SPX Technologies, Inc. (SPXC) Q2 2026 Earnings Call Transcript

Thank you for standing by, and welcome to SPX Technologies Second Quarter 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. I would now like to hand the call over to Johann Rawlinson, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer, and Mark A. Carano, our Chief Financial Officer. A 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 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 nonservice 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. And 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 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 Thermolec 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 and Measurement segment, and the Thermolec 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 would 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 customer 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 Tampa's new Tennessee facility continues to ramp as expected. And 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 $1.1 billion once at full production, up from our prior expectation of approximately $750 million in that timeframe. This acquisition represents a natural extension of our strategy and another important step in strengthening our differentiated, high-value portfolio. Thermolec 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 us in three important ways. First, it deepens our controls and systems intelligence, moving us further up the solution stack from equipment-focused offerings toward integrated, control-enabled solutions. Second, it expands our addressable market through complementary products serving commercial, healthcare, institutional, and mission-critical applications including data centers. And third, it gives us additional opportunities to leverage SPX's global channels, OEM relationships, and operational scale to accelerate Thermolec's growth while preserving its culture of strong innovation. Ultimately, this acquisition positions SPX to deliver greater customer value with more intelligent, integrated HVAC solutions that improve performance, energy efficiency, and operational intelligence while driving growth and long-term margin expansion. Now I will 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 and Measurement segment, year-over-year revenue grew by 13%. Segment income grew by 43%. 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 forecast. 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 0.7x at quarter end. Including the effect of the Thermolec acquisition, our leverage ratio was 1.4x. 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 Thermolec acquisition. As always, you will find our updated 2026 guidance on this slide and modeling considerations in the appendix to our presentation. And with that, I will turn the call back over to Gene for a review of our end markets and for 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 and Measurement, our run-rate demand remains healthy, while project-oriented businesses continue to see an active backlog. In summary, I am very pleased with our strong second quarter results and the momentum we have 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, integration of Thermolec 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 am 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. Before I close, I would like to touch on a few organizational updates. John William Swann, who has led our Detection and 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 and Measurement through its next phase of growth. Finally, we are pleased to welcome Bryan Deck to our board of directors as an independent member. Bryan brings significant industrial and operational expertise as the CEO of JBT Corporation, and we look forward to benefiting from his perspective and experience. With that, I will turn the call back to Johann.

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

To ask a question, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. You will be limited to one question and one follow-up to allow everyone the opportunity to participate. Please standby while we compile the Q&A roster. Our first question comes from the line of Andrew Obin of Bank of America. Your line is open, Andrew.

Thank you. Just a question on Detection & Measurement. It was a very strong performance. How much of the strength was project timing pull-forward versus a durable step-up in underlying demand, and how do you see the cadence of D&M into the back half?

Andrew, good evening. That's a great question. We are very pleased with the performance we saw in the quarter at D&M. If I break down the 610-basis-point increase, about half of that was driven by a favorable project mix relative to the project mix we had last year. That was something we were expecting coming into the quarter. The balance of it, and the majority of that balance, was project timing. We referenced a project that shifted forward into Q2 from Q3. It was about $15 million in size at a high margin. That move, along with initiatives around driving synergies across the whole D&M platform, is what drove the balance of the 610-basis-point beat. With these projects at these revenue levels, when a high-margin project moves into a quarter like that, it leverages our fixed-cost base very nicely, so you see a lot of accretion in the margins. As for cadence for the rest of the year, I would expect Q4 to be larger than Q3, and I expect margins across both quarters to be very similar.

Our next question comes from the line of Jamie Cook of Truist Securities. Your line is open, Jamie.

Congrats on a nice quarter. Two questions. Gene, can you elaborate on the data center capacity increase to $1.1 billion versus $750 million — how you got there, how much incremental is in 2026 versus 2027, and how you think that contributes to accelerating top-line growth over the next 12 to 18 months? And second, Mark, on the capacity additions and tariffs that weighed on margins in the second quarter, can you call those out? It also looks like you raised your margins a little in the back half for HVAC, so any color on that?

Jamie, I'll start. We're very pleased with the capacity progress. A couple of points to level set on data center volumes: we were approximately $150 million two years ago, $200 million last year, and originally planned $300 million this year. We have seen very strong demand for our solutions and raised that to $350 million last quarter, and subsequently to $430 million for the full year as of now. That reflects about 115% growth and is underpinned by improvements in production efficiency. The capacity increase to $1.1 billion comes from two broad areas. First, OlympusMAX, which is a large, complex product with complicated controls. Over the past several years and particularly in the production process over the past six months, we've executed many lean productivity and flow-optimization projects and are getting more throughput than we had anticipated. We make OlympusMAX in both Olathe and the new Madison facility, where we have just started assembly. Second, our core cooling business, primarily Everest product lines, has seen very high demand and we've implemented blocking-and-tackling improvements, better flow, lean projects, and augmented staffing, which has increased output. The combination of these two areas is what allowed us to raise the long-term capacity expectation from $750 million to $1.1 billion, and we have strong conviction in that projection. As a reminder, we are hosting an investor visit in Olathe on November 3rd where we can show real-world OlympusMAX and Marley Everest Towers. On the margins question, I'll hand it to Mark.

Jamie, the 260-basis-point year-over-year decline in Q2 margins was primarily driven by three known items we had contemplated: the net tariff impact, which was where we expected it to be; start-up costs from capacity expansions; and a prior-year comparison that was a tougher comp in Q2. Each of those items contributed roughly in the range of 80 basis points individually, give or take, and we also saw modest inflationary headwinds that I would size around 50 basis points that impacted the quarter. With respect to the full year, the increase in HVAC margin guidance was driven by Thermolec, which contributed about 25 basis points. The balance of the HVAC forecast is unchanged.

Our next question comes from the line of Bryan Blair of Oppenheimer. Your line is open, Bryan.

Thanks and congrats on the quarter. Given the backlog and project visibility along with accelerating throughput with OlympusMAX and Everest, how should we think about visibility into 2027 and realistic growth ranges? Also, with the increase to $1.1 billion in capacity, what is a realistic timeline to ramp to that level of revenue?

I'll start and then hand to Mark on how to think about scaling. We feel very good about our competitive position in data centers and the demand profile. We're seeing existing customers significantly increase demand, particularly among hyperscalers, and activity with colocation providers and new cloud providers as well. The market is shifting toward our solutions, and we see more of the market becoming addressable by our products. We're seeing adoption across dry, adiabatic, liquid, and cooling towers, and we have strong relationships with hyperscalers who typically provide good multi-year visibility because they need to ensure we can deliver the volumes to turn the data centers on. They embed engineering teams in our facilities for extensive evaluation. So I feel very good about 2027 and see a nice ramp in the following years. I'll let Mark speak to the ramp sequencing and timing.

Bryan, to break it down, Olathe and Springfield have performed better than we initially expected, enabling more data center revenue this year. We've developed learnings building OlympusMAX in those facilities and have become more efficient. The Tamco business in Nashville is on track for full production capacity in 2027, and Madison is now manufacturing its first product. We expect the learnings from Olathe and Springfield to help Madison ramp smoothly. What we've said to date is that full production capacity across the footprint is expected in the second half of 2028. That view hasn't changed, although there's a bias that it could be earlier if things continue to go well, but it's too early to make that call definitively.

Okay, fair. With regard to Thermolec, we know modest accretion for this year. How should we think about growth rates going forward and the sustainability of the very healthy margins? Given the complementary applications and some of the new technology, how does Thermolec affect HVAC TAM?

We're very excited Thermolec is part of SPX. About half of Thermolec's business is very close to our core products, including electric duct heating and humidification, which are important parts of our custom air-handling business. Thermolec brings advanced configured controls capabilities that can operate at a higher level across third-party fan walls and other OEM HVAC equipment, which complements our existing controls that primarily support our own equipment. This strengthens our controls competency and allows us to innovate across heating, humidification, and controls. Importantly, we believe we can accelerate Thermolec's growth by leveraging SPX's channels, OEM relationships, and data center relationships. Similar to prior acquisitions like Tamco and Ingenia, we expect 1 plus 1 to equal 3 and see opportunities to open doors that permit faster growth.

Bryan, from a growth-rate perspective, considering what Gene said and their capabilities, I would expect Thermolec to grow above our medium-term targets — likely a high-single-digit growth rate. Growth will vary by product mix, but the business has a sustainable, higher-margin profile that is above the segment average on a segment income basis. On an EBITDA basis, the margins are in the mid-40s. We paid about 12.5x for the business. For 2026 specifically, Thermolec's revenue contribution is about $75 million on a full-year basis, and we'll own it for about five months in 2026, which translates to low-30s contribution to revenue and low-40s on segment income in terms of margin profile. Net-net, the acquisition should add roughly $5 million to $6 million of accretion to 2026 numbers, and that is built into our guide raise.

Our next question comes from the line of Amit Mehrotra of UBS. Your line is open, Amit.

Thanks. Can you talk about contribution margins as data center revenue scales and the contribution margin profile of that revenue relative to the broader HVAC portfolio, given capacity investment and incremental engineering costs? Related, how much of Thermolec's current revenue is exposed to data centers, and is there an opportunity to expand that penetration through your customer relationships?

Amit, we don't talk about data center revenue on a contribution-margin basis; we discuss segment margin incrementals. We expect those incrementals to be similar to the balance of the HVAC business — generally in the high-20s to low-30s percentage range.

Thermolec does have some data center presence and is similar to, or perhaps a bit higher than, our current HVAC data-center percentage. They've had success in that market and we see opportunities to grow Thermolec's data center penetration through our customer relationships.

After Thermolec, you still have meaningful capacity and net leverage is under 1x. You have a good track record identifying and paying appropriate multiples for quality assets. Does the pipeline look good, and how do you think about go-forward opportunities?

At quarter end our leverage ratio was 0.7x, and pro forma with Thermolec it's 1.4x, which is still below our target range of 1.5x to 2.5x. We generate significant cash, so leverage should be lower by year-end. We see many attractive opportunities. Active areas include Detection and Measurement, particularly location and inspection, and within HVAC we see many opportunities in engineered air movement and electric heat. Thermolec strengthens our electric heat position. We've deployed substantial capital in the first six months, and we expect to continue pursuing attractive strategic acquisitions over the next six months.

Our next question comes from the line of Brad Hewitt of Wolfe Research. Your line is open, Brad.

As we think about D&M margins next year, I know they can be lumpy based on project mix and software attach, but is the base-case expectation that D&M margin should be up year-over-year next year?

Brad, our guidance for 2026 for D&M is generally 26.5% for the year, which reflects a few discrete elements, including scope expansion and a software project discussed in Q1. If you normalize for those and for the favorable mix we had this year back to a more normal mix, you are left with a structural improvement in margins driven by synergies across the D&M platform — roughly around 25% as a baseline before project mix variability. I don't provide guidance for 2027 today, but that's a framework to think about.

As you expect to reach $1.1 billion of data center capacity by the second half of 2028, how much visibility do you have today to that $1.1 billion from a demand perspective?

We have a high level of visibility and confidence in the demand profile and our value proposition. Hyperscalers give us good forward visibility because they need to ensure our ability to deliver. We believe the demand is sustainable and continued growth is likely.

Our next question comes from the line of Joe Giordano of TD Cowen. Your line is open, Joe.

Thanks, guys. Quick question: what was book-to-bill in the quarter?

If you do the math across both segments, HVAC's book-to-bill was about 1.4x and Detection & Measurement was just a hair below 1.0.

With Thermolec, how much are you adding into guidance specifically on revenue and EBITDA? With the reported mid-40s EBITDA margins, how do you stress test that in diligence given recent pricing environments and scarcity? How sustainable are those margins over your ownership tenure?

On Thermolec, we know the electric heat and humidification businesses well. Their margins are not anomalous in our view; they are real and sustainable as we integrate and help accelerate growth through our channels and OEM relationships. We believe we can support and grow the business over time.

To add some contribution math, Thermolec's full-year revenue is about $75 million, and we will own it for about five months in 2026, which puts it in the low-30s contribution to revenue for 2026. Segment income margins are in the low-40s and on an EBITDA basis mid-40s. We paid approximately 12.5x for the business. Netting all the way down, the acquisition is roughly $5 million to $6 million of accretion to 2026, and that is included in our guidance raise.

Our next question comes from the line of Walter Liptak of Seaport Research. Your line is open, Walter.

Great quarter. I wanted to ask about CapEx guidance for the year and what it takes to get to the high end of the guide. Also, what are you thinking about for CapEx to get to the $1.1 billion capacity and how much of that CapEx needs to be in place in 2027?

Walter, the plant-expansion CapEx was contemplated across periods; some fell in 2025 and the balance is currently forecasted to be in 2026, although some could slip into 2027. Our midpoint CapEx guide contemplates the capital required to support the expansions within the year and is back-half weighted. The remainder is our regular maintenance CapEx, historically in the 1.5% to 2% of sales range, where we expect to be.

As you scale for hyperscalers, what becomes the heavy lift to ensure you can deliver everything into 2027 and 2028?

Bringing plants online is complex. The heavy lift is ensuring we have the right employees in place and teams up to speed to ramp to 2027 expectations. Our site-expansion teams have overseen the projects effectively so far, and we have plans to deliver on the expectations we've laid out.

Our next question comes from the line of Piyush Ketan of JPMorgan. Your line is open, Piyush.

On HVAC, can you help with the cadence of growth in the back half of the year? If we take out incremental data center growth embedded in the guide, does the rest of the segment track around 5% to 6%?

You're correct that the non-data-center portion of HVAC is tracking in that mid-single-digit range. For cadence, Q3 and Q4 should show similar revenue growth rates, but I would expect margins to be higher in Q4 than Q3. Several factors drive that: operating leverage from volume, contribution from Thermolec and M&A, and moderation of startup costs and tariff headwinds that impacted the first half.

Our next question comes from the line of Jeff Van Sinderen of B. Riley Securities. Please go ahead, Jeff.

Can you discuss the potential for long-term agreements in data center cooling solutions? Any thoughts on that?

We do have long-term agreements with several customers, but we don't typically disclose details. Long-term agreements work well to align demand with our customers, though they are not the same as firm purchase orders and we don't include them in backlog until a PO is placed. We include protections so that if demand doesn't materialize, capacity can be freed for other customers. We have very open relationships with hyperscalers, some long-term customers and some new large customers, and we share forward plans closely.

On supply chain, given the growth in volume, what are you seeing and what steps are you taking to procure what you need without interruption?

Supply chain is critical with this growth. One advantage of our strategy is that many components are our own designs — fans, gear reducers, fill, heat exchangers — which gives us flexibility. Before taking on large orders, our supply-chain team scrubs every bill-of-materials item to validate we can fulfill them so we aren't flying blind. We are very careful because data center customers are engineering intensive and expect us to deliver on commitments. Ensuring on-time delivery and quality is a top priority as we scale.

Our next question comes from the line of Zachary Schekman of Wells Fargo. Your line is open, Zachary.

Can we circle back to D&M and talk about the mix in Comtech and Aton's navigation business? What type of products drove the margin improvement and what caused the project to pull forward from Q3 to Q2? Anything on the horizon in military opportunities, drone detection demand, or similar areas?

The project that moved forward was driven by the customer's timeline and moved from Q3 into Q2. Comtech is largely a project business and Aton is a mix of run rate and project work. When the mix shifts toward higher-margin projects, margins expand, as we saw this quarter. We've also seen large, profitable orders in certain markets that contributed to the strong quarter.

Regarding the broader D&M outlook, project activity in Comtech's TCI area is strong with ongoing innovation. Transportation has seen sustained growth for several years and we expect that to continue. Aton also has product innovation coming later this year that we believe will drive more demand. Overall, this year is relatively flattish for D&M, and we expect a return to normal growth in future years.

I would now like to turn the conference back to Johann Rawlinson for closing remarks.

Great. Well, thank you all for joining today's call, and we look forward to updating you again next quarter. Thank you, operator. We can end the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.