SPX Technologies Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 1, 2025
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Operator

Good day, and thank you for standing by. Welcome to the First Quarter twenty twenty five SPX Technologies Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you'll need to press 11 on your telephone.

Operator

You will then hear automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paul Clegg, Vice President of Investor Relations. Please go ahead.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer and Mark Carrano, our Chief Financial Officer. A press release containing our first quarter results was issued today after market close. You can find the release and our earnings slide presentation, as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

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. 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.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

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 will be meeting with investors at various events over the quarter, including the Oppenheimer Industrial Growth Conference on May 8, the BofA Securities Industrial Transportation and Airlines Key Leaders Conference on May 14, the Wolfe Research Small and Mid Cap Conference on June 3, and the William Blair Growth Stock Conference on June 4. And with that, I'll turn the call over to Gene.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Thanks Paul. Good afternoon everyone, and thank you

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

for joining us. On the

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

call today, we'll provide you with an update on our consolidated and segment results for the first quarter of twenty twenty five, 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% and adjusted EPS by 10%. Our 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 in our HVAC segment while positioning us for further growth.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

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. We 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. We have a high level of replacement sales and diverse demand drivers across our end markets. Our critical solutions are often government mandated or required, and we have a strong playbook that has proven effective in adapting to rapid change.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Turning to our high level results. For 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 expansion. As always, I'd like to update you on our value creation initiatives. We continue to leverage our business system to manage a dynamic tariff environment, remaining nimble and redeploying resources as needed.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

We are also closely managing price and our sourcing relationships to mitigate the impact of tariffs. 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. In our Detection and Management segment, we continue to advance our new product initiatives. Our transportation platform introduced a new ticket vending machine called the VENSTAR-five.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

It has a much smaller footprint, a larger screen, and several advanced features that provide an enhanced user experience. We're receiving great customer feedback on the product and are already seeing significant sales. 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.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

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. 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 multistory buildings such as hotels, schools, hospitals, and commercial and residential properties across North America. Today, than two thirds of Sigma Omega's revenue comes from domestic sales to their Canadian customers. As a part of our value creation strategy, we plan to substantially increase sales to U. S.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Customers, supported by the expansion of production at our existing U. S. Facilities, with minimal additional capital investment. We're very pleased with this transaction and are excited about Sigma and Omega joining the SPX team. Now, I'll turn the call over to Mark to review our financial results.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Thanks Gene. Our first quarter results were strong. Year on year adjusted EPS grew 10% to $1.38 For 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 Ingenia, which closed in early February of twenty twenty four. Consolidated segment income grew by $10,700,000 or 10.7% or $110,500,000 while segment margin increased 140 basis points. For the quarter in our HVAC segment, revenues grew 6.8% year on year.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

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 headwind. Segment income grew by $5,500,000 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 Ingenia. Segment backlog at quarter end was $451,000,000 or up approximately 3% from Q4.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

For the quarter in our Infection and Measurement segment, 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 KTS. FX was a modest headwind. The decrease in organic revenue was driven largely by the timing of project deliveries in the prior year. Year on year segment income grew by $5,200,000 or 16.6%, while segment margin increased three sixty basis points.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

The increases in segment income and margin were driven by more favorable sales mix, strong project execution in our Comtech platform, as well as the addition of KTS. Segment backlog at quarter end was $346,000,000 up 56% sequentially from Q4, including organic growth of 34%. Turning now to our financial position at the end of the quarter. We ended Q1 with cash of $182,000,000 and total debt of $960,000,000 Our leverage ratio is calculated under our bank credit agreement, was approximately 1.6 times, including the effect of the KTS acquisition, which closed in January. Including the pro form a impact of the Sigma Omega acquisition, which closed in April, our leverage ratio was 1.9 times, well within our target range of 1.5 to 2.5 times.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

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. Q1 adjusted free cash flow was approximately $36,000,000 Moving on to our full year 2025 guidance. We are updating our range of adjusted EPS to $6.1 to $6.4 reflecting year on year growth of 12% at the midpoint. This represents an increase from a range of $6 to $6.25 previously. The increase reflects our strong Q1 results, net of 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.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

These are partially offset by the net impact of current tariff rates and our mitigation efforts, including price increases and surcharges. The net impact of tariffs to our updated guidance is approximately $08 to $02 of adjusted EPS. For Q2, we anticipate adjusted EPS to be modestly higher than in the prior year period, with higher interest costs, corporate expense and share count partially offsetting the benefit of higher segment income. As a reminder, in Q2 twenty twenty four, our HVAC segment results benefited from the delivery of a $20,000,000 cooling service project. In our Detection and Measurement segment, we expect strong year on year growth in Q2, both organically and from the acquisition of KTS.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

As always, you'll find modeling considerations in the appendix to our presentation. And with that, I'll turn the call back over to Gene.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Thanks, Mark. We continue to believe that SPX is less cyclical than most industrial tech companies. We have a diverse set of end market drivers, a high level of replacement revenue, and we offer a broad set of critical solutions that are often government mandated or essential. The business system provides effective mitigation tools, and historically we've managed to limit the impact of economic downturns on our financial performance. For example, during the COVID pandemic in 2020, our revenue and earnings were approximately flat, while many other industrial tech companies experienced significant declines.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

In our HVAC segment, we have a healthy backlog for our highly engineered solutions, and our core markets are holding up well. We're 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 slated for delivery in 2026 and beyond. Overall, current market conditions support our updated 2025 guidance range. In summary, I'm pleased with the strong start to 2025.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Our acquisition of Sigma and Omega further enhances the value we provide to our HVAC customers and positions us for future growth. Despite tariff headwinds, we are confident in our increased full 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. Looking ahead, I remain excited about our future. With the right strategy and a highly capable experienced team, I see significant opportunities for SP X to continue growing, driving value for years to come.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

And with that, I'll turn

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

the call back to Paul.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Thanks, Gene. Operator, we will now go to questions.

Operator

Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you'll need to press 1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1 again. Please stand by while we compile the Q and A roster.

Operator

And

Operator

our first question comes from the line of Brad Hewitt of Wolfe Research. Your line is now open.

Brad Hewitt
VP - Equity Research at Wolfe Research LLC

Hey, good afternoon, guys. Thanks for taking my questions.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Brett. How are doing?

Brad Hewitt
VP - Equity Research at Wolfe Research LLC

Good. 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

Brad Hewitt
VP - Equity Research at Wolfe Research LLC

rest of the year by about $5,000,000 So is that the

Brad Hewitt
VP - Equity Research at Wolfe Research LLC

right way to think about the tariff impact?

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah, me just Brad, let me give you a little bit of color. We said on the call it was 8 to 12¢ of tariff impact, so you take the midpoint of that, think how do you back up to about a $6,000,000 net cost at the midpoint there. The gross amount of cost is let's call it $20,000,000 low 20s of impact being offset by price of about $14,000,000 That's a combination of price and surcharges is the way to think about it from a mathematical standpoint.

Brad Hewitt
VP - Equity Research at Wolfe Research LLC

Okay, that's helpful. And then congrats on getting the Sigma and Omega deal closed. I guess curious how you think about that business in terms of the through cycle growth rates, both pre and post synergies. And then from an EBITDA margin perspective, is it fair to think of that business as currently being in the mid teens range?

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

I wanna start the business, Brad. I think, first of it's a really good business. We really like this business. They are very complimentary product to what we already saw today. So typically when you see multi story applications, hospitals, schools, hotels, you'll see us selling the cooling power and then the boilers, and then the heat pumps that go in the rooms is an engineered product that we have not participated in today.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

If you look at Sigma and Omega, we 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. So we really like this business, they're a very good technology, good product, and very complementary to our channels, we actually see some nice synergies for growth. Do want to run through some of the financials, Mark?

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah, think with respect to the sizing of the business, I think you saw in the press release from a couple weeks ago, it's about $65,000,000 in revenue. Obviously we're going to own it for about eight and a half months of the year. So you can do the math on that, but that gets you into the 40,000,000 to $45,000,000 range. And then from a segment income perspective, I would say it's just slightly lower than the segment income average of the HVAC business overall today.

Brad Hewitt
VP - Equity Research at Wolfe Research LLC

Great. Thanks guys.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Thank you.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Thanks Brad.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Brian Blair from Oppenheimer. Your line is now open.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

Thank you. Good afternoon, guys.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Hey, Brian.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Hey.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

Good start to the year.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

It sounds like you're very confident the outlook, the know the raise guide that you've offered. We've talked for you know for years now about the asynchronous demand profile that your company has an aggregate. There are many proof points that we have already. Just curious what you're seeing now with the tariff related uncertainty, just the overall volatility of the backdrop, platform by platform, how order rates have progressed through Q1 into Q2. Is there any notable changes that you would attribute to the uncertainty at hand or if it's kind of steady as a guest?

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Brian, I'd say, 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 the segments and some of the platforms. If you look at HVAC, last year we had a very strong growth in cooling, more flattish in heating. Really cooling carried the day last year organically in the 14% range, flattish.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

If you look at heating and cooling this year, very balanced across them both. We actually we're seeing good solid demand. 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.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

So, 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 centers. And so why is that? We're seeing a good amount of activity. I think we're winning, we have very good products.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

And then I would say we've also launched some new products in the data center area that are getting nice traction. 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, and 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 orders. They're a different way of cooling that is preferred by some customers that we're very excited about. And then when we've talked about antibiotic and dry, we've launched that product.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

And I would say there is very strong interest in that. 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 as we've talked about in the past, we would argue to get some material bookings in '25 and get some real revenue in '26.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

And I think that's tracking pretty well. If you look at D and 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 US today, and perhaps a little bit more cautious on Europe and Asia. Europe and Asia are pretty flat for us.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

That's obviously a smaller portion of our business. But overall, I think the run rate 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.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Yeah, if I look at twenty five, the only place I can think of, one of things I do is I talk to every general manager, all of our segues, we go to the frontline, maybe a little bit of impact would be run rate Europe and run rate Asia, which is already set up to be pretty flattish. 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. Mark, anything you'd like to add?

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

I think you largely covered it. I mean, we feel like our guide is pretty balanced, right? It is a dynamic environment of course that we're in today with tariffs and that impact, 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.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

I understand, that's very helpful color. I'd love to to dive in a bit on Ingenia. We recently saw the, you know, the facility, and, you know, feedback has been universally positive on on that event. For what it's worth, your team, you know, presented very well. It's it's obviously a rather unique asset, so appreciate you guys putting that together.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

It looks like with limited inorganic contribution time in this quarter that growth continues to accelerate. Just curious if you're willing to share what your team is projecting in terms of engineer revenue for this year, and then speak to the visibility that you have for multi year growth with that asset.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Maybe one of the things I can hey Brian, this is Paul. Maybe one of the things I can do to just kind of constrain that for we anticipated being at $100,000,000 kind of at the run rate at the end of last year. Didn't quite get there, but due to some equipment delays we talked about, those were subsequently installed. And we really are hitting that pace now. So between now and the end of the year, the revenue capacity at Ingenia, we think we'll get to 140.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

So it's somewhere between those two to kind of constrain it there. Obviously we would be certainly less than 140 for

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

the full year, given that's the capacity that you're to hit at the end of the year.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Brian, on the demand side, as we've talked about, we're gonna 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. And I can tell you that there's a lot of our reps that are dying to get their hands on Ingenia for their line card, because frankly, believe they have a better solution. And so we actually see 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 capacity.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

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. So we have a lot of attention on continuing to scale that both in Maryville, up in Canada, but also expanding capability in The States.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

That's great to hear. And one last one, if I may, Sigma Omega, again, seems like a great fit for your strategy, there's an intriguing staff on the value of the combined technology for HVAC overall. To what degree does, excuse me, signal Omega increased TAM going forward?

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Yeah, the TAM is a lot smaller than the cooling towers to be frank, because cooling towers and everything, right? Every application has cooling towers, whereas this is more of a particular, I would say a niche of buildings, really multi stories really where this shines. So typically, it will always have a cooling tower and a boiler attached to it, or most commonly. But that is a smaller, so it does expand the TAM meaningfully, but it is a smaller TAM than for us, let's say, like the cooling tower market. But it's a very attractive addition.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

That slide might've been a little bit confusing. The way we talked about that is for the order of the hospital, or the order of the building, or what have you. On that particular order, yeah, there's a lot more dollars there. So definitely, we're already in there selling to the engineers and the contractors, having the full solution there is a very attractive part of what we can provide.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

Understood. Thanks again, I guess.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Thanks, Brian.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Ross Barenblatt of William Blair. Your line is now open.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Hey, good evening, guys.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Hey, Ross.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Mark, really quick on the DNM order growth. Was that all organic or what was the contribution there from the recent acquisition of KTS?

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah, it was the order growth.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Specifically, you're talking about the are you talking about the revenue side, Ross?

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Well, the backlog, I guess, the kind of organic backlog.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Yeah.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Gotcha. Backlog. I'm with you. So backlog overall, just repeat the numbers for everyone. Dollars $346,000,000 with the ending backlog.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

And that was up quarter to quarter from the fourth quarter by 56%. About 22% of that was KTS and the rest of it was organic.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Okay, so still, I mean, pretty solid growth. Gene, when you kind of look over the last couple of quarters here, I mean, it's been accelerating. Do you get the sense that there's been a capital release from the IIJA funds? I kind of hearing some early rumblings of this, and this business is immediately kicking up here.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Essentially, we still look. We can't point to a lot of cases. I know some things, if you guys are bidding on, I think that could be in the background of our transportation business, which is really our smallest platform. We are seeing a lot of activity out there. Outside of that, and Mark, I know you studied, you tracked it.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

I haven't seen a lot across our business.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah, I would say you're right, Gene. That's the only area where we can kind of put our finger on it and say it's maybe directly being funded by it.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

So Probably more on the comm.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

But it was nice growth as Paul mentioned really, both in Genfare and Comtech.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Okay. Can you maybe just remind us of kind of the undercurrent that's driving Comtech? It has been several strong years here. Presumably, we have tough comps at a certain point, but it just continues to grow.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

I think 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 some of the global unrest between countries tends drive demand.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

So we have seen a number of countries, a number of orders over a number of years. 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, Mark, you'd like to add?

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Any kind of good business has had some good growth?

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

There's a project oriented business, so you have to refill that every year.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yeah, that's right. I feel like we're generally the team that runs that business just feels like we've got the right technology. We're well positioned for kind of those markets. You think about KTS and obviously a lot of that is funded by government spending, it's DOD related. But it's in those areas where The US Military in particular is allocating dollars because it's kind of moving towards the future of where warfare is going.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Yeah, that makes sense. Just really quick on the margins of D and M, a 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 tick down here in the margins for D and M for the year?

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

Presumably areas are more HVAC related.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

They're actually from a cost perspective they're more D and M related. So when you think about what happened in Q1, we obviously had a very strong margin performance year over year. 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. It had software elements to it, it was within our Comtech business.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

It actually wasn't in our forecast. Then we had some, and that benefit will pass through the year. But it's going to be largely offset by the tariff impact that you're going to see across the overall D and M 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 sets you up for balance of the year.

Ross Sparenblek
Research Analyst at Robert W. Baird & Co

All right, that's helpful. Thank you guys.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Thanks, Ralph.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Steve Ferrantoni of Sidoti. Your line is now open.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Good evening, everyone. Appreciate you taking the questions. I just wanted to I hate to do it, but I hate to circle around back on the what are pretty low costs from the tariffs. It's only $6,000,000 But I'm just trying to think about this from a modeling perspective. I'm guessing the price increases in surcharges, there's a bit of a lag and probably there's some stuff in backlog you couldn't surcharge.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

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?

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

Yes, Steve, it's a good question. So maybe just big picture, you're right. I think we tried to be very thoughtful about the impact here from tariffs and our ability to raise price. Do have in the D and M side of the business projects and other parts that are in backlog. So our ability to capture price on those in the near term, we have less flexibility there.

Mark Carano
Mark Carano
VP, CFO & Treasurer at SPX Technologies

I will say as we roll into next year, 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 through price and other levers that we'll look at with respect to the supply chain, things of that nature.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Yeah, I think your inclination about the cadence of the impact of that $08 to $0.12 is about right, it'd be a little bit more, But let's call it sort of if you had to size it, maybe 40% in the second quarter and then 3030% in the third and fourth quarter.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

And again, we're talking about pretty small numbers here, but helpful to know. 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.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

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?

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Yeah, I mean, I think so getting very tactically, you're right on radio detection, that is typically what we call a canary in the coal mine, and 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 a lot of our HVAC equipment, the replacement stuff is replacement. Your cooling tower goes down in your hospital or your commercial office building or your data center, you're not going to go without cooling.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

It's really critical. You have to replace a lot of, so the replacement tends to be very strong, very real. What I would say is, 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. So the project gets funded, they get rolling, it shows up in the Dodge report. They don't order cooling towers immediately.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

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, and move things out, I think that there could be air pockets in the future. And I think that's something that we'd have to keep our eyes on. We don't believe for '25, we're seeing that with everything we have in front of us.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

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 replacement, because of our mandated portions of our business by the government and other. But it is something we have to keep our eyes on. But right now, we feel good with what we're seeing. And there's some areas we're winning as well that is driving some higher revenues than we had in our model.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Okay, that's helpful. I guess

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

the flip side is if the end game here is increasing reshoring and onshoring, that could be a very nice tail for you.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

No doubt, almost every manufacturing plant would have an opportunity for us to sell our equipment. And as you know, we do very well with lot of those types of customers, semiconductors, battery plants, automotive plants. It's an area we have a nice position.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Thanks, Gene. Thanks, everyone.

Gene Lowe
Gene Lowe
President and Chief Executive Officer at SPX Technologies

Thanks, Steve.

Paul Clegg
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

Thanks.

Operator

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
Paul Clegg
Vice President of Investor Relations & Communications at SPX Technologies

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.

Executives
    • Paul Clegg
      Paul Clegg
      Vice President of Investor Relations & Communications
    • Gene Lowe
      Gene Lowe
      President and Chief Executive Officer
    • Mark Carano
      Mark Carano
      VP, CFO & Treasurer
Analysts
    • Brad Hewitt
      VP - Equity Research at Wolfe Research LLC
    • Bryan Blair
      Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.
    • Ross Sparenblek
      Research Analyst at Robert W. Baird & Co
    • Steve Ferazani
      Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC
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Key Takeaways

  • Q1 Performance: Revenue increased 3.7% year-over-year, adjusted EBITDA grew 12% and adjusted EPS rose 10%, delivering 150 basis points of margin expansion.
  • Raised Full-Year Guidance: Updated adjusted EPS target to $6.10–$6.40 (up 12% at the midpoint) and now anticipate 15% adjusted EBITDA growth at midpoint, despite tariff headwinds.
  • Strategic Acquisition: Completed purchase of Sigma and Omega to bolster the HVAC segment with engineered heating solutions for multistory buildings, expanding the addressable market and planning to significantly grow U.S. sales.
  • Tariff Mitigation: Current tariffs create a net $0.08–$0.12 EPS headwind, with gross costs of ~$20 million offset by $14 million in pricing actions and sourcing adjustments through the business system.
  • Strong Backlog: HVAC backlog reached $451 million (up 3% sequentially) and Detection & Measurement backlog was $346 million (up 56% sequentially, including a 34% organic increase aided by the KTS acquisition).
AI Generated. May Contain Errors.
Earnings Conference Call
SPX Technologies Q1 2025
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