Modine Manufacturing Co. (MOD) - 06-Nov-2020
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06-Nov-2020
Modine Manufacturing Co. (MOD)
Q2 2021 Earnings Call
Total Pages: 12
1-877-FACTSET www.callstreet.com Copyright © 2001-2020 FactSet CallStreet, LLCModine Manufacturing Co. (MOD) Corrected Transcript
Q2 2021 Earnings Call 06-Nov-2020
CORPORATE PARTICIPANTS
Kathleen T. Powers
Vice President, Treasurer, Investor Relations & Tax, Modine Manufacturing Co.
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co.
......................................................................................................................................................................................................................................................
OTHER PARTICIPANTS
Matt J. Summerville
Analyst, D. A. Davidson & Co.
Michael Shlisky
Analyst, Colliers Securities LLC
......................................................................................................................................................................................................................................................
MANAGEMENT DISCUSSION SECTION
Operator: Good morning, ladies and gentlemen. And welcome to Modine Manufacturing Company's Second
Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we
will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a
reminder, this conference call is being recorded.
I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasury, Investor
Relations and Tax. Please go ahead.
......................................................................................................................................................................................................................................................
Kathleen T. Powers
Vice President, Treasurer, Investor Relations & Tax, Modine Manufacturing Co.
Good morning and thank you for joining our conference call to discuss Modine's second quarter fiscal 2021
results. I'm joined on this call by Mick Lucareli, our Interim President and Chief Executive Officer. We'll be using
slides for today's presentation which can be accessed either through the webcast link or by accessing the PDF file
posted on the Investor Relations section of our website modine.com.
I'd like to give our notice regarding forward- looking statements. This call may contain forward-looking statements
as outlined in our earnings release, as well as in our company's filings with the Securities and Exchange
Commission. With that, it is my pleasure to turn the call over to Mick Lucareli.
......................................................................................................................................................................................................................................................
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co.
Thank you, Kathy, and good morning, everyone. We have a lot of good news to report. So, I'll start with a brief
summary of the highlights. Q2 results were significantly ahead of our expectations including higher earnings,
margins, and cash flow. Better market conditions combined with significant cost control resulted in a 40%
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Q2 2021 Earnings Call 06-Nov-2020
adjusted EBITDA increase. In addition, we generated $73 million of year-to-date free cash flow bringing our
leverage ratio back to pre-pandemic levels.
Next, we made significant progress on our strategic initiatives this quarter, including an agreement to sell our
liquid cooled automotive business which makes up the majority of our Automotive segment. Our board authorized
the $50 million share repurchase program. This is timely giving our improved to liquidity position and provides
additional flexibility to manage our future cash flows.
And finally, I'd like to make a quick comment on the CEO search. The process has been going very well with very
good outside candidates. We are in the final stages of the search and anticipate completing the process within the
coming week. Now before turning to the quarterly results, I would like to provide some more details about our
automotive announcement on page 4.
Earlier this week we announced an agreement to sell the majority of our automotive business, which is a
significant step in our strategic transformation. This transaction provides our company with a number of benefits
including reallocating capital and resources to higher returning industrial businesses especially those within our
building HVAC segment, eliminating significant liabilities relating to future restructuring along with pension costs
and additional cash investments. And finally, this transaction will lower our future capital spending improving our
cash profile. The transaction includes seven manufacturing locations around the globe including several in
Western Europe and our headquarters in Germany.
It also includes the assets and liabilities associated with these locations. While we're not expecting significant
proceeds, we are foregoing significant future cash investments including ongoing capital spending and future
liabilities along with pension and other employee related costs. Also, I want to highlight that this is the leverage
neutral transaction from a covenant standpoint, consistent with the provisions in our credit agreement. And last,
we expect the transaction to close in the first half of calendar 2021 subject to regulatory approvals and customary
closing conditions.
Please turn to slide 5, I would like to provide some additional details on both the liquid-cooled business that we
are selling and the air cooled business that we are planning to address next as part of our overall auto strategy.
Starting with the liquid-cooled business it's averaged about $300 million in revenues over the last several years
and it's been recently running below that level due to general economic condition. As we've discussed in the past
this has historically been a negative cash flow business, with the annual capital spending offsetting cash earnings.
In addition this business has required significant restructuring and would require additional investments going
forward, given the large amount of historical investments the liquid-cooled business carries a significant amount of
net assets based on the transaction we anticipate a large non-cash impairment charge in Q3.
Our view is then that this business is best in the hands of strategic owner that has the size, scale and desire to
make the required investment. Now moving on to the air-cooled business which is the remaining business in our
Automotive segment and includes the plants in Austria and Germany. This business represents approximately
$100 million of revenue and it's currently running at a lower rate due to the global pandemic. The majority of this
business is comprised of automotive condensers which are produced in Austria. Again, as previously discussed
this business runs much closer to breakeven on an adjusted EBITDA basis and will require minimal capital going
forward. We were actively exploring alternatives for portions of this business and are currently engaged in
discussions with interested strategic buyers.
For the right partner, this business has value due to a relatively new facility, industry leading products and
intellectual property along with a solid order book. We have some more work to do, but much of the heavy lifting is
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Q2 2021 Earnings Call 06-Nov-2020
complete with the automotive separation done and the recent sale announcement. We're optimistic about
addressing the small amount of remaining business and further reducing future liabilities and cash needs. Now
let's cover our second quarter segment results on page 6.
CIS sales were down 14% from the prior year primarily due to COVID related declines in our commercial HVAC
and refrigeration markets, along with lower data center sales. Approximately half of the decline relates to lower
sales to our largest data center customer. As we've previously discussed, the pullback is due to one customer's
reduction in construction and is expected to continue through Q4 after which we'll begin to see the recovery.
We're actively working on the testing of our next generation product and are encouraged by the recent order
outlook for next year
We continue to invest in our coating business where we're receiving positive feedback from our OEM customers
on a new coating practice. Adjusted EBITDA was down 7% on lower sales, but I'm pleased to report the margin
improved 70 basis points despite lower revenue – good downside conversion was due to cost savings initiatives
taken earlier in the year and a good trend with regards to coils' margin improvement. In fact, if we adjust for the
negative effect of lower data center sales, the margin would have improved by approximately 300 basis points
versus the prior year and lower sales.
Please turn to slide 7. The building and HVAC segment had another great quarter with sales up 11% from the
prior year. This is primarily driven by a significant increase in data center sales due to our aggressive growth plan.
Looking forward, we expect continued growth in our data center sales in the coming quarters and project we'll
finish the fiscal year up more than 50%. In addition, we also had a strong pre-season orders of heating products
which was partially offset by lower sales of ventilation and air conditioning products. On the ventilation side, sales
for the hospitality market have been hard hit by COVID-19 causing us to shift focus to both the school and
healthcare market.
We see future growth opportunities with our ventilation products given the growing focus on the benefits of proper
ventilation. I want to highlight that adjusted EBITDA increased 42% from the prior year primarily due to higher
sales volume and favorable product mix. This resulted in a 500-basis-point improvement in EBITDA. The recent
performance of this segment also demonstrates the potential for Modine after we complete the exit of the auto
business and continue to reallocate capital. For example, we're leveraging our success and brand in the UK to
produce data center products in Mainland Europe and equally exciting are the increasing opportunities in the US.
We're industrializing computer room air handlers and chillers in our existing US manufacturing sites and are
planning to be in production next fiscal year.
Please turn to slide 8. Sales in HDE or Heavy Duty Equipment were down 12% from the prior year but a
significant improvement from Q1 as markets continue to stabilize. Although sales decreased through most of our
major end markets, we actually had higher sales to commercial vehicle and off highway customers in Asia,
partially offsetting the declines in North America. Adjusted EBITDA was up 42% on a 460-basis-point margin
improvement despite lower sales. HDE significantly benefited from temporary cost reductions along with
permanent actions including head count reductions taken earlier in the year, procurement savings, and improved
operational performance. We're cautiously optimistic about further market recoveries in this segment while
balancing the impacts of higher material costs and recently announced tariff.
Please turn to slide 9 and I'll shift to the Automotive segment. Sales were down 5% from the prior year, which also
represents a large sequential improvement from the first quarter. Auto sales recovered faster than most people
anticipated as we saw lower sales in North America and Europe partially offset by higher sales in Asia. Adjusted
EBITDA improved significantly, up $5.7 million from the prior year primarily due to cost reductions and other
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Q2 2021 Earnings Call 06-Nov-2020
temporary COVID related savings action. Given the large amount of temporary cost reductions we expect that the
auto segment margins will return to more normal levels in the second half of the year.
I want to point out that we do not anticipate that the recent announcement will change how we report our earnings
in this segment. Obviously, things can change, but for now we expect to report segment sales and earnings in a
consistent manner until the transaction closes.
Please turn to slide 10, as I mentioned at the beginning our team adjusted to the challenging economic
environment earlier in the year by quickly implementing significant cost reductions. We prepared for the worst
case, but we were pleased to see sales rebounded somewhat more quickly than expected. Second quarter sales
declined by $39 million or 8% as compared to the prior year, driven mostly by the global pandemic and associated
economic conditions. Overall, our results benefited from a combination of markets recovering better than we
anticipated, and aggressive cost cutting measures resulting in both temporary and permanent savings. I'm very
pleased to report our gross profit was $81 million, which was higher than the prior year by $5 million on lower
sales and the gross margin increased by 240 basis points to 17.5%. SG&A was $17 million or 25% lower than the
prior year. Given the significant uncertainty surrounding the pandemic we maintained strict cost controls over
spending and benefited from previous [ph] FDG (13:58) savings.
Some of the reductions should be viewed as largely temporary, representing about a third of the SG&A savings
this quarter. Another driver of lower SG&A was the significant reduction in auto separation costs. Adjusted
EBITDA of $55 million was better than the prior year by $16 million or 40%. Please see our appendix for an
itemized list of adjustments and a full reconciliation to our US GAAP results, our second quarter adjustments
totaled $7.6 million including $5.5 million from CEO transition costs, mostly related to severance and benefit
related expenses owed to the previous CEO – most of these will be paid over multiple years.
We also incurred $1.5 million of restructuring expenses related to plant consolidation activities and our adjusted
earnings per share was $0.43 higher than the prior year by over 200%. Let's turn to cash flow on deck – on slide
11. I'm pleased to report our free cash flow for the first six months of fiscal 2021 was $73 million which represents
a $97 million improvement over the prior year. The positive cash flow is driven by numerous items including lower
spending on the automotive exit strategy, favorable working capital and nominal capital spending. We used cash
in the quarter to repay debt, increasing our available liquidity and I'm very pleased to report that our resulting
leverage ratio was 2.2, back to pre-pandemic levels and within our target range. We expect slightly positive cash
flow for the remainder of the year, resulting in full year cash flow of $70 million to $80 million. The anticipated
lower second half cash is due to a number of timing factors, including the deferral of certain cash items. For
example, we have approximately $20 million in pension contributions along with the phase out of payroll tax
deferrals under the CARES Act.
We also expect higher capital at capital spending in the second half of the fiscal year along with some working
capital growth in line with the recovery. Overall, the cash and debt position is a great story for Modine, especially
given the current economic environment.
Now, let's turn to slide 12 and our fiscal 2021 outlook. Like many companies, we're hesitant to provide full year
guidance especially given the everchanging dynamic size of COVID. Based on the recent results, our full year
outlook is clearly improved, but we want to be careful not extrapolate all of the Q2 upside through the balance of
the year. We have a reasonable amount of visibility into our third fiscal quarter ending December 31, our Q4 is
more uncertain especially as it stands in the calendar 2021. We expect there's net sales to be down between 7%
and 12% from the prior year and for adjusted EBITDA to be in a range of $155 million to $165 million.
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Q2 2021 Earnings Call 06-Nov-2020
While markets are changing continuously, we expect sequential revenue improvement in the third and fourth
quarters. Positives include good momentum as we enter the heating season and a solid data center order book,
plus strong vehicular market trends in Asia. We also see some higher costs in the second half particularly related
to employee compensation expenses as we reverse some of the temporary cost control measures taken earlier in
the year, as well as higher metals prices including the negative impact of the newly announced tariffs in the US.
Also, I want to point out that our outlook includes the automotive business that is subject to the recent sale
announcement. Our full-year results could be different if this or another transaction is completed before fiscal year
end. And finally, I want to thank our employees who've made numerous sacrifices this year and to the many
shareholders who have fully supported our transformation.
With that, we'll now take your questions.
......................................................................................................................................................................................................................................................
QUESTION AND ANSWER SECTION
Operator: [Operator Instructions] Our first question comes from Matt Summerville with D.A. Davidson. Your line
is open.
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Matt J. Summerville
Analyst, D. A. Davidson & Co. Q
Thanks. Good morning. Couple of questions. First, with respect to your large data center customer within CIS.
Can you talk about how you can expect that revenue to ramp up during fiscal 2022 and what you think the overall
potential book of business could look like on an annual basis for that customer compared to prior peak levels?
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah. Good morning, Matt. Good question. So we've been on as you know the last few quarters have
unfortunately been year-over-year declines and we've been entering a period here where in the quarter we had
very little in the way of actual sales to this customer and Q4 as well will have very little in the way of cuts in sales
in total, and then as I mentioned we're working now on the testing and development of what they're going to use
in the next generation – for the next generation product. We're starting to see those purchase orders and
construction plans come in place with a ramp in our Q4. We'll actually start building the product in our March
quarter as well, a little hard to forget the actual timing of shipments and revenue, but we see that being the
inflection point.
And then from where we've come from, we're running significantly below this year where we were two years ago.
Last year was cut in half and this year is again cut in half, so without – without going into too much detail and
detail I can't provide in a public setting, what I can tell you is next year – next fiscal year would be a significant
increase in planned volumes and production at almost about like a double run rate. So, real significant rebuild and
even at that run rate next year would be well below our high-water mark. So, we're optimistic, we're talking to that
customer about an opportunity from there about another significant increase to get back to where we peaked out
probably more than a year, year and half ago. So again probably another quarter here of slow sales and then the
activity is really ramped up and production beginning on our Q4, next year we see a significant jump in sales and
at that point we're still well below where we kind of peaked out them with an opportunity to go significantly higher
from there.
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Q2 2021 Earnings Call 06-Nov-2020
Matt J. Summerville
Analyst, D. A. Davidson & Co. Q
Got it. And then just as a follow-up, can you talk about what you anticipate the impact to be as it pertains to steel
prices moving higher, as well as you mentioned some sort of tariff action, maybe if you could provide a little bit
more detail on that. But if you could sort of parse that out to be a little bit more granular about what that impacts
going to look like? Thank you.
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, yeah for sure. So, two things as we think about the second half of the year and I'm trying to quantify it for
you. One as we've seen recently a rise in raw material prices that you referenced, we estimate from the second
half versus first half that those metal prices will be $4 million to $5 million net cost increase impact to up against
second half. And then a few weeks ago maybe just a couple of weeks ago the new set of tariffs announced on
aluminum products and one of the highest tariffs was products coming out of Germany at almost 50% airfreight.
We do have some material out of Germany, and we've got plans in place now to adjust for that. But we anticipate
in the second of the year that that's about another $3 million cost impact to us. And for that one, we think we have
a path forward to between different logistics and procurement strategies to eliminating or reducing that cost, but
for now in the second half is still about $3 million from tariff and $4 million to $5 million from net metal.
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Matt J. Summerville
Analyst, D. A. Davidson & Co. Q
Thank you. I'll get back in queue.
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Operator: Your next question comes from Michael Shlisky with Colliers Securities. Your line is open.
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Michael Shlisky
Analyst, Colliers Securities LLC Q
Hey good morning everybody. So can we first start with the auto sale that was announced, can you maybe give
us just kind of a full view on what are the avoided cash costs that are part of the deal in total, just to kind of value,
what was the true value of what you're receiving for this division?
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah. Mike, so a couple of things that as we know has made it more of complex story since the day one. We
know and in part of our Automotive exit strategy that this business is down a low EBITDA business of 4% or 5%
rise in total, margin business and very high capital spending. And we spent average of $40 million a year just in
capital expenditures in auto as a segment not to mention other restructuring cost in the last two years we've had
to almost $25 million of restructuring cost and tens of millions of dollars in impairments as we painfully know well.
The $300 million-ish type business the liquid-cooled that we announce the sale of, that's been historically neutral
than negative free cash flow business, depends on the year and exactly – all the different counts going into it –
that it – as I said – you know at the beginning generally the lower margin and low level of EBITDA, this business
has been drilling out has been all consumed by a large amount of capital spending.
So just as an ongoing basis – we've had struggled to generate positive cash flow and then our biggest strategy
going forward and belief on this business, as I've also mentioned is that we think the right owner of the right place
for this business is for a strategic buyer or a company that will make the investments required to improve that
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Q2 2021 Earnings Call 06-Nov-2020
margin profile, reduce the cost profile. So to your question a big part of liability is in cost and future cost
investments, we're avoiding all relate to what we would view as additional plant dues, plant expansion, severance
charges and the ongoing capital investments that – and in business is a liquid cooled have been averaging
around you know $25 million a year. So that's the biggest value driver of the business – if you want to think about
it that way or challenging selling it, but also the opportunity for Modine as we go forward is avoiding all the
additional cash investments we would need to put this into a profile that drives value for our shareholders.
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Michael Shlisky
Analyst, Colliers Securities LLC Q
Yeah, and that plus the pension that you also discussed?
......................................................................................................................................................................................................................................................
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah so yeah, with it part of it came in with as I mentioned $15 million of pension and then on top of it, I
mentioned if all along we've always talked about since we had first announced that if we don't see that engine, the
amount of potential social costs and social liabilities that could come our way are enormous. So, we view it as a
huge step forward for us. And even mentioned the amount of management time last year the amount of
management time and money we've spent also on separating and running this business has been enormous.
......................................................................................................................................................................................................................................................
Michael Shlisky
Analyst, Colliers Securities LLC Q
Okay. Can you also just maybe give us the broad outline of whether the go forward CapEx for Modine and in the
next few quarters prior to the closing, will that area have any CapEx associated with it in the very near term?
......................................................................................................................................................................................................................................................
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, so a good question. We've mentioned that the balance of the year for Modine is two things where our
guidance, our outlook is based on the assumption that we still have, the liquid-cooled automotive and the air-
cooled, even though we're looking at alternatives there. And so, earnings and cash flow I'll assume that those are
– stay with Modine. There's always a chance that transaction closes before our fiscal year. And the other issue is
we clearly have a responsibility to run that business between the signing of the deal and closing in a normal
course, a normal course of business for us. I would say the next two quarters for us average about $15 million a
quarter of capital spending. That may be a little bit high. We'll just see how in the next few months shake out into
the year end, and [indiscernible] (29:25) total company.
After the automotive divestiture, we see Modine running more in a 50-million-ish type capital spending run rate
annually we spend $70 million to $80 million – so a very well could be a little bit running a little below $50 million,
maybe a little bit ahead depending on the year, but in totality going from a company spending $70 million to $80
million ad again I'm excluding restructuring which would make it even higher to more like a $50 million run rate,
Mike.
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Michael Shlisky
Analyst, Colliers Securities LLC Q
And does that – $50 million run rate include or exclude the liquid part that's still left to sell?
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Q2 2021 Earnings Call 06-Nov-2020
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, the air side...
......................................................................................................................................................................................................................................................
Michael Shlisky
Analyst, Colliers Securities LLC Q
[ph] Cap spend (30:13)
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, we anticipate a very little future capital spending that's basically the majority of that volume is run out of one
plant that fully capitalized. So, I would say an immaterial amount of capital spending here too.
......................................................................................................................................................................................................................................................
Michael Shlisky
Analyst, Colliers Securities LLC Q
Okay. and I also wanted to turn to some of the building business you mentioned some good heating business in
your slides and also [indiscernible] (30:44) hospitality. I was curious whether the heating business frankly has
anything to do with outdoor heating or areas for outdoor dining or anything? Have you gotten any kind of positive
orders or sales from people shifting to dining outdoors?
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, we've seen a lot of those opportunities. We don't make a product that the standard – standing meeting that
you would think of. We do make some infrared products that you see hanging off – and you know if you enter a
hotel or something. We have seen a nice increase in the heating market on our side as well. But we think that a
lot of ties to what's going on across the market in general, home – you know home construction and home repair
remodeling. In fact, our hot dog units have been selling quite nicely. We're also optimistic about our win rates on
school products. There's been some good news coming out recently there. And so, I mentioned on the call, lots of
opportunity. We're doing some additional product development and we're getting inbound calls as you can
imagine for our ventilation side of equipment, commercial applications and school applications for improved
ventilation and filtration, we think could be a good opportunity for us going forward.
......................................................................................................................................................................................................................................................
Michael Shlisky
Analyst, Colliers Securities LLC Q
Got it, and also would you give us kind of one pinpoint number for the quarter, obviously was a great performance
and EBITDA level, I'm just kind of curious if you would give us some sense of how much of that what in total
would you attribute to some temporary stuff going on around COVID.
......................................................................................................................................................................................................................................................
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, that's a good question. I would say when we look at the quarter, there was about $11 million or so of
benefits between cost of goods and SG&A that I would classify as temporary in nature. They are things everything
from salaries to short workweeks and furloughs. So, I view it – I call it normalized EBITDA margin more than 9.5%
rate for the quarter, Mike. Clearly, well above what we did last year at just under 8% and on lower volume. So,
kind of like you said, I view it as the 12% really good, but we actually had volumes better than we were – we were
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Q2 2021 Earnings Call 06-Nov-2020
planning for the worst and we got a little bit better on the volume and we had all the cost savings. So, we won't be
able to continue that at least in the next couple quarters until we see a significant rebound in revenue.
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Michael Shlisky
Analyst, Colliers Securities LLC Q
Okay. Thanks for that, Mick. Maybe I can just throw one last one in there and that is that is a question on EV
outlook. Can use a little bit of initiatives [ph] to what (33:50) kind of working on in the EV world. Some of these
models are coming fashion expected in the second half to 2021, some are 2022 and 2023 launches. But I'm
curious why Modine seated at that table and some of your development projects and some of the outlook for that
in Europe.
Yeah, the answer is probably twofold. On the commercial vehicle side, I can tell you that Modine continues to
have a seat at the table with all of those discussions and development work. There is a lot of request for
development in time and resources to work on electrification project on truck. There is some concern we have, or
I'd say we're monitoring along with some of our customers that we talk to about the actual timing. And it may be a
longer run rate to seek significant volumes than commercial truck. The other side which has been really exciting is
on the box specialty vehicle side, where we've had a tremendous quarter to here and it's continuing to grow with
the rate that it looks like boxes are converting to [ph] fully V hybrid (35:14) even thinking about fuel cell type
vehicles. And those are not only development activities. Those are real introduction orders. And so that's exciting.
We see plus specialty vehicle coming first and then in the next – in the near term I'll say year or two, Mike, this is
more developmental work on the truck side.
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Michael Shlisky
Analyst, Colliers Securities LLC Q
Okay, well, thanks very much. I'll leave it there.
......................................................................................................................................................................................................................................................
Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah, thanks.
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Operator: [Operator Instructions] Your next question comes from [ph] Chris Kimberly with Robust Capital
(35:53). Your line is open.
......................................................................................................................................................................................................................................................
Q
Hi good morning.
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Good morning.
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Q
I just wanted to ask we had a couple of questions around it, but there's such a focus on air quality currently given
the health crisis. But this does make tantalizes longer term thinking about the need to have cleaner indoor air. As
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Q2 2021 Earnings Call 06-Nov-2020
you're looking at your HVAC segment it's not your biggest revenue source but it's a good profit source. How do
you see this focus you're talking about shifting to ventilation for school in the healthcare market, can you give us
any sense of how large that business is in the segment now and where do you think it might be able to go in the
medium term. And as you mentioned you're getting some inbound calls. Can you just maybe share some color
about the products that you're selling and what – where the interest is and how you think that's going to develop
over the next couple of years?
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Michael B. Lucareli
Interim President & Chief Executive Officer & Vice President, Finance & Chief Financial Officer, Modine Manufacturing Co. A
Yeah great. Appreciate the question. The – for Modine right now ventilation is about 4%, 5% sales as a company.
And you're right it historically hasn't gotten as much attention obviously as the vehicular side. I can tell you in the
last, starting with the announcement to exit auto, but even ramping up the last six months even pre-COVID, we
see this area and it's a big area. I think it's the way we would define it and products we sell in the market we see
this area and it's a big area. I think it's the way we would define as the products we sell in the markets and
channels, $900 million to a $1 billion market. And then on top of that you add in a COVID related concern and we
think this is a great opportunity. Again, we're focused on commercial applications.
Previous to this we've been – a big part of our growth plan this year was in the hospitality side and we've been
making a lot of inroads, but from a product development side what the team is mostly focused on now is there is a
combination of alternatives and based out there is how much of it is putting more air into a building or a room and
how much of it then is recirculating or filtrating air in that same space. And we have our products that can kind of
fill both avenues.
So, we're super excited about this is becoming a bigger deal for schools. We've just – we've won some significant
business in a large community and the referendum was just passed. So, we're excited about seeing those orders
come through. And then secondly in the office space as you lined up, I think – I'll just say over the top of that is
the exciting part for us and I mentioned with Mike in the call a little while ago there's been so much effort spent in
last year, monumental effort of the company to take a $1 billion segment of vehicular segment and split it into two
pieces between automotive and heavy duty and then go through a year sale process. The more we can continue
to focus our resources and our capital on these opportunities I think is a huge opportunity for the company.
......................................................................................................................................................................................................................................................
Q
Great. Thank you.
......................................................................................................................................................................................................................................................
Operator: I'm showing no further questions at this time, I would now like to turn the conference call back to
Kathy Powers.
......................................................................................................................................................................................................................................................
Kathleen T. Powers
Vice President, Treasurer, Investor Relations & Tax, Modine Manufacturing Co.
Thank you and thank you to everybody for joining us this morning. A replay of the call will be available through our
website in about two hours. We hope you all have a great day. Bye,
......................................................................................................................................................................................................................................................
Operator: this conclude today's conference call. You may now disconnect.
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Q2 2021 Earnings Call 06-Nov-2020
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