Madison Air Solutions Q3 Earnings Call Highlights

Key Points

• Madison Air raised its full-year outlook after third-quarter sales climbed 25% to $1.127 billion and adjusted EBITDA rose 19% to about $299 million. It now expects sales of $4.05 billion–$4.125 billion and adjusted EBITDA of $1.04 billion–$1.07 billion.
• Orders increased 26% and backlog reached a record $3.2 billion, up 119% year over year, with more than 70% expected to convert to revenue in 2027 or later. Commercial growth was led by data center cooling, though its lower margins weighed on profitability; the company expects margin improvement as production ramps.
• The company expects to close its ebm-papst acquisition soon after year-end, funded in part by a $2.25 billion PIPE offering. Madison Air remains confident in achieving $160 million in annual cost synergies by the end of the third year after closing.

Madison Air Solutions NYSE: MAIR raised its full-year outlook after third-quarter sales rose 25%, with demand for data center cooling and other commercial products contributing to a record backlog.

The company reported net sales of $1.127 billion and adjusted EBITDA of approximately $299 million, up 19% from a year earlier. Adjusted EBITDA margin was 26.5%, with the year-over-year decline primarily reflecting a greater share of sales from the lower-margin data center cooling business, Chief Financial Officer JJ Foley said.

Adjusted earnings were $0.38 per share, while adjusted net income doubled to $199 million, helped by sales growth and tax benefits. For the first nine months of 2026, free cash flow was $298 million.

Companywide orders increased 26% in the quarter, and backlog reached $3.2 billion, up 119% from a year earlier. More than 70% of that backlog is expected to convert to revenue in 2027 or later, President and Chief Executive Officer Jill Wyant said.

Commercial Growth Outpaces Residential

Commercial orders rose 37% year over year, and segment backlog increased 125% to $3.1 billion. Commercial net sales reached $772 million, representing 39% organic growth, while adjusted EBITDA rose 24% to $200 million.

Data center cooling was the largest driver of commercial orders, although Wyant said the majority of the company’s 15 commercial end markets grew in the quarter. Commercial orders outside data centers increased more than 20%, she said.

Commercial adjusted EBITDA margin was 26%. Foley attributed almost all of the year-over-year margin pressure to the growth of data center cooling, which currently has lower margins as Madison Air ramps production and brings new programs online.

Foley said he expects a few percentage points of margin expansion in the data center business over the next several quarters, assuming the company can secure parts and supply chains cooperate. He cited lower unit costs, improved labor productivity, better use of existing capacity and a growing services business as potential drivers.

Residential net sales increased 3% to $356 million, with pricing in the low single digits and volume approximately flat. Adjusted EBITDA rose 12% to $105 million, and margin expanded by 225 basis points. Foley attributed the improvement to productivity, cost actions, pricing, tariff refunds and continuing synergies from the AprilAire acquisition.

Higher Outlook, With a Tough Order Comparison Ahead

Madison Air now expects full-year net sales of $4.05 billion to $4.125 billion and adjusted EBITDA of $1.04 billion to $1.07 billion. The outlook implies an adjusted EBITDA margin of approximately 26%.

Foley said the company expects low double-digit sales growth in the fourth quarter. However, fourth-quarter orders are expected to decline year over year because a large order received in the fourth quarter of 2025 will not recur.

The company continues to expect full-year free cash flow conversion above 100% of net income. Capital expenditures are now projected at less than 1.5% of sales. Madison Air ended the third quarter with adjusted net leverage of 2.6 times, excluding proceeds from its private investment in public equity, or PIPE, and expects to finish the year below 2.5 times.

ebm-papst Deal Remains on Track

Wyant said Madison Air expects to close its previously announced acquisition of ebm-papst soon after the end of the year. The company has raised approximately $2.25 billion through its PIPE offering, which, together with approximately $2.8 billion of debt and cash, provides the funding needed for the deal, she said.

Madison Air remains confident in its target of $160 million in annual cost synergies exiting the third year after closing. Wyant said potential revenue synergies from cross-selling and broader customer relationships are not included in the company’s current accretion expectations.

Foley said ebm-papst was executing well against estimated 2026 revenue of approximately $2.8 billion and EBITDA of $343 million, with possible upside to those figures.

Data Center Demand and Capacity

Asked about potential data center development restrictions following elections, Wyant said Madison Air’s backlog provides visibility into 2027 and noted that cooling equipment generally arrives toward the end of construction. She said the company focuses on a small group of hyperscale and colocation customers rather than speculative demand.

Wyant also said Madison Air is not contemplating massive capacity investments for 2027. The company expects to accommodate its planned growth within its existing manufacturing footprint through efficiency improvements, productivity and some additional production lines.

About Madison Air Solutions (NYSE:MAIR)

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