On this page of StockholderLetter.com we present the 7/7/2023 shareholder letter from MODINE MANUFACTURING CO — ticker symbol MOD. Reading current and past MOD letters to shareholders can bring important insights into the investment thesis.
A WORLD OF DIFFERENCE 2 0 2 3 A N N U A L R E P O R T 20 23
A YEAR OF TRANSFORMATION A world of difference It started with a question: how can we leverage our rich heritage of engineering and innovation to contribute to building a cleaner, healthier world? That question put everything into focus. It became our purpose, our North Star, in everything we do. We realized that if we wanted to have a lasting impact to deliver products that made a difference in the lives of millions we needed to change. And change we did. In scal 2023, we embarked on a transformation journey to revolutionize the way we did business. We began rolling out 80/20 principles across the company, simpli ed our organizational structure, and empowered our teams to make bold decisions about the products and markets they served. Following a year of operating with a new mindset and organizational structure, we re living up to our legacy of providing our customers and communities with innovative engineering solutions that improve air quality and conserve natural resources. We ve seen a world of difference within our walls, and our products are making a difference in the world outside them.
NET SALES (IN MILLIONS) $2,500 A better business, by the numbers 2,000 1,500 1,000 500 0 2019 2020 2021 2022 2023 ADJUSTED EARNINGS PER SHARE $2.00 1.50 1.00 .50 0 2019 2020 2021 2022 2023 FISCAL YEARS ENDED MARCH 31 2022 2023 $ 2,050 $ 2,298 Adjusted EBITDA $ 159 $ 212 Adjusted Earnings Per Share $ 1.23 $ 1.95 $ (29) $ 57 $ 333 $ 286 Net Sales Free Cash Flow Net Debt (Dollars in millions, except per share amounts.) Adjusted EBITDA and adjusted earnings per share exclude restructuring expenses, impairment charges or reversals, strategic reorganization costs and certain other gains or charges. In addition, adjusted earnings per share excludes the impact of income tax charges or bene ts related to valuation allowances. Free cash ow represents net cash provided by operating activities less expenditures for property, plant and equipment. Net debt is total debt less cash and cash equivalents.
DEAR SHAREHOLDERS, Having just completed my second full scal year at Modine, I am pleased support the expansion of their data center operations in Northern to report that the transformation of our business is well underway Virginia. Bringing our chiller product to North America was an and rmly on track. Over the past two years, we have focused our important step, allowing us to provide a complete system solution organization by simplifying and segmenting the business, building our to our colocation customers, expand partnerships and broaden the leadership team and decentralizing operations. In the rst quarter of scope of our capabilities. Sales of our data center products increased scal 2023, we of cially transitioned to our two-segment structure by 60% this past year, and we are expecting further double-digit gains Performance Technologies and Climate Solutions. This was a critical in scal 2024. step on our journey and set us on the path to success. Our HVAC & Refrigeration business also contributed to the success But that was only the beginning. We held our rst investor and analyst of the Climate Solutions segment. The Indoor Air Quality business day at the New York Stock Exchange in June 2022. At that event, we continued its focus on the K-12 schools market in North America, introduced our purpose statement: Engineering a Cleaner, Healthier bene ting from the signi cant funding available from various COVID- World . This statement not only captures what we are doing today, related relief measures. The Coolers & Power-Process business but also how we will set our priorities for the future. We also presented signi cantly improved margin this year. It is currently focused on our strategy for transforming our business along with nancial goals to product development, including expanding our range of high- measure our success. Our objectives are clear and our strategies are performing coolers that use natural refrigerants with low global de ned. This year was about execution, getting out to a strong start and warming potential (GWP). Our commitment to developing new products exceeding expectations. and technologies will allow our customers to meet new and future regulatory requirements, including those that require the elimination THE YEAR IN REVIEW of hydro uorocarbons (HFCs). Fiscal 2023 sales were $2.3 billion, a 12% increase from the prior year. We reported a record-breaking adjusted EBITDA of $212 million, The Heat Transfer Products (HTP) business grew in both revenue and a 34% increase from the prior year, and free cash ow of $57 million. margins this past year, clearly bene ting from the application of 80/20 principles to their business. When setting strategies for the business Our Climate Solutions segment had an outstanding year. Last fall, verticals, HTP was designated as Improve because their margins were we opened our new chiller plant in Rockbridge, Virginia, complete below target. The team took this challenge seriously by aggressively with state-of-the art testing facilities, to grow our Data Center business. simplifying their business and simultaneously implementing commercial We also announced that we won a signi cant order with Corscale to strategies to improve pro tability. HTP has now earned the right to grow.
We plan to invest in additional manufacturing capacity to support A WORLD OF DIFFERENCE regulation-driven heat pump demand in Europe where we provide The theme of our annual report this year is A World of Difference. coils to major suppliers. The turnaround of this business clearly This has two meanings. First, the work we have done these past two demonstrates the power of 80/20 to provide the focus needed years is creating a world of difference for our company. We have to achieve pro table growth. reorganized and built a high-performing organization focused on the markets and strategies needed to succeed. We launched and have The Performance Technologies segment had a good year, with a 12% embraced 80/20, making it the governing philosophy for everything increase in revenues. They had a solid increase in adjusted EBITDA we do. We are well along on this journey in the Climate Solutions margins and are tracking toward their targets. The segment s key success segment, which is clearly ahead of schedule and exceeding our has been a change in mindset: understanding how to better prioritize expectations. In Performance Technologies, we are still in the early opportunities. Historically, we have pursued programs with high capital phases of implementation and doing the hard work necessary to requirements and thin margins to maintain revenue growth and cover plant reach our goals. All of these activities allow us to accelerate pro table overhead. We are now focused on margin improvement and are shifting growth and improve our margins and cash ow so that we can continue our mix of business by promoting growth of our advantaged electric investing in the technologies that further our purpose. vehicle thermal systems. Modine s EVantage brand of battery thermal management systems and electronic cooling packages provide customers The second meaning intersects with our purpose of Engineering with a complete thermal solution that can be quickly adopted to various a Cleaner, Healthier World . We are making a world of difference for applications, helping our customers convert their vehicles to electric our customers with products that are quietly and powerfully improving in response to market demand. We ve had a good deal of commercial our lives. We are delivering customer-centric solutions that solve success with this product line, winning nine new production orders this complex problems while supporting health, decarbonization and past year with an incremental $80 million of peak revenue for these orders. resource conservation. Our technology-driven culture has resulted in We currently have 21 total production orders with an expected total peak numerous breakthroughs throughout our history and we are harnessing volume of more than $140 million with margins at or above our target. that expertise in new ways to serve our customers. The focus in our Air-Cooled and Liquid-Cooled Applications businesses Our CO2 gas cooler product range is supporting the conversion to has been on increasing gross margin and simplifying and improving environmentally friendly refrigerants and has allowed the replacement business processes under our control. We launched 80/20 in these of over 10 million pounds of high-GWP synthetic refrigerants. Our school verticals last fall and have made solid progress toward our objectives. line of indoor ventilation products provides one million cubic feet of fresh These businesses typically operate under long-term contracts that air per minute to classrooms in North America. Our thermal management contain pass-through provisions that adjust pricing for changes in metals systems for electric vehicles enable longer battery range per charge, prices. The team has closely examined our operations to determine reducing power consumption while eliminating vehicular emissions. how other rising prices have impacted our cost structure and have The rapid digitization of the world has put strains on resources like energy implemented action plans to improve gross margin. In addition, we have and water, so our data center customers have embraced our free cooling strengthened lters on new quotations to ensure that future program chillers that use less energy and water while maintaining a cool operating wins will meet or exceed pro tability targets. We have a heavy lift in environment. We estimate that 389 million gallons of water were saved these businesses but our team is actively engaged and making needed by deploying Modine water-side optimization systems in data centers in improvements to reach our goals. 2021 alone. TRANSFORMING FOR A SUSTAINABLE FUTURE The list of Modine solutions that improve our lives is too long to mention. Modine s transformation is creating a sustainable future for our But rest assured: whether it s the transition to heat pump technology, employees. At the same time, our products are creating a more the need for hospitals to have a reliable back-up power source, or ensuring sustainable future for our planet. We are applying our long history the food on your table has been kept at the proper temperature while of innovation and engineering know-how to improve indoor air quality being grown, stored or transported, Modine is making a world of in our schools, reduce water and energy consumption in various HVAC difference in our lives every day. and refrigeration applications, convert to more environmentally friendly refrigerants and lower harmful vehicle emissions while enabling the Thank you for your ongoing support of Modine. conversion to cleaner-running electric vehicles. Our purpose Engineering a Cleaner, Healthier World drives our decisions as we pivot certain Sincerely, portions of our business away from legacy technologies and invest in new technologies that will lead us toward this brighter future. Our goal is to exceed expectations as we drive forward, creating a new Modine that both celebrates our long history while rapidly transforming in response to market and regulatory drivers. This bene ts all our stakeholders: our employees, customers, shareholders and communities. Neil D. Brinker, President and Chief Executive Of cer
 • shareholder letter icon 7/7/2023 Letter Continued (Full PDF)
 • stockholder letter icon 7/1/2024 MOD Stockholder Letter
 • stockholder letter icon 7/1/2025 MOD Stockholder Letter
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 • Benford's Law Stocks icon MOD Benford's Law Stock Score = 85


MOD 7/7/2023 Shareholder/Stockholder Letter Transcript:

A WORLD OF DIFFERENCE
2 0 2 3
A N N U A L
R E P O R T
20
23

A YEAR OF
TRANSFORMATION
A world of difference
It started with a question: how can we leverage our rich heritage
of engineering and innovation to contribute to building a cleaner,
healthier world? That question put everything into focus.
It became our purpose, our North Star, in everything we do.
We realized that if we wanted to have a lasting impact    
to deliver products that made a difference in the lives of millions    
we needed to change. And change we did. In    scal 2023,
we embarked on a transformation journey to revolutionize
the way we did business. We began rolling out 80/20 principles
across the company, simpli   ed our organizational structure,
and empowered our teams to make bold decisions about
the products and markets they served.
Following a year of operating with a new mindset and
organizational structure, we   re living up to our legacy of
providing our customers and communities with innovative
engineering solutions that improve air quality and
conserve natural resources.
We   ve seen a world of difference within our walls,
and our products are making a difference in the
world outside them.

NET SALES (IN MILLIONS)
$2,500
A better
business,
by the
numbers
2,000
1,500
1,000
500
0
2019
2020
2021
2022
2023
ADJUSTED EARNINGS PER SHARE
$2.00
1.50
1.00
.50
0
2019
2020
2021
2022
2023
FISCAL YEARS ENDED MARCH 31
2022
2023
$ 2,050
$ 2,298
Adjusted EBITDA
$ 159
$ 212
Adjusted Earnings Per Share
$ 1.23
$ 1.95
$ (29)
$ 57
$ 333
$ 286
Net Sales
Free Cash Flow
Net Debt
(Dollars in millions, except per share amounts.)
Adjusted EBITDA and adjusted earnings per share exclude restructuring expenses,
impairment charges or reversals, strategic reorganization costs and certain other gains
or charges. In addition, adjusted earnings per share excludes the impact of income tax
charges or bene   ts related to valuation allowances.
Free cash    ow represents net cash provided by operating activities less expenditures
for property, plant and equipment. Net debt is total debt less cash and cash equivalents.

DEAR SHAREHOLDERS,
Having just completed my second full    scal year at Modine, I am pleased
support the expansion of their data center operations in Northern
to report that the transformation of our business is well underway
Virginia. Bringing our chiller product to North America was an
and    rmly on track. Over the past two years, we have focused our
important step, allowing us to provide a complete system solution
organization by simplifying and segmenting the business, building our
to our colocation customers, expand partnerships and broaden the
leadership team and decentralizing operations. In the    rst quarter of
scope of our capabilities. Sales of our data center products increased
   scal 2023, we of   cially transitioned to our two-segment structure    
by 60% this past year, and we are expecting further double-digit gains
Performance Technologies and Climate Solutions. This was a critical
in    scal 2024.
step on our journey and set us on the path to success.
Our HVAC & Refrigeration business also contributed to the success
But that was only the beginning. We held our    rst investor and analyst
of the Climate Solutions segment. The Indoor Air Quality business
day at the New York Stock Exchange in June 2022. At that event, we
continued its focus on the K-12 schools market in North America,
introduced our purpose statement: Engineering a Cleaner, Healthier
bene   ting from the signi   cant funding available from various COVID-
World   . This statement not only captures what we are doing today,
related relief measures. The Coolers & Power-Process business
but also how we will set our priorities for the future. We also presented
signi   cantly improved margin this year. It is currently focused on
our strategy for transforming our business along with    nancial goals to
product development, including expanding our range of high-
measure our success. Our objectives are clear and our strategies are
performing coolers that use natural refrigerants with low global
de   ned. This year was about execution, getting out to a strong start and
warming potential (GWP). Our commitment to developing new products
exceeding expectations.
and technologies will allow our customers to meet new and future
regulatory requirements, including those that require the elimination
THE YEAR IN REVIEW
of hydro   uorocarbons (HFCs).
Fiscal 2023 sales were $2.3 billion, a 12% increase from the prior year.
We reported a record-breaking adjusted EBITDA of $212 million,
The Heat Transfer Products (HTP) business grew in both revenue and
a 34% increase from the prior year, and free cash    ow of $57 million.
margins this past year, clearly bene   ting from the application of 80/20
principles to their business. When setting strategies for the business
Our Climate Solutions segment had an outstanding year. Last fall,
verticals, HTP was designated as    Improve    because their margins were
we opened our new chiller plant in Rockbridge, Virginia, complete
below target. The team took this challenge seriously by aggressively
with state-of-the art testing facilities, to grow our Data Center business.
simplifying their business and simultaneously implementing commercial
We also announced that we won a signi   cant order with Corscale to
strategies to improve pro   tability. HTP has now earned the right to grow.

We plan to invest in additional manufacturing capacity to support
A WORLD OF DIFFERENCE
regulation-driven heat pump demand in Europe where we provide
The theme of our annual report this year is    A World of Difference.   
coils to major suppliers. The turnaround of this business clearly
This has two meanings. First, the work we have done these past two
demonstrates the power of 80/20 to provide the focus needed
years is creating a world of difference for our company. We have
to achieve pro   table growth.
reorganized and built a high-performing organization focused on the
markets and strategies needed to succeed. We launched and have
The Performance Technologies segment had a good year, with a 12%
embraced 80/20, making it the governing philosophy for everything
increase in revenues. They had a solid increase in adjusted EBITDA
we do. We are well along on this journey in the Climate Solutions
margins and are tracking toward their targets. The segment   s key success
segment, which is clearly ahead of schedule and exceeding our
has been a change in mindset: understanding how to better prioritize
expectations. In Performance Technologies, we are still in the early
opportunities. Historically, we have pursued programs with high capital
phases of implementation and doing the hard work necessary to
requirements and thin margins to maintain revenue growth and cover plant
reach our goals. All of these activities allow us to accelerate pro   table
overhead. We are now focused on margin improvement and are shifting
growth and improve our margins and cash    ow so that we can continue
our mix of business by promoting growth of our advantaged electric
investing in the technologies that further our purpose.
vehicle thermal systems. Modine   s EVantage    brand of battery thermal
management systems and electronic cooling packages provide customers
The second meaning intersects with our purpose of Engineering
with a complete thermal solution that can be quickly adopted to various
a Cleaner, Healthier World   . We are making a world of difference for
applications, helping our customers convert their vehicles to electric
our customers with products that are quietly and powerfully improving
in response to market demand. We   ve had a good deal of commercial
our lives. We are delivering customer-centric solutions that solve
success with this product line, winning nine new production orders this
complex problems while supporting health, decarbonization and
past year with an incremental $80 million of peak revenue for these orders.
resource conservation. Our technology-driven culture has resulted in
We currently have 21 total production orders with an expected total peak
numerous breakthroughs throughout our history and we are harnessing
volume of more than $140 million with margins at or above our target.
that expertise in new ways to serve our customers.
The focus in our Air-Cooled and Liquid-Cooled Applications businesses
Our CO2 gas cooler product range is supporting the conversion to
has been on increasing gross margin and simplifying and improving
environmentally friendly refrigerants and has allowed the replacement
business processes under our control. We launched 80/20 in these
of over 10 million pounds of high-GWP synthetic refrigerants. Our school
verticals last fall and have made solid progress toward our objectives.
line of indoor ventilation products provides one million cubic feet of fresh
These businesses typically operate under long-term contracts that
air per minute to classrooms in North America. Our thermal management
contain pass-through provisions that adjust pricing for changes in metals
systems for electric vehicles enable longer battery range per charge,
prices. The team has closely examined our operations to determine
reducing power consumption while eliminating vehicular emissions.
how other rising prices have impacted our cost structure and have
The rapid digitization of the world has put strains on resources like energy
implemented action plans to improve gross margin. In addition, we have
and water, so our data center customers have embraced our free cooling
strengthened    lters on new quotations to ensure that future program
chillers that use less energy and water while maintaining a cool operating
wins will meet or exceed pro   tability targets. We have a heavy lift in
environment. We estimate that 389 million gallons of water were saved
these businesses but our team is actively engaged and making needed
by deploying Modine water-side optimization systems in data centers in
improvements to reach our goals.
2021 alone.
TRANSFORMING FOR A SUSTAINABLE FUTURE
The list of Modine solutions that improve our lives is too long to mention.
Modine   s transformation is creating a sustainable future for our
But rest assured: whether it   s the transition to heat pump technology,
employees. At the same time, our products are creating a more
the need for hospitals to have a reliable back-up power source, or ensuring
sustainable future for our planet. We are applying our long history
the food on your table has been kept at the proper temperature while
of innovation and engineering know-how to improve indoor air quality
being grown, stored or transported, Modine is making a world of
in our schools, reduce water and energy consumption in various HVAC
difference in our lives every day.
and refrigeration applications, convert to more environmentally friendly
refrigerants and lower harmful vehicle emissions while enabling the
Thank you for your ongoing support of Modine.
conversion to cleaner-running electric vehicles. Our purpose     Engineering
a Cleaner, Healthier World        drives our decisions as we pivot certain
Sincerely,
portions of our business away from legacy technologies and invest in
new technologies that will lead us toward this brighter future. Our goal is
to exceed expectations as we drive forward, creating a new Modine that
both celebrates our long history while rapidly transforming in response
to market and regulatory drivers. This bene   ts all our stakeholders:
our employees, customers, shareholders and communities.
Neil D. Brinker, President and Chief Executive Of   cer


shareholder letter icon 7/7/2023 Letter Continued (Full PDF)
 

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