Good morning, ladies and gentlemen, and welcome to the Modine Manufacturing Company's First Quarter Fiscal 2017 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 2017 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 the 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 update on our Strengthen, Diversify & Grow strategic initiative and provide our revenue and earnings guidance for fiscal 2017. 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 want to remind you that 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 Tom Burke.

Thank you, Kathy and good morning everyone. On today's call I will discuss our first quarter results and provide an update on Strengthen, Diversify & Grow strategic transformation which we call SDG for short. After that Mick will provide a more detailed review of our consolidated financial results and walk you through our revenue and earnings guidance for fiscal 2017. I will then provide closing remarks prior to opening it up for questions. Despite a fairly challenging global economic environment sales in the first quarter were up 1% on a constant currency basis. Higher sales in Europe and Asia segments were partially offset by lower sales in the Americas segment which were negatively impacted by continued weakness in key end-markets in US and Brazil. Enhanced by the decisions under our SDG initiative, we saw gross margin improved by 130 basis points to 17.8% benefiting from improved plant operating performance, savings related to procurement initiatives and favorable material costs. Similarly, our adjusted operating income was up $17.4 million, up 23% from the prior year. Adjusted earnings per share were $0.21 for the quarter, up $0.07 or 50% from the prior year. Although our topline continues to be challenged by weaknesses in certain of our end markets, I’m pleased that our proactive initiatives are putting us in place to succeed and then we have once again delivered year-over-year earnings improvement. We are clearly seeing the benefits of the cost reductions realized from our strengthen initiatives while also spending significant resources on various growth opportunities that will help us achieve our goals of our diversify and grow initiatives. Now I'd like to brief review of the segment results. Turning to page six, sales for the America segment decreased 11% year over year on a constant currency basis, primarily due to continued weakness in…

Thanks Tom, and good morning, please turn to slide 12. Our first quarter sales increased slightly despite the fact that we continued to experience weakness in certain end markets. Sales increased 1% on a constant currency basis excluding a small unfavorable currency exchange impact of $1.6 million. Higher sales in Europe were driven by improvements in automotive and commercial vehicle markets. Sales in our Asia segment continue to increase due to higher launch volumes of our automotive engine product, these increases were mostly offset by continued weakness in global off-highway market and in the North American heavy duty commercial vehicle market. I am happy to report that our gross margin improved 130 basis points to 17.8% despite the relatively flat sales. This improvement was driven by lower commodity prices, improved planned operating performance and savings from our procurement initiatives. As Tom outlined, we are clearly seeing the benefit of our Strengthen, Diversify and Grow initiatives in the operating results. Moving on to SG&A, costs were higher than the prior year by $2 million or 4%. The increase was due to two items. First we incurred higher professional fees related to business development activities as we continue to pursue inorganic growth opportunities, in addition we also had higher employee benefit and incentive compensation expenses compared to the prior year. Also during the quarter, we recorded 2.3 million of restructuring expenses. The majority of these charges relate to employee severance, equipment transfer and plant consolidation costs in the Americas and Building HVAC segments. The bottom portion of the table shows these adjustments; as usual we've included a full reconciliation between our reported results and our adjusted operating results in the appendix. First quarter adjusted operating income of $17.4 million was up $3.2 million or 23% from last year. This was the result…

Thanks Mick. Overall, I'm pleased with our earnings improvement this quarter despite the continued market challenges in North America and Brazil. Our European business showed significant sales of earnings growth and our Asian segment continues to benefit from automotive oil cooler launches in China and new business opportunities for our new joint venture. We are focused on driving operational improvements in the UK and we’ll continue to work towards our savings goals from the various initiatives under our Strengthen, Diversify & Grow program. On top of this, we continue to devote a considerable amount of time and energy to achieving our growth and diversification objectives. I will close by recognizing that Modine recently celebrated an important milestone, our 100th anniversary. Relatively few companies can achieve this longevity and I'm honored that Modine is among them. It has been very rewarding for our management team to attend employee celebrations around the world. I'm very proud to be a part of an organization that has been in business for over a century. We’re all committed to setting this company up for the next century in business and we want to thank you for your continued interest in Modine. And with that, we will take your questions.

[Operator Instructions] Our first question is from Mike Shlisky of Seaport Global.

Good morning, guys. Nice quarter. Maybe, I’ll start with kind of news of the day here, the Class 8 orders for the month of July. I want to get your thoughts, since you’re the first company out there that’s speaking in a public forum this morning, pretty weak in July as you probably have heard, it’s been weak for most of the year. I guess, can you maybe tell us, perhaps since your last call in June, I'd see it really changed your overall outlook, but as soon as the last call in June, do you feel like your major OEM customers in North America have gotten any more cautious about their bill days or their outlook here?

No, our outlook is just as I described it at this point, although we just saw that data come in this morning as well overnight from the reports. So clearly that was a very weak July. So we are looking cautiously at our releases and will be in close contact with our customers going forward, as they see any adjustments that they may be doing as far as production changes, but as at this point, nothing to report that we've seen since our last report, Mike.

Okay. Great. Perhaps now that we’re going to be entering, some companies, some of your shutdown periods, can you maybe kind of run through perhaps, I think, some of your bigger markets, perhaps, auto in Europe, trucks in North America, trucks in Europe, et cetera. Do you think companies have increased their amount of shutdowns this summer versus last summer, just kind of some thoughts about what you think companies are doing to either bunch more production on to certain days or just were through lower volume orders this year?

I can't really give you a general answer to that question. Clearly, we’re looking at all customers’ releases and right now, as I said earlier, we anticipate probably adjustments lower, but as far as a pattern of what we’re seeing, are they planning for shutdowns going forward, we can't see a general pattern, although we are anticipating changes based on the July numbers as you mentioned. So I imagine we’ll see some downward pressure and some changes in releases going forward, but nothing I can report on in general. Mick, anything you’re picking up?

No.

Okay. I also want to ask about your material cost benefits that you saw in the fiscal first quarter here, could you maybe just clarify or bucket it, what portion of it was from -- directly from the SDG program and what was just, picking up a good price versus your cost and your sales price in the market, kind of wondering what was controlled about you and what is going to stick going forward, and what might fluctuate going forward of that savings?

Yes, Mike, in the quarter, we had about 4 million of just LME based benefits, and I would say about half of that is also due to the transaction premium -- the Midwest transaction premium. So I would say about 2 million in the quarter is due to, call it, pass-through that we will eventually pass through to the business segment and then from a pure -- just from a pure procurement savings side, we had 3 million to 4 million of savings in the quarter.

So that was incremental on top of the market price, okay, got you. And those kinds of savings in procurement, you think are here to stay for the most part?

Correct.

And also, was there any benefit in the quarter from taking content out of the products, in other words, making things lighter or use less materials as well in the quarter?

Nothing from a design standpoint.

All right, guys. Well, I appreciate the answers. I'll hop back in the queue. Thank you.

Thank you. Our next question comes from the line of Matthew Paige of Gabelli & Company.

Good morning. I was wondering if you could provide any color regarding your datacenter business.

Our datacenter business is based out of the UK, all right, in Leeds specifically, and so we have a combination of what we call, precision air conditioning datacenter and a matching chiller production that goes along with that. Sales out of that business is about $70 million US annually, and it supports more or less the UK and some exports to mainland Europe, and also the Middle East. That's kind of the general overview of that.

Right. But do you have any color on datacenter performance in your first quarter?

Yes. Clearly, sales were down on the datacenter market as we’ve identified there’s been weakness and more uncertainty in the UK markets with capital investment being lower and we anticipate because of slowing in construction, potentially in the UK with the Brexit vote that we are dropping our guidance in that to essentially a flat performance going forward versus an increase in sales before.

Perfect. I appreciate the color and thanks for the time.

Our next question comes from the line of David Leiker of Baird.

Hey, good morning. This is Joe Vruwink for David. This has to be one of the strongest above market growth quarters for Modine in sometime. I'm wondering, do you have a sense of either a dollar value or a percentage growth rate for what new business might have contributed to your results, because it seems obviously end markets are weak to put up a positive organic print as a pretty good result?

Well, in general, as we mentioned in Asia, all the growth is from new business wins, okay, on the oil cooler launches in the automotive segment. Some commercial vehicle business as well, but mostly automotive in the Asia region and again new business wins in Europe are also for Modine, as far as specific magnitude, Mick, do you have any feel for that.

Yes. Maybe just anecdotally, Joe, I would agree. And it's really the strength as we commented on the automotive side, the challenges on off-highway and clearly the reason on the class 8, but when you look at -- we look at our growth in automotive across the world, in the Americas, we were in north of 15%, 20% type automotive growth in the quarter. In Europe, excluding the BMW, we were up high single digits with the BMW wind down. Excluding that BMW, we were 10% to 20% type sales growth in Europe and then obviously in Asia, with the 30% growth rate in revenue, that was almost all automotive based. So clearly across the world, our automotive business is outpacing the market growth.

So just sticking on the automotive business for a second, and after all the work that's been done, Modine might end up being an automotive, primary automotive supplier again by the end of the cycle, but there is clearly some disruption going on in the competitive landscape, where you’re filling a niche in markets and I think one market, you haven't participated in as much historically would be on the Japanese thermal side, and I think the Japanese automakers have been showing more than openness to maybe moving away from the traditional [indiscernible] suppliers, is that an opportunity ultimately for Modine or do you think there is enough growth, just staying within your supplying, some of your current core customers thinking primarily the German automakers?

Well, clearly, premium German producers in Europe have really been a big catalyst for us, specifically as it relates to automotive growth in Asia. However, saying that, we do have opportunities to expand our traditional markets and nothing to report on today, but clearly, we’re looking at, I would say, other Asian based OE producers, including Japanese, but it also include Chinese domestic suppliers as well. So all in all, I’m very pleased with our -- with what we call our product focused approach towards attacking our market and we’re leveraging those building blocks and using them very well, and it’s really paying off from a standpoint of, what I would say, building a scalable advantage position in the market in these areas such as oil coolers, liquid charger coolers and other related devices that we really directly relate to the engine. In addition, we’re also being very diligent in our approach to our powertrain cooling products. Again, we've kind of transitioned away from, what I would say, a traditional tier 1 in the past in the module, and really focused on component strategies that can support that market. Specifically, not only through traditional internal combustion engines, but as you know, also vehicle where we have some powertrain related type components that are needed in that market. So I just think we’re being, I would say, very smart with our approach and our product strategies and looking where we can grow that into adjacent markets, including a new customer market that we haven’t been participating as much in the past.

And then two follow-ups on your Asia business specifically, if I may, the first would be, it looks like an $8 million or so year-over-year increment if I strip out currency, is 8 million a quarter a good run rate for new business contribution in Asia this year? And then my second question would be on the M market, China track market. Specifically, you’ve had some companies not participate in the strength that seems like it's dominated by certain OEMs that might be a little aggressive on pricing. It seems like Modine is seeing some benefits from the market. So maybe just an update on your customer exposure within the Asia region?

So, Mick, you want to go first?

Yes. Just on the math, we’ve got in the quarter, it’s about 7 million, excluding currency impact, its topline growth, and I think the organic piece, I think 6 to 7 a quarter is sustainable and as we look at what's built into our full-year outlook, Joe. Tom?

Yes. And as far as Asia commercial truck customers, I kind of have to take it a little bit country-by-country. In India, which we’ve got a very well established business and we’ve got significant powertrain cooling business with both global and domestic truck producers in India, we found that -- we compete very well in the open market with what we call and you've heard me say that with the new next-generation global truck radiator that we’re really moving on from the ORIGAMI technology and really established its capability, first in India and then we expanded that to China, where we have landed a domestic OE truck produce of significance in China and are working through our new joint venture, which has been, that’s Puxin, now Modine Puxin, has been established in the commercial vehicle business for a significant amount of time. It brings great relationships that we’re looking expanding with some of the leading, if not the leading truck producer in China as well with that opportunity from the relationship side. So we feel very positive with what we're doing specifically and also very comfortable with our, let's say, margin performance that we can deliver there.

Great. I will leave it there. Thank you.

And we have a follow-up question from Mike Shlisky of Seaport Global.

Taking my follow-up here. Wanted to ask about the diversification and grow parts of the strategy here. I guess I know you can't give us anything specific, but can you maybe tell us what might come first. Is it possible for us maybe to see some kind of M&A announcement before we see some kind of diversification through organic growth and your own designs into new product lines? Kind of give us a timeline as to where we might be expecting to see some of these other things kind of fall in to place?

Well, timeline wise, clearly, we wouldn't be talking as much that there weren’t really actionable items that we’re engaged in. You also heard Mick say that we are investing the amount of resources in expenses to make sure that we’re doing this properly. So first, I want to -- rest assured that we are being very disciplined in this process. So we’ve walked away from more than we’ve kind of considered actionable because of not meeting our objectives of being out of the shoot accretive, number two, fitting a nice strategic fit with our base business in the industrial segment, being [indiscernible] or the coils business. So that’s the approach. Timeline, I guess it's really dependent on when the egg is ready to hatch, but we’re clearly in part on that process, I’d be able to say that we are optimistic that we can bring together something soon, okay, and it’s about as far as I can go on that. Mick anything to add to that?

The one thing I would add, I think from a materiality standpoint, on move the needle standpoint, our expectation would be that an announcement of an acquisition or some sort of a business growth in that manner would be the first to come. We’ve made organically, Mike, we have made significant investments in air handling and the HVAC space and ventilation products and geothermal products, but off a base of 250 million, 300 million versus the 1.2 billion or 1.3 billion to be particular, it's hard organically to move the needle in a rapid way. So I'll agree with everything Tom said, and as far as something materially changing the next step would be if we are able to execute on one of these opportunities.

And Mike, I’d like to add and where Mick brought that up, this is by no means, saying we’re de-emphasizing in the vehicular business. As a matter of fact, the Modine Puxin joint venture recent announcement demonstrates that we are going to continue to assure we have a very strong and capable product portfolio, able to deliver globally to our targeted markets in a very disciplined manner. So I just want to make sure that’s on top of that.

Okay, got you. I appreciate the color. Thank you.

I'm showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.