Yahoo Finance SPX Technologies, Inc. (NYSE:SPXC) Q1 2024 Earnings Call Transcript
SPX Technologies, Inc. (NYSE:SPXC) Q1 2024 Earnings Call Transcript May 2, 2024
SPX Technologies, Inc. beats earnings expectations. Reported EPS is $1.25, expectations were $1.06. SPX Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Q1 2024 SPX Technologies Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, over to your first speaker today, Paul Clegg, Vice President of Investor Relations. Please go ahead.
Paul Clegg: With me on the call today are Gene Lowe, our President and Chief Executive Officer, and Mark Carano, our Chief Financial Officer. The press release containing our first quarter results was issued today after market close. You can also 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. 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 until May 9. 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 primarily acquisition-related costs, non-service pension items, mark-to-market changes, amortization expense and in Q1, the favorable tax effect of stock-based compensation awards that were exercised during the quarter. Finally, we will be meeting with investors at various events during the second quarter, including at the Oppenheimer Annual Industrial Growth Conference on May 8, which will be virtual, the UBS Re-shoring and Infrastructure Conference on June 4 in New York and at the William Blair Annual Growth Stock Conference in Chicago on June 6.
And with that, I’ll turn the call over to Gene.
Gene Lowe: Thanks Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we’ll provide you with an update on our consolidated and segment results for the first quarter of 2024. We’re also increasing our guidance for the full year. We had a strong start to the year. In Q1, our company continued to execute well and drove substantial growth in all of our key profit measures, with significant year-on-year increases in margin. We continue to experience robust demand across key markets. Our acquisitions are performing well and our production facilities are operating at high levels of efficiency. Today, we are raising our full year 2024 guidance. Our new midpoint reflects year-on-year growth of 30% in adjusted EBITDA and 23% in adjusted EPS.
Turning to our high level results, for the first quarter, we grew revenue by 16.4% and adjusted EBITDA by 47% year-on-year with 410 basis points of margin expansion. Last month at our Investor Day, we shared a new framework for the continuation of our value creation journey. We intend to further build on our strong foundation of niche engineered and tech-enabled products, strong positions, moats and sustainable solutions. We’ll also continue to leverage our business system to drive value through growth investments and initiatives, as well as through strategic M&A. Our new framework targets average EBITDA growth of 15% plus annually at margins of more than 20%. Now I’ll update you on the progress of some of the key initiatives during the quarter.
In Q1, we continue to drive continuous improvement and efficiencies across our businesses, advancing on several fronts. In our HVAC segment, our initiatives are helping to expand our addressable markets by broadening a range of application specific solutions for various price points. This includes a successful value engineering project that helped create a more flexible fluid cooler solution with reduced material costs. Integration of our recent acquisitions is also going well and driving value. We are creating numerous opportunities for cross-selling, including broadening the sales channels for our market leading duct heating products. Our acquisitions are also benefiting from SPX’s supply chain management tools, which are helping to reduce lead times and further improve our competitive position.
In Detection & Measurement, we continue to advance our digital initiatives. During Q1, we gained further traction on cross segment software and IoT or Internet of Things development and resource sharing. Looking ahead, we see significantly more room to continue driving value through our business system, including through continued investments in automation and R&D. And now I’ll turn the call over to Mark to review our financial results.
Mark Carano: Thanks Gene. Q1 was a very strong quarter for SPX Technologies. Year-on-year, our adjusted EPS grew 34% to $1.25. For the quarter, total company revenue increased 16.4% year-on-year. Organically, revenue grew 2.3%, largely driven by Detection & Measurement, while acquisitions drove a 14% increase and FX was a slight tailwind. Consolidated segment income grew by $25.4 million or 34.1% to $99.8 billion, while segment margin increased 290 basis points. For the quarter, in our HVAC segment, revenues grew 20.2% year-on-year, acquisitions contributed growth of 22.2% and included TAMCO and Ingénia in our cooling platform and ASPEQ in our heating platform, the FX impact was nominal. On an organic basis, revenues declined 1.9%, driven by lower sales of Hydronic equipment associated with unseasonably warm weather in our end markets.
This followed a substantial increase in heating volumes in the prior year period that was supported by elevated backlog following the pandemic. The year-on-year organic decline was partially offset by higher sales of cooling and electric heat products. Segment income grew by $20.7 million, or 43.4%, while segment margin increased 360 basis points. The increases in segment income and margin were due primarily to our recent acquisitions favorable sales mix in both cooling and heating. Segment backlog at quarter-end was $462 million, up 20% organically from the prior year period. For the quarter in Detection & Measurement, revenues increased 9.9% year-on-year, driven by organic sales growth and a modest FX tailwind. The increase in revenue was largely driven by higher Comtech project sales.
Q1 revenue included delivery of the remainder of a large Comtech project, the majority of which shipped in 2023, also benefited from earlier-than-anticipated delivery of other projects previously expected in Q2. Year-on-year segment income grew $4.7 million. Margin increased 130 basis points, primarily due to operating leverage with higher revenue. Segment backlog at quarter-end was $207 million, down 16% organically from the prior. Absent the effect of this project, backlog was up high single-digits. Turning now to our financial position at the end of the quarter, we ended Q1 with cash of $106 million and total debt of $855 million. Our leverage ratio, as calculated under our bank credit agreement was 2x. We continue to anticipate our leverage ratio declining to the lower end of our target range of 1.5x to 2.5x by year end, assuming no additional capital deployment.
Moving on to our guidance. Based on strong Q1 results and a robust demand outlook, we are increasing our guidance for adjusted EPS to a range of $5.15 to $5.40 compared with a prior range of $4.85 to $5.15. The new midpoint reflects year-on-year [ph] raising our guidance for HVAC and maintaining guidance for Detection & Measurement. We now anticipate HVAC revenue in a range of $1.36 billion to $1.4 billion, or an increase of $30 million at the midpoint for prior guidance. We also anticipate HVAC segment income in a range of 22.25%, 23.25% or an increase of 100 basis points from the prior range. At a total company level, we anticipate adjusted EBITDA in a range of $390 million to $420 million. At the midpoint, this reflects year-on-year growth of 30% and a margin of more than 20%.
With respect to gating, in HVAC, we expect a sequential step up in revenue in Q2 due to a full quarter of the Ingénia acquisition and increased cooling production capacity. We expect Q4 to be the highest revenue in margin quarter due to winter heating demand. For D&M, we expect Q1 to be the highest revenue. We also anticipate a heavier weighting of higher margin projects in the second half. As always, you will find modeling considerations in the appendix to our presentation. I’ll now turn the call back over to Gene for a review of our end markets and his closing comments.
Gene Lowe: Thanks Mark. Current market conditions are supportive of our updated 2024 outlook. Within HVAC, we continue to see strong demand for our cooling products across a broad set of end market applications, including data centers, semiconductor plants and industrial facilities. We also continue to see solid demand for electric heat associated with decarbonization. In Detection & Measurement, we continue to experience flattish global demand in our short cycle businesses with regional variation while project orders remain healthy. In summary, I’m very pleased with our Q1 performance and strong operational momentum. We are well positioned to achieve our updated full year guidance which implies 30% growth in adjusted EBITDA.
We see multiple opportunities to continue growing our businesses both organically and through our attractive acquisition pipeline. Looking ahead, I remain very excited about our future. With the right strategy and a highly capable, experienced team, I see significant opportunity to continue driving value for years to come. With that, I’ll turn the call back to Paul.
Paul Clegg: Thanks Gene. Operator, we will now go to questions.
See also
20 Fastest Growing Fintech Companies In 2024 and
25 Most Profitable Companies in the US.
To continue reading the Q&A session, please click here.
