Q1 2024 SPX Technologies Inc Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to the Q1 'twenty 'twenty for SPX Technologies earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.
Then here an automated message advising that your hand is raised.
Speaker Change: Withdraw your question. Please press star one one again.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your first speaker today, Paul Clegg, Vice President of Investor Relations. Please go ahead.
Paul Clegg: Thank you operator, and good afternoon, everyone. Thanks for joining us.
Paul Clegg: With me on the call today are gene Lowe, our president and Chief Executive Officer, and Mark Carano, Our Chief Financial Officer.
Paul Clegg: The press release containing our first quarter results was issued today after market close.
You can also find the release and our earnings slide presentation.
Paul Clegg: As well as a link to a live webcast of this call in the Investor Relations section of our website at SPX Dot com.
Paul Clegg: 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.
Paul Clegg: A replay of the webcast will be available on our website until may nine.
Paul Clegg: As a reminder, portions of our presentation and comments are forward looking and subject to safe Harbor provisions.
Paul Clegg: Also note the risk factors in our most recent SEC filings.
Paul Clegg: Our comments today will largely focus on adjusted financial results.
Paul Clegg: Parison will be to the results of continuing operations only.
Paul Clegg: You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation.
Our adjusted earnings per share exclude primarily acquisition related costs non service pension items Mark to market changes amortization expense in Q1, the favorable tax effects of stock based compensation awards that were exercised during the quarter.
Paul Clegg: Finally, we will be meeting with investors in various events during the second quarter.
Paul Clegg: Including the Oppenheimer annual industrial growth conference on May eight.
Paul Clegg: Will be virtual.
Paul Clegg: UBS re shoring and infrastructure conference on June 4th in New York and.
Paul Clegg: And at the William Blair annual growth stock conference in Chicago on June six.
Paul Clegg: With that I'll turn the call over to Jim.
Jim: Thanks, Paul Good afternoon, everyone and thank you for joining us.
Jim: On the call today, we will provide you with an update on our consolidated and segment results for the first quarter of 2024.
Jim: We're also increasing our guidance for the full year.
Jim: We had a strong start to the year.
Jim: In Q1, our company continued to execute well and drove substantial growth in all of our key profit measures with significant year on year increases in margin.
Jim: We continue to experience robust demand across key markets, our acquisitions are performing well and our production facilities are operating at high levels of efficiency.
Jim: Today, we are raising our full year 2020 for guidance.
Jim: Midpoint reflects year on year growth of 30% and adjusted EBITDA and 23% and adjusted EPS.
Jim: Turning to our high level results.
Jim: For the first quarter, we grew revenue by 16, 4% and adjusted EBITDA by 47% year on year with 410 basis points of margin expansion.
Jim: Last month at our Investor Day, we shared a new framework for the continuation of our value creation journey.
We intend to further build on our strong foundation of niche engineered in tech enabled products strong positions boats and sustainable solutions.
Jim: We will also continue to leverage our business system to drive value through growth investments and initiatives as well as through strategic M&A.
Jim: Our new framework targets average EBITDA growth of 15% plus easily at margins of more than 20%.
Jim: Now, let's take them on the progress of some of the key initiatives during the quarter.
Jim: In Q1, we continue to drive continuous improvement in efficiencies across our businesses advancing on several fronts.
Jim: In our HVAC segment, our initiatives are helping to expand our addressable market by <unk>.
Broadening our range of application specific solutions for various price points.
Jim: This includes the successful value engineering project to help to create a more flexible fluid cooler solution with reduced material costs.
Jim: Integration of our recent acquisitions is also going well and driving value.
Jim: Creating numerous opportunities for cross selling including broadening the sales channels for our market leading duct heating products.
Jim: Our acquisitions are also benefiting from SPX as supply chain management tools, which are helping to reduce lead times and further improve our competitive position.
Jim: In detection and measurement, we continue to advance our digital initiatives.
Jim: During Q1, we gained further traction on cross segment software and Iot or Internet of things development and resource sharing.
Paul Clegg: Looking ahead, we see significantly more room to continue driving value through our business system, including through continued investments in automation and R&D.
Paul Clegg: And now I'll turn the call over to Marc to review our financial results.
Marc: Thanks Gene.
Marc: Q1 was a very strong quarter for SPX technology year on year, our adjusted EPS grew 34%.
Paul Clegg: 45.
Marc: For the quarter total company revenue increased 16, 4% year on year.
Marc: Organically revenue grew two 3%.
Speaker Change: It's really driven by detection and measurement.
Paul Clegg: Acquisitions drove a 14% increase.
Paul Clegg: <unk> was a slight tailwind.
Paul Clegg: Consolidated segment income grew by $25 4 million or 34, 1%.
Paul Clegg: $99 8 million.
Paul Clegg: Our segment margin increased 290 basis points.
Paul Clegg: For the quarter in our HVAC segment revenues grew 22% year on year.
Paul Clegg: Acquisitions contributed growth of 22, 2% and included Kimco and engineer and our cooling platform ASP.
Paul Clegg: Aspect in our heating platform.
Paul Clegg: The FX impact was nominal.
Paul Clegg: On an organic basis revenues declined one 9% driven by lower sales of hydraulic equipment associated with unseasonably warm weather in our end markets.
Paul Clegg: This followed a substantial increase in heating volumes in the prior year period.
Paul Clegg: Courted by elevated backlog following the pandemic.
Paul Clegg: Year on year organic decline was partially offset by higher sales of cooling and electric key products.
Paul Clegg: Segment income grew by $27 million or 43, 4%.
Paul Clegg: The increases in segment income and margin were due primarily to our recent acquisitions.
Paul Clegg: <unk> sales mix in both cooling and heating.
Paul Clegg: Segment backlog at quarter end was $462 million up.
Paul Clegg: Up 20% organically from the prior year period.
Paul Clegg: For the quarter in detection <unk> measurement revenues increased nine 9% year on year, driven by organic sales growth.
Paul Clegg: The increase in revenue was largely driven by higher Comtech project sense.
Paul Clegg: Q1 revenue included delivery of the remainder of our large Comtech project, the majority of which shipped in 2023.
Paul Clegg: We also benefited from earlier than anticipated delivery of other projects previously expected in Q2.
Paul Clegg: Year on year segment income grew $4 $7 million margin increased 130 basis points, primarily due to operating leverage.
Paul Clegg: <unk>.
Paul Clegg: Segment backlog at quarter end was $207 million down.
Paul Clegg: Down 16% organically from the prior year period due to deliveries of the large Comtech project.
Paul Clegg: Absent the effect of this project backlog was up high single digits.
Paul Clegg: Turning now to our financial position at the end of the quarter.
Paul Clegg: We ended Q1 with cash of $106 million and total debt of $855 million.
Paul Clegg: Our leverage ratio as calculated under our bank credit agreement was two times.
Paul Clegg: We continue to anticipate our leverage ratio declining to the lower end of our target range. One five to two five times by year end, assuming no additional capital deployment.
Paul Clegg: Moving onto our guidance.
Paul Clegg: Based on strong Q1 results and a robust demand outlook, we are increasing our guidance for adjusted EPS to a range of $5 15.
Paul Clegg: The $5 40.
Paul Clegg: Compared with the prior range of $4 85.
Paul Clegg: The $5 15.
Paul Clegg: The new midpoint reflects year on year growth of approximately 23%.
Paul Clegg: We are raising our guidance for HVAC and maintaining guidance for detection and measurement.
Paul Clegg: We now anticipate HVAC revenue in a range of $1 $36 billion.
Paul Clegg: The $1 4 billion.
Paul Clegg: Were an increase of $30 million at the midpoint from prior guidance.
Paul Clegg: Also anticipate HVAC segment income in a range of 20% to 25% and $23, two 5% or an increase of 100 basis points from the prior range.
Paul Clegg: At a total company level, we anticipate adjusted EBITDA in a range of $390 million to $420 million.
Paul Clegg: At the midpoint this reflects year on year growth, 30% and a margin of more than 20%.
Paul Clegg: With respect to gaining.
Paul Clegg: In HVAC, we expect a sequential step up in revenue in Q2 due to a full quarter of the <unk> acquisition and increased cooling production capacity we.
Paul Clegg: We expect Q4 to be the highest revenue and margin quarter due to winter heating demand.
Paul Clegg: For Dnm, we expect Q1 to be the highest revenue quarter as we delivered the remainder of the large Comtech project I mentioned.
Paul Clegg: We also anticipate a heavier weighting of higher margin projects in the second half.
Paul Clegg: As always you'll find modeling considerations in the appendix to our presentation.
Paul Clegg: I'll now turn the call back over to gene for a review of our end markets and his closing comments.
Eugene Joseph Lowe: Thanks Mark.
Eugene Joseph Lowe: Current market conditions are supportive of our updated 2020 for outlook.
Eugene Joseph Lowe: Within HVAC, we continued to see strong demand for our quality products across a broad set of end market applications, including data centers semiconductor plants and industrial facilities.
Eugene Joseph Lowe: We also continue to see solid demand for electric key associated with de carbonization.
Eugene Joseph Lowe: In detection and measurement, we continue to experience flattish global demand in our short cycle businesses with a regional variation while project orders remained healthy.
Eugene Joseph Lowe: In summary, I'm very pleased with our Q1 performance and strong start to the year.
Eugene Joseph Lowe: Robust demand and significant operational momentum.
Eugene Joseph Lowe: We're well positioned to achieve our updated full year guidance, which implies 30% growth in adjusted EBITDA.
Eugene Joseph Lowe: We see multiple opportunities to continue growing our businesses, both organically and through our attractive acquisition pipeline.
Eugene Joseph Lowe: Looking ahead I remain very excited about our future.
Eugene Joseph Lowe: It's the right strategy and a highly capable experienced team ICL.
Eugene Joseph Lowe: Significant opportunity to continue driving value for years to come.
Eugene Joseph Lowe: With that I'll turn the call back to Paul.
Paul Clegg: Thanks, Jim Operator, we will now go to questions.
Operator: 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.
Operator: Our first question comes from the line of Bryan Blair with Oppenheimer Your.
Bryan Francis Blair: Your line is open.
Bryan Francis Blair: Yes.
Bryan Francis Blair: Thank you good afternoon guys.
Bryan Francis Blair: Hey, Brian Hey, good afternoon.
Bryan Francis Blair: Another great quarter excellent start to the year.
Speaker Change: Thanks to kick things off with we keep a level set on the.
Speaker Change: The lift in HVAC.
Speaker Change: Revenue guidance up $30 million versus the prior guide how much of that is organic versus stronger deal contribution from aspect couple.
Speaker Change: A couple of months left.
Speaker Change: Inorganic period there.
Speaker Change: Hey, Brian This is Paul I'll take that one so yes you are.
Paul Clegg: The guidance.
Paul Clegg: Guidance midpoint was raised by about $30 million box the revenue line and the <unk>.
Paul Clegg: Margin basis.
Paul Clegg: Basis points.
Speaker Change: Biggest driver is really the drop through of the higher revenue, which comes at attractive gross margins.
Speaker Change: And really all of the revenue increase is associated with organic here. So really the biggest single factor is organic we did say that our acquisitions are.
Speaker Change: Integrating well and we do expect them to have a little bit higher margin than we previously did.
Speaker Change: Okay.
Speaker Change: Excellent.
Speaker Change: So and I know the prior outlook you had baked in something in the range of 7%.
Speaker Change: Organic growth in HVAC, so that modes.
Speaker Change: No closer to it.
Speaker Change: The 10% level.
Speaker Change: That's quite robust.
Speaker Change: How should we think about that in terms of cooling versus heating contribution I would assume that it's in.
Speaker Change: Notably weighted to the cooling side.
Speaker Change: Better to ask them to level set on that.
Speaker Change: Yes, that's correct.
Speaker Change: The year over year increase that you are looking at the year and let me give you a little bit more here because.
Speaker Change: Yes, we talked previously about being in the neighborhood of $150 million.
Speaker Change: Acquisition revenue coming into this year, so thats your numbers spot on pretty much for HVAC them being around 10% organic.
Speaker Change: And yes, the lift is primarily it's going to be stronger on the cooling side, but we do still expect to get growth on the heating side. So if you are looking at double digits low double digits.
Speaker Change: On cooling youre looking at something like.
Speaker Change: Yes.
Speaker Change: More like single digits on.
Speaker Change: Mid single digits or lower on heating.
Speaker Change: Understood I appreciate it.
Speaker Change: Detailed there and then for Dnm, how did orders trends for Q1 and into early Q2.
Speaker Change: And.
Speaker Change: What are you contemplating in terms of the full year outlook for project first run rate business and what if anything is assumed in terms of.
Speaker Change: Infrastructure spending.
Speaker Change: Contribution as the year moves forward.
Speaker Change: I'll start with that one, but the numbers that youre looking for Brian Yes. So.
Speaker Change: Overall, our orders were pretty good.
Speaker Change: For the overall company, but that was stronger in each back a little bit lessons.
Speaker Change: Comp against last year, you got to take into account. The fact that you had.
Speaker Change: Some large projects that got delivered both in the back half of last year and then in the first quarter here as well. So the book to Bill was a little less than one in Dms is where it was about $1 two and HVAC.
Speaker Change: As we look throughout the year as you know our guidance for this year from revenue, it's all organic and it has as being roughly flat maybe slightly down with the prior year that includes.
Speaker Change: A little bit of a hole left by the delivery of a large.
Speaker Change: We had a large project last year in Comtech, which I'll call them kind of a pass through project because it is lower than typical margins associated with it and that left us with about a $30 million hole to fill in this year and so we're bringing that back up with mostly with other projects.
Speaker Change: Our coming into the year.
Speaker Change: Yes, Brian I think when you think about the growth year on year.
Speaker Change: Ex the Comtech projects about 5%.
Speaker Change: Top line growth.
Speaker Change: With respect to your question on infrastructure, we are seeing some benefit of the infrastructure dollars I think we've highlighted this.
Speaker Change: In prior calls, where we're really seeing it right now is primarily on the transportation side of our business.
Speaker Change: I think thats a function of the fact that those projects are probably more ready for delivery.
Speaker Change: Relative to other projects that may be out there that will benefit from so that's.
Speaker Change: That's really the first line, where we're seeing activity and a benefit to the business from those various federal spending bills.
Speaker Change: Understood. Thanks.
Speaker Change: Thanks again guys.
Speaker Change: Thanks, Brian.
Speaker Change: Thank you one moment for our next question.
Dave Manthey: Thanks, Dave Manthey.
Speaker Change:
Speaker Change: 100 basis points.
Dave Manthey: The increase from your original guide so that's quite impressive. This early in the year could you just talk about what's driving that I know you mentioned, maybe the acquisitions are a little bit better than you had anticipated.
Dave Manthey:
Dave Manthey: That's not driving a 100 basis points is it is there lower heating mix, it's playing in maybe you could just talk about.
Dave Manthey: That margin rate and what's supporting your confidence that this accelerated path will continue.
Dave Manthey: Okay, Jamie I'll start off this is gene.
Eugene Joseph Lowe: Yes, I think overall the HVAC end market demand, we actually feel really good about what we're seeing and we're just seeing a lot of strength as you know our products play in very many different end markets, but some of our larger ones really have a lot of strength in particular I'd call out tech.
Dave Manthey: Health care Slash pharma and then industrial.
Speaker Change: <unk> attack.
Speaker Change: Data centers are very strong and we are seeing some nice growth. There we did have very strong competitive positions.
Speaker Change: Across a number of our product lines and we're doing very well there semiconductor in Evs are also had some notable wins that we're seeing some nice strength there health care and pharma. This is this is an area that tends to have high specifications.
Speaker Change: Hi requirements that those are markets that we do very well on that as a.
Speaker Change: And so a portion of our business and we're seeing nice nice progress and momentum there and the last one is industrial.
Speaker Change: Industrial is our largest.
Speaker Change: And the market in our HVAC area, and we're seeing very strong aftermarket also supplemented with some.
Speaker Change: Re shoring projects.
Speaker Change: If you look at it I think on the end market side, we just feel really good about our positioning.
Speaker Change: The end markets. We plan you want talk Mark about margins <unk>, Yes, I think David as we've talked about in prior quarters, we continue to see.
Mark A. Carano: Efficiencies across our platform.
Mark A. Carano: On the cooling and heating side, we've continued to invest in those businesses to both <unk>.
Mark A. Carano: Improved production.
Mark A. Carano: As well as reduce labor utilization thats required in those plants. So it's really dropping through its creating a lot of efficiencies in those plants and that's that's really a function of the new capital that we've talked about that we are deploying this year in those plants that was a process that started.
Mark A. Carano: Last year in earnest.
Mark A. Carano: Primarily and then also we continue to find new opportunities on the Ci front.
Mark A. Carano: To drive more efficiency through those plants, whether that's through <unk>.
Mark A. Carano: Plant layout or footprint things of that nature.
Speaker Change: That's really helpful. Appreciate it.
Mark A. Carano: And <unk>.
Mark A. Carano: Very very helpful comments on the.
Mark A. Carano: End market verticals and what Youre seeing.
Mark A. Carano: I was wondering if you could just maybe take us a little bit of a walk across the different.
Mark A. Carano: Units within HVAC cooling because you just have so much under the hood there now with all the acquisitions in recent years.
Mark A. Carano: Areas of business that really standout job I appreciate any kind of color on an HVAC cooling.
Speaker Change: Yes, so I think calling we really view ourselves as the we invented the cooling tower. We believe we're the global leader in.
Mark A. Carano: In calling we just have a very strong position there we see very nice momentum across our businesses. There we play in a lot of the attractive end markets.
Mark A. Carano: As discussed we're seeing very nice growth there organically.
Mark A. Carano: The engineered air movement, which would be Cincinnati fan Tampico Ampco has a very strong position with data centers and is benefiting from a lot of the growth very diverse customer base there.
Mark A. Carano: Biggest challenge there is being able to produce the demand we have very strong demand.
Mark A. Carano: I do believe they have a better product and what's available in the market they really.
Mark A. Carano: We're very very pleased with that so again very nice.
Mark A. Carano: Growth and then also growth opportunities ahead for us there.
Mark A. Carano: On the heating side, what I would say as we've always said hydraulics youre not going to see particularly high growth there.
Mark A. Carano: It's going to be more of a mid single digit growth and I think that there is.
Mark A. Carano: The weather, which can move the Tam up or down in any given winter environment, but I'd say, we're anticipating modest mid single growth there and then electric heat.
Mark A. Carano: We're also seeing some growth there, but I'd say the biggest growth areas would be the three primary cooling product categories, but we are there.
Mark A. Carano: We really like our value props in these markets and one of the things that we talked about in our Investor day.
Mark A. Carano: We see a lot of synergies and there are real hard synergies across our rep channel across our relationships at the engineers and we're starting to unlock some of these and we actually think it's early days.
Mark A. Carano: For us on that on that path. So, yes, we feel good.
Mark A. Carano: <unk> segment has really had some nice momentum over the past couple of years.
Mark A. Carano: I'd like to position in that.
Mark A. Carano: Strong team and we feel good about where we're going there.
Speaker Change: Great. Thanks for the added color best of luck guys I'll pass it along.
Speaker Change: Hey, thanks.
Speaker Change: Thank you one moment for the next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Ross <unk> with William Blair. Your line is now open.
Ross: Hey, good evening guys.
Ross: Hey, Robyn.
Ross: Yes.
Ross: And I start to the year here.
Ross: Looking at detection and measurement.
Ross: I think we all understand the tough comps, but just given the backlog growth and the.
Ross: Not revised full year guidance I mean, it seems to indicate that locators are going to see further deceleration at least in during second and third quarter is that kind of.
Ross: The expectation.
Speaker Change: So no I think what's.
Speaker Change: What's your what you may be seeing there is there is a little bit of a comparison issue in LSI against the year ago period.
Speaker Change: If you kind of look at it across the different quarters of last year.
Speaker Change: <unk> had its lowest quarter in the first quarter of last year, sorry at highest quarter is but I would say in the first quarter last year.
Speaker Change: Where are you still saw fairly healthy levels of demand, we did call out that things got a little flattish during the during the back half of the year as we look at the full year. This year, we're expecting that to be pretty flat overall impacted both in terms of.
Speaker Change: It's contribution from revenue and profit standpoint be pretty pretty much in line with what it was last year.
Speaker Change: Just on what we're seeing so.
Speaker Change: Again, if you look at the backlog backlog for detection and measurement.
Speaker Change: <unk> is down really as a result of the large.
Ross: Order that we delivered.
Ross: Through throughout last year and with the final large delivery being in the first quarter of this year for that Comtech project that had lower.
Ross: Than typical margins associated with it so hopefully that helps a little bit to straighten up.