Q1 2021 SPX FLOW Inc Earnings Call
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Okay.
Good day, and thank you for standing by.
Welcome to the SPX flow Q1, 2021 or earnings conference call.
At this time all participants are you seeing in listen only mode.
After the speaker's presentation, there will be a question and answer session.
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And I would like to hand, the conference over to your speaker for today.
Mr. Scott GAAP sorry. Please go ahead.
Thank you Francis and good morning, and thanks to everyone for joining us for a discussion of our first quarter 2021 and financial results.
Morning, we issued a news release.
Detailing our financial performance for the three months ending April 3rd 2021 and.
The news release, along with the presentation to be used during today's webcast can be accessed on our website at SPX flow Dot com.
And a replay will also be available on our website later today.
Joining me today are Marc Michael President and CEO, and Jamie Easley, Vice President and Chief Financial Officer.
Following their prepared remarks, we'll open the call for questions.
Before we begin a brief reminder, that elements of this presentation contain forward looking statements that are based on our current view of our business and and markets.
Those elements are subject to change, we ask that you view them and that light.
Principal risk factors and may affect our performance are identified and our most recent SEC filings and.
And the appendix of today's presentation, we've provided reconciliations for all non-GAAP and adjusted measures presented.
And with that I'll turn it over to Mark.
Great. Thanks, Scott I appreciate the introduction and good morning, everyone and thank you for joining us on the call.
It's an exciting time at SPX flow, our mission and strategic objectives have never been clearer.
Process solutions provider focused on improving the world through innovative and sustainable solutions, and the nutrition health and industrial markets.
Our three year strategic trusted excuse me, our three year strategic objectives, which we laid out at our Investor day in March are supported by our four foundational pillars you see here.
This focus is guiding us towards both our long term financial goals and near term operational performance.
We have intentionally changed our historical paradigms to create an inflection point and operating results, which is evident and our quarterly results.
First quarter performance improved as markets continue to recover and our internal initiatives gain momentum.
Orders improved short cycle demand remained solid and systems orders were significantly better while keeping project selectivity your priority.
Industrial Capex continues to recover with a building pipeline of projects.
The economic recovery combined with our improved operating performance drove a 19% increase and organic revenue in the quarter that was nearly evenly split between the segments.
Operating income margin significantly improved by 550 basis points supported by a higher quality of revenue from the work we've undertaken to segment our product lines through and 80 20 lands a positive impact from our cost programs low.
And our corporate expense and effective management of price cost.
We also met our commitments and the first quarter to disproportionately invest and capabilities and our high growth and high margin product categories that are aligned with our priority markets.
We doubled our capital spending by investing and plant modernization and also increased R&D investment by more than 20% to support new product development.
Our programmatic M&A process is building momentum with an attractive pipeline of opportunities.
We've identified M&A targets using a disciplined approach with an objective of both high returns and alignment to our strategic priorities.
This resulted in the acquisition of U T G mixing in the quarter and last week, we announced a definitive agreement to acquire Philadelphia and mixing solutions.
Lastly, I'm pleased that we've been able to return excess cash to shareholders in the form of a dividend, which we initiated initiated during the first quarter along with the continuation of our share repurchase program.
The economic and end market recovery that we experienced in the first quarter was broad based geographically supporting our 19% organic revenue growth rate.
As anticipated the year over year revenue growth was most significant and China, where first quarter 2020 results were heavily impacted by the initial outbreak of the coronavirus.
However, we also experienced a significant acceleration and North America and EMEA with total revenues growing at mid teens in North America, and at low to mid teens rates and EMEA.
Jamie will provide an assessment of year over year orders during his prepared remarks.
As we highlighted on Investor day. The deployment of 80 20 provides a framework to create focus on and outstanding customer experience and provides clarity on how and where we want to grow profitably.
Throughout last year, we built cross functional growth teams that are empowered to own and execute our strategy of driving profitable growth and the first quarter results highlight the success of these efforts.
During the quarter, we achieved a 26% growth and revenues and our growth product lines and also built a base for future growth with a 35% increase and the Cree category.
Which consist of our nutrition and health systems business.
We will continue to oversee our.
Excuse me, we will continue to over serve.
Our highest priority and best customers and 2021 to drive a higher quality and improved mix of revenue.
Taking a look at orders we continue to see momentum following the low points of 2020 demand overall.
Overall industrial orders were sequentially stable with modest increases in demand for our short cycle product categories.
Our OE project pipelines continued to improve during the first quarter and we experienced solid growth and demand in both China and EMEA.
Demand and our nutrition and health business remains robust the.
The commercial team did an excellent job partnering with our customers during the quarter to deliver a strong start to the year.
Sequential systems orders were down as we experienced a more normalized level of order intake following an outstanding fourth quarter, most notably in China.
Our short cycle orders and while down slightly on a sequential basis remain at relatively high levels versus historical rates and have shown resiliency throughout the pandemic.
The strong start to the year builds a base from which we believe we continue continued to grow through the course of 2021.
Our year is off to an excellent start the improved.
And economic outlook combined with our strategy to drive a higher quality of revenue mix and improve our cost structure gives us confidence and achieving profitable growth and 2021.
Based on the solid revenue performance during the quarter, we are raising our full year revenue growth assumptions to high end of our prior range and now believe organic revenue will grow at a mid single digit rate during 2021.
At the same time, our productivity initiatives are progressing to plan, which supports continued earnings improvement as we look forward.
So a great start to the year and a validation of the strategic objectives, we laid out in March.
And with that I'll turn it over and Jamie to cover the financial review.
Thank you Mark and good morning, everyone I'll begin with a recap of the first quarter.
Our first quarter results are highlighted by significant operating leverage from higher volumes and operational improvements from our strategic choices orgs.
Organic orders were strong and the first quarter up 10% with meaningful outperformance and health and nutrition include.
Including a notable increase and our systems business.
Organic revenue was up 19% driven by.
Primarily by $40 million of higher shippable backlog to start the quarter imports.
Importantly, we saw broad based recovery and our short cycle revenue streams spread evenly between our nutrition and health and industrial segments.
Most notably operating margin came in at 11, 3% up 550 basis points as operating leverage was aided by mix and structural cost improvements.
And.
We are also following through on our commitment to allocate capital on a balanced manner.
To support our profitable growth initiatives by better serving our key customers, we doubled capex on the quarter.
Those investments were focused on plant modernization and capacity expansion that critical sites.
We also increased our investment and R&D by more than 20%.
And March we initiated our first ever quarterly dividend a sign of our belief and our talented team strategic direction and the long term earnings potential of the company.
We also continued to return cash through our share repurchase program acquiring $10 million of stock on the quarter.
We continue to use our disciplined programmatic M&A process to identify targets that align with our strategic objectives and meet key financial criteria.
I'd like to personally welcome the U T G mixing team to SPX flow following the close of our acquisition in January.
I would also look forward to our anticipated closing of the Philadelphia and mixing solutions transaction later in the second quarter.
Both businesses represent great brands and talented staff and innovative cultures.
Looking at the segments, beginning with industrial and total organic orders were down 4% year over year, driven by timing of capital projects, which was partially offset by broad based growth from short cycle products on.
<unk> revenue increased an impressive 18% on the quarter driven by higher shippable backlog that we previously noted and an elevated level of short cycle book and turn business.
And most notable was the year over year improvement and segment margins, which were up 500 basis points to 12, 1%.
This result was driven by greater volume leverage our focus on improving the mix of revenue and managing positive price cost.
Moving on to nutrition and health we generated.
<unk> significant increases and orders revenue and segment profitability.
Our orders increased over 30% with meaningful strength, and China, and North America, driven by higher systems orders.
We also experienced strong demand for our higher margin short cycle product categories, which were up low double digits with growth observed around the globe.
Organic revenue was up 19% attributable to higher shippable backlog entering the quarter and elevated short cycle book and turn business.
Based on the volume recovery, along with improved mix solid project execution and positive price cost outcomes segment margins expanded by 240 basis points.
And looking into the second quarter, we anticipate organic revenue momentum to continue driven by approximately $35 million of higher shippable backlog year over year.
Currency translation and completed acquisitions should add a combined 6% to the top line and Q2.
We anticipate modest sequential margin improvement driven by volume leverage and the second quarter.
Lastly, we anticipate closing the announced acquisition of Philadelphia and mixing solutions later in the quarter.
But anticipate a limited impact on our financial results and the periods.
Yeah.
Turning now to capital allocation, our first reiterate some of the thoughts that we outlined in our recent Investor day.
On our capital allocation framework, we expect to fully fund organic growth investments, including increasing the amount of R&D and innovation spend and more broadly.
We achieved this objective and the first quarter by doubling Capex and funding a greater than 20% increase and R&D concentrated and the product lines, where we're expecting the most growth.
Our framework for capital allocation calls for acquiring $200 million to $300 million of incremental revenue through M&A from.
2021% to 2023.
Beginning with the first quarter closing of UGG mixing group and our forthcoming close of Philadelphia and mixing.
Lastly, as we have cash and excess of our forecasted needs. We will return cash to shareholders doing so through the dividend and share repurchases I previously mentioned.
Yes.
I'd like to close with some details regarding last week's announced signing of a definitive agreement to acquire Philadelphia and mixing solutions the.
The transaction is consistent with our stated strategic and financial objectives, starting with attractive organic growth profiles, and chemical petrochemical and environmental and markets Philadelphia.
Philadelphia and mixers has a very high quality of revenue evidenced by greater than 40% gross margins with room for enhancement through aftermarket growth operational improvements and supply chain initiatives.
The transaction will combine two of the top mixing brands and North America.
It will further bolster our position as an innovative provider of a central products and process solutions that help make the world safer healthier and more sustainable.
Based on the complementary geographic exposure and product and process capabilities, we expect both businesses to benefit from economies of scale as well as complementary channels and footprint.
We believe we at flow can leverage Philadelphia and mix or a strong sales team product offering and unique engineering capabilities to provide our key customers with a more robust lineup.
We will purchase the company for $65 million utilizing cash on hand, the purchase price represents an attractive multiple of approximately one three times trailing revenue.
We expect cash ROIC to exceed our WAC within three years and.
And with that I'll turn the call back over to Mark for some closing comments.
Great. Thanks, Jamie as.
As we've strengthened our focus on process solutions, it's become clear that we provide a differentiated offering to our customers channel partners and employees.
So I'm excited to unveil our new tagline for the company solutions and they're making.
We chose this tagline because it reflects our identity.
We improved the world through innovative sustainable solutions.
We help customers clean and conserve water.
We help them manufacture everything from milk and medicine to plant based food and personal care products.
And we help them lower cost increase uptime save energy reduce waste and improve quality.
Solutions, and they're making also speaks to our culture.
We want to be known for being a great place to work, where everyone has a sense of belonging.
And we embrace teamwork collaboration and innovation.
We didn't develop diverse and highly engaged teams and we want to help provide solutions to create better communities, where we live and work.
Sure.
We take pride and solutions and the making and all that it stands for at SPX flow.
In closing as we look to the future we were thinking and acting more aggressively to create an inflection point and operating results as evidenced in our Q1 results.
The deployment of 80 20 has created a foundation and provides a framework for focus and clarity on how and where we want to grow profitably.
We've begun the process of disproportionately investing and our high growth and higher margin product categories that are aligned with our focus markets and customers.
Our plans are accelerating irrespective of market conditions.
We're refocusing our resources to those areas that generate the highest return while expanding margins through increased productivity.
With our balance sheet strength, and the cash generation and the business, we are well positioned to invest through economic cycles.
Organic capital allocation will be targeted to our highest returning technologies through <unk>.
Investing in R&D to accelerate new products and technology development deploying capex to modernize our facilities and improve efficiency to meet customer demand.
And roll out additional digital capabilities to create a better customer experience.
Additionally, our programmatic M&A process is building momentum following the closing of two acquisitions and the recent announcement of a definitive agreement for a third transaction and we'll continue.
To identify attractive M&A targets using a disciplined approach with an objective of both high returns and alignment to our strategic priorities and.
And when we have excess cash we'll continue to make returns to shareholders.
I'm proud of what our team has accomplished together our actions have created a strong culture, a more sustainable earning stream due to a higher quality of revenue and a foundation that allows us to shift to offense, which we expect will lead to accelerating growth and operating performance.
And with that we'll now open it up for your questions.
Okay.
As a reminder, inc.
To ask a question you will need to perhaps try and one on.
On your telephone keypad.
Sure.
Please stand by while we compile the Q&A roster.
And your and your first question comes from Nathan Jones.
Stifel.
Your line is now open.
Good morning, everyone.
Good morning, and good morning.
Just a first question on the guide at organic revenue growth at mid single digits. I mean, we're close to 20 and the first quarter. The order rates suggest probably close to 10 and the second quarter. I know you do have to give back a bunch of day in the fourth quarter that create some headwind there.
Even adjusting for days it looks like kind.
And the revenue guidance and the second half from an organic same day perspective is about flat.
Against relatively easy comps and with an improving economic backdrop. So I'm just wondering what it is you are seeing out there that's kind of holding back the confidence to be maybe a little bit more constructive on the revenue for the full year.
Yes sure Nathan.
I'll I'll start and maybe Jamie you could add any additional thoughts.
As you mentioned Nathan we agree economic indicators as we all see and the market are encouraging with the.
A good backdrop, so a continuation of performance from a market perspective should be there.
Have a strong backlog going into Q2, as we indicated up by.
$35 million.
So really a strong view of the first half of the year compared to where we were last year.
Hum.
What I would mention a couple of points that I think are important Q4 2020 revenue.
As we look at last year versus this year, there's about $15 million to $20 million more revenue in Q4 2020 versus this year and as a part of our 80 20 efforts, there's about $10 million of lower margin business that we're pruning that was in Q4 last year.
That won't be in Q4 this year so that's.
Somewhere in the neighborhood of $25 million to $30 million, let's say that's not in our Q4 outlook this year.
And maybe a couple of other points.
The short cycle nature of our business now a 70% being short cycle and really high margin quality.
Has it gone up at a pretty steep rate over the past three quarters.
We were in Q3 through Q4 and and through Q1 so.
So the economic backdrop remains strong, but we would anticipate a bit of a flattening of that steep slope of the line as we've gone up over the last three quarters no real concerns just.
The slide the lie and could flatten out and Additionally, I would say the industrial part of our business. The Capex spend has still been a bit choppy from customers and that's a positive which we expect to come back, but we're still waiting to see how that shapes up.
<unk>.
So in the and as we look at kind of the day extenuating factors that are kind of existing out there still with COVID-19 and some of the uncertainty. This big recovery, we had in short cycle business still some question marks as we look across the globe and how some of the Capex may come back into the market and as we.
Taking a look at the second half of the year, we feel like we've been very prudent and.
And I would just close with saying our focus and emphasis is really on the long term strategy as we laid out a few weeks ago and in March back in early March.
Annual growth rate low to mid single digits get to mid teens operating margin over the next three years.
And just finished a great quarter right. So we're off to a very good start on that pathway to achieving that long term objective. So I think we're really and a good spot as we go through the rest of the year to perform at a high level and.
And I want to remind everyone too part of that margin improvement that we're looking to achieve not only within this year and the second half and our SG&A productivity program will also help support that long term mid teens margin. So as we move through the second half of the year.
I do expect margin to continue to improve also some I'm really happy with where we are as we started the year, we're progressing well and I think we'll continue to see.
Overall improvement and profitable growth as we move through the rest of 2021.
Maybe a follow up for me then on price cost you guys noted I think both segments positive on price cost and the first quarter and it's obviously a lot of inflation out there raw materials freight all kinds of things.
Do you guys anticipate being price cost positive for the full year does that pull back to neutral or how are you managing through that all of those challenges at the moment.
Yeah. That's a good question that I know is very prominent and I'm really proud of our team I'll just start there and we've got a good team that's looking at cost price continuously and this even goes back to when we saw some inflation starting to pick up back in two.
2018, we revamped our process around that we have a tiger team in place that consist of El product management, our operations team and and our finance team and they come together on a regular basis throughout the month and then.
I review that with them along with Jamie at the end of each month and how things are shaping up and we make adjustments very rapidly now when we see inflation and we're really in front of it we're not looking at it from a trailing perspective. So as we go through the year I anticipate and expect we'll stay ahead of the curve on.
On any inflationary impacts and.
B B modestly positive as we as we exit 2021.
Thanks for that.
Thanks, guys. Thanks, David.
And your next question comes from the line of Julian Mitchell from Barclays.
Your line is now open.
Hey, guys pretty nice quarter, there nice job, it's Gavin on for Julian and by the way and good morning.
So backlog was sort of flat organically in Q1 and.
I was wondering can you talk about.
And what was driving that that's flat backlog and.
How that kind of factors into your expectations.
Clearly for industrial in the back half.
Can you just provide little color, what reference point, you're you're providing on backlog.
Sure Yes, it was.
It was flat.
In Q1 organically driven.
Driven by industrial.
Well so a couple a couple of thoughts one as we've provided some assumptions for Q2.
He said is the backlog shippable backlog in Q2 is up $35 million, so as you're thinking about the next quarter.
Quarter, it's important to understand the improvements and backlog year over year I think what you may be looking to is our total backlog stats and figures, which you know well gates and convert to revenue over time.
But as we look at the starting position now relative to a year ago, and a much better firmer spot by way of backlog and and the quality of backlog is there to some mark mentioned a few times the nature of our business now being more short cycle. So those are going to be product lines that have above.
Average company margins and general convert better go through our factory quicker absorbed nicely and that's part of the the mix and absorption improvement that youre seeing on the margin line. So that's the way we're thinking about the backlog as we kind of sit here now.
Just to add to that echo everything that Jamie mentioned and.
The short cycle nature of our business you know about 75% of our revenues are in backlog going into each quarter and we then convert about 25% of our bookings within the quarters into into revenue so to the point.
That just the mix of our business being so much more short cycle now.
We anticipate that debt.
That'll be more of the case that you won't see dramatic swings of upticks and our backlog.
And given our project business is such a lower percentage I would mentioned in and again also that what we've seen and the industrial markets still is slow.
Slow capex going in and two industrial projects compared to where we were before the pandemic. So back are our pipeline is building our front log is building and industrial projects. So that's an encouraging sign that can help the backlog going forward, but.
We will not expect we're going to see things like we've historically seen and the SPX flow world, when we had power and energy and.
Larger F&B systems business, where we have our backlogs.
Backlogs that are.
Moving up rapidly based on on project base business coming back in.
Understood Thanks and.
And then maybe and another one for from me on on incremental margins pretty strong performance here in Q1 I was wondering if you could sort of update us on.
And what Youre thinking for the balance of the year in terms of incremental margin outlook recognize that you've got.
Moving to that sequential margin improvement I was just wondering if there any changes to your way of thinking about what incremental margins from each of the years.
Yes. Thanks for the question what I would point you back to or is the assumption that we've provided and the 2021 framework, which are sequentially improving margins throughout the course of the year and and the way to think about that as a a consistent.
And the level of short cycle orders, and but but but as you think about that going through the year, that's going to provide benefits on absorption.
They're there there's going to be mix benefits and there too and as well as Mark mentioned, we've got our SG&A reduction program. That's running that's going to have some some operating profit margin benefits and the second half of the year, Yeah, and so that's a you know just to.
Add a bit on the SG&A program.
$25 million program as a reminder, and we're progressing on track with that program and the majority of what we're anticipating for this year say roughly about half of that will hit in the second half of this year.
Right, so and so the assumption is sequential improvements and operating profit margins over the course of the year off a very strong Q1, as Mark mentioned and a couple of times, so really excited about that right.
Awesome. Thanks, so much.
And your next question comes from the line of Deane Dray Deane Dray from RBC capital.
Your line is now open.
Hey, this is Tyler void filling in for Dean Dray. Good morning, Good morning Tyler.
I know you guys have size call it $550 million and capacity for M&A over the next three years and you've been pretty active this year. So far can you just talk about kind of what the pipeline looks like from here and should we expect more and mixing kind of as.
Philadelphia and utility were or are you looking at all of the other areas as well.
Yes, so I'll mentioned that the pipeline is.
Very robust as we mentioned.
I mentioned in our prepared remarks, we're being.
Very programmatic, we have a great program and place it boost some lean goes orchestrated over the last few years the process around it and how we evaluate acquisitions opportunities building the pipeline and importantly, our acquisitions aligned to our strategy. If you look at the acquisitions that we've done.
On.
And mixing and with U T G and Philadelphia and mixing solutions just announced.
And that that's a big priority for us to our first screen is to evaluate how acquisitions aligned.
To our strategy and then we look at the economic implications and impacts obviously so our goal is is to look at acquisitions again that meet this hit the strategy will help us provide a better presence to customers and how we serve them.
And and and stay aligned to that as we move forward. So I'm really pleased with the progress were making and again to the <unk>.
<unk> remains robust and we will continue to work through opportunities as they present themselves.
Great. Thank you and then just another and in terms of you.
You guys just kind of.
Project selectivity efforts and nutrition and health are you guys passing on any large system orders or are you still fulfilling those and kind of slowly fading those away.
Well just as a reminder, you know we really moved away from large dry dairy systems projects and so those were projects that really didn't fit the profile of the type business that we wanted to participate in and so so our emphasis has been on technologies, where our customers see a really high value.
Opposition.
And if.
And then.
They really revolve around liquid processing, so think about fermented dairy and you think about plant based foods.
These type projects are very.
Attractive for our customers because of the technology that we bring but we also like them because that's where we build and install base. There is a lot of factory content in those particular types of applications.
So those are things that we look at it as a starting point in regards to size.
Yes.
We will take on.
Larger sized projects and the liquid space again, if they meet those those.
Criteria that I mentioned, because that's the first most important part of the screen good for value proposition for the customer good factory content builds our install base. We know we can execute them very well for our clients.
And then we and then I'll size.
Is not as an important factor and the determination when we think about the <unk>.
Projects that we want to pursue that meet those criteria.
Great. Thank you.
You bet.
And your next question comes from the line of Michael <unk>.
From Wolfe research.
Your line is now.
Hi, Good morning, I mean I'm on for Nigel.
Specific question on the supply chain, we earn that their center and supply chain constraints and soon.
You manage on global business.
I was wondering if you are seeing any impact on your business from.
Supply chain from Spain.
Yes, great question.
Certainly on a topic that is top of mind for us and and everybody.
A couple of thoughts.
<unk> are up around the world for sure.
And I think capacity as it relates to freight is one thing that we're watching very closely so you hear a lot about tight.
Titan containers you hear about.
And ports being blocked that type thing and and so it's a common issue that we're watching back to a couple of comments and mark sat around our pricing team.
We've also been very proud of what our sourcing team led by an individual that came into our company last year, Doug Hemphill has been able to do so that team has really started looking at our forward looking purchases with our commercial team on expected demand and getting our head of supply chain.
Patients and needs and shifting that around to the extent we need.
We've also thought about and and made some changes around safety stock levels. So that we can continue to meet the needs of our customers.
So I would frame it up as very aware and and watching this situation team is performing at an exceptionally high level here.
And so it's great to say that at this point, we've not had any meaningful disruption as a result of supply chain issues and you know kind of expected that it can stay that way based on some of the things we put in place and I would just maybe add just a couple of additional comments.
We source locally and the markets, where we do business.
80% to 90% and the materials that we buy so a high percentage of the materials that are going into our factories come within the regions, where we do business.
Through again, and just to reiterate one of Jamie's point and with our supply chain team has done throughout the course of 2020. During the pandemic is look for alternative sources as well. So we've been able to manage very well through 2020 with supply chain, we're continuing to manage well with here.
Here in 2020, along with our supply chain and Doug and his team are just doing a fantastic job.
Thank you.
And if I may add one more.
What's the.
Outlook for E and H.
Business and.
And can you break it down by region and.
And I was wondering if you how is your be bidding process change and from the past and.
On how do you see the mix of system systems nurses components.
Okay, a bit to unpack there so you're interested in and region.
And and mix and what was the third thing.
The bidding process the bidding process, okay, and I need some clarification on the bidding process, but.
Look our R. R.
Our.
And nutrition and health segment less as a franchise business for us, it's a very strong business across all regions.
Now, there's some nuances to how business is done across regions.
Across Asia and Europe.
We have a combination of our systems business and our components and service aftermarket.
And the North America market, where we have a strong base.
It's more of a component and aftermarket type business less about systems.
So that as a backdrop I think it's important to always consider so.
What we see typically in our order profiles for systems.
Given that that can be a bit of a lumpy business it usually will.
Happen between.
Asia, and specifically, China, and then across Europe, So that's where the majority of that business comes from.
As we look at our component business, it's very prominent across the globe.
And as we work not only to service our own installed base. We also work with integrators across the globe and again predominantly thats the market in North America, as an integrator market as well as some some OE customers.
The mix, we expect to really continue and a similar fashion right. If you look at our systems business over the last.
A couple of years on a quarterly basis Youll see that its between 50 and $60 million a quarter with some upticks, we've historically seen in the fourth quarter with some larger order intake, but if you look at the average.
And it's probably somewhere between 15 and $16 million a quarter.
And we expect and want the mix as we focus on.
Our efforts around our component tree sales and food and beverage to continue to improve as we move through the next three years that support and what we're doing with our 80 20 process is really placing a high emphasis on these high margin component and aftermarket service business. So we want to see that mix continue to improve.
And as we move through.
The next three years as part of our our plan that we laid out back in March and I'll need to ask a point of clarification on what you meant by the bidding process.
How it changed from how was your bidding process chain compared to the past.
Sort of existing projects and sponsor.
Yes, I mean, our bidding process, we made changes to our bidding process.
Going back two three years ago now when we number one started exiting the dry dairy.
Our systems business and as we did that.
We placed and increasing emphasis on looking at what's the content that goes into liquid systems that go into customers and.
Permanent dairies and plant based foods, so as we evaluate that what that content looks like we will make decisions there and on what type of margin profiles make the most sense for that customer on a case by case basis because keep in mind. These these projects are typically worked on for many months and there.
Bid forbid.
Activity so each each.
<unk> kind of has its own story so to speak so we have to look at them individually.
Thank you very helpful.
You bet.
And your next question comes from the line of coronary relying on from Morgan Stanley.
Your line is now open.
Yes.
Hunter here as advertised.
So on and kind of.
Good morning.
Wondering if.
And you could just help me think through the sort of.
Holistic view that you guys are taking with M&A and sort of what you've done with <unk>.
The deals thus far I guess I'm just trying to better picture are you are you, adding more content to the same customers are you, adding new customers. I think you were highlighting the sales force on.
And mixing so is is the main channel and value creation that you can take more share on a specific project that you can do.
<unk> entirely new projects, how should I think about what the.
And the growth that you're adding is beyond just buying the revenue of course.
Yes, so as part of our assessment that we do on on each opportunity we.
Clearly assess cost synergies.
Our view of where we can do things through supply chain for example, and in the factory environment.
As an important place that we look first on the synergy side on cost and then.
On the market side, there's a deep assessment that our product managers and our commercial teams do to assess where their access opportunities to two customer bases that we don't have today that not only can we.
Pull through technologies that may have differences between two mixing companies as our two brands but.
But we also look at other products that could go in to those same applications. So if if.
Our brand has a better position and in this case, you mentioned, Philadelphia mixing solutions, which we just announced at a particular customer there may be other products within that particular customer base that we can also supply.
From from the other SPX flow brands.
So that's an important piece that we look at so we look geographically we look at the customer base and then consider where we can get access on both those points not only for the mixing piece, but the other products that we can provide into them.
You mentioned the sales force one of the things that we really.
Think is interesting and we like about Philadelphia and mixing solutions sales force as they do a lot of direct selling with a lot of chemical engineering.
Sales people. So they have really strong customer relationships on the important part from how we like to position ourselves with customers around process. So we're looking to provide customers a solution and their process and so for Philadelphia mixing their sales force.
Has a great team of chemical engineers that we feel is going to be very valuable for entire mixing business as we go in and work with customers to create a solution for them not just sell a piece of equipment, but create a solution for them and Thats, where two will look to pull through other brands and pieces of equipment that could fit that.
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Hi, Conor I agree with all that Mark said I'll add one more piece as you hear us talk a lot about the innovative culture that we're driving and the increased investments that we want to make organically and our business.
So a screen that we look to and the acquisitions is to pick up cultures.
And and teams that have been successful on that front and back.
To the Philadelphia, and mixers brand and business you know that's something that they've been out for a number of years.
And we're really excited about what that can bring into our team and and we can utilize across the whole of our business and that screen to includes and and not only the culture, but also the products themselves right. So we look at the what mixing capabilities and we have in this case, what mixing capabilities as U T G have what mixing capabilities.
Does a philadelphia and mixing solutions have and how does that all match up to technologies as well as markets and customers that we want to serve.
Yeah, understood and and.
And I think maybe worth clarifying just because it sounds like you are adding more content.
It sounds like you have the potential to do some larger projects are larger scope.
Thanks, and I guess, the contrast here versus some of the bigger projects that you've been trying to get out of and the wind down is that you have a lot more control and correct. So basically what I'm wondering is.
If we think about the margin potential or.
Accretion potential would you say that that's sort of adding these types of solutions and and direct sales forces. It could be a margin boost or do you think it would be sort of neutral to margins, but yes.
Yes.
Maybe a clarification 0.1st the.
And the project business that we exited is dry dairy systems, that's that's done and it's behind US This large dry dairy systems right.
We're not trying to get out of doing project base business systems type business, and our food and beverage or and nutrition and health segment will continue to do that when we talk about projects and the industrial space Theyre not.
Large integrated EPC type projects, they're still providing discrete pieces of equipment that are tailored for that process application. So it's a completely different dynamic.
When you talk about doing a.
Food and beverage.
The facility or plant, where we're providing and creating fermented dairy products that come out or plant base, we're working with customers and in the industrial space whether it's in.
Our wastewater or mining or chemicals specialty chemicals to create and provide them with equipment that meets their process application needs gets them the outcomes, they're looking for so it's it's a completely different scenario so from a margin perspective.
There is no real concern or issue with margins in that space and it should be really consistent margins with opportunities to enhance pulling through the other products that we want to sell into those applications that also have good margin profiles. So we.
Can leverage our entire base.
Base of products across our portfolio and our operations and a much greater way.
Maybe I'll just add I think Conor as you were making reference to projects you were referencing.
Our projects and M&A transactions and possibly so what I'd say is.
That the transaction and the case of Philadelphia, and mixers, and UGG and and even going back to the policy locked deal that we did last year are these all fit the financial profile that we laid out on our Investor day, which is looking for high quality revenues.
And that are accretive to our gross margins and our operating profit margins and EBITDA margins.
What I would say is that all of these transactions fit that bill now of course, there is a period of time and winch integration activities need to happen before before all of that shows up and the P&L and that's the way we frame the value creation thesis around our cash ROIC too.
Exceeding our WAC within a period of time.
But but just to confirm these are high quality revenue businesses that are attractive and and that's part of our screen and they they approach. We've said, we want to get to 40% gross margins and they are at or.
Above that you know and.
And that's part of what we look at.
Alright, Thanks, a thriller guidance I'll turn it back.
Got it thanks Connor.
Your next question comes from the line of Nathan Jones from Stifel.
Your line is now open.
Hey, guys.
And I just wanted to ask a question on.
And the departure of Dwight Gibson and Dwight if youre listening congratulations on this day our Roe.
And I know he's been an important part of your latest mark over the last <unk>.
<unk> contributed to this strategy and where the company is going.
What are you doing.
And to cover for him any in the short term and do you guys think you have.
Replacement on the bench or you're going to conduct an external search just how you're going through that.
Yeah and I appreciate you asking the question Nathan and I was actually hoping someone would ask that question because.
Again, a shout out to Dwight we're gonna missing it's been a great member of our team and as you indicated it's been a big contributor and.
And you know that.
That legacy you'll carry on you know he and the things that he brought to our team into the business.
And have been tremendous over the last.
Five years or so that he spent he was with us.
Proud for him I'm proud for his family and.
He's he's he's well prepared for the journey of these about to about to take on his new role.
What I would mention about the team the team debt.
Dwight assembled and the commercial organization is a very experienced and capable team.
The other thing I would mention we have a very mature business operating system now so our customer or our commercial team is apart.
And that management cadence that we do every month so.
I know all the commercial team leaders very well and we meet with them monthly to review kind of key points of importance and our business.
So that commercial team knows the playbook and and they're going to continue to run that and very confident and their capabilities and they'll continue to be successful as we go through a transition period here I am evaluating the organization again, we got a strong bench, but I want to use this as an opportunity.
To make any adjustments that we see and I see necessary to support this long term strategy over the next three years. So that's what I'm in the process of doing right now I'm going to take the next 45 days to do that so say did through the end of the.
The quarter here and then as we go into the third quarter.
And I'll be in a position to talk more about what the outcomes of that assessment.
Thanks that was my only follow up you bet.
Percentage on his carrier and refrigerate questions at this time.
Please continue.
Thank you I appreciate you joining us today and that if you have any questions, we'll be around to answer them throughout the day. Thanks, and thanks, everyone. Appreciate you joining us.
This concludes today's conference call. Thank you all for participating you may now disconnect.
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