Modine Manufacturing pany(US:MOD)2024-01-31 17:26PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for Q3 and nine months ended Dec 31, 2023, including statements of operations, balance sheets, cash flows, and detailed notes Consolidated Statements of Operations Q3 FY2024 net sales flat, but gross profit and operating income rose significantly, leading to an 81.0% increase in net earnings attributable to Modine Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Metric | Q3 2023 | Q3 2022 | YoY Change | Nine Months 2023 | Nine Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $561.4 | $560.0 | +0.3% | $1,804.3 | $1,679.8 | +7.4% | | Gross profit | $127.3 | $97.6 | +30.4% | $390.3 | $277.2 | +40.8% | | Operating income | $61.7 | $39.5 | +56.2% | $193.9 | $101.9 | +90.3% | | Net earnings attributable to Modine | $44.4 | $24.5 | +81.2% | $135.7 | $63.2 | +114.7% | | Diluted EPS | $0.83 | $0.46 | +80.4% | $2.55 | $1.20 | +112.5% | Consolidated Balance Sheets Total assets increased to $1,651.4 million by Dec 31, 2023, driven by cash, while total liabilities decreased, boosting shareholders' equity by 22.6% Key Balance Sheet Items (in millions) | Account | Dec 31, 2023 | Mar 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $149.7 | $67.1 | +$82.6 | | Total current assets | $918.2 | $846.4 | +$71.8 | | Total assets | $1,651.4 | $1,565.9 | +$85.5 | | Total current liabilities | $475.5 | $507.1 | -$31.6 | | Long-term debt | $313.5 | $329.3 | -$15.8 | | Total liabilities | $916.2 | $966.3 | -$50.1 | | Total Modine shareholders' equity | $727.4 | $592.8 | +$134.6 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities surged to $175.0 million for the nine months ended Dec 31, 2023, driven by higher earnings, despite increased investing and financing outflows Cash Flow Summary for Nine Months Ended Dec 31 (in millions) | Cash Flow Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $175.0 | $67.9 | +$107.1 | | Net cash used for investing activities | $(54.5) | $(35.2) | -$19.3 | | Net cash (used for) provided by financing activities | $(37.4) | $7.4 | -$44.8 | | Net increase in cash | $84.0 | $37.0 | +$47.0 | Notes to Condensed Consolidated Financial Statements Details accounting policies, acquisitions (Napps Technology), dispositions (German automotive businesses), revenue disaggregation, restructuring, debt, and subsequent events (TMGcore IP purchase) - Acquired Napps Technology Corporation for $5.8 million to expand its indoor air quality product portfolio within the Climate Solutions segment2930 - Sold three German automotive businesses, resulting in a $4.0 million gain on sale in Q3 FY2024, as part of a strategic shift towards higher-margin technologies3435 - In January 2024, subsequent to the reporting period, the company purchased intellectual property from TMGcore, Inc. for $12.0 million to enhance its liquid immersion cooling technology for data centers103 - Approved a plan in January 2024 to close a technical service center in Europe, with estimated closure costs of $8.0 million to $12.0 million, to realign its cost structure after the sale of the German automotive businesses104 Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses financial results, highlighting Q3 gross margin improvement, segment performance (strong data center cooling), liquidity, capital resources, debt compliance, and share repurchase program Consolidated Results of Operations Q3 FY2024 net sales marginally up, gross profit rose by $29.7 million due to 530 basis point margin improvement, and operating income increased by $22.2 million - Q3 FY2024 gross margin improved by 530 basis points to 22.7%, primarily due to favorable sales mix, commercial pricing, and improved operating efficiencies110116117 - Q3 SG&A expenses increased by $10.0 million (17%), mainly from approximately $7.0 million in higher compensation-related expenses, including incentive compensation tied to improved financial results118 - For the first nine months of FY2024, net sales increased by $124.5 million (7%), driven by favorable pricing, higher volume, and positive foreign currency impacts111124 Segment Results of Operations Climate Solutions Q3 sales decreased 2% but operating income rose to $38.8 million; Performance Technologies sales increased 2% with operating income reaching $31.2 million Climate Solutions Segment Performance (in millions) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $242.5 | $248.6 | $790.1 | $748.9 | | Gross Profit | $66.1 | $54.8 | $206.9 | $162.5 | | Operating Income | $38.8 | $30.2 | $127.7 | $89.9 | - In the Climate Solutions segment, Q3 sales of data center cooling products increased by $15.4 million, while heat transfer products sales decreased by $23.7 million due to market weakness and strategic exits from low-margin business134 Performance Technologies Segment Performance (in millions) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $323.0 | $317.8 | $1,033.6 | $952.1 | | Gross Profit | $61.0 | $43.0 | $182.4 | $115.2 | | Operating Income | $31.2 | $17.4 | $96.8 | $41.1 | Liquidity and Capital Resources Strong liquidity with $149.7 million cash, $269.4 million available credit, and $175.0 million operating cash flow for nine months, while repurchasing $13.3 million in stock - Primary liquidity sources include $149.7 million in cash and cash equivalents and $269.4 million in available borrowing capacity under the revolving credit facility as of December 31, 2023155 - Net cash provided by operating activities increased by $107.1 million to $175.0 million for the nine months ended Dec 31, 2023, mainly due to higher earnings and favorable working capital changes156 - The company repurchased $13.3 million of its common stock in the first nine months of fiscal 2024, with $32.1 million remaining under the current authorization which expires in November 2024160 Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risks have occurred since the fiscal year ended March 31, 2023, Form 10-K filing - The company's market risks have not materially changed since the fiscal 2023 Form 10-K was filed171 Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting in Q3 FY2024 - Based on an evaluation as of December 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective172 - There were no material changes to the company's internal control over financial reporting during the third quarter of fiscal 2024173 PART II. OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds In Q3 FY2024, the company repurchased 166,241 shares of common stock at an average price of $43.79 per share, including shares from its publicly announced program Issuer Purchases of Equity Securities (Q3 FY2024) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2023 | 56,558 | $43.27 | | Nov 2023 | 100,000 | $43.07 | | Dec 2023 | 9,683 | $54.24 | | Total | 166,241 | $43.79 | - The company's Board of Directors authorized a repurchase program of up to $50.0 million, which expires in November 2024177 Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023 - No director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the third quarter176 Exhibits Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents for financial data reporting - The exhibits filed with this report include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, along with various Inline XBRL documents178 Signature - The report was duly signed on January 31, 2024, by Michael B. Lucareli, Executive Vice President and Chief Financial Officer180