MOD - Earnings call transcript Q1 2023 | Modine Manufacturing Company

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Operator

Good morning, ladies and gentlemen, and welcome to the Modine Manufacturing Company's First Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations.

Kathy Powers

Good morning, and thank you for joining our conference call to discuss Modine's first quarter fiscal 2023 results. call and Brinker, Vice Mick Chief Officer. this Chief President President on Financial Officer; Executive Lucareli, joined by our Neil and and I'm our Executive accessed for accessing by PDF our file Investor which We'll website link the the today's on section using the webcast slides can be be Relations either posted modine.com. through or presentation, of On Slide X is our notice regarding forward-looking statements. in Securities forward-looking statements earnings well as our and as release the with Commission. in contain our outlined will filings call This Exchange company's as pleasure the turn my to over it's Neil. that, With to call

Neil Brinker

you, and Thank Kathy, good morning, everyone.

aware, As you you held of review and most Investor chance Analyst a in are those hopefully, we and our June, first materials. to Day had

I'd Before the messages a to from spend minutes themes launching quarterly couple and into event. results, like highlighting our of the key

for are Day a we into largely in transform our value our plan we strategy for X our categories. demonstrating company During actions taking outlined Modine, The unlocking our to fall main future. presentation, sustainable Investor

focusing of The our these organization. are making business. simplifying This the a and basis organization of DNA, high-performance these underway well segmenting building XX/XX first and includes our is actions transformation. core for are and part forming of the a the Many

these of quarter. in We seeing the are clearly results our this results actions

product our markets while core. results, share target maximize will simplifying to a But model we our Next, allow our will a accelerate the our organization, review with XX/XX accountability we we a high are of a This offerings at perform moving operating level on and order its growth introduced disciplined empowerment. profitable to have and improving and cadence decentralized to in drive of more margins. phases and deliver strategy. and moving simultaneously us of to By

quarter, help way. along with this financial achieve our we within will segment, we on Based us growth geographic our our All well M&A are are Solutions of on through delivering what particularly Climate and targets. development, targeted expansion product this,

briefly Climate providing you to progress our and we're has to organization, in and to out where our grow. within Please making update like each segment, the Much goals. on significant work developing against strategic early Solutions are making Now the building I'd involved In turn resources this segment segment. necessary we X. strategies of the Slide progress improve

and product we distribution X new the refrigeration, Our continue well-defined for from data and are executing outperforming in distributors. and center HVAC demand our a to are warehousing, more up and and all groups transfer have In competition centers of refrigeration, strategy, drivers onboarded we've products, strong and fueled Preseason our year, prior we place heat projects and see orders with and market targeted HVAC heating by products share. XX% markets. our on in greenhouse than for teams stocking service are strong are X gaining

are In opportunities. targeted this by our funding our offering also renewing coverage. in us increase also product at air to our indoor product while our quality market network lack products, is school allowing continuing previously reps on U.S. distribution a significant we our strategic to IAQ, where We we of expand for for supported market ventilation, states within government development. onboarding critical are share simplifying This the focus

progress strong new COX to and examples abiotic continuing new American gas to business future and and order work product drive to of North coolers make new include In year. expected are centers, range prototypes allow of Our the are continued new reallocating us unit school regulations with our with this a engineering compliance our will generation remains Two build our recent developing ever-increasing expansion. requirements. later cooler teams resources data strong refrigeration a on focusing a on next products our we on growth. Simplifying book pipeline

filling rapidly is book Virginia. order U.S. current our capacity facility our new at fact, in chiller In

is and testing from our and market further evidenced, performance they a our European solution Corscale full expand validating Modine, products, goal adopter implementing for from This strategic of the that would announced are from is the market HTP formerly This strategy record a we of very data initiatives share XX/XX an U.S. significant U.S. was our huge pump heat the and market, Capturing growing the transfer the of strong us, clearly significant are in relationship benefiting improvements. facilities. share. last of further is like the for our this growth center segment increase revenues Serbian is driving margin to a also win the fueling month. only we're state-of-the-art order in known our a I'm location. Heat business, the ahead including not with this can pleased [indiscernible] very for major to focus of market. European system as provide business, team. data this our As early of center plan, I but Overall, manufacturing demonstrating highlight to that we

also new verticals We highest our will with continue striving across customers product our to work top the on potential. turn Please customers overserve while Page to and offerings X. to simplifying our identifying those

plan. much We are in focusing with segment the an energy our XX/XX rollout PT of phase

cooled us. earnings structure groups up technology. built components, We call, for organizational segmenting I last a focus setting are approach cooled and our to a solutions. outlined on Shifting working organization during support the from an our internal around to This market new components is liquid air advanced product business the and

work process through XX/XX we we the evolving resources. our and reallocate organizational structure, As continue to

to cost in legacy our we have restructuring supporting starting are saving benefit the EV our from The is fewer we our see progress, For more example, these European of supporting and high-growth business. business business actions. and employees

business, investigating and SG&A we Brazil. This which in Solutions in development government system last aggressive by Advanced process benefits As Europe, seeing EV activities business, we to the in goals. the and footprint a our in of In us, response, for year. In second delivery of opportunities climate activities to our with of into management are plan strong zero-emission existing expect and is commitment includes reminder, we well We're systems and see million. a business previously plans. EVantage heavily also is to by we announced our mobility, OEs reduce expanding involved thermal our well the $XX driven approximately are our ahead fiscal half creating our This underway, costs early production battery Europe pursuit mile previous for particularly for X applications. components

our certainly and are business, Solutions business is we the rest of Advanced on margin simplification focused Although the in of vehicular on growth focus improvement.

and focus air structures businesses. cooled and on our liquid to cooled We are building organizational new teams

groups, and detailed are I to data, addition, XX/XX updating underlying plans. by progress critical as we I'm is In the back reporting which things with forward analyzing these to the action accelerate. look and creating encouraged

of In a addition Performance to improvements. focused is XX/XX, number operational the on Technologies team

starting an reduction, and we're in see of on Some plants. emphasis results examples scrap some include key to our encouraging

We have also have costs to of past implemented discounts. packaging management major inventory reduce of quantity advantage in This and and taking which for reduce costs consolidation initiatives involves preferred SKUs costs, skyrocketed year. and suppliers to the lower setup

disruptions our more and significant plant's We a throughput, chain due become has supply to issue are which labor also shortages. improving

resumed certain for thermal such as our double from as and The our down to profitable improve cooled provide we see we in hard taking and training, road the produce coupled energy in high-tech This, items, the well. on Solutions areas including are QX We shift production and future. COVID-related solutions to we the and for growth expected drive That markets margin Climate critical air liquid to are recovery and enhanced management being for doing structure capacity are are also electrification with as secular designed today the our similar and businesses blocks need for into near we XX/XX as using others. most levels clearing There drivers businesses, to to China said, it cooled and starting are Last, meaningful shutdowns markets expansion allocation. quarter, operations actions cautiously that are are to will away this other cost production. address continued appears the these are work that impacted business, and future rebounding. in strong the

turn Mick, our provide quarter will like and financial who results the review Now I to updates. to call over would segment for the

Mick Lucareli

to earnings improvement. turn outstanding Climate growth Solutions was transfer XX% Please products Revenue million Slide Neil. X. an Thanks, had the and revenue solid prior exceptional $XX increased over or with of up heat quarter XX%. nearly Sales year.

EBITDA but point preseason the in solid higher improvement. benefiting a XX% American and by co-location higher several In sales a year, due sales basis percentage million resulting were mainly were strength from the XX.X% pump than growth slightly the center across markets. heating basis The continue continued and or addition pricing heat the including by SG&A million XXX from initiatives or was demand of $X commercial were also up products. hyperscale from sales sales earnings increased $X and factors, margin driven European strong both market. Adjusted increases XX% volumes, sales in improvements. operational to strong to declined see the prior XX% prior as as in commissions. a we're margin up higher XX and markets, points, year, with we Data and HVAC&R to school North stocking

the impacts foreign quarters, the segment implement As look and benefits Sales X% business positive year $X was X forward continued segment pricing rates. versus Please negative stated, Climate was or see to Solutions the it's million. exchange were we're as improvements. X. previously on were the Volume Performance turn Slide the to offset partially by prior clear first XX/XX. to in beginning flat Based up Technologies the relatively to last

in were due foreign cooled electric benefit sales Within impact declined part and exchange pricing. our due the sales in negative sales. lockdowns the Air in of Advanced increased Liquid the product X%, Solutions quarter. from growth segment, cooled China X% we continue as primarily XX% to coatings COVID up to the and vehicle product to higher in sales

and to these recover. progress As Neil we're we sales mentioned, China, see to expect some starting in

ongoing resulting EBITDA material several Unfortunately, disruptions. a year in As impacted material margin have raw $X Adjusted earnings were supply negatively anticipated, of costs than by ago. by costs, million, declined significantly a including chain X.X%. higher factors, higher remained and

recoup material raw discussed, through of majority basis. we a lagged agreements expect previously to on the costs As pass-through

supply having million working impact inflationary chain are positive prior exchange was unprecedented we structure. We're restructuring on positive actions our lower down In other the in year, also $X a addition, impact. to SG&A, addressing with announced the foreign The items which previously our from customers. a cost actively are including

anticipated especially we because that quarter, of QX a would higher the material last be discussed costs. difficult As comparison,

sequential improvements expect margin we benefit Going and forward, to from comparables. easier

as to prices pass-through take First, agreements higher our from benefit we'll continue hold.

key metals year-over-year over of the have an expect we Last Next, declined most to our significantly costs months. comparisons less several be material importantly, last impact. and the cost

the is addition Technologies pricing, and make regards to Performance cost In progress to XX/XX. the with segment beginning to

that As Solutions Neil Climate but see started XX/XX from discussed, year. segment results anticipate the to positive we'll begin later we this after

let's company Slide Now to X. total review Please results. turn the

$XX of $XX $X Revenue continuing for pleased sales to positive Conversion XXX million quarter. was volume majority Solutions. First impact. a quarter growth pricing higher sales earnings the EBITDA improved or that strong gains up million. XX%, trend negative represents recovery main $XX up increased This other were by improvement. revenue from million adjusted accounted million. $XX The Climate We're materials or last volume FX increase, of million, were plus of X% basis of drivers the and the a higher XX% point in of and driven pricing excluding report

$X various earnings resulted the commodity have costs quarter, exit $X.XX these of costs but recent bode freight prior declines Furthermore, in in significant strategic the $X.XX increased due we our fiscal prior Momentum well through the to year. a pricing XX/XX generally automotive year-over-year from primarily reorganization from the costs. share to should and of and material improvement. Adjusted decrease declined was lower of the for million offset year, recovery. the packaging raw per year. actions above the environmental able and charges metals, SG&A majority During were in remainder

European had a to million primarily $X.X The like charges was QX owned vehicular related U.S. $X.X plans There $X.X implement business. I'd that for manufacturing facility. on, point reductions headcount a earnings adjustments. targeted to out remaining moving to previously Before million previously the we in million environmental in announced to related was charge

This for turn metrics. primarily cash generated We cash moving flow of in restructuring Slide and cash QX. costs. $X positive Please Now million million activities XX. of free to $X to strategic flow includes reorganization payments,

report plan of repurchase management. earnings we're working quarter capital of mostly of shares anticipated also This repurchase 'XX the $XX we repurchased cash over part quarter, tied last plans each XXX,XXX cash a and noted anticipating the As our includes in approximately shares in our free this positive that restructuring flow balance program to to million reduction driven share fiscal improvements in by cost level of as Europe. quarter happy I'm similar year. to payments,

As compensation programs. offsetting the a on currently XX, dilutive of as year, Net $XXX fiscal million of debt lower of improving the prior the of than is focused our program reminder, incentive slightly impact $X was June million. end

was Our which million versus XX, is and cash with range finished lower leverage ratio of $XX targeted the of balance quarter. the and prior as June quarter within X.X we our a

outlook. Now fiscal our turn to let's XXXX Slide XX for

conflict. costs, energy including Ukrainian chain the inflationary volatile As pressure all ongoing materials in and economy know well, shortages you overhead to factors the many rising consider, labor, and remains supply plus with

reaffirming a increasing to most X% end anticipate fiscal 'XX, guidance up to in While balancing with XX% factors quarter, strong quarter. this sales with first be markets. We these we're our very revenue in

We EBITDA XX% range be versus prior to also in anticipate XX% the increase year. the $XXX an $XXX that This million of of represents will million. adjusted to

businesses pleased are XX/XX the several very that for results, and in key our and first margin year, currently We'll revenue the range. our segment. by top beginning QX. To year we be further reassess expect outlook our the of up, however, results demonstrate with strong to towards full wrap start to we're the Solutions the and improvements. encouraged after especially the Given Climate quarter Neil I to outlook range associated end the are

be In take we your cost Neil that, XX/XX year underway. as that will margin material from full improvement Performance in significant increases questions. actions currently and we Technologies benefit happy expect addition, from recover are and to With I

Operator

Instructions] Davidson. from Summerville D.A. Matt Our [Operator question first the comes of line of

Matt Summerville

couple of questions. A

the maybe how you seasonality understand the I some business, cadence, guys half have but a of half, in your rolling can to front be if these moment thinking material to reason speak should quarterly First, that's ask the And I about maybe weighting, back we earnings easier. going you're pass-throughs there's through. more

So about have about I as the how I in that maybe follow-up. And should material how just context talk be pass-through, I the asked guess we of what phases a thinking in well? then

Mick Lucareli

Matt, or Yes. good Yes. morning afternoon. good

came with outperformed with Climate the As we on side, the quarter element at on a for And segment, when year, out strong look clearly, of CIS side, typically the strong QX. positive the real and seasonality here old and one really which climate wise. QX be we real quiet we Solutions can a more us

news positive the good really that's there. So and

look rate year full As we that improvement like QX. last definitely full high look guidance, the have feel we're towards run rate, clearly, to now we're based we the margin If QX. trending strong that year from on we at year our and a end the run planning guidance, at above

X across you we is revenue from plus I'd the more So will partly two loaded probably last mentioned level will be up heating business due things seasonality I help level our QX The quarters. as in pricing. say the think see going increase

bit a in margin revenue, X loaded higher the through each X quarters. little the a quarters. last next And level pretty So sequential of then improvement not

we see increase QX So a that an increase I from then hope in a EBITDA bit helps. little jump QX, slightly QX of one in a and margin. larger more probably in

Matt Summerville

recouped this give during or restructuring profitability on how maybe at that the color also have then quarter and you savings a would you mandated for not little of on Yes, you what Can all $XX And has comment impact it sort can million point? the whether revenue been that lockdown on of does. guys and of more been COVID-XX in? bit phases

Mick Lucareli

in Yes. add first, Neil Matt, any the and can color situation on I'll China. go

of it, program. program, full the in savings, headcount in So timing timing, next stages the about far and how coming that as how could the benefit, little a get a works And the was legalities plan quarter's restructuring the kicks this million reduction the think program severance million. as -- worth were $XX more final targeted you then from said, maybe as Europe year call year. We on to of actually $XX the fiscal based program of full bit the and we a

So now, a don't portion get year. and it planning China any then the And wants think impact saying would pause, I happening feel we're to see a quarter to next to million standpoint, COVID-related I there. at over $XX this for estimate of comfortable just benefit beginning a Neil revenue least maybe I From shutdowns. full And what's add of color I'll negative if year. from

Neil Brinker

is Matt, are months. good were that This following Those the Neil. those And orders, into orders Thanks. question. pushed Yes. are

So limited down were for in million and $X at plants in few China May, a of weeks, $XX April, impact. the running the we between because million levels COVID were back then and shut

So there's but on expect we been a recovery in the our some based here starts weeks. and coming stops plant shutdowns,

Operator

Your question Sidoti from & Company. comes Steve with the Ferazani of line next

Steve Ferazani

given Wanted you're centers, facility It at first with that year-over-year new How of And you? is the the opening adds you the of a much you're to in talk about quarter, the the for looks Virginia? progress what XX% little guiding particularly for Virginia ask data facility. new bit up about to XX% ramp but can like XX%.

Neil Brinker

Yes. Steve. Neil. Good is question, Thanks This that. for

were. We're started ramp-up in up has lead worked the So at state-of-the-art The we've in our what of diligently have rate process a facility, the standing testing the Virginia and transfer Rockbridge. made we've already that the with capabilities. great facility orders our facility Rockbridge, my and with taking of facility of progress with in team expectations manufacturing testing outpaced

in you us for that's factory rates intake a that products. with the we're order we're rates next at the today. And different product America. taking years filling in chiller the where know, North the them at the That's as looking we're of and So couple

So addition this already nice in that the in this and is a to. products offer America complement we to is North

at with of to The actual pleased we're Rockbridge. to as ramp and low, year up we'll see where to with sales will will or but will be see start orders start back transpire very next start transfer So this half volume revenue. into these have in that the year we that significantly

Steve Ferazani

if of debt, the want can the confused to that? balance the that's $XX is starting flow for address flow cash reasons repurchase, know just on also cash million if flow? I where located, to usage year? should a I'm is the this going in got you the of a how Clearly, sheet. And cash that little second cash about to don't geographical Or cash Great. turn we think up addition a share focus balance for strengthened. and be I by

Mick Lucareli

our Yes. Steve, as is and to issue cash sits of debt the ability the and cash an in said, quarter-to-quarter, needed it. you a in a relocate really really any borrowing quarter where and was move it, period where

down program tracking really debt, incentive share flow, right So buyback net operational we're now planning antidilutive $X relatively quarter where And our your really to went we of part a are point, to cash tactics million. probably offset some the purchase, cash any was shares or of it from from a And up went tied a to debt it's to program any which immaterial to up. compensation. XXX,XXX about where about as a was

about of we're the the right balance now way thinking year. for the that's So it

Steve Ferazani

than can if there some X auto do I into HD about million -- math, about new building CIS from think $X other? that have like and don't HD and other there's -- the million didn't just right just X the moved I anything and the it is might moved housekeeping about into that they performance. segments, segment $X looks there CIS, go auto or to necessarily When that matching HVAC up big you Why not into you rather and talk question,

Mick Lucareli

Yes.

you'd CIS we was part in technologies. a the For auto performance moving That and to that there is went is see business. coatings the most small. and have collapsing of piece It's relatively part, Steve, it one and that CIS HVAC peak HDE,

Technologies. is off advanced put So in math is slightly while the under coatings Performance we've your area

Steve Ferazani

Okay. makes more one sense. squeeze could in. I just And That if

the could As Ukrainian at well could just prices industrial have quarter they shutdown, flow certainly that we're calls, in the quarter of better saw the pressure those least we material through to material noted earnings getting of you the geopolitical in component pieces. address cover issues margins as then in that's the X September conflict, P&L later shortages spike -- in in next China some stages see given worse, general next but going some as not the getting at if least that the

Mick Lucareli

go Neil chain. from supply let the and Neil, the I'll the rest add on I'll the metals, logistical of

or aluminum, we're key saw are encouraged for copper, us, of X months so, steel ago is about things in the For about one the we big us, ones. spike metals

now, bit similar XX, right are little We've and are aluminum probably Steve, other forms in of situation steel since good more stainless month opposite we So down and in last a copper way. March a a an and X/XX the XX% amount. of have steel or about down

early the supply full So that's we about but materials. flowing plants. Neil parts. victory chain for getting for just claim really comment We're for year, our challenges let have, our through to I'll about good visibility the

Neil Brinker

question across supply has across taken years our been not chain multiple going recover as we've question in No, on pandemic. a couple strategic geographies some from inventory positions But the key as and good and we a the Yes, Steve. it it's plants. continues the because now quarters if fair disruption a in of for

could So we've in key have combat there do a increase this, components daily overall have components them list in our impact chain a a XX as their that supply process. a meaningful we way, us on inventory an there of times. has watch increase are potentially few, especially We management around some been lead to seen

far. how working the with rallied inventory, with or company and positions we thus our with the chain around expediting pleased with a strategic take balance key how we directly organization has that how supply So and pretty I've freight been

Operator

Gamco Your of Instructions] the line comes with Brian next Sponheimer question [Operator Investors. from

Brian Sponheimer

a question. had quick just I

that quarter? and You the would be a just as it's quantify Can side, EV helpful. numbers of put but on to you sales performance rising. kind understand EV sales this were really journey, just the in on started the I you're what in getting mentioned low to the base,

Neil Brinker

when question, that's talked that Brian. This is No, we to Neil. our Yes. engaged was we about for what where we stood, with quarter, talked and a XX%, EV XX%. up number Thanks great Last pursuit that. we're customers, and that's about

we've So increased level customers. the engagement our with

at at at prototypes from XX% quarter Our rate. and will last run XX%, and today, XX was see production equate we're to million is that roughly is and what wins, that that full we program $XX

Brian Sponheimer

terrific. That's anything EV a complementary Okay. or from you to M&A? Thinking that's adjacent that either technology the about through solutions buy is build do that standpoint planned, or either have want in-house you -- there

Neil Brinker

a that's Yes, question. good

thinking into vertical the So phase can where mean, the and this it we I in group out, it's well group. to It's up actively technology. we're sure we make carved that's all of control work targeted time. incubation as It's about that mix inorganic integration moving the through growth. that stood acquisitions this as been a -- as

areas avenues. are management both today that current towards of there are So our are that thermal battery looking we system those in

can and the are as management both then active. those We to also well complement thermal cooling our continue our at adjacencies, battery cooling electronic with system electronics yes, that So how we package. package. looking we're do And

BTMS And well. electronics. need and a the lot complicated to those electronics of OEs our and of lot be as a that, with a very They're products lot As require sophisticated of these pieces know, have cooled a of that equipment. you

our Modine the them, only the we're to as sure So battery, well. for onboard how for with for electronics but to OEs they management work make how thermal equation understand we working as solves customers the not and can our

Operator

I D.A. am showing apologize, do Matt no question from further our line Davidson. with comes of Summerville -- the I next

Matt Summerville

have follow-ups. So of I couple a

mean, wondering guess your so -- understand your impact dollars, the that time input flips positive? Technologies, when going that's much make Just this. the what QX? costs Is unabsorbed over And was are in what to by how sure down, And because that in flip. into I I unabsorbed -- inflation I I Performance QX? In coming I'm fiscal inflation

Mick Lucareli

Mick. Matt, Yes. it's

quarter, and through company lag little pricing impact when net year, our the decline the on to it, call it factories a inflation. materials We should start on last still time QX, were we other should Clearly, we QX high the we and side, it's in material had were frame, to pricing talked flip. in while this in economics, we And continued and total overperformed favorable big material So you some obviously there climate bit just with we combination net -- in then actions. for on, raw it seeing relief would in as pass-through it, plus agreements we're QX. close range said, coming a were We of a a PT neutral, negative. put to costs Performance we material in QX. $X is or negative, And million of our combination were little that pretty minus Technologies. -- I positive

Matt Summerville

And guidance much it's of to that hard because algebraically, EBITDA of in is goodness guidance your seen your how that goodness with in much today? current up come

Mick Lucareli

us to volume from in from get before end. reassess I make economics then these about stability prices and When see through talk about I adjusting all it's from QX supply/demand we side and question. fair clear a tailwind would on guidance. a climate we've factors the the got thinking think going and in, tailwind metal like to right is -- now we When I both a guidance pushing after Neil materials. Yes. QX, That that high sure

answer in some early, even metals. I there's built think up good short portion A of we've So recently, been is your our a question a today. little little to this comments into spike

to opportunity an there's I further think and set then us. reassess. for get like through We'd QX

Matt Summerville

related being in tough sense. makes XX, X% tough in comp? that? XX% to up just driving on really transferred QX. XX% what's to the down for a that year a have heat then after Is half That you Slide -- climate, And back Or

Mick Lucareli

Yes.

And products. tried been QX, a and I some that talk approach, conservative the of when the heavy, focus we about and team lose been has heavy, one volume transfer and things Neil a around QX of outperformance, that XX/XX will heavy the you have that heat through So we saw and And that QX and increase. to business. take the surprised this one Matt, we've things going

trying approach remain a will clearly business XX/XX. reassess if conservative customers opportunity an we we're also some through will sticky. year. through we I we'll programs set say, that assume lose the back those the So in and halfway take and would to It's guidance, have

Operator

conference Kathy at questions I am no back this to Powers. turn to further I showing time. would the like

Kathy Powers

Thank thanks you, us to today. joining the and call on everyone for

Now the in hours. through you'll great of the a hope of access call be able day. a you to Thanks. this replay have We all couple website

Operator

today's concludes conference. This

disconnect. You may now

Modine Manufacturing (MOD) 6 Aug 222023 Q1 Earnings call transcript