Modine Manufacturing pany(MOD) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Modine reported increased net sales and earnings for Q1 FY2025, with total assets slightly up and operating cash flow marginally lower Consolidated Statements of Operations Net sales and gross profit increased, but higher SG&A and restructuring costs moderated operating income and net earnings growth Consolidated Statements of Operations Summary | Financial Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $661.5M | $622.4M | +6.3% | | Gross profit | $162.6M | $127.9M | +27.1% | | Operating income | $74.4M | $66.5M | +11.9% | | Net earnings attributable to Modine | $47.3M | $44.8M | +5.6% | | Diluted EPS | $0.88 | $0.85 | +3.5% | Consolidated Balance Sheets Total assets slightly increased, while total liabilities decreased and shareholders' equity grew from March 31, 2024 Consolidated Balance Sheets Summary | Balance Sheet Item | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Total current assets | $913.8M | $894.0M | | Total assets | $1,866.4M | $1,851.5M | | Total current liabilities | $508.3M | $545.8M | | Total liabilities | $1,070.1M | $1,096.0M | | Total equity | $796.3M | $755.5M | Condensed Consolidated Statements of Cash Flows Operating cash flow slightly decreased, while cash used for investing activities significantly increased due to higher capital expenditures Condensed Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $40.5M | $41.7M | | Net cash used for investing activities | ($26.5M) | ($18.4M) | | Net cash provided by financing activities | $0.0M | $3.7M | | Net increase in cash | $12.9M | $26.8M | Notes to Condensed Consolidated Financial Statements Key disclosures include a significant acquisition, segment realignment, restructuring expenses, and U.S. pension plan termination plans - On March 1, 2024, the Company acquired Scott Springfield Manufacturing for $184.1 million, contributing $39.7 million in net sales and $6.5 million in operating income for the quarter ended June 30, 2024[19] - In October 2023, the Company sold three automotive businesses in Germany, which had contributed $24.3 million in net sales in the first quarter of fiscal 2024[24] - The company approved the termination of its U.S. pension plan, expecting a cash contribution of $15.0 million to $30.0 million and non-cash settlement charges of $120.0 million to $130.0 million during fiscal 2026[31] - Effective April 1, 2024, the Coatings business was moved from the Performance Technologies segment to the Climate Solutions segment, with prior period information recast for comparability[74] Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales increased driven by Climate Solutions and acquisitions, while gross margin improved; rising SG&A expenses impacted operating income growth Consolidated Results of Operations Net sales increased 6% driven by Climate Solutions and acquisitions, while gross margin expanded 400 basis points despite a 35% surge in SG&A - Net sales increased 6% year-over-year, primarily due to higher sales in the Climate Solutions segment, which included $41.1 million from the acquisitions of Scott Springfield and Napps[80][83] - Gross margin improved by 400 basis points to 24.6%, attributed to favorable sales mix, higher selling prices, approximately $9.0 million in lower raw material costs, and improved operating efficiencies[84] - SG&A expenses increased by $21.4 million (35%), including a ~$13.0 million rise in compensation-related expenses and $4.6 million in incremental amortization of acquired intangible assets[85] Segment Results of Operations Climate Solutions net sales surged 25% driven by data center demand and acquisitions, while Performance Technologies sales declined 10% due to divestitures Climate Solutions Segment Performance (YoY) | Metric | Q1 FY2025 | Q1 FY2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $357.3M | $286.7M | +25% | | Gross Profit | $100.8M | $75.8M | +33% | | Operating Income | $59.8M | $48.6M | +23% | Performance Technologies Segment Performance (YoY) | Metric | Q1 FY2025 | Q1 FY2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $309.0M | $343.1M | -10% | | Gross Profit | $63.5M | $51.9M | +22% | | Operating Income | $31.5M | $27.6M | +14% | Liquidity and Capital Resources Primary liquidity sources include operating cash flow, cash reserves, and available credit, with capital expenditures increasing for strategic growth - Primary liquidity sources include $40.5 million in operating cash flow, $72.9 million in cash and cash equivalents, and $163.8 million of available borrowing capacity[99][100] - Capital expenditures increased by $11.7 million year-over-year to $26.8 million, primarily to support increased production capacity for data center products[101] - The company approved the termination of its U.S. pension plan, which is expected to require a cash contribution of $15.0 million to $30.0 million in fiscal 2026[105] Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures are incorporated by reference from the fiscal 2024 Form 10-K, with no material changes reported - The Company's market risks have not materially changed since the fiscal 2024 Form 10-K was filed[114] Controls and Procedures Disclosure controls and procedures were ineffective due to a persistent material weakness in IT general controls related to system access - A material weakness in internal control over financial reporting, first identified in the fiscal 2024 10-K, persists, relating to IT general controls in Europe regarding system access restrictions[116] - Due to this ongoing material weakness, management concluded that disclosure controls and procedures were ineffective as of June 30, 2024[114] - Management is implementing remediation steps, including engaging IT expertise and designing new controls to restrict and monitor system access[117] PART II. OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds Modine repurchased 50,319 shares in Q1 FY2025, with $32.1 million remaining under the current authorization Share Repurchase Activity (Q1 FY2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | May 1 – May 31, 2024 | 10,878 | $100.92 | | June 1 – June 30, 2024 | 39,441 | $91.41 | | Total Q1 FY2025 | 50,319 | $93.47 | - The company has approximately $32.1 million remaining under its share repurchase authorization, which expires in November 2024[121] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the quarter[123] Exhibits This section lists all exhibits filed with the Form 10-Q, including stock award agreements and CEO/CFO certifications - The exhibits filed with this report include Fiscal 2025 Performance Stock and Restricted Stock Unit Award Agreements, CEO and CFO certifications (Sections 302 and 906), and Inline XBRL documents[125]