SPX Technologies, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strong first quarter: Grew adjusted EBITDA by 12% and adjusted EPS by 10%.
• Acquisitions: In April, acquired Sigma and Omega, enhancing the HVAC segment with complementary products like vertical stack heat pumps and fan coils.
• Tariff management: Leveraging business system to manage tariff environment, managing price and sourcing relationships.
• Continuous improvement: In HVAC, standardized control components in electric key products for streamlined manufacturing. In Detection & Measurement, introduced Venstar 5 ticket vending machine with positive customer feedback.

Segment Performance

• HVAC Segment: Revenue grew 3.7% driven by solid performance and recent acquisitions. Adjusted EBITDA increased approximately 12% year-on-year with 150 basis points of margin expansion. The acquisition of Sigma and Omega, with ~$65 million in revenue, is annualized to ~$40-$45 million and has a segment income slightly lower than the HVAC segment average.
• Detection & Measurement Segment: Revenue declined 2% year-on-year organically, but adjusted EBITDA increased by approximately 16.6% year-on-year with 360 basis points of margin expansion due to favorable sales mix, strong project execution, and the acquisition of KTS. Backlog at quarter end was $346 million, up 56% sequentially from Q4, including organic growth of 34%.

Guidance

• Raised full-year adjusted EPS guidance to $6.10 to $6.40 (midpoint growth of 12%) from prior range of $6 to $6.25, reflecting strong Q1 and Sigma and Omega acquisition, partially offset by tariff impact.
• Anticipate adjusted EBITDA growth of 15% at midpoint.
• Q2 adjusted EPS modestly higher than prior year, offset by higher interest costs, corporate expense, and share count; Detection & Measurement expects strong growth in Q2 from organic and KTS acquisition.

Risks

• Tariff Environment: Impact on margins, partially offset by price increases and surcharges.
• Macroeconomic Uncertainty: Potential impact on large CapEx projects and overall business performance.

Question and Answer

Q: Can you walk through what you're assuming in terms of the gross and net tariff impact for the year?

A: Tariff impact is ~$0.08 to $0.12 of adjusted EPS, with gross cost of ~$20 million offset by ~$14 million from price and surcharges.

Q: How do you think about the Sigma and Omega deal in terms of through cycle growth rates?

A: Sigma and Omega is a complementary business, strong in Canada, with synergy opportunities to expand growth in the US, ~$65 million in revenue, annualized to ~$40-$45 million.

Q: What was the contribution of the KTS acquisition to D&M order growth?

A: Backlog at quarter end was $346 million, up 56% sequentially, with ~22% from the KTS acquisition.

Q: What's the cadence of the tariff impact?

A: Approximately 40% in Q2, 30% in Q3, and 30% in Q4.

Q: Thoughts on reshoring/onshoring as a tailwind?

A: Positive tailwind as reshoring/onshoring creates opportunities for equipment sales in semiconductors, battery plants, automotive plants, etc.