Modine Reports First Quarter Fiscal 2022 Results

RACINE, Wis., Aug. 4, 2021 /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, 2021.

First Quarter Highlights:

• Net sales of $494.6 million increased 42 percent from the prior year
• Operating income of $8.7 million increased $11.9 million
• Adjusted EBITDA of $33.3 million increased $12.8 million or 62 percent
• Earnings per share of $0.04 and adjusted earnings per share of $0.20

"Our top-line performance in the fiscal first quarter reflects solid gains in all segments," said Modine President and Chief Executive Officer, Neil D. Brinker.  "In addition, our CIS segment delivered a second consecutive quarter of strong revenue growth and improved profitability.  Our earnings conversion was somewhat impacted by cost inflation and supply chain disruptions, as we work to offset these pressures through commercial and operational actions.  We expect these actions, along with the positive impact of material pass-through pricing adjustments, to have a positive impact for the balance of the year."

Financial Results

Net sales increased 42 percent in the first quarter to $494.6 million, compared with $347.8 million in the prior year. The increase was primarily driven by market-related volume improvements in all segments as compared to the prior year, which included the significant impact of COVID-19 related plant closures around the world.  This increase also included approximately $24 million of favorable currency impacts.

Gross profit increased 59 percent in the first quarter to $73.2 million, and gross margin improved 150 basis points to 14.8 percent, primarily driven by volume improvements in all segments and lower depreciation in the Automotive segment, partially offset by higher material and overhead costs.         

Selling, general and administrative ("SG&A") expenses were $59.4 million in the first quarter, which was $14.7 million or 33 percent higher than the prior year. This increase was primarily driven by higher compensation-related expenses, as the prior year was favorably impacted by cost-saving actions, including furloughs, shortened work weeks and temporary salary reductions, in response to the COVID-19 pandemic.  In addition, we recorded $3.5 million of environmental charges during the first quarter of fiscal 2022. 

Operating income in the first quarter was $8.7 million, compared to an operating loss of $3.2 million in the prior year. This increase was driven primarily by higher gross profit, partially offset by higher SG&A expenses and a loss on sale of business in the first quarter of fiscal 2022, as compared to the prior year. During the first quarter of fiscal 2022, the Company recorded a $6.6 million loss on the sale of the air-cooled automotive business in Austria and a $1.8 million net reversal of previously-recorded impairment charges primarily relating to the liquid-cooled automotive business.  In addition, environmental expenses, automotive exit strategy costs, strategic reorganization costs and restructuring expenses totaled $6.3 million.  Excluding these items, as well as depreciation and amortization expense, Adjusted EBITDA of $33.3 million increased $12.8 million, or 62 percent, compared with $20.5 million in the prior year. 

Earnings per share was $0.04 in the first quarter, compared with a loss per share of $0.17 in the prior year.  Adjusted earnings per share was $0.20 in the first quarter, compared with an adjusted loss per share of $0.09 in the prior year. These increases were primarily due to higher operating earnings compared to the prior year. 

First Quarter Segment Review

• BHVAC segment sales were $59.9 million, compared with $47.6 million one year ago, an increase of 26 percent. This increase was driven primarily by higher sales of heating products in the U.S. and air conditioning, data center, and ventilation products in the U.K. The segment reported gross margin of 27.1 percent, which was 340 basis points lower than the prior year, primarily due to higher material and labor costs, including the impact of cost saving initiatives taken in the first quarter of fiscal 2021 in response to the COVID-19 pandemic. The segment reported operating income of $6.8 million, a $0.3 million decrease from the prior year, primarily due to higher SG&A expenses. Adjusted EBITDA for the BHVAC segment was $7.7 million, a decrease of $0.2 million from the prior year.
• CIS segment sales were $159.2 million, compared with $122.5 million one year ago, an increase of 30 percent. This increase was driven by higher sales to commercial HVAC and refrigeration customers. The segment reported gross margin of 13.0 percent, up 40 basis points compared with the prior year, primarily due to higher sales volumes, partially offset by the negative impact of higher material and overhead costs. The segment reported operating income of $6.4 million, a $6.4 million increase from the prior year, primarily due to higher gross profit on higher sales. Adjusted EBITDA for the CIS segment was $12.6 million, an increase of $4.0 million from the prior year.
• HDE segment sales were $201.8 million, compared with $123.5 million one year ago, an increase of 63 percent. This increase was driven by higher sales to all end markets around the world, largely as the result of improved end market demand. The segment reported gross margin of 11.2 percent, up 200 basis points from the prior year. This increase was primarily driven by higher sales volume partially offset by higher material and tariff costs. The segment reported operating income of $8.9 million, an $11.4 million increase compared to an operating loss of $2.5 million in the prior year. This increase was primarily due to higher gross profit on higher sales volume and lower restructuring expenses, partially offset by higher SG&A expenses. Adjusted EBITDA for the HDE segment was $15.4 million, an increase of $9.9 million from the prior year.
• Automotive segment sales were $86.2 million, compared with $62.1 million one year ago, an increase of 39 percent. This increase was driven by higher end market demand, primarily in Europe. The segment reported gross margin of 15.3 percent, up 760 basis points compared with the prior year, primarily due to higher sales volume and lower depreciation expense, partially offset by higher material and tariff costs. The segment's operating income of $4.2 million was up $8.0 million, primarily due to higher gross profit partially offset by higher SG&A expenses as compared to an operating loss of $3.8 million in the prior year. Adjusted EBITDA for the Automotive segment was $2.3 million, an increase of $0.9 million from the prior year.

Balance Sheet & Liquidity

Net cash used for operating activities for the quarter ended June 30, 2021 was $10.1 million, a decrease of $22.4 million compared with the prior year. Free cash flow for the first quarter of fiscal 2022 was a use of $21.5 million, down $24.7 million from the prior year, primarily resulting from higher working capital due to higher revenues and incentive compensation payments made during the quarter. In the first quarter of fiscal 2021, cash flow was unusually strong due the deferral of incentive compensation and other cash payments in an effort to conserve cash.  Cash payments for restructuring activities, automotive strategy and separation costs, and strategic reorganization costs during the quarter were $4.8 million. 

Total debt was $371.1 million as of June 30, 2021. Cash and cash equivalents at the end of the first quarter were $49.0 million. Net debt was $322.1 million as of June 30, 2021, an increase of $25.4 million from the end of fiscal 2021. 

Outlook

"We are maintaining our full-year guidance despite ongoing inflationary pressures and supply chain concerns,"  concluded Brinker.  "We are keenly focused on our strategic priorities, which include accelerating data center growth, improving CIS margins, focusing on opportunities in alternative powertrains and implementing an organizational structure to support our 80/20 strategy. This will not only provide Modine with higher sustainable growth rates, but will allow us to have a stronger operating model and a brighter future."     

Based on current exchange rates and market outlook, Modine provides the following guidance ranges for fiscal 2022:

• Full fiscal year-over-year sales up 12 to 18 percent;
• Adjusted EBITDA of $170 million to $185 million.

The guidance ranges include the remaining portion of the Automotive segment, including the liquid-cooled business subject to the pending sale transaction.  This business will be included in guidance until the sale has closed.   

Conference Call and Webcast

Modine will conduct a conference call and live webcast, with a slide presentation, on Thursday, August 5, 2021 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its first quarter fiscal 2022 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 5th. A call-in replay will be available through midnight on August 10, 2021 at 800-585-8367, (international replay 416-621-4642); Conference ID#  2684279. The Company will post a transcript of the call on its website on or after August 10, 2021.

About Modine

Modine, with fiscal 2021 revenues of $1.8 billion, specializes in thermal management systems and components, bringing highly engineered heating and cooling components, original equipment products, and systems to diversified global markets through its four complementary segments: BHVAC, CIS, HDE, and Automotive. 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," 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, 2021. 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 price-down focus of Modine's customers; our ability to successfully execute our strategic and operational plans, including our ability to successfully complete the pending sale of our liquid-cooled automotive business, including the receipt of governmental and third-party approvals and the risk that the sale will not close because of a failure to satisfy one or more of the closing conditions (including governmental and third-party approvals) on a timely basis or at all, and our ability to successfully exit our other automotive businesses; 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, product transfers, and delays or inefficiencies resulting from restrictions imposed in response to the COVID-19 pandemic; economic, social and political conditions, changes and challenges in the markets where Modine operates and competes, including foreign currency exchange rate fluctuations, tariffs (and potential trade war impacts resulting from tariffs or retaliatory actions), inflation, changes in interest rates or tightening of the credit markets, recession, restrictions associated with importing and exporting and foreign ownership, public health crises, supplier constraints and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S. or abroad, and continuing uncertainty regarding the impacts of "Brexit"; 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; Modine's ability to recruit and maintain talent in managerial, leadership, operational and administrative functions; Modine's ability to protect its 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 by the Company in public filings with the U.S. Securities and Exchange Commission.  Forward-looking statements are as of the date of this release, and the Company does not assume any obligation to update any forward-looking statements.

Non-GAAP Financial Disclosures

Adjusted EBITDA, adjusted earnings per share, net debt, and free cash flow (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.  The Company believes these measures provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. However, 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

Net earnings excluding interest expense, the provision or benefit for income taxes, depreciation and amortization expenses, other income and expense, restructuring expenses, impairment charges, costs associated with the review of strategic alternatives for the Automotive segment's business operations, and certain other gains or charges.  The Company believes that adjusted EBITDA provides a relevant measure of profitability and earnings power.  The Company views this financial metric as being useful to assess 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, and certain other gains or charges.

Definition – Adjusted earnings per share

Diluted earnings per share plus restructuring expenses, impairment charges, costs associated with the review of strategic alternatives for the Automotive segment's business operations, 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. This 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.  This measure presents cash generated from operations during the period that is available for strategic capital decisions.

Forward-looking non-GAAP financial measure

The Company's fiscal 2022 guidance includes Adjusted EBITDA, as defined above, which is a non-GAAP financial measure.  The full-year fiscal 2022 guidance for Adjusted EBITDA is based upon the Company's estimates for interest expense of approximately $14 to $15 million, a provision for income taxes of approximately $16 to $20 million, and depreciation and amortization expense of approximately $55 to $60 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), costs associated with the review of strategic alternatives for the automotive business, impairment charges and certain other items.  These expenses and gains for the first three months of fiscal 2022 are presented on page 9.  Estimates of these expenses and gains for the remainder of fiscal 2022 are not available due to the low visibility and unpredictability of these items. 

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

View original content to download multimedia:https://www.prnewswire.com/news-releases/modine-reports-first-quarter-fiscal-2022-results-301348679.html

SOURCE Modine Manufacturing Company