SPX Technologies, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are to the corresponding periods ended October 1, 2022. Amounts are in millions, except per-share data.
Business context
SPX operates through HVAC and Detection and Measurement. In 2023 it acquired TAMCO and ASPEQ, both included in HVAC; ASPEQ was acquired in June for $421.8 net of cash acquired. The company also completed a September settlement resolving DBT’s South African power-project claims with MHI. Transformer Solutions, DBT, and Heat Transfer are reported as discontinued operations.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $448.7 | $370.5 | $1,271.8 | $1,031.6 |
| Gross profit / margin | $168.6 / 37.6% | $133.1 / 35.9% | $482.1 / 37.9% | $361.7 / 35.1% |
| Operating income | $57.7 | $37.3 | $158.8 | $75.9 |
| Continuing-operations income | $35.7 | $12.5 | $113.1 | $44.6 |
| Net income (loss) | $(20.4) | $3.1 | $58.4 | $27.5 |
| Diluted EPS, continuing operations | $0.76 | $0.27 | $2.43 | $0.96 |
Revenue grew 21.1% in Q3 and 23.3% year to date. Organic growth was 10.5% and 17.9%, respectively; acquisitions contributed 10.0 and 5.6 percentage points, respectively. Q3 net loss reflects a $56.1 after-tax loss from discontinued operations, primarily tied to the DBT-MHI settlement. Continuing-operations income increased substantially year over year.
Management cited higher cooling-product volume and pricing, larger project volumes in Detection and Measurement, improved manufacturing absorption, automation investments, and more stable labor and supply conditions. Q3 segment income was $58.3 for HVAC and $33.3 for Detection and Measurement; their margins were 20.2% and 20.9%, respectively. Detection and Measurement margin eased year over year on project mix.
Cash flow, debt, and liquidity
- Continuing-operations operating cash flow was $120.0 for the first nine months, compared with cash used of $89.4 in 2022. Total operating cash flow, including discontinued operations, was $82.0.
- Investing cash outflow from continuing operations was $561.2, including $547.3 for acquisitions and $16.5 of capital expenditures. Financing provided $425.1, primarily from net debt borrowings.
- Cash and equivalents were $100.9 on the balance sheet ($102.0 including cash held in discontinued businesses), versus $147.8 and $157.1, respectively, at year-end 2022.
- Total debt was $673.9, including $130.1 classified as short-term debt and $14.0 of current maturities; long-term debt was $529.8. Weighted-average interest on Credit Agreement borrowings was approximately 7.0%.
- Available revolving-credit borrowing capacity was $392.9; the trade-receivables facility had $18.0 available. SPX reported compliance with credit covenants at September 30, 2023.
Changes, outlook, and risks
- Debt and intangible amortization increased following acquisitions: nine-month net interest expense was $16.5 versus $5.9, and intangible amortization was $32.4 versus $23.1.
- The September 5 DBT-MHI agreement fully settled and mutually released project-related claims, including claims against SPX as guarantor. SPX recorded a $54.2 after-tax charge; DBT paid $25.3 during Q3 and had a remaining $25.0 obligation due September 2024.
- HVAC backlog was $338.2, up from $287.7 a year earlier; Detection and Measurement backlog was $233.6, down from $275.1. Remaining performance obligations were $210.8; SPX expected to recognize approximately 76% within 12 months and 89% within 24 months.
- The filing provides no specific full-year financial guidance. Management described labor and supply-chain conditions as more stable in 2023 and said it continued active management of related issues. Results may vary with end-market cycles, seasonality, pricing and input costs, project execution, acquisitions and integration, and foreign exchange.
- Other risks include environmental and other claims, insurance or indemnification limitations, cybersecurity, climate-related regulation, geopolitical developments, and fixed-price contract delays or cost overruns. Recorded liabilities for claims and similar matters were $37.1. The filing also notes Cincinnati Fan goodwill had a less-than-10% fair-value cushion in its 2022 impairment test; failure to meet forecasts could result in a future impairment.
Important facts for investors to verify
- How much reported growth and future earnings depend on TAMCO and ASPEQ, and whether integration benefits offset acquisition costs, debt service, and added amortization.
- The sustainability and cash conversion of continuing-operations growth, including working-capital requirements and segment mix.
- The DBT settlement’s remaining payment, related currency hedge, and whether other retained discontinued-business liabilities or divestiture adjustments may arise.
- Debt repayment capacity, borrowing costs, covenant headroom, and liquidity after acquisition spending.
- Whether Cincinnati Fan meets its forecasts and whether annual impairment testing identifies any goodwill or intangible-asset risk.