FOR IMMEDIATE RELEASE

NEWS RELEASE

Modine Reports Third Quarter Fiscal 2023 Results

Double digit top-line growth and meaningful margin improvement; Company confirms earnings outlook for fiscal 2023

Racine, WI – February 1, 2023 – Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported financial results for the quarter ended December 31, 2022.

Third Quarter Highlights:

 

 

“The improvement in our revenue and earnings are the result of strategic actions we’ve proactively taken over the past year to transform Modine into a higher margin, higher return business focused on faster growing markets,” said Modine President and Chief Executive Officer, Neil D. Brinker. “As we embed 80/20 into our business practices, we are focusing our resources on our best opportunities, in our most attractive markets. This is helping us improve our service to our best customers, while further focusing our technical and manufacturing resources in areas that will drive long-term profitable growth. Over the past year, we have sharpened our commercial acumen and taken commercial actions to offset inflation, while simultaneously simplifying our product lines. These activities are allowing us to increase our market share, improve our operations, and make solid progress towards our financial goals.”

 

Financial Results

 

Net sales increased 12 percent in the third quarter to $560.0 million, compared with $502.2 million in the prior year. On a constant currency basis, sales increased 18 percent. The increase was driven by sales volume improvements and favorable commercial pricing in both the Climate Solutions and Performance Technologies segments.

 

Gross profit increased 31 percent in the third quarter to $97.6 million and gross margin improved by 250 basis points to 17.4 percent. These increases were driven by the higher sales volume and favorable commercial pricing, partially offset by inflationary cost pressures, particularly within the Performance Technologies segment.

 

Selling, general and administrative (“SG&A”) expenses were $58.0 million in the third quarter, which was 15 percent higher than the prior year. This increase was primarily driven by higher compensation-related expenses, including higher incentive compensation, and, to a lesser extent, increases in other general and administrative expenses that have been impacted by inflationary market conditions.

 

Operating income in the third quarter was $39.5 million, compared to $79.4 million in the prior year. The decrease was primarily driven by a significant impairment reversal recorded last year. In connection with the termination of an agreement to sell the liquid-cooled automotive business, we reversed $57.2 million of previously-recorded impairment charges during the third quarter of fiscal 2022. During the third quarter of fiscal 2023, the Company recorded $0.3 million of environmental charges and $0.1 million of restructuring expenses.  Excluding these items, as well as depreciation and amortization expense, adjusted EBITDA of $53.3 million increased $14.0 million, or 36 percent, compared with $39.3 million in the prior year.

 

Earnings per share was $0.46 in the third quarter, compared with $1.41 in the third quarter last year.  This decrease was primarily due to the absence of the significant impairment reversal recorded last year related to the liquid-cooled automotive business, as described above. Adjusted earnings per share was $0.48 in the third quarter, compared with adjusted earnings per share of $0.31 in the third quarter of the prior year. This improvement was primarily driven by higher gross profit on higher sales volume.

 

Third Quarter Segment Review

 

 

Balance Sheet & Liquidity

 

Net cash provided by operating activities for the nine months ended December 31, 2022 was $67.9 million, an increase of $60.5 million compared to the prior year.  Free cash flow for the nine months ended December 31, 2022 was $32.7 million, an increase of $56.0 million from the prior year, primarily resulting from higher operating earnings and favorable net changes in working capital. While inventories increased $32.4 million from March 31, 2022 to December 31, 2022, the increase has been less significant than the increase in the same period during the previous year.  Cash payments for restructuring activities, strategic reorganization costs, environmental costs and certain other items during the nine months ended December 31, 2022 totaled $13.0 million.

 

Total debt was $389.8 million as of December 31, 2022. Cash and cash equivalents at December 31, 2022 were $82.2 million. Net debt was $307.6 million as of December 31, 2022, a decrease of $25.0 million from the end of fiscal 2022.

 

 

“Overall, we are pleased with our financial performance through the first nine months of the year,” added Brinker. “Our deliberate actions to refocus the business and capitalize on our best market opportunities are beginning to yield a simplified and more profitable Modine. We remain confident in our strategic transformation despite the current economic environment, and expect that we will be at the high end of our guidance range.”

 

Conference Call and Webcast

 

Modine will conduct a conference call and live webcast, with a slide presentation, on Thursday, February 2, 2023 at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss its third 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 February 2, 2023. A call-in replay will be available through midnight on February 9, 2023 at 877-660-6853, (international replay 201-612-7415); Conference ID# 13734605. The Company will post a transcript of the call on its website on or after February 7, 2023.

 

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 (U.S.), 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 and in the Company’s Quarterly Report on Form 10-Q for the quarters ended June 30, 2022 and September 30, 2022. Other risks and uncertainties include, but are not limited to, the following: the impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, rising energy costs, along with supply chain challenges or supplier constraints, tariffs, sanctions and other trade issues or cross-border trade restrictions; the impact of other economic, social and political conditions, changes and challenges in the markets where we operate and compete, including foreign currency exchange rate fluctuations, increases 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 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 fund our global liquidity requirements efficiently and comply with the financial covenants in our credit agreements; operational inefficiencies as a result of program launches, unexpected volume increases or decreases, and product transfers; 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, 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, 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 $20 to $21 million, a provision for income taxes of approximately $27 to $31 million, and depreciation and amortization expense of approximately $55 to $57 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 nine 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.

Consolidated statements of operations (unaudited)

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Condensed consolidated balance sheets (unaudited)

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Condensed consolidated statements of cash flows (unaudited)

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Segment operating results (unaudited)

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Adjusted financial results (unaudited)

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Segment adjusted financial results (unaudited)

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Net debt (unaudited)

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Free cash flow (unaudited)

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Net sales - constant currency (unaudited)

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SOURCE: Modine Manufacturing Company

 

Kathleen Powers

kathleen.t.powers@modine.com

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