Q2 2025 SPX Technologies Inc Earnings Call
Good day, and thank you for standing by. Welcome to the Q2 2025, SPX Technologies earnings conference. Call at this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You will need to press star 1, 1 on your telephone. You will then hear an automated message. Advising that your hand is raised to withdraw your question. Please press star 1 1 again, please be advised. That today's conference is being recorded, I would now like to hand the conference over to your speaker today. Mark kurano.
Chief Financial Officer. Please go ahead.
Thank you, operator. Good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer.
A press release. Containing our second quarter results was issued today. After market close.
You can find the release and/or 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.
Replay of the webcast will be available on our website.
As a reminder portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions.
Please also, note the risk factors in our most recent SEC filings.
Our comments today will largely focus on adjusted financial results, and comparisons will be to the results of continuing operations only.
You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation.
Our adjusted earnings per share exclude amortization expense acquisition related costs non-service pension items mark-to-market changes and other items.
Finally, we'll be meeting with investors at various events over the quarter, including the Seaport Virtual Investor Conference in August and the Jefferies Industrial Conference in September.
And with that, I'll turn the call over to team.
Thanks, Mark. Good afternoon, everyone, and thank you for joining us on the call today. We will provide you with an update on our consolidated and segment results for the second quarter of 2025, as well as an update on our 4-year outlook.
Our Q2 performance was strong.
We grew second quarter adjusted EPS by 16%.
SPX continue to execute. Well, driving significant profit growth in both segments, and making meaning meaningful progress on several key initiatives. Once again, we're raising our foyer guidance range to reflect our strong results and outlook for the remainder of the year.
We now anticipate growth in adjusted ibida of 18% at the midpoint of our updated range.
Looking ahead, we remain well positioned to continue executing on our organic and inorganic value creation initiatives, supported by a robust M&A pipeline.
Turning the high level results.
For the second quarter, we grew revenue by 10%, largely driven by the benefit of recent acquisitions and project sales in our detection and measurement segment.
Adjusted EVA (Economic Value Added) increased by approximately 16% year-over-year, with 120 basis points of margin expansion.
As always, I'd like to update you on our value creation initiatives.
Over the past quarter, we've continued to gain traction on our growth and new product initiatives.
We are making meaningful progress on expansion plans for our engineered air movement businesses, where we see significant demand in excess of our current production capacity.
We expect to announce site locations for the U.S. production expansion of our Tamko actuated dampers and junior customer handling units before year-end, with incremental production capacity anticipated to come online in the first half of 2026.
Engagement from customers on the launch of our Olympus Fee Max product, a new cooling solution focused on the large-scale needs of data center customers.
Introduced earlier this year, the Olympus Vmax runs either dry, using no water, or in ADI mode, allowing the user to optimize their preferences between water and power usage.
We expect this product to strengthen our position and significantly. Increase our addressable Market in data center, cooling solutions.
Our target is to book Olympus Vmax orders this year for revenue in 2026, and we believe we're on track to achieve this target.
Now, I'll turn the call back to Mark to review our financial results.
Thanks Steve.
Our second quarter results were strong.
Year-over-year, adjusted, EPS, grew 16% to $1.65.
For the quarter total company revenues increased, 10% year-over-year primarily driven by the acquisition of kts and sigma omega as well as higher project, sales and detection and measurement.
Consolidated segment income grew by $18 million or 15.5% to $136 million. The segment margin increased 110 basis points.
For the quarter, in our HVAC segment, revenues grew 5.7% year-over-year, with 4.9% in organic growth.
On an organic basis, revenues increased 0.7%.
With the modest increase reflecting in large cooling service projects in the prior year.
Excluding this project, the organic increase was approximately 7%, the solid growth for both cooling and heating.
Segment income grew by $12 million, or 14.5%, while segment margin increased 190 basis points.
The increase is in segment income and margin were largely due to higher volumes with a more creative mix.
And favorable project execution and our cooling business that generated higher than typical margins.
The latter accounted for nearly half of the segments, year-over-year margin Improvement.
Segment backlog at quarter-end was $540 million, up 19.5% from Q1.
Including approximately 7% organically.
so the quarter in our detection measurement, segment revenues increased, 21% year-over-year,
On an organic basis, revenue increased to 5.5%.
The kts acquisition accounted for an increase of 14.9%. In FX was a modest Tailwind.
The increase in organic revenue was largely due to higher transportation and complex project delivery.
Year-over-year, segment, income, grew 6 million or 18%.
Primarily driven by the KTS acquisition.
A segment margin declined 60 basis points, reflecting a slightly more favorable sales mix in the prior year.
I moved backlog at quarter end was $365 million, up 6% sequentially from Q1, all organic.
Starting now, we will discuss our financial position at the end of the quarter.
We ended Q2 with cash of 137 million and total debt of approximately 1 billion dollars.
Our leverage ratio is calculated under our bank. Credit agreement was approximately 1.7 times including the effect of the sigma and Omega acquisition which closed in mid April,
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.
You 2 adjusted free. Cash flow was approximately 37 million.
Moving on to our full year 2025 guidance.
We are updating adjusted EPS to a range of 6.35 $6.65 reflecting a year-over-year growth of 16.5% as the midpoint.
This represents an increase from our previous range of $6.10 to $6.40.
The increase reflects our strong Q2 results and second half outlook.
In HVAC, we are narrowing our Revenue. Guidance range. Resulting in a midpoint of approximately 1.52 billion, while our margin guidance is increasing by 75 basis points. At the midpoint largely to reflect our performance in Q2
In DNM we are increasing revenue and margin guidance to reflect additional project deliveries in 2025.
And the second half as a percentage of the full year, will be similar to the prior year.
As always, you'll find modeling considerations in the appendix to our presentation.
And with that, I'll turn the call back over to Jean.
Thanks Mark.
Market conditions, support are increased full year, outlook for 2025.
In our HVAC segment, we have a healthy backlog for our highly engineered solutions, and our core markets remain solid. We continue to feel positive about data center opportunities in 2025 and 2026, and our related new product introduction initiatives are progressing well.
in our detection 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 slated for delivery in 2026 and beyond.
In summary, I'm pleased with our strong Q2 performance and I'm confident in our updated guidance which implies adjusted ebit growth of approximately 18%.
We continue to see solid momentum in our end of markets and key initiatives, including our progress on capacity, expansions and new product introductions.
We also have a robust m&a Pipeline with several attractive opportunities.
Looking ahead. I remain excited about our future.
With a proven strategy and a highly capable, experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.
With that, I'll turn the call back tomorrow.
Thanks, Jean operator. We will now go to questions. Certainly, as a reminder, to ask a question, please press *1 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press *1 1 1 again. Please stand by while we compile our Q&A roster.
Our first question today, will be coming from Brian Blair of Oppenheimer. Brian. Your line is open.
Thank you. Good afternoon guys. It's very solid core.
Hey Brian. Thanks Brian.
You called out, uh, you know, data center technology investment. And, um, obviously there's a lot of...
Enthusiasm renewed enthusiasm on on data center build out and growth Runway. What kind of growth is your team seeing in the space? You know what are expectations for 2025 and are you willing to size orders to date and dry and adiabatic Technologies and how supported that roll out May or should be to 2026?
Yeah. Why don't I start their Brian? I think um as we've talked about in the past data center has become more material to us.
You know, using broad brush numbers. And this is grown from let's say around 150 million to 200 million in in in 2025 this would be around, you know, High single digits for
For the company overall, as in 9%, this will grow further going into 2026. We feel like we're very well positioned with our product portfolio, in particular on cooling towers.
Also, we are actuated dampers. But as we've talked about in the past, we have significantly increased our TAM, our addressable market, with the introduction of the Olympus Ski Max.
Um, this is a dry and or 80 bicycle.
Uh, for the data center market. And I would say we feel very good about where we are. Um, what we've said is we want to get a material amount of bookings. You know, we're talking in the tens of millions of dollars for this year that we would anticipate Revenue in next year and I think we are are right on track and feeling very good about this product. We actually feel like we have a number of advantages on this product.
And it's being seen and received in the market. So, you know, if you step back and look at where we plan data center, I think this year is a good year for us. And I think next year is going to be even better. So overall, we, we like what we're seeing this. What does this mean that the company level? You know, we're not going to offer guidance at this point, but it will be higher than 9% of our company revenue and it would probably say low double digits, uh, as we look ahead to 2026,
that's very exciting.
the capacity, add
In the US, for those businesses combined with what's ongoing.
In Quebec for engineer.
But what would the run rate?
Uh, you know, revenue capacity, lift be.
If we were to fast-forward to, you know, the middle of next year or the end of next year.
Yeah, what would you say? You know, if you look at Canada, uh, Mirabel, where I know a number of people have just visited, just a fabulous, uh, you know, facility, team, and product area.
You know, we basically said we wanted to get to a 100 million run rate by the end of last year and we became very close to that. I'd say we're a little little short but but very close to that and then really we'd want to be at 140 million run rate out of that Facility by the end of Q4 that doesn't mean we get to that Revenue number this year, but would be running at that rate and uh, the capacity expansions there are going well. Um,
you know, I think that, uh, we are growing and and I think that we're, you know, from what we see, it's it's not easy to grow and add add, uh, capacity to give a
Uh, of a highly robotic, uh, automated solution, but, but we are making very nice progress. So I think we're going to hit that for
For this year. And then what we've said,
is that when we add the new facility, we would Target, you know, by the end of 27,
To be in the, in the range of having a capacity of 300 million. And so, you know, if you look at that, that's a very significant growth to where we were last year in the very significant growth where we are this year. Again, we've talked about engenia a lot. They have a, truly, a great product. I mean a great physical product but the software solution their system 1 solution, which we think No 1 in the industry can match in terms of how quickly they can configure a unique solution for customers. Um, we feel good about that. So, yeah, we we would expect to see some nice meaningful growth from engenia really driven, as a part of our expansion in Mirabel, you know, outside of Montreal. But then also our us expansion which we think will get up and up and roll in in the first half of 26.
appreciate that detail, and if
We move to the DNM side of the portfolio, and there's...
You know, better project momentum than than we expected. And at this point, you've spoken to the 2026 prospects and sounds like that, visibility is getting better and better. Um but for the back half of this year for DNM, what's your team contemplating in terms of you know, projects contribution? Uh, you know, versus run rate activity
yeah, Brian I we're we're I think, as we said we remain uh, you know, excited about what we're seeing on the project front uh in vnm for the back half of the year and and into um,
Into 2026. Um, I think as you you probably could tell both the bill was around 1.1 for the quarter backlog has grown nicely. And we expected to be um, you know, even higher by the end of the year. Um, I would guess, you know, as I look at uh, the project business, you know, we're expecting that to kind of grow in the High Teens organically, during the second half of the year.
That's great to hear.
Thanks again.
And our next question will be coming from Damian Charis of UBS Damien. Your line is open.
Hey, good evening, gentlemen.
Hey, Damian.
Hey Mark. Just a, a follow-up clarification on that.
Comment, you just made.
Uh, so you know you did raise the the uh, sales guidance for DNM, you know, by like mids single digits and you know, so you've got this double digit growth based into the back half. I'm just trying to understand. So is some of the stuff that you thought was going to happen in 2026. Actually kind of happening sooner getting pulled forward, or did you actually see new project activity kind of pop up in the last couple of months that that really wasn't there. Um, when we last talked,
So that that's really what what drove it but but you know we continue to see a lot of activity on the project side. I mean I I just mentioned that reiterate it, you know, despite those moving from 26 to 25 and we're continuing to see a lot of activity. Both on the genfare side of the business, as well as context.
Understood. Thanks for clarifying on that. Uh, I wanted
Along there in the second quarter. Uh, could you just talk a little bit about, um, you know what, drove the string and the guide looks like it's a guest. You'll see a little bit of a step down. I know you raised the the full year statement margin. But um, uh, you know, you're expecting the back half to to to not be at the same level as second quarter. So could you just um, you know, talk through uh, your expectations there.
Yeah, sure. So you know, in the quarter, um, you know, the margins were 25.4%. You know, that was, you know, year-over-year. It's about 190 basis points over where we were in Q2 of last year. Um, really, a couple things that I would call out, one of which was, uh, obviously in our prepared remarks, about 50% of this related to some favorable project execution we had within the HVAC business, so that represented about half of that increase. The remaining 50% was really, you know, split between higher volume that we had in the quarter and then...
We had a more creative mix for lack of a better description, higher margin, kind of book of business within the quarter so that's really how it how it broke out uh between the 2.
um, you know, when you step back and think about the full year for HVAC,
You know, when I look at where our guide was um, at you know, 23 I think the midpoint was 23.75 margin. We moved that up to at a midpoint of 24 and a half so it's up 80 basis points, uh, for the full year. Um, and when you look at the happier, it's actually it will actually also be up. Um,
Uh, in the range of um, just checking my numbers here about 40 basis points.
Okay. All right. Thank you. Uh, for that explanation. I will get back in the queue.
Thank you.
And our next question.
Is Baron black.
Your line is open.
Hey, good afternoon, gentlemen.
Everyone.
Hey guys, it's just a clarifying point on the Olympus dmax. You said dry and hybrid? Uh this is dual unit or we should still expect a dried launch later this year.
They're both launched, Ross. The beauty of this product is its modularity. If we actually think about what gives us a competitive advantage, what that means is you can buy this as a dry product without the ADB attic. The ADB attic is the part of the system that delivers the water.
On the outside that gives you higher efficiencies and reduces your uh energy. Um so that they are both in the market. We are quoting both. We are getting uh we're making nice progress on on both. But yeah, they're they're both out there today.
Okay. And can you maybe just help us, uh, get a better sense of what the mixed profile will be for these 2 products.
You know, it depends, I think.
that we've had some customers that we are working with flip back and forth in general, I think you get a lot more value out of ADB attic because
You know water it just gives you higher efficiencies less power, usage, less carbon emissions.
So, if I were to look at it, you know, just to set set the table as a reminder, for data centers, this segment of the market is bigger than cooling towers. So, you know, you think of everything we've done with the Everest, which has been a, a great product for us and and grow very rapidly.
This new market, we've entered is larger than that market. Um, so
You know, I would say we've we've seen interest in both but probably, you know, rough ballpark, maybe 2/3. Adic 1/3 dry is what I would say.
Okay. Uh, and then just, I mean, based on what you can say, uh, any thoughts on kind of competitive positioning in the market and uh, maybe potential exclusivity with hyperscalers.
Would argue the number 1, cooling power provider in the world. We invented the cooling tower.
You look at natural draft towers—large towers. We just have some unique competencies on airflow heat exchange.
Uh, back pressure analysis, etc, etc. We're very good at at the big stuff. And so what has happened is, we're very we, we, we believe we have a very strong position in cooling towers, uh, for data centers. A lot of the technology, a lot of the capability translates over. So if you think about it, um, a couple of things that, that I would call out that, I think, we believe we have some unique advantages there. First, we have a modular design, which means the same product can be upgraded and get more tonnage. Our competitors. Uh, we we don't see that being prevalent in the market. So we think that gives us an advantage. I would say our mechanical equipment, we make our own, uh, unique fan designs, our own, uh, motor designs, our own gear, reducer designs that have been battle tested over the past 50 years.
In the field for cooling Powers. This is just really a cooling power with a different heat exchange. It's really a coil coil product, so that translates very nicely that. We believe we have an advantage on our mechanical equipment.
Um, and this is particularly important for data centers, who, who really care about uptime. We have I believe the best uptime equipment um, in the market.
um, and the third thing I would say is, um, you know, we're doing CTI testing, um, we believe we're going to be 1 of 2 products that will be, uh, CTI validated that means, uh, cooling power Institute, uh, validated which basically, um,
uh, shows that it guarantees the, uh, the, uh, the, the performance of your product. So, you know, when customers buy our products there, there are darn sure they're going to get the performance that, that they want, and they need. So, so, yeah. So we've, we feel good about this Market. Um,
And, um, you know, I would expect we're going to be shipping product here in 2026.
Very helpful. Thank you. I'll jump back into you.
And one moment for our next question.
Our next question will be coming from Jeff Van Stern of Browley Securities. Your line is open, Jeff.
Hey Jeff. Hi everyone. Um, wanted to check a little bit more if we could on, I guess get a better understanding if we could on the applications for the Vmax and data centers. I guess if customers are deciding between going with the Vmax and going with another solution, what are the main considerations that would make them decide to go with the Vmax? Is it? How much of that might be speed cost performance? Etc.
yeah, I mean, I think if I look at it, um,
you know what, I would say in this market, I think if you go to, if you look at the cooling power Market, in the US, the water quality and time, it's very Consolidated Market, there's 3
Uh, large players that account for the majority of the market. Uh, for example, in North America in the air-cooled segment, you see more fragmentation; there are more players, there are a number of players.
having said that when you get to the very large applications, it's a much smaller set of competitors and the reason being is
You know, a lot of decibels out there. So, you know, when you look at these markets, there's usually a number of different features and benefits. But but typically they they're going to want to partner with a large-scale partner who you know, they can count on to meet their very large needs.
Uh, they want to have engineering, uh, capabilities to be able to solve any issues that may may arise during the engineering, or, or the delivery process and they want the functional specifications that that that they're Desiring. So of course, if you've got better efficiencies, if you got better air flow, you've got lower horsepower. Uh, Motors you'll do better and I think we match up very well on our product. I think we match up very well on on being a very um, qualified supplier in that market. I think the Marley brand
Um, holds a lot of weight in the cooling tower market and, uh, I think that's a real benefit for us. So those would be some of the things to think about. One thing I would say, uh, in this market, most data sets are, uh, we're talking about the hyperscalers. They prefer to have, they don't, they prefer not to sole source, so they prefer to have a large provider and then, you know, they prefer to have an option of a smaller uh supplier. So they'll typically try to avoid being um sole sourced to one company here.
Makes sense. Um and then if we shift to the the DNM business for a moment,
Um, maybe you can.
delve a little bit more into kind of the main drivers you're seeing for that business, and the growth, You're Expecting, going forward, and maybe touch on the Drone detection and jamming part of that business, just curious kind of
I guess where you're seeing demand there. You know, are you seeing anything in civilian? Is it more defects? What kind of house that shaping up?
Yeah, sure. I'll I'll start. And then Mark, Mark can jump in here. I think that, you know, if you look at
This is a is a level set. If you look at the detection and measurement business, approximately 2/3 of that business is run rate.
It's been the flattest modest growth we've seen over the past two years. Um, actually, some nicer growth this year.
My projects are about the third of that business, and we've seen really nice progress here.
What I would say is, the way I think about it is transportation really our genfare.
Is this that would be installing large projects for our customers there.
Um you know what drives that the transportation bill that's been out there for a couple of years has has provided support but uh the parts lines have seen good activity there. We've had some really nice competitive wins.
Had to multi-year wins.
Um, so you know if I look at that business, um it's the normal course, we have expanded our our addressable opportunity. We we've actually launched a new ticket vending solution the hardware and software that that really opens up some opportunities. For us who've already won our large first large C or first 2. Large customers, their 1 large 1, uh, middle size and with a number of other based on going. So, that's probably what's driving the transportation from the comp there is a good chunk of compe, which is military, but there's also non-military components in there. A lot of our
PCI branded product is used for spectrum monitoring. That same product is also used in military applications and to your point, we are seeing drones being a, uh,
Uh, a primary application usage there. So our products can really help you identify where the enemies are but also where all the drones are and it it works very well. So,
Um, that's been the the the driver of our, of our projects there. Um, the the newest acquisition which is also a part of that is called KPS
that's a little bit different of a space, but there's also some nice
Uh, we think some nice benefits from drones there, where they, they provide digital interoperability where they are the centralized point of communication for customers. They bring all these different disparate communication.
uh, Technologies into 1 solution and we're seeing a lot of drone activity there and
And uh, being used uh, in in in in our products being used in those applications there. So so yeah, that is that is a driver for us.
Okay, great. And if I could just squeeze on 1 more and on the m&a front, just wondering any shift in Focus there, where, where you might be most focused, and then, um, Howard targets, aligning for completion.
Yeah, what I would say on, uh, m&a is, I'm feeling very very positive. Um,
you know, start with is is a reminder, uh,
M&a is a critical component of our value creation strategy. As as as if you've been following our company, we really invest for growth, 98% of our
cash flow has gone into growth predominantly m&a and uh capex but you know, Ned was 92% in terms of acquisitions
A 2 billion dollars of capital, 16 acres.
Average price has been 10 to 12 times. These are really good businesses. It's a really hard synergies, but it really strengthened our company and have been a creative on aggregate both in margins. And in growth rate,
So as I step back and look about where we are today, I'd say our pipeline is very robust.
And it's robust not only now for what we see and what we're actively working on. But also for what we see coming out over the next 12 months,
Um, you know, the areas within our business that we see, uh, the most activity, probably, the largest one would be engineered air movement.
Uh, we really like that. This is a really a great business for us. You know, you talked about in junior, you talk about Tamko. You talk about strobic and Cincinnati pan. We see a lot of Runway here and we see some very attractive opportunities to continue to build strengthen uh, that business. And then I would say we're seeing some some nice opportunities. Uh and the the uh detection of measurement side probably most specifically contact and transportation, where we think there's some very nice synergistic opportunities there as well.
Okay, thanks for taking my questions.
Thank you.
And our next question comes from Steve forzani of the Dodie. Your line is open. Steve
Hey evening Gene mark.
Um, I'm well, I'm well, sounds like you're doing pretty well as well. Um,
I wanted to ask about, you know, as we've gone through earnings season, we're hearing certainly from Plenty of companies that there were at least some hiccups post Liberation day, whether it was
Expected orders being delayed, whether it was issues with Distributors, exercising, more caution. It sounds like you were completely exempt from all of it. Maybe that's because of
The Precision engineered products can, can you touch on that at all? Did you see any sense of caution in the Market at least, in those first couple of months is, is, is was just general economic uncertainty
I'll start and I'll start over tomorrow, I'd say you know you look at our overall I think it's been managed pretty well we can't really point to anything 1 thing. I would say you got to be a little careful of is
companies don't typically start large Capital programs and there's lots of uncertainty and so
You know, we're going to keep our eye on the Dodge report, for example, and uh, you know, if you were to build a new hospital or a new manufacturing facility, the demand that would hit us.
The cooling towers, or the custom units handling any of our range of products, is typically downstream.
And so, you know, we want to keep our eyes on that. But I would say that overall, if I look at our end market demands going into 2026, action.
To this had our full strategic review last week. Um and I would say our end markets look uh look on track for 26 we're actually feeling good Mark which said so we did get clipped a little bit with tariffs. Yeah a little bit we can come back to that but you know I I think from a supply chain perspective, you know we're largely in country for country with a lot of our manufacturing and and um I wouldn't say we we really had any issues with respect to um you know, sourcing equipment and uh anything of that nature. You know we've done a lot to manage that through the co period and kind of deploying our business system and our supply chain capabilities to make sure you know we're well positioned uh you know to support the business competitively you know over the last quarter or so.
Okay, that's helpful. And you said there was some you wanted to touch on, follow up on the tower fish.
Yeah, you know, I mean, big picture, Steve. I think, you know, last quarter, we talked about tariffs being, uh, you know, at a midpoint kind of a 10 cent headwind for the year, um, you know, which is frankly, um, you know, not really that material a number. You think of total NPS and, you know, over the last kind of quarter is, I mean, the change, the tariff environment has been changing, right? Almost, uh, weekly or daily. Uh, it feels like it's hit, uh, at least a new floor for now. But, you know, nevertheless, kind of managing through that, you know, looking at our—I come back to our business system and our supply chain teams really focusing on that—we've actually sort of recalibrated our exposure. And we actually think it's only about 5 cents.
um, you know, for the total company
Well, that's great. Um,
I, I want to turn for a second to to free cash flow. You are trailing where you were last year through the first half. Looks like there was a a, a more sizable working capital build. I know you have the 2 acquisition. I'm sure there was some cash costs involved in that. But but you guided for being back towards, uh, the lower end of your net, leverage Target ratio. So it would seem to indicate much stronger free cash flow than the typical seasonal. Um, working capital reversal. Can you touch on on free, cash flow training?
Friends who are expecting in second half.
Yeah, sure. Listen. I I'm still confident about us meeting kind of our our free cash flow commitments for the year. Um so no change there, this quarter? You're you're absolutely right. Um it uh it kind of stuck out from a working capital perspective. It was really timing around our and some of the big project work that we've had in the the first half of the Year particularly Q2 and then if you looked at inventory you're probably looking at the the cash flow statement, you know, much like other companies, right? We in order to mitigate, despite it being a, the Tariff impact, not being a material issue for us, we certainly were looking at ways to mitigate it and, uh, you know, buying ahead and and, uh, putting inventory on the balance sheet. So, kind of where we're well positioned to to meet our commitments.
Excellent. Um and if I get 1 more in terms of of m&a, strategy, moving forward, you've gotten a lot larger through 16 acres does this. And I've been asked this question, I'm sure you're getting asked this question. Does this mean your targets have to get larger so that they can move the needle? Does this change your m&a strategy at all, given your size now,
Uh Steve I don't think so. I mean, if you think about it, our average deal size has been 130 million over the past uh, you know, 16 deals.
You know, I what I would say is as we've grown our surface area, has gotten larger, right? So for example, eam
Not a business that we were in.
5 years ago right now. It is a very important part of our business and there is a different range of opportunities there. So I would expect our core bread and butter.
You know, if you look at our strategy,
um,
You know, we think we're in the early innings of our strategy, and we don't see change. You know? I think you're right, we have done some deals that were hot at a higher level.
Um, value, 300 million, 400 million. And we're very comfortable doing that as long as it is a very good strategic fit. But if I look at the range of, you know, what we have in our pipeline, the opportunity sets looking for it, our strategy is the same.
Okay. Okay, great. Thanks Jean. Thanks Mark.
Thank you.
and our next question, will be
coming from Walter libtech of Seaport research, your line is open Walter
Hey wal. Hi thanks. Um, good evening everyone.
It wanted to ask sort of a follow on on the price cost um you know, gross margins and HVAC, you know, kind of went over those already as we're looking into the back half and looking at that uh the backlogs. Uh you know how how is that shaping up for the back half? Um, you talked about some headwinds but uh,
you know, are we at a high point in the year for gross margins and they come down? Um, you know how should we think about that?
Maybe about a third of it, probably approaching about a third of it, um, with the two-thirds big volume and, you know, it is. Um,
It is.
Uh, less price on the um, on the DNM side, more volume.
Okay, great. Um, and that's, yeah, go ahead.
Okay. Yeah, I was just going to switch over to, uh, to DNM margins too. That backlog is up nicely as well and you know, considering the tariffs again, uh and you know, mix of business. How does margins look for the second half of the year?
yeah, I think you know the applied second half there, you know, if you if you look at the um, at the guy um,
You know, it was, it would imply that they're down, uh, for the second half of the year, um, and that's really driven by the Tariff Dynamic that we just talked about, um, you know, the 5 Cent tariff exposure as we recalibrated at and looked at the impact. It's really going to be back half weighted. Um, so it'll be in Q3, and Q4, and predominantly in the DNM business. So they're seeing the impact, uh, of that more so than, um, than the HVAC business. Um, and then we are making, you know, it's it's, uh, you know, low single digit dollars, but we are making some Investments around some of these new products, uh, particularly our ticket vending machine. And
And some of these other comp projects uh products were investing in those as we kind of position the company for 26 and Beyond. So it's really those 2 elements that are impacting it
Okay, all right. Great. And then uh, you know, maybe just a last 1 on m&a. For me, I wonder if you could refresh us on, uh, just Your Capacity and um, you know, if you and I think you kind of talked about this already, if you're going to stick to the same deal size as before. But you know what, how much stripe power do you have for m&a?
Yeah, you know, if um, obviously our, our current borrowings are about 500 million. On our revolving credit facility, we'll continue to to pay that down through the balance of the year. So, uh, we we've got a billion dollar credit facility, uh, as we sit today. So we've got plenty of Firepower. When you think about the size of transactions, uh, that we, we normally do from an average size perspective. Um, so, you know, I feel good about where we sit today, we, we obviously have the ability to access Capital if we needed it. Um, but, um, you know, right now we're in a good spot.
Great. All right. Thank you.
1 moment for our next question.
Our next question will be coming from Brad Hewitt of Wolf Research. Brad, your line is open.
Hey, good evening, guys.
Hey, Brian.
As it relates to, the moving pieces on the Q3 guidance. How should we think about organic growth and margins both by segments and at the Consolidated level?
Yeah, Brad, maybe I'll, I'll kind of thinking about it. From a, I'll start with a second half, kind of perspective. Uh, because I think that's, that's kind of helpful. Um, you know, when I look at, um,
When I look at the implied, second half for uh HVAC. You know we're looking at that implies growth of about uh mid teens um and about 2/3 of that would be organic.
Um, you know, with margins, um, being up 40 basis points year-over-year, um, from 24/7 to 24/7 from 243. Uh, you know, on the DNM front, um, you know, much higher growth, uh, on that side. Um, just giving the inorganic and you or, uh, organic contributions there. Uh, but organic is similar. I would say in total to about, uh, what HVAC is so Circa around 10%, you know, with margins, um, you know,
Stepping down a bit from 2024 about 90 basis points, based on largely, the things that we mentioned earlier tariffs as well as the um, the impact of some of the Investments that we have during the back capacity.
Okay, that's helpful. And then maybe Switching gears a little bit here.
A lot of the data points seem to suggest that the outlook for data center is stronger than it was a couple months ago. I guess curious what you would need to see in order to accelerate your investments in data center even further whether it be organically or inorganically. Thank you.
sitting here, 3 months, after our last earnings call, and, and we are feeling even more bullish about
The opportunity that I would say in all kind of, if I look at our 3 main, uh, product categories, cooling towers, the actuated, dampers are movement. And then the, uh,
Our new product.
Uh, we feel very good. So, you know, we're spending a lot of work on, uh, being able to support that growth. Um,
but no, we're not throttling back at all. We we are supporting the growth because
we think this is a good Market. We think we have a a great right to play great, right to win here.
And, um, we do see a lot of runway ahead.
Great. Thanks. Jean.
And our next question.
Will be coming from Damian Keras of UBS Damen. Your line is open.
Hey guys, just had a few follow-up questions. Mark, if you were talking about the terrorists exposure, just curious, uh, did you end up taking pricing actions in the second quarter and and if so to what extent,
we did, we took pricing actions obviously, uh, across both businesses where we could, um, obviously it's driven by the competitive Dynamics, um, in both of those, uh, in both of those segments, um,
so yes, uh, you know that was
it was both a combination of price increases and S charges uh depending on the on the uh,
On the business unit and uh, and where they, uh, where they felt, they could drive, uh, achieve that uh, that increase.
Okay, got it. So you'll see a little bit of a step down on on some of the search charges and uh, the rest of the year.
We will I think uh you know, particularly as it related to uh certain areas like China, right? Where shortly uh,
May I've kind of lost track of all the changes quite frankly, but, uh, you know, the the China tariffs step down pretty dramatically. So, you know, in some cases where we were using search charges as a way to offset that cost. Uh, you know, those those are harder to stick clearly.
That makes sense.
Uh, and then I wanted to ask you about your early experience so far with the, uh, two new acquisitions. Uh, so it's been, I guess, about a half a year with Cray and, um,
You know, maybe a quarter or so with Sigma Omega. So Gene I like, you know, how's the integration been going with SPX? Um, any unexpected surprises, whether good or bad?
Yeah, I would say very, very positive. So crayons there are kts, we call them. Our DLCs is there was was twofold 1. They're intrinsic product and position. We see a lot of growth just in their in their current market and and and current positioning.
But the real areas of synergy where we can kind of create some, some, some nice additional values on 2 sides.
1 is, we actually think their technology could help our TCI and ECS products.
And we've already integrated some of this. We're actually launching um, their the this uh, combined product, I believe in September. So we've actually strengthened our technology position on our core compact business. And then on the second side, the second main element of the thesis is kts is very successful uh, in the US, but they're very small globally. Whereas our comp Tech business is a very Global business. It has
Install base is all over the world. Probably more than a 100 countries and we can help them accelerate. We've already have
active discussions and and I don't know what's public or not. So I'll just say there's already uh, 2 countries that I'm aware of where we're having very active discussions of leveraging, their digital interoperability uh, platform in in in in in that.
In those countries friendly countries obviously. Um, but yeah, so kts, they actually both of these uh businesses were just here for our Strat plan, first time to them being with all of the teams part of the, the greater whole. So, you know, I'd say when very well, really like the leadership of kts. Um,
About that is very much a part of our hydronic business now. So think of that, going with Wild Mlan and Patterson Kelley. All three of those have a great degree of overlap, and the thesis there is that Sigma Omega has a great heat pump technology and a very strong position in the multi-level market. You know, you're looking at hospitals, or residential, or hotels, things like that. They have a very good position, but in a smaller number of markets. They are very strong in Canada, but have less channel in the U.S. So really, we're helping them build their channel. And as you know, Damian, we have a very strong channel in the U.S. You look at our Marley Channel, you look at some of our other brands.
So we've already signed up um a number of new channel partners for Sigma and Omega and we actually see some good opportunities to continue that. So we think we're going to help them accelerate their revenue.
So, you know, where we sit today, um, we feel very good about those Sigma Omega has a great team too. I really really like their team. They're very they're, they're truly are industry experts. They spent many many decades at some of the big oems, the trains, the uh, the Yorks. And and they bring the bear uh just a a ton of
Expertise.
So yeah, we feel good about that and then if you go to the the acquisition prior to that in jinya, just the growth we've seen there and the success we've seen there has been very attractive. So yeah, I think um you know the the
you know, we feel good about our our m&a strategy, we're very disciplined, and I think that as, you know,
um, there's a lot of data that says, you know, if you, if you have a lot of experience,
And as part of your ongoing business system, you're going to be more successful. I believe we have a very strong front-end due diligence process and strategy process.
And you obviously have to deliver the goods. So the integration is is is very very important and
We have a very good team here that that, that that, that helps make that happen. So, so to to to, to cut to the chase, we have a very good about both of those David
Great to hear. And one last question here if I could, uh, squeeze it in. Um,
Obviously, I'm nitpicking a bit because the HVAC business has been growing by Leaps and Bounds, uh, but you actually lowered the high end of the range. Uh, know this is the first time we've seen uh, the HVAC sales guidance. Um, come down and not go up since like the fourth quarter of 2021. Um, so
I just want to get your thoughts like data centers, obviously are doing quite well, are there by chance. Any end markets within HVAC that are maybe dragging a bit.
Hey, Damian. I I'll start with that. And um I actually wanted to kind of come back to your margin question from earlier. But we did we just tweaked the top end of the range on on HVAC in part because of um, search charges. That was really, what was driving it. Um, where we had been using search charges for we had forecasted that we would use search charge to offset some of the Tariff Dynamic, and obviously, uh, if it wasn't nearly as material as we thought it would be, so, uh, many of those, uh, you know, are no longer in effect. So that that's really what was driving it. Nothing more than that.
Okay, thanks for clarifying.
Yeah. And hey, back to your margin question. I know you were you were looking at second half. I I wanted to kind of give you another way to think about it. When you look at the first half uh, margins in HVAC, you know, and you um, you kind of back out that favorable, you know project, uh,
Uh, experience we had in in Q2 at first half margin is about 23.
89%, uh, right around there, just under 24. Um, and then the implied second half is 24.7. So you can see kind of the lift in margins in the business in the back half of the year.
On a year-over-year basis. Yep. Yep, understood. All right. Well, thanks a lot. That's sequential. Sorry.
Thanks David. Thanks.
Okay, and I would now like to turn the conference back to mark for closing remarks.
Thank you all for joining us for today's call. Uh, we look forward to updating you next quarter.
Thank you for participating. You may now. Disconnect