SPX Corporation — Form 10-Q Summary
Reporting period: Quarter ended September 26, 2020; year-to-date results cover nine months. The filing registrant is SPX Corporation (NYSE: SPXC), although the request identifies SPX Technologies.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $363.4m | $364.8m | $1,105.9m | $1,080.8m |
| Gross profit / margin | $108.3m / 29.8% | $106.2m / 29.1% | $336.4m / 30.4% | $297.6m / 27.5% |
| Operating income / margin | $30.0m / 8.3% | $27.6m / 7.6% | $97.1m / 8.8% | $56.9m / 5.3% |
| Continuing-operations income | $22.7m | $21.2m | $73.8m | $41.2m |
| Net income | $22.8m | $21.5m | $72.6m | $39.9m |
| Diluted EPS | $0.50 | $0.48 | $1.59 | $0.89 |
For the first nine months, continuing-operations cash from operations was $60.9m, down from $73.3m. Capital expenditures were $15.0m, implying $45.9m of operating cash after capital expenditures, before acquisitions and other investing activity. Investing used $101.8m, including $87.9m for ULC Robotics; financing provided $64.5m. Cash increased $16.0m to $70.7m.
At September 26, 2020, total debt was $463.9m (including $108.0m short-term debt and $5.6m current maturities); long-term debt was $350.3m. Cash less total debt was approximately $393.2m net debt. The company reported $227.6m of available revolving-credit capacity and $20.1m available under its receivables facility; it was in compliance with credit covenants. Current assets were $648.6m against current liabilities of $562.2m.
Changes and operating segments
- Quarterly revenue was nearly flat year over year, while nine-month revenue rose 2.3%. Management attributed the quarterly decline in organic sales mainly to pandemic-related lower demand and order delays; acquisitions partly offset the decline.
- Quarterly operating income increased despite slightly lower revenue, supported by better HVAC and Engineered Solutions profitability and lower special charges. Nine-month operating income growth also reflected the prior-year $23.5m South Africa project revenue reduction and improved Engineered Solutions results.
- HVAC Q3 revenue increased 10.3% to $154.6m and segment income rose 18.5% to $26.3m. Detection and Measurement revenue declined 12.7% to $85.2m and income fell 30.7% to $14.2m, with lower sales concentrated in higher-margin products. Engineered Solutions revenue rose 1.7% to $123.1m and income increased 55.9% to $9.2m, helped by transformer mix and pricing discipline.
- The company acquired ULC Robotics on September 2 for $87.9m net of acquired cash. Up to $45.0m of additional consideration may be payable based on milestones; its estimated fair value was recorded as a $24.3m liability.
Outlook, risks and unusual items
- No specific financial guidance was provided. Management said COVID-19 had modestly adversely affected results and could continue to do so in Q4 2020 and beyond. It cited available liquidity, essential-infrastructure products, cost controls and sourcing actions as mitigating factors.
- Management reported no material COVID-related impairment indicators at quarter-end, but warned that a prolonged downturn could affect asset valuations, pension funding, demand, supply chains, operations and covenant compliance.
- In the South Africa power-project dispute, MHI received $14.3m on a bond in Q3; SPX funded the payment and recorded a non-current reimbursement asset, while seeking recovery. Additional bonds of $37.3m remained outstanding. The company recorded no loss for MHI’s other claims, which it contests, but said a potential loss range could not be estimated. DBT’s claims against MHI also remain unresolved; no revenue was recorded for those claims.
- Recorded asbestos product-liability liabilities were $514.5m, alongside $489.4m of related insurance-recovery assets. Recovery depends on insurer solvency and coverage; changes in claims or insurance availability could materially affect results and cash flows.
- Other notable items include $7.4m of nine-month gains on an equity security, $6.8m of deferred payroll taxes under the CARES Act, and $2.1m of nine-month special charges. The company said no significant additional charges were expected under restructuring actions approved as of quarter-end.
Important facts for investors to verify
- Progress and financial effects of COVID-19, particularly Detection and Measurement demand and Q4 performance.
- Resolution of MHI/DBT claims, potential calls on remaining bonds, and recoverability of the $14.3m bond-payment asset.
- Collectability and continued availability of the $489.4m asbestos insurance-recovery assets relative to recorded liabilities.
- ULC integration, milestone performance and possible contingent-consideration payments.
- Debt, borrowing availability and cash conversion, including the effects of acquisition spending and working-capital movements.