Q3 2024 SPX Technologies Inc Earnings Call

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Good afternoon and welcome to the SPX Technology's Q3 2024 earnings conference call.

Speaker Change: All participants will be in listen only mode. Should you need assistance please signal confidence specialists by pressing the star key, followed by zero.

After today's presentation, we will be an opportunity to ask questions. To ask a question you may press star then when you telephone keep at. To withdraw from the question queue, please press star then too. Please note that this event is being recorded. I will now like to turn the concert to Paul Clegg, Vice President and Restorulations and Communications. Please go ahead.

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Paul Clegg: Thank you, and I'll operate here with you at the end of the month. Thanks for joining us. With me on the call today, I'm a GM Lowe, our president and chief executive officer, and Mark Carano, our chief financial officer.

Approximately is containing our third quarter results with an ancient today after Mark at close.

You can find the release and our earnings slide presentation as well as a link to a live work cast of this call in the Industrial Relations section of our website at sbs.com.

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

The replay of the webcast will be available on our website.

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

Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only.

You can find detailed reconciliation of historical justice figures from the respective gap measures in the appendix to today's presentation.

Speaker Change: Our adjusted earnings per share exclude acquisition-related costs, non-service pension items, Mark Tomarget changes, amortization expense, and other items.

Finally, we will be meeting with investors as various events during the fourth quarter, including at the Barrett Global Industrials Conference on November 13, the Wolk Research Conference on December 4, and the Siddharee Small Cap Conference on December 5.

and the gap, all turn call over to Eugene.

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

On the call today we'll provide you some update on our consolidated and segment results to the third quarter of 2024.

Speaker Change: and Disco us or outlook for the remainder of the year.

Our Q3 results reflects solid revenue growth and substantial increases in our key profit measures.

Our large and performance was strong across both segments and we continue to execute on our key value creation initiatives including sustainability and communication equipment.

We're a well-division to achieve our full year guidance, which reflects a year in your increase in adjusted EBITDA of approximately 35%.

and an increase in the justice of the BPS of 28%.

I'm into our high level results.

For the third quarter, we grew revenue by 7.8% we've been by strength in each guy cooling.

In Johnson, the Eepot and created approximately 27% here on the air with 320 base points of more expansion.

Speaker Change: And always I like to update you on our value creation efforts during the quarter.

On the Sustainability Front, we recently published our Aino Sustainability Report reflecting another year of progress across our TNS.

In particular, we achieved a 30% reduction in carbon intensity, well ahead of schedule, and introduce cell new climate conscious solutions that help reduce our customers' power usage, emissions, and water usage.

Speaker Change: We also continue to see progress in our continuous improvement initiatives, including benefits from significant capital investments and equipment and processes that add to production capacity by improving throughput. We continue to see incremental widening gains, results and investments to improve efficiency.

Speaker Change: and now I'll turn the collar over to Mark to review our financial results.

Mark: Thanks, Eugene.

Our third quarter results were strong. You're on here, the JFBPS Group 31% through $1.39.

For the quarter, so company will have to increase 7.8% year on year.

Organically, resident group 3% of acquisitions drove an increase of 4.4% and effects with modest tailwind.

The solidating segment income, earned by $22.2 million, which $24.2 per cent, the 113.8 million dollars.

While segment margin increased 310 basis points.

For the quarter, in our H-Fax segment, revenue screw 15.9% here on-year. On an organic basis, revenue is increased 9% or in light and tiniest rank, including demand, heating with similar to the prior year.

The acquisition of ingenia in our Pooley platform contributed growth of 6.8%.

for the FX Intang, with nominal.

segment income grew by 21.7 million dollars from 37.2% while segment margin increased 307 base rates.

The increases in segmentation and margin were due operating leverage for higher organic cooling sales and in genia acquisition.

Speaker Change: Payment backlog at quarter end was $438 million of modestly from Q3.

Speaker Change: The quarter-in-the-detextion of measurement segment, revenues decreased 7% year on year.

Speaker Change: Fx with a 0.8% tailwind.

Speaker Change: He crazy revenue was written largely by lower context sales, associated with a large path through project, the letter during 2023. He's in the first quarter of 2024.

Speaker Change: According to the past through project, Renewal approximately 3% were my transportation and eight-on projects sales.

0.0 million dollars and margin increased off 190 basis points.

We're going to be doing a little bit more of a project next.

Hi, my name is Mark and also continue to benefit from our efforts to enhance the efficiency of our segment structure.

St. MacClaw, in the quarter-end, was $193 million, and 5.8% sequentially from Tuesday, reflecting the timing of certain project deliveries and awards.

During now to our financial positions at the end of the corner.

Speaker Change: In the Q3 with cash of $129 million in total debt of 738 million dollars.

11th ratio is calculated under a bank credit agreement with 1.4 times.

Speaker Change: We now anticipate our leverage ratio to climb into 1.2 times or lower by year end. A lower target range of 1.5 to 2.5 times.

assuming no additional capital deployment.

The Justice Free Casual for the Quarter was approximately $61 million.

Speaker Change: During the quarter we amended our credit agreement, double the size of our revolving credit facility, $1 billion. We're better match our increased size and growth opportunity.

We'll talk to our guys.

We are maintaining our full year guidance for adjusted EBITDA and adjusted EPS.

We are narrowing the range of our HFAC revenue guidance to $1.365 billion, $1.385 billion.

reflecting year on year growth for 22.5 percent at the midpoint.

We're also slightly narrowing our range for Hback Morgan guides.

on maintaining the midpoint of 23.5%.

or a 262 basis point increase here on year.

In the MN, based on our year-to-date performance in our work, we're increasing our margin guidance to arrange the 21.25% to 22%.

Speaker Change: Rated in the midpoint to approximately 21.6%.

Thanks for represents a year-on-year increase in approximately 240 days' points.

Speaker Change: and have a great time.

In total, consolidated midpoint segment income for the company remains unchanged as a result of these adjustments.

Speaker Change: As our links, we'll find mildly considerations via 10 next to our presentation.

Speaker Change: I'm now turning call back over to Eugene for your or her end markets and his closing comments

Eugene: Thanks Mark.

Eugene: Our Market Conditions Continues the Support O'Lowe.

Eugene: With an RHI Coording platform, we continue to see strong demand for our products across several key end markets.

including data centers, healthcare and institutional.

and their HIV-exciting platform, winter temperatures are a key driver of your end-to-man at his typical.

In our detection and measurement segment, we continue to experience a splatish global demand in our short cycle business with reach-movaryations while project orders remain healthy.

Eugene: Looking ahead, we anticipate ending the year with a solid backlog position, leaving us well positioned for growth in 2025.

In summary, I'm pleased with SPF's Q3 results, including significant margin expansion to the both segments.

Eugene: for World Position to achieve our updated four-year guidance, which implies 35% growth in the justice of the dollar, and 28% growth in the justice of the EPS.

We see multiple opportunities to continue growing our businesses, both organically and through our track to that position pipeline.

Looking ahead, I remain excited about our future.

The right strategy and a highly capable experience team. I see significant opportunity to continue driving values for years to come.

And with that, I'll turn the call back to Paul.

and Eugene operator, we will now go to questions.

We will now begin the question and answer session. To ask the question, you may press star then when you're telephone keypad. If you're using a speaker phone, please pick up your hands up before pressing the keys. To withdraw from the question queue, please press star then too. At this time, we'll pause momentarily to send more roster.

Our first question will come from Ross Sparenblek with William Blair. You may now go ahead.

Ross Sparenblek: Good evening guys. Here comes the game.

Hey, strong ASAC order growth there in the quarter with the Dodge Mithu index continuing to climb and all the work you guys have done to streamline the sales process.

Speaker Change: How should we think about this estate and ability of the 2024 coronavirus rates in the 2025? I mean, is it up there, in base case, underright, midteams for cooling and still double digits for the overall business?

Speaker Change: We're on CF first by one of you. You want to be careful enough to get into a discussion about the 2025.

Speaker Change: to early in, I think we had a strong gear here with respect to far, with respect to organic growth on the cooling side and that's a different amount of heat.

Speaker Change: and the tech musicians who have done it well are the other, and they're significant.

and Food Medicine at the Expandular Capacity.

Yeah, I'd say largely as we look into next year we feel good.

Speaker Change: About the strength of those markets that have benefited less this year, So we're looking at data centers and healthcare and institutional. So, you know, from the cooling side, it's said it's...

We still feel pretty good about where we stand.

Yeah, I'm just trying to understand the timing of when we should expect order flow from recovering dodging decks to hit your books if it hasn't already.

is more to come or is it starting to play through the numbers?

Well, I mean, I'm not sure the dodging X is a perfect proxy for all of our HVAC business. I have that 70% of this replacement, which is not really linked to the dodging X.

Exactly. So, you really need to be thinking about the replacement dynamic as well as the new build. And then, you think about some of these, these marks that Paul just mentioned, you know, like data centers, like healthcare, it's too soon, some of the reshoring we're saying. I mean, the magnetic trends, they really haven't changed.

You know, they continue to be strong barfics. We would see those continuing through the fourth quarter in the next year.

Speaker Change: and

There enough. Maybe just on the boiler side. It was a little surprising to see Flagrose, just kind of given the new product launches and share games. You guys have seen there.

and some of the interquartered through the scene from, you know, at least to commercial size. It's one of the things we should read into the fourth quarter as we look at, you know, season low comp for a ready.

Yeah, I think I mean, Ross, it was a slower start to the heating season this year than we had initially anticipated.

You know that, in conjunction with the fact that really the lead times in our business.

and our boiler business have kind of normalized. They're no longer extended if you call last year. They were still at longer than normal times. You know, so we're seeing the distributors, you know.

Speaker Change: At least managed their inventory levels a little more primitive ways than perhaps they had in the past. So it really, but at the end of the day, it's largely driven by.

You know, the weather dynamics and, you know, we just haven't seen the eating season kick in yet. As you know, when it does, you know, it's in third and quickly, this is an 80% replacement business. So, you know, that that business will really start to ramp up once you see the weather dynamics shift.

Alright, well I think it's on that special. Yeah, with respect to our guide and you know, you think about the, um, you know, the balance for the year. We, you know, we have a kind of adjusted our guide if you will, taking to account, you know, the late start to the heating season.

Speaker Change: Yeah, and also you do mention the Reddy version of commercial and yeah, I think we are stronger on the commercial side. I think Reddy, which is a much more replacement market is where we are seeing more flatness.

Speaker Change: Alright, thank you guys.

Thanks for watching.

Our next question will come from Brian Blair with Oppenheimer. You may not go ahead.

Speaker Change: Thank you, see you guys.

Hey Brian, how are you?

I'd like to dig in on detection measurements starting with your run rate business.

Just your tense perspective on sustainability of VV demand.

Perhaps near term and inflection.

and the end.

The comments are in the slides I may simply bring into this too much but flat-ish.

He actually said in the script, playing the plot has turned to next global demand in terms of run-raising. Is there anything that we should read into there? And in terms of regional variation?

Speaker Change: What is your team seeing, apparently, and then looking forward in terms of project business, you've been very consistent in citing, you know, healthy underlying demands.

Infrastructure spending being on the horizon. How should we think about the setups for project activity and perhaps cattle is going into the 2020s 25.

Brian, let me start. I think that I wouldn't do anything too much into that word. I mean, I think I'm in general.

You know, the runway has been flat, it's very modest, growth, and it's regional variation.

Speaker Change: You know, as you know, at a company level, we're approximately 85% North American in the about 50% equally split in Europe and Asia. I'd say the two areas that appear to me to be softest.

Speaker Change: would be China and continental Europe.

but I would say that our...

I'm all the students, them and they're very, very, very small.

I'm absolutely stargen with Mara Carano K. South East Endings and some of the other regions.

I'd say the U.S. is holding pretty steady, but I would say overall we're cautiously optimistic, you know, looking into 20.25, you want to be careful not to give a 20.25 guidance. I would also say the project activity is what talks about is healthy.

Speaker Change: and there's a lot of large projects.

That was bidding on the big thing we got to keep our eyes on and where those will actually come to fruition. There's some of these that are very large that they could start to go in 25. There's some that could start to go in 26.

So, you know, really good project that can be really good as success rates there.

Speaker Change: We're going to have to manage and make sure that we're going to handle the timing of the revenues of those projects. But yeah, I would say if you were going to have to 25 each pack.

You know, if you kind of say our normal business is mid-SIMILDITICLE, I think there's more growth drivers underneath the HFAC. But while we're as DNA my would say it's probably what we're seeing a little bit lower growth as we look ahead to 25.

Excuting a deal over the coming quarters and also...

I can speak to the composition of your pipeline. What intrigues me is with your leverage moving below targeted range, having expanded your credit facility to a billion year. You're going to answer 2025 with a tremendous amount of dry powder.

Are the potential deals out there that would actually utilize that kind of capacity?

Or is it simply flexing to the scale of carano corrections?

Speaker Change: Yeah, I think um

Now, I think you're spot on. I think that we're obviously going to be below. We'll generate, as you know, our business is going to generate so much cash. I do think one thing, you know, our even dog has expanded somewhere, and we're not going to have a revolve or in place, or even dog was almost.

Well, I'll have one of this today and so part of this is getting the appropriate size, the volume is just strategy.

I'm sorry for very bit about that, but having said that, you actually feel really good with the pipeline and I would say the activity level is very strong on the M&A side.

This is on the D&M side and as well as on the H-back side. So then there's a good level of activity and I actually feel optimistic about what we're seeing over the next 12 months.

Speaker Change: in terms of the ability to keep building our platforms. I think this is something really good opportunity is there. You know, where we're seeing it, I would say, you know, we see some very interesting opportunities on the location of inspection side.

on the contact side, on the transportation side.

and then if you flip over to HFAC

Speaker Change: We see some very good engineering air movement as well as some cooling and creating opportunities in those five platforms.

It doesn't feel like there's a lot going on and with our new revolver and our will to be low.

Speaker Change: in a multiple unit debt ratio in right legion of the driver to grow.

Speaker Change: Careful, that's encouraging.

Speaker Change: Thanks again.

Speaker Change: Thanks for watching.

Speaker Change: Our next question will go from Damian Caras with UBS. You may now go ahead.

Speaker Change: say

Hey, good morning. Excuse me. Good evening gentlemen.

Good morning, ladies and gentlemen. Goodness, it's been a long, long few weeks. Light at the end of the tunnel.

May be just a couple of follow-up questions on B&M here. I just want to make sure first I heard correctly that

That you had a single project that had a 10-point impact on the quarter and otherwise, the in-and-what have been up 3% organically that I hear correctly.

I know it's tough about things. Yeah, so we're actually just giving you the... This is Paul, but I worry, we're giving you the bath with healthy.

has to report yet that delivers in the prior year your may remember that in the communication technology's business.

We had a large pass through projects of over the typical margins as you live at.

and that delivered through last year and into the first quarter of this year. That's tended to skewer results all year and so as we do the year of your comparisons, we just gave that math.

Okay, I see.

Well let me ask you, the margin seems pretty strong considering sales were off 7% versus last year. So could you give us a cent like where there are some mixed impacts?

You know, related to that stronger margin, how much would a Vap Ben versus just kind of the operating initiatives that you've been working on.

Yeah, Damian's really a mix of both.

You know, we have been very intentional around.

The segment as we pulled it together and looked for operational efficiencies and opportunities to drive margin. Whether that's across sourcing or IT all sorts of initiatives related to bringing all these businesses together under one roof.

Speaker Change: and then, you mentioned.

You know, we did have favorable mix of projects in the corner.

Speaker Change: from a margin perspective. You know, these projects, as you know, they execute and they have a variety of margin profiles across them. And in this case, it's you three we had a slightly higher margin profile given the mix that landed within the quarter.

You know, relative to...

I think we are initially anticipating.

Speaker Change: I think the team's done nice work drive and more engines and from what you had last year versus this year the actions that they've taken on productivity, on pricing, on some different.

Speaker Change: I've been very beneficial so we've been talking about detection and measurement, large and full of little wild, we'll really, it's really nice to see those of the progress that they're making.

Yeah, my dad's probably so I think we obviously raised our midpoint guidance for the end of the year as well. We're collecting that, many of those activities. So now I can commit to this one, it's 21.6 which is out from 21.6.

Speaker Change: Hi.

Yeah, yeah, I know that's great to see.

and then staying on DNM, I just, you know, the updated guide for the year, the rain seemed pretty wide for just one quarter left, anything to read into that.

David really is just a timing of, it's just a timing of projects, I think that's been a...

Speaker Change: He's had a fair number of chunky projects this year, and as we look at the timing of those, that's caused us to have to cut it.

Revisit, which one's fallen to which quarter during the year. So I think you know on average we feel really good about where we are going into the fourth quarter. You'll see that's a midpoint and fly something in the mid 150s on the revenue and pretty healthy margin.

Speaker Change: Okay, I'll get back to the news, thanks.

Speaker Change: Thanks.

Our next question will come from Wall Lip Pack with Seaport Research.

Speaker Change: You may now go ahead.

I think I'd like to say good morning to everybody too. It's been a long time. Good morning, kid.

Thank you. So I wanted to ask about, you know, an HFAC, just like the cadence of orders, you know, something like, you know, some of the data center.

Speaker Change: and healthcare is doing fine. I wonder if you can talk about the order cadence there and then...

With the boilers, you know, the weather has clearly been a lot warmer this year and you don't have that, you know, the, the, the packaging issues or whatever from last year. But what is normal for boilers? Like, when do, when do you usually start seeing your, you know, distributors?

You know, starting to take up, you know, boiler inventory.

Yeah, so that's this year.

We typically were expecting to see some of that start in September. We did not see much of that as Mark Carano for a two-year earlier. You did see some distributors holding off as the lead times have come down and you're more or less at just in time lead times.

Speaker Change: and with one weather there is this put them a position to be able to save a little bit on their senior Tory management. You know, look at these, I think.

Speaker Change: You should start to see that. The winter is the winter months kick in here as we roll through.

At this point, you're right, it's still warm in October.

and we've accounted for that in our guide for the fourth quarter. So, think we feel good about where we've set guidance based and what we know so far about the fourth quarter. If you were to look at it versus historical levels, it's one of, we're forecasting it. That's one of the lowest levels that we've seen.

Over the last close to the last decade here. It would be a section of last year, which was particularly weak. So we're still expecting a little bit of a year over your growth in the fourth quarter. In the last year was particularly weak. You have sort of a double-wemming impact of...

It being very warm, in addition to that kind of destocking, taking place in a post-COVID environment.

Speaker Change: i

Okay, great. And then the cadence of orders, how they look for the data center healthcare.

Well, we're feeling really, really good. Well, what we're seeing there, I would say, healthcare, the biggest opportunities there would be.

and Jamie, our customary handling, which is really getting some nice and warm. Even starting the book into 26 very long lead times there.

and Strobeck, a portion of our EAM, sings nice, nice growth there. The entire center is remain strong, I would say, in all three regions.

Speaker Change: The US, some nice projects in Europe and in Asia as well.

Yeah, I think the progression is good and then, I'm saying more so in North America, institutional still remains strong, schools, governments, universities, things like that.

Speaker Change: Good amount of placement activity that seems to be very healthy right now as we sit today as we look at the 25th.

Speaker Change: Okay, great. And then switching over to DNM, you guys called out a ton. I can't remember if that was in a good trend in the second quarter too. But I wonder if you could just talk about a ton and what you're seeing there, any kind of order funnel or project visibility you might have.

He sounds very good here, we're actually very pleased with some progression this year, both in top line growth and margin growth.

Canada, North America, very good presence with it with a very clear leader there.

Speaker Change: <unk> globally.

So yeah, we've had a really good year, there and I'd say.

Speaker Change: Nothing that signals.

You know any any any falloff there.

Speaker Change: Okay.

Okay, great. Thanks.

Speaker Change: Thanks, Bob.

Our next question will come from Steve <unk> with Sidoti.

You May now go ahead.

Evening, everyone I just wanted to check in on an on capacity additions I know the plan was to you. We're in process of expanding what's in Jennie O.

Quite topical all of a sudden and the investor World.

Speaker Change: And I know.

Speaker Change: That your business has had a pretty solid position and in some areas of nuclear nuclear power Gen. So.

Speaker Change: Could you maybe just and in fact I think you know you you had talked about a.

A nice cooling project last quarter, we think that you might have been involved in a a nuclear.

Speaker Change: Plant and doing some work there, but just thinking about all of the you know nuclear activity. We're hearing from some of these tech companies that are trying to get data center capacity, but all built out you know what is the potential opportunity there for for SPX.

And they may not.

Speaker Change: What I would say is I think it's a net benefit for our power business you know for the.

The power of course, which is not a humongous portion of our business these days, but our process cooling.

No the majority of the cooling towers before in nuclear facilities really Laura.

It's really a in we do service work and provide OEM parts.

Speaker Change: We have we do do some some larger projects so I think that.

You know the growth in data centers is really gonna be burdening the grid.

You you've had a grid that has for so long you had very little growth.

Speaker Change: And.

And you actually are seeing real growth in demand and so you have to find more capacity new capacity. It takes a while to get into place even if you put in the fastest.

Source, you're probably talking a couple of years and therefore, our pico plant or a natural gas plant.

Speaker Change: Nukes take much longer.

But what I would say is youre going to see some more activity on working on your new plants, because anytime you upgrade your cooling tower you got a lot more power out of it out of your plant.