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Subjects: ERN, ERP

Modine Reports First Quarter Fiscal 2023 Results


Strategic transformation well underway, unlocking value through 80/20 initiatives and driving growth and margin expansion

RACINE, Wis., Aug. 3, 2022 /PRNewswire/ -- Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported financial results for the quarter ended June 30, 2022.

First Quarter Highlights:

"We generated strong revenue and earnings growth, led by our Climate Solutions segment this quarter as we continue to reallocate resources and capital towards the portions of our business that have the greatest long-term growth potential," said Modine President and Chief Executive Officer, Neil D. Brinker. "We continue to take actions to combat supply-chain-related headwinds, particularly in our Performance Technologies segment, and expect margins to improve as the year progresses.  Overall, we are pleased with a strong start to our fiscal year, with expanded profitability further validating our strategic direction and 80/20 focus as outlined at our recent Investor and Analyst Day."

Financial Results

Net sales increased 9 percent in the first quarter to $541.0 million, compared with $494.6 million in the prior year. On a constant currency basis, sales increased 15 percent. The increase was driven by market-related volume improvements and favorable pricing adjustments in both the Climate Solutions and Performance Technologies segments. 

Gross profit increased 14 percent in the first quarter to $83.4 million and gross margin improved by 60 basis points to 15.4 percent. These increases were primarily driven by the higher sales volume and commercial pricing in the Climate Solutions segment, partially offset by the ongoing impact of higher material prices and other inflationary pressures in the Performance Technologies segment. 

Selling, general and administrative ("SG&A") expenses were $56.3 million in the first quarter, which was 5 percent lower than the prior year. This decrease was primarily driven by lower environmental charges and lower costs associated with our strategic reorganization and automotive exit strategy, as compared with the prior year.  These decreases were partially offset by higher compensation-related expenses, including higher commissions.

Operating income in the first quarter was $25.6 million, compared to $8.7 million in the prior year, an improvement of $16.9 million.  This improvement was driven primarily by higher gross profit, the absence of a $6.6 million loss on sale recorded in the prior year related to the sale of our air-cooled automotive business in Austria, and lower SG&A expenses.  During the first quarter of fiscal 2023, the Company recorded $1.5 million of restructuring expenses, primarily related to targeted headcount reductions, and $1.2 million of environmental charges.  Excluding these items, as well as depreciation and amortization expense, adjusted EBITDA of $42.2 million increased $8.9 million, or 27 percent, compared with $33.3 million in the prior year. 

Earnings per share was $0.27 in the first quarter, compared with $0.04 in the first quarter last year. This improvement was primarily due to higher operating earnings. Adjusted earnings per share was $0.32 in the first quarter, compared with adjusted earnings per share of $0.20 in the first quarter of the prior year.

First Quarter Segment Review

Balance Sheet & Liquidity

Net cash provided by operating activities for the quarter ended June 30, 2022 was $14.5 million, an increase of $24.6 million compared to the prior year.  Free cash flow for the quarter ended June 30, 2022 was $4.1 million, an increase of $25.6 million from the prior year, primarily resulting from higher operating earnings and lower incentive compensation payments and pension plan contributions as compared to the prior year.  Cash payments for restructuring activities, strategic reorganization costs, environmental costs and certain other items during the quarter totaled $4.9 million

Total debt was $388.2 million as of June 30, 2022. Cash and cash equivalents at June 30, 2022 were $58.7 million. Net debt was $329.5 million as of June 30, 2022, a decrease of $3.1 million from the end of fiscal 2022. 

Outlook

"We expect our end markets to remain robust and supported by strong secular tailwinds despite the uncertainty created by geopolitical and economic risks," said Brinker. "Our results this quarter demonstrate the resiliency of our operations and are clearly benefiting from the actions taken to simplify our business, focus the organization and improve profitability. These efforts are supporting our strategic transformation, and we expect further progress against our targeted initiatives, which will support a strong fiscal 2023 and beyond."

Based on current exchange rates and market outlook, Modine is reiterating its outlook for fiscal 2023:

Conference Call and Webcast

Modine will conduct a conference call and live webcast, with a slide presentation, on Thursday, August 4, 2022 at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss its first quarter fiscal 2023 financial results. The webcast and accompanying slides will be available on the Investor Relations section of the Modine website at www.modine.com. Participants are encouraged to log on to the webcast and conference call about ten minutes prior to the start of the event. A replay of the audio and slides will be available on the Investor Relations section of the Modine website at www.modine.com on or after August 4, 2022. A call-in replay will be available through midnight on August 9, 2022 at 800-770-2030, (international replay 647-362-9199); Conference ID# 79220. The Company will post a transcript of the call on its website on or after August 9, 2022.

About Modine

At Modine, we are engineering a cleaner, healthier world.  Building on more than 100 years of excellence in thermal management, we provide trusted systems and solutions that improve air quality and conserve natural resources.  More than 11,000 employees are at work in every corner of the globe, delivering the solutions our customers need, where they need them.  Our Climate Solutions and Performance Technologies segments support our purpose by improving air quality, reducing energy and water consumption, lowering harmful emissions and enabling cleaner running vehicles and environmentally-friendly refrigerants.  Modine is a global company headquartered in Racine, Wisconsin (USA), with operations in North America, South America, Europe and Asia. For more information about Modine, visit www.modine.com.

Forward-Looking Statements

This press release contains statements, including information about future financial performance and market conditions, accompanied by phrases such as "believes," "estimates," "expects," "plans," "anticipates," "intends," "projects," and other similar "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine's actual results, performance or achievements may differ materially from those expressed or implied in these statements because of certain risks and uncertainties, including, but not limited to those described under "Risk Factors" in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended March 31, 2022 and under Forward-Looking Statements in Item 7 of Part II of that same report. Other risks and uncertainties include, but are not limited to, the following: the impact of the COVID-19 pandemic on the national and global economy, our business, suppliers, customers, and employees; the overall health and pricing focus of our customers; our ability to successfully execute our strategic and operational plans, including applying 80/20 principles to our business; our ability to effectively and efficiently modify our cost structure in response to sales volume increases or decreases and complete restructuring activities and realize benefits thereon; our ability to comply with the financial covenants in our credit agreements and to fund our global liquidity requirements efficiently; operational inefficiencies as a result of program launches, unexpected volume increases or decreases, and product transfers; economic, social and political conditions, changes and challenges in the markets where we operate and compete, including foreign currency exchange rate fluctuations, inflation, tariffs and sanctions (and potential trade war impacts resulting from tariffs, sanctions or retaliatory actions), supply chain disruptions and supplier constraints, including semiconductor shortages and logistic and transportation challenges, changes in interest rates or tightening of the credit markets, recession, restrictions associated with importing and exporting and foreign ownership, public health crises, and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, the COVID-19 pandemic, the military conflict in Ukraine and other matters, that have been or may be implemented in the U.S. or abroad; the impact on Modine of any significant increases in commodity prices, particularly aluminum, copper, steel and stainless steel (nickel) and other purchased components and related costs, and our ability to adjust product pricing in response to any such increases; the nature of and Modine's significant exposure to the vehicular industry and the dependence of this industry on the health of the economy; our ability to recruit and maintain talent in managerial, leadership, operational and administrative functions and to mitigate increased labor costs; our ability to protect our proprietary information and intellectual property from theft or attack; the impact of any substantial disruption or material breach of our information technology systems; costs and other effects of environmental investigation, remediation or litigation; and other risks and uncertainties identified in our public filings with the U.S. Securities and Exchange Commission.  Forward-looking statements are as of the date of this press release, and we do not assume any obligation to update any forward-looking statements.

Non-GAAP Financial Disclosures

Adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, net debt, free cash flow, and constant currency (which are defined below) as used in this press release are not measures that are defined in generally accepted accounting principles (GAAP).  These non-GAAP measures are used by management as performance measures to evaluate the Company's overall financial performance and liquidity.  These measures are not, and should not be viewed as, substitutes for the applicable GAAP measures, and may be different from similarly-titled measures used by other companies. 

Definition ? Adjusted EBITDA and adjusted EBITDA margin

The Company defines adjusted EBITDA as net earnings excluding interest expense, the provision or benefit for income taxes, depreciation and amortization expenses, other income and expense, restructuring expenses, impairment charges or reversals, costs associated with the review of strategic alternatives for the Company's automotive businesses, strategic reorganization costs and certain other gains or charges.  Adjusted EBITDA margin represents adjusted EBITDA as a percentage of net sales.  The Company believes that adjusted EBITDA and adjusted EBITDA margin provide relevant measures of profitability and earnings power.  The Company views these financial metrics as being useful in assessing operating performance from period to period by excluding certain items that it believes are not representative of its core business.  Adjusted EBITDA, when calculated for the business segments, is defined as GAAP operating income excluding depreciation and amortization expenses, restructuring expenses, impairment charges or reversals, and certain other gains or charges.   

Definition ? Adjusted earnings per share

Diluted earnings per share plus restructuring expenses, impairment charges or reversals, costs associated with the review of strategic alternatives for the Company's automotive businesses, strategic reorganization costs, and excluding changes in income tax valuation allowances and certain other gains or charges. Adjusted earnings per share is an overall performance measure, not including non-cash impairment charges, costs associated with restructuring activities and certain other gains or charges. 

Definition ? Net debt

The sum of debt due within one year and long-term debt, less cash and cash equivalents. Net debt is an indicator of the Company's debt position after considering on-hand cash balances.

Definition ? Free cash flow

Free cash flow represents net cash provided by operating activities less expenditures for property, plant and equipment. Free cash flow presents cash generated from operations during the period that is available for strategic capital decisions.

Definition ? Constant currency

Constant currency translates financial data from foreign operations for a period into U.S. dollars using the same foreign currency exchange rates as those used to translate financial data for the prior period. This measure provides a more consistent indication of our performance, without the effects of foreign currency exchange rate fluctuations.

Forward-looking non-GAAP financial measure

The Company's fiscal 2023 guidance includes adjusted EBITDA, as defined above, which is a non-GAAP financial measure. The full-year fiscal 2023 guidance for adjusted EBITDA is based upon the Company's estimates for interest expense of approximately $18 to $19 million, a provision for income taxes of approximately $24 to $28 million, and depreciation and amortization expense of approximately $58 to $62 million. Adjusted EBITDA also excludes certain cash and non-cash expenses or gains. These expenses and gains may be significant and include items such as restructuring expenses (including severance costs and plant consolidation and relocation expenses), impairment charges and certain other items.  These expenses and gains for the first three months of fiscal 2023 are presented on page 9.  Estimates of these expenses and gains for the remainder  of fiscal 2023 are not available due to the low visibility and unpredictability of these items.  

 

Modine Manufacturing Company




Consolidated statements of operations (unaudited)




(In millions, except per share amounts)







Three months ended June 30,


2022


2021

Net sales

$                   541.0


$                   494.6

Cost of sales

457.6


421.4

Gross profit

83.4


73.2

Selling, general & administrative expenses

56.3


59.4

Restructuring expenses

1.5


0.3

Impairment charges (reversals) ? net

-


(1.8)

Loss on sale of assets

-


6.6

Operating income

25.6


8.7

Interest expense

(4.1)


(4.2)

Other (expense) income ? net

(2.3)


0.2

Earnings before income taxes

19.2


4.7

Provision for income taxes

(4.9)


(1.9)

Net earnings

14.3


2.8

Net earnings attributable to noncontrolling interest

-


(0.5)

Net earnings attributable to Modine

$                    14.3


$                      2.3









Net earnings per share attributable to Modine shareholders ? diluted

$                    0.27


$                    0.04





Weighted-average shares outstanding ? diluted

52.4


52.5













Condensed consolidated balance sheets (unaudited)

(In millions)





June 30, 2022


March 31, 2022

Assets




Cash and cash equivalents

$                    58.7


$                    45.2

Trade receivables

353.5


367.5

Inventories

310.8


281.2

Other current assets

58.6


63.7

Total current assets

781.6


757.6

Property, plant and equipment ? net

299.5


315.4

Intangible assets ? net

86.3


90.3

Goodwill

164.6


168.1

Deferred income taxes

25.7


27.2

Other noncurrent assets

66.9


68.4

Total assets

$                1,424.6


$                1,427.0





Liabilities and shareholders' equity




Debt due within one year

$                    28.0


$                    29.4

Accounts payable

318.5


325.8

Other current liabilities

149.8


139.3

Total current liabilities

496.3


494.5

Long-term debt

360.2


348.4

Other noncurrent liabilities

121.0


126.0

Total liabilities

977.5


968.9

Total equity

447.1


458.1

Total liabilities & equity

$                1,424.6


$                1,427.0













 

Modine Manufacturing Company




Condensed consolidated statements of cash flows (unaudited)



(In millions)









Three months ended June 30,


2022


2021

Cash flows from operating activities:




Net earnings

$                    14.3


$                      2.8

Adjustments to reconcile net earnings to net cash provided by (used for)




operating activities:




Depreciation and amortization

13.9


13.5

Impairment charges (reversals) ? net

-


(1.8)

Loss on sale of assets

-


6.6

Stock-based compensation expense 

1.1


1.2

Deferred income taxes

(0.9)


(3.1)

Other ? net 

0.8


0.9

Changes in operating assets and liabilities:




Trade accounts receivable

0.7


(4.9)

Inventories

(38.5)


(26.7)

Accounts payable

6.8


9.2

Other assets and liabilities

16.3


(7.8)

Net cash provided by (used for) operating activities

14.5


(10.1)





Cash flows from investing activities:




Expenditures for property, plant and equipment

(10.4)


(11.4)

Payments for disposition of assets

-


(5.7)

Other ? net

-


1.6

Net cash used for investing activities

(10.4)


(15.5)





Cash flows from financing activities:




Net increase in debt

14.2


40.7

Other ? net 

(2.2)


(1.3)

Net cash provided by financing activities

12.0


39.4





Effect of exchange rate changes on cash

(2.6)


0.4





Net increase in cash, cash equivalents and restricted cash

13.5


14.2





Cash, cash equivalents and restricted cash - beginning of period

45.4


46.1





Cash, cash equivalents and restricted cash - end of period

$                    58.9


$                    60.3









Modine Manufacturing Company




Segment operating results (unaudited)




(In millions)









Three months ended June 30,


2022


2021

Net sales:




Climate Solutions 

$                  244.4


$                  206.5

Performance Technologies

304.3


297.1

Segment total

548.7


503.6

Corporate and eliminations

(7.7)


(9.0)

Net sales

$                  541.0


$                  494.6





 








Three months ended June 30,


2022


2021

Gross profit:

 $'s 

 % of sales 


 $'s 

 % of sales 

Climate Solutions 

$           50.4

20.6 %


$           32.6

15.8 %

Performance Technologies                                                   

33.0

10.8 %


40.2

13.5 %

Segment total

83.4

15.2 %


72.8

14.5 %

Corporate and eliminations

-

-


0.4

-

Gross profit 

$           83.4

15.4 %


$           73.2

14.8 %













 






Three months ended June 30,


2022


2021

Operating income:




Climate Solutions 

$                    27.0


$                    10.7

Performance Technologies                                                          

7.4


15.7

Segment total

34.4


26.4

Corporate and eliminations

(8.8)


(17.7)

Operating income

$                    25.6


$                      8.7














 

Modine Manufacturing Company




Adjusted financial results (unaudited)




(In millions, except per share amounts)









Three months ended June 30,


2022


2021

Net earnings

$                         14.3


$                           2.8

Interest expense

4.1


4.2

Provision for income taxes

4.9


1.9

Depreciation and amortization expense 

13.9


13.5

Other expense (income) ? net

2.3


(0.2)

Restructuring expenses (a)

1.5


0.3

Impairment charges (reversals) ? net (b)

-


(1.8)

Loss on sale of assets (c)

-


6.6

Environmental charges (d)

1.2


3.5

Strategic reorganization and automotive exit costs (e)

-


2.5

Adjusted EBITDA

$                         42.2


$                         33.3





Net earnings per share attributable to Modine shareholders - diluted

$                         0.27


$                         0.04

Restructuring expenses (a)

0.03


-

Loss on sale of assets (c)

-


0.13

Environmental charges (d)

0.02


0.07

Strategic reorganization and automotive exit costs (e)

-


0.05

Tax valuation allowance (f)

-


(0.09)

Adjusted earnings per share

$                         0.32


$                         0.20







(a)

Restructuring expenses primarily consist of employee severance expenses related to targeted headcount reductions. There was no tax benefit associated with the restructuring expenses. 

(b)

The net impairment reversal primarily relates to the Company's liquid-cooled automotive business. During the first quarter of fiscal 2022, the Company and the prospective buyer modified the transaction perimeter to exclude certain manufacturing operations.  As a result, the Company evaluated the long-lived assets of these businesses and reversed $7.4 million of previously-recorded impairment charges.  This impairment reversal was partially offset by $5.6 million of impairment charges recorded during the first quarter of fiscal 2022 related to other assets held for sale.  The tax charge related to the net impairment reversal was $1.8 million.

(c)

The Company's sale of its air-cooled automotive business in Austria closed on April 30, 2021. As a result of the sale, the Company recorded a $6.6 million loss on sale at Corporate during the first quarter of fiscal 2022.  There was no tax impact associated with this transaction.

(d)

Environmental charges, including related legal costs, are recorded as SG&A expenses at Corporate and relate to a previously-owned U.S. manufacturing facility.

(e)

The fiscal 2022 amounts include costs recorded at Corporate associated with the Company's strategic reorganization and automotive exit strategy. During the first quarter of fiscal 2022, the Company recorded $0.6 million of costs as SG&A expenses related to recruiting new senior management and the Company's implementation of 80/20.  In addition, the Company recorded $1.9 million of costs associated with its review of strategic alternatives for its automotive businesses, including costs to prepare the businesses for sale.  These costs were primarily recorded as SG&A expenses and primarily consisted of accounting, legal, and IT professional services.  There were no tax benefits related to the strategic reorganization or automotive exit strategy costs during the first quarter of fiscal 2022. 

(f)

As of June 30, 2021, the Company reversed a valuation allowance on its deferred tax assets in Italy and, as a result, recorded an income tax benefit of $4.8 million.

 

Modine Manufacturing Company















Segment adjusted financial results (unaudited)













(In millions)

































Three months ended June 30, 2022


Three months ended June 30, 2021


Climate
Solutions


Performance
Technologies


Corporate and
eliminations


Total


Climate
Solutions


Performance
Technologies


Corporate and
eliminations


Total

Operating income

$    27.0


$           7.4


$          (8.8)


$   25.6


$    10.7


$         15.7


$         (17.7)


$         8.7

Depreciation and amortization expense 

5.4


8.2


0.3


13.9


6.0


7.0


0.5


13.5

Restructuring expenses (a)

-


1.5


-


1.5


-


0.3


-


0.3

Impairment charges (reversals) ? net (a)

-


-


-


-


0.3


(2.1)


-


(1.8)

Loss on sale of assets (a)

-


-


-


-


-


-


6.6


6.6

Environmental charges (a)

-


-


1.2


1.2


-


-


3.5


3.5

Strategic reorganization and automotive exit costs (a)

-


-


-


-


-


-


2.5


2.5

Adjusted EBITDA

$    32.4


$          17.1


$          (7.3)


$   42.2


$    17.0


$         20.9


$          (4.6)


$       33.3

















Net sales

$  244.4


$        304.3


$          (7.7)


$ 541.0


$  206.5


$       297.1


$          (9.0)


$     494.6

Adjusted EBITDA margin

13.3 %


5.6 %




7.8 %


8.2 %


7.0 %




6.7 %

































(a) See the Adjusted EBITDA reconciliation on the previous page for information on restructuring expenses and other adjustments.






















 









Net debt (unaudited)








(In millions)

















June 30, 2022


March 31, 2022





Debt due within one year

$                           28.0


$                           29.4





Long-term debt

360.2


348.4





Total debt

388.2


377.8













Less: cash and cash equivalents

58.7


45.2





Net debt 

$                         329.5


$                         332.6





























Free cash flow (unaudited)








(In millions)

















Three months ended June 30,




2022


2021





Net cash provided by (used for) operating activities

$                           14.5


$                          (10.1)





Expenditures for property, plant and equipment

(10.4)


(11.4)





Free cash flow

$                             4.1


$                          (21.5)





















Net sales - constant currency (unaudited)







(In millions)

















Three months ended June 30,


2022


2021


Net Sales


Effect of Exchange Rate
Changes


Net Sales -
Constant Currency


Net Sales

Climate Solutions

$                         244.4


$                           13.4


$                         257.8


$                         206.5

Performance Technologies

304.3


13.2


317.5


297.1

Segment total

548.7


26.6


575.3


503.6

Corporate and eliminations

(7.7)


-


(7.7)


(9.0)

Net sales

$                         541.0


$                           26.6


$                         567.6


$                         494.6









 

Kathleen Powers
(262) 636-1687
kathleen.t.powers@modine.com

SOURCE Modine Manufacturing Company


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