Q4 2021 Modine Manufacturing Co Earnings Call
As a reminder, this conference call is being recorded I would now let's turn the call over to your host Ms. Kathy powers, Vice President Treasurer Investor Relations and tax. Please go ahead.
Good morning, and thank you for joining our conference call to discuss <unk> fourth quarter and full year fiscal 2021 results.
I'm joined on this call by Neil <unk>, our President and Chief Executive Officer, and Nic Lucarelli, Our executive Vice President and Chief Financial Officer.
We will be using slides for 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 Modine Dot com.
Slide 2 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 full 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 from the pandemic temporarily shutting down plants, sending employees from the shelter in place from taking actions to conserve cash we.
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 we're able to reach agreements with 2 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 am pleased to announce that we closed on the sale of the Austrian facility at the end of April completing that transaction.
The sales at facility drive 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're 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 have 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 Knowhow.
We are experienced operators, who drive 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.
Our goal is to improve our key account and channel management accelerated decision, making and unleash the entrepreneurial spirit.
Getting the right people in the right roles and improving our commercial acumen will be able to quickly deliver the systems products and solutions valued by our customers.
Net is division for the future.
While we are still in the early stages of this transformation we.
We have gathered the data and are working through the 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.
1 of our priorities and building HVAC segment is to expand our presence in the data center markets and are planning to approach. This market is underway.
Using 80.20, we're analyzing the data and building a plan from both a commercial and operational perspective.
As a reminder, we are combining the 2 separate data center teams that previously existed in the CIS and building HVAC segments 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're.
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 our 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 <unk> segment for the building HVAC segment, and our second fiscal quarter beginning July 1.
We are also reviewing and analyzing the results for our CIS in HVA segments in.
And HPE, we continue to believe that our greatest opportunity for higher returns our cooling systems for electric vehicles.
We already have advanced technology for buses and specialty vehicles and are pursuing and winning business per delivery van cooling modules.
In <unk>, we continue to work on growing share by providing our customers with alternative refrigerants per coils, including <unk> gas coolers.
This is a particularly attractive solution for food retailers theyre 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 Cif and HDD businesses.
We have a great deal of work ahead of us, but I am Curtis Federal energy.
Now, let's cover our fourth quarter segment results on page 4.
Our 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 U K 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 'twenty, 2 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're 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 'twenty 2.
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 funding 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 5.
Net 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 and Cif consists of both coil sold to Oems that serve the data center markets and cooler sales to a large hyperscale or customer.
These cooler sales to have a stable run rate in fiscal 'twenty 2 at a similar level to fiscal 'twenty 1.
However, as I mentioned previously we expect overall data center sales to increase significantly in fiscal 'twenty, 2 largely due to the growth in Chillers and air handlers.
We are using <unk> 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 <unk> segment and I have confidence that we can not only returned to growth in fiscal 'twenty, 2 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-19 demand and low levels of field inventory.
We will continue to deliver while dealing with shortages from 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 6.
Sales in the HDD 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 'twenty, 2 with double digit market improvements in North America and Europe.
We continue to operate amid the unfortunate COVID-19 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 in conversion this year. Despite these challenges.
Please turn to page 7 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 Australian Air cooled automotive business <unk>.
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.
Thank you Neal and good morning, everyone.
Please turn to slide 8.
I'm happy to report that we maintained positive momentum throughout fiscal 'twenty, 1 and posted solid fourth quarter results, despite various commodity and supply chain challenges.
Our fourth quarter sales benefited from favorable foreign exchange rates with sales up nearly 5% on a constant currency basis.
As Neal reviewed main revenue drivers for the HPE in building HVAC segments.
Gross profit.
It was better than prior year by $9 million with a margin improvement of 50 basis points.
The current quarter benefited from reduced depreciation due to the classification of our liquid and air cooled automotive businesses as held for sale.
Material costs were significantly higher due to commodity metals tariffs and logistics.
Despite our price adjustment mechanisms, we absorbed approximately $8 million of higher material costs.
SG&A increased by $4 million, but was 20 basis points lower as a percentage of sales.
As usual our appendix includes an itemized list of adjustments and a full reconciliation to our U S GAAP results.
These adjustments totaled $42.1 million.
There were 3 main areas of adjustments this quarter first we recorded $32.4 million.
Asset impairment charges, primarily related to the completed sale of our air cooled automotive business.
Next we had $6.4 million of restructuring expenses from targeted head count reductions and plant consolidations with the largest portion related to our automotive businesses.
Finally, we incurred $2.5 million of costs directly associated with the automotive separation and $800000 of CEO transition costs.
The resulting adjusted EBITDA was lower than the prior year by $2 million, driven mostly by the lower volume and mix and Cif.
Along with higher material costs in the vehicular businesses.
Adjusted earnings per share of <unk> 51.
Was 27 <unk> higher than the prior year.
I want to point out that there was a tax benefit in the quarter. This resulted from the pension accounting adjustment combined with our U S valuation allowance.
Turning to slide 9.
As anticipated our free cash flow in fiscal 'twenty, 1 reached a historical high of $117 million. This was due to a number of items, including low capital spending.
Working capital management.
Operating cost reductions reduced automotive exit spending and certain government programs.
In addition, our fourth quarter was stronger than expected due to the timing of certain cash payments through.
Throughout the year, we used excess cash to lower our debt, which resulted in a leverage ratio of 1.9.
Maintaining a strong balance sheet and cash flow will be key to supporting our future strategic initiatives.
Now, let's turn to slide 10 for our fiscal 2022 outlook.
As we look to the new fiscal year, we are encouraged by positive trends in general recoveries across most of our end markets.
The interest anticipate 15% to 25% revenue growth across our 3 focused segments HPE CIS and building HVAC.
Partially offsetting our strong revenue growth and our cost increases in a few key areas.
First like most companies, we will incur higher wage and benefit costs after significant reductions during the global pandemic.
To put this in perspective total fiscal 'twenty, 1 savings from Covid recovery measures was approximately $21 million.
In addition, we are dealing with significant cost increases across the supply chain.
These include higher raw materials packaging and freight.
We expect minimal tariff impacts, but key metals are up 30% to 50% over the prior year.
Our pass through agreements and pricing mechanisms will recover much of these increases.
We will be impacted by the normal contractual lag on pass throughs.
We anticipate that the net metals costs increase could exceed $20 million this fiscal year.
I would also like to point out that our guidance includes a full year of our automotive segment, including the pending divestiture of our liquid cooled business to Dana.
We've included the assumption of lower automotive earnings.
Including the recently completed sale of our Australian business.
Upon completion of the larger liquid cool automotive sale, we will obviously need to adjust the guidance accordingly.
With regards to other key assumptions, we expect annual interest expense in the range of $14 million to $15 million with the adjusted tax rate to be in the mid twenties.
Based on all of these factors, we anticipate sales growth of 12 months to 18%.
This translated to adjusted EBITDA of $170 million to $185 million.
As we look at the quarterly run rate in sequential earnings I want to point out that we anticipate that our first quarter will be the low point.
Material costs will be the highest in Q1 as we begin to adjust prices and pass through cost increases.
Therefore, our Q1 earnings and margins will be below the most recent runway rate in Q4.
However, we expect Q1 earnings will be significantly higher from the prior year.
After Q1, we anticipate steady sequential improvement through the balance of the year.
Overall, we are excited about the new year, we foresee positive market trends, new product development and benefits from deploying 80.20.
We expect all of these factors to favorably impact our underlying financial results. Both in terms of growth and profitability improvement with that I'd like to turn the call back to Neil for concluding comments.
Thanks, Nick.
In conclusion, we've performed well under difficult conditions looking.
Looking forward, we have the benefit of improving markets, but also will have the challenges associated with its current global economy, namely material and labor shortages logistic issues and cost inflation.
We are working through those issues, while addressing our bigger strategic priorities.
We have the tools in place to make those strategic decisions and to continue to transform modine.
What's truly exciting is that our technology enables our customers to meet their goals, especially around clean air and sustainability.
Our products improve indoor air quality heat and cool with greater energy efficiency and reduce toxic emissions.
Our products make this world a better price and Thats why im proud to work at Modine.
With that we will take your questions.
If you have a question at this time please press star.
The 1 key on your touch tone telephone.
Question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Our first question comes from Michael <unk>.
<unk> with <unk> Securities. Your line is open.
Hey, good morning, guys.
Can you maybe comment first a couple of growth end market that you mentioned during your prepared comments, but maybe can you talk first of all electric vehicles can you give us some color obviously the profit number of how many platforms you're on today.
And can you tell us whether you are involved in some of the hydrogen fuel cell platform Vishal to have batteries and then are you involved in any of those.
It does seem to be really strong candidates for long haul trucking as well as.
A lot of foreign market South Ws.
Have a touch of housing recently.
Comments that with would be I appreciate it.
Sure Michael How're you doing this is Neil.
Good share in terms of some of the programs and platforms around we we continue to gain traction in that in that arena. There is probably over 2 dozen different programs that we're working through that are in various phases from inquiry to development.
And they range from medium to heavy duty.
Trucks. So there is obviously.
Demand there, we see more inquiries that are coming in and we have the.
Organizationally place to support that relative to fuel cell and hydrogen based powertrain.
As you know those require significant thermal management systems.
There is a global consensus it feels.
<unk>.
There is a growing need for this for the heavy duty long haul commercial vehicles.
And Modine is engaged currently with major North America and European Oems in this early phase of fuel cell work.
Got it.
Can we then turn to some of yours.
Data center business can you give us a little bit more color ASO moving some of the end markets driving that business.
The 1 big customer we also discussed that 1.
More broadly speaking I mean, there's been a lot more interest recently in crypto.
Which obviously can run very hot.
And obviously, there's been some growth in ecommerce as well, which has had some capacity issues.
Seen any any growth.
Your main customer whichever customer.
Great.
Are there any growth outside of that big customer.
Some of these growth to your data center.
Sectors.
Yes, we're seeing it's a good question, we're seeing strong growth in the co location market, certainly and buying behaviors change and you start to see EBIT with some of the larger hyperscale or looking at.
Different ways to go to market, we see that in co locations and Thats driving a lot of our growth so not only the driving growth with current product, but is really starting to fill our funnel in terms of new product development and how we can continue to satisfy the growth in that arena.
Got it.
Let me also SaaS 1 quick 1 on HPE.
It sounds like just like we saw last time with the tariffs a couple of years back you've got it under control as far as your pricing mechanism in your contracts.
There is a lag where it does that net working out okay in the end.
I am curious can you give us a feel that the Oems feel good about their entire supply chain being as it is.
Solid as.
Modine is right now I'm, just kind of curious if certain areas of supply chain, just can't deliver and you can.
As for shipments from you guys.
Given that.
Right now you are currently ready to ship.
Chip.
Good day steering wheel or other parts. So just how are you all day.
You can build the truck.
Any feedback from the Oems about.
Okay any pushback.
And then the build rates thanks to other companies not being ready.
Given that modine is.
Yes, Thats a fair question I think we're all keeping a very close eye on semiconductor I think that's driving a lot of that's driving a lot of the plant shortages globally.
A lot of the auto customers in heavy duty truck customers are very public in terms of plants that they're having to shutter based on charges with semiconductor.
We haven't.
We haven't felt.
Many issues relative to our scheduling and our inventory, but we're just in time that potentially could happen. It's a fair question, but at the moment, we've been able to time, our inventory position TMR raw without advantage as well as with the schedules of.
Our customers.
Hasn't been a significant impact growth.
Excellent. Thanks, so much Neil I'll pass it along.
Your next question comes from Matt Summerville with D. A Davidson your line is open.
Thanks couple questions first with respect to the air cooled divestiture that just got completed a few weeks back how much revenue and adjusted EBITDA goes away with that divestiture and then what sort of EBITDA assumption are you guys using in the $1.70 to 185 for the <unk>.
Segment this year.
Yes, good morning, Nick talking so the air Cool businesses, we have described it in the past.
<unk>.
In the.
$40 million to $50 million range.
Revenue wise.
Slightly negative.
From an EBITDA perspective.
Mostly immaterial to the total company so.
Revenue is down it will be down a little bit lost revenue from that that the earnings slightly better but.
Right around breakeven to slightly negative on that business.
From an automotive standpoint.
We're assuming they're similar in that.
Liquid cooled business, we had talked about it historically being in that $25 million.
Run rate range and that's a good go forward number for for that business as well.
Yes.
Got it thank you.
With respect to Cif and the data center business up there I want to make sure I'm clear on slide 5 so as anticipated stable run rate in fiscal 'twenty..2 similar levels was 21, but then you have 30% to 40% growth also in the upper right hand corner. There. So can you.
Explain that and make sure I understand what the moving pieces may be there.
Yes, I'll go first here and then Neill can add any color still.
Neil talked about from that 1 of the things that we're in the process of doing is.
Putting all of our commercial and operations engineering in operational group.
Groups together under data centers, and we're planning to make that change July 1st.
And so until that point, we still for Q1, we will have some data center revenue and.
As we have in the past.
And we have done in building HVAC.
Or if you recall, we are launching our modine products think of it as Neil talked about our co location, our chillers that computer room air handlers in Spain, and in the U S and we're launching nos and Cif facilities.
So.
In total we see 30% to 40% growth this year in our data center business.
And in the Q1 that'll be in both segments.
And then we'll come back and we'll restate for Ya and health.
We'll do a restatement and then going beginning in Q2 net.
The vast majority of all other data center business they'll show up in building HVAC, which will make the communication of modeling a lot easier.
Got it.
Yeah, Okay. So what you're seeing there is the launch of our other than the growth of our sales.
To non outs.
Outside of that 1 customer to the growth Neil is talking about in the first part of the year here now show up part of it and Cif and <unk> Bank.
With respect to that large customer.
I guess I was under the impression coming out of last quarter, you thought that business was poised to potentially re ramp pretty significantly in fiscal 'twenty, 2 and maybe even more so in fiscal 'twenty 3.
Net not are you no longer thinking about it that way.
Yes, it's a good question, Matt It's just a matter of timing and also what I described in terms of some of the buying behavior of some of these larger hyperscale is continue to digest their capacity.
A lot of.
But a shift and it's driving some growth growth of the co location market, which is why youre seeing some of the growth from our co lows at the rate that we're growing at.
And then maybe 1 final 1 if I could.
How do you feel the building HVAC business is positioned to benefit from these school retrofits are you able to size that opportunity maybe talk about your relative market share in that space and what you've kind of factored in to your building HVAC outlook, just as it pertains to that specific driver. Thank you.
Yeah for sure. Thanks, Pat I'll, let Nick comment on on the numbers, but relative to where we're at and where we're positioned.
We have strong positions regionally throughout the United States and Canada.
We have strong partners as well in order to deploy.
Deploy our solutions.
And the schools to help with improving air quality.
<unk>.
It's a selling cycle that it takes a period of time and it requires multiple decision makers. So we partner with system integrators, we partner with engineers, we partner with builders.
And contractors in order to do that so.
It's a it's a network that we've built.
We're strong in multiple regions throughout the United States and the areas, where we recognize we don't have that position. We know what we need to do to win we know how to sell we know how to partner and we're trying to replicate that model and scale. It in other regions in the United States and Canada.
Thank you your next call.
Your next question comes from Brian <unk> with.
Gabelli Your line is open.
Hi, good morning, Don.
Morning, guys how are you doing.
Great Hey, good morning.
Just a question on the Dana business.
<unk> been selling the Dana rather can you talk a little bit about the approval process, there and what the specific holdups are what jurisdictions are potentially the hanging up share.
Yeah sure Brian Smith.
So we did.
Did.
2 filings 1.
<unk> in China, and 1 in Germany, when we looked across the markets both parties felt like.
And eventually there will be 1 in Austria, where the volume of the business that those are the 2 primary ones.
The China 1.
We received approval on and.
That went relatively quickly compared to what we thought could happen with relations between U S and the U S and China.
German and regulatory.
The approval process entered a phase 2 which takes a lot more time theres been a lot more paperwork theres a lot more analysis meetings filings.
When you get into phase I.
I think we want to be clear, even though it's take we're taking longer than we expected.
<unk> got purchase agreement with gain on both parties are working side by side that presents.
1 party or the other and we're just going through the regulatory process in Germany right now.
Would it be reasonable to assume that this can get done by mid year or are we looking further out.
Yes. Unfortunately.
We're not able to comment on the timing and it's strictly a matter of it's something that's outside our control, Brian where I've been a push it as fast as we can and I wish we could give you more on that.
We just can't it's not something we can control.
Okay.
I respect that and understand it just going to the data center business. When this is all said and done.
Can you.
Quantify what you expect the data center business will be on a run rate basis in total from.
From a revenue perspective, just so.
I think it's.
So it takes.
It's an exciting part of the business for you just to understand the size of it and your support.
Yes. Thanks.
So.
Last fiscal year the year, we just ended our run rate for modine is around $100 million.
And next year, we expect that to grow between 30% and 40% and in looking at our compound growth rate in the next few years, we've got targets that maintained a compound growth rate of 30 plus percent rate.
Great.
Tom.
That's all from me.
Good luck then.
From a forward to seeing you.
<unk> receivable.
Schumacher.
That's fantastic. Thank you looking forward to it.
As a reminder to ask a question. Please press Star then the number 1 on your telephone keypad.
Next question comes from Steve.
<unk> with Sidoti <unk> Company. Your line is open.
Thank you very much.
I just wanted to dig a little bit into the building.
Building HVAC guidance, obviously became offer.
Challenging weather.
This past winter.
When youre, putting together your guidance, particularly on the heating side how are you.
Are you thinking about whether when you put together that guidance.
Yeah, Hey, David Snacks AD is probably the biggest challenge to the team and I would probably drive them crazy and it drives them Crazy. It's a combination of we don't try to do anything obviously with weather we.
Look at patterns over the last few years Theres, a fair amount of replacement business that happens regardless of weather.
There is the pricing trends in the material cost in the market and the last factor. The team looked at is really how did the channel land right.
What amount of inventory that we closed a winter with sometimes if you have a late cold spell we can end the season with fairly lean inventories in the channel.
So all of that put together, we try to build what we think would be a normal.
Market growth and we look at some third party data factor in where we think pricing is going to go and then the weather pattern, we try to book as unless it's a super warm winter, we tried to position that as any.
Any kind of.
Colder winter is more good news than surprise to us.
Okay.
In terms of the.
Significantly rising material prices certainly have heard from other suppliers to oes, where given the dramatic rise and in fact, a huge demand for their products.
Efforts to renegotiate those contracts and the price reset timing.
In some cases successfully doing so has that been something you've pursued what kind of response from the gathering.
Yes, certainly that is top of mind for us.
We're at a point where weekly managing this.
From my staff meeting, but yes, we're looking at it not only with materials, we're looking at it with logistics, we're looking at it with pricing.
Pricing pass throughs.
We're doing it with surcharges.
Where we're monitoring our supply chain in terms of expedited freight in order to get products to us in a timely fashion and how thats. How those costs are controlled so absolutely. We're looking at that across all regions across all plants and globally.
And for the most part.
For at least.
And 2 other segments.
The pricing controls that we can put in place.
We will absorb.
A considerable amount of this however, we do have the lagging effect in the HDD segment. So.
That will come with time.
Okay. That's helpful. And then just a little bit on EBIT 'twenty. When we talk to companies that are further along in the process really starts getting down to going.
<unk> by SKU and figuring out alright, these products make us money.
All of these products for years.
Not profitable where are you on sort of the process in terms of getting to that type of level or are you still very early on.
No yes, it's a good question and you're right so where we're at in terms of the processes as we've collected all the information and all of the data compiled it from our ERP system.
As you know a company that's been built on multiple acquisitions over time, there's a lot of different ERP systems, which require us to fill.
Sales of other data the data together, so that we can make sense of it.
I went through that data cleanliness process and we're now at the point, where we're actually.
Pivoting the data and what we call our data Q. So that we can understand the intersection of profitable product by customer.
By region.
And by plant. So we're working through the data we're sifting through the data and we're actually we actually have information as recently as the last couple of weeks that helps us understand exactly what you. Just described so we're in the phase I would say we're in the analytical phase of that versus the decision making base.
Any day to surprise, you or what's the price how useful was across with.
Other certainly the processes that was useful.
<unk>.
Surprises for sure but.
There is always ways to react to it and there is a a.
Technique that we can address each 1 of these but certainly.
I'd say, 75% to 80% of it team.
Had a hunch and the team understood. This could particularly this could potentially be an outcome and then there was.
The things that are on the fringes outside of the standard deviation. So it certainly was helpful. Certainly was useful.
And it was necessary because as we go forward and we build 80.20 inside of our systems and our processes, we're going to want to be able to collect the data in a common way. So that we don't have to go through the enormous lift to clean the data instituted added together, we can disseminate our fingertips.
Great. Thanks, a lot.
Thanks, everyone.
Okay.
Next question comes from Matt Summerville with D. A Davidson your line is open.
Maybe 1 or 2 follow ups, maybe you can talk about how the M&A funnel is the ball from the last.
Conference call, you guys held and whether or not you are starting to see the level of actual ability there in improved meaningfully.
Yes, Matt snack.
We as we mentioned last time the day part is getting that engine going again and.
Good day. Good news is inbound calls and the market is opening up past the pandemic that we're seeing more look at.
That business is the next step for Modine that Neil and I really want to do is to be more targeted and proactive versus.
Inbound call and timed 80, 20, as we complete our segmentation.
And have targeted vertical market verticals.
We are building our growth strategy is around those both in technology.
<unk> product.
That we wanted to fill in those growth areas in data center. We've talked about is 1 of the FERC that were.
Targeting with 80.20.
No.
I'm optimistic what I'm most excited about is <unk>.
The balance sheet as you know is in a great position.
And.
There is as we get the automotive divestiture behind us, which has been a huge amount of resource and effort.
Then.
Having that targeted very targeted acquisition strategy is where.
We will be able to accelerate I would say and be more aggressive on the acquisition side.
And then.
Just lastly, 1 clarification my single is from your prepared remarks, you mentioned that.
The impact of metals related inflation, the unabsorbed headwind that you've incorporated into your guide that is that $20 million number you share do I have that correct.
Yeah, the 2 big headwinds our materials and at about $20 million. Most of that is HPE in auto so again auto part of that will depend.
When the transaction were to close.
But thats the right number of the other 1 is.
<unk> co.
Covid cost recovering salaries wages and benefits.
Is about another 2000.21 million.
A little less than half of that was up in cost of goods sold with furloughs and things of that and 8 or so million in the SG&A side.
Got it thank you.
And I think it was I think it was Matt asked.
At close the loop on school day, 1 to make sure we interest that way last year, we estimate the school market for US is about $100 million. It should be growing exponentially. This was pre COVID-19 numbers and free government spending.
Our sales in that market last year, we were right around 20 million or so.
Great. Thank you.
There are no further questions Kevin Thank Tom I'll now turn the call back to Kathy powers.
Thank you and thanks to everybody who joined US. This morning, a replay of this call will be available through our website in about 2 hours.
Hope you all have a great day. Thanks.
This concludes today's conference call you may now disconnect.