8% of homes, if we go from one to two solutions, that doubles the AprilAire business. So there's a real compounding tailwind to further penetration of the homes that already have something. On average it is one pillar per sale, and you still have 92% of homes that have nothing. With our new WiFi-enabled dehumidification platform, there are 40 million basements and 20 million crawl spaces in this country, and that innovation opened up a new channel to market for us in the form of the basement and crawl space pest elimination channel. The team is very focused on growing the core, penetrating the whitespace, and becoming an embedded and indispensable partner to their HVAC contractor partners, and they get rewarded with growth. Frankly, when HVAC shipments are down, our contractor partners need us more than ever. We feel good about the business and the team, and we have continued to deploy growth capital to ensure they have everything they need to keep growing the franchise.

That's all the time we have for questions at this point. I would like to turn the conference back over to Steve Low-Tufo for any closing remarks.

Great. Thank you again. And thank you, everyone, for your time and continued interest in Madison Air. Additional information from today's call is available on our website at investors.madisonair.com. We look forward to updating you on our progress in the next quarter. Thank you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.