Good morning, ladies and gentlemen and welcome to the Modine Manufacturing Company’s First Quarter Fiscal 2015 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, Treasurer and Investor Relations.

Thank you for joining us today for Modine’s first quarter fiscal 2015 earnings call. With me today are Modine’s President and CEO, Tom Burke; and Mick Lucareli, our Vice President, Finance and Chief Financial Officer. We will be using slides for today’s presentation. Those links are available through both the webcast link, as well as a PDF file posted on the Investor Relations section of our company website modine.com. Also, should you need to exit the call prior to its conclusion a replay will be available through our website beginning approximately two hours after the call concludes. On Slide 2 is an outline for today’s call. Tom and Mick will provide comments on our first quarter results and review our revenue and earnings guidance for fiscal ‘15. At the end of the call, there will be a question-and-answer session. On Slide 3 is our notice regarding forward-looking statements. I wanted to remind you that this call may contain forward-looking statements as outlined in today’s 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 Tom Burke.

Thank you, Kathy, and good morning, everyone. I am pleased to report that we delivered adjusted earnings per share of $0.30 for the quarter, which was $0.03 higher than the first quarter last year. The revenues were up 4%, with sales growth in each of our segments other than South America, where we continue to see year-over-year sales declines due to weak economic conditions. We are benefiting from a stronger commercial vehicle market in North America and the European commercial vehicle markets appear to be in line with expectations following the pre-buy ahead for the Euro 6 changeover. In Asia, we are continuing to see weakness in the excavator market. The new product launches are contributing to sales growth in this segment. In addition, our Barkell acquisition and continued strength in North America heating added to sales growth in our building HVAC segment. Mick will provide some more details on our financial results in a few minutes, but first I would like to comment briefly on our segment results and provide an update on our market outlook for fiscal ‘15. Turning to Page 6, sales increased 2% in the North America segment, with higher sales commercial vehicle customers offsetting a decrease in sales to off-highway customers. We are benefiting from market growth in the North America commercial vehicle market, which represents about a third of its segment’s business. We also benefited from growth in the power sports market, which includes motorcycles and small off-road vehicle, recreational vehicles. We are particularly pleased with this expansion into adjacent markets. This is a great example of our building block product strategy, where we utilized existing products and platforms to expand our presence in new markets and with new applications. We continue to see weakness in certain sectors of the off-highway market, including mining…

Thanks, Tom and good morning. Please turn to Slide 12. As Tom mentioned, we had a solid quarter with a 4% increase in sales and generally in line with our outlook. This includes a favorable FX impact of $6.8 million. As a result, our core sales were up approximately 3%. In the quarter, our gross margin increased to 17.2%. The improvement is due to higher sales volumes, favorable materials and lower depreciation expense. Please note that in the prior year, we recorded $2.2 million of accelerated depreciation. We benefited in the quarter from a $2.6 million gain, recorded an SG&A from business interruption insurance related to the Airedale fire. Also note we have recorded $800,000 of restructuring expenses during the quarter, $500,000 is for the severance charges in Brazil, the remaining $300,000 relates to the consolidation of manufacturing facilities in Germany. As anticipated, we had a $1.8 million increase in our income tax expense this quarter. We explained last quarter that as a result of reversing our valuation allowance against our U.S. deferred tax assets, we will now record tax expense on income generated in the U.S. So, adjusted operating income of $24.9 million is up $3.2 million or 15% versus the prior year. We have reported GAAP EPS of $0.28 in the quarter and adjusted EPS of $0.30. Turning to Slide 13, free cash flow was negative in the quarter, but which is not uncommon in our first quarter. Our operating cash flow was negatively impacted by approximately $10 million of incentive compensation payments tied to fiscal 2014 performance. We collected about $3 million less for tooling sales in Europe. Also we have some temporary working capital built ahead of production transfers in North America and Europe and some higher inventory levels in Brazil resulting from the drop in…

Thanks, Mick. We are off to a strong start in fiscal 2015 and I am happy with how the company is performing despite the end market challenges that Mick just described. I am particularly pleased with the first quarter performance in Asia, the management of the plant consolidation in Germany, and the speed at which Brazilian operations responded to the market downturn by taking measures to rightsize our cost base. And with that, we would like to take your questions.

(Operator Instructions) Our first question comes from Robert Kosowsky of Sidoti. Your line is open.

Hi, good morning, everybody. How are you doing?

Good morning.

Doing alright. Major question is just on SG&A, because if you analyzed the first quarter, it comes out about $170 million and you are looking for $190 million to $200 million, I am just wondering how that builds over the course of the year. Is it at a stair step all to get to that one kind of quarterly level or are we seeing a little of bit of build in September, a little build in December and then March is going to be the highest, just how does the cadence work out on that?

Yes. The way we see it shaking out for the remainder of the years will have us a stair step into Q2 and then more level out in the remaining three quarters of Q2, Q3 and Q4 will be similar. Really in Q1, we had one of the things we need to adjust for is the gain on the insurance low loss profit shows up as a credit to SG&A. So, really our base SG&A was about $2.6 million higher and then the other factor is beginning around Q2 is really where most of our global salary adjustments take place. It’s the way our system is setup. So, if you kind of add back to $2.6 million in Q1 and then factor in beginning Q2 in July is our – well lot of our salary increases that will explain the change in our run rate.

Okay, that’s helpful. And then I guess within South America, can you talk about why aftermarket may have been down because it seems like car sales have really pulled in a little bit certain aftermarket might have held up a little bit better and just kind of what you are seeing there on that aftermarket slice of the business?

I think we said the aftermarket is going to stay relevant – relatively flattish for the fiscal year. And there are just I think unique dynamics in South America aren’t all understood, but right now we think that the flat performances where we are looking might be down a little bit, but we are seeing as flat as first dynamic and we explained it before, it was the aftermarket sales other the demand we see directly, there is no change in our structure and our distribution or anything that’s affecting that.

Okay. And then finally in Asia, I am just curious what – obviously it’s been a weak market for construction equipment, I am wondering what you think the market may have been down versus what your growth with some of the new products might have been. So for instance, without the new products $18.3 million last year, would you have actually been down, say 5%, 10% but you are actually added $3 million, $4 million of new business, is that the way to look at it?

Yes. That’s exactly the way to look at it. I don’t have the swing in front of me, but absent of the new launches with that heavy mix of excavator sales, we would have been down most likely on a year-over-year basis.

If you remember last quarter, we talked about the announcement in China about not stimulating the market with more infrastructure investment and that really kind of tapered down the excavator market in China both on global OEs that we support and domestic as well as exports out of Korea. So, that clearly has been an impact on our markets in this new balance of diversification investment in the automotive side. It’s going to be very helpful to balance out that.

Okay. And then finally, could you maybe elaborate a little bit more about how you are seeing the productivity in Europe, especially in the new products that are coming on anything issue few quarters ago, because the 14% gross margin was a nice step up versus last year. And I am just wondering sustainability of 14% and if you get Europe chuck little bit second half of the year, do you see a chance to get into that 15% that you are shooting for, for that segment?

Yes. Well, clearly where we see the trend going in the right direction following the launch of the origami radiator for the Euro 6 product. Also our other launches are Origami condenser are on track with what we wanted to be, but the overcoming some of the process issues that we had are well on track as I mentioned. And we are seeing significant improvements. We have got ways to go yet to replace some of our automation assumptions. So, clearly, we see they are all going in the right direction and of course the consolidation of our footprint of the two plants coming together in Germany is going to take place over the next six months. We are getting through all that. We definitely see pathway forward to get our gross margins towards our target.

Okay. But you see with where we are right now it’s just 14% as a good kind of base or benchmark to build off, so you should see wider margins going forward, especially with truck coming back a little bit?

Yes, this is Mick speaking. I think that we are kind of in the range here until it’s a good number to work with and there will be a little bit of fluctuation depending on the quarter with, if there are summer shutdowns and where we are at with the moves, but really until we get through this final plant consolidation and everything is into the one plant and it’s been leveled out. I think well, we really won’t have a view and more confidence about moving above the ‘14 until that’s all done.

Okay, so, just kind of where we are right now and then hopefully see another stair step I guess few quarters down the road?

Right.

Thank you very much, and good luck with the back half of the year.

Thank you.

Thanks.

Thank you. Our next question comes from David Likar of Baird. Your line is open.

Hi, guys. This is Joe (indiscernible) for David.

Hey, Joe.

Hey, Joe.

I had a handful of questions on Europe, so first of all, it’s nice to see the Euro 6 volumes finally coming through, if I think of the 20% growth in your truck business in Europe, I think the rest of the business has to be down 5% or so to kind of hit the 3% growth in the quarter. Am I in the ballpark and then how much of that 5% decline is just purely due to BMW wind downs?

Yes. When we look at the increase in the quarter, Joe, we see about in just in dollars, truck was up about 11 millionish in sales, then BMW was down about $5.5 million. So, then you have got the balance of really the base automotive business being the difference there.

Okay, got it.

So, I think your math, looking at the percentages roughly is holding. So, the truck was up to 20%, BMW down $5.5 million, and then our automotive component business offset most of the BMW loss.

Okay. Just on kind of the market development in the quarter, there has been some tweaking to the forecast by your OE customers and it seems like a lot of it has to do with just geopolitical conditions in the East. If I think about your business and how that might skew more towards the West with Euro 6 launches, are you kind of looking at your business plan for the remainder of the year as mostly on track and unchanged or does the East begin to take the toll at some point?

Right now, we are not seeing any impact, Joe. So, we are kind of the guidance we gave is against, let’s say, taking everything into account that we see it thus far. So, as far as directly to the East, we have a very small exposure to Russia markets with a small facility that we supply to one specific customer in Russia, but again that’s small in numbers and we are not really seeing any impact. We are doing all the right things to ensure that we mitigate any risk there, but impact wise, we are not seeing anything yet on that because the numbers are so small. In the western part of the region, if things, automotive sales like we said reached up to 5%, which is in line in auto premium, auto sales continue to be a big important part of our business in the growing commercial truck, which is coming up from the depth of the post/pre-buy. So, right now, I guess longwinded answer is no, not really seeing adjustment yet at this point.

Okay, now that makes sense. Just wanted to double check on that, I will maybe switch geographies and focus on Asia. You have talked for quite sometime that Asia becomes profitable at $80 million in revenues and this quarter proves you weren’t lying about that target? Just if you grow on top of your current run rates, which are at that $80 million revenue level, what sort of profitability is conceivable maybe as the year moves on in longer term kind of a mid-term outlook?

I will give a general top line kind of look and let Mick to talk about how they converge, but we are still in the – what I would say the bottom end of our assumption of performance on the extra bit of market in Asia. So, we see upside from here, if we see some improvement in the back half of the year we are somewhat projecting and clearly with the launches and the launch activity is significant both in China and in India, as I mentioned with the automotive business that we are launching on the oil cooler side with nearly $2.5 million oil coolers launched between now and the next 18 months. So, we are going to see – see that improve with time, but as far as the impact of that, I’d let Mick respond to that.

Yes. And Joe, you guys are always pushing us down on that it’s $85 million…

Sorry.

But no, you are right, we couldn’t be happier with the quarter and the gross margin was actually really surprising, surprisingly good in the quarter. So, really what I would say as we are bouncing right here at this almost $21 million in the quarter, right around that breakeven point, it was a little bit stronger than we thought. So, what we are trying to say is definitely we have a little bit of mix going on Tom walked you through. We had a much more stable mature product line in off-highway as those sales are continuing to at least temporarily the markets are softening there. We are replacing it with our launch of our oil cooler automotive products, which are more on a ramp up mode. We won’t see the same margin exactly offset that’s a challenge in the short-term, but we are going to be bouncing around this breakeven point at this call it $20 million, $21 million a quarter range. Longer term anything when we get over the $80 million, $85 million range, I think you could think about this business converting at a 25% kind of earnings conversion we are going to convert nicely, because of all the fixed costs that are in place and also most of the SG&A has been in place there as well. So, the real question in the opportunity is once we get above $85 million we will really see nice earnings flow to the bottom line.

Now, it has been – I kind of worked there over the last few years, so it’s good to see the profits starting to come through. And then just one last one kind of a high level strategy question on some of these new product adjacencies, new market adjacencies, you have been exploring, it seems like more and more of these are popping up. Power Gen has been in result the last couple of quarters now it’s ATV is in motorcycles. Have you tried sizing what these adjacencies might add to the addressable market opportunity for Modine? And are there any sort of sales incentives – incentives for your sales team in place to maybe explore outside of the traditional OE targets or market verticals?

We’ll, it’s a great question. And we are spending a lot of time in this space, understanding these adjacent markets in the verticals that you described them. So, the size, the opportunity what I would say the market dynamics of what are the barriers that we need to either overcome or once where there protect for, so all that is going into play and looking as we really expand what we call our enduring goals effort to get above market growth in all of our segments. So, yes, we are spending a lot of time in that to be very diligent and I would say disciplined in how we evaluate that. The other thing that goes with that is leveraging what we call this building block strategy. It sounds quaint, but it’s quite frankly very powerful and we are making sure we leverage design platforms and assets that we have in place to pursue those opportunities. So, number one is leveraging an asset that we can double down on and it impacted is also very risk and a lot of risk mitigation side of that as far as developing new products in the markets. We know how they perform. Then your last part of your question is are we incentivizing? Well, I know we are not specifically incentivizing sales teams around that, but clearly we all understand that the long-term benefit of what that means for the company and those – all of us employees what it means to get that above market growth and striving for those enduring goals. So I think we are really getting that really deeply integrated into our strategies both at the corporate level and each of our segments understanding what the power it can provide for us on earnings growth.

Okay, great. I will leave at there. Congrats on a nice quarter.

Thank you. And our next question comes from Ryan (indiscernible) of Global Hunter Securities. Your line is open.

Hi guys. How are you doing?

Good.

Could you talk about what you guys are seeing in July on the heavy duty truck side, sorry if I missed it before?

In July on heavy duty truck I assume you mean North America.

Yes, North America.

Okay. We are seeing as we said we are projecting 15% to 20% upside for the balance of our fiscal year orders coming into our factories remain right on that track. We upped this from the last quarter so we are working – I think we are up 10% to 15% last quarter wrapping it to 15% to 20% so it’s an indication that July is strong it’s supporting that.

Okay. So do you see shipments increasing this quarter or are you looking more towards the back half?

We see shipments if orders EDI coming in this quarter present as we speak.

Okay. And then on Europe could you talk about automotive ex the things are going on at BMW that’s coming in relative to your expectations because I think over in the year you were pretty positive on the potential for auto?

Well, yes we are definitely – as an auto segment in Europe we are very bullish. We are bullish. We have got a very good what I would say customer base what we call the premium auto space with German OEs excluding BMW we are in a wind down. Mick mentioned the impact this year for the BMW wind out by $5.5 million we see I think that the year is going to be at $11 million right on plan which we are planning on but we see the automotive side on our components with oil coolers, condensers and the charger cooler clearly offsetting that to a degree going forward. So we are very bullish. What we are seeing also is with the Euro 6 trucks coming up and a 20% increase in sales that we are looking at is that diversification for Europe is starting to form a little bit. We used to be much heavier in automotive I think segment this quarter shows about 15% automotive segment – automotive percentage in our European segment that’s down from much higher levels of course we are pleased with that commercial truck diversification is working that way as well. So we will benefit from automotive but also the commercial truck diversification is working hard as to our plans.

And on the commercial side, you guys had strong sales growth there but the outlook is unchanged, could you talk about what you are seeing currently in July?

In Europe for commercial truck.

In Europe, yes.

Yes, was the question about HVAC or is that the question about vehicular HVAC?

Vehicular…

Yes. So we are showing down or flat 5% down for the balance of the year in commercial truck. Lot of that is driven because of the big spike that we had at the pre-buy in our third quarter last year, fourth quarter calendar year what we had a very high so if you adjust for that we are down below that because of that pre-buy. But we clearly see overall the increase of sales because of the high content in market share we have with the commercial vehicle market now. So we are positive with the trends that are going in a right direction and that was we are projecting down from last year, it’s actually sequential going forward we feel it’s going to be improving.

Okay. Alright. Thanks guys.

Thank you. I am showing no further questions at this time. I would like to turn the conference back to Ms. Kathy Powers.

Thank you. This concludes today’s call. Thank you for joining us this morning. And thank you for your interest in Modine. Bye-bye.