SPX Technologies 2026 Q2 Earnings Call

Good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer, and Mark Carano, our Chief Financial Officer. The press release containing our second quarter results was issued today after market close. You can find the release and our earnings slide presentation, as well as a link to a live webcast of this call in the news 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. 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. 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 intangible amortization expense, acquisition and integrated related costs, and non-service pension items, among other items. Finally, we look forward to meeting with investors at various events during the upcoming months. Also, we are hosting an investor site visit at our Olathe, Kansas facility on November 3rd. Please let me know if you are interested in attending. With that, I'll turn the call over to Gene.

Thanks, Johann. Good afternoon, everyone. Thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the second quarter of 2026, as well as an update on our full-year outlook. We had a strong second quarter with year-over-year growth in adjusted EBITDA of 20% and adjusted EPS of 22%. Looking at our value creation initiatives. Organically, we continue to advance our capacity expansion initiatives and now expect $1.1 billion of total data center capacity once at full production, up from our previous expectation of $750 million. Inorganically, we recently announced the addition of Neptronic to the HVAC segment. This strategic acquisition complements our existing product offering and expands our capabilities into new adjacencies.

Touching on our full-year guidance, we are increasing the midpoint of our range to reflect higher data center volume, stronger performance from our Detection & Measurement Segment, and the Neptronic acquisition. The midpoint of our updated guidance now implies 27% adjusted EBITDA growth. Turning to our high-level results for the quarter. We grew revenue by 23% and adjusted EBITDA increased 20% year-over-year, primarily driven by strong organic growth in both segments and the benefit of recent acquisitions. As always, I'd like to update you on our value creation initiatives, starting with our organic growth activities. The capacity expansions across our HVAC facilities to meet the strong demand for our data center and constant air handling solutions are progressing well. They remain on track with the timeline and capital requirements previously outlined.

In July, we launched assembly activities for the OlympusMAX at our new Madison, Alabama facility and will add production capabilities in this facility during the first half of 2027. Production of our highly engineered aluminum dampers in Tamco's new Tennessee facility continues to ramp as expected. In Olathe and Springfield, throughput of our data center cooling solutions has exceeded our initial expectations. Based on the meaningful progress to date, we now expect total data center capacity to reach approximately $1.1 billion once it's full production, up from our prior expectation of approximately $750 million. Turning to Neptronic. This acquisition represents a natural extension of our HVAC strategy and another important step in strengthening our differentiated high-value portfolio. Neptronic brings complementary product platforms, including intelligent controls, electric duct heaters, humidification solutions, and actuated valves that expand our product breadth while strengthening our capabilities across the HVAC control stack.

Strategically, this acquisition advances SPX in three important ways. First, it deepens our controls and systems intelligence, moving us further up the solution stack from equipment-focused offerings towards integrated controls-enabled solutions. Second, it expands our addressable market through complementary products serving commercial, healthcare, institutional, and mission-critical applications, including data centers. Third, it gives us additional opportunities to leverage SPX's global channels, OEM relationships, and operational scale to accelerate Neptronic's growth while preserving its culture of strong innovation. Ultimately, this acquisition positions SPX to deliver greater customer value through more intelligent, integrated HVAC solutions that improve performance, energy efficiency, and operational intelligence while driving growth and long-term margin expansion. Now, I'll turn the call back to Mark to review our financial results.

Thanks, Gene. Our second quarter results were strong. Year-over-year, adjusted EPS grew by 22% to $2.02. For the quarter, total company revenue increased 23% year-over-year, with 17% organic growth. Consolidated segment income grew by $31.3 million, or 23%, to $167.1 million, while consolidated segment margin remained at 24.6%. In our HVAC segment, revenue grew by 27.6% year-over-year, with 8.5% inorganic growth and a negligible FX tailwind. On an organic basis, revenue increased 18.9%, with double-digit growth in both cooling and heating. Segment income grew by $14 million, or 15%, primarily driven by higher volume. The 260 basis point decline in segment margin primarily resulted from capacity expansion-related startup costs and the net impact of tariffs, both of which were consistent with our expectations. Segment backlog at quarter end was $919 million, up 59% organically year-over-year, primarily driven by strong data center demand.

In our Detection & Measurement segment year-over-year, revenue grew by 13%. Segment income grew by 43%, and segment margin increased by 610 basis points. These increases were largely driven by high-margin project volumes, including a project that executed earlier than previously forecasted. We also continue to see the benefit of segment synergy initiatives. Segment backlog at quarter end was $312 million, down year-over-year, primarily driven by higher project volumes in the quarter. Turning now to our financial position at the end of the quarter. We ended Q2 with $168 million of cash on hand and total debt of $615 million. Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.7 times at quarter end. Including the effect of the Neptronic acquisition, our leverage ratio was 1.4 times. Q2 adjusted free cash flow was approximately $72 million.

Moving on to our full year 2026 guidance. We are increasing our adjusted EPS guidance by $0.45 to a midpoint of $8.40. The increase reflects additional data center volume, our revised outlook for the D&M segment incorporating higher volumes and margins, and modest accretion from the Neptronic acquisition. As always, you'll find our updated 2026 guidance on this slide and modeling considerations in the appendix to our presentation. With that, I'll turn the call back over to Gene for a review of our end markets and his closing comments.

Thanks, Mark. Current market conditions continue to support our 2026 outlook, which implies 27% adjusted EBITDA growth. In HVAC, core end markets remain healthy, including robust demand for our data center solutions. Within Detection & Measurement, our run rate demand remains healthy while project-oriented businesses continue to see an active front log. In summary, I'm very pleased with our strong second quarter results and the momentum we've built through the first half of 2026. As we look to the rest of 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our ongoing efforts to expand capacity and deliver on increased data center demand, the integration of Neptronic and our other recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets, and an active pipeline of attractive acquisition opportunities.

The strength of our execution and end markets give us confidence in our increased full year guidance, which implies 27% adjusted EBITDA growth at the midpoint. Looking ahead, I'm excited about the opportunities in front of us. With differentiated businesses, attractive end markets, and an experienced team, we believe we're well positioned to deliver sustainable long-term shareholder value. Before I close, I'd like to touch on a few organizational updates. John Swann, who has led our Detection & Measurement segment, will be retiring at the end of the year. John has had an outstanding career and consistently delivered results across organic and inorganic initiatives. As part of a thoughtful succession process, John has worked closely with his successor, Eric Kaled, to ensure a smooth and well-planned transition. Since joining SPX, Eric has demonstrated strong operational leadership and has delivered meaningful results across the business.

Having led the transportation and contact platform since 2019, he is well positioned to guide Detection & Measurement through its next phase of growth. Finally, we're pleased to welcome Brian Deck to our board of directors as an independent member. Brian brings significant industrial and operational expertise as the CEO of JBT Marel, and we look forward to benefiting from his perspective and experience. With that, I'll turn the call back to Johann.

Thanks, Gene. Operator, we will now go to questions.