SPX Technologies, Inc. (SPXC) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with sequential growth in HVAC revenue, robust demand for data centers, and capacity expansions. Management's proactive measures against inflation and supply chain issues are reassuring. However, the lack of detailed guidance on macroeconomic uncertainties tempers enthusiasm slightly. Overall, the positive outlook on revenue growth and strategic investments in capacity and product lines suggest a positive stock price movement in the short term.
Key Financial Performance
Adjusted EBITDA Increased by 23% year-over-year with 90 basis points of margin expansion. This growth was driven by significant profit growth in both segments and meaningful progress on key initiatives.
Adjusted EPS Grew by 22% year-over-year to $1.69. This increase was attributed to strong performance across the company.
Total Company Revenue Increased by 17.4% year-over-year, primarily driven by the benefit of acquisitions and strong organic growth in HVAC.
Consolidated Segment Income Grew by $25 million or 22% to $135 million, while consolidated segment margin increased 100 basis points. This was driven by higher volumes and favorable conditions.
HVAC Segment Revenue Grew by 22% year-over-year, with 11.5% inorganic growth and a modest FX tailwind. Organic revenue increased by 9.6%, driven by solid growth in both cooling and heating. Segment income grew by $15 million or 20%, primarily due to higher volume, while segment margin decreased 40 basis points due to start-up costs associated with capacity expansions.
HVAC Segment Backlog At quarter end, backlog was $755 million, up 38% organically year-over-year, primarily driven by data center demand.
Detection & Measurement Segment Revenue Grew by 8.3% year-over-year. Inorganic revenue from KTS contributed 3.9%, and FX was a modest tailwind. Organic revenue increased by 3%, primarily driven by higher volumes in the transportation platform.
Detection & Measurement Segment Income Grew by $10 million or 28%, and segment margin increased 410 basis points. This was driven by higher volume and a favorable mix, including greater-than-typical high-margin software volume.
Detection & Measurement Segment Backlog At quarter end, backlog was $333 million, down modestly year-over-year.
Cash on Hand Ended Q1 with $158 million of cash on hand.
Total Debt Total debt was $674 million at the end of Q1.
Leverage Ratio Approximately 0.9x at quarter end, below the long-term target range of 1.5 to 2.5x, providing significant capacity for growth opportunities.
Adjusted Free Cash Flow Approximately $16 million in Q1.
Cash Proceeds from Sale Received approximately $60 million in cash proceeds from the sale of Crawford United's Industrial and Transportation products business.
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Operating Highlights
New locate performance management software: Launched in the Detection & Measurement segment, this software expands real-time analysis of critical data, enhancing efficiency, safety, accuracy, and data management for locating underground utilities.
OlympusMAX production: Production began in the Olathe, Kansas facility in Q1, with assembly capabilities expected in Madison, Alabama by the second half of 2026 and initial production capabilities by the first half of 2027.
Data center cooling demand: Strong demand for data center cooling solutions is driving growth in the HVAC segment, with a 38% year-over-year increase in segment backlog.
Capacity expansions in HVAC facilities: Progressing well to meet demand for data center cooling and custom air handling solutions, with production of aluminum dampers started in TAMCO's Tennessee facility.
Integration of recent acquisitions: Acquisitions like Air Enterprises and Rahn Industries are being integrated successfully, contributing to revenue growth.
M&A pipeline: A robust mergers and acquisitions pipeline supports organic and inorganic value creation initiatives.
Guidance increase: Full-year adjusted EPS guidance raised to reflect strong Q1 performance and anticipated data center-related volume in the second half of 2026.
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Risk or Challenges
Section 232 Tariffs: The recent changes to the Section 232 tariffs are expected to have a $0.05 to $0.10 impact on adjusted EPS in the second quarter of 2026, predominantly affecting the HVAC segment.
Start-up Costs for Capacity Expansions: The HVAC segment experienced a 40 basis point decrease in segment margin due to start-up costs associated with capacity expansions.
Detection & Measurement Segment Backlog: The backlog for the Detection & Measurement segment decreased modestly year-over-year, which could indicate potential challenges in maintaining consistent demand.
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Guidance & Outlook
Full Year 2026 Guidance Update: The company has raised its full-year adjusted EPS guidance by $0.15 to a midpoint of $7.95, reflecting strong Q1 results and additional data center-related volume anticipated in the second half of the year. Adjusted EBITDA growth is projected at 21% at the midpoint.
Impact of Section 232 Tariffs: The recently announced changes to Section 232 tariffs are expected to have a $0.05 to $0.10 impact on adjusted EPS, predominantly affecting the HVAC segment in Q2. These tariffs are not expected to impact 2027 earnings.
HVAC Segment Outlook: The HVAC segment is expected to see continued strong demand for data center cooling and custom air handling solutions. Capacity expansions across HVAC facilities are progressing on schedule, with production of OlympusMAX and custom air handling products expected in the second half of 2026 and initial production capabilities in the first half of 2027.
Detection & Measurement Segment Outlook: The Detection & Measurement segment anticipates solid demand supported by new product introductions. The segment's project-oriented businesses have an active front log, and new software solutions are expected to enhance customer efficiency and data management.
Market Conditions and Strategic Positioning: Current market conditions support the 2026 outlook, with resilient core end markets in HVAC and solid demand in Detection & Measurement. The company remains confident in navigating the changing tariff environment and executing its growth strategy.
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Shareholder Return Plan
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Key Q&A
Q:Can we just talk just on your HVAC business. Very strong growth even with data centers. But if you back data centers out, what end markets really stand out to you in terms of strength?
A:The growth is strongest in data centers, with data center growth revised from 50% to 70%. Outside of data centers, healthcare, pharma, power (new and aftermarket), and heavy industrial markets are strong. Aftermarket is also performing well. Areas of softness include commercial real estate, hotels, and institutional markets like universities and government, which are relatively flat. Battery and semiconductor markets have been lower recently but show potential for new opportunities.
Q:And on Detection & Measurement, you highlighted strength in transportation. I think military was an area of strength. There was some pull forward. How should we think about that? Any benefit from what's happening? I know you have a very different business, but any benefit from what's happening in Iran, on your business? And just in general, how did the government business do?
A:Transportation strength is tied to U.S. municipal markets. The Iran impact could affect the CommTech business, which includes drone detection and other technologies. Demand in CommTech has been strong and is expected to continue, but no material change in growth rate is anticipated. Government business remains active with mid-single-digit growth expected for Detection & Measurement.
Q:Can we just talk about this? The step-up in the HVAC orders in the quarter, and just the timing of shipments around that, as well as when you talk about the front log, as we see that backlog number step up to where it is, you're just trying to think about moving forward and expectation setting and the degree to which there was a sort of concentrated amount of activity? Or as you look forward, you see that strength persisting?
A:The backlog increase is driven by strong data center markets, with orders extending into 2026 and opportunities for 2027. Demand strength in data centers is accelerating, with growth rates revised from 50% to 70% this year. The company has good visibility and communication with data center customers, and strength is expected to persist into 2027 and 2028.
Q:I appreciate the color there. And then on the tariff and sort of cost inflation front, just in terms of your response to that? And how much of that is a pricing response? How much of that is a cost mitigation response? And then in particular, where you're manufacturing outside of the U.S., what you see as a time line to bring more of that into the U.S. to help on the mitigation side?
A:The company expects $10 million in gross costs from tariffs, with 50% offset through pricing and other measures. Most of the impact will occur in Q2, with minimal impact expected in the back half of the year and none in 2027. Manufacturing is largely regional, with expansions in Tennessee and Madison aimed at meeting U.S. demand and mitigating tariff impacts.
Q:So you mentioned there were some start-up costs and related inefficiencies with HVAC capacity expansions. Curious if you'd be able to quantify how much of that HVAC margin miss versus your expectations was due to the capacity ramp? And have you seen anything so far that kind of changes your thinking about the near-term timing of the ramp or the margin impact?
A:Start-up costs for HVAC capacity expansions were $8-9 million, mostly impacting Q1 and Q2. These costs were expected, and margin performance was on track. Excluding start-up costs, there was a 40 basis point margin lift year-over-year. No changes in the timing or margin impact of the ramp are anticipated.
Q:Okay. Great. And then maybe switching over to the D&M side of things. Curious if we could kind of unpack some of the moving pieces there with the revenue outlook unchanged, but margins bumped up by 75 bps for the year. It sounds like there may have been some pull forward on transportation, but just any color on how that project timing shifted and kind of the resulting impact on the segment seasonal guide for the year would be helpful.
A:The margin increase is due to expanded scope on an existing transportation project, particularly in software components with high margins. This was not a pull-forward but an unanticipated scope expansion. The full-year margin guide was raised by 75 basis points due to this benefit.
Q:Just understanding like some of the margin impact in the quarter that you spoke to for the year related to just tariffs and capacity additions. I guess, Mark, what's your comfort level in the ability to put up normalized incremental margins as we exit 2026? Just concerned capacity could continue to weigh on margins. So I guess it's my first question. And then the second question, was there anything unusual as you think about the cadence of orders or sales throughout the quarter and as we -- we're into, I guess, April, just given some of the macro uncertainty that's out there?
A:The company is confident in achieving normalized incremental margins as capacity expansion costs and tariff impacts diminish. Incremental margins are expected to be 60-70 basis points, with an additional 10-20 basis points from inorganic growth. No unusual patterns in orders or sales were observed, and bookings are slightly ahead of expectations.
Q:I was curious, how did radio detection perform in Q1? How is your team thinking about Q2 and full year revenue performance? And to what extent is the outlook influenced by the new technology and product rollout that you cited?
A:Radio detection performed well in Q1, with low to mid-single-digit growth. The full-year forecast is for mid-single-digit growth. New technologies like locate performance management and mapping solutions are gaining traction and contributing to positive momentum.
Q:Okay. That's great to hear. And it's obviously very early days, but maybe offer a quick update on the integration of Air Enterprises, Rahn and Thermolec. And has there have been any surprises, positive or negative to date. Then as always, it would be great to hear a little more color on your M&A pipeline and the prospects for capital deployments over the next few quarters.
A:The integration of Air Enterprises, Rahn, and Thermolec is progressing well, with no major surprises. Air Enterprises and Rahn strengthen custom air handling solutions, while Thermolec enhances electric duct heating capabilities in Canada. The M&A pipeline remains robust, with opportunities in HVAC and Detection & Measurement. The company has significant capacity for further acquisitions.
Q:Just to follow-up on the cap deployment side, what's the sense of like can a disciplined acquirer be successful in the market like this right now? I mean, anything assets touching things that are really attractive right now are kind of like spiraling higher in terms of the valuations paid, and there seems to be people willing to pay it. So how do you think about your discipline in a market that is seemingly lacking a lot of that?
A:The company remains disciplined in its M&A strategy, focusing on proprietary deals and avoiding overvalued segments. The average acquisition valuation is 10.5-11x EBITDA before synergies, with synergies reducing the effective multiple to around 9x. The company avoids segments with valuations in the high teens or 20x EBITDA.
Q:Yes, I agree. Anything noteworthy that you're seeing in terms of inflation. We're seeing some of the readings tick higher here. And just curious how you're planning around that.
A:Input costs like steel and aluminum have risen slightly, but they represent a small portion of total costs. The company mitigates inflationary pressures through real-time pricing adjustments, particularly for engineered-to-order products. Inflation is being monitored but is not a major concern.
Q:Mark, maybe just give us a sense of how you're thinking about the second quarter, just so we can calibrate our expectations. I mean, there's some tariffs, there's new capacity, there's good growth in data centers. Any color on organic growth and margin by segment in the second quarter would just be helpful to calibrate our expectations.
A:The company expects healthy markets and sequential growth in HVAC revenue year-over-year. Detection & Measurement revenue may vary due to project timing. The first half of the year is expected to have similar gating to the prior year, with tariffs impacting Q2 results.
Q:And just on that. When you say sequentially up, are you talking about year-on-year growth is up from the 9.6% or just absolute revenue up sequentially in HVAC?
A:The company expects both year-on-year growth and absolute revenue to be up sequentially in HVAC.
Q:Okay. And then just maybe a more -- less tactical question, forgive me for that question. But maybe a more important question for the long term. You're obviously adding a lot of capacity. You raised the data center growth of 50% to 70%. One, can you just update us now on where you think data centers are going to be a percentage of your revenue? Probably low teens I would imagine. And then when you ramp up this capacity, Tennessee, Mirabel, Madison, et cetera, how much more revenue you think you can unlock? Because the question is, it feels like you're more capacity constrained than customers seem like they might want to -- they'll take anything you can give them. And so I'm just curious about when this capacity comes online, how much more revenue you need to unlock for that market?
A:Data centers are expected to represent low teens as a percentage of revenue. Capacity expansions in Tennessee, Mirabel, and Madison will enable an additional $550 million in revenue, with full capacity expected by 2028. Current capacity constraints are being addressed, and demand remains strong.
Q:A little bit more on the data center area. Are you guys seeing any supply chain delays or any other color on supply chain around data center for you?
A:No significant supply chain delays are reported. The company has expanded suppliers and ensured a robust supply chain to meet demand, particularly for engineered products.
Q:Okay. Great. And then I think you mentioned semiconductors and I'm just wondering what kind of work you're seeing to bid on there.
A:The company is seeing new bidding opportunities in the semiconductor market, with strong relationships with large OEMs. Some projects are under confidentiality, but the company is well-positioned to capture opportunities as the market recovers.
Q:Okay. Great. And then just one more to clarify. It sounds like with the Middle East, I realize only -- or less than 1% of your business is there. But it sounds like you don't anticipate any impact from higher oil prices and the macro around that on your business. Is that a fair assessment?
A:The company does not anticipate a material impact from higher oil prices or macroeconomic factors in the Middle East, as less than 1% of its business is in the region.
Q:I want to stick with the data center questions. I don't mean to beat a dead horse on this, but so last quarter, the numbers around data center were $200 million in 2025, going to $300 million. I wasn't sure I fully understood why you're taking that number now up to $350 million.
A:The increase to $350 million is due to accelerated demand from large customers and expanded capacity in facilities like Olathe and Springfield.
Q:Okay. Great. And kind of a follow-on to that, is the data center demand during the quarter, did your teams make progress with new hyperscalers, with new customers, or is it existing customers that are looking for more capacity and quicker lead times?
A:Data center demand is broad-based, with both existing and new customers, including hyperscalers and colos, seeking more capacity and quicker lead times. The company is well-positioned with its engineered solutions for large-scale data centers.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential long-term impact of macroeconomic uncertainties and inflation on the business, providing only general assurances about monitoring and mitigation strategies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Air
Crawford United
Detection Measurement
FX tailwind
HVAC segment
Head Investor
OlympusMAX
Section tariff
Segment
acquisition
basis point
business
capability
capacity expansion
cash
change Section
cooling
custom
demand center
end
facility
income
margin basis
outlook
proceeds
product
production
result benefit
segment margin
solution
tailwind basis
tariff headwind
value
volume
SPXC Transcript
SPX Technologies, Inc. (SPXC) Presents at Bank of America 33rd Annual Industrials, Transportation and Airlines Key Leaders Conference Transcript
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SPX Technologies, Inc. (SPXC) Q1 2026 Earnings Call Transcript
Positive5-1
The earnings call indicates strong financial performance with sequential growth in HVAC revenue, robust demand for data centers, and capacity expansions. Management's proactive measures against inflation and supply chain issues are reassuring. However, the lack of detailed guidance on macroeconomic uncertainties tempers enthusiasm slightly. Overall, the positive outlook on revenue growth and strategic investments in capacity and product lines suggest a positive stock price movement in the short term.
SPX Technologies, Inc. (SPXC) Q4 2025 Earnings Call Transcript
Positive2-24
The earnings call highlights strong financial performance with a 10% revenue increase and improved margins. The strategic focus on expansion, new product launches, and R&D investment is promising. Positive guidance with raised EBITDA and EPS forecasts, along with a robust shareholder return plan, further supports a positive outlook. Despite economic uncertainties and regulatory risks, the overall sentiment is buoyed by growth in core markets and strategic initiatives.
SPX Technologies, Inc. (SPXC) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call reveals strong financial performance, with increased revenue and margins, positive guidance, and strategic initiatives like new product launches and capacity expansions. The Q&A section supports this with optimism about future growth, particularly in the HVAC and Detection & Measurement segments. Despite some lack of specifics on future investments, the overall sentiment is positive, indicating a likely positive stock price movement.
SPXC Slides
SPXC Report
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