Q4 2024 SPX Technologies Inc Earnings Call
Operator: Good day and thank you for standing by.
Good day, and thank you for standing by.
Operator: Welcome to the fourth quarter 2024 SPX Technologies Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
Looking to the fourth quarter 2020 for SPX Technologies earnings Conference call.
At this time, all participants are in listen only mode.
At the speaker's presentation, there will be a question and answer session.
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Operator: Please be advised that today's conference is being recorded.
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Paul Clegg: I'd like to hand the conference over to your first speaker today, Paul Clegg, Vice President of Investment Relations. Please go ahead.
Speaker Change: Like to hand, the conference over to your first speaker today talk Chegg Vice President of Investor Relations. Please go ahead.
Okay.
Paul Clegg: 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, and Mark Carano, our Chief Financial Officer.
Speaker Change: 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, and Mark Carano, Our Chief Financial Officer.
Paul Clegg: Press release containing our fourth quarter and full year results was issued today after market close. You can find the release in 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.com. I encourage you to review our disclosure and discussion of GAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website.
Speaker Change: A press release containing our fourth quarter and full year 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.
Speaker Change: I encourage you to review our disclosure and discussion of GAAP results in the press release in the fall.
Speaker Change: Along with a slide presentation during our prepared remarks.
Speaker Change: The webcast will be available on our website.
Paul Clegg: 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 filing. 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 reconciliations of historical adjusted figures from their respective gap measures in the appendix to today's presentation.
Speaker Change: 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.
Speaker Change: Our comments today will largely focus on adjusted financial results.
Speaker Change: <unk> will be to the results of continuing operations only.
Speaker Change: You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation.
Paul Clegg: Our adjusted earnings per share exclude amortization expense, acquisition-related costs, non-service pension items, mark-to-mark changes, and other items. Finally, we will be meeting with investors at various events over the quarter.
Speaker Change: Our adjusted earnings per share excludes amortization expense acquisition related costs non service pension items mark to market changes and.
Speaker Change: Other items.
Speaker Change: Finally, we will be meeting with investors at various events over the quarter.
Paul Clegg: On April 1st, we are planning to host a tour of our Ingenia custom air handling unit production facility outside of Montreal. This tour is open to investors and analysts. If you have an interest in attending, please email me or contact me through the email address on our investor relations website.
Speaker Change: On April 1st we are planning to host a tour of our engineer custom air handling unit production facility outside of Montreal.
Speaker Change: Stores open to investors and analysts.
Speaker Change: Have an interest in attending is email me or contact me for the email address on our Investor Relations website.
Gene Lowe: And with that, I'll turn the call over to Thanks, Paul. Good afternoon, everyone, and thank you for joining us. A call today will provide you with an update on our consolidated and segmented results for the fourth quarter and full year of 2024. We'll also provide full year guidance. We had a strong close to the year. accrued full-year adjusted EBITDA by 36%. delivered to Jeff to DPS near the upper end of our guidance. Adjusted free cash flow was 108% of adjusted net income. During the first quarter, our company continued to execute well. drove strong margin performance across both segments, made great progress on several key Recently, we made another significant addition to our detection and measurement segment with the addition of Cron's technology solution.
Jim: And with that I'll turn the call over to Jim.
Jim: Thanks, Paul.
Jim: Afternoon, everyone and thank you for joining us.
Jim: On the call today I will provide you with an update on our consolidated and segment results for the fourth quarter and full year 2024 will also provide full year guidance for 2025.
Jim: We had a strong close to the year.
Jim: Full year adjusted EBITDA by 36%.
Jim: Adjusted EPS near the upper end of our guidance range.
Jim: Adjusted free cash flow was 108%.
Adjusted net income.
Jim: During the first quarter, our company continued to execute well.
Jim: Our strong margin performance across both segments.
Jim: Great progress on several key initiatives.
Jim: Recently, we made another significant addition to our detection and measurement segment with the addition of crimes technology solutions for K T S with <unk>.
Gene Lowe: KTS. significantly scales our position in our communication technologies platform and positions us for further growth.
Jim: Difficultly scales, our position and our communication technologies platform and positions us for further growth.
Gene Lowe: Looking ahead, market conditions support continued solid growth for SPX, and we remain well positioned to continue our strong operational Today we're providing 2025 Midpoint Guidance that reflects another year of double-digit adjusted EBITDA and adjusted EPS growth. Turning to our high-level results. In the fourth quarter, we grew revenue by 13.7% with growth in both segments. including a particularly strong performance in HVAC cooling. adjusted EBITDA increased 28.1% year-on-year with 250 basis points of margin expansion.
Jim: Looking ahead market conditions support continued solid growth for SPX, and we remain well positioned to continue our strong operational performance.
Jim: They are providing 2025 midpoint guidance.
Jim: Flex another year of double digit adjusted EBITDA and adjusted EPS growth.
Jim: Turning to our high level results.
Jim: For the fourth quarter, we grew revenue by 13, 7% with growth in both segments.
Jim: <unk>, a particularly strong performance in HVAC cooling.
Jim: Adjusted EBITDA increased 28, 1% year on year was 250 basis points of margin expansion.
Jim: Yeah.
Gene Lowe: As always, I'd like to update you on our value creation initiative. 2024 is a big year for innovation at SPX, and we introduced a number of new products that significantly enhance our customers' efficiency and safety. In our HVAC segment, we continue to extend our range of sustainability-focused products. Then our heating platform, we introduce solutions that allow our customers to reduce their carbon footprint. including biofuel boilers and a heat pump boiler combination. In our cooling platform, we introduced an adiabatic line of cooling products that enables customers to optimize between power and water use. This year we're expanding our range.
Jim: As always I'd like to update you on our value creation initiatives.
Jim: 24 is a big year for innovation at SPX, and we introduced a number of new products and significantly enhance our customers' efficiency and safety.
Jim: In our HVAC segment, we continued to extend our range of sustainability focused products.
Jim: Without our heating platform.
Jim: Introduce solutions that allow our customers to reduce their carbon footprint.
Jim: Including biofuel boilers, and a heat pump boiler combination.
Jim: And our quoting platform, we introduced an idiotic line of cooling products that enables customers to optimize between power and water usage various cooling applications.
Jim: This year, we're expanding our range.
Gene Lowe: the larger scale version ideal for data center cooling. Protection and Measurement, we introduced a survey grade precision locator that enables our customers to meet exacting requirements for mapping critical utility infrastructure. We also introduced an innovative technology that uses acoustics to detect problematic intersections. between different underground utilities such as gas and water lines.
Jim: The larger scale version ideal for data center cooling.
Jim: The detection and measurement, we introduced a survey grade precision locator that enables our customers to meet exacting requirements for mapping critical utility infrastructure.
Jim: We also introduced an innovative technology that uses acoustics problematic intersections between different underground utilities, such as gas and water lines.
Gene Lowe: In January, we completed the acquisition of KTS, which significantly expands the scale of our communication technologies platform within our detection and management cycle. KTS's Advanced Digital Interoperability and Tactical Networking Solutions integrate and distribute real-time information across multiple communications domains and platforms. Their solutions enhance situational awareness, coordination, and tactical execution during operations. KTS's solutions are highly complementary to our existing tactical data links and radio frequency or RF countermeasure offerings.
Jim: In January we completed the acquisition of <unk> significantly expands the scale of our communication technologies platform.
Jim: The text of the management segment.
Jim: ACS has advanced digital interoperability and tactical networking solutions integrate and distribute real time information across multiple communications domains and platforms.
Jim: Our solutions enhance situational awareness coordination and tactical execution during operations.
Jim: Ats the solutions are highly complementary to our existing tactical data links.
Jim: Radiofrequency or RF countermeasure offerings from PCI to ECS.
Gene Lowe: UCI, UCF. Together, we see significant further growth opportunities for our ComTech platform. KTS enhances and strengthens our position in communication solutions. broadens our access to attractive growth markets. expands our global customer base. We also believe their highly differentiated technology creates attractive new product development opportunities that can be leveraged through our existing sales channels to ultimately address a wider range of potential applications.
Jim: Together, we see significant further growth opportunities for our comtech platforms.
Jim: GTS enhances and strengthens our position and communication solutions.
Jim: Broadens, our access to attractive growth markets.
And our global customer base.
We also believe they are highly differentiated technology creates attractive new product development opportunities that can be leveraged through our existing sales channel channels to.
Jim: Ultimately address a wider range of potential applications.
Gene Lowe: Over the last several years, our approach to value creation, including capital deployment, has been highly successful. We've grown earnings per share an average of 28% per year over the past four years. Looking ahead, we remain very well positioned to continue driving value for our shareholders, both organically and through further acquisition.
Jim: Over the last several years, our approach to value creation, including capital deployment, that's been highly successful.
Jim: We've grown earnings per share and an average of 28% per year over the past four years.
Looking ahead, we remain very well positioned to continue driving value for our shareholders, both organically and through further acquisitions.
Mark Carano: Now I'll turn the call over to Mark to review our financial results. Thanks, Gene. Our fourth quarter results were strong. Your own year adjusted EPS grew 21% to $1.51. full year adjusted EPS grew 29% to $5.58 or towards the upper end of our guidance. $5.45 to $5. For the quarter, total company revenue increased 13.7% year on year. Organically, revenue grew 9.9% while the Ingenia acquisition drove an increase of 4%. NFX with a modest head. Consolidated segment income grew by $26.6 million or 25.9%. to $129.4 million. while segment margin increased 230 basis. For the quarter in our HVAC segment, revenues grew 18.6% year-on-year.
Marc: Now I will turn the call over to Marc to review our financial results.
Marc: Thanks, Jim.
Speaker Change: Our fourth quarter results were strong.
Marc: Year on year, adjusted EPS grew 21%.
Marc: <unk> 51.
Marc: Full year, adjusted EPS grew 29% to $5 58 or towards the upper end of our guidance range.
Marc: There's a 45 to $5 60.
Marc: For the quarter total company revenue increased 13, 7% year on year.
Marc: Organically revenue grew nine 9%, while the Virginia acquisition drove an increase of 4%.
Marc: FX was a modest headwind.
Marc: Consolidated segment income grew by $26 6 million or 25, 9%.
Marc: $129 4 million, while segment margin increased 230 basis points.
Marc: For the quarter in our HVAC segment revenues grew 18, 6% year on year.
Mark Carano: On an organic basis, revenues increased 12.8%, driven primarily by continued growth in cooling and, to a lesser extent, in heating. The acquisition of Ingenia in our cooling platform contributed growth of 6%. FX was a modest headwind. Segment income grew by $18.6 million, or 25.4%, while segment margin increased 140 basis points. The increases in segment income and margin were due to operating leverage on higher organic sales in the Ingenia acquisition. Segment backlog at quarter end was approximately $437 million. similar to Q3.
Marc: On an organic basis revenues increased 12, 8% driven primarily by continued growth in cooling and to a lesser extent meeting.
Marc: The acquisition of Virginia in our cooling platform contributed growth of 6%.
Marc: FX was a modest headwind.
Marc: Segment income grew by $83 $6 million or 25, 4% while segment margin increased 140 basis points.
Marc: The increases in segment income and margin were due to operating leverage on higher organic sales and the Virginia acquisition.
Marc: Segment backlog at quarter end was approximately $437 million were similar to Q3.
Mark Carano: For the quarter in our detection and measurement segment, organic revenues grew 4.2% year-on-year, while FX was a modest 10%. The increase in revenue was driven largely by stronger sales of location inspection and ATOM products. Year-on-year segment income grew $8 million, or 27%. segment margin increased 410 basis. The increases in segment income and margins were driven by operating leverage on higher revenue and favorable project upscales. as well as further benefits from our continuous improvement initiatives. Segment backlog at quarter end was $221 million, up 14% sequentially from Q3.
Marc: For the quarter in our detection and measurement segment organic revenues grew four 2% year on year.
Marc: <unk> with a modest headwind.
Marc: The increase in revenue was driven largely by stronger sales of location and inspection and eight time products.
Marc: Year on year segment income grew $8 million or 27%.
Marc: Segment margin increased 410 basis points.
Marc: The increases in segment income and margin were driven by operating leverage on higher revenue.
Marc: Favorable project execution.
Marc: As well as further benefits from our continuous improvement initiatives.
Marc: Segment backlog at quarter end was 221 billion.
Marc: Up 14% sequentially from Q3.
Mark Carano: Turning now to our financial position at the end of the quarter. We ended Q4 with cash of $161 million and total debt of $615 million. Our leverage ratio, as calculated under our bank credit agreement, was one time. Including the effect of the KPS acquisition, which closed in January, our leverage ratio was 1.7%. are well within our target. 1.5 to 2.5. We anticipate our leverage ratio declining below our target range by year-end, assuming no further capital depletion.
Marc: Turning now to our financial position at the end of the quarter.
Marc: We ended Q4 with cash of $161 million and total debt of $615 million.
Marc: Our leverage ratio as calculated under our bank credit agreement was one times.
Marc: Including the effect of the <unk> acquisition, which closed in January our leverage ratio was one seven times.
Marc: Well within our target range of one five to two five times.
Marc: We anticipate our leverage ratio declining below our target range by year end, assuming no further capital deployment.
Mark Carano: Full year adjusted free cash flow was approximately $284 million dollars, reflecting conversion of adjusted net income of $108 million.
Marc: Full year adjusted free cash flow was approximately $284 million, reflecting conversion of adjusted net income of 108%.
Mark Carano: Moving on to our guide. Today, we introduce full year 2025 guidance, including KTS. We anticipate revenue in a range of $2.13 billion to $2.19 billion segment income margin in a range of 23% to 24%. We anticipate adjusted EBITDA in a range of $460 million to $490 million. At the midpoint, this reflects a margin of approximately 22%. year-on-year adjusted EBITDA growth of 13%. Our adjusted EPS guidance range of $6.00 to $6.25 reflects approximately 10% growth at the mid-sixties. In our HVAC segment, we anticipate revenue in a range of $1.44 billion to $1.48 billion, and segment margin a range of 23.5% to 24.5%.
Marc: Moving onto our guidance.
Marc: Today, we introduce full year 2025 guidance, including K TFS.
Marc: We anticipate revenue in a range of $2, one 3 billion to $2 9 billion.
Marc: Segment income margin in a range of 23% 24%.
Marc: We anticipate adjusted EBITDA in a range of $416 million to $490 million.
Marc: At the midpoint this reflects a margin of approximately 22%.
Marc: Year on year, adjusted EBITDA growth of 13%.
Marc: Our adjusted EPS guidance range of $6 to $6 25.
Marc: Reflects approximately 10% growth at the midpoint.
Marc: In our HVAC segment, we anticipate revenue in a range of 144 4 billion to $1 four 8 billion.
Marc: The segment margin in a range of 23, 5% to 24, 5%.
Mark Carano: In our detection and measurement segment, we anticipate revenue in a range of $690 million to $710 million, including the KTSI. and segment margin in a range of 22% to 23%.
Marc: In our detection and measurement segment, we anticipate revenue in a range of $690 million to $710 million, including the Tcs acquisition and segment margin in a range of 22% to 23%.
Mark Carano: For Q1, we anticipate modest revenue growth driven by the KPS acquisition. Full Quarter of Ingenia, which we acquired in February of 2024. We expect flat organic revenue. and HVAC offset by year-on-year decline in detection and measurement related to the timing of Project We anticipate margins in both segments to be similar. We also expect higher interest costs associated with acquiring KTS and a tax rate consistent with our full year 2025.
Marc: For Q1, we anticipate modest revenue growth driven by the <unk> acquisition.
Marc: A full quarter of in Jennie O, which we acquired in February of 2024.
Marc: We expect flat organic revenue.
Marc: With growth in HVAC offset by year on year decline in detection and measurement related to the timing of project deliveries during the year.
Marc: We anticipate margins in both segments to be similar year over year.
Marc: We also expect higher interest cost associated with acquiring <unk> Ats and the tax rate consistent with our full year 2025 times.
Mark Carano: As always, you'll find modeling considerations in the appendix to our presentation.
Marc: As always you'll find modeling considerations in the appendix to our presentation.
Mark Carano: Before I turn the call back over to Gene for a review of our end markets, I wanted to touch briefly on tariffs. For China, we've reflected the recently enacted tariffs in our guidance for 2020. from Mexico, sourcing and revenue exposure is nominal. Canada, sales into the US from our Canadian operations make up a mid-single-digit percentage of our total revenue. SPX is well positioned to navigate potential tariff changes, and we have multiple mitigation measures. More than 80% of our revenue comes from the United States. We largely follow an in-country, for-country sourcing model. Supply chain management is a core component of our business.
Marc: Before I turn the call back over to Jim for a review of our end markets I wanted to touch briefly on tariffs.
Marc: For China, we have reflected the recently enacted tariffs in our guidance for 2025.
Marc: Our Mexico sourcing and revenue exposure is nominal.
Marc: Canada sales into the U S from our Canadian operations make up a mid single digit percentage of our total revenue.
Marc: SPX is well positioned to navigate potential tariff changes and we have multiple mitigation measures available.
Marc: More than 80% of our revenue comes from the United States.
Marc: Largely follow an in country for country sourcing model.
Marc: Supply chain management is a core component of our business system and.
Mark Carano: and we have pricing power across our While the current situation is dynamic, we remain nimble and are prepared to act quickly.
Marc: And we have pricing power across our businesses.
Marc: While the current situations dynamic we remain nimble and are prepared to act quickly.
Gene Lowe: And with that, I'll turn the call back over to Thanks, Mark. Current market conditions support our 2025 outlook for solid growth. Within our HVAC cooling platform, we continue to see solid demand for our products across several key end markets. including data centers, health care, and institutions. In our HVAC heating platform, we're experiencing order rates consistent with the more typical heating Steady Demand for Non-Residential Projects. and our Detection and Measurement segment for seeing healthy demand for projects. with delivery times more targeted towards 2026 and beyond. and our runway businesses. We're seeing sluggish overall demand with regional variation.
Jim: And with that I'll turn the call back over to Jim.
Jim: Thanks Bart.
Jim: Current market conditions support our 2025 outlook for solid growth.
Jim: But then our HVAC cooling platform, we continue to see solid demand for our products across several key end markets, including data centers health care and institutional.
Jim: In our HVAC heating platform are experiencing order rates consistent with a more typical heating season and steady demand for nonresidential projects.
Jim: In our detection and measurement segment, we're seeing healthy demand for projects.
Jim: Delivery times for target towards 2026 and beyond.
Jim: Our run rate businesses, we're seeing flattish overall demand with regional variation.
Gene Lowe: In summary, I'm very pleased with the close to 2024 and our strong full year performance.
Jim: In summary.
Jim: I'm pleased with the close to 2024 and our strong full year performance.
Gene Lowe: Our acquisition of KTS further scales our attractive ComTech platform and positions us for future growth. with a solid demand background and strong operational execution. well positioned for another year of double digit growth and adjusted EBITDA and adjusted EPS in 2025.
Jim: Our acquisition of <unk> further scales, our attractive content platform and positions us for future growth.
Jim: With a solid demand background and strong operational execution, we are well positioned for another year of double digit growth in adjusted EBITDA and adjusted EPS in 2025.
Gene Lowe: We also have an active pipeline of attractive acquisition opportunities to enhance our growth.
Jim: We also have an active pipeline of attractive acquisition opportunities to enhance our growth.
Gene Lowe: Looking ahead, I remain very excited about our With the right strategy and a highly capable, experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.
Jim: Looking ahead I remain very excited about our future with.
Jim: With the right strategy and a highly capable experienced team.
Jim: I see significant opportunities for SPX to continue growing and driving value for years to come.
Paul Clegg: With that, I'll turn the call back to Paul. Thanks, Gene.
Paul: And with that I'll turn the call back to Paul.
Operator: Operator, we will now go to questions. Thank you. At this time, we'll conduct the question and answer session.
Paul: Thanks, Jim Operator, we will now go to questions.
Speaker Change: 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 we for your name to be announced to withdraw your question. Please press star one again.
Operator: As a reminder, to ask a question, you will need to press star 1 when on your telephone and wait for your name to be announced. to withdraw your question, please press star 11 again. Please stand by while we compile the Q&A.
Paul: Please stand by while we compile the Q&A roster.
Paul: Okay.
Bryan Blair: Our first question comes from the line of Bryan Blair of Oppenheimer. Your line is now open. Thank you. Good afternoon, guests. Hey, Bryan. Hey. Another good quarter, solid momentum into 25.
Paul: And our first question comes from the line of Bryan Blair of Oppenheimer. Your line is now open.
Bryan Blair: Thank you good afternoon guys.
Speaker Change: Hey, Brian.
Speaker Change: Another good quarter solid momentum incident and to 'twenty five.
Gene Lowe: It would be helpful if you offered a little more color on how your team's thinking about the full year. You know, what are the key watch items to keep in mind? Thinking about the lower end of guidance, what levers could perhaps drive upside to the 625 high end? And then that framework in mind, how should we think about the cadence of revenue and earnings? Yeah, Bryan, thanks. I'll start off here. You know, as we look at the year, and, you know, I would say when I think about our HVAC business, you know, you know, broadly, we remain, you know, bullish on those end markets, right?
Speaker Change: It would be helpful. If you offer a little more color on how your teams thinking about the full year.
Speaker Change: What are the key watch items to.
Speaker Change: To keep in mind. Thank you.
Speaker Change: And that's at the lower end of guidance.
<unk> could perhaps drive upside to the 625.
Ann: Hi, Ann.
Ann: And then that framework in mind, how should we think about the cadence of revenue and earnings per year.
Ann: Yes, Brian Thanks, I'll start off here.
Ann: As we look at the year end.
Ann: I would say when I think about our HVAC business.
Ann: Broadly we remain.
Ann: Bullish on those end markets right data centers institutional.
Gene Lowe: Data centers, institutional, healthcare, some of the markets we've mentioned throughout last year, remain solid. And we continue to see a good opportunity there. You know, as you think about, you know, what could drive those, that guidance to the upper or the lower end, within HVAC, you know, you obviously, you've got the weather dynamic that we always see on the heating side of the business, that's out of our control. On the cooling side, you know, it's, you know, when I think about non-RESI momentum, does that accelerate throughout the year? Does it slow down? Those are key things.
Ann: Health care some of the markets. We've mentioned throughout last year remain solid and we continue to see a good opportunity there.
Ann: As you think about what could drive us.
Ann: That guidance to.
Ann: To the upper or the lower end within HVAC, you, obviously, you've got the weather dynamic that we always see on the heating side of the business.
Ann: It's out of our control on the cooling side.
You know when I think about.
Ann: Non raising momentum does that accelerate throughout the year or does it slow down those are key things, we're always watching some of the key indicators like Dodge and PMI and then the data center market, which represents fairly large projects at times right that that could represent incremental opportunity for us.
Gene Lowe: We're always watching some of the key indicators like DODGE and PMI. And then, you know, the data center market, which represents fairly large projects at times, right, that that could represent incremental opportunity for us, if it plays out. With respect to DNM, you know, we've talked about the short cycle or the run rate side of the business, you know, that's obviously going to remain tied to the economic environment that we're operating in, I would say, with respect to our L&I business, that tends to be the most sensitive to that. You know, in certain markets, we actually feel more optimistic about what we're seeing in the U.S.
Ann: If it plays out.
Ann: With respect with DIAM.
Ann: We've talked about.
Ann: The short cycle or the run rate side of the business.
Ann: That's obviously going to remain tied to the economic environment that we're operating in I would say with respect to our <unk> business that tends to be the most sensitive to that.
Ann: In certain markets, we actually feel.
Ann: More optimistic about what we say.
Gene Lowe: And in the project side of the business, that pipeline or front log of opportunities remains very robust. We feel good about what we're seeing across GenFair, Comtec, and some of our other businesses. But I think, as you know, there's always a timing element to those and where they fall within the quarters and sometimes within the year. We are seeing this front log, while it's very attractive, we're seeing actually more, and I think we mentioned this in our last call, we're seeing good opportunities in 2025. We're also seeing quite a few that are kind of rolling into 26 and 27.
Ann: U S.
Ann: And then the project side of the business that pipeline our front log of opportunities remains very robust we feel good about what we're seeing across Gen fair Comtech and some of our other businesses, but I think as you know.
Ann: There's always a timing element to those and where they fall within the quarters and sometimes within the year.
Ann: We are seeing this front log.
Ann: It's very attractive we're seeing actually more and I think we mentioned this.
Ann: In our last call we're seeing good opportunities in 2025, we're also seeing quite a few that are kind of rolling into 'twenty six 'twenty seven.
Bryan Blair: So that's kind of the broad comments. I would say just overall in the economy, you know, we're cautiously optimistic about what we're seeing. You know, the sentiment is obviously improved, but you do have this kind of short-term policy disruption that's out there that I think is impacting the general market. Just think about some of the things that are happening with respect to the new administration and what that means for businesses across, particularly in North America and the United States. That all makes sense. I appreciate the color. And you mentioned data centers there.
Ann: So that's kind of the broad comments I would say just overall in the economy, we are cautiously optimistic.
Ann: What we're seeing.
Ann: Sentiment is obviously improved but you do have this kind of short term policy disruption that's out there that I think is impacting the general market. You just think about some of the things that are happening with respect to the new administration and what that means for businesses across.
Ann: Particularly in North America, and the United States.
Ann: That all makes sense I appreciate the color.
Ann: You mentioned data centers there.
Gene Lowe: There's obviously been consternation lately, in terms of, you know, where, you know, spending will trend where growth rates will will shake out unrelated exposures, I guess, to level set, where did data center revenue shakeout for SPX in 2024? And what are you contemplating in the guide for 2025? So it's about, Bryan actually came in about what we thought it would be at around 7% of the total company or around 10% of HVAC. And it's one of the drivers of our growth, along with healthcare and institutional on the HVAC side as we look into 2025. So we would expect that to represent a similar or better share.
Ann: Obviously then.
Ann: Consternation lately.
Ann: Ziv.
Ann: Where.
Ann: Spending will trend where growth rates will shake out.
Ann: Unrelated exposures I guess to level set where does data center revenue shakeout for SPX and in 2024, and what are you contemplating in the guide for 'twenty one.
Speaker Change: So it was about Brian.
Speaker Change: <unk> came in about what we thought it would be at around 7% of the total company or around 10% of HVAC and it's one of the drivers of our growth along with health care and institutional on the HVAC side as we look into.
Speaker Change: 2025, so we would expect that.
Speaker Change: Representing a similar.
Speaker Change: Or better share.
Bryan Blair: Understood.
Bryan Blair: One last one, if I may, KTS, you you walked through the Portfolio fit, the differentiated technology, what should we think about in terms of year one financial contribution, where may that climb over time?
Speaker Change: Understood.
Speaker Change: Last one if I may <unk> you walked through the.
Speaker Change: Portfolio fits the differentiated technology.
Speaker Change: Should we think about in terms of year, one financial contributions were made that climb overtime and.
Mark Carano: And then most intriguingly, are you willing to speak to the TAM expansion, that having you know, brought that asset into the fold, it was now in play for Comtech and JNM? For Bryan, I'll kick that off. When we announced that deal, we indicated that it would have about $90 million in revenue on an annual basis and segment margins slightly higher than the current segment income margins of the D&M business. Obviously, we're only going to own it for 11 months of the year, so you can kind of do the math around that. It's probably about $80 million or so of revenue contribution throughout the year.
Speaker Change: Yes.
Speaker Change: Most intriguingly are you willing to speak to the Tam expansion that having.
Speaker Change: We brought that asset into the fold.
Speaker Change: It was now in play for Comtech in Ghana.
Brian: Sure, Brian I'll kick that off.
Brian: When we announced the deal we indicated that it would have about $90 million in revenue on an annual basis and segment margins slightly higher than our current segment income margins of the <unk>.
Brian: DNS business.
Brian: Obviously, we're only going to onyx for 11 months of the year.
Brian: So you can kind of do the math around that it's probably about $80 million or so.
Brian: Of revenue.
Brian: Contribution throughout the year.
Mark Carano: On a Modest, as you said, when we bought them, that it would be a modest contribution for this year and that will pick up in the subsequent year when you pay down some of that debt.
Brian: Okay.
Speaker Change: Yes, if you if you look at it on a first half second half basis, Brian We're looking at the first half being closer to a kind of one third contribution in the second half two thirds contribution and it really goes to the timing of the installations and the programs that they are involved in.
Speaker Change: And then the other comment I'd make which I think you guys have worked out is that you see a heavier interest burden in the front half of the year and that interest burden starts to decline as you get into the second half and generate more cash flow.
Speaker Change: Modest as we said when we when we bought them that it would be a modest contribution for this year and that will pick up in the subsequent year when you pay down some of that debt.
Gene Lowe: And then, Bryan, I think you asked further about kind of the market opportunity going forward, right? This is a key program for the Marines in that branch of the U.S. military. We've got high visibility into that program and visibility into the deployment of it over the coming years. When you think about broadening that out, there's considerable opportunity to expand that capability within the other branches of the government, whether that's Navy or other areas.
Speaker Change: Got it and then Brian I think you asked further about kind of a market opportunity going forward right. This is a key program or.
Speaker Change: The Marines in that branch of the U S military we've got high visibility into that program.
Speaker Change: And visibility into the deployment of it over the coming years. When you think about broadening that out there is considerable opportunity to expand that capability.
Speaker Change: Dan.
Dan: The other branches of the government.
Speaker Change: Whether that's navy or other areas.
Gene Lowe: Yeah, I think just a few comments there. As we've stated before, KTS is embedded in many platforms. And these are multi-year installs on a variety of different aircraft. Helicopter platforms that have a very strong position in a and a significant number of those, and very good visibility of that. And as Mark alluded to, one of the areas of a very attractive synergy that we see is our TCI business has very strong global presence, very strong in MOD and in the UK and Canada, Five Eyes, and we see some attractive growth opportunities there. We also have a nice presence in the airports.
Speaker Change: I think just.
Speaker Change: A few comments there as.
Speaker Change: As we've stated before <unk> is embedded in many platforms and these are multiyear installs.
Speaker Change: A variety of.
Speaker Change: Different aircraft.
Speaker Change: <unk>.
Speaker Change: A helicopter platforms that they have a very strong position.
Speaker Change: And a significant number of those in a very good visibility to that and as Mark alluded to one of the areas of very attractive synergy that we see as our <unk> business has very strong global presence very strong in.
Speaker Change: <unk> in the UK, Canada, and we see some attractive growth opportunities there.
Speaker Change: Also have a nice presence in the airports, we see some growth opportunities there.
Gene Lowe: You see some growth opportunities there. We also see some very nice technology synergy here where they have very, very good technology. And this.
Speaker Change: We also see some very nice technology synergy here, where they have very very good technology and then this.
Bryan Blair: technology overlaps very well with our data links technology and we think there's going to be some good opportunities to work together here on some different All sounds good.
Speaker Change: Technology overlaps very well with our data links technology, and we think there's going to be some good opportunities to work together here on different opportunities.
Bryan Blair: Thanks again, guys.
Speaker Change: Sounds good thanks again.
Operator: Thank you.
Speaker Change: Thank you thanks, Brian.
Operator: Thank you one more for next question. Our next question comes from the line of Damian Karas of UBS, your line is now open. Hey, good evening, everyone. Hey, Damian. A follow-up question on data centers, Paul, correct me if I misheard you, but I think you said that You ended the year around 7% of your total sales. to Data Center for the HVAC cooling business. And I think you said you'd expect a similar level this year, maybe a little higher. So, so one, just, you know, if my math's right, that kind of suggests you're maybe expecting data center growth of like 8% high single digit, something like that.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Damian Karas of UBS. Your line is now open.
Damian Karas: Hey, good evening everyone.
Speaker Change: Hey, Damian.
Speaker Change: A follow up question on data centers.
Paul: Paul Correct me, if I misheard, you, but I think you said that.
Paul: We ended the year around 7% of your total sales.
Paul: Into data centers and the HVAC cooling business and I think you said you would expect a similar level.
Paul: This year or maybe a little higher so.
Paul: So one just if my maths right.
Paul: Suggests there may be expecting data center grow.
Paul: So it's like 8% high single digits something like that.
Damian Karas: Could you just confirm that? And the second part of my question, just, you know, given some of the Commentary out there on some of these big companies like Microsoft and, you know, maybe having a little bit over capacity. I'm just curious if you've seen any changes in your project funnel or your, your visibility. for Data Center since we last talked.
Speaker Change: Could you just confirm that and then the second part of my question is.
Paul: Yes.
Paul: Given some of the.
Paul: Hi.
Paul: Commentary.
Speaker Change: Out there on some of these big companies like Microsoft and maybe having a little bit overcapacity I'm just curious if you've seen any changes in your project funnel or your visibility.
Paul: For data centers since we last talked.
Gene Lowe: I'll talk about the second one first. And yeah, I'd say the answer to that is no, Damian, we actually feel really good. As you know, if you think about data centers, AI is actually still a pretty small portion of the overall demand, obviously growing, growing very fast, but majority of data centers is really people moving to the cloud. or other applications like that. But I would say the demand for us, we see in front of us in our current product line is very attractive. And then also as a reminder, we have launched new products that expand our addressable opportunity here, in particular on the adiabatic and the dry.
Paul: I'll talk about the second one first and I would say the answer to that is no Damien we actually feel really good and as you know if you think about data centers AI, there's actually still a pretty small portion of <unk>.
Paul: While demand, obviously growing very fast, but majority of data centers is really people moving to the cloud or.
Paul: Or other applications like that.
Paul: But I would say the demand for us we see in front of us in our current product line is very attractive and then also as a reminder.
Paul: We have launched new products that expand our addressable opportunity here in particular on the <unk> and the dry.
Gene Lowe: And we actually think that's going to open up some very interesting opportunities for us going forward. But I would say the data center demand we see is healthy and steady.
Paul: And we actually think that's going to open up some very interesting opportunities for us going forward, but I would say the data center demand, we see is as healthy and steady in unit and parts, Yes sure Jamie the only thing I would take into account in your math. There is that remember that we have a couple of acquisitions that benefit us.
Mark Carano: And you want to go to Mark? Yeah, sure, Damian. The only thing I take into account in your math there is that remember that we have a couple of acquisitions that benefit us in the 2025 numbers that don't have anything to do with data centers. And so obviously, Ingenia is part of that that rolls into this year, and the other is KTS. And so those are going to raise your overall revenue number a little bit there that affects the math. So I'm not sure I agree with your conclusion there.
Paul: The 2025 numbers that don't have anything to do with data centers and so obviously in junior as part of that that rolls into this year and the others K TFS and so those are going to raise your overall revenue number a little bit there that affects the math, so I'm not sure I agree with your conclusion there.
Damian Karas: Okay, appreciate it.
Damian Karas: Can follow up with you online offline on that.
Paul: Okay I appreciate it can follow up with you offline on that.
Damian Karas: My second question is just on detection and measurement and gene. You said project activities, healthy, but a lot of that stuff. you know, you're saying is kind of 2026 and beyond. I think that's a little bit longer lead times than you typically see in that business.
Paul: My second question is just on on detection and measurement and gene.
Paul: You said project activity is healthy, but a lot of that stuff is you.
Paul: You are saying is kind of 2026 and beyond.
Paul: I think that's a little bit longer lead times than you typically see in that business. So could you just maybe elaborate on the nature of these projects and why they are longer dated.
Gene Lowe: So could you just maybe elaborate on the nature of these projects and why they're longer dated and just, you know, thinking about the flat. Underlying Sales Guidance for this year for D&M. You know, how are you kind of thinking about that, the short cycle run rate part of the business versus project?
Paul: And just thinking about the flat.
Paul: Underlying sales guidance for this year for Vietnam. How are you. How are you kind of thinking about that the short cycle run rate part of the business versus projects.
Gene Lowe: Yeah, why don't I start then I'll throw it over to Mark to kind of put it into more than numbers. If you look at DNM, I would say on our run rate businesses, it's Unknown Speaker We're pretty steady. You know, maybe some modest growth there. It does vary by region. I think, you know, the U.S. is pretty steady. The continent of Europe, a little more modest. U.K. is pretty steady. But overall, I'd say our, you know, our runway business, which is the bulk of the detection and measurement segment, is performing well and performing steady.
Paul: Yes, why don't I start and then I'll throw it over to mark to kind of put it into.
Speaker Change: More of the numbers if you look at <unk> I would say on a run rate business is it's it's steady.
Paul: With maybe some modest growth there.
Paul: It does vary by region I think.
Paul: The U S is pretty steady.
Speaker Change: Continent of Europe.
Speaker Change: More modest UK is pretty steady overall I'd say our.
Speaker Change: Our run rate business, which is the bulk of the detection and measurement.
Speaker Change: Segment is performing well and performing steady.
Gene Lowe: On the projects, as you know, Damian, there's a couple of different business units that have project activity. So on the transportation side, the Genfair brand, we've seen a lot of larger orders, I would say very large orders, which are very good. And you see some of that in our backlog. You'll see more of this. That's where we've been verbally awarded. You know, I think some of these could even hit Q1, Q2, that have a good chunk. These are multi-year projects that are, I would say, larger than the projects we've seen historically over the past five years.
Speaker Change: On the projects.
Damian Karas: Damian there's a couple of different.
Damian Karas: Business units had half project activity so on the transportation side.
Damian Karas: Jen Fair brand, we've seen a lot of larger orders I would say very large orders, which are very good.
Damian Karas: You see some of that in our backlog youll see more of this.
Damian Karas: Where we have been verbally awarded it.
Damian Karas: I think some of these could even had Q1 Q2 that has a good chunk easier multiyear projects that are I would say larger and the projects we have seen historically over the past five years.
Gene Lowe: And these are, you know, not in and out in the same year. A lot of the transportation businesses you get in order could be $1 million, could be $5 million, could be $8 million. Oftentimes, that gets in and out in the same quarter or two. A number of these opportunities are more multi-year projects where you're doing a broader range of work for them. And so, we're actually very excited about it. We have had, the team's done a really nice job winning a lot of that business. And so, I think that positions us well for 26.
Damian Karas: And these are.
Damian Karas: Not.
Damian Karas: Not in and out in the same year, a lot of that a lot of the transportation.
Damian Karas: Transportation business, you get an order could be $1 million could be 5 million could be 8 million oftentimes that gets in and out in the same quarter a tail.
Damian Karas: A number of these opportunities are more multi year projects, where youre doing a broader range of Oh.
Damian Karas: Works for them in.
Damian Karas: And says we're actually very excited about it.
Damian Karas: We have had the team's done a really nice job winning a lot of that business and so I think that positioned us well for 26 two other ones.
Gene Lowe: Two other ones, you know, in our ATON business, we have some project in portable airport lighting has been very good business for us. We actually see some nice projects rolling into 26, 27. A lot of that is more on the military side. So, you do see longer lead times, which is very similar to the portion in our ComTech business, which we've always talked about. We do have some longer lead times there. So, yeah, I'd say the project activity is healthy. and we feel good about what we're seeing.
Damian Karas: In our <unk> business, we have some project.
Damian Karas: Portable airport lighting has been very good business for us we see some nice projects rolling into 'twenty six 'twenty seven a lot of that is more on the military side do you see longer lead times, which is very similar to the portion in our contract business, which we've always talked about.
Damian Karas: We do have.
Damian Karas: Some longer lead times, there so yeah, I'd say the project activity is healthy.
Damian Karas: We feel good about what we're seeing.
Damian Karas: Yes, I think I mean, just to add to that.
Damian Karas: What seems comments were when I think about.
Speaker Change: The run rate side of the business I mean, we've talked about that being flattish I think we are more optimistic as we sit today about what we're seeing in certain parts of the globe, particularly in the U S. But our guide today still contemplates kind of a flattish run rate business much like we experienced last.
Damian Karas: Year with respect to the project side.
Damian Karas: All three of those are seeing a high level of activity and when I think about that front log.
Damian Karas: Some of those projects will will be bid and executed within the year, but we're just seeing a.
Damian Karas: A fair number of projects that will get it in later in the year that will either execute in 'twenty six.
Damian Karas: Or beyond or will be on a multi year execution.
Damian Karas: Great. Thanks for all the color, guys. Best of luck. Thank you, Damian.
Damian Karas: Great. Thanks for all the color guys best of luck.
Damian Karas: Thanks Damian.
Ross Sparenblek: Thank you. One moment for our next question. Our next question comes from the line of Ross Sparenblek of William Blair. Your line is now open. Hey, good evening, guys. Unknown Speaker Hey guys, thinking through, you know, just some of the product commentary within HVAC. Can you maybe just help us, you know, get a sense of demand levels and some of the dynamics between Everest Cooling and the EMA business? EAM business. Yeah. Engineered Air Movement. Engineered Air Movement business. Yeah, I think you're cool. Like I said, you know, you hit on probably our two biggest product categories for Data Center, I would say cooling is healthy.
Speaker Change: Thank you Bob for next question.
Speaker Change: Our next question comes from the line of Ross <unk> of William Blair. Your line is now open.
Speaker Change: Hey, good evening guys.
Speaker Change: Yes.
Speaker Change: Hey, guys. Thank you through some of the product commentary within HVAC can you, maybe just help us get a sense of demand levels and some of the dynamics between average cooling in the EMEA business.
Speaker Change: EAM business.
Speaker Change: Engineered engineered.
Speaker Change: Engineered air movement business.
Speaker Change: I think at Coleg I'd say you hit on probably our two biggest product categories for us.
Speaker Change: For data Center, I would say calling is healthy.
Gene Lowe: As a reminder, you know, we're very strong in cooling towers, we do well in data centers, not only in North America, but we have a nice position in Asia, where we went a lot, actually, a big chunk of the Asian business is really oriented around data centers. We also do well in Europe, let's say, you know, the business there is doing well, and I, frankly speaking, there's a lot of excitement about the expansion of the product opportunity because we were really excited about it. servicing one portion of that area, which is the cooling tower, but the two other areas, dry cooling and AEP attic, really have not been servicing.
Speaker Change: As a reminder.
Speaker Change: We're very strong in cooling towers, we do well.
Speaker Change: And data centers not only in North America, but we have a nice position in Asia, where we went a lot actually had a big chunk of the Asian business is really oriented around data centers.
Speaker Change: We also do well in Europe.
Speaker Change: Hey.
Speaker Change: The business there is doing well frankly speaking there is a lot of excitement about the.
Speaker Change: The expansion of the product opportunity because we were really.
Speaker Change: Servicing one portion of that area, which is a cooling tower, but the two other areas dry calling it <unk> really have not been servicing so.
Gene Lowe: So... We did launch this at the ASHRAE show, the large HVAC show last month. And I think there's a lot of excitement there. These tend to be longer lead times. We would be focused on getting a material amount of bookings in 2025 and targeting to get a chunk of that revenue into 2026. So I'd say on the cooling side, we feel very good about what we're seeing there. And then on the TAMCO side, demand is very strong. I think our product, I think we have a better product. It's very similar to Ingenia, where our challenge is getting the production to meet the demand.
Speaker Change: We did launch status at the Ash ratio the large HVAC show last month.
Speaker Change: And I think Theres a lot of excitement. There. These are tend to be longer lead times, we would be focused on getting a material amount of bookings and 25 and targeting to get a chunk of that revenue into 'twenty six.
Speaker Change: I would say on the cooling side, we feel very good about what we're seeing there.
Speaker Change: And then on the.
Speaker Change: Timko side demand is very strong I think our product I think we have a better product.
Speaker Change: It's very similar to engineer, where our challenge is getting the.
Speaker Change: Production to meet the demand.
Gene Lowe: And we are expanding both in Canada and in the US there. And our focus is being able to to sell more because we are in a situation where we are at full capacity there. So let's say on both sides. Now we're feeling good about what we're saying. Got it. That makes sense. Yeah, well, I'm just trying to understand kind of the sensitivity in the HVAC top line. And almost get the sense that maybe you're reserving some of the new capacity for Everest for these new products.
Speaker Change: And we are expanding both in Canada and in the U S. There and our focus is.
Speaker Change: Being able to sell more because we are in a situation where we are at full capacity. There. So I'd say on both sides.
Speaker Change: Now we are feeling good about what we're seeing.
Speaker Change: Got it that makes sense.
Speaker Change: Yeah, I'm, just trying to understand kind of the sensitivity and the HVAC topline.
Speaker Change: I almost get the sense that maybe your reserving some of the new capacity for average for these new products.
Gene Lowe: I mean, maybe just any updates on where you are and kind of absorbing that Springfield site. This has gone really well. It's ramped up very rapidly. We've gone from zero. Have we shared the numbers there publicly, Paul? But I think, you know, you're talking tens and tens and tens of millions of dollars. It's been a really nice facility. We focus most of our NC and our MD Everest through that facility. You know, that's not only for data centers. We will see that those larger scale products also used in semiconductor. We're seeing them in a variety of applications, battery plants.
Speaker Change: Just any updates on where you are in kind of absorbing that Springfield.
Speaker Change: <unk>.
Speaker Change: <unk> has done really well, it's ramped up very rapidly.
Speaker Change: Gone from zero have we shared the numbers are publicly.
Speaker Change: Paul.
Paul: But I think you are.
Paul: Tens and tens and tens of millions of dollars. There has been a really nice facility, we focused most of our <unk> and our MD average to that facility.
Paul: That's not only for data centers, we will see that.
Paul: Larger scale products also used in semiconductor we're seeing and.
Paul: In a variety of applications battery plants.
Gene Lowe: We've seen them in steel, you know, a variety of larger applications. But it's been a very nice addition. But we still also have more room to grow there. So I think that there is, if we find the demand, we can scale a material amount further in our cooling. No, Ross, that would really be if you're talking about the lower end of the range, that would really be where you don't see as much drop through on the top line, you're not seeing as much absorption. Some of that could come from the from the heating side, if you're talking about a weaker winter.
Paul: We've seen them in steel.
Paul: Larger applications, but it's been a very nice addition, but we still also have more room to grow there. So I think that there is if we find the demand we can scale a material amount further in our cooling business.
Paul: Okay. So when you kind of thinking about the high end the low end of the HVAC margin range, then I mean, theres still some overhead absorption to go.
Paul: If we hit the midpoint of kind of the organic guide I mean, what gets us towards that low end is that kind of.
Paul: Diluted M&A that was in the medium term targets that you guys gave last our last.
Paul: Last March or is there something else around additional capacity for Virginia that would kind of hit that I think 23% range.
Speaker Change: No Ross that would really be if youre talking about the lower end of the range that would really be where you don't see as much drop through on the top line youre not seeing as much absorption and some of that could come from me from the heating side, if youre talking about a weaker winter.
Gene Lowe: Some of that could just come if you start to see you know, deterioration in the macro.
Speaker Change: Some of that could just come if you start to see deterioration in the macro.
Steve Ferazani: One more if I can, and it feels like it's been a pretty abnormally cold winter, and I'm a little surprised on the low semen digit growth on the heating side for the boilers. This is kind of, you know, maybe January loaded, so it's blowing through in the first quarter, or is there something else? Yeah, so actually, for fourth quarter, it was really quite warm. In the it did turn cold in January, and we have seen stronger bookings in the first quarter in hydronics. That's unedited, as you would expect. Thank you. One moment for our next question.
Speaker Change: Okay, and one more if I can then it feels like it's been a pretty abnormally cold winter and little surprise on.
Speaker Change: The low single digit growth on the heating side boilers is it just kind of maybe January loaded so it's.
Speaker Change: Following through in the first quarter.
Speaker Change: Nothing else there.
Speaker Change: Yes, so actually.
Speaker Change: For fourth quarter.
Speaker Change: Really quite warm.
Speaker Change: In the it did turn cold in January and we have seen.
Speaker Change: The stronger bookings in.
Speaker Change: In the first quarter in hydraulics.
Speaker Change: Okay.
Speaker Change: As you would expect.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
Mark Carano: Our next question comes from the line of Steve Ferazani of Sidoti, your line is now open. Evening, everyone. Um, you know, when you guided for the full year, a few months back, Look at the numbers here, the segment results for 4Q. It looks like DNM actually came above the high end of your range, while HVAC was at the very low end. I'm just trying to see what transpired as the quarter went on that sort of generated those kinds of results. Yeah, I think Steve, with respect to the DNM business, we did have a very strong, you know, fourth quarter.
Speaker Change: Our next question comes from the line of Steve <unk> Sidoti. Your line is now open.
Speaker Change: Good evening everyone.
Speaker Change: When you guided for the full year.
Speaker Change: A few months back.
Speaker Change: Look at the numbers here.
Speaker Change: Results for <unk>, it looks like Dnm actually came above the high end of your range. While HVAC was that the very low end I'm just trying to see what transpired as the quarter went on that sort of generate those kinds of results.
Speaker Change: Yes, I think.
Speaker Change: Steve with respect to the DNS business, we did have a very strong.
Fourth quarter.
Mark Carano: With respect to our execution there, really what you saw was, given the incremental revenue that we saw, particularly from the L&I side of the business, you saw operating leverage in business. You also saw some very favorable project execution on some of the ComTech projects that were executed within the quarter. And then I think, as you know, we've been on this journey over the last year or two, really using CI and other synergies to drive margin across, you know, the DNM platform as a segment. And really, it was a kind of a blend of all three of those elements that drove that outsized performance in the quarter.
Speaker Change: With respect to our execution there really what you saw was.
Speaker Change: Given the incremental revenue that we saw particularly from the Illinois side of the business you saw operating leverage.
Speaker Change: In business you also saw some very favorable project execution on some of.
Speaker Change: Some of the Comtech or projects that were executed within the quarter and then I think as you know we've been on this said.
Speaker Change: Year journey over the last year or two really using Ci and other synergies to drive margin across the Dnm platform as a segment and really it was kind of a blend of all three of those elements.
Speaker Change: That drove that outsized performance in the quarter and some of that dynamic you obviously saw throughout the year right as we continue to drive margins up to the levels, where we finished the year.
Mark Carano: And some of that dynamic you obviously saw throughout the year, right, as we continue to drive DNM margins up to the levels where we finished the year. You know, with respect to the HVAC margins and the dynamic there being on the lower end relative to where we were guiding. It's really related to revenue and the drop through related to that, right, which was a function of heating. Yeah, and the dynamic that we saw in the fourth quarter. Yeah, we had set, sorry, we had set heating at a fairly low bar for the quarter because it had been warm, it turned out to be, we didn't see a lot of uptake, it remained warm, you guys were all in t-shirts up in the north, and nobody was buying boilers.
Speaker Change: Yes.
Speaker Change: With respect to the HVAC.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: And the dynamic there being on the lower end.
Speaker Change: Relative to where we're guiding.
Speaker Change: It's really related to revenue and.
Speaker Change: And the drop through related to that right, which was a function of heating.
Speaker Change: And the dynamic that we saw in the fourth quarter, Yes, we had said.
Speaker Change: We had said eating at a fairly low bar for the quarter because it had been warm it turned out to be we didn't see a lot of uptake. It remained warm you guys were on T shirts up in the north.
Speaker Change: Nobody was buying boilers, so that was a key driver.
Mark Carano: So that was a key driver that caused us to come in a little bit lower on a track.
Speaker Change: That caused us to come in a little bit lower on HVAC.
Gene Lowe: I know I'm not the first one to ask this, but Does the start of the season, is that how the season goes? Because it obviously was, you know, the coldest in at least three years. as we got into January, February. But if you don't order the boiler in October, are you not ordering it? You'll wait till next year? Or how does that usually play out? You guys have done this for so many years. Steve, I think you hit the nail on the head. It's not only the number of heating degree days, but when it does get cold.
Speaker Change: I know I'm not the first one to ask this but.
Speaker Change: Does the start of the season is that how the season goes because it obviously was.
Speaker Change: The colder at least three years.
Speaker Change: As we got into January and February, but if you don't order the.
Speaker Change: The boiler in October.
Speaker Change: Youre not ordering it you'll wait till next year, how does that usually play out you guys have done this for so many years.
Speaker Change: Yes, Steve I think you hit the nail on the head it's not only the number of heating degree days, but when it does get cold and what you do see is if it gets cold early September October November people will replace the boiler.
Gene Lowe: And what you do see is, if it gets cold early, September, October, November, people will replace the boiler. If it gets kind of cold in January and February, what you see is a lower pickup rate. You might get parts orders, you might get some service work, but you're exactly right. So the two numbers we always look at are the heating degree days, but also when, specifically when it gets cold. We have all sorts of regression models and historical data about what what drives our TAM for that year. But I think the way you described it is that That's helpful.
Speaker Change: If it gets kind of called in January and February which you see is a lower pickup right you might get parts orders you might guess with service work.
Speaker Change: You're exactly right. So the two numbers, we always look at our the heating degree days, but also win specifically when it gets cold we have all sorts of.
Speaker Change: Regression models and historical data about what drives our Tam for that year.
Speaker Change: But I think the way you described it is accurate.
Speaker Change: Okay. That's helpful.
Steve Ferazani: On the backlog build with DNM, and the expectation that that 2026 could be a very strong year, so much of DNM is supported by government spend.
Speaker Change: On the backlog build with PNM and the expectation that the fed.
Speaker Change: 2026 could be a very strong year.
Speaker Change: So much at 10 a M.
Speaker Change: Is supported by government spend.
Gene Lowe: Given the new administration, does that put any of these projects at risk? Yeah, Steve, great question. You know, when I think about the two areas where you would see that would be one around our GenFair business on the transportation side. You know, I will tell you, as we sit today, we're not seeing any impact from the change in administration or any of the sort of noise that you're seeing coming out of Washington, regarding that business, the opportunities remain robust there. And there's really been no timing change.
Speaker Change: The new administration.
Speaker Change: Does that put any of these projects at risk.
Steve: Yes, Steve.
Steve: Great question.
Speaker Change: Think about.
Speaker Change: The two areas, where you would see that would be one around our gen fair business.
Speaker Change: The transportation side I.
Speaker Change: I will tell you as we sit today, we're not seeing any impact from the change in administration or any of the sort of noise that you're seeing coming out of Washington.
Speaker Change: Regarding that business the opportunities remain robust.
Robust there and Theres really been no.
Speaker Change: Timing change.
Gene Lowe: With regard to the the complex side of the business where you would see, you know, a tie to defense spending, you know, We obviously are watching that very closely. We are not seeing anything as we sit today that would lead us to believe that there would be a change in the order rate or the opportunity there. As we, as we look out, you know, clearly, when you look at, particularly the KTS business, but some of the other elements of Comtec, right, these are, these are businesses that, you know, are really They're really skewed to kind of what is the modern technology of the U.S.
Speaker Change: With regard to the complex side of the business, where you would see tied to defense spending.
Speaker Change: No.
Speaker Change: We obviously are watching that very closely we are not seeing anything as we sit today that would lead us to believe that there would be a change in.
Speaker Change: The order rate or the opportunity there as.
Speaker Change: As we as we look out.
Speaker Change: Clearly when you look at particularly the Kt's business, but some of the other elements of Comtech right. These are these are businesses that were really.
Speaker Change: They are really skewed to kind of what is the modern technology.
Gene Lowe: military, right? It's kind of where the U.S. military is going. And it's really tied to sort of these kind of large traditional equipment that you see out there. And frankly, they're essential, I would argue, to the kind of the strategy of the U.S. military. So I think we feel good about where we're positioned there from a defense perspective, but we'll be watching it closely, clearly. That's fair.
Speaker Change: Military right, it's kind of where the U S military is going.
Speaker Change: And it really tied to sort of at these kind of a large traditional equipment that you see out there and frankly, they're essential I would argue to to the kind of the strategy of the U S. Military. So I think we feel good about.
Speaker Change: Where we're positioned there from a defense perspective, but.
Speaker Change: We'll be watching it closely clearly.
Steve Ferazani: I just wanted to flip back to KTS for a second. That I mean, that looks like really unique technology. It looks like it would be very, very hard to displace on any projects. Looks like it fits perfectly with your your past M&A strategy.
Speaker Change: That's fair.
Speaker Change: Just wanted to flip back to <unk> for a second that I mean that looks like really unique.
Speaker Change: <unk> technology, it looks like it would be very very hard to displace.
Speaker Change: On any projects it looks like it fits perfectly with your your past M&A strategy, but I wanted to get a sense Jim.
Gene Lowe: But I wanted to get a sense, Gene. Is your M&A strategy evolving at all? Have you shifted priorities and what you're looking at now versus what you maybe were looking at two, three, four years ago in terms of targets? I don't think so. I you know, I think we're staying true to our values in terms of how and where, you know, what types of businesses are we good at, that we can build and growing our our platforms, it's engineered products, leadership positions, it's tech heavy, you know, it's all of the same types of things that we've always been focused on over the past 10 years.
Speaker Change: Is your M&A strategy evolving at all have you shifted priorities and what you are looking at now versus what you may be were looking at 234 years ago in terms of targets.
Speaker Change: I don't think so I think we're staying true to our values in terms of how and where what types of businesses are we good at.
Speaker Change: You can build in and growing our.
Speaker Change: And our platform is engineered products leadership positions its tech heavy.
Speaker Change: It's all of the same.
Speaker Change: Same types of things that we've always been focused on over the past 10 years, what I would say that does evolve as you think about our different platforms. As you build you will see new opportunities grow.
Gene Lowe: What I would say that does evolve as you think about our different platforms as you build, you will see new opportunities grow. A perfect example of that would be engineered air movement. where, you know, a couple of years ago, we were not in that business, right? We're in cooling towers, which is a very close adjacency to by getting into Cincinnati Fan and then Tamco and now Ingenia, our TAM is dramatically larger and how we can build that out. Now it's the same strategy in terms of the types of business. We're not a commodity guy, we're not a cheap guy.
Speaker Change: So a perfect example of that would be engineered air movement.
Speaker Change: We're a couple of years ago, we were not in that business right, where in cooling towers, which is a very close adjacency to that.
By getting into Cincinnati fit and then Tampico and now engineer, our Tam is dramatically larger than how we can build that out now it's the same.
Speaker Change: Our strategy in terms of.
Speaker Change: The types of business, we are not a commodity guy who were not achieved guy.
Gene Lowe: We run engineered businesses where product management is very important. We have a very strong focus on the customers and innovation, very strong focus on digital, and I would say if you look across our platforms today, there is a lot more opportunity. This is, on the M&A side, the busiest I have ever seen us in 10 years. Really? We see some very attractive opportunities on the HVAC side in a couple of different areas, and also on the detection and measurement side. I believe our strategy is sound, but we're not changing anything in terms of how we think about.
Speaker Change: We run engineered businesses, where our product management is very important.
Speaker Change: We have a very strong focus on our customers and innovation very strong focus on digital and I would say if you look across our platforms. Today. There is a lot more opportunity. This is.
Speaker Change: On the M&A side, the busiest I have ever seen us in 10 years really.
As we see some very attractive opportunities on the HVAC side in a couple of different areas.
Speaker Change: And then also on the detection and measurement side. So I believe our strategy is sound, we're not but we're not changing anything in terms of how we think about.
Speaker Change: Yeah.
Gene Lowe: Stephen, we laid out in March our strategy. It's very similar, so we're executing against that. We feel good about what we're saying.
Donna: Thank you Donna.
Speaker Change: Steve as you know, we kind of laid out in March our strategy.
Speaker Change: It's very similar so we're executing against that we feel good about what we're saying.
Steve Ferazani: Great. Thanks, Gene. Thanks, everyone. Thank you.
Speaker Change: Great. Thanks, Jane Thanks, everyone.
Speaker Change: Thanks, Steve.
Brad Hewitt: One moment for our next question. Our next question comes from a line of Brad Hewitt of Wolf Research, your line is now Good afternoon, guys. Right. First with the Absolutely. Hey, so it looks like it looks like your revenue was relatively flattish sequentially in Q4, whereas about the expectation was for a modest step up sequentially to get to kind of a hundred million dollar annualized revenue run rate. Was there a timing component to be aware of there?
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Matt Hewitt of Wolfe Research. Your line is now open.
Matt Hewitt: Hey, good afternoon, guys. Thanks for squeezing me in.
Speaker Change: Yeah.
Speaker Change: Absolutely so it looks like it looks like revenue was relatively flattish sequentially in Q4.
Speaker Change: Whereas about the expectation was for a modest step up sequentially to get to kind of.
Speaker Change: $100 million annualized revenue run rate was there a timing component to be aware of there and then how should we think about the growth outlook for in January of this year.
Mark Carano: And then how should we think about the Sure, Brad, I'll kick that off. You know, with respect to Ingenia, you know, that we have a very, very strong backlog in that business. So feel good about the opportunity set there. I think, as you know, we're doing a facility expansion there currently. And that that was a little bit, a little bit slower than I think we had originally intended. When we, when we were chatting about this over the last couple months, most of that kind of challenge that we had with respect to getting up and running is behind us now.
Speaker Change: So on a full year basis, and kind of on an exit rate basis.
Speaker Change: Sure Brad I'll kick that off.
Speaker Change: With respect to and Jenny.
Speaker Change: We have a very very strong backlog in that business. So we feel good about.
Speaker Change: The opportunity set there I think as you know we're doing a <unk>.
Speaker Change: Facility expansion.
Speaker Change: They're currently in.
Speaker Change: That was a little bit.
Speaker Change: I'm a bit slower than I think we had originally intended.
When we.
Speaker Change: When we were chatting about this over the last couple of months most of that.
Speaker Change: <unk> that we had with respect to getting up and running.
Speaker Change: Behind US now so it's up fully functional but that did impact our revenue within the quarter.
Mark Carano: So it's up fully functional, but that did impact revenue within the quarter. We came in a little late from the guide based on that, but with that equipment installation, we're back on track.
Speaker Change: We came in a little light from from the guide on that but.
Speaker Change: Equipment installation, we're back on track.
Speaker Change: Okay.
Brad Hewitt: Okay, that's helpful.
Speaker Change: Okay. That's helpful. And then maybe on the TTS business can you walk through what you're assuming from a synergy perspective than maybe a year five.
Mark Carano: And then maybe on the KTS business, can you walk through what you're assuming from a synergy perspective and maybe a year five ROIC math and then do you expect to see any impact on the business from DOGE? I'll start with, you know, we kind of talked a little bit about the DOJ dynamic, just, I think, in the last question, but, you know, we're watching that very carefully. But what I will say, and I think Gene has made this point as well, this is just a, this is just a really critical technology to the, to the U.S.
Speaker Change: IC mask and then do you expect to see any impact on the business from dose.
Speaker Change: I'll start with.
Speaker Change: We kind of talked a little bit about the dose dynamic.
Speaker Change: I think in the last question, but.
Speaker Change: We're watching that very carefully, but what I will say and I think gene has made this point as well. This is just this is just a really critical technology.
Speaker Change: To the to the U S military.
Mark Carano: military. It's embedded within one of the branches and the expectation is it will be one of the core technologies across many of the other branches. So, and when you think about where the U.S. military is going, and the sort of technologies they need to support in theater, you know, whether that's drones, communications, things of that nature, this is just a critical component to it. So, I think, generally speaking, I would be surprised if it was impacted, but, you know, clearly the future and what the, you know, what's coming out of Washington right now is unpredictable.
Speaker Change: It's an embedded within one of the branches and the expectation is it will be one of the core technologies across many of the other branches. So.
Speaker Change: And when you think about where the U S military is going into sort of technologies they need to.
Speaker Change: To support.
Speaker Change: In theater.
Speaker Change: Thats drones communications things of that nature. This is just a critical component to it so.
Speaker Change: Generally speaking I would be surprised.
Speaker Change: If it was impacted but clearer.
Speaker Change: Clearly.
Speaker Change: The future.
Speaker Change: And what the what's coming out of Washington, right now is unpredictable. So we're keeping a close eye on it.
Mark Carano: So, we're keeping a close eye on it. with respect to, I'm trying to remember the other parts of your question, with respect to ROIC, you know, in year five, listen, one of our key elements of any transaction that we do is that it has got to generate a return in excess of our cost of capital within three to five years. So that we wouldn't have moved forward with the transaction, should it not have had that. that sort of return profile. So you can rest assured it is it's something we're very focused on. On the Synergy side, just a few more qualitative comments.
Speaker Change: With respect to I'm trying to remember the other parts of your question with respect to ROIC in.
Speaker Change: In year, five listen one of our key elements of any transaction that we do that it has got to generate a return in.
Speaker Change: In excess of our cost of capital.
Speaker Change: Within three to five years.
Speaker Change: That we wouldn't have moved forward with the transaction should it not have had that.
Speaker Change: That sort of return profile. So you can rest assured it is something we're very focused on.
Speaker Change: On the synergy side, just a few more qualitative comments.
Gene Lowe: You know, while KTS has won a number of platforms, multi-year installing of their technology and like MV-22, the CH-53, the A1Z, the MQ-9A, their multi-year programs, there's actually a lot of growth within their existing business and other platforms in other areas within their existing infrastructure. thing we like about this is this solves a real pain point for frontline operations. You're really taking a lot of different proprietary communication. where you don't want to have 10 different communication systems. You want to have one where you can actually see everything and manage everything. And that's really the special sauce that KTSC has.
Speaker Change: Kgs.
Speaker Change: <unk> has won a number of platforms multi multi year installing of neurology in like <unk> 'twenty two the CH 53.
Speaker Change: Z that in Q&A.
Speaker Change: Multiyear programs.
Speaker Change: Actually a lot of growth within their existing business and other platforms and other areas within their existing infrastructure.
Speaker Change: We like about this is this solves a real pain point for frontline operations, you're really taking a lot of different proprietary communications.
Speaker Change: You don't want to have 10 different communication systems, you want to have one.
Speaker Change: So you can actually see everything and manage everything in and Thats really the special sauce that <unk> has.
Gene Lowe: So we think they're very well positioned with their technology. As Mark alluded to, we actually think on the Synergy side, we bring a lot of very strong relationships from our ComTech business. We have very strong relationships in the UK and Canada, some of the other five eyes that we think can really help I expand this, as well as in the Air Force, which is a big ATOM, you know, you know, with our Mobile Air Force lighting, we have a very strong relationship there. That's on the commercial side, then on the technical side, teams are very excited about how we can bring our tactical data links and their solution together and deliver more value, not only to the KTF side of the customers, but to the legacy TCI side of That's not something that happens overnight.
Speaker Change: So we think they are very well positioned with their technology as.
Mark: As Mark alluded to.
Mark: Actually I think on the synergy side, we bring a lot of very strong relationships from our contact business, we have very strong relationships.
UK and some of the other five is that we think can really help.
Mark: Expand this as well as high in the air for US, which is a big a ton.
Mark: Good.
Mark: <unk>.
Mark: Mobile Air Force lighting, we have a very strong relationship there thats on the commercial side than on the technical side. The teams are very excited about how we can bring our tactical Daniel links and their solution together and deliver more value not only to the kgs side of the customers but to the.
Mark: The legacy PCI side of customers, that's not something that happens overnight. It does take some time to do the joint development, but we see some real opportunities there as well so.
Gene Lowe: It does take some time to do the joint development. But we see some real opportunities there as well. So, yeah, we feel good about the growth opportunities here and the synergy opportunities specifically on the commercial and the technical.
Mark: We feel good about the growth opportunities here and the synergy opportunities specifically on the commercial and the technical side.
Mark: Okay.
Bryan Blair: Great. Thanks, guys. Thanks, Bryan. Thank you.
Mark: Great. Thanks, guys.
Mark: Thanks, Brian.
Operator: I'm showing no further questions at this time.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Paul Clegg for closing remarks.
Paul Clegg: I would now like to turn it back to Paul Clegg for closing remarks. Thank you all for joining us. We look forward to updating you on the quarter ahead.
Paul Clegg: Thank you all for joining us and we look forward to updating you on acquire once again on the quarter. Once again, if you have interest in attending our engineered facility towards please E Mail me.
Paul Clegg: Once again, if you have an interest in attending our NJANIAC facility tour, please email me. Thank you for choosing participation in today's conference.
Speaker Change: Okay.
Speaker Change: Thank you for choosing your participation in today's conference. This does conclude the program you may now disconnect.
Operator: This concludes the program.
Operator: You may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].