SPX Technologies Inc. Q1 2023 Earnings Call
Yeah.
Good day and thank you for standing by welcome to the SPX Technologies Q1, 2023 earnings Conference call.
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I would like now to turn to hand, the conference over to Paul Clegg VP of Investor Relations and communications.
Okay.
Thank you operator, and good afternoon, everyone. Thanks for joining us.
With me on the call today are gene Lowe, our president and Chief Executive Officer.
Mark Corrado, our Chief Financial Officer.
A press release containing our first quarter 2023 results was issued today after market close.
You can find the release and our 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 follow along with the slide presentation during our prepared remarks.
A replay of the webcast will be available on our website until may 11th.
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 comments today will largely focus on adjusted financial results and comparisons will be to the results of continued operations only.
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 acquisition and the strategic transformation costs.
Non service pension items, Mark to market changes amortization expense and a gain on the change in the value of an equity security.
Finally, we will be conducting meetings with investors over the coming months.
<unk> at the William Blair growth stock conference in Chicago on June seven.
And with that I'll turn the call over to Jim.
Thanks, Paul Good afternoon, everyone and thank you for joining us.
On the call today, we will provide you with an update on our consolidated and segment results for the first quarter.
I will also provide an update on our full year guidance for 2023, and our recent M&A activity.
Our Q1 results exceeded our expectations and were the strongest for our first quarter and more than a decade.
This performance was driven by a combination of a high starting backlog continued demand strength across our end markets and efficient execution by our teams, which has helped by more stable supply chain and labor conditions.
Strong performances in both segments helped drive revenue growth of approximately 30%.
HVAC in particular had very strong results achieving segment margin of 19% our highest ever first quarter.
In April we announced the closing of one acquisition in our HVAC cooling platform.
And more recently, we announced an agreement to acquire a second company in our HVAC heating platform.
Together, we expect these acquisitions to add more than $170 million and run rate revenue.
And to answer the margin and growth rate of our HVAC segment I will speak about these acquisitions in a moment.
Considering our strong performance and the acquisition of <unk>, we are raising our full year 2023 guidance for adjusted EPS to a range of $3 80 to $3 95.
Reflecting year over year growth at the mid point of approximately 25%.
I am pleased to say that with Pimco, our revenue guidance for our HVAC segment is now more than $1 billion.
A new milestone for our company.
Turning to our high level results.
For the quarter, both HVAC and detection and measurement grew revenue by more than 30% organically.
Adjusted operating income Com grew a 132% year on year.
With 640 basis points of margin expansion.
<unk> strong segment results.
I'm very pleased with our Q1 performance and our positioning for the remainder of 2023.
As you look ahead, we continue to see solid demand across our end markets.
<unk> backlog robust order trends and operational momentum in our plants.
Confident in our ability to achieve our updated guidance.
To continue progressing towards our <unk> 2025 targets.
As always I'd like to touch on progress on our value creation framework.
During Q1, our teams worked hard to drive efficiencies in our plants and accelerate delivery times to our customers, reflecting the benefits of our continuous improvement initiatives.
We also continued to introduce our customers to the benefits of our new digital tools and software applications.
It can significantly reduce labor in the field.
Improved quality and streamlined planning and workflow, which enhances customer experience and loyalty.
This includes our Qs AI enabled the granite net software, which helps customers with the inspection and condition assessment of water and wastewater assets and while Mclean's pro tool Tech App, which helps field technicians solve problems on site, eliminating the need for multiple types of.
Sure.
We've also made significant progress on our inorganic growth initiatives.
On April three we announced the acquisition of Pimco and this week, we announced an agreement to acquire aspect heating group.
<unk> is the market leader in motorized and non motorized dampers that control airflow and large scale specialty applications in commercial industrial and institutional markets.
They are well known for eco friendly solutions with very low levels.
<unk> and critical thermal applications, such as data centers and health care facilities.
Timko further extend our positioning in the attractive engineered and movement market within our core <unk> platform.
We see significant opportunities for further growth in this market by combining <unk> high quality solutions with SPX technologies global footprint marketing and channel infrastructure and existing air movement offerings.
Kimco has annual revenue of more than $50 million and as anticipated margins and revenue growth rates are higher and the HVAC segment average.
This week, we announced an agreement to acquire Aztec heating group, which provides electrical heating solutions for high value applications in industrial and commercial markets.
We anticipate that aspect will have run rate revenue of more than $120 million in 2023 with higher than average margins.
The closing of this transaction is subject to antitrust regulatory approval and we currently anticipate completion of the transaction in late Q2.
This will be our largest acquisition since the spin and were more than double the size of our electric heating product revenue an area, where we see attractive growth opportunities including de carbonization.
Through the combination of aspect with our Marley engineered products business, we see multiple opportunities to drive value for our customers, including more efficient distribution channel voice of customer led innovation digital tools and the development of next generation eco friendly products.
I am very excited about the positioning and growth opportunities that both <unk> and asked that create for our HVAC segment.
I believe will provide significant value.
Customers and shareholders alike.
And now I'll turn the call over to Mark to discuss our financial results in more detail.
Thanks, Jim.
It was an outstanding quarter in Q1, our adjusted EPS grew 133% year on year to <unk> 93.
The adjustments from GAAP results covered earlier by Paul are consistent with our historical practice.
Overall revenues increased 32% year on year, including 36% organic growth with strength in both our HVAC and detection and measurement segments.
The acquisition of <unk> in April 2020 to contribute modest inorganic growth and FX was a headwind of one 1%.
Segment income grew by $34 $8 million or 88% to $74 4 million.
While margin increased 570 basis points.
These increases were driven by strong operational performances in HVAC and detection and measurement.
Price cost remained a margin tailwind in both segments due primarily to our pricing actions over the last 12 months.
For the quarter and our HVAC segment revenues grew 33% year on year.
Heating and cooling both contributed to organic growth of 39% driven by balanced contribution of increased volume and price in both platforms FX.
FX was a modest headwind.
During the quarter, we continued to drive strong throughput in our plants, particularly in cooling as a result of process improvement favorable operational execution, and a more stable supply chain and labor conditions.
Segment income increased by $27 $1 million and margin increased 830 basis points, reflecting operating leverage on higher volumes and favorable price cost trends.
In Q1, we also experienced an incrementally higher mix of aftermarket parts sales in our cooling business, which benefited our segment income margin.
By comparison in the prior year quarter, we experienced headwinds related to supply chain labor and price cost.
Bookings remained strong despite the historically high Q1, HVAC sales segment backlog increased again this quarter up modestly year on year to $270 million and up 11% sequentially from Q4.
For the quarter and detection and measurement revenues grew 30% year on year.
Organic growth of 31% was driven by increases across all of our platforms, but was particularly strong in our project focused businesses Comtech and transportation.
The acquisition of <unk> contributed inorganic growth of one 8% and FX was a headwind of one 9%.
Segment income increased by $7 $7 million and margin expanded 130 basis points.
We continue to experience solid run rate demand and a strong environment for project sales.
Segment backlog at quarter end was $245 million up 60% year on year, primarily due to large project orders in Comtech and transportation.
Turning now to our financial position at the end of the quarter.
Our.
Sheet remains strong and we have significant liquidity available to support our strategic growth initiatives.
At quarter end, we had cash of $213 million, including $67 million from borrowings under our credit facilities to fund the closing of the <unk> acquisition, which took place after the end of the quarter.
Net leverage remained at 0.4 times on a pro forma basis for Camco net leverage was <unk> eight times.
With the anticipated closing of the acquisition of aspect in Q2, we have amended our credit agreement to include an incremental $300 million term loan based on similar terms to our existing credit facility.
We expect to draw on this facility to fund the acquisition.
Following closing, we would expect our leverage ratio to increase to approximately two times by the end of the second quarter and then subsequently declined to approximately one five times by year end as we typically generate the bulk of our annual cash flow in the second half of the year.
In line with typical seasonal patterns adjusted free cash flow was a nominal use for the quarter.
As we noted last quarter, we expect to return to a more normalized run rate of cash generation for the full year 2023.
Moving on to our guidance, we are increasing our 2023 guidance for adjusted EPS to a range of $3 80.
The $3 95.
The <unk> midpoint reflects year on year growth of approximately 25%.
In our HVAC segment, we now anticipate revenues in excess of $1 billion.
We're a year on year increase at the mid point of approximately 14%.
Segment income is anticipated to be in the range of 17, five to $18, two 5% or a year on year increase of approximately 300 basis points at the midpoint.
The anticipated strong revenue and margin performance in HVAC reflects a combination of continued solid demand trends are high starting backlog improved pricing.
Strong operational execution at the plant level, and both heating and cooling and the acquisition of Tamp co which is higher than segment margins.
In our detection and measurement segment, we anticipate modestly higher revenue in a range of $570 million to $590 million or a year on year increase of approximately 6%.
We continue to anticipate full year segment income margin in a range of 25% to 21, 5%.
With respect to the cadence of the quarters, we expect year, we expect the year to be modestly second half weighted with Q4 being our highest quarter for adjusted EPS as is typically the case.
We would expect Q2 earnings to be sequentially lower than Q1, but up year on year.
We currently anticipate closing the aspect acquisition in late Q2 subject to antitrust clearance.
Once closed we will we intend to update our full year 2023 guidance to reflect the transaction.
Including the impact of increased interest costs associated with financing the acquisition, we would expect aspect to be modestly accretive to the second half of 2023.
And increasingly accretive in subsequent periods as we grow the business and reduce debt with cash generation.
As always you'll 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.
Current market conditions remain supportive of our outlook for the remainder of 2023.
Across our HVAC businesses supply chain and labor has been more stable overall.
In HVAC cooling, we continue to see growing demand for our products in North America in the APAC region.
And our heating business bookings remained steady driven by commercial and industrial demand and residential with placements and.
And in detection and measurement our run rate demand is solid overall with some regional variations.
While the environment the environment for project orders remained strong.
In summary, I'm pleased with our very strong start to the year and I am excited about the significant opportunities, we see to drive value through our recently announced acquisitions and continued execution on our key initiatives.
Strong backlog and good operational momentum I.
I feel confident in our updated full year guidance, which reflects approximately 25% year on year growth at the midpoint.
With our highly capable experienced team I look forward to continuing to drive towards that SPX 2025 targets and executing on our value creation roadmap for years to come.
And with that.
Turn the call back to Paul.
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. Please press star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from Damian Caris with UBS.
Hey, good evening everyone.
Hi, good evening.
Really nice work FSA.
Looking like the best result, and outlook update I've seen this earnings season.
Jean maybe we could just start with the so you made some brief comments on just the market trends maybe you suggest.
Elaborate on that and talk to us about the order trends.
You've seen as you've kind of moved from the first quarter into April .
Yes.
You highlighted.
Some areas, where the stable order there may be still up are you are there any pockets, where you may be seeing things slip at all or generally speaking.
Now just overall order expansion to date.
Yes, sure Damian I think overall, we feel really good about what we're seeing across our platforms.
One is that I think about it I'll break it down to the platform. So if you start at HVAC in fact, calling which was our largest platform. We just feel really good about the demand drivers there.
As you saw we had a very strong quarter, there, but we actually grew our backlog.
I believe we're very well positioned there.
I'd say the one area of lightness, there would be in commercial office buildings.
That's a relatively smaller portion of our business new commercial might be about around 5%.
But if you look at a lot of the other markets.
<unk> data center battery storage.
Semiconductor.
Not to mention institutional and education, we are just seeing very strong draw.
Drivers there and.
And so with that we feel very good about 'twenty, three and frankly very good about 'twenty four as I think about heating heating is starting to get back to its more normal cadence where we're largely.
We're getting to more similar lead times.
We're in a market that will grow and then in the winter winter weather will have an impact.
Honest, whereas last year.
We had so much backlog.
Just getting getting the product out the door, but overall we are seeing.
As we've talked about previously we've seen some nice share shift I think our products are winning in that market.
About the Ecotec of last year and the success, we're having on that but.
But yes, we are feeling very positive about the heating business as well, which you know is a heavy replacement market.
And then if you look at detection and measurement.
The way, we usually think about this is really the projects and the run rate business. The projects are about a third run rates about two third the <unk>.
Project strength is very strong and.
We feel very good about what we're seeing for 'twenty, three and frankly looking into 'twenty four.
Across all of our platforms, they're on the run rate I would say it's steady.
There are some pockets that are stronger there are some pockets that are a little bit flatter I would say continental Europe slow, but flatter that's pretty small portion of our business.
But with what we see today, we feel very good about the demand profile for this year and even as.
As we think early about looking into 'twenty four I like.
The backlog, we're building and the the wins.
We're getting particularly on these large projects.
And.
With what we're seeing we're feeling positive and mark or Paul If you guys have anything you'd like to add to that.
This overview.
No I think you've largely covered it.
Sure.
Okay sentiment is positive really across the board.
That's really helpful insight.
And you guys have obviously been quite busy on the deal front.
You had to boil things down what would you say drew you most to tan co and aspect.
How do you foresee them integrating with your business, just thinking about potential cross selling opportunities or cost savings.
Sure sure I'll start and as you know Cincinnati fan.
Acquired.
Last year.
Very good business, we're very pleased with what we're calling the engineered air movement business Timko fits very nicely right next to Cincinnati fan and then Strobic is the other brand we actually see some nice opportunities there.
With regards to cost synergy shared procurement.
How we how we do things there. There is also a really nice customer overlap in particular with stroke.
Strove, serving very much of the similar channels as as Tam.
Pam Coe, which tend to be the more the harder.
The higher performance.
Applications, because that is gonna be things, where they have a thermal requirements low leakage levels. These are things like data centers.
Health care pharmaceutical and that has a high amount of overlap with our strobic business. So so the reason we're bringing these and this will be managed by the same business unit. So the leader who is responsible for Cincinnati fans and <unk> also be responsible for.
So we see some really nice synergies on the cost side, but more importantly, we see some really nice opportunities on the growth side. So we're very excited about <unk>. We think it's a really nice addition to the team.
With regard to ASP pack.
<unk> has been our number one target.
And our heating business.
Since the time of the spin this is a really good business.
We like the team we have.
Really like our positioning.
It's a high margin high growth business and very strong competitive positions, we have great brands.
<unk> is the trade brand there.
We're very very well known in the market.
Interestingly they have a very nice mix of commercial and industrial industrial is actually larger there.
And their product lines are largely complementary they don't really we don't overlap with them a lot.
We're very little.
They have a great ESG story.
Because electric heat.
It is really growing at the expense of steam and gas heat and so youre seeing that more and more so we believe Aztec.
Very well positioned in that market and we think that's going to allow it to grow faster they have very customized products.
They don't sell kind of just a standard office.
<unk> product very often a lot of what they do is work of the customer get a engineered product for them.
And become the basis of design oftentimes with larger Oems and what this means is you get a lot of recurring revenue.
So when you look at it it's a.
We think it's a great fit for us we're very excited.
The Tam Cowen aspect I will highlight Tampico, obviously is closed.
<unk> Pak is we've signed a definitive agreement, but that's and Hart Scott Rodino review right now so we would anticipate that that really being closed.
Things down track by by towards the end of Q2 and at that point in time, we plan on giving a halving of Paul.
Diving into a little more details here.
This all fits together, but overall, we're very very pleased with these businesses.
I think one of the questions. We've had is well what does this do to your <unk> to debt. How do you think about your balance sheet.
As Mark pointed out in our prepared remarks.
This would move us up to about two times net debt, probably a little bit below that.
And then one five or less.
By the end of the year and as we've always stated our target range is one 5% to two five and we feel very comfortable in that range. So so we feel very good about where we are and we think that these two businesses are very aligned with our strategy and are really going to strengthen our platforms.
Thanks for all that color I'll pass it along.
Thanks Damian.
Okay.
One moment for next question.
Our next question comes from Bryan Blair with Oppenheimer.
Thank you good evening guys.
Hey, Brian Hey, good evening.
Fantastic start to the year.
Wonder if you can offer a little more color on how we should think about the revenue and earning.
Seasonality.
Going forward, just given the outsized nature of the Q1 beat and.
So kind of netting to your revised.
Revised framework, particularly curious about HVAC, given just really standout performance from the segment in Q1.
Yeah, I'll start, Brian and maybe I'll start with HVAC, just first because it was such a strong performance in the quarter.
You look back to Q4, we had very strong performance in HVAC then.
And the business is really kind of starting to hit on all cylinders.
Given some things I'll talk about in a minute, but really turning that corner I think as we looked into Q1.
Our sense was some of that may or may not have been durable it turned out to be the case.
I think about the labor environment and supply chain environment that we were facing earlier in the year that began to improve we didn't really feel like we were out of the woods in Q4.
But I think it has continued to stabilize at least for the time being and then we've been doing a lot of work we've talked about some of the capital that we're deploying incrementally higher than prior years to really improve really across all of the platform, but a cooling as an area of particular focus and some of the Ci efforts that we have.
Employed there that are driving what I would call structural cost improvements in the business. So.
That combined with pricing actions from last year, creating a price cost benefit to us really set us up for frankly, a very strong Q1.
There was a unique dynamic that I referenced in my prepared comments around some aftermarket work that we had in that quarter.
And we've kind of circle back and about $4 million of operating income or segment income. If you will have a benefit.
That was something that there probably isn't necessarily going to recur again throughout the year, that's sort of a unique opportunity, where we had some FEP and some aftermarket opportunities there which were were fairly substantial and related to some large projects. So if you kind of pro forma that out you've got a quarter that looks from a margin.
Perspective, very similar I think to where our guidance is for the full year call. It in the 17, 5% range.
So then if you kind of take that and then you look forward to the to the full year and what we're guiding there I would say listen I think our view is it's pretty balanced we've tried to kind of weigh both the risks and the opportunities that are out there we feel good about the cooling business and the performance I think that will continue to be.
Strong throughout the year.
Our heating business in our backlog there has normalized which actually is a good thing.
We're back to more of a steady state, but the flip side of that is that we're going to largely be tied to the heating season.
That will take place here in late Q3 and into Q4, so depending on those trends that will that will drive that business.
Then with Dnm Wow.
We're in a good position with respect to our project businesses and the opportunity there.
Part of that business is short cycle in nature, right and it is sensitive to the kind of the near term economic environment. So I think we're being.
Cautiously optimistic around that business as we look at the back half of the year. So hopefully that gives you some color as to how we think about the full year and particularly the second half.
Ill just jump in a little bit of modeling help here as we said on the call. The fourth quarter as is typical will be the largest quarter.
That's in part because those higher heating revenue as Martin.
And Jim referenced earlier of course last year, we were more dependent we have a lot of backlog we were not dependent upon the weather. So when you do the year over year comparisons when we set guidance for the full year, we are going to call for we're going to in our model assume a more normalized long term winter in the fourth quarter of this year.
The thing I would add is that as you look at the detection and measurement.
Quarters.
<unk>.
We would look for a similar margin progression to what we saw last year in 2022, where so the mix of projects and the scope and timing of certain projects that have more margin.
Margin associated with them.
Our realized closer to the back half of the year or more in the back half of the year.
Okay very helpful.
And sorry, if I missed the detail.
But what is being baked in.
Updated guide for Timko accretion in the back half and similarly.
Aspect closes on.
On time by the end of the second quarter.
Perhaps quantify the the modest accretion there and then most importantly.
Forward.
Whats the full combined year, one accretion run rate and with some debt paydown and the actions that your team is planned.
On a.
Year to lift from acquisitions.
So Bryan for the chemical part of it Ken and I think if you just kind of run rate that across three quarters.
That's fine that's going to include obviously, some some interest costs.
Impacts and over those quarters with respect to the combined bill.
<unk>, we're going to hold off on giving you more detail on this we did see modest when it came to ask back and we'll get into more detail about that but I think one thing that we could say to give you a more magnitude here of the overall impact of these two acquisitions once weekly.
We close on the aspect transaction and it becomes part of SPX. The combined annualized EBITDA for those two businesses for kimco and aspect together would be approximately $45 million to $47 million.
And.
I think he picked up from our press releases, we would also expect the combined growth rate.
Above the company average.
Understood.
Appreciate the color there and then the last one.
Yes, it sounds like.
Both sides detection measurement your run rate business and project trending well near term outlook is positive. If we look later in the year and into <unk>.
2024, and likely 'twenty five and beyond.
Where should we see infrastructure spending.
Read through as a catalyst for.
For the businesses and in what sequence is it reasonable to expect that.
I think Brian the infrastructure spending is sort of interesting.
We are just I think on the front end of being to see seeing some of those dollars come through so.
My expectation is we'll really begin to see that at the back half of this year and into 'twenty. Four we are seeing some of those dollars in let's just say for example, our transportation business I think one of the dynamics with all of these dollars that were.
I think everyone is seeing.
The money has been allocated its available but.
Theres not a project ready to go.
There's nothing there to use those dollars in the near term. So it's probably been a little bit more delayed relative to maybe what everybody has thought but.
In sum I think it's probably the back half of this year and into 'twenty four is when we'll really see that benefit.
Understood. Thank you guys.
Okay.
Thank you.
One moment.
<unk> bring up our next question.
Our next question comes from Laurence.
De Maria with William Blair.
Hey, Thanks, good afternoon everybody.
So.
On the on the deal questions here.
Thanks, a question after two deals here one.
Obviously hasnt closed yet.
Holding and Digest pattern and also is there does become a priority at this point. So just kind of curious about the cadence going forward.
Yes, Larry I'll start there I think.
We've always said, we really like.
Portfolio has changed quite a bit over the years and where we sit today, we really like both segments and our six platforms.
We have done a lot more dnm deals you typically see smaller deals but more of them.
We really like these both of these HVAC opportunities, but fair to think about your question. The way to think about it is in this market, we're being very careful on debt levels.
You think about where we'd be sitting at the end of year 1415 times debt.
We still have capital to deploy.
We actually have a very robust front log so I think that we have.
Our flywheel a way that we've done these bolt ons.
As you know aspect would be our 13th acquisition over the past several years.
I think that we are still out there, but having said that being very careful and cognizant of debt levels not allowed.
Mark Paul anything else you guys like to add on this topic.
I think I mean, there is sufficient liquidity out there obviously in the event that that we decided to pursue something here later this year, but to Jim's point I think we're going to be very thoughtful about the balance sheet.
Making sure that we remain within leverage levels that we think are appropriate for the business.
Okay. Thanks, that's good color and makes sense obviously.
I think you said the backlog was $245 million can.
Can you quantify the HVAC backlog kind of mixed in there between obviously heating cooling and then secondly.
Price was obviously important in the quarter.
Can you just let us know how to think about it how it plays out for the rest of the year and whether that contribution tails off on maybe pricing comps or just how to think about pricing as we go through the year as a contributor.
Paul So on the backlog question with respect to HVAC backlog for HVAC was $270 million, which was actually up a little bit about 11% from the fourth quarter. Despite the very strong results in the first quarter.
At this point the.
That backlog is actually known cooling 80, or 80, 85% or so.
As if you looked at that the middle of last year would have been 60 40, something like that.
Just a reflection of us see.
Being the key heating backlog.
Closer.
Closer to normal levels there.
Your other question was on I think price if you look at the first quarter price.
Volume, where distributors not quite evenly, but we were about.
60, 40 volume price.
And the HVAC was more price way to PNM was more <unk>.
Volume weighted as you look across the year.
Our guidance implies around 11% growth, let's call it two or three of them present acquisitions, another eight or 9% organic we would look for that to be a little bit flipped in the other direction, 40% volume 60% points.
Okay.
Good color, Thanks, Paul and good luck this year.
Thanks. Thanks.
Okay.
Hi, Sam.
For our next question.
Our next question comes from Steve <unk> with Sidoti.
Evening, everyone I'd Echo some of the other comments, sometimes about it being one of the stronger earnings releases.
Peter.
I mean to me the Big difference is we've seen a lot of companies speed pretty.
And only Q1, but given the economic uncertainty that has developed since fourth quarter costs a lot of caution on the second half you don't seem to be.
As concerns and it sounds like bookings project orders is reducing your concern, but just what gives you the confidence given what we know is clearly some economic uncertainty in the second half.
Yeah, Steve I think if you look at on the HVAC side I think we have very good visibility for two three and even projects going into 'twenty four so I'm talking more on the cooling side.
So not only do we have a very high amount of.
Backlog, but we have good visibility good.
Bidding.
We.
If there is a recession and it led us to a severe recession. It would take some time to work through and really hit hit that market and it would not be this year, we don't believe.
I think that.
If you look at the heating business as we've alluded to that's going to be much more of a normal business. That's a business that grows X percent a year.
And then the.
Whether it can drive the market.
Up a little bit or down a little bit so the weather impacts.
The Tam of the market in the winter season, and so I think that'll be looking like a normal.
Normal year for us and we have a normal level of backlog and.
The channel is pretty balanced so as you know most of that business is replacement. So we don't see a lot of deviation there and then if you look at it on the DM side.
The backlog we have on projects is very strong so we feel very good about.
That.
Part of the business and then on the run rate what I would say is if we were to go into a severe recession, let's say.
The back half of the year.
That could affect some of our run rate businesses and detection and management. So that would be the area that we will keep our eyes on we've always said our earliest.
Canary in the coal mine is our radio detection business.
But as you know a lot of our businesses.
And to go to government or municipal.
Or buyers that are not us.
They don't whipsaw as much.
With regards to GDP they tend to be more stable a lot of our stuff you have to buy think of our <unk> lighting, where think if youre working on water or wastewater pipe, you're not really doing that for <unk>, you're doing that because you need to do that do that work in the.
The example, I would go back to us during Covid many of our peers were down 20% in revenue when everything shut down.
The World went into a recession are rapidly we certainly got impacted we had some business lines that went down but on that but all in our revenues were flat.
And I think Thats, a testament to some of the markets, we serve and but I would say if we were to get into a recession or a severe recession, we'd keep our eyes on the detection and measurement run rate businesses, because I would say that that would be the portion of our business that is.
Most closely linked to GDP.
And Steve I might add.
<unk> spending dynamic or federal dollars that are that are flowing into the market. While the timing has been longer we should benefit from that maybe it's not a 23 impact as much as we would like but certainly it ought to be in 'twenty four and that that is.
Dallas to that side or parts of that side of the business for sure.
That's helpful. Thank you.
I ask you. This every time I speak kitchen, it's probably a much easier answer this time in terms of your confidence level in hitting 2025.
<unk>.
It seems a lot easier now is there much more work left to be done.
As I always work to be done and there's always a lot of work to do on the.
The M&A.
Yes, yes.
Tell you we are very pleased with both <unk> and <unk> Pak knowing aspects not closed yet but.
We really like these businesses, we really like the people that are part of these businesses, we really think.
Theyre going to strengthen.
Our platforms and we think we can add a lot of value and we'd like to help them grow faster. So.
This certainly does take a big step in the direction.
You can see from our guidance this year before at before anything with AST pack, we're starting to push up on the high end.
Close to $4 and as we've said.
$5 25.
I have I have good conviction that we're going to get there and I think that we're doing the right things, but it's not easy there is a lot of hard work. There's a lot of new products. There is a lot of new Ci theres a lot of digital we got to put out there we got to win in the markets but.
Yes, I'm feeling very.
I like where we are and we feel very good about meeting our commitments there.
Okay.
Ask about this too much because you manage it so well, but I think what we did see in Q1 from a lot of companies that were having very significant supply chain constraints was was very clear easing now you've managed it well, but would you echo that that supply chain constraints are making things a little bit easier on your end and also on labor side, given given the <unk>.
Both operating projections.
Are you fully staffed to meet meet the growth.
Yeah, I would say from a supply chain perspective, I mean, it has eased right, whether it's steel or some of the big commodity input costs lead times can be long on certain areas still like printed circuit boards and.
And areas like that but availability is is much greater than it was before.
And I think on the labor front.
Listen, we're not probably out of the woods on that front entirely there's still strong competition for labor out there, particularly in certain markets, but we are in a much better place than we were a year ago.
Probably even a couple of quarters ago.
Yes, much better not there's still supply chain challenges your restaurant with but a much overall a much.
There is much improvement in both of those and I think that is.
That trend has been why.
As we talked about a key contributor to the operational performance.
Okay.
Thanks, Jay and thanks Mark.
Thanks.
Okay.
And standby for our next question.
Our next question comes from Walter Liptak with Seaport Research.
Alright, great.
Great quarter guys.
Okay.
<unk>.
Good question I've got is about.
The DNS backlog I.
I Wonder if you could help us just kind of review the timing I think you said it was $245 million.
Up 60% was that the number.
And.
I guess one question I think the orders started picking up around this time last year.
So.
Are you starting to comp that our higher backlog in the second or third quarter.
Yes, you did see the increase in backlog occur.
Second and third quarter, that's right, where a lot of it did happened last year, well and your number of 60% was right as we look through the remainder of this year.
We'll see some of that rollout of our backlog and into revenue obviously.
In detection and measurement because of the project nature of some of the businesses that can be a little bit lumpy, but where we sit today and looking at our front log and looking at the discussions we're having about many of these same products that are doing quite well in end markets.
Im not sure we would expect our backlog to go down because youre actually I think you were looking for quite a good setup for the for next year as Jim mentioned.
Well that sounds great.
You mentioned that it was comtech and transport that are <unk>.
Are those both up equally.
Or is there a higher weighting towards one or the other.
You're actually much more weighted towards more heavily weighted towards comtech in terms of the increase.
Okay, Great and then mark on the in your prepared remarks, you mentioned.
That.
First half revenue a little bit weaker.
A lower percentage and then more weighting in the back half and I think last quarter, you guys talked about 43% in the first half 57 in the back half can we still use that.
But you don't mind I'll go on that one so I think the reference that Youre, making was we said it would be more like the prior year.
In terms of the split.
And Dnm.
So, it's probably not far off.
If you were.
45, maybe $45 55 first half back half.
But.
I think an important thing to point out is that as you look at the margin profile the mix and the timing of those key projects it becomes important.
And we would model out of progression of the margins that is similar to what you saw last year.
2022, where you saw the margins getting progressively larger throughout the year as more of those higher margin projects were being delivered in the back half.
Okay, Great alright, thanks, guys.
Thank you Paul.
And standby for our next question.
Okay.
Our next question is from David <unk> with UBS.
Hey, guys just had a quick follow up question on the heating business. So.
One of your large public boiler competitors.
Lowered their outlook this past quarter and they talked about inventory destocking taking place.
Jim you sounded.
Like you are.
Senior business is more stable, but just curious where you think channel inventories are.
And I know you had some outsized supply chain issues last year, but what's your sense for how you're performing versus the overall boiler market.
Yes.
Just.
So you know the process I do I've talked to all the presidents of every business on the day of your earnings calls.
And we actually run through a lot of the numbers and so forth and so the gentleman who runs Weil mclain. They actually have good visibility to the channel on the stocking not for all of the distributors, but a good chunk of them.
<unk>.
I think.
Yes.
Where we sit today is it's actually very balanced we feel good its not overstocked, that's not under stock the only place that we are.
Behind in delivering where we just have more orders than we can handle as standard efficiency are really our cast iron commercial boilers.
And that we're still.
I'd say the rest of the businesses are more operating in a normal cadence and we have a balanced.
Yes.
We believe the channel is balanced but thats the one that we're still trying to.
Get a lot of products out the door and get back to our normal lead times.
Understood. Thanks again best of luck guys.
Thanks Damian.
Okay.
Okay.
At this time I would like to turn it back to Paul Clegg for closing comments.
Thanks, all of you for.
Joining our call today, and we look forward to speaking to you again next quarter or during the quarter at one of the events we're attending thanks.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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