Q1 2025 SPX Technologies Inc Earnings Call
Operator: Good day and thank you for standing by.
Good day and thank you for standing by welcome to the first quarter 2025, SPX Technologies earnings Conference call.
Operator: Welcome to the first quarter 2025 SPX Technology Earnings Conference Call. At this time, all participants are in listen-only mode. After this speaker's presentation, there will be a question and answer session.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll 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 would like to hand the conference over to your first speaker today, Paul Clegg, Vice President of Investor Relations. Please go ahead. Thank you, operator. And good afternoon, everyone. Thanks for joining us.
Speaker Change: Like to hand, the conference over to your first speaker today, Paul Clegg, Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you operator, and good afternoon, everyone. Thanks for joining us.
Paul Clegg: With me on the call today are Gene Lowe, our President and Chief Executive Officer, and Mark Carano, our Chief Financial Officer. Press release containing our first quarter results was issued today after market close. You can find the release and earnings slide presentation as well as a link to a live webcast of this call in the investor relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website.
Gene Lowe: With me on the call today are gene Lowe, our president and Chief Executive Officer, Mark Corona, Our Chief Financial Officer.
Gene Lowe: A press release containing our first quarter results was issued today after market close.
Gene Lowe: 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.
Gene Lowe: I encourage you to review our disclosure and discussion of GAAP results in the press release.
Gene Lowe: Followed along with a slide presentation during our prepared remarks.
Gene Lowe: A replay of 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 provision. Please also note the risk factors in our most recent FCC 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 justice figures from their respective gap measures in the appendix to today's presentation. Our adjusted earnings per share exclude amortization expense, acquisition-related costs. Non-Service Pension Items, Mark-to-Market Changes, and other items. Finally, we will be meeting with investors in various events over the quarter, including the Oppenheimer Industrial Growth Conference on May 8.
Gene Lowe: As a reminder, portions of our presentation and comments are forward looking and subject to safe Harbor provisions.
Gene Lowe: Please also note the risk factors in our most recent SEC filings.
Gene Lowe: Yeah.
Gene Lowe: Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only.
Gene Lowe: You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation.
Gene Lowe: Our adjusted earnings per share exclude amortization expense acquisition related costs.
Gene Lowe: Non service pension items, mark to market changes and other items.
Gene Lowe: Finally, we will be meeting with investors at various events over the quarter, including the Oppenheimer Industrial growth conference on May eight.
Paul Clegg: The B of A Securities, Industrial, Transportation, and Airlines Key Leaders Conference on May 14th.
Gene Lowe: Bofa Securities Industrial Transportation and Airlines key leaders conference on May 14th.
Paul Clegg: Wolf Research Small and Mid-Cap Conference on June 3rd, and the William Blair Growth Stock Conference on June 4th.
Gene Lowe: Wolfe research small and mid cap conference on June 3rd.
Gene Lowe: William Blair growth stock conference on June 4th.
Gene Lowe: And with that, I'll turn the call over to Gene. Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the first quarter of 2025, as well as an update on our full-year outlook. We had a strong start to the year. We grew first quarter adjusted EBITDA by 12%. The company continued to execute well, driving strong margin performance across both segments, and making progress on several key initiatives. Recently, we made another attractive addition to our HVAC segment. with the acquisition of Sigma and Omega, which enhances the value we provide to customers.
Jim: With that I will turn the call over to Jim.
Jim: Thanks, Paul.
Jim: Good afternoon, everyone and thank you for joining us.
Jim: On the call today, we will provide you with an update on our consolidated and segment results for the first quarter of 2025 as well as an update on a full year outlook.
Jim: We had a strong start to the year, we grew first quarter adjusted EBITDA by 12% and adjusted EPS by 10%.
Jim: Our company continued to execute well driving strong margin performance across both segments.
Jim: <unk> progress on several key initiatives.
Jim: Recently, we made another attractive addition to our HVAC segment.
Jim: With the acquisition of Sigma and Omega, which enhances the value we provide to customers.
Gene Lowe: and our HVAC segment while positioning us for further growth.
Jim: In our HVAC segment, well positioned positioning us for further growth.
Gene Lowe: Today we're raising our full year adjusted EPS guidance range to reflect our strong Q1 and the acquisition of sigma and omega, partially offset by the impact of the current tariff environment. now anticipate growth in adjusted EBITDA 15% at the midpoint of our range. Looking ahead, we remain well positioned to manage through a range of economic conditions. You have a high level of replacement sales and diverse demand drivers across our end market. Critical solutions are often government mandated or required. And we have a strong playbook that has proven effective in adapting to rapid change.
Jim: They were raising our full year adjusted EPS guidance range to reflect our strong Q1, and the acquisition of Sigma at Omega.
Jim: Firstly offset by the impacts of the current tariff environment.
Jim: Now anticipate growth in adjusted EBITDA, 15% at the midpoint of our range.
Jim: Looking ahead, we remain well positioned to manage through a range of economic conditions.
Jim: The high level of replacement sales and diverse demand drivers across our end markets.
Jim: A critical solutions are often government mandated or required.
Jim: And we have a strong playbook that has proven effective in adapting to rapid change.
Gene Lowe: Turning to our high-level results. In the first quarter, we grew revenue by 3.7%, driven by a solid performance in our HVAC segment, and the benefit of recent acquisitions. Adjusted EBITDA increased by approximately 12% year-on-year, with 150 basis points of margin.
Jim: Turning to our high level results.
Jim: For the first quarter, we grew revenue by three 7% driven by a solid performance in our HVAC segment and the benefit of recent acquisitions.
Jim: Adjusted EBITDA increased by approximately 12% year on year.
Jim: 50 basis points of margin expansion.
Gene Lowe: As always, I'd like to update you on our value creation initiative. We continue to leverage our business system to manage a dynamic tariff environment, remaining nimble and redeploying resources as needed. We're also closely managing price and our sourcing relationships to mitigate the impact of terror. During the quarter, we also continued to gain traction on our continuous improvement and value engineering initiatives. In our HVAC segment, we identified additional opportunities to standardize control components in our electric heat products, allowing more streamlined manufacturing, shorter lead times and lower costs. and our Detection and Measurement segment, we continue to advance our new product initiative.
Jim: As always I'd like to update you on our value creation initiatives.
Jim: We continue to leverage our business systems to manage it on the electric tariff environment.
Jim: Being nimble and redeploy resources as needed.
Jim: We're also closely managing price and our sourcing relationships to mitigate the impact of tariffs.
Jim: During the quarter. We also continued to gain traction on our continuous improvement and value engineering initiatives.
Jim: In our HVAC segment, we identified additional opportunities to standardize control components in our electric heat products, allowing more streamlined manufacturing shorter lead times and lower costs.
Jim: And our detection <unk> measurement segment, we continue to advance our new product initiatives.
Gene Lowe: Transportation Platform introduced a new ticket vending machine called the Venstar 5. It has a much smaller footprint, a larger screen, and several advanced features that provide an enhanced user experience.
Jim: Transportation platform introduced new ticket vending machine called advanced archive.
Jim: The smaller footprint, a larger screen and several advanced features that provide an enhanced user experience.
Gene Lowe: We're receiving great customer feedback on the product and are already seeing significant In April, we continue to advance our inorganic growth initiative with the acquisition of Sigma and Omega, which enhances the value we offer our customers in our HVAC segment. Sigma and Omega's product portfolio includes vertical stack heat pumps, fan coils, Institutional heating products and self-contained units. These solutions are highly complementary with our existing HVAC businesses and expand our addressable market. They are often paired with cooling towers and boilers, typically receiving approximately two times the order value of the cooling tower and boiler combined for this type of solution.
Jim: Giving great customer feedback on the product and are already seeing significant sales.
Jim: In April we continue to advance our inorganic growth initiatives with the acquisition of Sigma and Omega, which enhances the value we offer our customers in our HVAC segment.
Jim: SYGMA and Omega product portfolio includes vertical stack heat pumps and fan.
Jim: Coils.
Jim: Two small heating products and self contained units.
Jim: These solutions are highly complementary with our existing HVAC businesses.
Jim: Expanding our addressable market.
Jim: They are often paired with cooling towers and boilers, because they're receiving approximately two times the order value of the cooling tower and boiler combined.
Jim: The solution.
Gene Lowe: The transaction is an excellent fit that creates significant opportunities for leveraging our combined channels to drive growth and attractive end markets, in particular for multi-story buildings such as hotels, schools, hospitals, and commercial and residential properties across North America. Today, more than two thirds of Sigma Omega's revenue comes from domestic sales to their Canadian customers. part of our value creation strategy, we plan to substantially increase sales to US customers. supported by the expansion of production at our existing U.S. facilities with minimal additional We're very pleased with this transaction. are excited about Sigma Omega joining.
Jim: The transaction is an excellent fit to create significant opportunities for leveraging our combined channels to drive growth in attractive end markets in particular, the multistory buildings such as hotels.
Jim: Hospitals, and commercial and residential properties across North America.
Speaker Change: Today more than two thirds of Cigna Vegas revenue comes from domestic sales took our Canadian customers.
Speaker Change: Part of our value creation strategy, we plan to substantially increase sales to U S customers.
Speaker Change: The expansion of production at our existing U S facilities with minimal additional capital investment.
Speaker Change: We're very pleased with this transaction.
Speaker Change: We're excited about Sigma and Omega joining SPX team now.
Mark Carano: Now, I'll turn the call over to Mark, who will be our financial... Thanks, Gene. Our first quarter results were strong. Year-on-year adjusted EPS grew 10% to $1.38. In the quarter, total company revenues increased 3.7% year-on-year, primarily driven by the acquisition of ATS in late January and an extra month of the Genia, which closed in early February of 2020. Consolidated segment income grew by $10.7 million or 10.7%, $110.5 million. segment margin increased to $140,000.
Marc: Now I'll turn the call over to Marc to review our financial results.
Thanks, Jim.
Speaker Change: Our first quarter results were strong year on year, adjusted EPS grew 10% to $1 38.
Speaker Change: For the quarter total company revenues increased three 7% year on year, primarily driven by the acquisition ATF in late January the extra market in January which closed in early February of 2020.
Speaker Change: Consolidated segment income grew by $10 7 million or 10, 7%.
Speaker Change: $10 5 million.
Speaker Change: Segment margin increased 140 basis points.
Mark Carano: Reporter and our HVAC. Revenues grew 6.8% year-on-year. On an organic basis, revenues increased 4.4%, driven primarily by growth in our heating platform, and to a lesser extent, in our cooling platform. The extra month of Ingenia accounted for growth of 2.9%. while FX was a modest. Segment income grew by $5.5 million, or 8%. while segment margin increased 30 basis points. Increases in segment income and margin were due to higher sales, including the additional month of Ingenium. Segment backlog at quarter end was $451 million, or up approximately 3%.
Speaker Change: The corner in our HVAC segment revenues grew six 8% year on year.
Speaker Change: On an organic basis revenues increased four 4% driven primarily by growth in our heating platform and to a lesser extent in our cooling platform.
Speaker Change: The extra amount the Virginia accounted for growth of two 9%.
Speaker Change: <unk> was a modest headwind.
Speaker Change: Segment income grew by $5 $5 million or 8%.
Speaker Change: Segment margin increased 30 basis points.
Speaker Change: Increases in segment income and margin due to higher sales, including the additional market Virginia.
Speaker Change: Segment backlog at quarter end was $451 million were up approximately.
Speaker Change: <unk>, 3% from Q4.
Mark Carano: Recorder and recording section and measurement section. revenues declined 2% year on year. On an organic basis, revenue declined 6.9%. partially offset by an increase of 5.2% from the acquisition of KTF. FX with a modest head. The decrease in organic revenue was driven largely by the timing of project deliveries in the prior year.
Speaker Change: For the quarter in our detection and measurement segment.
Speaker Change: Revenues declined 2% year on year.
Speaker Change: On an organic basis revenue declined six 9%, partially offset by an increase of five 2% from the acquisition TTS.
Speaker Change: FX was a modest headwind.
Speaker Change: The decrease in organic revenue was driven largely by the timing of project deliveries in the prior year.
Mark Carano: year on year segment income grew by $5.2 billion or $16.6 segment margin increased 360 days. Increases in segment income and margin were driven by more favorable sales mix, strong project execution in our context. as well as the addition of KTX. Segment backlog at quarter end was $346 million, up 56% sequentially from Q4, including organic growth of 34%.
Speaker Change: Year on year segment income grew by.
Speaker Change: $5 2 million or 16, 6%.
Speaker Change: <unk> margin increased 360 basis points.
Speaker Change: Increases in segment income and margin were driven by a more favorable sales mix.
Speaker Change: Strong project execution, and our content platform as well as the addition of kgs.
Speaker Change: Segment backlog at quarter end was $346 million up 56% sequentially from Q4, including organic.
Speaker Change: <unk> growth of 34%.
Mark Carano: Turning now to our financial position at the end of the quarter. We ended Q1 with cash of $182 million and total debt of $960 million. Our leverage ratio, as calculated under our bank credit agreement, is approximately 1.6 times. including the effect of the KTSI. is closed in January. Including the pro forma impact of the Sigma and Omega acquisition, which closed in April, our leverage ratio was 1.9 times, well within our target range of 1.5 to 2.5. We anticipate our leverage ratio declining below the low end of our target range by year end, assuming no further capital deployment beyond our target.
Speaker Change: Turning now to our financial position at the end of the quarter.
Speaker Change: We ended Q1 with cash of $182 million and total debt of $960 million or.
Speaker Change: Our leverage ratio as calculated under our bank credit agreement was approximately one six times, excluding the impact of the Kgs acquisition, which closed in January.
Speaker Change: Including the pro forma impact of the Sigma Omega acquisition, which closed in April our leverage ratio was one nine times well within our target range of one five to two five times.
Speaker Change: We anticipate our leverage ratio declining below the low end of our target range by year end, assuming no further capital deployment beyond our guidance.
Mark Carano: Q1 adjusted free cash flow was approximately $36 million.
Speaker Change: Q1, adjusted free cash flow was approximately $36 million.
Mark Carano: Moving on to our full year 2025 guide. We are updating our range of adjusted EPS to $6.10 to $6.42. reflecting year-on-year growth of 12% at the mid-. This represents an increase from a range of $6 to $6.25 previously. The increase reflects our strong Q1 results, net us some favorable timing, as well as accretion from the acquisition of Sigma and Omega, which is anticipated to be modest due to higher interest costs from borrowings to fund the transaction. These are partially offset by the net impact of current tariff rates and our mitigation. including price increases and surcharges.
Speaker Change: Moving onto our full year 2025 guidance.
Speaker Change: We are updating our range of adjusted EPS to $6 10.
Speaker Change: The $6 40.
Speaker Change: Reflecting year on year growth of 12% at the midpoint.
Speaker Change: This represents an increase from a range of $6 to $6 25 previously.
Speaker Change: The increase reflects our strong Q1 results net of some favorable timing as well as accretion from the acquisition of Sigma at Omega, which is anticipated to be modest due to higher interest costs from borrowings to fund the transaction.
Speaker Change: These are partially offset by the net impact of current tariff rates and our mitigation efforts, including price increases and surcharges.
Mark Carano: And an impact of tariffs to our updated guidance is approximately 8 to 12 cents of adjusted EPI. For Q2 we anticipate adjusted EPS to be modestly higher than in the prior year. Higher Interest Costs, Corporate Expense, and Share Count, Partially Offsetting the Benefit of Higher Segment. As a reminder, in Q2 2024, our HVAC segment results benefited from the delivery of a $20 million cooling service. In our detection and measurement segment, we expect strong year-on-year growth in Q2, both organically and from the acquisition of KTF.
Speaker Change: The net impact of tariffs to our updated guidance is approximately eight to 12 of adjusted EPS.
Speaker Change: For Q2, we anticipate adjusted EPS to be modestly higher than in the prior year period.
Speaker Change: The higher interest cost corporate expense and share count partially offsetting the benefit of higher segment income.
Speaker Change: As a reminder.
Speaker Change: Q2, 2024, our HVAC segment results benefited from the delivery of the $20 million cooling service project.
Speaker Change: In our detection <unk> measurement segment, we expect strong year on year growth in Q2, both organically and from the acquisition of Kgs.
Mark Carano: As always, you'll find modeling considerations in the appendix to our presentation.
Speaker Change: As always you'll find modeling considerations in the appendix to our presentation.
Gene Lowe: And with that, I'll turn the call back over to Thanks, Mark. We continue to believe that SPX is less cyclical than most industrial tech. You have a diverse set of end market drivers. High Level of Replacement Revenue, and we offer a broad set of critical solutions that are often government-mandated or state-funded. Business System provides effective mitigation tools, and historically, we've managed to limit the impact of economic downturns on our financial system. For example, during the COVID pandemic in 2020, our revenue and earnings were approximately flat, while many other industrial tech companies experienced significant decline. In our HVAC segment, we have a healthy backlog for a highly engineered solution.
Speaker Change: And with that I'll turn the call back over to Jim.
Jim: Thanks Mark.
Speaker Change: We continue to believe that SPX is less cyclical than most industrial tech companies.
Jim: We have a diverse set of end market drivers.
Speaker Change: High level of replacement revenue.
Speaker Change: Offer a broad set of critical solutions that are often government mandated or essentials.
Speaker Change: Our business system provides effective mitigation tools and historically.
Speaker Change: Managed to limit the impact of the economic downturns on our financial performance.
Speaker Change: For example, during the Covid pandemic in 2020, our revenue and earnings are approximately flat.
Speaker Change: Many other industrial tech companies experienced significant declines.
Speaker Change: Our HVAC segment, we have a healthy backlog for our highly engineered solutions in our core markets are holding up well.
Gene Lowe: core markets are holding up well. was feeling incrementally more positive about data center opportunities in 2025 and 2026. and our related new product initiatives are progressing well. In our detection and measurement segment, run rate market demand remains flattish with regional variation. While our project businesses are seeing healthy front log activity, with many new bookings slaved for delivery in 2026 and beyond. Overall, current market conditions support our updated 2025 guidance.
Speaker Change: We are feeling incrementally more positive about data center opportunities in 2025 and 2026.
Speaker Change: A related new product initiatives are progressing well.
Speaker Change: In our detection <unk> measurement segment run rate market demand remains flattish with regional variation.
Speaker Change: Our project businesses are seeing healthy front log activity with many new bookings slated for delivery in 2026 and beyond.
Speaker Change: Overall current market conditions support our updated 2025 guidance range.
Gene Lowe: In summary, I'm pleased with the strong start to 2025. Our acquisition of Sigma and Omega further enhances the value. provide to our HVAC customers and positions us for future growth. Despite tariff headwinds, we are confident in our increased four-year guidance which implies adjusted EBITDA growth of 15% at the midpoint. We also remain well positioned to manage macro uncertainty and navigate a rapidly changing environment.
Speaker Change: In summary, I'm pleased with the strong start to 2025.
Speaker Change: Our acquisition of Sigma and Omega further enhances the value.
Speaker Change: We provide to our HVAC customers and positions us for future growth.
Speaker Change: Despite tariff headwinds we are confident in our increased full year guidance, which implies adjusted EBITDA growth of 15% at the midpoint.
Speaker Change: We also remain well positioned to manage macro uncertainty and navigate a rapidly changing environment.
Gene Lowe: Looking ahead, I'm excited about it. 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.
Speaker Change: Looking ahead I'm excited about our future.
Speaker Change: That's 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.
Paul Clegg: With that, I'll turn the call back to Paul. Thanks, Gene.
Paul Clegg: 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 a question and answer session.
Paul Clegg: Thanks, Jim Operator, we will now go to questions.
Speaker Change: Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you will need to press star one way or your telephone and wait for your name to be announced towards higher question. Please press star one again, please stand by while we compile the Q&A roster.
Operator: As a reminder to ask a question, you'll need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Please stand by while we compile the Q&A roster.
Paul Clegg: Okay.
Brad Hewitt: And our first question comes from the line of Brad Hewitt of Wolf Research. Your line is now open. Good afternoon, guys. Thanks for taking my question. Hey, Brad. How you doing? Good.
Speaker Change: And our first question comes from the line of Brad Hewitt of Wolfe Research. Your line is now open.
Brad Hewitt: Hey, good afternoon, guys. Thanks for taking my questions.
Speaker Change: Okay. Thank you Brian.
Brad Hewitt: Okay.
Brad Hewitt: So can you walk through what you're assuming in terms of the gross and net tariff impact for the year? It looks like you implicitly cut the organic EBITDA guidance for the rest of the year by about $5 million. So is that the right way to think about the tariff impact? Now, let me just, Brad, let me give you a little bit of color, right? We said on the call, it was 8 to 12 cents of tariff impact, right? So you take the midpoint of that, right? They kind of back up to about a $6 million net cost, you know, at the midpoint there.
Brad Hewitt: Good.
Speaker Change: Can you walk through what you're assuming in terms of the gross and net tariff impact for the year. It looks like you implicitly cuts to your organic EBITDA guidance for the rest of the year rest of the year by about $5 million. So is that the right way to think about the tariff impact.
Speaker Change: Now let me let me just Brad let me give you a little bit of color right. We said on the call. It was at 8% to 12.
Speaker Change: Eric impact right. So if you take the midpoint of that.
Speaker Change: Back up to about $6 million net costs.
Speaker Change: At the midpoint there.
Gene Lowe: The gross amount of cost is, let's call it $20 million, low 20s of impact, being offset by price of about $14 million. And that's a combination of price and... is the way to go. from a from a map matter. Okay, that's helpful.
Speaker Change: The gross amount of cost is.
Speaker Change: Let's call it $20 million low twenties.
Speaker Change: The impact being offset.
Speaker Change: By price.
Speaker Change: About 14 million, that's a combination of price and surcharges.
Speaker Change: Is the way to think about it from a.
Speaker Change: From a mathematical standpoint.
Brad Hewitt: And then congrats on getting the Sigma and Omega deal closed. Just curious how you think about that business in terms of the through cycle growth rates, both pre and post interviews. And then from an EBITDA margin perspective, is it fair to think of that business as currently being in the mid-teens range?
Speaker Change: Okay. That's helpful.
Speaker Change: Congrats on getting the Sigma Mega deal closed just curious how you think about that business in terms of the through cycle growth rates, both pre and post synergies.
Speaker Change: From an EBITDA margin perspective is it fair to think of that business is currently being in the mid teens range.
Gene Lowe: When I start the business, Brad, I think, first of all, this is a really good business. We really, we really like this business, a very complimentary product to what we already sell today. So typically, when you see multi-story applications, you know, hospitals, schools, hotels, you'll see us selling the cooling tower and then the boilers and then the heat pumps to go in the room. is an engineered product that we have not participated in today. If you look at Sigma and Omega, they have a very good product, a very strong position in Canada. And we actually see a very nice synergy opportunity to really expand their growth, predominantly in the States, where we are very strong in cooling towers and boilers, obviously.
Brad Hewitt: When I started the business Brad I think.
Brad Hewitt: First of all I wasn't really good business, we really really like this business.
Brad Hewitt: Very complementary product to what we have already solved today. So typically when you see multistory applications hospitals schools hotels, Youll see us selling the cooling tower and then the boilers and the heat pumps that go in the rooms.
As a as an engineered product that we have not participated in today. If you look at Sigma in EMEA.
Brad Hewitt: We have a very good product a very strong position in Canada.
Brad Hewitt: We actually see a very nice synergy opportunity.
Brad Hewitt: To really expand their growth.
Brad Hewitt: Nominally in the states, where we are very strong and cooling towers.
Gene Lowe: So we really like this business. They're a very good technology, good product and very complementary to our channels. And we actually see some nice synergies for growth.
Brad Hewitt: Boilers, obviously so.
Brad Hewitt: We really like this business.
Brad Hewitt: Ari.
Brad Hewitt: Good technology, good product and very complementary to our channels and we actually see some nice synergies generated through similar principles.
Mark Carano: I'm going to run through some of the financials. Yeah, I think we, you know, with respect to the sizing of the business, I think, you know, you saw in the press release from a couple weeks ago, it's about $65 million in revenue. Obviously, we're going to own it for about eight and a half months of the year.
Brad Hewitt: Yes, I think we.
Brad Hewitt: With respect to the.
Brad Hewitt: The sizing of the business.
Brad Hewitt: You saw in the press release from a couple of weeks ago. It's about 70 $565 million in revenue. Obviously, we are going to own occur about eight five months of the year. So you can do the math on that to get that gets you into the 40% to $45 million.
Mark Carano: So you can do the math on that, but get that gets you into the $40 to $45 million range. And then from a segment income perspective, I would say it's, you know, just slightly lower than the segment income average of the HVAC business overall today.
Brad Hewitt: Range and then from a segment income perspective, I would say it's.
Brad Hewitt: Just slightly lower than the segment income average.
Brad Hewitt: The HVAC business overall today.
Brad Hewitt: Great.
Brad Hewitt: Thanks, guys.
Brad Hewitt: Great. Thanks, guys.
Operator: Thank you.
Operator: Thanks, Brad.
Brad Hewitt: Thank you thanks, Brian.
Operator: Thank you, one moment, for our next question.
Brad Hewitt: Thank you Amit for next question.
Bryan Blair: Our next question comes from Bryan Blair from Oppenheimer Alliance Now. Thank you. Good afternoon, guys. Hey Brenda, hey. Good start to the year. It sounds like you're very confident. and The Outlook, the race guide. that you've offered. We've talked for, you know, for years now about the asynchronous demand profile that your, your company has an aggregate there are many proof points. that we have already. I'm just curious, you know, what you're seeing now with the tariff-related uncertainty. just the overall volatility of the backdrop, you know, platform by platform, how order rates have progressed through Q1 into Q2.
Speaker Change: Our next question comes from the line of Bryan Blair from Oppenheimer. Your line is now open.
Speaker Change: Thank you good afternoon guys.
Speaker Change: Hey, Brian.
Speaker Change: Good start to the year and it sounds like you're very confident.
Speaker Change: And the outlook.
Scott: Hey, Scott.
Speaker Change: Thank you Robert.
Speaker Change: We've talked for for years now about the asynchronous demand profile and all that.
Speaker Change: Your company has an aggregate there are many proof points and.
Speaker Change: And we have already.
Speaker Change: Just curious to know what youre seeing now with the tariff related uncertainty.
Speaker Change: Just the overall volatility backdrop platform by platform.
Speaker Change: How order rates have progressed through Q1 into Q2.
Bryan Blair: You know, if there are any notable changes that you would attribute to. You know, the uncertainty at hand, or if it's, you know, kind of steady as Bryan, I'd say.
Speaker Change: Is there any notable changes that you would attribute to.
The uncertainty is at hand or is it.
Speaker Change: Steadiness is against.
Speaker Change: No Brian I would say.
Gene Lowe: Cut to the punchline. We haven't seen a lot of change. If anything, I feel like we're in a stronger position than when we started the year. I can kind of run you through. segments and some of the platforms. You know, if you look at HVAC, you know, last year, we had a very strong growth in cooling, more flattish in heating, really cooling carried the day last year organically, you know, 14% range more flattish. If you look at heating and cooling this year, very balanced across them both. We actually You know, we're seeing good, solid demand.
Speaker Change: Cut to the punch line, we haven't seen a lot of change if anything I feel like we're in a stronger position than when we started the year I can kind of run me through the.
Speaker Change: The segments in some of the platforms.
Speaker Change: Yes, if you look at HVAC.
Speaker Change: Last year, we had a very strong growth.
Speaker Change: Calling more flattish in the heating and.
Speaker Change: Calling carried the day last year organically.
Speaker Change: 14% range more flattish if you look at eating and cooling this year very balanced across both.
Speaker Change: We actually.
Speaker Change: We're seeing good solid demand, we've talked pretty consistently around <unk>.
Gene Lowe: You know, we've talked pretty consistently around healthcare, institutional. I would say one of the ones that we're seeing reasonably A substantial amount of increasing activity would be the power. which is actually oftentimes paired with data centers. And so this is an area that we are particularly well-suited. So, you know, I'd say overall in the HVAC segment, we're very balanced and we haven't seen any impacts. One impact I would say, the one change I would say is we're feeling relatively stronger on data. So why is that? We're seeing a good amount of activity. I think we're winning.
Speaker Change: Health care institutional I would say one of the ones that we're seeing.
Speaker Change: Yes.
Speaker Change: Reasonably.
Speaker Change: A substantial amount of increasing activity would be the tower.
Speaker Change: Nazi oftentimes paired with data centers and so this is an area that we are particularly well suited.
Speaker Change: So.
Speaker Change: I'd say overall in the HVAC segment, we're very balanced and we haven't seen any impacts one impact I would say the one change outs were feeling relatively stronger on data centers and so why is that.
Speaker Change: We're seeing a good amount of activity I think we're winning we have very good products.
Gene Lowe: We have very good product. And then I would say we've also launched some new products in the data center area that are getting nice tracks. If you look at TAMCO, we have a new set of solutions there that are particularly well-suited for what's called the building envelope area. We've seen a lot of growth there. In cooling, our core cooling tower, we actually have a new Everest solution that is already starting to get some nice order there. way of cooling that is preferred by some customers that we're very excited about. And then when we've talked about adiabatic and dry, we've launched that product and I would say there is very strong interest in that.
Speaker Change: And then I would say we've also launched some new products in the state.
Speaker Change: The center area. There is we're getting nice traction.
Speaker Change: If you look at Tam co.
Speaker Change: New set of solutions, there that are particularly well suited for what's called the building envelope area. We've seen a lot of growth there in <unk>.
Speaker Change: Growing our core cooling tower, and we actually have a new solution that.
Speaker Change: It's already starting to get some nice orders there are different.
Speaker Change: Different.
Speaker Change: Way of calling that is preferred by some customers that were very excited about.
Speaker Change: And then when we've talked about ADP attic and dry.
Speaker Change: We've launched that product and I would say.
Speaker Change: There is very strong interest in that we really think we have a winner here.
Gene Lowe: We really think we have a winner here. We have a product that I think just has a tremendous value proposition. There's a number of patents pending on that product. But, you know, as we've talked about in the past, we would argue to get some material bookings in 2025 and get some real revenue in 2026. And I think that's tracking pretty well. If you look at D&M, I would say we always talk about run rate and projects. Run rate is steady. I would say our businesses are probably a little bit more positive on the U.S. today and perhaps a little bit more cautious on Europe and Asia.
Speaker Change: We have a product I think just as a tremendous value proposition.
Speaker Change: There's a number of patents pending on that product.
Speaker Change: As we've talked about in the past, we would argue to get some material bookings in 'twenty five.
Speaker Change: And get some real revenue in 'twenty, six and I think thats tracking pretty well if you look at PNM.
Speaker Change: I would say, we always talk about run rate and projects run rate is steady I would say our business is a probably a little bit more positive on the U S today, and perhaps a little bit more cautious on Europe and Asia Europe.
Gene Lowe: Europe and Asia are pretty flat for us. That's obviously a smaller portion of our business. But overall, I think the runway business is steady. In the projects, the activity is very high. You can see that in our backlog numbers, our booking, and we keep winning orders there. So we feel very good about the project. So, yeah, if I look at 25, the only place I can think of, you know, one of the things I do is I talk to every general manager, all of our segment leads. We go to the front line, maybe a little bit of impact would be runway Europe and runway Asia, which is already set up to be pretty flattish.
Speaker Change: Europe, and Asia are pretty flat for us.
Speaker Change: That's obviously, a smaller portion of our business.
Speaker Change: Well I think the run rate business was steady.
Speaker Change: And the projects the activity is very high you can see that in our backlog numbers are booking and we keep.
Speaker Change: We keep winning orders there so we feel very good about the project. So yes, if I look at 25.
Speaker Change: Only place I can think of.
Speaker Change: One of the things that he was I talked to every general manager all of our segment as we go through the front line, maybe a little bit of impact would be run rate Europe and runway Asia, which is already set up to be pretty flattish.
Mark Carano: and overall I would say we obviously wouldn't have raised our guide if we didn't feel good about what we're seeing in front of us and Mark anything you'd like to add? I think you largely covered it. I mean, you know, we feel we feel like in our guide is pretty balanced, right? It is a dynamic environment, of course, that we're in today with tariffs and that impact. And we've tried to reflect that, obviously, in our guide. But we feel like we're in a good spot in light of kind of the macro environment. I understand that's a very helpful color.
Speaker Change: But overall I would say, we obviously wouldn't have raised our guide if we didn't feel good about what we're seeing in front of us and.
Mark: Mark anything you'd like to have.
Speaker Change: And I think you largely covered it.
Mark: We feel we feel like.
Mark: And our guide is pretty balanced right. It is a dynamic environment of course that we're in today with tariffs.
Mark: And that impact and we've tried to reflect that obviously in our guide.
Mark: But we feel like we're in a good spot in light of kind of the macro environment.
Mark: Understood and that's very helpful color.
Bryan Blair: I'd like to dive in a bit on Ingenia. We recently saw the facility, and feedback has been universally positive on that event. For what it's worth, your team presented very well. It's obviously a rather unique asset. So appreciate you guys putting that together. It looks like with Limited inorganic contribution time in this quarter that that growth continues to accelerate.
Speaker Change: I'd like to dive in a bit on and Jane you recently saw.
Speaker Change: The facility.
Speaker Change: And feedback has been universally positive on that event.
Speaker Change: For what it's worth higher Tina.
Speaker Change: We have presented very well, it's obviously, a rather unique assets I appreciate it.
Speaker Change: Putting that together.
Speaker Change: It looks like.
Speaker Change: With <unk>.
Speaker Change: The limited inorganic.
Speaker Change: <unk> time.
Gene Lowe: Just curious if you're willing to share what your team is projecting in terms of engineering revenue for this year and then speak to the visibility that you have for multi year growth with that. Maybe one of the things I can do to just kind of constrain that for you, you know, we we anticipated being at 100 million, you know, kind of a run rate at the end of this year. At the end of last year, didn't quite get there. But due to some equipment delays we talked about, those were subsequently, you know, installed. And we really are hitting that, you know, that pace now.
Speaker Change: In this quarter.
Speaker Change: Growth continues to accelerate just curious.
Speaker Change: We're willing to share.
Speaker Change: What your team is projecting in terms of <unk> and.
Speaker Change: <unk> revenue for this year, and then speak to the visibility.
Speaker Change: Sure.
Speaker Change: LTE growth with that asset.
Speaker Change: Maybe one of the things.
Speaker Change: Brian It's Paul maybe one of the things I can do to just kind of constrained that for you.
Speaker Change: We anticipated being at $100 million.
Speaker Change: Kind of at the run rates at the end of this at the end of last year didn't quite get there, but due to some equipment delays we talked about those.
Speaker Change: Those were subsequently installed.
Speaker Change: And we really are hitting that that pace now so between now and the end of the year.
Gene Lowe: So between now and the end of the year, the capacity, the revenue capacity at Ingenia, we think we'll get to 140. So it's somewhere between those two to kind of constrain it there. Obviously, we would be, you know, certainly less than 140 for the full year. and that's the capacity that you're going to hit at the end of the year. You know, Bryan, on the demand side, as we've talked about, we're going to be expanding into the US, but the demand is very high for that product. As you saw, we really have a unique value proposition there.
Speaker Change: Pasadena revenue capacity at engineer, we think we'll get to a 140, so it's somewhere between those two to kind of constrained out there obviously, we would be.
Speaker Change: Certainly less than a 140 for the full year.
Speaker Change: Given that the capacity that youre going to hit at the end of the year.
Speaker Change: And Brian on the demand side as we've talked about we're going to be expanding into the U S. As.
Speaker Change: The demand is very high for that product as you saw we really have a unique value proposition there.
Gene Lowe: And I can tell you that there is a lot of our reps that are dying to get their hands on Ingenia for their line card, because frankly, I believe they have a better solution. And so we actually see, you know, the constraint for us. is not going out and finding sales. I mean, you still have to do that. But it's really building the capacity. And it's hard to scale. and they've grown tremendously from just two years ago and they're still growing, but a very good business, a very good leadership team there and we're excited about it.
Speaker Change: And I can tell you that there is a.
Speaker Change: There's a lot of our reps that are done to get our hands on engineer for their line card because frankly, they have a bet I believe they have a better solution.
Speaker Change: And so we actually see.
Speaker Change: And as a constraint for us.
Speaker Change: Is not going out and finding sales I mean do you still have to do that but it's really building the capacity and it's hard to scale capacity and they have grown tremendously from just two years ago and they are still growing.
Speaker Change: But a very good business very good leadership team there.
Gene Lowe: So we have a lot of attention on continuing to scale that both in Maribel up in Canada, but also expanding capability in the States.
Speaker Change: And we're excited about it so we have a lot of attention.
Speaker Change: On continuing to scale that both in Mirabel.
Speaker Change: In Canada, but also expanding.
Speaker Change: Capability in the states.
Bryan Blair: That's that's great to hear.
Gene Lowe: And one last one, if I may, Sigmund Omega, again, seems like a great fit for for your strategy. And there's an intriguing stat on the value of the combined technology. For HVAC overall, to what degree does Sigma Omega increase TAM going forward? Yeah, you know, the TAM is a lot smaller than the cooling towers, to be to be frank, because cooling towers and everything, every application has cooling towers, whereas this is more of a particular, you know, I would say a niche of buildings, you know, really multi-stories, really where this shines. So typically, it will always have a cooling tower and a boiler attached to it, or most meaningfully, but it is a smaller TAM.
Speaker Change: That's great to hear and one last one if I may similar.
Speaker Change: Similar Mega again, it sounds like a great fit tour.
Speaker Change: For your strategy and there is an intriguing staff on the value of the combined technology for HVAC overall.
Speaker Change: To what degree it is Tim.
Speaker Change: And sooner.
Speaker Change: Sooner or later.
Speaker Change: <unk> Tam going forward.
Speaker Change: Yes, it did.
Speaker Change: Tim is a lot smaller than the cooling towers to be to be Frank because cooling towers and everyday at every application as cooling towers, whereas this is more of a particular you know I would say a niche of buildings.
Speaker Change: Multi stories, where really where this shines. So typically it will always have a cooling tower and a boiler attached to it are most commonly.
Speaker Change: But that is a smaller so it does expand the Tam and meaningful meaningfully but it is a smaller tam.
Gene Lowe: And, you know, for us, let's say like the cooling tower market, but it but it's a very attractive addition.
Speaker Change: And for US, let's say like the cooling tower market, but it's a very attractive addition.
Gene Lowe: And I think that slide might have been a little bit confusing. The way we talked about that is for the order of the hospital, or the order of the building. What have you on that particular order? Yeah, they there's a lot more dollars there. So definitely, you know, we're already in there selling to the engineers and the contractors. Having, you know, the full solution there is a very attractive part of what we can provide.
Speaker Change: Exactly.
Speaker Change: That's five might've been a little bit confusing the way, we talked about that as for the order of the hospital or the order of the building.
Speaker Change: What have you on that particular order yeah, Theres a lot more dollars there so definitely we.
Speaker Change: We're already and they're selling to the engineers and the contractors having.
Speaker Change: Full solution there is it's a very attractive.
Speaker Change: Alright.
Speaker Change: Right.
Bryan Blair: Understood.
Bryan Blair: Thanks again, guys. Thanks, Bryan.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks again guys.
Speaker Change: Thanks, Brian.
Operator: Thank you. One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Ross Sparenblek: Our next question comes from the line of Ross Sparenblek of William Blair, your line is now open. Hey, good evening, guys. Hey, Rossby. Hey, Mark, really quick on the DNM order growth. Was that all organic? Or what was the contribution there from the recent acquisition? Yeah, it was the order growth Specifically you're talking about the are you talking about the revenue side, Ross? Well, the backlog, I guess, the kind of organic backlog, yeah. Gotcha. Backlog. I'm with you. So backlog overall, just repeat the numbers for everyone. Three hundred and forty six million with the ending backlog.
Speaker Change: Our next question comes from the line of Ross <unk> of William Blair. Your line is now open.
Ross: Hey, good evening guys.
Speaker Change: Hey, Rusty.
Speaker Change: Hey, Mark really quick on the Dnm order growth was that all organic or what was the contribution there from the recent acquisition of <unk>.
Speaker Change: Yes, yes, it was the order growth.
Speaker Change: Typically youre talking about the are you talking about the revenue side.
Speaker Change: Ross.
Speaker Change: So the backlog I guess kind of our organic backlog here, yes got your backlog.
Speaker Change: Backlog overall, just repeat the numbers for everyone.
Speaker Change: $346 million with the ending backlog.
Mark Carano: And that was up quarter to quarter from the fourth quarter by 56 percent. About 22 percent of that was KPS and the rest of it was organic. Okay, so still, I mean, pretty solid growth. Gene, when you kind of look over the last couple quarters here, I mean, it's been accelerating. I mean, you get the sense that there's been a capital release from the IIJA funds. I mean, we're kind of hearing some early rumblings of this and this business seems to be immediately kicking up here. That's interesting, we still look, we can't point to a lot of cases.
Speaker Change: And that was up.
Speaker Change: Quarter to quarter from the fourth quarter by 56%.
Speaker Change: About 22% of that was key TFS and the rest of it was organic.
Speaker Change: Okay. So there's still I mean pretty solid growth.
Speaker Change: Jim when you kind of look over the last couple of quarters here I mean, it's been accelerating I mean did you get the sense that there's been a capital release from the Iia funds I mean, we're kind of hearing some early rumblings of this business as we meaningfully kicking up here.
Speaker Change: Essentially we still look we can't point to a lot of cases and Theres. Some things a few guys are bidding on.
Gene Lowe: And there's some things if you guys are bidding on, I think that could be in the background of our transportation business, which is, you know, really our smallest platform. We are seeing a lot of activity out there. Outside of that, I, you know, and Mark, I don't know, I know you studied, you practiced, I haven't seen a lot across our business. Yeah, I would say you're right, Gene. That's the only area where we could kind of put our finger on it and say it's maybe directly being funded by it. So. Probably more in the coming.
Speaker Change: I think that could be in the background of our transportation business.
Speaker Change: Really our smallest platform.
Speaker Change: We are seeing a lot of activity out there outside of that.
Speaker Change: I know you study that I haven't seen a lot closer, yes, I would say youre right thats, the only area, where we can kind of put our finger on it and say it's bad.
Speaker Change: Directly bank.
Speaker Change: <unk> funded by it so I'll be more on the com.
Gene Lowe: But it was nice backlog growth, as Paul mentioned, really, you know, both in GenFar and Okay.
Speaker Change: But it was not.
Speaker Change: <unk> growth is as Paul mentioned really both in Gen fair in Comtech.
Gene Lowe: Can you maybe just remind us of kind of the undercurrent as driving contact? It has been several strong years here. Presumably we have tough cuts at a certain point, but it just continues to grow. And I think, you know, they have different applications and different product categories, data links, their spectrum monitoring, the battlefield. I think all three have been doing well. Battlefield has been very strong in some larger projects. As a reminder, this product does very well at tracking drones. and we are seeing different applications for that. So I think, you know, some of the global unrest, you know, between countries tends to drive demand.
Speaker Change: Okay.
Speaker Change: Can you, maybe just remind us of kind of the undercurrent, that's driving contacts it has been several strong years here.
Speaker Change: Presumably we have tough comps at a certain point, but it just continues to grow.
Speaker Change: No I think they have different applications and different product categories.
Speaker Change: L Inc. 's their spectrum monitoring the battlefield.
Speaker Change: I think all three have been doing well battlefield has been very strong and some larger projects. As a reminder, this product is very well at tracking drones.
Speaker Change: And we are seeing different applications for that so I think.
Speaker Change: Some of the global unrest.
Speaker Change: Military between countries tends to tends to drive demand.
Mark Carano: So we have seen a number of countries, a number of orders over a number of years. So that portion has grown our KTS business. our newest addition, Digital Interoperability. We feel good about that business. Very nice synergies with our existing ComTech business. We also see some very nice growth there. But overall, you know, Mark, anything you'd like to add? Any kind of good business has had some good growth? Yeah. There's a project-oriented business, so you have to refill that every year. Yeah, that's right. I feel like we're, you know, generally, the team that runs that business just feels like we've got the right technology.
Speaker Change: So we have seen a number of countries the number of orders over a number of the areas so that.
Ed portion has grown our <unk> business.
Speaker Change: Our newest addition, digital interoperability we feel good about that business.
Speaker Change: Hey, nice synergies with our.
Speaker Change: Our existing Comtech business, we also see some very nice growth there, but overall mark anything you'd like to add any kind of that business has had some good growth, yes, here's a project oriented business. So you have to refill that every year, yeah. That's right I feel like we're generally the team that runs that business just feels like we've got.
Mark Carano: We're well-positioned for kind of those markets. You think about KTS, and obviously a lot of that is funded by government spending. You know, it's DOD-related, but it's in those areas where, you know, the U.S. military in particular is allocating dollars because it's kind of moving dollars. where warfare is. Yeah, that makes sense.
Speaker Change: The right technology, we're well positioned for kind of those markets you think about Ats and obviously a lot of that is funded by government spending.
Speaker Change: Related but.
Speaker Change: It's in those areas where.
Speaker Change: The U S. Military in particular is allocating dollars because it's kind of moving towards the future of where warfare is going.
Mark Carano: Just really quick on the margin, the DNM bit nitpicky, tapping down the full year guide after a pretty strong first quarter. I mean, it's already tough comps, the underlying business seems like it's performing pretty well. Can you just kind of walk us walk us through, you know, the, you know, several hundred bit or slight kickdown here in the, the margins for DNM for the year, presumably more HVAC related. that they're actually from a cost perspective, they're more DNM related. So, so when you think about what happened to Q1, we obviously had a, you know, very strong margin performance, year over year, a couple comments I would make around that, you know, one is we actually had a drop in project in there that was very high margin, had software elements to it, it was within our comm tech business and actually wasn't in our Then we had some, and that benefit will pass through the year.
Speaker Change: Yes that makes sense.
Speaker Change: Just really quick on the margin the Dnm net.
Speaker Change: Net picky tapping down the full year guide after a pretty strong first quarter.
Speaker Change: Is there any tough comps the underlying business seems like its performing pretty well can you, maybe just kind of walk us walk us through.
Speaker Change: Yes, several hundred bears site kicked down here and the margins for D&A for the year.
Speaker Change: Similarly.
Speaker Change: Our HVAC related.
Speaker Change: Okay.
Speaker Change: They're actually from a cost perspective, theyre more dnm related so.
Speaker Change: So when you think about what happened in Q1, we obviously had a very strong margin performance year.
Speaker Change: Year over year, and a couple of comments I would make around that one is we actually had a drop in project in there that was very high margin software elements to it it was within our Comtech business. It actually wasn't in our forecast and we had some.
And that benefit will pass through the year.
Mark Carano: But it's going to be largely offset by the tariff impact that you're going to see across the overall DNM segment. And then we had some slightly lower margin projects move out of Q1 and shift into kind of Q2 and beyond. So that's really kind of the drivers in Q1 that kind of set you up for balance. All right, that's helpful. Thank you, guys.
Speaker Change: But it's going to be largely offset by the tariff impact that youre going to see.
Speaker Change: Cross the overall Dnm segment, and then we had some slightly lower margin projects move out of Q1 and shipped into kind of Q2 and beyond so that's really kind of the drivers in Q1 that kind of sets you up for the balance of the year.
Speaker Change: Alright Thats helpful. Thank you guys.
Ross: Thanks Ross.
Operator: Thank you, one moment, for our next question. Again, as a reminder, to ask a question, you will need to press star one, one on your telephone.
Speaker Change: Thank you one moment for our next question again as a reminder to ask a question you will need to press star one on your telephone.
Steve Ferazani: Our next question comes from a line of Steve Ferentzani, a third-oldie, your line is now open. Evening, everyone. Appreciate you taking the questions. Mark, I just wanted to sorry, I hate to do it. But I hate to circle around back on the on the what are pretty low costs from the tariffs. It's only 6 million. But I'm just trying to think about this from a modeling perspective. I'm guessing price increases and surcharges, there's a bit of a lag and probably there's some stuff in backlog you couldn't surcharge. So I guess what I'm asking is, is most of the impact or should we be assuming it's in 2Q and then it decreases as the year goes on?
Speaker Change: Our next question comes from the line of Steve <unk> of Sidoti. Your line is now open.
Steve: Good evening, everyone I appreciate you taking the questions.
Speaker Change: Mark I, just wanted to sorry, I hate to do it but I hate to circle around back on.
Speaker Change: What are pretty low costs from the tariffs, it's only $6 million, but I'm just trying to think about this from a modeling perspective I am guessing.
Speaker Change: The price increases and surcharges as a bit of a lag and probably there's some stuff in backlog you couldn't surcharge. So I guess, what I'm asking is is most of the impact should we be assuming it's into Q and then decreases as the year goes on.
Mark Carano: Yeah, Steve, it's a good question. So maybe just big picture, you're right. You know, I think we tried to be very thoughtful about the impact here from from tariffs and our ability to raise price we do have in the DNM side of the business, you know, projects and other parts that are in backlog. So our ability to to capture price on those, you know, in the near term, we have less flexibility there. I will say, though, you know, as we roll into next year, I think our expectation is, well, I should say, as we roll through the balance of this year, and in the next year, our expectation is we should be able to offset all of these costs, you know, through price and other levers that we'll look at with respect to the supply chain.
Speaker Change: Yes, Steve it's a good question, so maybe just big picture Youre right.
Speaker Change: I think we tried to be very thoughtful about the impact here.
Speaker Change: From tariffs and our ability to raise price we do have in the DNS side of the business.
Speaker Change: Projects in other parts that are in backlog, so our ability to capture price on those.
Speaker Change: In the near term, we have less flexibility there I will say, though.
Speaker Change: As we roll into next year, I think our expectation is well I should say as we roll through the balance of this year and into next year. Our expectation is we should be able to offset all of these costs.
Speaker Change: Okay through price and other levers that we will look at with respect to the supply chain things of that nature.
Mark Carano: Yeah, I think I Steve, I think your inclination about the cadence of the impact of that eight to 12 cents is, is about right, it'd be a little bit more, but let's call it sort of if you get the size that maybe, you know, 40% in the second quarter, and then, you know, 30 and 30 in the third and fourth quarter. And again, we're talking about pretty small numbers here, but helpful to know.
Speaker Change: Yes, I think.
Speaker Change: Steve I think your inclination about the cadence of the impact of that eight to 12 is about right. It would be a little bit more let's call. It <unk>.
Syed: Syed maybe 40% in the second quarter and then.
Speaker Change: <unk> and <unk> in the third and fourth quarter.
Speaker Change: And again, we're talking about pretty small numbers here, but but helpful to know.
Speaker Change: Hi.
Gene Lowe: I got to ask about the demand side and how you're factoring it in. I know, Gene, for years of covering you, I know you've talked about you're not that cyclical and you've cited the COVID year, but you do have the location and inspection business. I know as we've gone through earnings season, unless you have certain end market exposure, most companies are not seeing it yet, but we know the expectation is slower U.S. growth as the year goes on, or at least that's what all the smart economists are saying. Were you able to factor that in at all, or do you just think regardless, it's gonna be so small given your mix of businesses now?
Speaker Change: I got to ask about the demand side and how you are factoring it in I know Julien for years of covering your I know you've talked about.
Speaker Change: Not that cyclical and you've cited the Covid gere, but you do have the location and inspection business I know as we've gone through earnings season, unless you have certain end market exposure. Most companies are not seeing it yet, but we know the expectation is slower U S growth as the year goes on or at least that's what all the smart.
Speaker Change: Economists are saying.
Speaker Change: Are you able to factor that in at all or do you just think regardless, it's going to be so small given your mix of business is now.
Gene Lowe: Yeah, I mean, I think so getting very tactically, you're right on radio detection, that is typically what we call our canary in the coal mine. And we it's a very good leading indicator, because that's a good proxy for economic activity. If anything, we actually feel better about where radio is today. For this year, we are seeing solid activity. As a reminder, You look at a lot of our HVAC equipment, you know, the replacement stuff is replacement, you know, your cooling power goes down in your hospital or your commercial office building, or your data center, you're not going to go without cooling.
Speaker Change: Yes, I mean, I think so getting very tactically youre right on radio detection that is typically what we call our Canary in the coal mine and we it's a very good leading indicator because thats a good proxy for economic activity.
Speaker Change: If anything we actually feel better about where radio is today.
Speaker Change: This year, we are seeing solid activity.
Speaker Change: As a reminder.
Speaker Change: You look a lot of our HVAC equipment.
Speaker Change: The replacement stock is replacement and OE or cooling tower goes down and your hospital or a commercial office building.
Speaker Change: For your data center, you are not going to go without calling it's really.
Gene Lowe: It's really So the replacement tends to be very strong, very real. What I would say is, if let's take cooling towers, for example, we've talked about how we typically trail on cooling towers, the Dodge index by about seven months. you know, so the project gets funded, they get rolling, it shows up in the Dodge report. They don't order cooling towers immediately. There's a period of time where they typically start first with some of the bigger equipment, elevators and so forth, and then they get in the middle, they get to our equipment. So point being, I think that what you're saying is there's a lot of uncertainty right now, and if this uncertainty slows down large CapEx, which it could.
Speaker Change: Okay.
Speaker Change: I place a lot of so the replacement.
Speaker Change: It has to be very strong very real what I would say is if let's take cooling towers. For example, we've talked about how we typically trail and cooling towers, the Dodge index by about seven months.
Speaker Change: So the project is funded they get rolling it shows up in the Dodge report that on order cooling towers immediately.
Speaker Change: There is a period of time, where they typically start first at some of the bigger equipment elevators. So forth and then they get in the middle they get to our equipment.
Speaker Change: So point being I think that what youre, saying is theres a lot of uncertainty right now and it is this uncertainty.
Speaker Change: LOE is down large capex, which it could head.
Gene Lowe: and move things out. I think that there could be air pockets in the future. You know, and I think that's something that we'd have to keep our eyes on. We don't believe for 25.
Speaker Change: And move things out I think that there could be air pockets in the future.
Speaker Change: And I think thats something that would have to keep our eyes on we don't believe for 25 we're.
Speaker Change: We're seeing that with everything we have in front of us.
Unknown Executive: Unknown Executive, Damian Karas, Ross Sparenblek, Ross Sparenblek, Paul Clegg, Ross Sparenblek, I do think if there is a recession, it would clearly impact us. I think it impacts us a lot less than other industrial tech companies. Because of our backwash, because of our replacement, because of our mandated portions of our business and other, it is something we have to keep our eyes on. But right now, you know, we we feel good with what we're seeing and There's some some areas we're winning as well, that is driving some higher revenues than we had in our model.
Speaker Change: I do think if there is a recession it would clearly impact us I think it impacts us a lot less than other industrial tech companies because of our backlog because of our service replacement because arrived mandated portions of our business by the government.
But it is something we have to keep our eyes on.
Speaker Change: Right right right now.
Speaker Change: So we feel good with what we're seeing in.
Speaker Change: There's some some areas, where we're winning as well.
Speaker Change: Is that driving some.
Speaker Change: Higher.
Our revenues than we had in our model.
Steve Ferazani: Okay, that's that's helpful. I guess the flip side is if the end game here is increasing reshoring and onshoring, that would could be a very nice tale for you. Oh, no doubt. You know, almost every manufacturing plant would have an opportunity for us to sell our equipment in. And as you know, we do very well with a lot of those. A lot of those types of customers, semiconductors, battery plants, automotive plants, it's, it's an area we have a nice Thanks, Gene. Thanks, everyone. Thanks, Steve. Thanks. Thank you.
Speaker Change: Okay. That's that's helpful. I guess the flip side is if the end game here is increasing re shoring and onshoring.
Speaker Change: What could be a very nice tail for Ya.
Speaker Change: No doubt in almost every manufacturing plant.
Speaker Change: Would have an opportunity for us to sell our equipment and then as you know, we do very well with a lot of those.
Speaker Change: A lot of those types of customers semiconductors battery plants automotive plants since it's an area we have a nice position.
Speaker Change: Okay.
Speaker Change: Thanks, Jane Thanks, everyone.
Speaker Change: Thanks, Steve.
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'll now turn it back to Paul Clegg for closing remarks. Thank you everybody for joining the call. We look forward to seeing many of you at conferences and on the road over the quarter and we look forward to talking to you again next quarter.
Paul Clegg: Thank you everybody for joining the call. We look forward to seeing many of you at conferences and on the road over the quarter and we look forward to talking to you again next quarter.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Paul Clegg: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Operator: Thanks for watching!
Paul Clegg: Okay.
Paul Clegg: [music].
Paul Clegg: Okay.