Modine's Data Center Boom Burned $57.1 Million In Operating Cash Over Six Months
Sales rose 35% last quarter, but inventory swelled and the revolver drew $460.0 million, leaving $84.2 million of room.
Modine's data center business is growing fast enough to consume cash: the company's 10-Q shows $57.1 million of net cash used for operating activities in the first six months of fiscal 2027, against $29.1 million provided a year earlier. Modine, which designs and makes thermal management products including data center chillers and air handling units, says inventory and receivables ballooned to support demand while its revolving credit line climbed to $460.0 million.
Where the cash went
The filing says working capital increases drove the swing, with inventory and receivables built up as the Data Centers segment grows rapidly. Inventories rose to $697.5 million at September 30 from $506.1 million at March 31, and trade receivables to $795.1 million from $731.0 million. Higher accounts payable partly offset both.
Capital spending added to the drain: $88.5 million for the six months, up $29.1 million, mostly to add Data Centers production capacity. The company's earnings release put free cash flow for the period at a use of $145.6 million.
The first quarter alone had provided $41.4 million, per the prior quarterly filing, so the second quarter was the drag.
A revolver nearly tapped out
Borrowings under the revolving credit facility stood at $460.0 million at September 30, versus $150.0 million at March 31. Available capacity was $84.2 million, down from $294.2 million at June 30.
On October 1, after the quarter closed, Modine used $198.6 million received from the spin-off of its Performance Technologies business, which was combined with Gentherm, to repay revolver borrowings. The filing says the company was in compliance with its debt covenants and expects to remain so.
In March, a strategic data center customer paid a $165.0 million up-front deposit under a long-term capacity agreement, to fund the investments needed to meet planned volumes.
Sales soar, margins slide
Net sales rose 35% to $994.4 million in the quarter. Data Centers sales climbed 95% to $439.7 million, but that segment's gross margin fell to 19.7% from 24.4%, which the company attributes mainly to higher material costs and temporary inefficiencies tied to supplier constraints. Total gross margin declined 160 basis points to 20.7%.
Net earnings fell to $30.3 million from $44.8 million. The company recorded $29.5 million of income tax expense for legal entity restructuring ahead of the spin-off, lifting the quarterly effective tax rate to 65.6% from 29.7%.
Modine's shares traded at $95.45 in Wednesday trading, down 23.91% from the prior close of $125.45, for a market value of about $6.7 billion.
A narrower company, and Nov. 18
Modine now keeps only Data Centers and Commercial HVAC, and the filing says it is less diversified and more exposed to concentrated demand from a limited number of large customers or projects. It plans to change its name to Modexus Solutions, subject to shareholder approval, keeping the MOD ticker.
The company's earnings release guides to fiscal 2027 net sales of $3.1 billion to $3.2 billion and adjusted EBITDA of $470 million to $500 million for the continuing business.
Modine holds an Analyst and Investor Day on November 18, where CEO Neil D. Brinker said he will share longer-term revenue and earnings targets.
Sources
- 10-Q Filing — Modine Manufacturing (MOD) — SEC EDGAR
- 10-Q Filing — Modine Manufacturing (MOD), Q1 FY2027 filed 2026-07-30 (comparison basis) — SEC EDGAR
- Earnings release (8-K Item 2.02, mod-ex99d1.htm) — Modine Manufacturing, filed 2026-11-03 — SEC EDGAR
- Modine Manufacturing Non-GAAP EPS of $1.35 misses by $0.17, revenue of $994.4M beats by $16.14M (MOD:NYSE) — seekingalpha.com
- Modine (MOD) Misses Q2 Earnings Estimates — Yahoo Finance
- Modine: Fiscal Q2 Earnings Snapshot | wusa9.com — Associated Press
- Modine Reports Second Quarter Fiscal 2027 Results – Company Announcement - FT.com — Financial Times
- Modine Stock Before Q2 Earnings: Smart Buy or Risky Move? — Yahoo Finance
