SPX Technologies, Inc. 2026 Q3 Earnings Call

Thank you, operator, and good afternoon, everyone. Thank you for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer, and Mark Carano, our Chief Financial Officer. A press release containing our third 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 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. 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 intangible amortization expense, acquisition and integration-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. With that, I will turn the call over to Gene.

Thanks, Johann. Good afternoon, everyone, and thank you for joining us. On the call today, we will provide you with an update on our consolidated and segment results for the third quarter of 2026, as well as an update on our full-year outlook. We delivered a strong third quarter. Adjusted EPS grew by 20%, marking the fifth consecutive quarter of a 20% plus year-over-year growth. Our HVAC segment delivered excellent growth during the quarter, driven by strong demand in core end markets and the continued execution of our capacity expansions. The D&M segment delivered another quarter of strong margin performance. Our recent acquisitions are performing well and delivering on our strategic objectives. Inorganically, we recently announced the addition of FIS Water to the HVAC segment. This acquisition complements our existing cooling product offering and expands our capabilities in attractive adjacencies.

Finally, we are updating our guidance to reflect our third quarter results and outlook for the fourth quarter. At the midpoint, our updated guidance implies approximately 25% adjusted EBITDA growth for the full year, reflecting continued momentum in both segments. Turning to our high-level results for the quarter. We grew revenue by 21% and adjusted EBITDA by 22% year-over-year, primarily driven by robust organic growth in the HVAC segment, strong margin performance in the D&M segment, and the benefit of recent acquisitions. In HVAC, we experienced the effects of higher than forecasted growth-related inefficiencies resulting from an increasing ramp in production levels necessary to meet accelerating customer demand, as well as elevated input costs. As always, I'd like to update you on our value creation initiative, starting with our organic growth activities.

The capacity expansions across our HVAC facilities to meet the strong demand for our data center and custom air handling solutions remain on track with the timeline and capital requirements previously outlined. We continue to expect approximately 1.1 billion of total data center capacity once it's full production. Importantly, Madison commenced assembly activities during the quarter, shipping both OlympusMAX and Ingénia products, and will ramp its production throughout the balance of the year. Turning to new product innovation, our heat trace launch is gaining momentum, providing a new avenue for growth across both industrial and commercial applications. Early customer engagement has been strong, and we see meaningful opportunities to scale the offering through our established channels.

Turning to FIS Water, this acquisition enhances our cooling platform with complementary water management and control solutions that broaden our offering to customers and strengthen our position in attractive end markets, including data centers. These products are typically paired with cooling towers. We believe FIS Water will benefit from SPX's global channels, OEM relationships, and specification-driven sales capabilities, creating additional opportunities for growth. We welcome the FIS Water to the SPX team. With that, I'll turn the call over to Mark to review our financial results.

Thanks, Gene. Our third quarter results showed strong growth. Year-over-year, adjusted EPS increased by 20% to $2.21. For the quarter, revenue increased 20.5% year-over-year, with 11.8% organic growth, 8.5% inorganic growth, and a negligible FX tailwind. Adjusted EBITDA increased by $29.6 million, or 21.7%, to $165.7 million, primarily driven by strong organic growth and the benefit of recent acquisitions. Adjusted EBITDA margin increased by 20 basis points to 23.2%. In our HVAC segment, revenue grew by a record 35.5% year-over-year, with 13% inorganic growth and a negligible FX tailwind. On an organic basis, revenue increased 22.3%, driven by growth in both heating and cooling, including strong growth in data center volumes. Segment income grew by $26.4 million, or 28%, primarily driven by strong organic volume and acquisitions.

Segment margin declined approximately 140 basis points, principally due to the growth-related inefficiencies and elevated input costs that Gene noted earlier, with the former primarily associated with additional labor and outsourcing costs. Segment backlog on an organic basis increased 69% year-over-year, 15% sequentially to approximately $1.1 billion, crossing the $1 billion mark for the first time. In our Detection & Measurement segment, revenue decreased 7.7% year-over-year, largely due to the prior year period benefiting from project timing, as highlighted in prior earnings calls. Segment income increased by approximately $1 million, or 1.7%. Segment margin increased by 260 basis points. The increase in margin was largely driven by favorable project mix and continued benefits from our segment synergy initiatives, as well as a commercial resolution with a customer. Segment backlog ended the quarter at $322 million, up 3% sequentially.

Turning now to our financial position at the end of the quarter. We ended Q3 with $121 million of cash on hand and total debt of $1.3 billion. Our leverage ratio, as calculated under our bank credit agreement, was approximately 1.8 times at quarter end, including the impact of the acquisition of FIS Water. Year to date, adjusted free cash flow was $111 million. Moving on to our full year 2026 guidance. We are lowering the top end of our full year adjusted EPS guidance range to $8.50, resulting in a midpoint of $8.35. This update reflects our revised outlook for both segments and modest accretion from FIS Water. For HVAC, we are increasing our revenue range to incorporate the addition of FIS Water and modestly higher organic volumes.

The revised segment margin range for HVAC reflects the impact of growth-related inefficiencies and elevated input costs experienced in the third quarter, as well as the expected impact of these items in the fourth quarter. For D&M, we are updating our segment margin range to reflect our results for the third quarter and revised forecast for the fourth quarter. As always, you will 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 approximately 25% adjusted EBITDA growth. In HVAC, core end markets remain healthy, including robust demand for our data center solutions. In Detection & Measurement, our run rate demand remains healthy, while the project-oriented businesses continue to see an active frontlog. In summary, I'm pleased with our strong third quarter growth in revenue and profit. 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 our data center demand, the integration of FIS Water 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. 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 are well positioned to deliver sustainable long-term shareholder value. And with that, I will turn the call back to Johann.

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