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For you, your team, your employees, your investors. Let's start with what this means to the company and the significance of it.
Yes, thank you so much. Obviously, I'm a mentus stay for the company as we seek to continue to drive our growth journey. I think really so proud of our team, our companies and brands and the impact we make on the world and for our customers. So thank you. Excited to be here, really proud of our team today.
Going back to basics, you know, Madison Air is a provider of ventilation filtration systems, but you know, on Bloomberg Tech, we're so focused on what's happening around the world in AI infrastructure that brings the data center into the conversation. Where does Madison Air fit in that story?
Yeah? So, data centers is about twenty percent of our commercial segment, but it's also one of more than fifteen verticals in the commercial segment that we cultivate and grow and bring innovation and highly engineered solutions to our customers. Really, I think an underlying theme of our company. We serve a lot of markets benefiting from strong circular tailwinds. Data
centers being one of them. In the data center space, we bring custom air, liquid and hybrid cooling solutions to the most demanding of environments hyperscalers and co locators who are really driving the AI revolution. And then once we design those custom solutions, we install them and service them, really adding value across the asset of that life cycle of that asset.
I appreciate that it's place within that segment. On a revenue basis, it might be smaller, but there seems to be a lot of growth opportunity for you in data center also pretty supportive on the bottom line, right, what's the trajectory of that business for you?
Yeah, I think strong performance really across the board, most recently as twenty twenty five, when we grew sales twelve percent. We exited the back of the year with two billion dollars in backlog, really embrace over four and a half billion dollars of orders. So the most forward looking, strongest forward looking indications we've had around the company to date in the company's history. In twenty twenty five, our commercial
segment grew about seventeen percent. Data centers clearly contributed that, but even if you strip out that growth our commercial segment grew high single digits, again I think evidence of our balanced portfolio. We are really working to grow and win in a wide variety of segments benefiting from secular trends, including data centers.
You'r founder, Larry, He's going to effectively control the company right through ownership of all of the super voting shares in the mechanics and IPO. That's very interesting. What's the strategy there and how are you going to work with that as you grow this company?
Well, the why underlying our IPO first and foremost is really to gain access to permanent capital that the public markets afford us to really underwrite our growth ambitions, scale our mission and our impact for customers for years to come. Five percent of shares will be subject to a two
year lock up. And really we've always operated under a controlled company mindset because we think it allows us to stay focused on thinking and acting long term and really has been key to our ability to deliver sustained above
market performance. And so that's really we view that mindset to continue under the new governance structure, if you will, and I think we will continue to benefit from you know, strong disciplined execution, good aligned interests and I you know, and continuing to drive above market performance and attractive returns over long cycles.
We started this conversation by saying how historic this IPO was, right, the biggest US industrial IPOs since ninety nine. And it's been interesting to read about the history of the company and its growth, both organic and inorganic. And to summarize, like in the M and A context, you've kind of rolled up smaller brands, and I wonder at what pace that might continue in what your M and A activity looks like Now the big one's done, the IPO's done.
Yeah, we've really been purposely, intentionally building the markets leading indoor air quality solutions provider for residential and industrial markets since twenty seventeen, and a lot of that we have accomplished on an inorganic basis. We really want investors to think of us as an organic growth opportunity with MNA as a lever. Over the last five years, we've grown sales on a compound average basis at eight percent. As I said, we exited last year growing twelve percent. So
we are excited. I'm humbly confident and excited in organic growth prospects. We will continue to use m and A as a lever. We think we have a pretty special capability there as well, having really cultivated relationships over a timeframe. So think of us as an organic growth company with M and A as a continued growth lever.
I want to bring it back to AI, but you know, the way that I think about Madison Air is even outside of just the specific contribution to a data center build out, all of the factors that they're impacting companies around the country in the world apply to you too, Right, access to labor, materials, supply chain, what we're seeing in energy, How do you feel at medicine's position right now, and what are you doing that's different in supply chain as you try and come out of this IPO and growth mode.
Yeah, I really think that. Look today we are an eight billion dollar We are an eight percent market share in a forty billion dollar TAM that is distinct and complementary from traditional HVAC and as you're noting, there really underpin by strong secular data centers, one of which is AI and compute, but manufacturing reshoring, the forever labor shortage in manufacturing and logistics environments, aging building stock both both homes and commercial building stock and the drive for greater
energy efficiency. All of those strong secular tailwinds underpin our market. So we really think we have room both to grow our positions where we are today and expand our opportunities, whether that be in chip fabs, in pharmaceutical manufacturing production, and the like. We have pointed our portfolio to what's driving the economy going forward, and we're excited about our growth journey as we look at it lying ahead.
Joe, I'm so grateful you took us there. I broke a story last night with colleagues around the world that Elon Musk and the Terrafab projects are really kind of kicking into gear. They're basically going to the supply chain for chip manufacturing and saying how quickly can you give us quotes and if we place orders, how quickly can you get us that equipment. Is there any relevance to
you guys with Terrafab. Do you see an opportunity for what is on paper just unimaginable scale of chip manufacturing in this country?
Yeah? Well, you know, we exited last year with two billion in backlog, about a billion four of that was in our data center business. We have very strong forwardlooking demand across the company, including in data centers. And I think what really differentiates us in the data center space is we don't sell SKUs. We don't sell standard configured products.
The people driving the AI revolution, you know, like Terrafab and others that you've really mentioned, come to us for deep domain expertise in rejecting a lot of thermal heat in complex environments, including data centers, and so we bring those you know, domain experts, engineering and applications expertise that are able to sit toe to toe with some of those leading lights in the industry and build solutions that
allow them to achieve max computing and their objectives. Now you hit another important point, which is we've been at this for a while. You know, the data center business was born out of our customer handling business, which has done this for a combined three hundred and fifty years. So we did not start doing this last week or
last quarter. We've had a triple source supply chain. We've had ninety nine to one hundred percent delivery rates for the hyperscalers and the co locators we've been serving for years, and we are there to care for and optimize and ensure those assets perform at their best. We are differentiated, we are winning and I think the best part of that story, and it's all within a very balanced set of end markets. We are not a data center peer play.
We give investors great exposure to the obvious opportunity there while at the same time growing nicely in other advanced high performance environments in the macroeconomy where air impacts customer helps.
Away from the stock market. You know, a focus of the Bloomberg Tech audience is the role of debt in all of these projects. Let's call it the reindustrialization of America. I think, correct me if I'm wrong. You know, coming out of this IPO, the debt loads, I think it looks like about three billion dollars for you. What's the strategy do you see with time paying that down? That coming down quickly? Or your sanguine on the load and how you work it?
Well, about a one hundred one hundred percent of the IPO proceeds we will use to retire debt. So now I don't know the exact calculation. I've been, you know, talking to a lot of folks today about green shoe execution. But really we should come out of that IPO about three and a half times trailing on a leverage basis, and then we continue to do what we do, which is grow our business and generate cash flow and expand our EBITA, which should allow us to exit twenty twenty
six below three times levered on a trailing basis. Again, we run that play into next year, and we should be south of two point five times levered, as I say, before New Year's eve, well before New Year's Eve in twenty twenty seven. And really then it just comes back to the same play. We've always been running great sales, higher margins are EBITDA margins enterprise wide at twenty six and a half percent or eight hundred to a thousand basis points better than the most of the competition we
see out there. Our team is very focused and robust around converting that to free cash flow. We have an asset light model where we whereby we can make our growth investments while remaining at a low single digit capex, and we have an owner's mindset across the company, so
good disciplined use of cash. So we feel good about that, you know, getting that balance sheet to the point where investors consistently told us they wanted to be, and then that just opens up more optionality and flexibility for us going forward.