SPX (SPXC) 3 Nov 222022 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2022 SPX Corporation Earnings Call. [Operator Instructions]

I would now like to turn the call over to your host, Paul Clegg, VP, Investor Relations and Communications.

You may begin.

Thank you, operator, and good afternoon, everyone. us. joining for Thanks the Executive are our Officer; Interim Officer on President Chief Lowe, and and Officer. Financial Chief and Chief call me Gene today our Accounting With Mike Reilly,

quarter release press issued market containing third The results our today was after close.

press and release I live well of a of discussion earnings slide release of our Relations encourage section this review the on call and website GAAP will XX. of November along our in the as the be until find to presentation disclosure with and our link spx.com. slide prepared a you can results to follow our You Investor remarks. the at to webcast available as during presentation in website A the our replay webcast

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

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

You in the of can measures today's presentation. respective of historical to their find adjusted appendix GAAP figures detailed reconciliations

nonservice we earnings a in expense, items, items by revenue share the asbestos-related tax breaking certain excludes today's and value pension equity included adjusted Our fair discrete changes in amortization In charges. down our and have of certain again per presentation, the investments appendix slide end market.

coming at the including months, Baird will we the on with conducting be November Conference over Finally, X. investors meetings Industrials

over call Gene. the turn I'll to that, with And

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

to our We'll segment provide update On with year update third results guidance. the an and our for on today, the also call consolidated quarter. you we'll an full provide

of some on highlights the touch quarter. from I'll the Now

labor margin and Both revenue performances exceeded segments results QX and continue manage constraints. HVAC with and strong we & Measurement. both and effectively chain our to Detection supply drove Our in growth, expectations

our structure the better quarter, of reorganization, our initiatives, corporate simplifies made number previously and which our creation on aligns further journey. announced value our a progress During with including of completion the we corporate key

up This with matters. SPX its we attention. administrative is future will asbestos remained our all significant legacy free Ending QX the XX% we adjusted very execution. orders Based term, on divested to performance operational this week, well to and is assets organically, a all us XXXX improving earnings, that eliminates our solid also QX, strong and outlook, of $X.XX. our to announced the effective This current a driving our EPS backlog and Earlier year-on-year. risks it has are associated and liabilities time and biggest guidance up XX% in related for be $XXX of accretive transaction Overall of raising management full solid cash strong organically to year asbestos. a for year. to positioning generation up as QX million is In and results the factor the close $X.XXX near range $X.XX by

Our year-on-year new growth approximately of midpoint XX%. reflects

our to high-level results. Turning

improvement targets. Despite XXXX. deliver organic our to on resilient. pleased with believe ability For and in pipeline and with significant the grew M&A availability performance of expansion. our macroeconomic points entering I'm mixed SPX and QX and organic significant quarter, momentum our XXX several both to provided our With data, income diverse QX recent basis capital portfolio of growth contributions very remains our segments results. XX% operating strong attractive helped continuous XX% growth our Adjusted year-on-year acquisitions confident I XXXX margin we and ongoing and am initiatives, drive

position spending, product and turbine advanced had where from high-precision like we to always, value our and and wind to more have creation SPX on such on In test initiatives. As benefit we framework, offerings to in I'd cable continued key infrastructure gained new successes lighting several momentum touch QX, that location progress as equipment. introduce

business we Hydronics and record our in Weil-McLain which ESG, digital in saw and efficiency inclusion And most including sales helps improve market of the opportunities installers. contractor front, engagement published to statistics. identify for levels new diversity our app, detailed end our On report several date, sustainability

we and also Over last significantly upgraded months, ESG had our several lending. both by sustained stores have the MSCI

we from performance QX and performance QX our within and have successes As includes our there recent from the HVAC been near-term within strong Cincinnati platform outlook, look to combining notable Context our of related and a in & at Measurement. our Fan which XXXX. strong in This synergies we August ECS, benefited of acquired TCI in Detection compact business performance operational revenue results acquisitions. technologies at

we my liabilities noted exposure asbestos and all by owned assets. to liability subsidiaries three insurance wholly divesting took also reduce hold action recently our related of As opening remarks, in our legacy that

of company approximately our important cash we and step the for strengthening ourselves in for that liabilities. the another towards subsidiaries, eliminating have growth. to continued fully and contributed We divested simplifying is part $XXX and As SPX all asbestos we believe this long-term transaction, million liability, taken indemnified positioning legacy now by

We this result to transaction an will starting XXXX, cash of benefit in $X.XX, EPS convert $X.XX in anticipate which that to will annualized at XXX%.

we claims management freed up have have and future time eliminated and attention. considerable In settlements addition,

Before Officer Officer a section, while is to call and company appreciate the to across Reilly, our here excellent search is for areas and of He this a seasoned combined the almost including on stepping SPX. veteran, years, having have him been We're pre-spin. in fill Mike for candidate today SPX's at for XX we Accounting him number Jamie's an glad go Chief to resource Chief role. who Mike Accounting the CFO, is financial our I'd our replacement. like introduce into progresses interim

the call review our to financials. Mike to turn now I'll

Gene. Thanks,

performance with quarter. for our are pleased very the We

beginning the to The equity at the call adjustments, and $X.XX. adjustments that reviewed asbestos-related changes Our XX% of EPS include investments, adjusted pension the fair call certain mark-to-market of grew year-over-year value amortization. charges in

year. earnings. income These the and net year A adjusted the company. higher our our include the in in cost review line interest was will lower results addition items lower cost our moment, a impact The higher corporate I reflect interest net strong drivers, current of of to modest effective a tax the expense, across borrowings higher In which review on our growth a lower had result segment cash and rates interest on rate below balances.

Revenues both XX% and XX.X% FX increased ECS, The Detection to both strength margin $XX or Segment and & top basis in contributed driven our nearly including increases HVAC case related of XX% to margin segments, was some XXX with deliveries QX, increased we and Measurement the XX.X% & were within HVAC Fan Measurement segment. ITL. growth Price/cost expect this the and from for organic million earlier-than-anticipated million, QX. CommTech growth line organic points. dollar. to Partially platform resulting and a Detection by including offsetting while a year-on-year, income grew segments. Acquisitions within modest inorganic headwind $XX.X in remain strong our our growth X.X% tailwind in remained acquisition Cincinnati our

a fluctuations effect natural As significant on cost hedges due our little currency generally reminder, profitability structure. have in our overall to

for platforms in segment, revenues organic growth cooling quarter, Heating the both HVAC reflects notable grew heating This prices traction. a throughput as Inorganic initiatives dollar Cincinnati and a strong labor year-on-year. FX XX% and volumes management of modest in was uptick both higher related plant growth supply Fan. of and gains to our gained In XX.X%. acquisition reflecting growth The the headwind. in contributed was XX.X%, to chain

segment income increased heating basis adjusted increased a and production trend. volumes reflecting points, XXX higher cost margin million HVAC's $XX favorable and price in approximately

HVAC overall, covers an levels backlog important driver our and an the year-on-year, demand We as $XXX including heating determinant of results. our continue near-term for for cooling million key to our QX, and is outlook experience XX% was are strong quarter of end Segment up XX%. for heating QX weather revenue of products. results organic overall both Typically, now strong production backlog at increase

incremental particularly Detection drove strong higher $XX The Within grew strong currency including and revenues dollar of Adjusted platforms including XXX segment Measurement, typically contact XX%, organic All previously basis carry sales, higher-than-average the project margin with million deliveries, XX% the year-on-year. grew mentioned. margins. contribution headwind. due early X I X.X% from contributed growth project & deliveries points of increased segment's income strong to which revenue, a approximately a

solid at [indiscernible] million run in continue rate and demand bookings momentum backlog project experience end X%. $XXX in We was Segment quarter to strong

the Now quarter. the to our position end of turning financial at

have Our divestiture to remains liquidity would of cash of at we hand. expect had we no end, our million continue was funded on of at of of We quarter strong, net At This initiatives. impact balance approximately the divestiture. X.Xx of QX borrowings to facility. the and leverage available cash the revolving , and significant the QX including prior growth asbestos credit organic reach the end X.Xx our end asbestos which with sheet to our and $XXX inorganic under is

by credit our we capacity quarter, to and to XXXX the During amended the $XX million. our extend facility expanded maturity revolver

be weighted as cash been As manage inventory discussed expect we we back-end and quarter, help primarily a manner. to pressures meet flow working supply have investing customer to capital, last this in in demand chain timely our profile year

this to orders to that investments, made project associated quarter, we we in a addition CommTech our inventory strategic XXXX. deliver In prepayment vendor expect with

into significant XXXX. As we this would work the not convert through occur cash year-end. in to expect investments point, cash. our not all To converting we extent would working anticipate XXXX, in to At do expect they convert capital these additional of by we investments our backlog, we conversion

to continue authorization. $XX we any available repurchase buyback have existing under this and million quarter Finally, not our did shares

Moving on our to guidance.

results. We XXXX have year our to strong reflect increased QX our guidance full

benefited As from some QX. previously for anticipated QX indicated, results deliveries

to of We a have adjusted midpoint $X.XX guidance the increased $X.XX $X.XX. EPS by of range to our

year-on-year represents XX%. midpoint growth of approximately $X.XX new Our

expect be at to segment QX, a basis increase full D&M XX%, & with as & margin Detection to raised to midpoint. or as midpoint exhibit have QX. year HVAC, our Measurement expect XX high Consistent for the an both of Measurement, for years, HVAC a to range of XX% performance seasonally well while we our higher We we revenue guidance within to points prior Detection similar

As will to modeling always, the presentation. you appendix our considerations find in

for over I'll now markets a call his Gene of end closing back and review comments. our the turn to

our Thanks, manage demand Mike. supply chain remains to and further Overall, continue effectively and growth. market robust, of conditions remain Across labor businesses, supportive we constraints. HVAC

our We continue see orders run HVAC flattening of & replacements. is in solid, overall drivers the driven our Measurement, while commercial strengthen. region. industrial cooling residential heating demand orders In business, to rate favorable solid and remained Detection our Europe, North areas In with some demand demand for in to APAC continue project products and and by America

our pleased and QX I'm summary, progress with legacy exposures. our full pace We're to In and guidance achieve strong and increased simplifying begin to very performance structure XXXX corporate in a our our position. our on reducing year

a ahead, strong to include a to our SPX XXXX of for come. confident value excited our look As towards experience execute in on share. sheet which executing we creation momentum ability backdrop, $X a balance about solid road targets, With a as our I'm EPS I'm we team, map years our and demand growth capable highly adjusted continue

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

Gene. to Thanks, we Operator, are go questions. ready to

Our Karas Damian Instructions] with comes first [Operator question UBS. from

great Congrats on the the on results. you Mike, to And call. have

Thank you.

Yes.

talk HVAC we about first. just could maybe So

the margins having You really execution driving you the you that, flattish potentially quarter. organic XX% some expected guidance the on margin whether could mentioned little front like quarter, for the quarter, unchanged into why third inorganic HVAC given by third it Maybe there guidance strong just up just for sales a a the low. in maybe little margin did explain the and in expect sooner in just the or what's shipments that bit. I seems But mean the is? seems I'm you'd the side, more fourth come than year. on wondering

some respect experience we Damian, favorable with have very to productivity. yes, So did

of to some QX. through to move During the expect quarter, that would continue we

to with make to in Cincinnati some supply a As that's guidance. and quarter labor fourth here Fan mentioned yes, have there reflect do at productivity respect about quarter, also face our we in feel outlook. as and Cincinnati did -- we the our of solid fairly quarter sure during you constraints businesses the With in pretty the know, respect well. we that looking good of is that still well demand. We're acquired Fan. fourth We've that still we terms chain to pretty some want But we third

in add into terms came The significant the quarter of we've with in priced of -- into quarter fourth a that even and come amount backlog, thing would earlier only we and some I periods. was -- of backlog this other

margins that's when us So QX. to cause the going in into moderation some get you

days. switching Okay. the over anticipated Appreciate unusual just commentary then I mean I color. mean, hear on these to and D&M And to earlier CommTech. that's your pretty deliveries, than

supply the What's in bit little issues maybe on you it some that? Or chain there? what could kind a business? elaborate going just the Was on was kind of So CommTech eased of of that on going you anticipated sooner?

the say some share to XXXX. months but with I all down. able continue you'll QX X than in delivering even to of or those more anything, significant been them orders. those into and gotten We've chain issues over would pretty here of last orders they've supply here into and They've it's orders some had there, their QX see knock

necessarily been hasn't impediment any an that in way. So

comes Our Bryan next from with question Blair Oppenheimer.

quarter, on This and run relative move speak is the to to how we afforded the see And And any the businesses. business. the guys. visibility toward to there as that And growth have order your shorter-cycle frontlog XXXX? color offer Great trends? a project you backlog encouraging broad-based in the trends then on is maybe now side shifts by D&M, progressing rate of project QX little across more is meaningful maybe

Yes, Brian. in very X/X we're I about with reminder, both you revenue held revenue, as where say a of more is, approximately more X/X at characterize rate we'd is Measurement run Run is. overall, rate, project-oriented. would look orders if Detection rate revenue the pleased & portfolio, very as run and The just What business, solid. D&M our has

Europe. of I'd or slowness little only our small a place flatness of but of portion overall in bit France, would say Continental be the pockets Germany, relatively that's a revenue. very

that on backlog. We a frontlog. and rate we've us a you and QX. while. for lot very would the solid head good QX. highest it our year about up has has And and strong had a that's had see reminder, a into speaking, run two And a we've percentage been to through, And and, first you holding in the then working, this of a be projects really very very to have for we transportation. the talked as projects, as strong. lesser fall degree, and in of stuff We shift that CommTech So have we We're businesses impacted 'XX look as orders to relatively QX, project as started

very about we and also feel XXXX but project-oriented positioned look we for ahead we're good where as to QX both So our businesses.

We're I'd add this where growth. seeing fare Gene, obstruction our across seeing the project-related thing only is collection contact, It's growth. businesses the we're and the lighting.

Very encouraging. Understood.

rate you would what and or to share TCI Just from technology? what QX order the the was is generation out of ECS combined curiosity, willing be contribution the run

It was backlog, driver increase significant of the a the in Brian.

an can backlog Mike of we yes, heard think driver I important order tell and you that but and about the sequentially in both during call, year-on-year. was our the trends talk you've the -- also

contributor Had to a QX. big

Understood.

constructive. then Fan Okay. very also And in Cincinnati commentary

can where the You're And that into you XXXX expect if beyond? run owning -- there about that willing to or if where to year year an helpful. integration would on go remaining. asset, we a speak rate update significant be And maybe are into almost there, stand then steps margin, any provide a you're to

that there a very new Brian, a I of leader Fan. Yes. pleased there. involved, would no Cincinnati it just really and there, have impact. doing demand got What say since we positive with who's very issue is has he's it a part very, we're been would a nice general just new I There's manager job, say,

lot a this of engineered As think air area. actually growth like We we there's we talked quality. about, in

been nice others, positions high. But reminder, a is Strobic to the Cincinnati product many with of As door. a challenge businesses very it's demand high. is and market get and Fan backlog have ours very The very as the out and

I And would our really say than that lot higher good HVAC for front about were just I the is momentum ahead. feel or we've a business above I there. we little -- margins our actually, of there in opportunity modestly a And of margins. or really nice around HVAC some seen segment our us. see And

Paul, going. So good direction And is Mike anything feel to or the like we add? you'd this and business about

thing now already are that processes priced we've we is of now inherited Yes. say place. some run pricing in some and The only backlog that would there was our I off out

when impacts XXXX seeing the also think Fan, I QX QX for Cincinnati the the margins -- and productivity. the the improvements the price of in you're look So into you and increases favorable margins at impacts and

comes Ferazani Next from [Operator Instructions] question Steve Sidoti. with

remain. call. and chain comment the coming hear on, challenges all companies ago, match? those just cost you to shortages. from the chain want appreciate to year I like just It commentary quarter, them. some some a seems out Do on component Obviously, I a of We guess, strong you've checking supply price some fully addressed running on it supply constraints,

Steve, is, labor. I'll feeling start Yes, I better. we're with punch line the think overall,

I most supply had. on. there's I'd I'd the significantly. there. progress labor the think say still some But on still labor pockets it's a we made the been we've also for impacts chain, very challenges choppy out very the I'd working -- part, have strong feel say then that on say market still we're we've reduced And

However, some a it the in And I'd is is market. moving say that direction. positive of

Some smarter. just managing we're this of say, I'd much it is,

the we've we've have inventory out analytics supply investments material in way the on on looking tools that of more data our us chain really X stronger items diversified understand we've put And the and and strategic made bill done months, things resilient to here.

growing wouldn't the choppy, And but I it have. It's overall, earnings headwinds we're we're despite we say of that XX% not gone that away. think pleased very at I it. yes, managing so we're all And that has still looking

year, into a feel As be that those start to ease will go as net we positive. we next

general, roll might largely, through do to like sounds of backlog cost, inflationary now? was in HVAC little feel there XQ. a Mike top on price you And said that seeming And like in you're But pressures that in given it ease. some --

Yes.

we as have we've mentioned but I if I input specifically in a think that's some our from as QX of don't think seen know we it, a I increases -- combination cost, benefit price well did price moderating. costs and

getting of our would that. we're reason be we a the backlog benefit One have lot is of continue that would revenue QX. to So And already. into expect we in

we extent, So of And using going inventory in price some our lot know is. materials be in that a QX. what we're we have to to the

is cost kind of the baked. So

X pretty cost. feeling we're X relates next, So I'd say, to months over as to X good it the price to

more one globally? shape how commentary, how it's higher like just significant Great. backlog up maybe probably how I location Great. you to are of aftermarket. with starting obviously level things early, probably on Can what's have based think a sounded terms starting. sort be slow of project-based positioned you going 'XX. me in is things starting know sounds U.S. expect And for for are help substantial but into to of European recessionary the your that inspection It will your SPX environment like in give next that going some year. is it you a sort to But of

markets. Sure, Steve. I'll with our end start

think end if us. to HVAC start lot to projects the if these And while you get I look I look markets say, you with rolling. a healthy of if as 'XX, general, a you segment, take would in I to these know, look ahead

Again, for that's there year. growth also to the for 'XX You at market We like we and verticals, Dodge looking had it's of that's the that going end a the solid. Dodge lot good 'XX. be this across look saw projections feel

on So feel we the good. side, HVAC

not are overstocked. Hydronics, Our channels our

for and take of little if suppressed very warm were demand watch we'd a in look I be QX. pull-through that But the normalized there winter a sort we'll to at very, being a more cadence. normal, demand any to 'XX, have in this don't QX. bit, really weather see issue QX, that As

the very solid. meaningful a material right impact talked at are and now. look Detection Europe really as on is not projects really is we you if then us to enough Measurement, And Continental run rate about, have net and healthy

the business to the X% to we of think down about is double. line top As push growth you that X% that bottom our know, typically and about we then line way

in with always So normal capital organically, to year allocation. and our we a we out then businesses augment XX% that X% of look for

of And about look good we as a ahead. feel the we year so just general allocation have would opportunities that's think side, I we say actually capital in the typically as very we us. on front every And how then about

So to little but it's anything early, add? to as that's 'XX. you'd any Paul, like a we like know other or look And Mike you'd color. comments make to ahead I

the aggregate we have See, portfolio you susceptible do frequently time. businesses the Yes. profile to businesses talk all that extent hit to see having the to to same a at That's case, more GDP. kind if this at macro of the the together asynchronous are were still same obviously, rate we about our where move trends, the following not demand

the for in that believe, it towards are maybe money talked next with have we see some cases there less spending. our would infrastructure is macro what's is we has setup We've year. in project of And We economy, trends, benefits that situation. that argue going some broader in are of to about I geopolitical related starting the the to favor do more to on oriented some

'XX. going going see we're said, be a think 'XX with big position Steve going what not that how is We're recession on and year, All and starting I costs, our careful we to a smaller be very with very how we being manage agree to strong 'XX. recession. into a into we be go we we we're going careful to probably very as a But or we like growth that

[Operator comes Instructions] with Seaport Walter Liptak Out next question from Research.

it like orders business, Great CommTech of follow-ons. Couple were sounds quarter. again. good the One, the in

of as and a get fourth in XXXX? there it's now? more And sort for funnel a second had are at could business? thinking I'm a quarter about We Is is or we quarter, this in good that a you lumpiness trend So that? into had like so third this quarter and looking orders now like -- you

QX a would business. what is heavily I one don't what ECS. And would Well, be see -- probably talked I QX, -- acquire we company most is as positive. called say is our we've we We where for about today our that tailing would sit CommTech very is business did and this say We've then actually off. but project-oriented previously,

We technologies commercial and really these some have put success. that's yielded two together, nice

QX into also as QX, have of look we're the it's solid exited ahead feel well So with backlog, bidding business it, it's us. and not been the We we what we but QX. I has but feel of very in like going at for strong XXXX, only we in some activity positioned

feel So solid this like we in position. is a do

That that kind Okay. date sounds terms that about Are other any in goes great. I you there could about, of Obviously, And it? if got out the then covenants the talked changed? facility or you new we've credit that talk million increase. $XX a wonder toXXXX.

the is is EBITDA. at debt max to net covenant The the X.XXx same

that from hasn't very that. very, away obviously, far So we're And changed.

As have you that term loan do remember, us swap place on we Walt, for in our hedges a moment. the

call revolver. for over the borrowing X.X% low. that's X.X%, currently, LIBOR, new above borrowings so rate. have then about, the margin rate let's So there we a under And the our is it, And at quite that

terms Basically similar. the all are

Yes.

Just a on more little gives us the revolver. flexibility

is articulated the in And [indiscernible] this Q -- this in be will the detail. all

that do to negotiating thinking and is M&A, considering what about a in go cautious to now? about looking XXXX. you're trying bit being and funnel little I that you I'll are happen How close could deals that. the how Okay. before

oftentimes, on. find if we good of I companies level say Yes. different we to SPX ourselves There's specific say, when that activity. just on What people And who positive. are at seeing what competing, private Walt going we're are activities the the believe macroeconomic has I would But you is in would strategies I'd pulling technology strategy end are there's equity. only have the I'd bidding our add are similar situations, oftentimes back. say a company find say we in PE against some is we perspective, markets. we it's that we're

I to a turns lot think challenging days. these for borrow very of it's private equity

say what be our may on a proprietary said private particular, down that and location in are of would actually very have Having activity, I bit We equity pipeline are that, a and good deals little the strong. side. So of contact. activity inspection HVAC bringing in

side. into positive expect growth 'XX, would a I So the inorganic going on year

this any closing Paul further back to questions I'm not any remarks. at for to the Clegg turn showing over I'd time. call like

dialing all look in, next thanks Thank on we here the February. your you call you for our forward during in to and quarterly your road soon and for updating again support, and

this does conclude and today's presentation. Ladies gentlemen,

have may disconnect, day. You now and wonderful a