Q4 2022 SPX Technologies Inc Earnings Call

February 23, 2023

Yeah.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Okay.

Good day and thank you for standing by welcome to the Q4 2022 SPX Technologies earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question answer session.

Ask a question during this session you'll need to press star one one on your telephone.

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Withdraw your question Press Star one one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Paul Clegg, Vice President of Investor Relations and Communications. Please go ahead.

Thank you and good afternoon, everyone. Thanks for joining us with me on the call today are the lower President and Chief Executive Officer, and Mark Corona, Our Chief Financial Officer.

Also available during the Q&A will be our Chief accounting Officer, Mike Riley.

A press release containing our fourth quarter and full year results for 2019 was issued today after market close.

Can find the release and earnings slide presentation, as well as a link to a live webcast of this call in the Investor Relations section of our website at SPX Dot com.

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks.

Replay of the webcast will be available on our website until March 2nd.

As a reminder, portions of our presentation and comments are forward looking and subject to safe Harbor provisions.

Also note the risk factors in our most recent SEC filings.

Our comments today will largely focus on adjusted financial results and comparisons will be the result of continued operations only you can find detailed reconciliations of historical adjusted figures to their respective GAAP measures in the appendix to today's presentation.

Our adjusted earnings per share exclude primarily non service pension items asset impairment charges amortization expense and a loss on the divestiture of asbestos related assets and liabilities.

One change you will notice in our press release and our 10-K is that we have aligned our definition of segment income with the way. It is presented in our earnings presentations, which excludes the impact of amortization expense and acquisition related items.

Finally, we will be conducting meetings with investors over the coming months.

Including at the UBS infrastructure and Emt conference in Dallas.

As well as at Sidoti virtual small cap conference.

And with that I'll turn the call over to Jim.

Thanks, Paul Good afternoon, everyone and thank you for joining us on.

On the call today, we will provide you with an update on our consolidated and segment results for the fourth quarter.

I will also provide guidance for 2023.

This is our first call with Mark Toronto as our CFO .

Mark joined US in early January and has been quickly coming up to speed.

Mark is a great fit with SPX as growth and operational excellence initiatives. He brings a depth of experience in strategy finance and business development.

He has an impressive track record as a public company CFO .

And a strong background in engineered products growth investments and operational excellence initiatives, we're excited to have him here.

Mark welcome to the team.

Thanks, Jean I have already met several of you who are on the call today and I'm looking forward to getting to know more of you over the coming weeks and months.

<unk> has an impressive team and a great business that is well positioned for the opportunities ahead I'm excited to be here.

Thanks Mark.

Now I'll touch on some of the highlights from the quarter and provide some perspective on our 2023 guidance.

Our Q4 results exceeded our expectations with strong performances in both HVAC and detection and measurement.

Both segments drove revenue and margin growth and we continue to experience solid demand across our end markets.

During the quarter, we made further progress on a number of our key initiatives, including the establishment of ESG commitments additional progress in our digital and continuous improvement initiatives and a significant reduction in legacy liability exposure.

Looking ahead, we are starting 2023 with historically high level of backlog.

We're also seeing some easing of supply chain and labor constraints, which along our continuous improvement along with our continuous improvement initiatives.

Benefiting our operational execution.

Today, we are providing 2023 guidance for adjusted EPS in the range of $3 30 to $3 55.

Which reflects approximately 10% growth at the midpoint.

Turning to our high level results.

For the quarter, both segments helped drive strong organic revenue growth of more than 18% and our recent acquisitions performed well.

Adjusted operating income grew 48% year on year with 290 basis points of margin expansion.

On a full year basis, adjusted operating income grew 39%.

I am very pleased with our Q4 and full year performance as well as our momentum entering 2023.

<unk> mixed macroeconomic data, we believe our diverse portfolio remains resilient.

The significant capital availability and active acquisition pipeline and multiple organic growth and margin enhancement initiatives I am confident in our ability to deliver on our SPX 2025 plan.

As always I'd like to touch on our progress and our value creation framework.

As you look back over 2022.

Our teams worked hard to mitigate supply chain and labor constraints, leveraging our business system to meet strong levels of customer demand.

We introduced multiple new products made progress on our key initiatives and reduced complexity and risk by divesting our legacy asbestos liabilities.

I'm also very proud of our momentum on our ESG initiatives.

SPX is well positioned to thrive in the Paris accord World, where long term targets on carbon emissions are realized.

From our highly efficient cooling towers to our inspection equipment that helps tack and remediate leaks in underground water and gas pipes.

<unk> offers a wide array of innovative products that enable a safer more efficient and sustainable future.

In 2020 to be more formally incorporated ESG is a key element of our strategic planning process for each business unit.

Significantly expanded our disclosures.

Adopted a human rights policy.

And saw considerable increases in our scores among key ESG rating entities.

Recently, we adapted companywide sustainability commitments, including a 30% reduction in greenhouse gas emissions intensity by 2030.

We're also named by Newsweek as one of America's most responsible companies.

We're honored to be recognized and pleased with the hard work of our team is being acknowledged.

Another area, where we have strong momentum is in our digital initiatives.

As the new name of our company reflects it is more important than ever to leverage technology solutions to help our customers continued to be successful.

Each of our platforms is focused on providing innovative designs products and tools to enable our customers to be more efficient productive safer and more sustainable.

A few examples of where we continue to see customer traction include our pro tools Tech App.

Within our HVAC heating business, which.

<unk> field technicians become hydraulics experts by putting our boiler product information at their fingertips and a mobile platform.

In 2022, we took market share in boilers, and we believe that our digital initiatives were a key reason for the success.

In our cooling business, our core <unk> software is enabling customers to compare select and configure highly engineered cooling solutions.

Oster and easier than ever before.

In detection and measurement.

Seeing strong adoption of Gen Fair link our modular cloud hosted fair processing platform, which provides.

Rides valuable data and analytics.

And efficient management of transportation networks.

But Jennifer link transportation authorities can now offer account based provider management web.

Website and portal support and.

And customer service functions all in one place.

At this point, we have won more than 50 accounts on Gen fair length.

And our Qs granted that software platform continues to develop new ways to drive efficient management of critical infrastructure.

Municipal water authorities, including the use of AI.

Pre screen potential areas of concern and the ability to Geo Tech geotag maintenance priorities with Lidar enabled robotics.

I'll now turn the call to Mark to review our financial performance.

Jim.

We are very pleased with our performance for the quarter and full year in.

In the fourth quarter, our adjusted EPS grew 33% year on year to $1 17.

Full year adjusted EPS was $3 10.

Also up 33% year on year.

The most notable adjustment to our GAAP results as a loss on the previously announced divestiture of our asbestos liabilities and associated assets.

Other customary adjustments include the removal of mark to market pension gains acquisition related costs amortization expense and asset impairment charges.

In addition to the segment drivers, which I'll review momentarily.

Effective tax rate created a year on year headwind to adjusted EPS in the fourth quarter of approximately <unk> 12.

Compared with an unusually low effective tax rate in the prior year.

A review of our results reflect strong growth across our company.

Revenues increased 22, 7% year on year, including 18, 4% organic growth with strength in both our HVAC and detection and measurement segments.

Acquisitions contributed inorganic growth of six 3% related to Cincinnati fan and <unk>.

Partially offsetting our topline organic and acquisition growth was a 2% FX headwind, resulting from the strong dollar.

As a reminder, currency fluctuations generally have little effect on our overall profitability due to significant natural hedges and our cost structure.

Segment income grew by $23 2 million or 34, 5% to $95 million, while margin increased 190 basis points. These.

These increases were driven by strong performance in HVAC and to a lesser extent in detection and measurement.

In addition price cost remained a modest tailwind in both segments.

For the quarter and our HVAC segment revenues grew 29, 5% year on year.

Heating and cooling both contributed to organic growth of 21, 1% driven by increased volume and price in both platforms.

During the quarter. We also benefited from improvements in the availability of labor and the easing of supply chain constraints.

Inorganic growth was nine 4%, reflecting the acquisition of Cincinnati fan.

The strong dollar was a modest FX headwind.

Segment income increased by $19 million and margin increased 320 basis points, reflecting improvements in throughput from favorable operational execution, particularly in cooling and favorable price cost trends and heating.

Overall bookings remained solid and in the fourth quarter segment backlog increased by approximately 7% year on year to $243 million.

For the quarter and detection and measurement revenues grew 12, 2% year on year.

Location and inspection Comtech and <unk> were all strong contributors to organic growth of 14, 4%.

The strong dollar resulted in a three 7% currency headwind.

Segment income increased by $4 $2 million and margin grew 20 basis points.

We continue to experience solid run rate demand and a strong environment for project sales.

Backlog at quarter end was $250 million up 63% year on year, primarily due to large project orders.

Okay.

Turning now to our financial position at the end of the quarter.

Our balance sheet remains strong and we have significant liquidity available to support our strategic growth initiatives.

At quarter end, we had cash of $157 million and no borrowings under our revolving credit facility.

Our cash balance included the impact of divesting, our asbestos liabilities, which was funded with approximately $139 million cash on hand.

As a result, we concluded the year with net leverage 0.4 times.

For the full year adjusted free cash flow was approximately $97 million.

In 2022 cash generation was affected by strategic working capital investments related to supply chain management.

During 2023, we anticipate a return to a more normalized run rate of cash generation.

Moving onto our guidance, we are initiating 2023 guidance for adjusted EPS.

In a range of $3 30 to $3 55.

The midpoint reflects year on year growth of approximately 10%.

One notable change between 2023 and prior years is that we now anticipate an effective tax rate of approximately 24%.

Compared with an effective tax rate of approximately 21% in 2022.

The change is due to a higher percentage of income in the United States and higher statutory rates in certain jurisdictions.

In our HVAC segment, we anticipate revenue in a range of $935 million to $955 million.

Segment income margin is anticipated to be in a range of $15, two 5% to 16% or an increase of approximately 80 basis points at the midpoint.

Reflecting more efficient production and our heating and cooling facilities and a favorable price cost environment.

In our detection and measurement segment, we anticipate revenue in a range of $565 million to $585 million.

Segment income margin is anticipated to be in a range of $25 21, 5% or a modest year on year increase at the midpoint.

In 2023, we anticipate significant project revenue at lower than typical project margins due to the amount of pass through content and certain large projects.

With respect to the cadence of the quarters, we anticipate that it will be similar to 2021, when approximately 43% of EPS fell in the first half of the year and 57% in the second half.

As always you will find modeling considerations in the appendix to our presentation.

I'll now turn the call back over to gene for a review of our end markets and his closing comments.

Thanks Mark.

Overall current market conditions remain supportive of solid growth in 2023.

Across our HVAC businesses supply chain and labor constraints remain but are improving.

In HVAC cooling, we continue to see solid demand for our products in North America, and the APAC region.

And our heating business bookings remained steady driven by commercial and industrial demand and residential replacement.

And in detection and measurement our run rate demand is solid overall with some regional variations while the environment for project orders remains attractive.

In summary, I am pleased with our very strong close to the year and our momentum on multiple important initiatives.

We are beginning 2023 in a strong position to achieve full year earnings growth of approximately 10% at the midpoint of our guidance.

With a solid balance sheet and an active M&A pipeline, we are well positioned to continue compounding our growth through strategic acquisitions.

I'm proud of our highly capable experienced team.

And I am confident in our ability to continue executing on our value creation roadmap for years to come.

As you look ahead I am excited about reaching our SPX 2025 targets.

With that I'll turn the call back to Paul.

Thanks, Keith operator, we are ready to go to questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.

Please standby, while we compile the question and answer roster.

Our first question comes from the line of Damian Karas of UBS. Your line is open.

Hi, good evening everyone.

Hey, Damian Hey, David.

Hello.

Hey.

I wanted to open by asking you about.

Your sales outlook.

Gene I know you guys.

Try to be very prudent about setting achievable financial target, but just hearing some of your commentary related to the healthy backlog continued orders grow.

And kind of what youre seeing across your business.

I guess kind of the 4% or so sales growth.

Maybe just sounds a little bit light.

I was wondering is that related to just kind of the tougher comps that youre going to have or are you factoring in some potential macro weakness senior year. This year.

Really any color on kind of how youre thinking about the sales outlook.

Yes, I think.

Good question Damian I think if you look at it very positive year in 2002, we had approximately 33% earnings growth by 10% this year.

I think when we put together our plan we did look at the macro economic environment.

As you know GDP is expected to be relatively flattish in our no growth.

In North America, which is where the bulk of our sales.

Having said that where we sit today.

Do come in with a very strong backlog in our end markets we're seeing.

Solid order rates, so what I would say as well.

What we have out there for our guidance is what we believe is the appropriate guidance.

Have out there now having said that we're always looking to to achieve higher than that so that's you always wanted to achieve higher and I don't know if you have any other comments that you guys would like to share.

Yes, Damian I'll, just kind of add to that let's say, there's a number of factors out there that are going to impact how we fall within the range that we put forward as gene mentioned the macro environment the.

The signals are mixed out there today to look at things like non <unk> and some of the leading indicators that folks look at.

Unclear, what theyre signaling, they're probably flashing yellow.

Supply chain and labor those are those are moderating for us, but I would say, we're not out of the woods on both of those issues, yet getting better, but but but not back where they were.

While price cost has been a tailwind for us in the first half we expect it will be in the first half of the year. We don't have a lot of visibility on what that might look like in the back half of the year.

If you start to think about the businesses and some of the elements you would think about.

On the on our HVAC business, particularly on the heating side weather is obviously, a key element in that business.

That obviously is something that will play out more on the back half of the year, but it definitely drives that business and its performance.

Despite my comments on the leading indicators and caution around those while we arent seeing weakness there our visibility is limited in that market.

Our up to about six months, so it's hard for us to see much beyond that.

And then on the DM side that that is.

Slightly different profile, but as you know a portion of that business is short cycle.

Particularly the radio detection business, which is more sensitive.

To eat the economic environment and in the event that there is weakness towards the back of the back half of this year.

We would expect that business would be impacted by that so I think net net I mean, our view is it's a reasonable range and targeting kind of this 10% earnings growth.

Based off of the revenue and segment income guidance that exists.

Understood.

All of that.

And then my second question.

With respect to the detection and measurement margin guide.

So you are expecting some nice top line growth kind of mid single digits, but.

More flattish type margin trajectory so.

Is that is that primarily mix related or maybe if you could just kind of lay out the margin bridge for D&S and how youre thinking about that.

Yes, Dave I mean I'll start.

Really you hit on it it's primarily a mix issue right. We've got some large project orders in there that we mentioned.

Or we referenced in the backlog and they include some pass through revenue, which ultimately results in a what I guess I would call lower than average margin that we see from these projects and in that business.

Got it makes sense I'll get back in the queue. Thanks, guys.

Thanks, Dave.

Thank you.

One moment please.

Our next question comes from the line of Bryan Blair at Oppenheimer. Your line is open.

Thanks, guys, great finish to the year.

Yes, Thanks, Brian .

Obviously UBS came in solidly ahead of expectations and maybe offer a little more color on the sources of the.

The 2000 feet.

I guess I'm, particularly curious if we should consider anything one time ish in that regard.

So Brian first of all I'll, just I'll start.

This is Paul.

A lot of it was really <unk> really strong execution youll see that we had very strong results in our HVAC business.

In both heating and cooling, where we have large backlogs and a supply chain improved and our labor position also improved we were able to get through.

Nice amounts of that backlog.

Drive better throughput.

And our plants and HVAC.

Yeah, and I think I mean, just adding onto that right that that's really what drove the margin increase you saw in HVAC quarter quarter over quarter year over year in the 320 basis points right.

As supply chain eased as labor is the labor environment and its impact on some of our plants.

Ceded somewhat we were able to really drive throughput.

Understood results were excellent.

May be offered.

Some additional detail on infrastructure opportunities the SPX platforms, most likely to benefit going forward.

And when we May see those talent is really accelerate and return to growth.

Yes.

I'll give you some color on that I think that the most immediate place we see when we look at that as more in the detection measurement side I'd say the first place that we'd seen it would be on transportation fare collection platform, where theres been a lot of activity.

Youll see the municipalities.

Some of the larger projects that they have out there really starting to move to fruition.

We see that as something that that's actually happening right now you kind of look across our portfolio. There's a lot of different places at the infrastructure moneys could be beneficial having said that it's not all at the same time, it's not all year one.

Look at for example, our lighting business, where we provide lighting solutions for.

When develops or five G towers.

Those don't typically go up in a few months is typically a longer process and so we're typically at the tail end of that process on the other side or things like fare collection of some some some other areas.

So I do see it hitting a lot of areas I would also say on the cooling side, we're seeing some pretty interesting pockets.

And in a couple of areas, we are seeing our batteries being quite intriguing and we're seeing semiconductor and data center activity is being very healthy.

And those typically have a lot of needs for our type of cooling equipment. So I'd say, that's an area that I think is seeing some benefit.

On some of the.

The government funding and something that should be out there for a number of years.

Alrighty.

I wanted to bring up is always radio detection.

Radio detection is we're the leader in underground scanners.

Part of our location and inspection platform.

Thats really a good proxy for economic activity, because we have the scanned before you dig for Google fiber or whether you are putting in gas lines or whether you're putting in.

Non res the buildings are hospitals educational any type of activity bridges.

Need to scan typically and that as a net driver of end market demand for us. So the more general activity Youll see some of our infrastructure technology get pulled along with that Qs is the last one that I'll highlight which is robotics for water and wastewater applications.

And we have seen some monies that have gone to the municipalities there.

We haven't seen that converting into orders as of yet we are seeing some programs where there is some opportunities. So if you look at it across the portfolio I do think this will be a net benefit to us over the next couple of years, we do see some areas provide some nice.

Demand support for us.

All helpful detail and if I can.

Ask one more.

The tone on your M&A opportunities on surprisingly positive any additional color you can offer there in terms of the.

Progression of your M&A pipeline any shift in composition of the funnel.

Seller expectations action ability over the near term.

Anything along those lines would be great.

Yes.

But I would say that overall, we feel really good about our strategy. So for each of our six platforms. We have very detailed growth plans and.

We're executing against those tons of the activity level I would say it is a very healthy level of activity.

We did see some slower level of activity during some of the COVID-19 years, but I'd say, that's not not the case right now we're seeing very healthy levels. Thus, despite where interest rates are today. So.

We are very pleased we haven't seen.

It's interesting we always get the question on multiples.

When things are very high Theyre gone up when they're when things are going the other way they going down.

Disciplined on our multiples as you know we've acquired some really good companies typically engineered products, leading positions typically 20% EBITDA, sometimes more good growth rates.

And on average we've brought these in at around 10 to 11 times and.

We don't see any material change in that profile now we've always said if you look at a larger now.

Opportunity you could get a higher turn or two.

On some of those but where I said on our growth opportunities for 'twenty three.

I think we have a very attractive set of growth opportunities.

Having said that as we always caution we're going to be very disciplined here and we're going to be very careful but I would say, we're feeling very very positive on the program.

Understood. Thanks again guys.

Thanks, Brian .

Thank you one moment please.

Yes.

Our next question comes from the line of Steve <unk>.

<unk> of Sidoti.

Your line is open.

Jean Marc.

I do want to follow up on last question in terms of.

How the how well you are now positioned to hitting those SPX 2025 targets I think we're what.

Almost 10 to 11 months since the last significant acquisition I know.

But any reason to start pushing that back given the length of time between the most recent acquisition.

Steve I don't believe so I think you're spot on it was a slow year really the only bolt on we did with IPL as our slowest year in four years, there's various reasons for that.

One of the ones I will point out was the magnitude of the sale of our asbestos liabilities, where we had to reorganize the company restructure.

Sale did consume a lot of management time and attention.

In addition to <unk>.

Various things that happened during the year.

We don't give color on.

What we do.

Didn't happen I guess, you can say, but what I, but what I would say is I.

I feel very good about 2025, and I feel very good about our pipeline so.

We have a very strong balance sheet, we're sitting here at four times net debt.

<unk>.

We think we have some some very smart ways to deploy that going forward and so really it's up to us in executing it but yes.

To answer that.

The primary part of your question I don't feel we need to move back by 2025 targets.

Great. Thanks, and then also on capital allocation.

Mark you noted that you expect more of a normalization in terms of working capital which would indicate.

Stronger cash flow in 2023, any thoughts outside of M&A would you be looking at debt reduction or anything else you might want to do with that.

It should be increasing cash flow.

Yes, I think listen as Jim kind of alluded to write our first focus is on growth whether that be organic investing in the business and capex or inorganic and driving the business.

In that method.

I think with respect to other return of capital options.

Have to repurchase shares in the past that was at a unique moment, where we felt like the stock was undervalued.

At that time, and clearly we will have a keen eye on that.

I wouldn't rule that out as an option, but I wouldn't say, it's sort of a primary focus at the moment with respect to deployment of capital.

Yes, I'd say, we kind of allocated up to 10% and I think that's always out there if we see dislocation in the stock, which we had last year I think we're very comfortable where we do see some.

Some very attractive growth opportunity.

On that note it sounds like Capex, a little bit higher this year $25 million.

That's right.

And yes, we are looking at.

Yes, we are looking at some various growth opportunities that we have.

Probably leaning a little bit more towards the HVAC business.

Heating and cooling.

At the plant level, where there are some strong opportunities to improve our overall throughput.

Efficiency and brokerage so.

What I don't anticipate that that will be sort of a permanent feature of our cash flow.

But for this year and perhaps next year, you might see a little bit of an elevated level of what we make those investments.

Great if I could squeeze one last one in just to go back to the really healthy HVAC margins. This quarter and you talked about working through more backlog, but as I recall a quarter ago. When you were guiding and there was some caution there that you were going to see some older price backlog works through I'm, just trying to figure out how that how that how is that.

No.

Correct itself Island.

Sort of how that things with our with the margins that we get the higher margin. If you had some much more price backlog that was sitting in there.

Yeah, but we weren't pushing through a lot more volume Steve.

Stephen I think Thats really the driver there as you look at those there is a certain amount of efficiency that you see.

You have the labor on site.

All of them or most of the suppliers that you need to drive efficiencies youre not having to switch people from different lines and things like that so that all plays too.

Much nicer drop through covering those fixed costs and being able to push those margins in the fourth quarter I think I think we feel good about where our price cost says we feel like where we are sub space when they get when we get the margins associated with Paul.

And one thing Steve that on <unk>.

Debt repayment, it's probably worth noting.

Our term loan a.

Is locked.

Low to.

We do yeah, so we're not going to payback.

Our term loan.

Net to two point.

Chad.

That gives us some nice again, some further although hello, everyone.

Fair enough. Thanks, Thanks for answering my questions Tony folks.

Thank you.

Our next question.

Next question comes from the line of Damian Karas of UBS. Your line is open.

Hey, guys just a few follow ups here.

First of all on HVAC.

Wondering if you could maybe parse out kind of the growth expectation for heating and cooling as it kind of the same or expecting one.

Stronger than the other.

Okay.

So really we would see more of the growth come from lease side.

Heating as you know Damian when we entered the year, we are typically more reliant on weather.

<unk> fourth quarter to determine what that fourth quarter heating throughput is going to look like or the fourth quarter volumes.

That wasn't the case in 2022 as we were looking at a fairly high backlog going into the fourth quarter, and we were able to execute well on that but as we go into this year.

That's a consideration we have taken into account in our guidance.

And I think Paul it sort of ties back to some of the comments Jim made earlier about some of the opportunities that we're seeing.

For our cooling product right that are being driven by some of this infrastructure spend.

Okay, Great and then.

2022, I guess from a free cash flow perspective was a little bit of.

Murphy.

We had the asbestos matters, but working capital also a bit of a drag. So how are you thinking about the cash flow outlook from here do you think you can get back to more like a 100% conversion number this year or is it going to take a little bit more time.

I think Damian I think.

We think there's a path back to a more normalized range of free cash flow conversion.

My expectation would be somewhere in that 90% to 100% range as I think about 2023.

I do think working capital will normalize, particularly around inventories over time, but that may be not a 12 month period that could be a 24 month period as that normalizes.

That's really driven by though is not everything that we're out there sourcing for inventory, but there are pockets of the supply chain that still remain constrained. If you will on availability. So strategically we've decided to carry more inventory there to support the business.

Understood.

One last one.

<unk> you had mentioned some of the digital initiative <unk>.

<unk> it sounds like that's more or less just a complementary service to helping you gain outgrow the market in boilers.

But you also talked about Ken fair links and a few others and so 50, new accounts again fair length is that should we be thinking of that as an incremental.

It'll revenue opportunity or U R E capturing additional.

Sales on these accounts is it like a software subscription how should we think about that.

Yeah, and I think I think you're right I think broadly speaking if you think about our digital initiatives on the <unk> side, it's much more of.

<unk> solutions and capabilities to really help either us or our reps our partners in the field when and.

We talked about the heating business. The hydronic said, a great year and I think the digital tools that we provide to the contractors as a key factor of why we gained so much market share this year. So.

We feel really good at that really when you look on the detection and measurement it's different most of our.

Detection measurement products come with software. So it's really part of the solution that you're providing to the customer.

In general what you see is.

This software on a on a relative basis, a small relative to the revenue of the overall segment you were talking in the neighborhood of lets say $20 million $25 million, having said that it's extremely strategically important because this.

This.

The software we provide provides data.

Analytics often times.

A lot of times, its asset management and in it and genders customer loyalty such that once they buy our equipment. They buy all of their equipment with us and so for example on the specifically on the Gen. Fair example, once a municipality goes on our platform.

They're on our platform for the next 20 years.

Typically and so every piece of equipment that attaches into that fare collection area.

We'll be the Gen fair solution, because it plugs and plugged into their software, but to your very specific question. Yes. We are building revenue streams now adds still hey, those revenue streams are smaller.

Relatively speaking to the equipment, so like let's say on the Gen fair side.

The amount of software selling SaaS software typically is growing every year and it's doing doing very well and we'll keep winning more accounts, but it is still relatively a smaller portion of the overall.

Revenue of the business, you're probably talking high single digits in terms of revenue.

And in terms of margin actually it's getting more material youre probably talking.

Because at such high margin, you're probably talking higher than that but yeah.

That might give you some flavor Damien for how we think about it.

Okay, that's fair.

Helpful. Thanks, a lot guys best of luck.

Okay.

Thank you Vivian.

Thank you Mike.

I'd like to now turn it back to Paul crank for closing remarks.

Thank you all for joining us on the call today, and we look forward to updating you again next quarter. Thank you for your support.

And thank you for participation in today's conference. This does conclude the program and you may now disconnect.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Yes.

Okay.

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To ask a question. During this session you will need to press star one on your telephone.

Then here an automated message advising that your hand, just raised to withdraw your question Press Star. One line again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Paul Clegg, Vice President of Investor Relations and communications. Please.

Go ahead.

Yeah.

Thank you and good afternoon, everyone. Thanks for joining us with me on the call today are gene Lowe, our president and Chief Executive Officer, and Mark Corona, Our Chief Financial Officer.

Also available during the Q&A will be our Chief accounting Officer, Mike Riley.

The press release containing our fourth quarter and full year results for 2022 was issued today after market close.

Can find the release and earnings slide presentation, as well as a link to a live webcast of this call in the Investor Relations section of our website at SPX Dot com.

I encourage you to review our disclosure.

Press releases and to follow along with the slide presentation during our prepared remarks.

Replay of the webcast will be available on our website until March 2nd.

As a reminder, portions of our presentation and comments are forward looking and subject to safe Harbor provisions. Please also note the risk factors in our most recent SEC filings.

Our adjusted earnings per share exclude primarily non service pension items asset impairment charges amortization expense and a loss on the divestiture of asbestos related assets and liabilities.

Finally, we will be conducting meetings with investors over the coming months, including the UBS infrastructure and EMC conference in Dallas.

As well as at Sidoti virtual small cap conference.

And with that I'll turn the call over to Jim.

Thanks, Paul Good afternoon, everyone and thank you for joining us on.

On the call today, we will provide you with an update on our consolidated and segment results for the fourth quarter.

I will also provide guidance for 2023.

This is our first call with Mark Chrono as our CFO .

Mark joined US in early January and has been quickly coming up to speed.

Mark is a great fit with SPX as growth and operational excellence initiatives. He brings a depth of experience in strategy finance and business development.

He has an impressive back track record as a public company CFO .

And a strong background in engineered products growth investments and operational excellence initiatives, we're excited to have him here.

Mark welcome to the team.

Thanks, Jean I've already met several of you who are on the call today and I'm looking forward to getting to know more of you over the coming weeks and months SPX has an impressive team and a great business that is well positioned for the opportunities ahead I'm excited to be here.

Thanks, Mark now I'll touch on some of the highlights from the quarter and provide some perspective on our 2023 guidance.

Our Q4 results exceeded our expectations with strong performances in both HVAC and detection and measurement.

Both segments drove revenue and margin growth and we continue to experience solid demand across our end markets.

During the quarter, we made further progress on a number of our key initiatives, including the establishment of ESG commitments additional.

Progress in our digital and continuous improvement initiatives and a significant reduction in legacy liability exposure.

Looking ahead, we are starting 2023 with historically high level of backlog.

We're also seeing some easing of supply chain and labor constraints, which along our continuous improvement along with our continuous improvement initiatives.

Is benefiting our operational execution.

Today, we are providing 2023 guidance for adjusted EPS in a range of $3 30 to $3 55.

Which reflects approximately 10% growth at the midpoint.

Turning to our high level results.

For the quarter, both segments helped drive strong organic revenue growth of more than 18% and our recent acquisitions performed well.

Adjusted operating income grew 48% year on year with 290 basis points of margin expansion.

On a full year basis, adjusted operating income grew 39%.

I am very pleased with our Q4 and full year performance as well as our momentum entering 2023.

Despite mixed macroeconomic data, we believe our diverse portfolio remains resilient.

With significant capital availability and active acquisition pipeline and multiple organic growth and margin enhancement initiatives I am confident in our ability to deliver on our SPX 2025 plan.

Yeah.

As always I'd like to touch on our progress and our value creation framework.

As you look back over 2022.

Our teams worked hard to mitigate supply chain and labor constraints, leveraging our business system to meet strong levels of customer demand.

We introduced multiple new products made progress on our key initiatives and reduced complexity and risk by divesting our legacy asbestos liabilities.

I'm also very proud of our momentum on our ESG initiatives.

SPX is well positioned to thrive in a Paris accord world, where our long term targets on carbon emissions are realized.

From our highly efficient cooling towers to our inspection equipment that helps tack and remediate leaks in underground water and gas pipes.

<unk> offers a wide array of innovative products that enable a safer more efficient and sustainable future.

In 2022 more formally incorporated ESG is a key element of our strategic planning process for each business unit.

Significantly expanded our disclosures.

Adopted a human rights policy.

And saw considerable increases in our scores among key ESG rating entities.

Recently, we adapted companywide sustainability commitments, including a 30% reduction in greenhouse gas emissions intensity by 2030.

We're also named by Newsweek as one of America's most responsible companies.

We are honored to be recognized and pleased with the hard work of our team is being acknowledged.

Another area, where we have strong momentum is in our digital initiatives.

As the new name of our company reflects it is more important than ever to leverage technology solutions to help our customers continued to be successful.

Each of our platforms is focused on providing innovative designs products and tools to enable our customers to be more efficient productive safer and more sustainable.

A few examples of where we continued to see customer traction include our pro tools Tech App.

Within our HVAC heating business.

It helps field technicians become hydronic experts by putting our boiler product information at their fingertips and a mobile platform.

In 2022, we took market share in boilers, and we believe that our digital initiatives were a key reason for the success.

In our cooling business, our core <unk> software is enabling customers to compare select and configure highly engineered cooling solutions.

Foster and easier than ever before.

In detection and measurement, we're seeing strong adoption of Gen. <unk> link our modular cloud hosted fair processing platform, which.

Which provides valuable data and analytics.

And efficient management of transportation networks.

But Jennifer link transportation authorities can now offer account based rider management web.

Website and portal support.

And customer service functions all in one place.

At this point, we have won more than 50 accounts on Gen fair length.

And our Qs granted that software platform continues to develop new ways to drive efficient management of critical infrastructure.

For water authorities, including the use of AI to pre screen potential areas of concern and the ability to Geo Tech geotag maintenance priorities with Lidar enabled robotics.

I will now turn the call to Mark to review our financial performance.

Thanks Gene.

We are very pleased with our performance for the quarter and full year.

In the fourth quarter, our adjusted EPS grew 33% year on year to $1 17.

Full year adjusted EPS was $3 10.

Also up 33% year on year.

The most notable adjustment to our GAAP results as a loss on the previously announced divestiture of our asbestos liabilities and associated assets.

Other customary adjustments include the removal of mark to market pension gains acquisition related costs amortization expense and asset impairment charges.

In addition to the segment drivers, which I'll review momentarily.

Effective tax rate created a year on year headwind to adjusted EPS in the fourth quarter of approximately 12.

Compared with an unusually low effective tax rate in the prior year.

A review of our results reflect strong growth across our company.

Revenues increased 22, 7% year on year, including 18, 4% organic growth with strength in both our HVAC and detection and measurement segments.

Acquisitions contributed inorganic growth of six 3% related to Cincinnati fan and <unk>.

Partially offsetting our topline organic and acquisition growth with a 2% FX headwind, resulting from the strong dollar.

As a reminder, currency fluctuations generally have little effect on our overall profitability due to significant natural hedges and our cost structure.

Segment income grew by $23 2 million or 34, 5% to $95 million, while margin increased 190 basis points.

These increases were driven by strong performance in HVAC and to a lesser extent in detection and measurement.

In addition price cost remained a modest tailwind in both segments.

For the quarter in our HVAC segment revenues grew 29, 5% year on year.

Heating and cooling both contributed to organic growth of 21, 1% driven by increased volume and price in both platforms.

During the quarter. We also benefited from improvements in the availability of labor and the easing of supply chain constraints.

Inorganic growth was nine 4%, reflecting the acquisition of Cincinnati fan.

The strong dollar was a modest FX headwind.

Overall bookings remained solid and in the fourth quarter segment backlog increased by approximately 7% year on year to $243 million.

For the quarter and detection and measurement revenues grew 12, 2% year on year.

Location and inspection Comtech and <unk> were all strong contributors to organic growth of 14, 4%.

The strong dollar resulted in a three 7% currency headwind.

Segment income increased by $4 $2 million and margin grew 20 basis points.

We continue to experience solid run rate demand and a strong environment for project sales.

Backlog at quarter end was $250 million up 63% year on year, primarily due to large project orders.

Okay.

Turning now to our financial position at the end of the quarter.

Our balance sheet remains strong and we have significant liquidity available to support our strategic growth initiatives.

At quarter end, we had cash of 157 million no borrowings under our revolving credit facility.

Our cash balance included the impact of divesting, our asbestos liabilities, which was funded with approximately $139 million cash on hand.

As a result, we concluded the year with net leverage of 0.4 times.

For the full year adjusted free cash flow was approximately $97 million.

In 2022 cash generation was affected by strategic working capital investments related to supply chain management.

During 2023, we anticipate a return to a more normalized run rate of cash generation.

Moving on to our guidance, we are initiating 2023 guidance for adjusted EPS.