Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SPX Technologies Inc (SPXC, Financial) reported a significant year-on-year revenue growth of 18.4% for Q2 2024.
- The company achieved a 45% increase in adjusted EBITDA and a 400 basis points expansion in margin.
- SPX Technologies Inc (SPXC) raised its full-year 2024 guidance, reflecting a 35% growth in adjusted EBITDA and 28% in adjusted EPS.
- The HVAC segment saw a 32.5% year-on-year revenue growth, driven by higher cooling sales and acquisitions.
- The company is experiencing robust demand across key markets, including data centers, healthcare, and industrial facilities.
Negative Points
- Detection & Measurement segment revenues decreased by 6.2% year-on-year, primarily due to lower CommTech sales.
- The company faced a slight headwind from foreign exchange (FX) impacts.
- There was a charge for the resolution of a legal dispute, impacting adjusted EPS by $0.13 per share.
- Segment backlog in HVAC was roughly flat organically from the prior year period, indicating potential future growth challenges.
- The company noted some project delays in the industrial tech sector, including EV and battery plants.
Q & A Highlights
Q: Congrats on the quarter. Considering the Dodge index, how should we think about commentary around weaker utility spend and EVs sliding to the right? Any changes imminent in there?
A: Eugene Lowe, Independent Director: We're feeling very good about our end market strength. Data centers, health care, pharma, and institutional markets are strong, providing tailwinds. Industrial tech, including chip plants and EVs, shows inconsistent timing but still has large orders. Overall, we feel positive about the demand environment for both this year and next.
Q: On Detection & Measurement, can you help us get a sense of the impact of continuous improvement relative to mix? Any color on gross margin expectations?
A: Eugene Lowe, Independent Director: There's been a lot of focus on margins in Detection & Measurement. The segment strategy is working, and we're seeing leverage in software development and productivity. Continuous improvement initiatives are more focused on value engineering and optimizing processes rather than manufacturing. Mark Carano, CFO, added that these initiatives are key to driving margin levels back to 22%-24%.
Q: How much of the 300 basis point expansion in HVAC cooling platform is attributable to volume, price/cost, productivity, and mix accretive deal contribution?
A: Paul Clegg, VP - Investor Relations and Communications: The year-over-year increase of about 300 basis points was driven by operating leverage on the organic increase (almost half), acquisitions (about 1/3), and outperformance on a service project. Price/cost was a favorable tailwind included in the operating leverage.
Q: Can you offer more color on how run rate D&M orders trended for the quarter and into early Q3, particularly radio trends?
A: Eugene Lowe, Independent Director: D&M is steady with flattish run rate businesses and healthy project businesses. Radio detection is holding steady with some positive signs, particularly in Continental Europe and the U.K. We expect to finish the year with a strong backlog for D&M, setting us up well for '25 and '26.
Q: How are the recent HVAC acquisitions performing relative to initial expectations?
A: Eugene Lowe, Independent Director: We are very pleased with the acquisitions of Ingénia, ASPEQ, and TAMCO. They are performing well, with revenue in line with plans and exceeding profit levels. We see synergies across the businesses, particularly in influencing downstream specifications and capturing commercial synergies. We deployed over $800 million of capital last year and expect to be materially below 1.5x leverage by year-end.
Q: How are you thinking about uses of cash until the next deal comes along?
A: Mark Carano, CFO: Our priorities are growth, both organic and inorganic. We have a substantial CapEx plan this year, with about $20 million spent so far. We will continue to deploy capital where we can generate the highest return, and if there are no other opportunities, we will pay down debt in the near term.
Q: Do you need to add capacity for some of the faster growth HVAC acquisitions?
A: Eugene Lowe, Independent Director: We will need to add capacity, but nothing out of the ordinary. We have made significant capital investments in our primary cooling business, and we expect to continue in areas that are capacity-constrained. Overall, we could have elevated CapEx in the 2% range.
Q: Are you gaining market share in the HVAC cooling business?
A: Eugene Lowe, Independent Director: Yes, we believe we are taking share, particularly in large projects like data centers and chip manufacturers. Our Everest product line has gone from 0 to nearly $100 million in revenue, taking share from constructed products. The market has moved in areas where we have strength, contributing to our share gains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
