Modine Manufacturing Company

Good morning, ladies and gentlemen, and welcome to the Modine Manufacturing Company's fourth quarter fiscal 2021 earnings conference call. At this time, all participants are now in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then during the touchtone phone. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Ms. Kathy Powers, Vice President, Treasury Investor Relations and Tax. Please go ahead.

Good morning, and thank you for joining our conference call to discuss Modine's fourth quarter and full year fiscal 2021 results. I'm joined on this call by Neil Brinker, our President and Chief Executive Officer, and Nicholas Morelli, our Executive Vice President and Chief Financial Officer. We will be using slides with today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted in the investor relations section of our website, modeen.com. On slide two is 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's my pleasure to turn the call over to Neil.

Thank you, Kathy, and good morning, everyone. Before discussing the quarter and four-year results, I would like to reflect on some of our accomplishments this past year and give a quick update on some of our other strategic initiatives. This has been a challenging year for Modine to say the least, but I'm very proud of the resilience of this organization and the ability of this team to deliver on commitments under less than ideal circumstances. We started the year responding to the initial impacts of the pandemic, temporarily shutting down plants, sending employees home to shelter in place, from taking actions to conserve cash. We implemented protocols to keep our employees safe and healthy, and our infection rate thankfully stayed very low. At the same time, we were focusing on how to keep our automotive strategy moving forward. We found a way, and were able to reach agreements with two separate buyers. Last October, we announced the sale of our liquid-cooled automotive business to Dana. And then in February, we announced that we had reached an agreement for the sale of our Austrian air-cooled automotive plant. We have previously stated that we expected both transactions to close in the first half of this year. I'm pleased to announce that we closed on the sale of the Austrian facility at the end of April, completing that transaction. The sale of that facility drives significant value, allowing us to avoid operating losses, capital expenditures, and future restructuring expenses. The regulatory process for the pending sale of the liquid-cooled automotive business is taking longer than we originally expected. We are currently working jointly with the buyer through this process. As a result, we aren't able to provide any guarantees regarding the timing or outcome. Over the past few months, I've been able to visit most of our North American plants and facilities. I must say that I was impressed by the strength of our operational and technical know-how. We are experienced operators who thrive on challenges presented by our customers and are ready and willing to overcome the obstacles inherent in being a global company. But I also see a great deal of opportunity for change. First and foremost, we need to reduce complexity. To accomplish this, we will adjust our organizational structure to align around market verticals. The goal is to improve our key account and channel management, accelerate decision-making, and unleash the entrepreneurial spirit. By getting the right people and the right roles and improving our commercial acumen, we will be able to quickly deliver the systems, products, and solutions valued by our customers. That is the vision for the future. But we're still in the early stages of this transformation. We have gathered the data and are working through this segmentation process, which means getting a better understanding of our revenue and profitability by product and by customer. The early result of this process is very encouraging. As we reduce complexity, we will focus our resources on our key priorities where we have the greatest opportunity to unlock value. One of our priorities in building HVAC segment is to expand our presence in the data center markets, and our plan to approach this market is underway. Using 8020, we are analyzing the data and building a plan from both a commercial and operational perspective. As a reminder, we are combining the two separate data center teams that previously existed in the CIS and building HVAC segment under the leadership of our building HVAC business unit. On the commercial side, we are using this organization to leverage the recent success with global co-location customers in the UK to build our North America business. We are evolving our organizational structure and key account management process to make sure that we are pursuing growth with our best opportunities. On the operations side, we continue to work on the production expansion of chillers in the US and computer room air handlers in Spain, increasing our global capacity for these products as required to support our growth strategy. As we expand and consolidate our manufacturing operations for data center products, we will shift reporting lines and segment boundaries accordingly. For example, we will shift our plant in Spain from the CIS segment to the building HVAC segment in our second fiscal quarter beginning July 1st. We are also reviewing and analyzing the results for our CIS and HPE segments. In HPE, we continue to believe that our greatest opportunity for higher returns are cooling systems for electric vehicles. We already have advanced technology for buses and specialty vehicles and are pursuing and winning business for delivery van cooling modules. In CIS, we continue to work on growing share by providing our customers with alternative refrigerants for coils, including CO2 gas coolers. This is a particularly attractive solution for food retailers that are looking for more environmentally friendly refrigerants that are non-toxic and non-flammable. In addition to investing in these rapidly growing segments of our markets, we will continue to simultaneously work on simplifying and improving the profitability of our core CIS and HPE businesses. We have a great deal of work ahead of us, but I'm encouraged by what I see. Now let's cover our fourth quarter segment results on page four. The building HVAC segment had another strong quarter with sales up 22% from the prior year and adjusted EBITDA up 23%. This was driven by a significant increase in data center product sales in the UK and higher heating product sales in North America. Both of these markets are areas of focus for us, and we expect strong growth trends to continue. Our data center business in the UK finished strong with sales up 50% in the fourth quarter and up nearly 40% for the year. We expect similar levels of growth in fiscal 22 as we continue to win market share and grow faster than the market. Our heating markets were strong this year and we were able to capture that growth. We were also able to grow market share due to product availability and lead times. We expect these markets to remain strong with potential sales growth of about 10% in fiscal 22. In addition, the market demand in the U.S. and Canada for ventilation products is very high, as we are beginning to see U.S. federal stimulus money making its way through the system fund projects that improve indoor air quality, especially in schools. This creates a great opportunity for us. Our products directly target these markets and address the growing need for improved air quality in school buildings. Please turn to page five. CIS sales were down 3% from the prior year, even though there was a favorable currency impact. This was primarily due to lower data center sales consistent with prior quarters. This quarter's data center sales were down 19 million compared to the prior year. Adjusted EBITDA was down 3.4 million. Similar to revenue, nearly all of the earnings decline was due to the lower data center sales in this segment. As we have mentioned in the past, our data center sales in CIS consist of both coils sold to OEMs that serve the data center markets and cooler sales to a large hyperscaler customer. We expect these cooler sales to have a stable run rate in fiscal 22 at a similar level to fiscal 21. However, as I mentioned previously, we expect overall data center sales to increase significantly in fiscal 22, largely due to the growth in chillers and air handlers. We are using 8020 to help reassess our strategy in this area, particularly in light of the high level of volatility we have recently experienced. The data will help us make decisions to better focus our commercial and operational resources where we can achieve the greatest return. We have great opportunities to enhance and improve the way we do business in the CIS segment, and I have confidence that we can not only return to growth in fiscal 22, but also improve our margins. This will be in part driven by a continued recovery in the global HVAC and refrigeration markets where we are seeing some pent-up post-COVID demand and low levels of field inventory. We will continue to deliver while dealing with shortages for both labor and materials, commodity cost inflation, and logistics constraints. We are planning to recover the material cost increases through price pass-throughs and surcharges for aluminum, steel, and lumber. Please turn to page six. Sales in the HPE segment were up 17% from the prior year, with higher sales to off-highway and truck customers as markets continue to stabilize. Adjusted EBITDA was up 16% despite the negative impact of higher material costs and tariffs on imported materials. We are expecting this trend to continue into fiscal 22 with double-digit market improvements in North America and Europe. We continue to operate amid the unfortunate COVID crisis in India, and are prioritizing shipments to customers where necessary. As always, the health and safety of our workforce remains a top priority. From a supply chain standpoint, we are dealing with issues on multiple fronts. We are managing procurement and logistic challenges for castings, resins, and metals, while working to minimize the impact to our customers and manage cost increases. Not only do we have increases related to material costs, but also logistics and freight. Overall, we expect solid sales growth and conversion this year despite these challenges. Please turn to page seven, and I'll shift to the automotive segment. Sales were up 7%, but down 1% on a constant currency basis driven by a lower market demand in North America, partially offset by higher sales in Asia. Adjusted EBITDA for the segment was 5.9 million, up 11% from the prior year, also due to positive currency impacts. We expect lower sales in our automotive segment compared to the prior year, primarily due to the sale of the Austrian air-cooled automotive business. Excluding that impact, we expect market recovery in the European region, partially offset by lower sales in North America and Asia. With that, I'll turn it over to Mick to review the total company financial results.